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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _______________
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 (I.R.S. Employer
of incorporation) Identification Number)
3501 Algonquin Road
Rolling Meadows, Illinois 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (847) 506-3100
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of each exchange of which registered
- --------------------- -----------------------------------------
Common Stock, par NASDAQ SmallCap Market
value $0.10 per share
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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
As of June 1, 1997, the number of shares of Common Stock outstanding was
36,391,168. As of such date, the aggregate market value of Common Stock held by
nonaffiliates, based upon the last sale price of the shares as reported on the
NASDAQ National Market System on such date, was approximately $43,965,000.
Documents Incorporated by Reference:
Portions of the registrant's definitive proxy statement relating to its 1997
Annual Meeting of Stockholders are incorporated by reference into Part III.
DELPHI INFORMATION SYSTEMS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
Page Reference
--------------
PART I
Caption
-------
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 32
PART III
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial
Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 34
2
PART I
ITEM 1. BUSINESS
INTRODUCTION
Delphi is a leading provider of business application software and services
for independent property and casualty insurance agencies, brokerages, managing
general agents and insurance companies worldwide. Delphi develops, markets and
supports software products that automate its customer's operations. The Company
also has developed and markets an application system that integrates its
application software products with other database products to help its customers
manage their information needs.
In the recent past, the Company's management has focused its efforts on
restructuring its organization and redefining its product strategy. The
Company's strategy is to expand its product offering from primarily agency
automation software products to end-to-end information management solutions
encompassing a base engine plus value-added business modules such as rating and
prospecting, work group and transmission applications, outsourcing and
consulting services, and content on demand. The Company believes that this
strategy will reduce the overall cost of producing and marketing insurance
products.
The Company's customer list includes a majority of the largest 100
brokerages and top 200 agencies in the United States and Canada, and most of the
global brokers internationally, thereby providing a base for the introduction of
new products and services. The Company's software operates on approximately
75,000 workstations and terminals at more than 4,500 customer sites representing
approximately two-thirds of all workstations and terminals installed in
independent agencies.
Delphi Information Systems, Inc. was founded in 1976 as Delphi Systems,
Inc., a California corporation. In 1983, Delphi Information Systems, Inc., a
Delaware corporation, was formed and acquired all of the outstanding shares
of Delphi Systems, Inc. in an exchange offer. In June, 1987, Delphi Systems,
Inc. was merged into and with Delphi Information Systems, Inc. The Company's
executive offices are located at 3501 Algonquin Road, Rolling Meadows,
Illinois 60008. Its telephone number is (847) 506-3100.
PRODUCTS. The Company currently has six "legacy" products. "Legacy"
products include INfinity, INSIGHT, PC-ELITE, Insurnet, SMART, and Vista. These
legacy software products provide basic functions such as policy administration,
claims handling, and accounting and financial reporting.
In September 1996 the Company reviewed its product development strategy
and progress and made several major adjustments. The Company had intended to
combine the complementary features of the six legacy products into one
software system that would eliminate the research and development, marketing
and customer support of multiple systems. Delphi has now embarked on a
development strategy of scaleable tailored solutions, whereby Delphi provides
a standard agency management software engine to which value-added "plug and
play" modules can be added based on specific user requirements. The current
product
3
offering consists of cd.global, a modular, state of the art, agency management
solution providing flexibility and the ability to handle unstructured data and
complex risk; cd.connect which provides electronic transmission between carriers
and brokers; and cd.one, a structured system utilizing many features of the
legacy products.
The systems offered by the Company range in price from $14,000 to over
$1,000,000 for multiple site global brokers. No individual customer represented
more than 10% of total revenues in fiscal 1997, 1996, or 1995.
A significant portion of the Company's business comes from the maintenance
of the Company's proprietary software. In addition, some hardware maintenance
is purchased by the Company for its customers from third parties. The Company's
customers enter into maintenance contracts under which the Company agrees to
service the software for varying amounts of time after the expiration of the
warranty period. Consulting services, customized programming and training,
which are billed separately, are also provided to customers who desire specific
assistance or enhancement to their systems.
SYSTEM DESIGN AND ARCHITECTURE. The Company's latest product offerings
utilize the latest technology. cd.global currently is a client/server based
system, which supports Oracle relational database software technology.
cd.connect is Lotus Notes-based and Internet/intranet enabled groupware, while
cd.one is operational on Btrieve
PRODUCT DEVELOPMENT. At the end of fiscal 1997, the Company employed 46
full-time employees engaged in product development activities. These activities
consist of researching and developing enhancements to the software such as
adding new functionality, improving usefulness, adapting the Company's software
to newer software and hardware technologies and increasing systems
responsiveness.
Product development expenditures prior to capitalization of software were
$5,866,000, $6,486,000 and $6,550,000 in fiscal 1997, 1996 and 1995,
respectively. The Company strongly believes in the importance of maintaining
and enhancing its technology and expects to continue to invest substantial
amounts in product development in the future.
COMPETITION. The Company believes its principal competition is presented
by two companies which provide software systems that are comparable to those
offered by the Company.
The Company believes that most insurance carriers are in the process of
reducing or eliminating their agency and brokerage automation strategies.
Nevertheless, some insurance carriers continue to operate subsidiaries which
actively compete with the Company. These carriers have much greater financial
resources than the Company and have in the past subsidized the automation of
independent agencies through various incentives offered to promote the sale of
the carriers' insurance products. Accordingly, there can be no assurances that
insurance carriers will continue to withdraw from competition with the Company.
The Company is not aware of any large, hardware company that has a set of
software explicitly addressing the independent agencies marketplace. However,
the larger hardware
4
suppliers, such as IBM, do sell systems and components of systems to the
independent agencies. The Company, to a much lesser extent, also experiences
competition in the form of smaller, independent or freelance developers and
suppliers of software who sometimes work in concert with hardware companies to
supply systems to independent agencies.
The Company believes that the key competitive factors in the Company's
market are product features and functions, ease of use, price, reputation,
reliability, and quality of customer support and training. The Company believes
that overall it competes favorably with respect to these factors.
PROPRIETARY RIGHTS. The Company regards its applications software as
proprietary and attempts to protect it with copyrights, trade secret laws and
restrictions on disclosure and transferring title. Despite these precautions,
it may be possible for third parties to copy aspects of the Company's products
or, without authorization, to obtain and use information which the Company
regards as trade secrets. Existing copyright law affords only limited practical
protection and the Company's software is unpatented.
EMPLOYEES. At March 31, 1997, the Company had 174 employees, including 30
in sales and marketing, 46 in product development, 78 in customer service and
operations, and 20 in general management, administration and finance. None of
the Company's employees is presently covered by a collective bargaining
agreement. The Company believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters is in Rolling Meadows (Chicago),
Illinois, where it leases approximately 20,000 square feet of office space.
Substantially all corporate executive and administrative functions are located
in Rolling Meadows. The Company leases approximately 12,000 square feet of
office space in Billerica, Massachusetts; approximately 17,500 square feet of
office space in Pittsburgh, Pennsylvania; approximately 6,000 square feet in
Scarborough, Ontario Canada; and approximately 15,000 square feet in Walnut
Creek, California. The Company believes its facilities are adequate for its
current needs and that suitable additional or substitute space will be available
as needed. See Note 9 of Notes to Consolidated Financial Statements for
information regarding the Company's obligations under leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party, and none of its property is subject to, any
material pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended March 31, 1997.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The principal market for the Company's common stock (NASDAQ Symbol DLPH) is
the SmallCap Market of the National Association of Securities Dealers Automated
Quotation System (NASDAQ). As of June 1, 1997, there were 412 shareholders of
record.
The Company has not paid dividends on its common stock to date. There are
no plans in the near future to do so.
The following tables sets forth the high and low bid prices for common
stock for each calendar quarter in the two year period ending March 31, 1997.
FISCAL 1997 HIGH LOW
- -----------------------------------------------
First quarter $ 2.06 $ 1.13
Second quarter 1.44 0.84
Third quarter 1.44 0.69
Fourth quarter 2.00 0.94
FISCAL 1996 HIGH LOW
- -----------------------------------------------
First quarter $ 2.38 $ 0.88
Second quarter 3.13 2.00
Third quarter 2.63 0.88
Fourth quarter 1.50 0.69
In January 1997, the Company issued 5,630,500 units in a private placement
pursuant to Regulation D. Each units consisted of one share of common stock and
a redeemable warrant to purchase one share of common stock at an exercise price
of $1.50 per share, subject to certain anti-dilutive provisions. The units were
sold to a limited number of accredited investors. The units were sold at $1.00
each and no commissions were paid.
