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                       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 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)

                    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:  0-26532
--------------------------------

                        Phoenix Information Systems Corp.
--------------------------------------------------------------------------------
 (Exact name of Registrant as specified in its charter)

              Delaware                                    13-3337797
-------------------------------------------      ------------------------------
(State or other jurisdiction                          (I.R.S. Employer
of incorporation or organization)                   Identification No.)

100 Second Avenue South, Suite 1100
St. Petersburg, Florida                                     33701
------------------------------------------       ------------------------------
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number,
including area code:                                        (813) 894-8021
                                                 ------------------------------

Securities registered pursuant to Section 12(b) of the Act:

                                      None
--------------------------------------------------------------------------------
                                (Title of Class)

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $ .01 par value
--------------------------------------------------------------------------------
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes  X . No    .
                                       ---     ---

Indicate 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
this Form 10-K. (X)

As of May 31, 1997, the aggregate market value of the voting stock held by
non-affiliates (approximately 27,800,000 shares of Common Stock, $.01 par value)
was approximately $38,225,000 based on the average bid and asked price ($1.375)
for one share of Common Stock on such date. The number of shares issued and
outstanding of the Registrant's Common Stock, as of May 31, 1997 was 49,105,212
shares. 





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ITEM 1. BUSINESS

OVERVIEW - THE COMPANY


          Phoenix Information Systems Corp. and its subsidiaries, Phoenix
Systems Group, Inc. (wholly owned since March 27, 1995), Phoenix Systems Ltd.
(wholly owned since November 11, 1993), Phoenix Transaction Services, Inc.
(wholly owned since June 3, 1997), and Hainan Phoenix Information Systems, Ltd.
(70% owned since November 22, 1993) are collectively referred to herein as
"Phoenix" or the "Company." Phoenix was incorporated in Delaware on April 4,
1986, as C.S. Primo Corp., changed its name to Dynasty Travel Group, Inc., on
July 9, 1991, and subsequently changed its name to Phoenix on September 29,
1993. Phoenix is a development-stage information systems and services company
that was formed specifically to support the growing demand for automation
services in the travel, tourism and aviation transportation industry. 
Phoenix provides state-of-the-art, travel-related services to China through 
its joint venture with China Southern Airlines ("China Southern"), named Hainan
Phoenix Information Systems, Ltd. ("Hainan-Phoenix" or the "Joint Venture"). 
Hainan-Phoenix is the only foreign owned entity to receive a business license 
from the government of the People's Republic of China to operate a travel 
information network in China. The Company owns 70% of Hainan-Phoenix through
its wholly-owned subsidiary, Phoenix Systems Ltd., a Bermuda corporation
("PSL"). Phoenix has not generated any significant revenues, earnings or
history of operations from inception through March 31, 1997.  Consequently,
Phoenix's continued existence has depended primarily upon its ability to raise
capital.

          PSL was formed in 1993 to provide reservation systems and services
worldwide. PSL formed its first joint venture company with Hainan Airlines. PSL
has the responsibility to market, outside of each joint venture's defined
territory, all Phoenix travel products (including the inventory of airline seats
and hotel rooms). PSL has also established a turnkey reservations center in the
United States and is currently taking on-line reservations for Laker Airways.
Eastwind Airlines, Inc., a former customer, was the first U.S. carrier to use
Phoenix's airline reservation system and reservation center. PSL is also
actively pursuing other small to medium carriers throughout North America to
provide a complete, low-cost solution for their reservation needs.

          Hainan-Phoenix is a Chinese joint venture that was formed in late
1993. The Joint Venture was granted its business license in March 1994. In
January, 1995, the Joint Venture installed its proprietary airline and hotel
reservation systems software on Stratus Computer, Inc. ("Stratus") hardware
located in the Joint Venture's office in Hainan Province, China. The Company's
system is presently capable of providing computer reservation services to
subscribing Chinese airlines, hotels, tour companies and other travel providers.

          On June 1, 1996, Hainan-Phoenix officially went operational with its
first customer, Hainan Airlines. Hainan Airlines, a publicly held airline in
China, is a fast growing airline that carried more than 870,000 passengers in
1995, over 1,200,000 in 1996, and expects to carry over 2.7 million passengers
by 1998. Based in China's Hainan province, Hainan Airlines currently operates a
fleet of six Boeing 737, two Metro 23 and one Lear 55 aircraft throughout China.
Hainan Airlines, like the other regional and independent airlines in China, is
hampered by the lack of automation. In order to remedy this problem, Hainan
Airlines entered into the Joint Venture as a means of gaining access to
automated reservation services. Through its reservation


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system, the Joint Venture has created a database of airline seats and hotel
rooms that will be marketed in mainland China by the Joint Venture.

          On November 15, 1996, China Southern, the largest domestic airline in
the People's Republic of China, became Phoenix's new joint venture partner in
Hainan-Phoenix. In a trilateral agreement between Phoenix, China Southern, and
the Company's former joint venture partner, Hainan Airlines, China Southern
acquired the entire equity interest held by Hainan Airlines, representing 30% of
the Joint Venture, for US$2,580,000. Further, China Southern agreed to invest an
additional US$4,780,000 in capital contributions of cash and real estate in
exchange for an additional 15% interest in the Joint Venture, which will raise
China Southern's total stake to 45% upon the completion of the additional
contribution. Hainan Airlines continues as a customer of the Joint Venture on a
limited basis.

          On December 23, 1996, Phoenix acquired for $7,500,000 a 25% interest
in American Aviation Ltd., through the exercise of an option. American Aviation
is a company owned by affiliates of George Soros, Purnendu Chatterjee, and
Quantum Industrial Holdings Ltd. American Aviation's sole asset is a 25%
interest in Hainan Airlines, which it purchased for $25,000,000 in December
1995.

          Phoenix Systems Group, Inc. ("PSG"), a wholly-owned subsidiary of the
Company, is responsible for the development, support and maintenance of the
Company's application software systems.

          Phoenix Transaction Services, Inc. ("PTS"), a wholly-owned subsidiary
of the Company, was established in June 1997. PTS now manages the existing U.S.
reservations and call center operation, which was previously controlled by PSL.
The goal of PTS is to establish ventures in volume-intensive transaction
environments such as passenger reservation services, airline cargo services, and
hotel reservation services. These ventures will be created through alliances,
partnerships, and acquisitions. PTS would bring industry knowledge and
proprietary solutions, built or acquired, to the ventures, while the partners
would have the facility, manpower, and management responsibilities. PTS is
responsible for securing strategic partners and achieving revenue growth.


RECENT DEVELOPMENTS


          Since March 31, 1996, the Company has made significant progress in
many areas. Among other developments, the Company (i) commenced commercial
operations in the United States with Laker Airways; (ii) commenced commercial
operations in China with Hainan Airlines; (iii) acquired a 25% interest of
American Aviation Ltd. (a company formed by two Soros-managed investment
entities), which owns 25% of the equity in Hainan Airlines; (iv) closed
Convertible Preferred Stock Series A and B financings totaling $9 million with
an institutional investment fund (See Note 5 to the Consolidated Financial
Statements); (v) commenced discussions (and in some cases, negotiations) with
prospective airlines and hotel groups in China; (vi) signed China Southern, the
largest domestic airline in China with a 21 percent domestic market share, as
Phoenix's new joint venture partner in China; and (vii) sold to S-C Phoenix
Partners 833,333 shares of the Company's Series C Convertible Preferred Stock
for a $15,000,000 investment in the Company.

          On September 15, 1994, Phoenix acquired all the capital stock of
American International Travel Agency Inc. ("American") in exchange for 25,000
shares of Phoenix


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Common Stock. On November 20, 1996, the disinterested members of the Board of
Directors of Phoenix approved the sale of American International Travel Agency,
Inc. to Visitors Services, Inc. (a Company controlled by Robert P. Gordon,
Chairman of the Board of Phoenix) for 31,579 shares of Phoenix's common stock
valued at $90,000.

          On February 10, 1997, Phoenix appointed Delbert F. Bloss as Chief
Executive Officer of the Company. Mr. Bloss will oversee all aspects of daily
operations, including marketing, sales, financial and administrative matters.
Mr. Bloss has extensive experience in airline information systems and previously
served as President of the Airline Systems Division of Unisys Corporation where
he was responsible for all product, services and operations support relating to
the airline industry.

          On June 23, 1997 the Company announced that China Southern had
executed the PHOENIX-AIR Management Systems (PAMS) Services Contract with Hainan
Phoenix. Under the terms of the 46-year agreement, China Southern will book all
of its airline reservations and procure data processing and other services from
Hainan Phoenix. The China Southern Group of airlines is China's largest domestic
air company, carrying approximately 28 percent of China's domestic air
travelers. The China Southern Group is made up of China Southern, Xiamen,
Shantou, Guangxi, and Zhuhai airlines.


THE COMPANY'S RESERVATION SYSTEMS

          The Company philosophy is to create products which allow the Company
to secure significant business segments with recurring revenue streams. The
Company's products are offered to large joint venture partnerships rather than
being offered as unit sales to individual customers. This allows the company to
focus its investments on major long-term engagements rather than competing with
a myriad of vendors for a product sale.

          Phoenix Systems, Ltd., is the marketing and operations company
responsible for the development and delivery of travel industry products through
its St. Petersburg, Florida, facility and through its Joint Venture in China.
Phoenix has completed two major systems to date, PHOENIX-AIR and PHOENIX-HOTEL,
both of which are currently in production at customer sites. PHOENIX-AIR, a
full-function airline reservation system, has been installed in customer sites
since mid-1995. The Company has booked reservations for Eastwind Airlines in the
U.S., Laker Airways in the U.S. and the UK, and Hainan Airlines in China.
PHOENIX-HOTEL, a destination marketing system, has been booking hotels since
1993 for Visitors Services International Corp., a company servicing Convention
and Visitors Bureaus in the United States.

The PHOENIX-AIR System

          PHOENIX-AIR is the Company's airline reservation system. PHOENIX-AIR
is a "multi-host" client/server system which conforms to international airline
industry standards and, thereby, enables PHOENIX-AIR subscribers to communicate
directly with other major airline reservation systems throughout the world.
PHOENIX-AIR's architecture allows subscribers to operate independent local area
networks.

          PHOENIX-AIR is based on client/server technology. The "legacy"
mainframe airline and CRS systems that are in use today operate through a
central processing mainframe


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computer, typically located in the United States and Europe.  Subscribers are
required to purchase custom equipment and proprietary software to use these
systems.

          PHOENIX-AIR, on the other hand, offers developing countries an
in-country alternative to the costly mainframe systems currently used by major
airlines. The basic concept of PHOENIX-AIR is to share processing power
throughout a network of intelligent PC's, application servers, and supplementary
resource servers. Due to dramatic increases in the processing power of desktop
PC's and advanced networking technology, client/server systems offer significant
advantages in application effectiveness, costs, training and user acceptance
when compared to legacy systems.

          PHOENIX-AIR is written in "high-level" languages, as contrasted with
the assembler language used for most major airline systems. As a result,
PHOENIX-AIR is much less expensive to maintain and easier to modify. The Company
is able to hire and train Chinese programmers at a relatively low cost, and to
enhance the system to meet the evolving needs of the Chinese domestic airlines.
The PHOENIX-AIR system has the capability to present information to users in
English and other languages, thereby lowering operator training costs and
increasing the potential productivity of reservation agents using PHOENIX-AIR.