6
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
1997 1996 1995 1994 1993
----------------------------------------------------------------
RESULTS OF OPERATIONS:
Revenues $ 27,714 $ 44,081 $ 53,040 $ 53,605 $51,607
Operating (loss) income (5,880) (11,120) (597) (8,160) 947
Net (loss) income $(5,884) $(11,833) $(1,681) $(8,922) $ 531
EARNINGS PER SHARE:
Net (loss) income $ (0.19) $ (1.37) $ (0.23) $ (1.34) $ 0.07
Shares used in computing per
share data (1) 30,463 8,621 7,306 6,672 7,897
FINANCIAL POSITION:
Assets $ 22,577 $ 20,389 $ 27,547 $ 31,947 $24,735
Short term debt 1,600 3,030 2,486 4,029 3,574
Long term debt - - 1,500 4,250 4,125 - -
Stockholders' equity (deficit) $ 8,448 $ (3,346) $ 4,553 $ 6,231 $ 9,727
(1) Weighted average common and common equivalent shares, where
applicable, were used to compute per share data in all periods.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The insurance industry has undergone significant consolidation over the
past several years. Consolidation has been driven by the need for, and benefits
from, economies of scale and scope in providing low-cost insurance packages to
customers. This trend has involved both insurance brokerages, who are the
Company's primary customers, and insurance companies, and is directly impacting
the manner in which insurance products are distributed. The Company's
management believes that the insurance industry will continue to experience
significant changes in the next two to three years to meet the changing
distribution model. These changes should create opportunities for the Company
to become a customer focused automation and information management solutions
provider.
The Company's management believes that this consolidation will force
brokerages to decrease their distribution costs via automation and/or
elimination of labor intensive tasks such as the reduction of paper processing
and the elimination of non value-added distribution points via on-line
distribution. They also will need to increase service levels with quicker and
improved automated processes such as quoting and claims processing. The
Company's management believes that it can partner with these participants to
provide these automation services.
The Company's success and profitability will be dependent upon its ability
to partner with its customers, creating an aligned interest to add value to its
customer's business needs, providing completely integrated information
management solutions, and fully leveraging information technology and services.
The Company has developed or acquired three new products, cd.global, cd.one, and
cd.connect that are in general release. With further development of these
products, the Company believes that these products can fulfill the needs of its
customers. However, there can be no assurances that the company can introduce
services and products to the marketplace in a timely manner, or that its new
services and products will be successful in the marketplace. Any failure to
successfully introduce such services and products will materially impact the
Company's existing business and its future profitability.
The Company was profitable for the last two quarters of the current fiscal
year, although it had experienced losses for the prior two years and the first
two quarters of the current fiscal year. The unprofitable operation of the
Company prior to the last two quarters of fiscal 1997 was due primarily to
revenue shortfalls to the Company's operating expense matrix. The Company has
recognized the changing market and has made significant progress in integrating
its acquisitions and rationalizing the Company's operations by reducing
expenses, strengthening management and improving its product and services
offerings. The Company successfully restructured its business and raised
additional funds.
8
Results of Operations - The table below sets forth, for the fiscal periods
indicated, the percentage of revenues represented by each item reflected in the
Company's consolidated statements of operations, and the percentage increase
(decrease) in each item of revenue, cost and expense from the prior fiscal
period.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Year to Year Percentage
Increase (Decrease)
-------------------------
Percentage of Revenues Fiscal 1997 Fiscal 1996
Year Ended March 31, versus versus
------------------------
1997 1996 1995 Fiscal 1996 Fiscal 1995
- --------------------------------------------------------------------------------
REVENUES:
Systems 22.0% 32.8% 39.8% (57.8)% (31.6)%
Services 78.0% 67.2% 60.2% (27.0)% (7.2)%
- -----------------------------------------------------------------------------
TOTAL REVENUES 100.0% 100.0% 100.0% (37.1)% (16.9)%
COSTS OF REVENUES:
Systems 25.2% 26.3% 26.5% (39.8)% (17.3)%
Services 42.6% 39.1% 33.9% (31.5)% (4.1)%
- -----------------------------------------------------------------------------
TOTAL COST OF REVENUES 67.8% 65.4% 60.4% (34.9)% (9.9)%
- -----------------------------------------------------------------------------
GROSS MARGIN 32.2% 34.6% 39.6% (41.4)% (27.5)%
OPERATING EXPENSES:
Product development 15.4% 11.5% 10.2% (15.8)% (6.2)%
Sales and marketing 15.9% 14.6% 12.9% (31.6)% (6.4)%
General and administrative 15.7% 17.4% 14.6% (43.1)% (0.8)%
Amortization of goodwill,
customer lists and non-
compete agreements 1.8% 3.4% 3.1% (66.6)% (9.7)%
Consolidation, repositioning
and restructuring charges 4.7% 13.0% - - (77.3)% *
- -----------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 53.5% 59.9% 40.8% (43.8)% 21.9%
- -----------------------------------------------------------------------------
OPERATING LOSS (21.2)% (25.3)% (1.2)% (47.1)% 1762.6%
Interest expense (0.1)% 1.4% 1.8% (103.8)% (36.5)%
- -----------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (21.1)% (26.7)% (3.0)% (50.0)% 660.5%
Income tax provision 0.1% 0.3% (0.3)% (76.3)% (18.6)%
NET LOSS (21.2)% (27.0)% (3.3)% (50.3)% (603.9)%
- -----------------------------------------------------------------------------
* PERCENTAGE HAS BEEN INTENTIONALLY OMITTED BECAUSE SUCH PERCENTAGE IS NOT
MEANINGFUL.
9
Revenues - The Company's revenues are derived from two sources, systems
agreements and service fees. Systems agreements with the Company's customers
include the delivery of the Company's proprietary software with the computer
hardware of third parties. During the first quarter of the current year, systems
revenues included computer hardware, but during the remainder of the year
systems revenues included hardware commissions earned from vendors subsequent to
the Company's exit from the hardware business. Service fees include fees for
maintenance, training and consulting services related to the Company's
proprietary software. The Company recognizes revenue consistent with the
provisions of the American Institute of Certified Public Accountants (AICPA)
Statement of Position No. 91-1.
Revenues decreased 37.1% in fiscal 1997, and decreased 16.9% in fiscal 1996.
Systems revenues decreased 57.8% in fiscal 1997 due to decreased sales of system
upgrades to existing customers and the Company's exit from the hardware business
after the first quarter of the current year. Services revenues decreased 27.0%
in fiscal 1997 due to decreased support, custom programming and consulting
revenues generated in conjunction with system sales.
Costs of Systems Revenues - Costs of systems revenues include costs of third
party software and computer hardware from the first quarter of the current year,
provisions for doubtful accounts, and the amortization of capitalized software
development costs. Costs of systems revenues, as a percentage of systems
revenues, were 114.7%, 80.3% and 66.5% in fiscal 1997, 1996, and 1995,
respectively. The increase in costs of systems expressed as a percentage of
revenues in fiscal 1997 is primarily due to an increase in provisions for
doubtful accounts and increased amortization of capitalized software costs due
to a greater number of products being available for general release to
customers. The increase in fiscal 1996 is primarily a result of a changing mix
of products sold by the Company and a decline in margin on the resale of
third-party hardware.
Costs of Service Revenues - Costs of service revenues include costs associated
with maintenance, consulting and training services, and payments made to third
party hardware maintenance vendors. Costs of service revenues as a percentage
of service revenues were 54.6%, 58.2% and 56.3% in fiscal 1997, 1996, and 1995,
respectively. In fiscal 1997 the decrease was primarily due to the decrease of
the largest component of cost of services revenues, direct labor, due to the
reduction of headcount. In fiscal 1996, the increase was primarily due to the
reduction of direct labor expense not proportionate to the reduction in services
revenues.
Product Development Expenses - Product development expenses, net of
capitalized software costs, were $4,255,000, $5,051,000 and $5,384,000 in
fiscal 1997, 1996, and 1995, respectively. The decrease in fiscal 1997 is
primarily the result of decreased expenditures for the use of outside
consultants. The decrease in fiscal 1996 is primarily a result of increased
capitalization of software due to increased outside consulting expenditures
for new product development. Product development expenditures, including
those which were capitalized, were $5,867,000, $6,486,000 and $6,550,000,
respectively, in fiscal years 1997, 1996, and 1995.
The Company capitalizes software development costs in accordance with Statement
of Financial Accounting Standards No. 86, and amortizes these costs through cost
of systems revenues over a maximum of five years. The amount capitalized
varies each period depending on how many software development projects have
reached technological feasibility and whether they are in
10
general release. The Company strongly believes in the importance of maintaining
its technological strengths and will continue to invest substantial amounts in
software development.
Sales and Marketing Expenses - Sales and marketing expenses decreased 31.6% in
fiscal 1997, compared to a decrease of 6.4% in fiscal 1996. The decrease in
fiscal 1997 is primarily due to a new consolidated marketing approach and a
reduction in trade show participation. The decrease in fiscal 1996 was
primarily due to a reduction in the sales force headcount.
General and Administrative Expenses - General and administrative expenses
decreased 43.1% in fiscal 1997, and decreased 0.8% in fiscal 1996. The
decrease in fiscal 1997 was primarily due to lower headcount and overall
spending reductions compared to the prior year. The decrease in fiscal 1996 was
primarily due to a reduction in headcount and overall spending reductions,
partially offset by severance and relocation costs for certain Company
personnel.
Amortization of Goodwill, Customer Lists and Noncompete Agreements -
Amortization expense decreased 66.6% in fiscal 1996, compared to a decrease of
9.7% in fiscal 1996. The decrease in fiscal 1997 is primarily due to a
reduction in the carrying value of the intangible assets as a result of a write
down of goodwill in the fourth quarter of the prior fiscal year. The increase
in the prior fiscal year is the result of some assets becoming fully amortized
in the current year. The Company follows a policy of periodic evaluation of the
carrying value of its intangible assets. See Note 2 of Notes to Consolidated
Financial Statements of the Company.
Interest Income/Expense - The Company had net interest income of $23,000 in
fiscal 1997, compared to interest expense of $599,000 in fiscal 1996 and
$944,000 in fiscal 1995. The decrease in net interest in fiscal 1997 was due
to the reduction in borrowings on the line of credit, the conversion of the
interest-bearing subordinated note payable into common stock, and the
inclusion of investment income. The decreased interest expense in fiscal
1996 was due to decreased average borrowings compared to the prior fiscal
year.
Income Tax Provision - The effective tax rates under SFAS No. 109 for fiscal
years 1997, 1996, and 1995, were 0.5%, 1.0% and 9.0%, respectively.
Due to the Company's recurring losses, net operating loss carryforwards have
been generated for income tax purposes. The Company continues to provide a
valuation allowance against this and all other net deferred tax assets, thus no
income tax benefit has been recorded. The tax provision relates to certain
state and foreign income taxes.
Liquidity and Capital Resources - Working capital was a negative $2,128,000 at
March 31, 1997, compared to a negative $11,367,000 at March 31, 1996. The
improvement in working capital was primarily the result of the increase in cash
due to the private equity placements, the reduction of deferred revenue due to
the Company's exit from the hardware business after the first quarter of the
current year, partially offset by a reduction in accounts receivable.
The Company's negative net working capital position is primarily a result of
deferred revenues of $7,205,000 at March 31, 1997, representing prepaid software
maintenance fees from its customers which are recognized as revenue ratably over
the maintenance agreement terms. This
11
liability is satisfied through normal ongoing operations of the Company's
service organization and does not require a payment to a third party.
Net cash provided by (used for) operating activities was ($4,908,000),
$1,094,000 and $2,700,000 for fiscal years ended in 1997, 1996, and 1995,
respectively.
Cash used in investing activities was $3,062,000, $2,028,000 and $2,305,000 for
the fiscal years ended 1997, 1996, and 1995, respectively.
Cash from financing activities reflects the Company's borrowing and payment
activities on its line of credit, proceeds from the convertible promissory note,
proceeds from the Company's various stock option and employee stock purchase
plans, and the proceeds from the private equity placements. In fiscal 1997, the
Company raised net proceeds of $14,971,000 from two private equity placements,
and $105,000 from the exercise of employee stock options and employee stock
purchase plans. In fiscal 1996, the Company raised $433,000 in cash from the
exercise of employee stock options.
In January 1997, the Company established a $4,000,000 credit line with Coast
Business Credit, Los Angeles, California. The line will provide working
capital to fund the Company's growth opportunities and to continue consolidation
of operations. Generally, under the credit line the Company is able to borrow
up to 75% of eligible accounts receivable. The Company also can borrow up to
$400,000 for capital expenditures. The credit line bears interest at prime plus
2.5%. At March 31, 1997, the Company had borrowed $1,600,000 on its line of
credit, compared to $2,606,000 on March 31, 1996 on a previous bank line.
The Company completed two private equity placements in fiscal 1997. The first
placement was completed in May 1996 and provided gross proceeds of $10,700,000
to the Company. In January 1997, the Company completed a second private equity
placement providing gross proceeds of $5,630,500 to the Company. Under the
terms of the placements, the Company issued 10,700,000 units at a price of $1.00
per unit for the May placement, and 5,630,500 units at a price of $1.00 per unit
for the January placement. Each unit consists of one share of common stock and
a redeemable warrant to purchase one share of common stock at an exercise price
of $1.50 per share, subject to certain anti-dilutive adjustments. The shares
and redeemable warrants comprising the units are immediately detachable and
separately transferable.
The redeemable warrants may be exercised at any time after their date of
issuance for a period of three years. The Company can redeem the redeemable
warrants at any time subsequent to 180 days after the issuance of the redeemable
warrants if the closing bid price for the common stock is at or above $2.00 per
share for twenty consecutive trading days subsequent to when the redeemable
warrants first are redeemable.
The two private equity placements provided net proceeds of approximately
$14,971,000 to the Company. The proceeds have been and will be used for product
research and development, to strengthen the Company's sales and marketing
organization, to reduce debt, to strengthen working capital, and to continue the
consolidation of Delphi's operations. In addition, the Company may use proceeds
to make strategic investments in complementary businesses.
12
In conjunction with the May 1996 equity placement, the Company converted all of
its outstanding Series C Preferred Stock, Series E Preferred Stock, and 16,135
of the 16,356 outstanding shares of Series D Preferred Stock into 8,697,594
shares of common stock. In addition $1,500,000 in outstanding promissory notes
were converted into 1,500,000 units, identical to those described above. The
Series C Preferred Stock, Series D Preferred Stock, and the promissory notes
converted in April 1996, while the Series E Preferred Stock converted in March
1996.
The statements contained in this section and elsewhere in this Annual Report on
Form 10K that are not historical facts are forward-looking statements subject to
the safe harbor created by Private Securities Litigation Reform Act of 1995. A
number of important factors could cause the Company's actual results for 1997
and beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Delphi Information Systems, Inc.