          PHOENIX-AIR was designed to be operated using off-the-shelf, standard
PC's and computer printers in contrast to dumb terminals and proprietary
printers. For those airlines where passengers do not require a ticket (commonly
called "ticketless" or electronic ticketing), Phoenix was one of the first
service providers to offer this capability. The system can also produce the
standard industry ticket documents. PHOENIX-AIR provides a seamless, electronic
interface to revenue accounting systems, credit card processing centers which
provides reconciliation of credit card data to support both a standard ticket
and a ticketless airline.

The PHOENIX-HOTEL System

          PHOENIX-HOTEL is a PC-based hotel reservation system, originally
designed by the Company for use by smaller, independent establishments which may
not otherwise have access to national or international hotel reservation
networks. PHOENIX-HOTEL has the capacity to be used by customers as an internal
hotel reservation system and as a network and distribution system. PHOENIX-HOTEL
can be configured to operate with from one to several thousand intelligent
terminal stations.

          PHOENIX-HOTEL has been designed to be flexible and user-friendly. Like
most hotel systems, PHOENIX-HOTEL uses codes and abbreviations unique to the
travel and hospitality industry. However, unlike many other systems,
PHOENIX-HOTEL clearly portrays these codes in "plain English," allowing
operators to forego learning the complex set of codes required by most
travel-related programs. As a result, subscribers to PHOENIX-HOTEL encounter
relatively lower training costs for personnel new to the industry while
maintaining the advantages of an industry-standard system, designed for
independent hotels. PHOENIX-HOTEL will interface with PHOENIX-AIR and thus can
be linked to the international travel agency selling networks.

Product Summary

          Both of these systems communicate through international airline
networks. PHOENIX-AIR operates on Stratus hardware and PHOENIX-HOTEL is a
UNIX-based system. Phoenix's systems are client/server-based, provide the
Chinese character set to end users, are


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easily customizable, and utilize the latest communications networking
technology. PHOENIX-AIR can be purchased, installed, and maintained at a much
lower cost than the reservation systems used by the major airlines. PHOENIX-AIR
and PHOENIX-HOTEL are versatile and have been enhanced to meet Chinese
requirements. Both systems can be operated by the Joint Venture and physically
installed in China. Subscribers may operate PHOENIX-AIR as an internal
reservation system for their specific airline and as a communications interface
to access a global network of travel, booking and reservation agents through
other reservations systems.

          The Company's software is designed to support an open-systems
architecture that allows maximum flexibility for future development and
connectivity. The PHOENIX software takes advantage of today's current
technologies like client/server databases, distributed processing, cooperative
processing, modern procedural languages, and interactive design and development
tools. This implementation offers Phoenix many competitive advantages that
include a low-entry cost, shorter development cycles, lower operating cost,
reduced training cost, and the access to a larger pool of skilled programmers.
The resulting system provides a high level of user friendliness and ease of use.

Phoenix Reservations Center

          Phoenix offers an alternative solution to the high cost of staffing
and operating a reservations call center to those airlines desiring to outsource
both their reservation system and call center. This product is especially
attractive to start-up airlines who need a turnkey solution to accelerate their
entry into the marketplace, as well as to established airlines wishing to reduce
costs, increase reservations office flexibility, and offload processing from
their mainframes.

          Significant outsourcing opportunities also exist to provide
reservations center services to those established international airlines who
have their reservations call center operations in the U.S., especially those
located in high-cost areas, such as New York, Los Angeles, and San Francisco.
These international airlines operate higher cost and lower productivity call
centers than the major U.S. airlines. To date, they have had no full-service
neutral option available to them with the depth of airline industry knowledge
and expertise of Phoenix.

          Additionally, by utilizing Phoenix hotel reservations system in
partnership with a major call center facility management company, Phoenix could
offer a turnkey reservations services alternative to the hotel industry.
Acquisition/outsourcing of a major hotel reservation call center function is
also contemplated.

Development of PHOENIX-AIR

          The original design for PHOENIX-AIR was created twelve years ago by
Linjeflug Airlines of Sweden. Many of the features of this system were later
incorporated into a travel agency and tour booking system developed for, and
partially by, World Comnet, Inc. ("WCN"), which was an international
reservations systems company headquartered in Irvine, California. WCN filed for
relief under Chapter 7 of Title 11 of the United States Code in 1992. On October
9, 1992, the Company acquired from a secured creditor of WCN its rights to
certain WCN software products, including the travel-related software known as
the LIBRA and TOURINC Systems. The Company also acquired all of the secured
creditor's rights in WCN's related airline communications interface software.



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          The Company subsequently entered into an agreement with Stratus
pursuant to which the Company adapted and converted the LIBRA and TOURINC
software to a Stratus platform, renaming it "PHOENIX-AIR." In 1994, Stratus
shipped its first Stratus M250 processor to Hainan-Phoenix's office in Hainan
Province following the shipment of a Stratus R5 and a Stratus R10 processor to
the Company's Florida office.

          The Company offers its reservation services throughout the world on a
Stratus hardware system. Stratus is a recognized leader in fault-tolerant
transaction processing systems and is a major supplier of hardware and software
to the airline industry. Such systems allow a computer system to continue
operating even if any single component fails. Stratus has a marketing force in
20 countries around the world and enjoys a significant presence in China and in
the Pacific Rim.

          PHOENIX-AIR was designed to be operated using off-the-shelf standard
PCs and computer printers in contrast to dumb terminals and proprietary
printers. For those airlines which do not require a ticket (commonly called
ticket-less or electronic ticketing), Phoenix was one of the first service
providers to offer this capability. The system can also produce the standard
industry ticket documents. PHOENIX-AIR provides a seamless, electronic interface
to revenue accounting systems, credit card processing centers and provides
reconciliation of credit card data to support both a ticket and ticket-less
airline.


Reservation services telecommunications access


          The Company provides connectivity to worldwide travel suppliers
through its frame relay and X.25 networks, and through the industry network,
owned and operated by SITA. In each country in which Phoenix services customers,
the communications solution is state-of-the-art.


Telecommunications in China


          The Company has been granted access to China's state-of-the-art data
communications network known as "ChinaPac", which should enable the Company's
reservation services to run at higher efficiency. ChinaPac is an electronic
packet switching network (X.25) that utilizes China's national fiber optic
network, which is managed by the Chinese Ministry of Post and Telecommunications
("MPT"). ChinaPac currently links more than 30 major cities in China,
encompassing the majority of travel destinations there.

          MPT's network consists of eight major X.25 switching nodes located in
Beijing, Shenyang, Xi'an, Nanjing, Wuhan, Shanghai, Chengdu, and Guangzhou.
These nodes have extension access points to outlying areas via X.25 pads. The
Company anticipates that these cities will be among the first to be connected to
its reservation services after the initial roll-out in Haikou, Hainan. The
Company's reservation services are linked by direct communications to the
Company's headquarters in St. Petersburg, Florida and to China's domestic
airline offices, hotels and ground operators through ChinaPac.





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THE HAINAN-PHOENIX JOINT VENTURE

          On November 22, 1993, Hainan Airlines and PSL signed a joint venture
contract (the "Joint Venture Agreement"), establishing Hainan-Phoenix. Hainan
Airlines and PSL submitted the Joint Venture Agreement in mid-December 1993 for
approval with the appropriate Chinese government authorities. The Chinese
Ministry of Foreign Economic Relations and Trade approved the Joint Venture
Agreement, and on March 12, 1994 the Company was given official notification
that Hainan-Phoenix received its business license (the "Business License") from
the Chinese State Administration of Industry and Commerce. In addition to
operating the reservation system, the Business License authorizes Hainan-Phoenix
to operate in the following lines of business, among others: the development of
other software systems and networks, computer sales, leasing and after-sales
service, technical training, and consulting services for computer and network
applications.

          The Joint Venture Agreement required the parties to make a total
investment in Hainan-Phoenix of up to $10,725,000, with registered capital of
$8,580,000. Under the terms of the Joint Venture Agreement: (1) Hainan Airlines
agreed to provide 30% of the registered capital (in the form of $1,500,000 in
cash and property with an aggregate value of $1,080,000, consisting of a
five-year lease of 400 square meters of office space, which lease was
subsequently modified to a 38-month lease of 600 square meters); (2) PSL agreed
to provide 70% of the registered capital (in the form of $1,500,000 in cash and
exclusive licensing rights in China of the Company's reservation system, valued
at $4,500,000 for purposes of the Joint Venture Agreement); (3) PSL and Hainan
Airlines agreed that, in the event additional loans to Hainan-Phoenix were
required, the parties would provide loan guarantees in proportion to their
respective ownership interests; (4) PSL and Hainan agreed that any and all
expenses related to the formation of Hainan-Phoenix would be borne by the
parties in proportion to their respective ownership interest and each party
would be reimbursed for all approved expenses incurred on behalf of
Hainan-Phoenix; and (5) a working team was organized to complete the preparatory
work necessary to establish Hainan-Phoenix. The Joint Venture Agreement also
provided for the annual distribution of profits, net of any income taxes, to the
partners in proportion to their equity interest within three months after the
end of each calendar year.

          In addition to the financial terms set forth above, the Joint Venture
Agreement imposed the following obligations on the respective parties. PSL
agreed to perform the following services for the benefit of Hainan-Phoenix: (1)
provide its share of the necessary capital to establish and staff the business
with proper executive, technical and administrative personnel; (2) provide its
share of the necessary capital to purchase, install and maintain the required
hardware, software and licenses required; (3) provide all required user
documentation and train the Hainan-Phoenix staff and the training staffs of
subscribers in the proper operation and use of the reservations systems; (4)
provide technical support for the reservation systems until such time as the
Hainan-Phoenix staff gains the necessary skills to maintain the operation of its
systems; (5) develop, market and maintain outside China an infrastructure to
support the international sale of travel components supplied by Hainan-Phoenix's
subscribers for use or consumption within China; and (6) provide additional
capital to expand the capacity of its reservation system when and if other
customers seek to join the system. Hainan-Phoenix, for its part, agreed to
perform the following services for the benefit of PSL: (1) utilize its best
efforts to insure that all participating air carriers or ground operators on the
system appoint PSL as their exclusive general sales agent for the international
market; (2) assure availability of air seat inventory and blocked allotment
space on ground services; and (3) pledge that all participants on the system
will agree that PSL, as general sales agent, shall determine the international
selling


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price or be offered for its tour products the greatest available discount from
the published tariff prices.

          On November 15, 1996, China Southern, the leading domestic airline in
the People's Republic of China, became Phoenix's new joint venture partner in
Hainan Phoenix Information Systems Ltd. (the "Joint Venture"), a company now
operating a travel information and reservation system in China based on
Phoenix's proprietary technology. In a trilateral agreement between Phoenix,
China Southern, and the Company's former Joint Venture partner, Hainan Airlines,
China Southern acquired the entire equity interest held by Hainan Airlines,
representing 30% of the Joint Venture, for US$2,580,000. Further, China Southern
agreed to invest an additional US$4,780,000 in capital contributions of cash and
real estate in exchange for an additional 15% interest in the Joint Venture,
which will raise China Southern's total stake to 45% upon the completion of the
additional contribution.

          The Company anticipates that Hainan-Phoenix will generate revenues
from (1) reservation bookings and processing fees for each airline seat sold and
each hotel room night booked; (2) reservation center services fees; (3) fees and
commissions on Chinese domestic airline tickets sold to foreign, inbound China
passengers; (4) fees from tour and cruise bookings, car rentals and China travel
network advertising; and (5) a portion of the airfare from international
carriers entering into joint marketing agreements with the Company. The Company
has granted Hainan-Phoenix a 50-year license for the exclusive use in China of
the PHOENIX-AIR and PHOENIX-HOTEL reservation systems.

          As of March 31, 1997, Hainan-Phoenix had expended approximately
$1,800,000 to acquire hardware, system software, networking and processing
equipment, including terminals. Hainan-Phoenix utilized these assets to (1)
further refine its reservation system to make it possible to sell China's travel
products both domestically and internationally; (2) commence system training and
installation; (3) organize a marketing force to promote use of the reservations
system by other airlines and hotels; (4) market the Company's systems to Chinese
ground operators; and (5) provide services to support PSL's efforts to market
internationally Hainan-Phoenix's inventory of travel products.

          At the time of formation of the Joint Venture, the Company instituted
a four-step process to roll-out its reservation system:

          1.   Pre-Installation - The Company finalized hardware specifications,
               ordered hardware, obtained export licenses and implemented
               PHOENIX-AIR and PHOENIX-HOTEL management training.

          2.   Installation - The Company finalized the installation of its
               computers and terminals and conducted Company-level testing of
               and training for its Stratus, PHOENIX-AIR and PHOENIX-HOTEL
               systems. In February 1995, the Company installed an initial
               reservations center in Haikou, the capital city of Hainan
               Province.

          3.   Roll-out - The Company is conducting user training on PHOENIX-AIR
               and PHOENIX-HOTEL.

          4.   Operation and Marketing - The Company is conducting on-going
               hardware and software maintenance and systems marketing.


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          The Company has completed all of the stages of this roll-out process.

China Travel Network Opportunity

          HPIS has developed the China Travel Network ("CTN"), an industry
network for China that will serve as a common platform for network
communications, office automation and e-mail. The users will be Chinese airline
carriers, airport authorities, information systems suppliers such as hotels,
travel agents, tour companies and cruise lines. HPIS will sell connectivity to
CTN, which includes the PHOENIX-AIR and PHOENIX-HOTEL software. The Joint
Venture's travel products will be available on the internet. HPIS's software
development team will make on-line reservations available on the world-wide-web
using the Netscape software interface. The HPIS web site will allow any user in
the world to have access to flight schedules, hotels, destination information,
and other travel services in China.

          Through the Ministry of Post and Telecommunications ("MPT"), HPIS has
arranged to build its private network on China's national fiber optic backbone
communications network. The MPT network supports a variety of advanced
communications services, i.e., DDN, X.25, etc. The MPT has confirmed that it has
both the capacity and capability to provide and fully support the growing data
network requirements for the Joint Venture. The Joint Venture may also use
satellite networks for its communications needs.

          The CTN is an integral part of HPIS's plan to develop the China
market. Through CTN, HPIS can provide a wide variety of travel information
services to airlines, hotels, and travel agents in mainland China. CTN supports
an open architecture which allows users to connect through private leased
networks, satellite networks, dial-up networks or via the internet.

          The backbone network for CTN will have HUB centers in the 70 largest
cities in China. The HUB centers will be the entry point for the CTN end-users,
namely, the travel agents and booking agents for the airlines and hotels. Each
HUB center will connect to the HPIS operations processing center via a satellite
link. The HUB centers will support end-user communications that include leased
line, dial-up, and X.25 connections.

          CTN will provide the Chinese airlines, hotels, and travel agents with
the distribution system they have been lacking. The only feasible alternative in
China is the CAAC-MIS network which is application dependent, unlike the CTN
open architected intelligent network. Additionally, it is unreliable and would
be expensive to use. With the CTN backbone in place, HPIS will be able to retain
the full booking fee on its hosted airlines without paying a fee to a network
provider. Also, the CTN network will facilitate the sale of hotel rooms for
which the booking fees are high. Generally, the cost of selling hotel rooms is
negligible, because the sale of the airline seat feeds the hotel sale.

Other Opportunities for the Data Network

          Underlying the CTN is a sophisticated, private network built on top of
the leased lines from MPT. This private network has tremendous bandwidth
expansion capabilities. Originally, the vision of HPIS was to utilize this
private data work only for the needs and functions of CTN. However, as we are
making the investment, it has become clear that the underlying data network is
an important asset that can be utilized for other travel and transportation
segments or even completely different industries, such as insurance. This
strategic asset could be leveraged into other China joint ventures which offer
significant revenue growth.


                                       10

<PAGE>   11

Phoenix has identified the strategic uses of the underlying data network and has
initiated the business planning reviews to determine how best to leverage this
asset.

TRAVEL AND TOURISM INDUSTRY

General

          Phoenix is positioned in an industry that until now has had limited
competition due primarily to the high cost of entry and the amount of
specialized expertise needed to compete effectively. Any business requiring
significant systems development is plagued by two difficult problems --
front-end-loaded costs and long development lead times. Phoenix has successfully
made it through its systems development and beta test phases and established a
significant travel industry joint venture in China.

          The travel industry, especially the air travel industry, is undergoing
a revolution. Questions are being asked increasingly about channel issues -- the
role of travel agencies, status of the global computerized reservation systems
("CRS's"), the internet, corporate booking systems, direct consumer booking, and
so on. Ticketless travel is spreading, increased security measures demand new
applications, low fare airlines are demanding a thorough look at every element
of cost, and the traditional handling of revenue is falling behind today's
technology and money management protocols. Developing countries are demanding
products and services comparable to those of the more developed nations. These
revolutionary developments require that systems change to accommodate new
realities. Legacy systems have historically resisted making expensive changes,
which creates a significant opportunity for companies like Phoenix. Phoenix has
developed technology with the functions, price, and performance required to fill
the industry needs and has recruited people with the background and knowledge to
put the technology to effective use.

          Phoenix has chosen a differential strategy from other companies that
have developed airline reservation systems. While essentially developing
discrete products, Phoenix only offers its products through joint ventures that
have long-term growth and revenue potential on a transaction-fee basis. The
Company seeks maximum leverage from its product investments. This philosophy
positions the Company to be involved as a majority share owner of joint ventures
in rapid-growth markets, such as the China travel industry activities. The
Company focuses its marketing and sales efforts on the formation of large joint
ventures rather than simply a product sale.

Overview of the Industry

          Since the 1950's, the travel and tourism industry has been growing at
a rate of 10% to 11% annually. This growth can be attributed to many factors,
including socioeconomic developments, the technological advancement of the
airline industry, the rapid expansion of the hotel industry and product
distribution methods, and the strategic automation of, and communication among,
travel agencies and tour companies. The travel industry has also benefited from
the development of CRSs which facilitate travel planning. Today there are six
preeminent global CRSs in the industry providing services primarily to North
America, Europe and Latin America and one providing service primarily to Asia.
The names and principal sponsors of each of these systems are set forth below:




                                       11

<PAGE>   12


<TABLE>
<CAPTION>
 CRS                    Primary Sponsors
----                    ----------------
 <S>                    <C>
 ABACUS                 Royal Brunei, Cathay Pacific, Korean Air, Malaysia
                        Airlines, Philippine Airlines and Singapore Airlines
 SABRE                  American Airlines
 GALILEO International  United Airlines, US Air, British Airways, Swiss Air,
                        KLM, Alitalia and Air Canada
 AMADEUS                Continental, SAS, Iberia, Lufthansa,
                        Air France, Varig and Argentina
 WORLDSPAN              Delta Airlines, Northwest Airlines, TWA and Abacus - an
                        Asian CRS
 GABRIEL                SITA
</TABLE>


          Together, these systems provide service to approximately 40,000 travel
agency subscribers in the USA and a total of 75,000 subscribers worldwide.
Subscribers to these systems account for 90% of the travel agents in their
respective markets.

          Many industry analysts agree that opportunities for growth within the
travel and tourism industry lie principally in less developed travel markets.
Vast developing nations such as China, India and Russia as well as less
developed countries in South America and Southeast Asia, have become
increasingly lucrative areas for travel and tourism operators. These markets
present enormous opportunities as international travel destinations.
Furthermore, due to the size of their populations, such markets offer enormous
numbers of potential travelers.

          With the growth of travel and industry, many countries have
decentralized their travel industries. One result has been large growth in the
number and use of small regional airline carriers in many developing markets.
The Company expects this trend to continue as governments try to generate the
revenues associated with attracting increased travel and tourism. The Company
believes that these airlines, and the markets they serve, present the Company
with opportunities for future growth.

          This growth in small regional airline carriers is also taking place in
the United States. Low cost/low fare, point-to-point, cost-conscious carriers
are increasing in number and size. The Company feels that it can profit from
this growth by marketing Phoenix's low cost effective airline reservation system
as an alternative to higher priced mainframe legacy systems.

          Many of these new domestic United States carriers also desire to
outsource their reservations centers. The Company feels it can fill this need
through its airline reservation center.

Airline Reservations

          In 1996, the travel industry is among the world's largest industry
sectors. A major factor in propelling this industry to preeminence has been
reservation systems and information technology. First introduced in the airline
industry approximately 35 years ago, reservation systems have spread to all
facets of the travel industry -- reducing costs, making travel information
readily available, and greatly facilitating the booking of reservations. These
systems have greatly increased the volume of travelers the industry can handle,
making it possible for more and more people to participate in this expansion.


                                       12

<PAGE>   13



          Because travel industry automation has its roots in the early era of
corporate automation, it is not surprising that most of the existing systems in
use today are of the type known today as "legacy systems" -- large,
central-processing mainframes with large dedicated networks of leased lines and
tens of thousands of dumb terminals. A major characteristic of these systems is
the dependence on specialized and proprietary hardware, software, and
communications equipment that is costly, requires special engineering, and has
long lead times for procurement. The user interfaces are cryptic and lead times
for modification and enhancement are extraordinarily long. The costs associated
with these systems make them acceptable only to the highest volume locations of
the travel industry, especially North America and Western Europe, and, even
then, the associated telecommunications architecture inherent in these systems
make them cumbersome and expensive to operate.

          Since 1992, the Company has been developing solutions that make it
possible for travel providers of all sizes -- from a single 50-room hotel or a
start-up airline with one airplane to large hotel chains or major air carriers
-- to participate in this automation revolution. It also allows companies in
places like China, Russia, India, or Eastern Europe to have access to the
reservation system functionality found anywhere else in the world. And because
Phoenix bases its technology on modern platforms using up-to-date
industry-standard hardware, systems software, and telecommunications
architecture, its systems are less susceptible to obsolescence and do not
require large numbers of telecommunications or systems software professionals.

Travel and Tourism in China

BACKGROUND

          The travel and tourism industry in China has grown over 20% annually
over the past six years. The Chinese government and private enterprises have
committed to the further development of the infrastructure of China. China has
made major commitments to build new airports, update older airports, purchase a
substantial number of new aircraft and build deluxe and luxury hotels throughout
the country. It is estimated that due to the rising demand in China, the number
of aircraft in China will increase from approximately 450 currently, to 1200 by
the turn of the century. As China increases its hotel and airline capacity, the
need for sophisticated and affordable information systems solutions expands.