We have audited the accompanying consolidated balance sheets of Delphi
Information Systems, Inc. (a Delaware Corporation) and subsidiaries as of March
31, 1997, and 1996, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended March 31, 1997. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delphi Information Systems,
Inc. and subsidiaries as of March 31, 1997, and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not a part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Chicago, Illinois
May 8, 1997
14
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
AS OF MARCH 31
ASSETS 1997 1996
------- -------
CURRENT ASSETS:
Cash $ 6,596 $ 920
Accounts receivable, less allowances of $1,613
and $922, respectively 5,241 8,079
Inventories 16 592
Prepaid expenses and other current assets 111 365
------- -------
TOTAL CURRENT ASSETS 11,964 9,956
Property and equipment, net 2,242 2,869
Capitalized and purchased software, net 6,175 6,252
Goodwill and customer lists, net 2,032 1,182
Other assets 164 130
------- -------
TOTAL ASSETS $22,577 $20,389
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable $ 1,600 $ 3,030
Accounts payable and accrued expenses 4,667 6,823
Accrued payroll and related benefits 620 1,439
Deferred revenue 7,205 10,031
------- -------
TOTAL CURRENT LIABILITIES 14,092 21,323
Notes payable-long term -- 1,500
Excess lease liability -- 824
Other liabilities 37 88
------- -------
TOTAL LIABILITIES 14,129 23,735
------- -------
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.10 par value, 2,000,000 shares authorized:
Series C, 0 and 36,268 shares issued and
outstanding, respectively -- 3,570
Seried D, 221 and16,356 shares issued and
outstanding, respectively 49 3,655
Common stock, $.10 par value:
Non-designated, 75,000,000 shares authorized,
36,351,168 and 10,307,700 issued and
outstanding, respectively 3,635 1,031
Additional paid-in capital 45,259 23,019
Accumulated deficit (40,611) (34,727)
Cumulative foreign currency translation adjustment 116 106
------- -------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 8,448 (3,346)
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $22,577 $20,389
------- -------
------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
15
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEAR ENDED MARCH 31 1997 1996 1995
------- ------ ------
REVENUES:
Systems $6,089 $14,440 $21,100
Services 21,625 29,641 31,940
------- ------ ------
TOTAL REVENUES 27,714 44,081 53,040
COSTS OF REVENUES:
Systems 6,985 11,601 14,027
Services 11,802 17,238 17,983
------- ------ ------
TOTAL COST OF REVENUES 18,787 28,839 32,010
------- ------ ------
GROSS MARGIN 8,927 15,242 21,030
OPERATING EXPENSES:
Product development 4,255 5,051 5,384
Sales and marketing 4,405 6,442 6,879
General and administrative 4,354 7,658 7,718
Amortization of goodwill, customer lists and
noncompete agreements 496 1,487 1,646
Consolidation, repositioning
and restructuring charges 1,297 5,724 --
------- ------ ------
TOTAL OPERATING EXPENSES 14,807 26,362 21,627
------- ------ ------
OPERATING LOSS (5,880) (11,120) (597)
Interest income (131) 0 0
Interest expense 108 599 944
------- ------ ------
Loss before income taxes (5,857) (11,719) (1,541)
Income tax provision 27 114 140
------- ------ ------
Net loss ($5,884) ($11,833) ($1,681)
------- ------ ------
Net loss per common share ($0.19) ($1.37) ($0.23)
------- ------ ------
Weighted average common shares
and common share equivalents outstanding 30,463 8,621 7,306
------- ------ ------
------- ------ ------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
16
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except for shares outstanding)
PREFERRED STOCK
- ---------------------------------------------------------------------------------------------------
SERIES A: SERIES B: SERIES C:
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1994 16,577 $3,703 61,950 $5,250 36,268 $3,570
- ---------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Conversion of Series A Preferred Stock (16,577) (3,703) -- -- -- --
Conversion of Series B Preferred Stock -- -- (52,745) (4,470) -- --
Mountain States acquisiton adjustment -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 0 0 9,205 780 36,268 3,570
- ---------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Exercise of stock options
Shares sold under employee stock -- -- -- -- -- --
purchase plan
Mountain States' acquisition adjustment -- -- -- -- -- --
Conversion of Note Payable to
Series E Preferred Stock -- -- -- -- -- --
Conversion of Series B
Preferred Stock -- -- (9,205) (780) -- --
Conversion of Series E
Preferred Stock -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 0 0 0 0 36,268 3,570
- ---------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Exercise of stock options -- -- -- -- -- --
Shares sold under employee stock
purchase plan -- -- -- -- -- --
Conversion of convertible promissory
notes to common stock -- -- -- -- -- --
Conversion of Series C Preferred Stock
to common stock -- -- -- -- (36,268) (3,570)
Conversion of Series D Preferred Stock
to common stock -- -- -- -- -- --
Issuance of common stock in connection
with private equity placements -- -- -- -- -- --
CBS acquisition -- -- -- -- -- --
Issuance of common stock as consideration
for services provided -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 0 $0 0 $0 0 $0
- ---------------------------------------------------------------------------------------------------
COMMON STOCK
- -------------------------------------------------------------------------------------------------------------
SERIES D: SERIES E
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1994 -- $ -- -- $ -- 7,011,415 $701
- -------------------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Conversion of Series A Preferred Stock 16,356 3,655 -- -- 24,995 3
Conversion of Series B Preferred Stock -- -- -- -- 879,083 88
Mountain States acquisiton adjustment -- -- -- -- 63,680 6
Translation adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 16,356 3,655 0 0 7,979,173 798
- -------------------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Exercise of stock options -- -- 121,000 12
Shares sold under employee stock -- -- -- -- 255,406 26
purchase plan ----
Mountain States' acquisition adjustment -- -- -- -- 339,280 34
Conversion of Note Payable to
Series E Preferred Stock -- -- 63,426 3,125 -- --
Conversion of Series B
Preferred Stock -- -- -- -- 191,781 19
Conversion of Series E
Preferred Stock -- -- (63,426) (3,125) 1,421,060 142
Translation adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 16,356 3,655 0 0 10,307,700 1,031
- -------------------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Exercise of stock options -- -- -- -- 54,500 5
Shares sold under employee stock
purchase plan -- -- -- -- 24,634 2
Conversion of convertible promissory
notes to common stock -- -- -- -- 1,500,000 150
Conversion of Series C Preferred Stock
to common stock -- -- -- -- 3,626,800 363
Conversion of Series D Preferred Stock
to common stock (16,135) (3,606) -- -- 3,649,734 365
Issuance of common stock in connection
with private equity placements -- -- -- -- 16,330,500 1,633
CBS acquisition -- -- -- -- 807,300 81
Issuance of common stock as consideration
for services provided -- -- -- -- 50,000 5
Translation adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 221 $49 0 $0 36,351,168 $3,635
- -------------------------------------------------------------------------------------------------------------
ADDITIONAL FOREIGN
PAID-IN ACCUMULATED TRANSLATION
CAPITAL DEFICIT ADJUSTMENT
- -----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1994 $14,085 ($21,213) $135
- -----------------------------------------------------------------------------------------
Net loss -- (1,681) --
Conversion of Series A Preferred Stock 46 -- --
Conversion of Series B Preferred Stock 4,382 -- --
Mountain States acquisiton adjustment (6) -- --
Translation adjustment -- -- 2
- -----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 18,507 (22,894) 137
- -----------------------------------------------------------------------------------------
Net loss -- (11,833) --
Exercise of stock options 64
Shares sold under employee stock 333 -- --
purchase plan
Mountain States' acquisition adjustment 371 -- --
Conversion of Note Payable to
Series E Preferred Stock -- -- --
Conversion of Series B
Preferred Stock 761 -- --
Conversion of Series E
Preferred Stock 2,983 -- --
Translation adjustment -- -- (31)
- -----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 23,019 (34,727) 106
- -----------------------------------------------------------------------------------------
Net loss -- (5,884) --
Exercise of stock options 73 -- --
Shares sold under employee stock
purchase plan 25 -- --
Conversion of convertible promissory
notes to common stock 1,350 -- --
Conversion of Series C Preferred Stock
to common stock 3,207 -- --
Conversion of Series D Preferred Stock
to common stock 3,241 -- --
Issuance of common stock in connection
with private equity placements 13,338 -- --
CBS acquisition 961 -- --
Issuance of common stock as consideration
for services provided 45
Translation adjustment -- -- 10
- -----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 $45,259 ($40,611) $116
- -----------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
17
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED MARCH 31 1997 1996 1995
------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss ($5,884) ($11,833) ($1,681)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 1,284 1,434 1,495
Amortization of capitalized and purchased software 2,183 1,827 1,564
Amortization of goodwill, customer lists and noncompete agreements 496 1,487 1,646
Write off of capitalized software development costs -- 173 --
Write off of goodwill, customer lists, and noncompete agreements -- 5,017 --
Loss on disposal of fixed assets 14 (85) 76
Excess lease cost (824) (620) (638)
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECT OF
ACQUISITION OF BUSINESSES:
Accounts receivable, net 3,111 (440) 1,876
Inventories 576 391 25
Prepaid expenses and other assets 190 (635) (550)
Accounts payable and accrued expenses (2,250) 797 (1,250)
Accrued payroll and related benefits (826) (2) (48)
Other liabilities and deferred revenue (2,988) 3,614 183
------------------------------------
Net cash provided by (used in) operating activities (4,918) 1,125 2,698
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (593) (590) (718)
Expenditures for capitalized and purchased software (1,761) (1,438) (1,343)
Cash outlays for acquisitions, net of cash acquired (708) 0 (244)
------------------------------------
Net cash used in investing activities (3,062) (2,028) (2,305)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable (3,030) (10,071) (3,550)
Borrowings on notes payable 1,600 10,615 2,250
Proceeds from exercise of stock options and
employee stock purchase plan 105 433 --
Proceeds from issuance of convertible promissory notes -- -- 125
Net proceeds from private equity placement 14,971 -- --
------------------------------------
Net cash provided by (used in) financing activities 13,646 977 (1,175)
------------------------------------
Foreign currency translation adjustment 10 (31) 2
Net increase (decrease) in cash 5,676 43 (780)
Cash at the beginning of the year 920 877 1,657
------------------------------------
Cash at the end of the year $6,596 $920 $877
------------------------------------
------------------------------------
SUPPLEMENTAL DISCLOSURES:
Interest paid $163 $884 $594
Income taxes paid 39 65 140
NON-CASH TRANSACTIONS:
Common stock, preferred stock, subordinated convertible
debentures and notes payable issued for acquisitions $0 $3,591 $450
Preferred stock and convertible promissory notes converted
to common stock $8,675 $0 $0
Issuance of common stock as consideration for services provided $50 $0 $0
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
18
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANY:
Delphi Information Systems, Inc., (the "Company") develops, markets and supports
computer software systems which automate independent property and casualty
insurance agencies and brokerages including the areas of rating, sales
management, policy administration, accounting and electronic interface with the
computers of insurance carriers.