CHINA'S TOURISM INFRASTRUCTURE PROBLEM

          China's hotels and ground transportation are developing to a point of
maturity comparable to many countries in the western world. Several of the
country's airlines have established themselves in the international marketplace.
Unfortunately, the development of a broader market for business and leisure
travel to China has been hindered by a reservation system that is dependent on
inefficient communications technology: telephone, telex, facsimile and mail. It
is not uncommon for travel agents in foreign markets to wait days for
confirmations and reconfirmations. The current system is costly and cumbersome
for Chinese travel providers and for travel agents in foreign markets.

          For an airline's products to be sold effectively, they must be
available through an industry-compatible travel information network and be on an
automated reservation system. They must be accessible in exactly the same way as
every other carrier's products. To date, this has not been the case for China's
domestic airlines and hotels.



                                       13

<PAGE>   14


          Hence, the lack of a modern comprehensive travel information network,
computerized reservation systems, and modern call center technology has severely
hindered Chinese efforts to develop an effective marketing or sales presence to
promote their tourism business in major origin markets.

CURRENT STATUS OF TRAVEL AND TOURISM IN CHINA

          The development of a broader domestic market for business and leisure
travel within China, as well as that for international travel, is hindered by a
widespread lack of access to a reservation system in China. While CAAC offers a
reservation system, the system is only capable of making domestic reservations
on some airlines. CAAC's technology and communications are outdated and are
believed to be inadequate for China's needs. As a result, the Chinese travel and
tourism industry continues to depend largely on manual reservation systems. The
lack of a modern reservation system hinders China's efforts to develop an
effective marketing or sales program at home or abroad, as it proves costly and
cumbersome for Chinese travelers and travel providers both inside and outside of
China.

          On January 24, 1996, the Company announced that its Joint Venture
received formal approval from the Civil Aviation Administration of China
("CAAC") to operate the Joint Venture's reservation systems for air travel
within China. Hainan-Phoenix is the only commercial entity to receive formal
approval to operate a reservation system in China. The CAAC, like the Federal
Aviation Administration in the United States, is the official regulatory body
for the airline industry.


          With the implementation of the Company's reservation system throughout
China, scheduled to occur by mid 1998, both Chinese and foreign travel agents
are expected to have on-line access to Chinese domestic airlines and to many of
the country's domestic hotels. The Company's reservation system allows
subscribing travel agents worldwide to reserve and confirm airline seats and
hotel rooms in China, a service that has been unavailable to date. The Company's
reservation system is also expected to allow travel agents who previously earned
no compensation for selling domestic Chinese airline tickets to earn a
commission for the services that they provide to their customers. Hainan-Phoenix
also anticipates earning fees from bookings made through its reservation system
for airline seats, hotel rooms, tours and other Chinese travel products that may
be offered through the Company's reservation system.



AIRLINE INDUSTRY

General Background

          Most airline tickets are sold by independent retail travel agencies
using any one of the six CRSs which now dominate the travel industry: SABRE,
GALILEO, WORLDSPAN, AMADEUS, ABACUS and GABRIEL. These CRSs provide the
database, automation and means of communication for most of the world's travel
agency locations, which number more than 80,000. For an airline's products to be
sold effectively, they must be available through one of these industry-standard
CRSs. To date, this has not been the case for China's domestic airlines and
hotels. However, through the Company's agreements with GALILEO, WORLDSPAN and
SYSTEMONE/AMADEUS, the Company's reservation system users have access to the
information stored by these mainframe CRSs. See "--The Company's Reservations
Systems."


                                       14
<PAGE>   15




Chinese Domestic Airlines

          Prior to 1988, there was only one Chinese airline, operated by the
Civil Aviation Administration of China ("CAAC"). In 1988, CAAC broke up its one
airline into six: Air China (the country's international flagship carrier) and
five regionals (China Southern, China Eastern, China Northern, China Northwest,
and China Southwest). Furthermore, CAAC decided to allow the formation of
independent and provincial airlines, of which there are now more than 30.

          Subsequently, CAAC has allowed the five regionals to fly international
routes. China Southern, for example, flies to Japan, Malaysia, Singapore,
Cambodia, Thailand, Vietnam, and will start service to the U.S. via Los Angeles
in 1997.

          Domestic passenger traffic within China is the fastest growing segment
of the world's commercial air transportation market with a growth rate between
1990 and 1996 of approximately 30% per year, compared with less than 3% for the
rest of the world. There were 13.5 million domestic air passengers in 1990, 40
million in 1994, approximately 50 million in 1995 and over 58 million in 1996.
China's domestic traffic is projected to grow by an average annual rate of 15%
to 20% for the next decade.



<TABLE>
<CAPTION>
                         EST. 1996 PASSENGER
AIRLINE                     VOLUME (000's)
-------                     ------
<S>                            <C>
China Southern*               12,180
Hainan*                        1,236
China Eastern                  6,938
Air China                      6,675
China Southwest                5,652
China Northern                 4,871
China Northwest                3,070
Yunnan                         2,528
Xiamen**                       2,499
Shanghai                       1,727
Xinjiang                       1,384
Sichuan                        1,044
Xinhua                           884
Shenzhen                         785
Wuhan                            736
Zongyuan                         518
Fujian                           500
China United                     430
All Others                     4,743
                              ------
                              58,400
                              ======
</TABLE>


*  Under contract
** Part of the China Southern Group







                                       15


<PAGE>   16



          In the 1990's, China has been the largest region of airport expansion
in the world with more than 25 airport development/expansion projects in the
works and airport capacity expected to triple by the year 2000.

THE OPPORTUNITY FOR THE COMPANY

          Hainan-Phoenix provides an affordable, in-country reservation system
alternative to Chinese customers. Furthermore, Hainan-Phoenix will distribute
and sell worldwide its inventory of airline seats, hotel rooms and other travel
products. Hainan-Phoenix's database of Chinese travel products, easily
accessible to travel agents everywhere, is expected to enable travelers to and
within China to book reservations as they would to other major travel
destinations.


COMPANY PLAN OF DEVELOPMENT

          With respect to the global market, the Company proposes to establish
agreements with the CRS service suppliers and interline agreements with the
major international airlines now serving China. In 1995 and 1996, the Company
announced agreements with Galileo International (CRS), SystemOne (CRS) (now
SystemOne/Amadeus) and SITA (communications access), making it possible for
Phoenix's proposed travel services and products to be available through travel
agent terminals worldwide. The Company anticipates reaching agreements with
additional CRS systems in the future. Airline interline agreements would enable
international carriers to sell directly from the Company's inventory of domestic
Chinese airline seats and hotel rooms. For example, from the United States, the
two dominant carriers to China are Northwest and United Airlines. Both of these
airlines would offer Phoenix an appealing CRS affiliation. United Airlines,
along with British Airways and others, is on the GALILEO CRS, which has 49,000
travel agency subscribers worldwide (12,500 of these in the United States).
Northwest, along with TWA and Delta, is on the WORLDSPAN CRS, which has more
than 10,000 travel agency subscribers (40,000 terminals) in the United States
and Canada, as well as more than 1,000 agencies in other countries. WORLDSPAN
also provides access to ABACUS, a Singapore-based CRS, which has more than 2,500
travel agency subscribers in the Pacific Rim.

          PSL seeks to position itself in worldwide travel markets as a
principal distributor of travel products and information about China. The
Company proposes 9to assemble a flexible array of travel components, and to
capitalize on the Company's reservation systems by warehousing these products
and distributing them in foreign markets. More specifically, the Company plans
to follow the following four-point plan:


          1.   The Company will link its international database of airline and
               hotel inventory to Phoenix's principal office in St. Petersburg,
               Florida and to industry owned communications networks, including
               Societe Internationale de Telecommunications Aeronautiques
               ("SITA") and Aeronautical Radio Incorporated ("ARINC") to enable
               the flow of standardized reservation messages and traffic between
               systems. This step is critical to allowing international
               promotion of China's travel products.




                                       16
<PAGE>   17



          2.   The Company will establish "interline agreements" with major air
               carriers and reservation systems outside China on behalf of
               Hainan-Phoenix's subscribing airlines. These agreements will
               enable the Company to display and sell seats on China's domestic
               flights through other airline systems and to arrange revenue
               settlement procedures which are compatible with and acceptable to
               the established travel industry.

          3.   The Company will develop and sell individual and group travel
               products to travelers going to China. These products may be sold
               directly or by wholesale and retail travel agencies worldwide.

          4.   The Company will organize advertising and promotional programs to
               position the Company as the premier U.S. source of travel
               products to China and develop a professional sales force to
               support the marketing efforts.


U.S. BASED RESERVATION AND CALL CENTER SERVICES

Airline Market

          The Company has made progress in turning its software beta site into a
profitable operation. The Company believes there are excellent business
opportunities in providing reservation and call center services to a variety of
airlines and transportation companies. The type of clients sought are:

          -    Small to medium airlines that need a full-service bundled
               reservation system and call center operation.

          -    International airlines that would like a specialist company to
               handle the U.S. call center requirements.

          -    U.S. airlines that would like a specialist company to handle
               specific call center activities, such as cargo bookings.

          The Company started a St. Petersburg-based full-service airline
reservation and call center operation in mid-1995. The original purpose was to
have a beta site to help improve the software and to test the system in real
life. Eastwind Airlines, a ticketless start-up, was the first customer. In April
1996, the Company signed Laker Airways as the Company's first international
customer.

          Recently, the Company's new management team determined that
subsidizing this service bureau was no longer necessary and tightened the terms
and pricing that were part of the beta site philosophy. This pricing action
resulted in Eastwind moving to another supplier, but has moved the Phoenix
operation into profitability. A much larger new-entrant airline with plans for a
15-aircraft fleet and service to begin in the second half of 1997 has selected
Phoenix to provide full-service reservations and call center services. The
contract is pending final signatures and start date.



                                       17

<PAGE>   18


          Based on the experience to date, the Company believes that there is a
significant opportunity in serving small to medium domestic and international
airlines with a more complete and integrated set of call center offerings. While
the Company has the airline and transportation industry experience, it will need
a larger call center partner to provide the scalability and management
specialization to compete for larger accounts. The Company is currently in
discussion with a call center company to determine how to best structure a joint
venture between them to address the opportunities. The current U.S.-based
company operation would become part of a larger market initiative. Phoenix will
bring industry knowledge and proprietary solutions, built or acquired, while the
partner will have the facility, manpower, and management responsibilities. The
current market for call center services to international and small to medium
domestic airlines is estimated at $200+ million annually. Additionally, the
Company plans to use its China relationships to position itself as the
facilitator/partner for all Chinese travel companies that want/need automation
in the U.S.

Airline Cargo Market

          The airline industry as a whole has viewed cargo as an ancillary
function and has not provided the same level of technology and service to cargo
as they have to the passenger business.

          The industry is split between airlines that are hosted (100+ carriers)
and those that operate mainframe-based systems (25+). All of these systems are
outdated; but even more importantly for Phoenix, the majority of all of these
airlines do not operate a consolidated call center handling function for cargo
calls. Most airlines handle cargo calls at decentralized locations, such as
major cargo facilities, and thus provide a lower level of customer service,
lower agent productivity with higher costs, and the risk potential for
significant lost revenue.

          Phoenix intends to provide a high-quality neutral call center
transaction service to the airline industry in partnership with both a major
call center facility management company and a state-of-the-art cargo software
provider.

          One major U.S. airline, for example, has a cargo-dedicated call center
operation. An industry neutral, Phoenix can provide such service to the majority
of airlines that have not benefited from consolidation, and thus generate both
savings to the airlines and revenues and profits to Phoenix.

          Key targets are:

     -    Top 20 U.S. airlines that have decentralized cargo call handling
          operations

     -    SITA-hosted airlines (29)

     -    U.S.-based international airlines - target market is the top 20 of
          over 100 airlines that have U.S. cargo operations

     -    Tier two and three U.S. airlines

          All of the above categories of airlines together are estimated to
spend over $200 million per year in cargo call handling activities.




                                       18



<PAGE>   19



Hotel Reservation Service

          Phoenix intends, through alliances, partnerships and acquisitions, to
provide the hotel industry with a state-of-the-art hotel reservation
transaction-based service that will provide call center, global distribution
system ("GDS"), internet booking, and reservation system technology for hotel
companies. The initial target market is the U.S. However, the European hotel
market will also be addressed. Phoenix will offer a full-service, one-stop,
neutral and fully-integrated reservations service.

          Two markets currently exist in the U.S. for this service: a
full-service market with call center, GDS interface and reservations systems and
a mid-level market center for GDS and reservations system. Phoenix will market
to both. The market categories combined are in the range of $150 million per
year of targeted revenue.

COMPETITION

General

          Phoenix faces competition from the following types of companies:

   -    Product companies that own a reservation system. These companies have
        not taken the long-term position by investing in China, for example, nor
        have they focused on offering reservation services. These product
        companies range from Dakota System, Unisys, Reservision, and Open Skies.
        Phoenix does not attempt to make a "product sale" and these companies do
        not attempt to make joint ventures for reservation services.

   -    Computerized reservation systems ("CRS's"), such as Sabre, Galileo,
        and Amadeus, are potential competitors to the type of business travel
        industry joint venture the Company has in China.  The CRS's have
        immense fixed-in-place mainframe systems and would be formidable
        competition if the target environments were open to competition from
        afar.  However, in developing areas of the world, these CRS's are
        generally prohibited from openly doing business.  China, for example,
        has an Administrative Rule #50 that prohibits foreign CRS's from
        operating in China.  This rule allows the Company to develop its Joint
        Venture without the threat of its most serious competitors.

   -    Competition in the U.S. markets for airline call center transaction
        service is limited in the markets that Phoenix is entering, i.e., new
        entrant airlines, small/medium established airlines and U.S.-based
        international airlines. This also applies to the airline cargo call
        center service market.

   -    The hotel full-service call center market does have a higher level of
        established competition. Partnerships and alliances with established
        call center facility management and hotel software companies are
        essential to success.

Competition in China

          The Company faces competition from the China Civil Aviation Authority
MIS Department ("CAAC-MIS"). CAAC-MIS operates a Unisys-based airline
reservation system and a similar separate system configured to operate as a
CRS. These systems support all airlines in China. The carriers on these systems
are generally dissatisfied with poor service levels, poor get communication
networks, inability to customize the system for their needs, lack of management 

                                       19


<PAGE>   20

reports, and other reasons. The Company believes that, given a choice, all
airlines in China would switch to a better supplier.


          China Southern, in joining the Joint Venture and becoming the first
major airline to contract for reservation services, has clearly set the tone for
the future. CAAC-MIS has lost the governmental monopoly it has enjoyed.
Hainan-Phoenix is the only organization to be in the process of mounting a
better system and network for the airline and travel industry.



          Hainan-Phoenix does have a significant issue and risk regarding
CAAC-MIS. This risk is that the Hainan-Phoenix system must communicate with the
CAAC system to share airline and travel agent bookings. CAAC-MIS is dragging
their feet in authorizing the connection (an industry standard interface) to
Hainan-Phoenix. However, China Southern Airlines assures Hainan-Phoenix that it
can remove any political obstacles in this regard.

TRADEMARKS AND COPYRIGHTS


          Phoenix applied for federal registration of the trademark "PHOENIX,"
"PHOENIX-AIR" for Phoenix's airline reservation system and "PHOENIX-HOTEL" for
Phoenix's hotel reservation system, which applications were approved by the
United States Patent and Trademark office.

          Phoenix has also received copyright protection for the software
programs of "PHOENIX-AIR" and "PHOENIX-HOTEL". However, copyright protection
granted by the United States Copyright Office affords only limited practical
protection against duplication of the media embodying the programs.

EMPLOYEES

          At May 31, 1997, the Company had 70 employees including executive
officers to the Company. The Company believes that its future success will
depend, in part, on its ability to attract and retain qualified personnel. None
of the Company's employees is currently represented by a labor union. The
Company considers its relations with its employees to be good.



ITEM 2. PROPERTIES


          On July 29, 1993, the Company entered into a six-year lease for
approximately 10,000 square feet of office space in St. Petersburg, Florida. On
July 13, 1995, PSL entered into a seven-year lease for approximately 9,000
square feet of office space in the same building.


          Pursuant to the Joint Venture Agreement as modified, Hainan Airlines
has provided Hainan-Phoenix with 600 square meters in its office building in
Haikou, Hainan for a period of 38 months. In addition, Hainan-Phoenix has leased
30 square meters in Beijing in the China Air Service Building at a cost of
$1,000 per month to support the Joint Venture's marketing efforts. Rent expense
for such space in fiscal 1997 and 1996 was approximately $988,000 and $730,000,
respectively. See Note 7 of the Consolidated Financial Statements.






                                       20


<PAGE>   21



ITEM 3. LEGAL PROCEEDINGS

UNGERLEIDER V. ROBERT P. GORDON, PHOENIX INFORMATION SYSTEMS CORP., ET AL.

          On April 13, 1995, Bruce A. Ungerleider, M.D. (the "Plaintiff"), filed
a complaint in the United States District Court for the Middle District of
Florida (Tampa Division), Civil Action No. 95-568 (the "Complaint"), against
Robert P. Gordon ("Gordon"), Phoenix Information Systems Corp. ("Phoenix"),
Harvest International of America, Inc. ("Harvest") and John Does 1 through 10
inclusive (together with Gordon, Phoenix and Harvest, the "Defendants").

          The Plaintiff's claims essentially relate to alleged agreements,
misrepresentations and omissions made prior to the time of, or in connection
with, a written settlement agreement entered into on April 15, 1993 between
Plaintiff and Gordon, Phoenix and Harvest (the "Settlement Agreement"). The
Plaintiff also alleges that Gordon made oral promises to induce Plaintiff to
enter into the Settlement Agreement including an oral promise to give Plaintiff
shares of Phoenix stock in addition to the shares specified in the Settlement
Agreement. Plaintiff alleges that he was fraudulently induced to enter into the
Settlement Agreement pursuant to which he released his rights to, among other
things, options, payments and a finders fee in connection with investment monies
subsequently received by the Company from S-C.

          In December 1994, S-C consummated its investment in the Company. In
connection with S-C's investment, Robert J. Conrads, a director of the Company
who introduced the Company to S-C, received a finders fee which entitled him to
600,000 shares of Common Stock. See "Item 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Financing
Transactions."

          The Plaintiff claims that the Defendants, and each of them
individually, violated the antifraud provisions of the Federal and Florida
securities law, the civil theft provision of Florida law, and Florida common
law. The Plaintiff seeks rescission, and compensatory and treble damages in the
amount of $60 million.

          The management of Phoenix is of the opinion that the lawsuit is
without merit, and that there are meritorious defenses to the claims. The
management of Phoenix also is of the opinion that the April 15, 1993 agreement
referred to in the previous paragraph is a valid and binding compromise and
settlement agreement in accordance with its terms.

          All of the defendants moved to dismiss the complaint and the motion
has been sub judice since September, 1995. On August 7, 1996, the District Court
granted Phoenix's motion to dismiss substantial portions of Plaintiff's claims.
The court rejected Plaintiff's claims of fraudulent inducement to enter into the
Settlement Agreement, which effectively precludes Plaintiff from trying to
enforce a finders fee agreement or any of the options, payments, or other rights
which he released as part of the Settlement Agreement. Plaintiff was given leave
to amend his Complaint, but the court's order required him to do so in a manner
consistent with the court's order, which precludes Plaintiff's claims related to
alleged oral promises made prior to the signing of the Settlement Agreement. On
August 22, 1996, Plaintiff filed a Second Amended Complaint, which in its first
eight counts essentially reiterated the claims which the District Court
dismissed on August 7, 1996. Plaintiff also has sued Phoenix for allegedly
participating in repossessing 1.2 million shares of Phoenix stock from Plaintiff
and failing to perform oral promises which Plaintiff contends were part of the
Settlement Agreement. The Defendants have


                                       21

<PAGE>   22

moved to dismiss or strike the Second Amended Complaint, in part because the
allegations contradict the rulings contained in the District Court's August 7,
1996 order. The case was referred to mediation for settlement discussions.
However, mediation has been postponed because Plaintiff's counsel moved for and
was granted leave to withdraw from the case as reflected by the court's
September 2, 1996 order. On January 16, 1997, new counsel entered an appearance
on behalf of Plaintiff.

CHARLES CHANG AND JULIETTE CHANG V. ROBERT P. GORDON AND PHOENIX INFORMATION
SYSTEMS CORP.

          On or about November 17, 1995, Charles Chang ("C. Chang") filed a
complaint against Defendants Phoenix, Robert P. Gordon, and Harvest
International of America, Inc. ("Harvest"), in the Supreme Court of the State of
New York, County of New York. The defendants removed the action to the United
States District Court for the Southern District of New York. On April 16, 1996,
C. Chang and his wife, Juliette Chang (collectively with C. Chang, the
"Plaintiffs") filed an Amended Complaint in the United States District Court for
the Southern District of New York, Docket No. 96 Civ. 152 (the "Amended
Complaint"), against Phoenix and Robert P. Gordon. The Amended Complaint alleges
claims against Phoenix for violation of Federal securities laws, the
Racketeering Influenced and Corrupt Organizations Act, common law fraud, and for
an accounting. The Amended Complaint seeks an unspecified amount of damages to
be determined and purports to seek punitive damages in the sum of $10,000,000.

          The action appears to be based on an alleged business relationship
between Robert P. Gordon and C. Chang to engage in business in China. In
addition, the Amended Complaint alleges that Robert P. Gordon and C. Chang had
an oral agreement to exchange certain shares of Harvest owned by C. Chang for
certain shares of Phoenix held by Robert P. Gordon. Plaintiffs do not allege
that Phoenix was a party to any of the transactions alleged in the Amended
Complaint.

          The management of Phoenix has been advised by counsel that it has
meritorious defenses to the Amended Complaint and intends vigorously to defend
the action. Phoenix and Robert P. Gordon have moved to dismiss the Amended
Complaint. There can be no assurance, however, that Phoenix will be successful
in defending the action and the Company is unable to state the potential outcome
of this lawsuit. In the event that the action ultimately concludes in an adverse
manner, then Phoenix's business, financial condition and future prospects could
be materially adversely affected.