From January 1991 to July 1996, the Company acquired nine companies in similar
or complementary lines of business, including the July 23, 1996, acquisition of
Complete Broking Systems ("CBS") of Auckland, New Zealand in exchange for
$500,000 cash and 807,300 shares of the Company's common stock. All of these
acquisitions have been accounted for as purchases. Accordingly, the results
of CBS have been recorded in the financial statements commencing on August 1,
1996. The excess of the cost of the acquisitions over the net fair value of
identifiable assets and liabilities assumed at the date of acquisition was
recorded as goodwill and amortized on a straight-line basis over five years.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation - The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries after elimination of intercompany
transactions and balances.
Revenue Recognition - The Company recognizes revenues related to software
licenses and software maintenance in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position No. 91-1, "Software
Revenue Recognition". System revenues consist of revenues earned under software
license agreements, revenues from computer hardware purchased by customers of
the Company, and hardware commissions earned subsequent to the Company's exit
from the hardware business in the second quarter of the current year. When all
components necessary to run the system have been shipped and only insignificant
post-delivery obligations remain, revenue and costs are recognized based upon
the sales price and the cost of specific items shipped.
Service revenues include maintenance fees for providing system updates for
software products, user documentation and technical support. Maintenance is
generally billed to the customers in advance quarterly or annually and
recognized as revenue ratably over the term of the maintenance contract. Other
service revenues including training and consulting are recognized as the
services are performed. Revenues related to custom programming are recognized
when performed.
Software Development Costs - The Company capitalizes internally generated
software development costs in compliance with the Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." Capitalization of software development
costs begins upon the establishment of technological feasibility for the
product. The establishment of technological feasibility and the ongoing
assessment of the recoverability of these costs considers external factors
including, but not limited to, anticipated future gross product revenues,
estimated economic life and changes in
19
software and hardware technology. Amortization of capitalized software
development costs, through costs of systems revenues, begins when the products
are available for general release to customers. The annual amortization is the
greater of the amount computed using (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross revenues
for that product or (b) the straight-line method over the remaining estimated
economic life of the product. The maximum amortization period on a
straight-line basis is five years. Capitalized software costs are amortized on
a product-by-product basis. Amortization of capitalized software development
costs was $1,611,000, $1,245,000 and $1,128,000 in fiscal 1997, 1996, and 1995,
respectively.
Purchased Software - Purchased software represents product purchased for use in
developing product, for licensing with the Company's products, or for direct
sale to the Company's customers. These costs are being amortized on a
straight-line basis over a maximum term of five years, or a shorter period,
depending upon any contractual license agreement limitations or estimated
remaining useful life.
Net software development and purchased software costs at March 31, 1997 and 1996
consist of the following (in thousands):
1997 1996
- --------------------------------------------------------------------------------
Total software development costs capitalized $8,778 $6,672
Total purchased software costs capitalized 2,863 2,863
Less accumulated amortization (5,466) (3,283)
- --------------------------------------------------------------------------------
$6,175 $6,252
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
During the fourth quarter of fiscal 1996, the Company wrote down its capitalized
software development costs by $259,351, and its accumulated amortization by
$86,178 (see Note 4).
Accounts Receivable - The Company's accounts receivable resulting from system
sales are unsecured; however, during the first quarter of the current year the
Company reserved a purchase security interest in the hardware until such time
that the purchase price is paid in full.
Inventories - Inventories, which consist primarily of computer equipment and
consist entirely of finished goods, are stated at the lower of cost or market
value. The cost of substantially all inventories is determined by specific
identification.
Goodwill and Customer Lists - Goodwill relates to the excess of the cost of
acquisitions over the net fair value of identifiable assets and liabilities and
value assigned to customer lists. These costs are being amortized on a
straight-line basis over five to ten years. Subsequent to acquisitions, the
Company continually evaluates whether later events and circumstances have
occurred that indicate the remaining useful life of the goodwill may warrant
revision or that the remaining balance of the goodwill may not be recoverable.
When factors indicate that the goodwill should be evaluated for possible
impairment, the Company uses an estimate of the related business segment's
sufficiency of operating income and related cash flow over the remaining life of
the goodwill in measuring whether the goodwill's value is recoverable. If
20
management's assessment or other facts and circumstances pertaining to the
recoverability of goodwill of a particular business unit were to change,
including their estimate of future operating income and related cash flows,
the Company would adjust the carrying value of the goodwill as appropriate.
In fiscal 1996, the Company decreased the carrying value of goodwill by
$5,017,000, to reflect the impairment of the recoverability of goodwill
related to certain business acquisitions (see Note 4). As of March 31, 1997,
and 1996, the accumulated amortization was $1,382,000 and $968,000,
respectively. Amortization of goodwill and customer lists was $496,000,
$833,000 and $823,000 in fiscal 1997, 1996, and 1995, respectively.
Other Assets - Other assets consist primarily of long-term deposits.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to ten years. Leasehold improvements are amortized over
the shorter of the expected life of the improvements or the lease term.
Income Taxes - The Company has adopted the liability method of accounting for
income taxes pursuant to the Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes". Deferred income taxes are recorded to
reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
year-end. Business tax credits are accounted for under the flow-through method.
Loss Per Common Share - Loss per common share for fiscal 1997, 1996, and 1995 is
based on the weighted average number of common shares outstanding. The effect
of common share equivalents is not included in the loss per common share
calculation for fiscal 1997, 1996 and 1995 because inclusion would be
anti-dilutive. Primary and fully diluted earnings per share are the same for
all periods presented.
Foreign Currency Transactions - The accounts of the Company's foreign
subsidiaries have been translated according to the provisions of the Statement
of Financial Accounting Standards No. 52, "Foreign Currency Translation". Gains
or losses resulting from translation of the foreign subsidiaries' financial
statements are included in stockholders' equity. Any gains or losses resulting
from foreign currency transactions are reflected in the consolidated results of
the period in which they occur.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
was issued in 1995. Implementation of SFAS No. 121 established accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill relating to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. The
21
Company adopted SFAS No. 121 in fiscal 1996. This adoption did not have a
significant impact on the Company's consolidated financial statements.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," was issued in October, 1995. This new pronouncement
establishes financial accounting and reporting standards for the stock-based
employee compensation plans and requires a fair value based method to determine
the compensation cost of such plan. Management has determined that the Company
will not adopt the accounting method prescribed by the new standard but has, as
allowed by the standard, only provide supplemental pro forma disclosure of the
effect of such adoption in Note 11.
In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share", which simplifies the standards for computing earnings per
share. It replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement and requires a reconciliation between the basic EPS
computation to the diluted EPS computation. The SFAS No. 128 presentation is
required effective December 31, 1997, and will be adopted by the Company at that
time. Had the Company calculated EPS using SFAS No. 128 for the year ended
March 31, 1997, basic EPS would have approximated $(0.19) per share.