          The motion of defendants Robert P. Gordon and Phoenix to dismiss the
Amended Complaint in this action has been fully submitted and is awaiting
decision. The Court has stayed discovery in the action pending a decision on the
motion to dismiss.


<TABLE>
<CAPTION>
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
<S>      <C>

         Not applicable.
</TABLE>






                                       22


<PAGE>   23

ITEM 5.   MARKET INFORMATION

          On May 9, 1991, the Company's Common Stock became quoted in the
Over-The-Counter market in the "Pink Sheets" and on the Electronic Bulletin
Board.

          On April 13, 1995, Phoenix submitted an application to have its Common
Stock listed on the NASDAQ Stock Market (the "NASDAQ"). On January 25, 1996, the
NASDAQ Stock Market had determined that the Company does not meet its listing
requirements.

          The current bulletin board symbol is "PHXS." Set forth below are
prices of the Company's Common Stock for the periods indicated as quoted by the
National Quotation Bureau, Inc.:


<TABLE>
<CAPTION>
                                        Bid
                                        ---
                                    High         Low
                                    ----         ---
Fiscal 1996
-----------
<S>                              <C>          <C>
April 1 - June 30, 1995          $ 3 3/4      $ 2
July 1 - September 30, 1995        5 1/2        1 1/8
October 1 - December 31, 1995      5 1/8        1
January 1 - March 31, 1996         4            1


Fiscal 1997
-----------
April 1 - June 30, 1996            3 11/16      2 1/16
July 1 - September 30, 1996        2 1/8        1 9/16
October 1 - December 31, 1996      3 5/8        1 1/2
January 1 - March 31, 1997         2 3/8        1 3/16
</TABLE>


          On May 31, 1997, the closing high bid and low asked prices for the
Company's Common Stock as reflected on the electronic bulletin board were $1
11/32 and $1 3/8, respectively. The above quotations reflect interdealer prices
without retail markups, markdowns or commissions and do not represent actual
transactions.


          The number of record holders of the Company's Common Stock as of May
31, 1997 was 1,051. No cash dividends have been paid by the Company on its
Common Stock and no cash dividend payment is anticipated in the foreseeable
future.














                                       23



<PAGE>   24


ITEM 6.   SELECTED FINANCIAL DATA

          The following is selected financial information only, and is qualified
by the consolidated financial statements and notes thereto, which are set forth
in their entirety elsewhere in this Form 10-K.


<TABLE>
<CAPTION>
====================================================================================================================================
                                                                                                                    Cumulative Since
                                                                                                                      April 1, 1989
                                                                                                                     (Inception) to
                                                                   Year Ended March 31,                              March 31, 1997
------------------------------------------------------------------------------------------------------------------------------------
                                             1997           1996            1995         1994            1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>            <C>             <C>           <C>             

Income Statement Data:
Revenues                                $  1,135,368   $    770,535   $    289,645   $     18,000    $        -0-  $   2,222,548
------------------------------------------------------------------------------------------------------------------------------------
Start-Up and Organizational Expenses,
to exclude Preferred Stock Dividends     (13,225,740)   (11,404,534)    (5,507,242)    (2,585,940)     (1,641,252)   (35,592,084)
------------------------------------------------------------------------------------------------------------------------------------
Interest and Dividend Income                 294,485         25,704         21,708              8             400        344,511
------------------------------------------------------------------------------------------------------------------------------------
Net Loss                                 (11,031,821)    (9,704,318)    (4,841,824)    (2,567,932)     (1,640,852)   (31,011,917)
------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Dividends                 (1,362,051)           -0-            -0-            -0-             -0-     (1,362,051)
------------------------------------------------------------------------------------------------------------------------------------
Net Loss Applicable to Common Stock      (12,393,872)    (9,704,318)    (4,841,824)    (2,567,932)     (1,640,852)   (32,373,968)
------------------------------------------------------------------------------------------------------------------------------------
Loss Per Common Share                           (.26)          (.23)          (.19)          (.12)           (.08) Not Applicable
------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common
Shares                                    46,784,705     41,727,774     25,836,623     22,161,238      20,867,000  Not Applicable
------------------------------------------------------------------------------------------------------------------------------------
Cash Dividends                          $        -0-   $        -0-   $        -0-   $        -0-    $        -0-  $         -0-  
------------------------------------------------------------------------------------------------------------------------------------



Balance Sheet Data:
Working Capital (Deficit)               $  6,138,266   $   (919,317)  $    772,086   $   (751,358)   $  (586,126)
------------------------------------------------------------------------------------------------------------------------------------
Total Assets                              17,780,781      5,482,717      4,584,348        300,467        117,816
------------------------------------------------------------------------------------------------------------------------------------
Long Term Debt                                50,268        173,075          9,391             -0-            -0-
------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit)      14,698,697        653,367      2,463,970     (2,495,508)      (953,202)
====================================================================================================================================
</TABLE>





                                       24

<PAGE>   25






ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

INTRODUCTORY STATEMENT

          Statements other than historical information contained in this report
are considered forward looking and involve a number of risks and uncertainties.
Factors that could cause such statements not to be accurate include, but are not
limited to, increased competition for the company's products, improvements in
alternative technologies, a lack of market acceptance for new products
introduced by the Company and the failure of the Company to successfully market
its products.

          Phoenix Information Systems Corp. ("Phoenix" or the "Company") is a
development-stage information systems and services company that has developed
airline and hotel travel reservation systems.


          In fiscal 1996, Phoenix commenced limited operations in the United
States and China. Efforts are under way to enlist additional airlines, hotels
and other travel service providers. While Phoenix has now commenced operations,
the Company has only a brief operating history and has yet to generate
significant revenues or earnings. Consequently, Phoenix's continued existence
depends, primarily, upon its ability to raise capital.


          In China, Phoenix has installed and begun to operate its advanced
computerized travel reservation system for domestic airlines. Phoenix provides
state-of-the-art, travel-related information services to China through its 70%
owned joint venture with China Southern Airlines Company, Ltd.


RESULTS OF OPERATIONS

          During the fiscal years ended March 31, 1997, 1996 and 1995, Phoenix
sustained net losses of $11,031,821, $9,704,318, and $4,841,824, respectively.
These losses may continue for a presently undetermined time.

          While Phoenix has concentrated its sales efforts in China, the Company
has also focused on small domestic carriers that could utilize the Company's
reservation system. On May 5, 1995, Phoenix entered into an Agreement with
Eastwind Airlines, Inc. ("Eastwind") to provide Eastwind (a new ticketless
carrier with service between Greensboro, Boston and Trenton) with a complete
reservation system to manage all sales, airport and operations functions. In
addition, Phoenix implemented a reservation center that processed all Eastwind
reservations as of July 16, 1995. Furthermore, in May 1996, the Company
commenced commercial operations with Laker Airways. Eastwind terminated its
relationship with the Company on May 17, 1997. The Company is actively pursuing
other small to medium carriers to expand the customer base for its reservation
center.

          During the fiscal years ended March 31, 1997, 1996 and 1995, Phoenix
had start-up and organizational expenses of $13,225,740, $11,404,534, and
$5,507,242, respectively. The expanding start-up and organizational expenses
over the three year period reflects principally the addition of product
development and technical support employees, consulting and legal services and
greater financing costs as the Company accelerates efforts in support of the
Joint Venture.


                                       25

<PAGE>   26




LIQUIDITY AND CAPITAL RESOURCES

Working Capital Deficit; Financial Instability


          As of March 31, 1997, Phoenix had stockholders' equity of $14,698,697,
an accumulated deficit of $32,373,968 and working capital of $6,138,266. Phoenix
has not generated any significant revenues, earnings or history of operations
from inception through March 31, 1997. During fiscal 1996, Robert P. Gordon,
Chairman of the Board lent the Company $1,182,500 as working capital of which
$232,500 was then utilized to exercise 172,222 stock options; $850,000 was
converted into a 5% note, payable on demand; and $100,000 as a non-interest
bearing loan. In April 1996, the demand note and the non-interest bearing loan
were repaid.

          Phoenix continues its efforts to raise funds in order to assure that
the Company will have sufficient capital to meet its obligations and to
implement its proposed operations and plans through late 1998, at which time
operating cash flow is projected to turn positive. However, no assurances can be
given that such efforts will be successful.

          Although management believes material progress has been achieved
toward acquiring the necessary funding to meet the Company's existing
obligations as well as contemplated capital requirements, as of the date of this
filing substantial additional financial capital is required and, consequently,
there is substantial doubt concerning the Company's ability to continue as a
going concern. The report of the Company's independent certified public
accountants as of and for the year ended March 31, 1997 includes an explanatory
paragraph regarding the uncertainty that the Company may not be able to continue
as a going concern.

Certain Financing Transactions

          The following is a summary of certain material financing transactions
entered into by the Company during the past three years to meet its liquidity
requirements:

          In February 1994, the Company sold privately to Robert Conrads, an
accredited investor who has since become a member of the Company's Board of
Directors, a Unit consisting of 350,000 restricted shares of common stock and
200,000 common stock purchase warrants which expire on March 1, 1999 for a
purchase price of $250,000. The warrant included in such Unit entitles the
holder to purchase 200,000 shares of common stock at an exercise price of $2.00
per share from March 1, 1994 through the expiration date.

          In May 1994, the Company sold privately to an accredited investor two
Units consisting of 66,667 restricted shares of common stock and an equal number
of common stock purchase warrants (the "Warrant") which expire on May 10, 1999
(the "Expiration Date") for a purchase price of $50,000 per Unit. For each Unit,
the warrant entitles the holder to purchase 66,667 shares of common stock at an
exercise price of $2.00 per share from May 10, 1994 through the Expiration Date.
In conjunction with this investment, 13,333 common stock purchase warrants were
issued as a finder's fee to a third party with the same exercise price and
expiration date.

          In April and October, 1996, common stock purchase warrants were issued
to a third party as a finder's fee in conjunction with the issuance of Series A
and Series B convertible preferred shares, respectively. The Series A shares
included the issuance of 75,000 common stock purchase warrants at an exercise
price of $4.00 per share, which expire on April 5, 1998. The Series B shares
included the issuance of 60,000 common stock purchase warrants at an exercise
price of $3.00 per share, which expire on September 30, 1998.




                                       26


<PAGE>   27


          In September, 1996, 150,000 common stock purchase warrants were issued
to the holders of the Series A and Series B convertible preferred shares at an
exercise price of $3.00 per share, which expire on September 30, 1998.

          On January 31, 1997 the holders of the Series A and Series B
convertible preferred shares were issued warrants to purchase 513,940 shares of
common stock as an incentive to slow the conversion of their preferred stock to
common stock. The exercise price is $2.57 per share, and the warrants expire on
January 31, 2000.

          On February 20, 1997 two firms were each issued warrants to purchase
125,000 shares of common stock for financial advisory services performed. The
exercise price is $2.08 per common share, and the warrants expire on February
20, 2000.