NOTE 3 - PRIVATE EQUITY PLACEMENTS:
The Company completed two private equity placements in fiscal 1997. The first
placement was completed in May 1996 and provided gross proceeds of $10,700,000
to the Company. In January 1997, the Company completed a second private equity
placement providing gross proceeds of $5,630,500 to the Company. Under the
terms of the placements, the Company issued 10,700,000 units at a price of $1.00
per unit for the May placement, and 5,630,500 units at a price of $1.00 per unit
for the January placement. Each unit consists of one share of common stock and
a redeemable warrant to purchase one share of common stock at an exercise price
of $1.50 per share, subject to certain anti-dilutive adjustments. The shares
and redeemable warrants comprising the units are immediately detachable and
separately transferable.
The redeemable warrants may be exercised at any time after their date of
issuance for a period of three years. The Company can redeem the redeemable
warrants at any time subsequent to 180 days after the issuance of the redeemable
warrants if the closing bid price for the common stock is at or above $2.00 per
share for twenty consecutive trading days subsequent to when the redeemable
warrants first are redeemable.
The two private equity placements provided net proceeds of approximately
$14,971,000 to the Company. The proceeds will be used for product research and
development, to strengthen the Company's sales and marketing organization, to
reduce debt, to strengthen working capital, and to continue the consolidation of
Delphi's operations. In addition, the Company may use proceeds to make
strategic investments in complementary businesses.
In conjunction with the May 1996 equity placement, the Company converted all of
its outstanding Series C Preferred Stock, Series E Preferred Stock, and 16,135
of the 16,356 outstanding shares of Series D Preferred Stock into 8,697,594
shares of common stock. In
22
addition $1,500,000 in outstanding promissory notes were converted into
1,500,000 units, identical to those described above.
NOTE 4 - CONSOLIDATION, REPOSITIONING AND RESTRUCTURING CHARGES:
The operating results for the first two quarters of fiscal 1997 generated a
significant loss. In order to return the Company to profitability it was
determined that headcount and operating expenses needed to be reduced. In
addition, as the Company transitioned out of the hardware business, a portion of
the inventory on hand was deemed obsolete.
As a result of the foregoing events, the Company incurred a charge to operations
in fiscal 1997 resulting from the following (in thousands):
Severance and other payroll related cost $ 897
Write down of inventory 400
- ----------------------------------------------------------------------
$1,297
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
In fiscal 1996, the Company operated according to a business plan which included
a product strategy in which the Company had begun developing a new generation of
products, which incorporated certain functionality and features from several of
the Company's existing products. As part of the business plan, the Company
ceased to develop enhanced versions of certain of the Company's products beyond
a specific, identified product version release. The Company will, however,
continue to support and maintain the existing products for a number of years in
the future, depending upon the economic feasibility of doing so for each
specific product. Consequently, the recoverability of a portion of the
Company's intangible assets classified as goodwill had become impaired, based
upon projected future net cash flows related to the aforementioned products
compared to the net carrying value of the related assets.
The Company's business plan also included continued consolidation and
elimination of duplicate facilities. In conjunction with the plan, the Company
made and communicated the decision to relocate certain of the Company's
development and support functions from one of the Company's facilities to
another. As a result, the Company incurred a charge for severance and excess
facilities costs.
The following summarizes the components of the restructuring charge in fiscal
1996 (in thousands):
Write down of goodwill and noncompete
agreements $5,017
Write down of capitalized software
development costs 173
Severance and excess facilities cost 534
- ----------------------------------------------------------------------
$5,724
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NOTE 5- PROPERTY AND EQUIPMENT:
Property and equipment at March 31, 1997 and 1996 consists of the following (in
thousands):
23
1997 1996
- -----------------------------------------------------------------------
Computer equipment and purchased software $5,722 $6,802
Leasehold improvements 989 1,199
Furniture, fixtures and other 1,727 3,199
- -----------------------------------------------------------------------
8,438 11,200
Less accumulated depreciation and amortization (6,196) (8,331)
- -----------------------------------------------------------------------
$2,242 $2,869
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NOTE 6 - NOTES PAYABLE:
Notes payable at March 31, 1997, and 1996, are comprised of the following (in
thousands):
1997 1996
- -----------------------------------------------------------------------
Notes payable to bank $1,600 $2,606
Note payable 0 424
Convertible promissory notes 0 1,500
- -----------------------------------------------------------------------
1,600 4,530
Current portion (1,600) (3,030)
- -----------------------------------------------------------------------
$ 0 $1,500
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
The Company had a $4,000,000 line of credit agreement with a bank of which
$1,600,000 was outstanding at March 31, 1997. At March 31, 1997, $2,053,000
remained available for borrowing under the line of credit. As of March 31,
1997, based upon applicable advance rates the Company could have borrowed
approximately $3,653,000.
The line, which expires on January 31, 1998, carries an interest rate at the
bank's prime lending rate plus 2.5 percent. Permitted borrowings under the line
vary as a function of qualified accounts receivable and are collateralized by
substantially all of the Company's assets. The agreement contains certain
restrictive covenants including achievement by the Company of specified
operating results and balance sheet ratios. The line also restricts certain
activities of the Company without the approval of the bank, including the
incurrence of senior debt, mergers and acquisitions, and the payment of
dividends.
Additional information related to line of credit borrowings for the two years
ended March 31, 1997, is as follows (in thousands):
1997 1996
- ----------------------------------------------------------------------
Maximum amount borrowed during the year $1,600 $4,036
Average amount borrowed during the year $427 $2,846
Interest rate at the end of the year 11.0% 11.8%
Weighted average interest rate incurred during
the year 9.9% 13.9%
24
Average borrowings were determined based on the amounts outstanding at each
month end. The weighted average interest rate during the year was computed by
dividing actual interest by average borrowings outstanding during each of the
years.
The convertible promissory notes of $1,500,000 were due March 15, 1998, and bore
interest at the prime rate and were convertible at the option of the holder into
shares of the Company's common stock at a per share conversion price of $2.00,
subject to certain anti-dilution provisions, for a total of 750,000 shares of
common stock. In conjunction with the Company's May, 1996 private placement of
equity at $1.00 per unit, the convertible promissory notes were converted into
1,500,000 shares of common stock and 1,500,000 redeemable warrants (see Note 3).
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses at March 31, 1997, and 1996, consist of
the following (in thousands):
1997 1996
- -----------------------------------------------------------------------
Trade accounts payable $958 $1,775
Taxes other than income tax 329 354
Accrued severance and reorganization costs 1,284 1,963
Other 2,096 2,731
- -----------------------------------------------------------------------
$4,667 $6,823
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NOTE 8 - INCOME TAXES:
Pretax loss consisted of (in thousands):
1997 1996 1995
- ------------------------------------------------------
Domestic $(5,681) $(11,714) $(1,624)
Foreign (176) (5) 83
- ------------------------------------------------------
Total $(5,857) $(11,719) $(1,541)
- -------------------------------------------------------
- -------------------------------------------------------
The provisions for income taxes consisted of (in thousands):
1997 1996 1995
- ------------------------------------------------------
Current:
U.S. Federal $-- $ -- $--
State 27 114 74
Foreign -- -- 66
- ------------------------------------------------------
TOTAL $27 $114 $140
- ------------------------------------------------------
Deferred:
U.S. Federal $-- $-- $--
State -- -- --
25
Foreign -- -- --
- ------------------------------------------------------
TOTAL $ -- $-- $--
- ------------------------------------------------------
Total Provision $27 $114 $140
- ------------------------------------------------------
- ------------------------------------------------------
The income tax provision differs from the amount obtained by applying the
federal statutory rate because of the following items:
1997 1996 1995
- ----------------------------------------------------------------------------
Statutory rate (35.0)% (35.0)% (35.0)%
State income tax 0.5 1.0 4.8
Amortization of intangible
assets relating to
acquired businesses 3.3 6.5 18.7
Increase in valuation allowances 24.7 28.5 16.3
Other, net 7.0 0.0 4.2
- ----------------------------------------------------------------------------
Effective rate 0.5% 1.0% 9.0%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. These temporary differences are determined in
accordance with SFAS No. 109 and are more inclusive in nature than "timing
differences" as determined under previously applicable accounting principles.