Transactions with S-C Phoenix Partners ("S-C")

          On December 9, 1994, the Company entered into a Convertible Note
Purchase Agreement (the "Note Agreement") with S-C. The Note Agreement provides
for the sale of up to an aggregate of $10,000,000 of the Company's convertible
notes ("Notes") in five "tranches" pursuant to the terms of the Note Agreement.
The Notes bear interest at short-term LIBOR plus 2%, are due on the earlier of
December 8, 1999, or thirteen months from demand, and are secured under a
Security Agreement by the Company's airline and hotel reservation system
applications software. The Notes were required to be offered by the Company to
S-C upon the Company achieving certain performance and operational targets or
events as specified in the Note Agreement.

          On December 9, 1994, Phoenix issued its Tranche A Convertible Note, in
the principal amount of $3,000,000, in exchange for net proceeds of $2,846,670.
On February 17, 1995, Phoenix issued its Tranche B Convertible Note, in the
principal amount of $1,200,000 pursuant to the terms of the Agreement. Under the
Agreement, Phoenix was to offer the $1,200,000 Tranche B Convertible Note to S-C
after completing the installation of Phoenix's airline reservation system in
China, which was completed on February 9, 1995. On March 15, 1995, Phoenix and
S-C entered into an amendment (the "Amendment") to the Agreement providing,
among other things, for the issuance by Phoenix of a Tranche C Note, in the
principal amount of $1,000,000, prior to the target date specified in the
Agreement and conversion of all outstanding notes, in the aggregate principal
amount of $5,200,000, into 9,666,666 shares of Phoenix's common stock at the
conversion prices provided in the notes. The conversion took place effective
March 16, 1995.

          On August 3, 1995, Phoenix and S-C entered into an amendment (the
"Amendment") to the agreement providing, among other things, for the issue by
Phoenix of the remaining $200,000 Tranche C Convertible Note along with $150,000
from the Tranche D Convertible Note prior to the target dates specified in the
agreement.

          On September 15, 1995, February 9, 1996 and March 15, 1996, Phoenix
and S-C entered into amendments (the "Amendments") to the agreement providing,
among other things, for the acceleration of issuance by Phoenix of $1,200,000
and $1,150,000 under the Tranche D Convertible Note and $2,100,000 under the
Tranche E Convertible Note.

          Note issuances during fiscal year 1996 aggregating $4,800,000 were
converted on the then dates of issue into 4,333,333 shares of Phoenix's common
stock at the conversion prices provided in the notes. Furthermore, 300,000
additional common shares were issued. As of March 16, 1996, S-C had purchased
all $10,000,000 notes and had converted the notes into Phoenix common stock.



                                       27


<PAGE>   28


          In connection with the execution of the Note Agreement, the Company
granted S-C three-year warrants to purchase up to 4,000,000 shares of Common
Stock at an exercise price of $3.00 per share. 

          S-C will also have registration rights, first purchase rights on
subsequent issues by the Company to maintain the percentage ownership of the
Company, and the right to nominate one or more directors to the Company's
Board. Further, if the Company enters into a joint venture to install and
operate its reservation system in India, then S-C has the right to participate
in such joint venture on an equal basis with the Company and its joint venture
partner (i.e., each partner would own one-third if the Partnership elects to
participate fully).

          In consideration of S-C's agreement to purchase the Tranche C Note
prior to the specified target date and conversion of the note to equity, Phoenix
issued to S-C a three-year warrant to purchase 2.5 million shares of its Common
Stock at a purchase price of $2.00 per share. This warrant is fully exercisable
at any time, but otherwise contains substantially the same terms as the warrant
to purchase 4 million shares at $3.00 per share issued in connection with the
execution of the Note Agreement. Phoenix also agreed to certain modifications to
the Registration Rights Agreement entered into with S-C. Furthermore, in
consideration of S-C's agreements to purchase a portion of the Tranche C Note
and all of the Tranche D and E Notes prior to the specified target dates and
conversion of the notes to equity, Phoenix issued to S-C three-year warrants as
follows:


<TABLE>
                              <S>      <C>  <C>
                              600,000  @    $4.00
                              345,000  @     3.00
                              140,000  @     3.28
                              700,000  @     3.00
</TABLE>


          These warrants are fully exercisable at any time, but otherwise
contain substantially the same terms as the 2,500,000 warrants specified above.


          On December 23, 1996, Phoenix acquired for $7,500,000 a 25% interest
in American Aviation Limited, through the exercise of an option. American
Aviation is a company owned by affiliates of Quantum Industrial Holdings Ltd.,
George Soros and Purnendu Chatterjee. American Aviation's primary asset is a 25%
interest in China Hainan Airlines, which it purchased for $25,000,000 in
December 1995. The Phoenix investment in American Aviation Limited may not be
sold or transferred without the unanimous consent of the other investors. The
amount and timing of any distributions of the profits of American Aviation
Limited is such that the other investors will receive preferential distributions
in relation to their 75% ownership position.


          The acquisition of the interest in American Aviation was financed by
the sale to S-C Phoenix Partners ("S-C"), one of Phoenix's major shareholders,
of 833,333 shares of the Company's Series C Convertible Preferred Stock ("Series
C Shares") for $15,000,000. S-C is an investment partnership comprised of
affiliates of Quantum Industrial Holdings Ltd., George Soros and Purnendu
Chatterjee. W. James Peet, a director of the Company, is a non-managing member
of S-C Phoenix Holdings, L.L.C. ("Holdings"), with respect to its investment in
Phoenix. Holdings is a general partner of S-C.

          From the date of issue until January 1, 2003, the Series C Shares will
accrue cumulative quarterly dividends of 0.0247935 additional Series C Shares
for each Series C Share outstanding and each dividend previously accrued on such
Share. The Series C Shares will also participate, on an as converted basis, with
the common stock, par value $.01 per share, of Phoenix ("Common Stock") in
dividends declared and paid on the Common Stock.



                                       28

<PAGE>   29


          Each Series C Share may be converted at any time at the option of the
holder into ten shares of Common Stock of the Company and will be automatically
converted on the date after June 23, 1997, on which the market price of the
Common Stock shall be at least $3.60 per share for ten consecutive trading days.
Immediately prior to any conversion, the Series C Shares shall receive all
dividends which have accrued or would have accrued from the date of issuance
through January 1, 2003, regardless of whether such conversion shall occur prior
to such date. The Series C shares also have certain liquidation preferences, the
right to consent to certain transactions and the same voting rights, on an as
fully converted basis, applicable to the Common Stock. S-C has certain demand
and piggyback registration rights with respect to the Common Stock it owns in
the Company. Such registration rights apply to Common Stock issued upon
conversion of the Series C Shares.


     As of March 31, 1997, assuming exercise of all outstanding stock options,
warrants, and preferred stock, S-C's investment will represent approximately 55%
of Phoenix's outstanding equity. While management continues to hold, and has a
right to acquire, approximately 25% of Phoenix's outstanding equity, the
transactions described above may be deemed to constitute a "change of control"
of Phoenix. Neither Phoenix nor S-C, however, consider the foregoing as a
"change of control." 

CONVERSIONS OF DEBT

          In November 1994, the Board of Directors approved converting certain
of the Company's existing debt into stock. The Board of Directors authorized the
conversion of $1,700,000 of principal amount non-interest bearing loans due
Harvest International of America, Inc. and Visitors Services, Inc. (both owned
and controlled by Robert P. Gordon) into 3,400,000 shares of the Common Stock of
the Company from the authorized but unissued stock of the Company.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

          The information required by Item 8 and an index thereto commences on
page F-1, which pages follow this page.



                                       29


<PAGE>   30


               PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
                         (A Development Stage Company)

                                  -----------


                      CONSOLIDATED  FINANCIAL  STATEMENTS

                  As of March 31, 1997 and March 31, 1996 and
               for the years ended March 31, 1997, 1996, and 1995
          and cumulative for the period from inception of development
            stage activities (April 1, 1989) through March 31, 1997
























<PAGE>   31


                                C O N T E N T S


<TABLE>
<CAPTION>
                                                                     Page
                                                                     ----

<S>                                                               <C>
Reports of Independent Certified  Public Accountants              
       BDO Seidman, LLP                                           F-2
       Coopers & Lybrand L.L.P.                                   F-3
                                                                  
Financial Statements:                                             
                                                                  
       Consolidated Balance Sheets                                F-4
                                                                  
       Consolidated Statements of Operations                      F-5
                                                                  
       Consolidated Statements of Changes in                      
       Stockholders' Equity (Deficit)                             F-6 - F-11

       Consolidated Statements of Cash Flows                      F-12 - F-13

       Notes to Consolidated Financial Statements                 F-14 - F-27
</TABLE>



                                       31


<PAGE>   32



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------
  

To the Stockholders of
Phoenix Information Systems Corporation

We have audited the accompanying consolidated balance sheet of Phoenix
Information Systems Corporation and Subsidiaries, as of March 31, 1997, the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended and for the cumulative period from April 1, 1996,
through March 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the consolidated
statements of operations, changes in stockholders' equity and cash flows for the
period from inception of development stage activities, April 1, 1989, through
March 31, 1996. Those statements were audited by other auditors whose report
dated May 30, 1996, included an explanatory paragraph that expressed substantial
doubt about the Company's ability to continue as a going concern. Our opinion
insofar as it relates to those statements is based solely on the report of the
other auditors. 

We conducted our audit 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 audit and the report of other auditors provides a reasonable
basis for our opinion.

In our opinion based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Phoenix Information Systems
Corporation. and Subsidiaries as of March 31, 1997 and 1996, and the results of
their operations and their cash flows for the years ended March 31, 1997, 1996
and 1995, and cumulative for the period from inception of development activities
April 1, 1989, through March 31, 1997, in conformity with generally accepted
accounting principles. 

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
accompanying consolidated financial statements, the Company is a development
stage company with significant losses and cash flow deficits to date and at
March 31, 1997 has not generated any significant revenue, earnings or history of
operations from inception. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


Orlando, Florida              /s/ BDO Seidman, LLP
May 28, 1997                  --------------------------
                              BDO Seidman, LLP








                                      F-2


<PAGE>   33






              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUTANTS
              -------------------------------------------------



To the Stockholder of
Phoenix Information Systems Corp.

We have audited the accompanying consolidated balance sheet of Phoenix
Information Systems Corp. and subsidiaries (the Company), a Delaware corporation
in the development stage, as of March 31, 1996 and the related consolidated
statements of operations, changes in stockholders' equity (deficit), and cash
flows for the years ended March 31, 1996 and 1995 and cumulative for the period
from April 1, 1991 through March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
consolidated statements of operations, changes in stockholder's equity (deficit)
and cash flows for the period from inception of development stage activities,
April 1, 1989 through March 31, 1991. Those statements were audited by other
auditors whose report dated May 3, 1991, included an explanatory paragraph that
expressed substantial doubt about the Company's ability to continue as a going
concern. Our opinion insofar as it relates to those statements is based solely
on the report of the other auditors.

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, based on our audit and reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Phoenix Information Systems Corp.
and subsidiaries as of March 31,1996 and the results of their operations and
their cash flows for the years ended March 31, 1996 and 1995 and cumulative for
the period from inception of development stage activities, April 1, 1989,
through March 31, 1996, in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
accompanying consolidated financial statements, the Company is a development
stage company with significant losses and cash flow deficits to date and at
March 31, 1996 has not generated any significant revenue, earnings or history of
operations from inception. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Tampa, Florida
May 30, 1996                                 Coopers & Lybrand L.L.P.