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities for 1997 and 1996 are as follows (in
thousands):
1997 1996
-------------------- ---------------------
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
- ---------------------------------------------------------------------------
Product enhancements $-- $1,872 $-- $1,763
Reserves 1,259 -- 1422 --
NOL not utilized 10,050 -- 8,331 --
Tax credits not utilized 903 -- 903 --
- --------------------------------------------------------------------------
12,212 1,872 10,696 1,763
Valuation allowance (10,340) -- (8,893) --
-------- ------ ------- ------
Total deferred taxes $1,872 $1,872 $1,763 $1,763
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
As of March 31, 1997, the Company had investment business tax credit
carryforwards of $903,000 for both financial statement and federal income tax
purposes. In addition, the
26
Company has net operating losses available for offset against future taxable
income of approximately $25,125,000 for federal and state income tax purposes.
The utilization of these net operating losses may be limited due to changes in
ownership and other restrictions imposed by the Internal Revenue Code.
Net operating loss carryforwards and a substantial portion of tax credits will
begin to expire after 1997, becoming fully expired by the year 2012 if not
offset against future taxable income.
Due to the uncertainity of realizing any of the net deferred tax assets, the
Company has provided a valuation allowance against the entire net amount.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases office space under non-cancelable operating leases
with expiration dates ranging through 2002, with various renewal options. Other
operating leases range from three to five years and are primarily for computer
equipment.
The aggregate minimum annual lease payments under leases in effect on March 31,
1997 are set forth below (in thousands) as follows:
- ----------------------------------------------------------------------------
Capital Operating
Fiscal Year Ending Leases Leases
- -------------------------------------------------------------------------
1998 $ 46 $ 1,027
1999 30 672
2000 2 196
2001 0 185
2002 0 64
Thereafter 0 6
- -------------------------------------------------------------------------
Total minimum lease
commitments $ 78 $ 2,150
-------
Less: amount representing
interest (10)
- -------------------------------------------------------
Present value of obligations
under capital leases 68
Less: current portion (46)
- -------------------------------------------------------
Long-term obligations under
capital leases $ 22
- -------------------------------------------------------
Rental expense covering the Company's office facilities and equipment for the
fiscal years 1997, 1996 and 1995 aggregated $2,421,000, $2,541,000 and
$2,778,000, respectively.
27
Noncompete Agreements - The Company entered into various noncompete agreements
in connection with a January, 1991, acquisition. These agreements require the
Company to make payments totaling $4,700,000 over six years of which $4,300,000
has been paid to date. The final installment of $400,000 was due on January
31, 1997 and is accrued for on the Company's balance sheet as a current
liability. The Company is negotiating extending payment of this amount through
2002. Commitments related to the noncompete agreements were amortized and
expensed ratably over the life of each agreement.
Contingencies - The Company is involved in certain legal actions and claims
arising in the ordinary course of its business. It is the opinion of management
that such litigation and claims will be resolved without a material effect on
the Company's future results of operations or its financial position.
NOTE 10 - SUBORDINATED CONVERTIBLE DEBENTURES:
In connection with a December 1993 acquisition, the Company issued $5,000,000
face value, $2,750,000 discounted carrying value, of subordinated convertible
debt. The debt was converted into 63,426 shares of Series E Preferred Stock in
April, 1995. The Series E Preferred Stock was converted into 1,421,060 shares
of common stock in 1996 (see Note 3).
NOTE 11 - COMMON STOCKHOLDERS' EQUITY:
Stock Options - The Company has adopted the 1996 Stock Incentive Plan which
provides for the granting of 6,000,000 stock options and stock appreciation
rights to officers, directors and employees. This plan replaces both the
Director's Plan and the 1983 Stock Incentive Plan. Options granted under the
program may be incentive stock options as defined under current tax laws or
nonstatutory options. Options are granted at prices determined by the Board of
Directors (not less than 100 percent of the market price of the stock at the
time of grant and 110 percent with respect to incentive stock options granted to
optionees who own 10 percent or more of the Company's stock). Stock options
under this plan generally become exercisable in 25 percent increments maturing
on each of the first through fourth anniversaries of the date of grant. All
options must be exercised within ten years of the date of grant (with respect to
incentive stock optionees owning ten percent or more of the Company's stock, the
term may be no longer than five years). No stock appreciation rights are
outstanding.
The Company has granted nonstatutory options outside the stock incentive plan to
purchase up to an aggregate of 100,000 shares. These options are granted at
prices determined by the Board of Directors (no less than 100 percent of the
market price). The options have various vesting periods and must be exercised
within seven to ten years of the date of the grant.
At March 31, 1997, the Company had four stock-based compensation plans. The
Company applies APB Opinion 25 and related Interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for its stock
option plans and its stock purchase plan. Had compensation cost for these stock
based compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method prescribed by FASB
Statement No. 123, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
28
1997 1996
---------------------------
Net loss, as reported ($5,884) ($11,833)
Pro forma net loss ($6,313) ($11,996)
Net loss per share, as reported $(0.19) $(1.37)
Net loss per share, pro forma $(0.21) $(1.39)
Because the FASB No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that expected in future years. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for the
grants in 1997 and 1996, respectively; no dividends; risk free interest rates of
6.61% and 5.64% and an expected life of 10 years.
29
Information with respect to the Company's stock options is as follows: A
summary of the status of the Company's stock options plans at December 31,
1997, 1996, and 1995, and changes during the years then ended, is presented
below:
Within Plan Outside Plan
-------------------------------------- --------------------------------------
Weighted Weighted
Shares Average Shares Average
Under Option Exercise Under Option Exercise
Option Prices Price Option Prices Price
- -----------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1994 636,145 $2.50-$6.88 5.43 381,778 $2.50-$7.38 6.36
Granted 1,326,173 0.78-1.00 0.95 20,000 0.78 0.78
Exercised -- -- -- -- -- --
Canceled (533,937) 1.00-6.88 5.76 (311,778) 2.50-7.38 6.40
- -----------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1995 1,428,381 $0.78-$6.76 1.15 90,000 $0.78-$7.38 4.97
Granted 230,000 1.00-1.57 1.10 20,000 1.25 1.25
Exercised (121,000) 0.78-1.00 0.95 -- -- --
Canceled (297,650) 0.78-4.88 0.96 (10,000) 5.75 5.75
- -----------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1996 1,239,731 $0.78-$6.75 1.21 100,000 $0.78-$7.38 4.14
Granted 2,658,250 0.69-1.19 0.99 -- -- --
Exercised (15,500) 1.00 1.00 -- -- --
Canceled (1,132,190) 0.78-6.75 1.13 (95,000) 0.78-7.38 4.09
- -----------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1997 2,750,291 $0.78-$6.75 $1.03 5,000 $5.25 $5.25
- -----------------------------------------------------------------------------------------------------------------
Exercisable
at March 31, 1997 680,607 $0.78-$6.75 $1.19 5,000 $5.25 $5.25
- -----------------------------------------------------------------------------------------------------------------
Available for Grant
at March 31,1997 3,249,709 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
The remaining lives for the options outstanding at March 31, 1997 are
9.2 years. The weighted average fair market value of options granted at
March 31, 1997 and 1996 is $0.77.
30
Stock Purchase Plan - The Company has a stock purchase plan for eligible
employees. Employees may subscribe up to ten percent of their compensation to
purchase the Company's common stock at the lower of 85 percent of the fair
market value at the date of grant or 85 percent of the fair market value six
months after the date of grant. Shares subscribed to must be exercised one year
after the date of grant or are canceled. The Company has reserved 1,800,000
shares of common stock for issuance under the plan. New subscriptions are
granted by the Company to eligible employees on August 1 of each year. At March
31, 1997, 12,611 shares are available to be purchased under the plan. These
shares can be exercised on July 31, 1997.
In connection with the private equity placements, the Company issued warrants to
the placement agent to purchase up to 1,000,000 shares of the Company's common
stock over a five year term at $1.00 per share. The Company also issued the
various investors warrants to purchase up to 16,330,500 shares of the Company's
stock for $1.50 (see Note 3).
NOTE 12 - CASH OPTION PROFIT SHARING PLAN AND TRUST:
Effective January 1, 1988, the Company adopted and implemented a 401(k) Cash
Option Profit Sharing Plan which allows employees to contribute part of their
compensation to the Profit Sharing Plan and Trust, on a pre-tax basis. The
Company is under no obligation to contribute to the Plan. For the fiscal years
ended March 31, 1997, 1996, and 1995, the Company did not make any contributions
to the plan.
31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding directors of the Company required by this
item is incorporated by reference to the Company's definitive proxy statement
relating to its 1997 Annual Meeting of Stockholders under the captions "Election
of Directors" and "Compliance with SEC Filing Requirements" which will be filed
with the Securities and Exchange Commission within 120 days after March 31,
1997.
The executive officers and senior management of the Company are as follows:
Name Age Position
- ---- --- --------
John W. Trustman 41 President, Chief Executive Officer
James A. Harsch 45 Vice President-Administration and Chief
Financial Officer
The executive officers of the Company are elected annually by the Board.
John Trustman joined the Company as President and Chief Executive Officer
in June, 1997. From 1995 through 1996 Mr. Trustman was Senior Vice President
and Chief Information Officer of Aetna. From 1990 through 1995 he was with
Fidelity Investments as Senior Vice President. Prior to Fidelity he served
as a manager and consultant for Bain Consulting. Mr. Trustman has an MBA
from Harvard University and an AB Degree from Yale University.
James A. Harsch joined the Company in July 1996 as Vice President,
Administration and Chief Financial Officer. From 1993 to 1996 Mr. Harsch was
Vice President of Finance and Operations of Softdesk, Inc., a software
applications provider. From 1989 to 1993 he was Vice President of Finance and
Chief Financial Officer of Fiberglas Holdings, Inc., a manufacturer of
fiberglass sporting equipment.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under
the caption "Compensation of Directors and Executive Officers" in the Company's
proxy statement for its
32
1997 Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after March 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
There is hereby incorporated by reference the information appearing under
the captions "Security Ownership of Management" and "Principal Stockholders
of Delphi" in the Company's proxy statement for its 1997 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after March 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under
the captions "Compensation of Directors and Executive Officers" in the
Company's proxy statement for its 1997 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days
after March 31, 1997.
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS.
The following consolidated financial statements and supplementary data
of the Company and its subsidiaries, required by Part II, Item 8 are
filed herewith:
- Report of Independent Public Accountants
- Consolidated Balance Sheets as of March 31, 1997, and 1996
- Consolidated Statements of Operations for the Years Ended March
31, 1997, 1996, and 1995
- Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended March 31, 1997, 1996, and 1995
- Consolidated Statements of Cash Flows for the Years Ended March
31, 1997, 1996, and 1995
- Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENTS.
The following financial statement schedule is filed herewith:
Schedule II - Valuation and Qualifying Accounts for the Years Ended
March 31, 1997, 1996, and 1995.
Schedules other than those listed above have been omitted because they
are not applicable or the required information is included in the
financial statements or notes thereto.
(b) EXHIBITS
3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-8 (No. 333-23261), and
incorporated herein by reference).
3.2* Bylaws of the Company
4.1 Form of Redeemable Warrant to purchase shares of common stock of Delphi
Information Systems, Inc. (filed as Exhibit 4.12 to the Company's Annual
Report on Form 10K for the fiscal year ended March 31, 1996, and
incorporated herein by reference).
4.2 Form of Unit Investment Agreement to purchase common stock and warrants of
Delphi Information Systems, Inc. (filed as Exhibit 4.13 to the Company's
Annual Report on Form 10K for the fiscal year ended March 31, 1996, and
incorporated herein by reference).
4.3 Form of Warrant to purchase shares of common stock of Delphi Information
Systems, Inc. held by R.J. Steiken & Company (filed as Exhibit 4.14 to the
Company's Annual
34
Report on Form 10K for the fiscal year ended March 31, 1996, and
incorporated herein by reference).
MANAGEMENT CONTRACTS AND COMPENSATION PLANS AND ARRANGEMENTS
10.1 Delphi Information Systems, Inc. 1983 Stock Incentive Plan, as
amended (filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (No. 33-45153) and incorporated herein by
reference).
10.2 Delphi Information Systems, Inc. Cash Option Profit Sharing Plan
(filed as Exhibit 4.2 to the Company's Registration Statement on
Form S-8 (No. 33-19310) and incorporated herein by reference).
10.3 Delphi Information Systems, Inc. 1989 Stock Purchase Plan (included
in the prospectus filed as part of the Company's Registration
Statement on Form S-8 (No. 33-35952) and incorporated herein by
reference).
10.4 Delphi Information Systems, Inc. Non-Qualified Stock Option Plan for
Directors (filed as Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1992, and incorporated
herein by reference).
10.5 Delphi Information Systems, Inc. 1996 Stock Incentive Plan (filed as
Exhibit 4.3 to the Company's Registration Statement on Form S-8
(File No. 333-23261), and incorporated herein by reference).
10.6 Stock Purchase Warrant dated June 5, 1992, issued by the Company to
Silicon Valley Bank, and related Registration Rights Agreement
(filed as Exhibit 10.12 to the Company's Registration Statement on
Form S-1 (No. 33-45153) and incorporated herein by reference).
10.7 Lease between the Company and Westlake Renaissance Court for office
space in Westlake Village, California, as amended (filed as Exhibit
10.5 to the Company's Registration Statement on Form S-1 (No.
33-14501) and incorporated herein by reference).
10.8 Lease dated April 17, 1986, between Mortimer B. Zuckerman and Edward
H. Linde, as Trustees, as Landlord and McCracken Computer Inc., as
Tenant, relating to premises at 10-20 Burlington Mall Road,
Burlington, Massachusetts, as amended (filed as Exhibit 10.22 to the
Company's Form S-1 Registration Statement (No. 33-45153) and
incorporated herein by reference).
10.9 Employment agreement dated July 7, 1994, between the Company and M.
Denis Connaghan (filed as Exhibit 10.23 to the Company's Annual
Report on Form 10K for the fiscal year ended March 31, 1995, and
incorporated herein by reference).
10.10 Form of Stock Purchase Warrant between the Company and Silicon Valley
Bank (filed as Exhibit 10.26 to the Company's Annual Report on Form
10K for the fiscal year ended March 31, 1995, and incorporated
herein by reference).
35
10.11* Loan and Security Agreement between the Company and Coast Business
Credit dated January 1997 and related Schedule and Capex Promissory
Note.
22.1* The subsidiaries of the Company and State of incorporation.
23.1* Consent of Independent Public Accountants
27.1* Financial Data Schedule.
99.1* Information, Financial Statements, and Exhibits required by Form
11-K in accordance with Rule 15d-21 under the Securities Exchange
Act of 1934.
* Filed herewith
(c) REPORTS ON FORM 8-K
None.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By /s/ John W. Trustman
------------------------------
John W. Trustman
President and Chief Executive
Officer
Date: June 30, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Yuval Almog Chairman of the Board June 30, 1997
- ---------------
(Yuval Almog)
/s/ John W. Tustman Director, President. and June 30, 1997
- ------------------- Chief Executive Officer
(John W. Trustman)
/s/ James A. Harsch Vice President-Administration June 30, 1997
- ------------------- and Chief Financial Officer
(James A. Harsch)
/s/ William R. Baumel Director June 30, 1997
- ---------------------
(William R. Baumel)
/s/ M. Denis Connaghan Director June 30, 1997
- ----------------------
(M. Denis Connaghan)
/s/ Larry G. Gerdes Director June 30, 1997
- -------------------
(Larry G. Gerdes)
/s/ Joseph J. Oddo Director June 30, 1997
- ------------------
(Joseph J. Oddo)
37
SCHEDULE II
DELPHI INFORMATION SYSTEMS, INC.
Schedule II - Valuation and Qualifying Accounts
for the Years Ended March 31, 1997, 1996 and 1995
Allowance for doubtful accounts receivable.
March 31, March 31, March 31,
1997 1996 1995
-------- -------- ---------
Beginning Balance $922,000 $687,000 $1,000,000
Provisions for Allowance 1,662,000 741,000 396,000
Write Off of Accounts Receivable
Against Allowance (971,000) (506,000) (847,000)
Allowance Acquired in Acquisitions 0 0 138,000
---- --- --------
$ 1,613,000 $922,000 $687,000
-------------- -------- --------
-------------- -------- --------
38