                                      F-3


<PAGE>   34



             PHOENIX INFORMATION SYSTEMS CORPORATON AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED BALANCE SHEETS, MARCH 31






<TABLE>
<CAPTION>
ASSETS                                                                 1997               1996
                                                                       ----               ----
<S>                                                               <C>                <C>         
Current assets:
   Cash and cash equivalents                                      $  7,012,277       $  2,078,510
   Securities                                                           22,000                 --
   Trade receivables                                                   437,707             78,622
   Receivable from related parties                                          --             65,469
   Interest receivable                                                  26,112                 --
   Prepaids                                                            699,390            135,474
                                                                  ------------       ------------

             Total current assets                                    8,197,486          2,358,075

Property and equipment, net                                          1,672,522          1,882,549
Investment in American Aviation Ltd.                                 7,500,000                 --
Deposits and other                                                     154,113            110,360
Due from joint venture partner                                              --            737,662
Goodwill, net                                                          256,660            394,071
                                                                  ------------       ------------
             Total assets                                         $ 17,780,781       $  5,482,717
                                                                  ============       ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
   Notes payable                                                  $    113,766       $    300,773
   Accounts payable                                                  1,640,406          2,688,530
   Accrued payroll and payroll taxes                                   305,048            272,582
   Accrued interest                                                         --             15,507
                                                                  ------------       ------------
           Total current liabilities                                 2,059,220          3,277,392

Payable to related parties                                                  --          1,046,633
Dividends payable                                                       75,704                 --
Minority interest                                                      896,892                 --
Notes payable, less current portion                                     50,268            173,075
Accrued compensation expense                                                --            332,250
                                                                  ------------       ------------

           Total liabilities                                         3,082,084          4,829,350
                                                                  ------------       ------------


Commitments and contingencies

Stockholder's equity:
   Series  A convertible preferred stock,
           $.01 par value, 1,250,000 shares
           authorized, 209,750 and none
           issued and outstanding at March 31,
           1997 and 1996, respectively                                   2,098                 --
   Series B convertible preferred stock,
           $.01 par value 1,250,000 shares
           authorized, 1,194,500 and none
           issued and outstanding at March 31,
           1997 and 1996, respectively                                  11,945                 --
   Series C convertible preferred stock,
           $.01 par value, 1,500,00
           shares authorized, 853,994 and none
           issued and outstanding at March 31,
           1997 and 1996 respectively                                    8,540                 --
   Common stock, $.01 par value, 125,000,000
            shares authorized, 49,105,212 and
           45,722,618 shares issued and outstanding
           at March 31, 1997 and 1996, respectively                    491,052            457,226
   Additional paid-in capital                                       46,649,030         20,176,237
   Losses that have accumulated during the development stage       (32,373,968)       (19,980,096)
                                                                  ------------       ------------
                                                                    14,788,697            653,367
     Treasury Stock, at cost, 31,579 common shares                     (90,000)                 -
                                                                  ------------       ------------

           Total stockholders' equity                               14,698,697            653,367

                                                                  ------------       ------------

                    Total liabilities and stockholders' equity    $ 17,780,781       $  5,482,717
                                                                  ============       ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-4


<PAGE>   35


            PHOENIX INFORMATION SYSTEMS CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               for the years ended March 31, 1997, 1996, and 1995
          and cumulative for the period from inception of development stage
            activities, April 1, 1989, through March 31, 1997

                                  -----------




<TABLE>
<CAPTION>
                                                                                                            Cumulative
                                                                                                              Since
                                                      1997              1996                1995          April 1, 1989
                                                 ------------       ------------       ------------       -------------      
<S>                                              <C>                <C>                <C>                <C>          
Travel commissions, net                          $    289,823       $    387,432       $    136,624       $    813,879

Management fee income                                      --                 --            138,021            138,021

Airline/Cargo booking revenues                         93,821                 --                 --             93,821

Reservation center revenues                           722,374            359,103                 --          1,081,477

License fee income                                     29,350             24,000             24,000             95,350
                                                 ------------       ------------       ------------       ------------      

Revenues                                            1,135,368            770,535            298,645          2,222,548

Start-up and organizational expenses              (13,225,740)       (11,404,534)        (5,507,242)       (35,592,084)

Interest and dividend income                          294,485             25,704             21,708            344,511
                                                 ------------       ------------       ------------       ------------

Net loss before minority interest
    in net loss of subsidiary                     (11,795,887)       (10,608,295)        (5,186,889)       (33,025,025)
                                                 ------------       ------------       ------------       ------------

Minority interest in net loss of subsidiary           764,066            903,977            345,065          2,013,108
                                                 ------------       ------------       ------------       ------------

Net loss                                          (11,031,821)        (9,704,318)        (4,841,824)       (31,011,917)
                                                 ------------       ------------       ------------       ------------

Preferred stock dividends                          (1,362,051)                 --                 --        (1,362,051)

Net loss applicable to common
      stock                                      $(12,393,872)      $ (9,704,318)      $ (4,841,824)      $(32,373,968)
                                                 ============       ============       ============       ============
Loss per common share
      outstanding                                $       (.26)      $       (.23)      $       (.19)
                                                 ============       ============       ============

Weighted average number of common
      shares outstanding                           46,784,705         41,727,774         25,836,623
                                                 ============       ============       ============
</TABLE>

     See accompanying notes to consolidated financial statements.


                                       F-5


<PAGE>   36


            PHOENIX INFORMATION SYSTEMS CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
      for the period from incorporation, June 25, 1987, to March 31, 1997

                                  -----------






<TABLE>
<CAPTION>
                                                                       Receivable
                                         Common Stock     Additional      from       Losses That Have
                                      ------------------   Paid-In    Issuance of   Accumulated During
                                       Shares    Amount    Capital    Common Stock  Development Stage
                                      ---------  -------  ----------  ------------  ------------------
<S>                                   <C>        <C>        <C>          <C>              <C>       
Issuance of common stock of Dynasty                                                      
    World, December 28, 1987             11,000  $   110    $      -     $   (110)        $       -
                                                                                         
Issuance of common stock of Dynasty                                -            -       
    World, February 24, 1989              9,000       90                      (90)       
                                                                                         
150 to 1 stock split, March 31, 1989  2,980,000   29,800           -      (29,800)                -
                                                                                         
Issuance of common stock of Dynasty                                                      
    World in private placement, net                                                      
    of issuance costs of $11,755,                                                        
    May 12, 1989                        200,000    2,000     386,245            -                 -
                                                                                         
Capital contribution from majority                                                       
    stockholder of Dynasty World for                                                     
    start-up costs, March 31, 1990            -        -      59,895       16,500                 -
                                                                                         
Net loss of Dynasty World for the                                                        
    period from inception                     -        -           -            -          (509,068)
                                      ---------  -------    --------     --------         ---------
                                                                                         
Balance, March 31, 1990               3,200,000  $32,000    $446,140     $(13,500)        $(509,068)
                                      =========  =======    ========     ========         =========
</TABLE>




     See accompanying notes to consolidated financial statements.


                                       F-6


<PAGE>   37


            PHOENIX INFORMATION SYSTEMS CORPORATION AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, Continued
      for the period from incorporation, June 25, 1987, to March 31, 1997

                                  -----------




<TABLE>
<CAPTION>
                                                                                                Receivable
                                                    Common Stock                 Additional        from        Losses That Have
                                                    ------------                  Paid-In       Issuance of    Accumulated During
                                                Shares           Amount           Capital      Common Stock    Development Stage
                                                ------           ------           -------      ------------    -----------------

<S>                                            <C>             <C>              <C>             <C>              <C>        
Balance, March 31, 1990                        3,200,000       $   32,000       $  446,140      $  (13,500)      $ (509,068)

Eliminate minority Dynasty World shares
   which were not converted into shares
   of Dynasty Travel                            (454,562)          (4,546)           4,546              --               --
                                              ----------       ----------       ----------      ----------       ---------- 

Net shares of Dynasty World as of
   March 31, 1990 which were converted
   into shares of Dynasty Travel on
   January 3, 1991                             2,745,438           27,454          450,686              --               --

Adjustment to convert number of Dynasty
   World shares and par value of Dynasty
   shares to shares of Dynasty Travel
   received in reverse acquisition              (217,079)          (2,170)           2,170              --               --
                                              ----------       ----------       ----------      ----------       ---------- 

Restated balances, March 31, 1990              2,528,359       $   25,284       $  452,856      $  (13,500)      $ (509,068)
                                              ==========       ==========       ==========      ==========       ========== 
</TABLE>




     See accompanying notes to consolidated financial statements.


                                       F-7

<PAGE>   38


            PHOENIX INFORMAITON SYSTEMS CORPORATION AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, Continued
      for the period from incorporation, June 25, 1987, to March 31, 1997

                                  -----------




<TABLE>
<CAPTION>
                                                                                           
                                                                           Common Stock    Receivable    
                                            Common Stock      Additional    Subscribed         from       Losses That Have 
                                        --------------------   Paid-In    --------------   Issuance of   Accumulated During
                                          Shares     Amount    Capital    Shares   Amount  Common Stock  Development Stage
                                        ----------  --------  ----------  -------  ------  ------------  ------------------
<S>                                     <C>          <C>        <C>       <C>      <C>     <C>               <C>

Restated balances, March 31, 1990        2,528,359   $25,284    $452,856        -  $    -  $   (13,500)      $  (509,068)

Issuance of 16,800,000 shares of 
    Dynasty World common stock on 
    January 3, 1991, as converted to 
    shares of Dynasty Travel received
    in the reverse acquisition          15,471,641   154,716      13,284        -       -             -                -

Balance in capital accounts of Dynasty
    Travel prior to the reverse
    acquisition on March 4, 1991         2,000,000    20,000     (38,900)       -       -             -                -

Net loss                                         -         -           -        -       -             -         (167,007)
                                        ----------  --------  ----------  -------  ------  ------------      ----------- 

Balance, March 31, 1991                 20,000,000   200,000     427,240        -       -      (13,500)         (676,075)

Sale of stock subscription                       -         -     215,600  440,000   4,400             -                -

Collection of stock subscription                 -         -           -        -       -        13,500                -

Net loss                                         -         -           -        -       -             -         (549,095)
                                        ----------  --------  ----------  -------  ------  ------------      ----------- 

Balance, March 31, 1992                 20,000,000  $200,000    $642,840  440,000  $4,400  $          -      $(1,225,170)
                                        ==========  ========  ==========  =======  ======  ============      =========== 
</TABLE>





     See accompanying notes to consolidated financial statements.


                                      F-8



<PAGE>   39


            PHOENIX INFORMATION SYSTEMS CORPORATION AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY,  Continued
      for the period from incorporation, June 25, 1987, to March 31, 1997

                                  -----------




<TABLE>
<CAPTION>
                                                                                         
                                                                        Common Stock      Receivable                     
                                       Common Stock      Additional      Subscribed          from       Losses That Have 
                                   --------------------   Paid-In    ------------------  Issuance of   Accumulated During
                                     Shares     Amount    Capital     Shares    Amount   Common Stock  Development Stage
                                   ----------  --------  ----------  ---------  -------  ------------  ------------------
<S>                                <C>         <C>       <C>         <C>        <C>      <C>              <C>             
                                                                                                                          
Balance, March 31, 1992            20,000,000  $200,000    $642,840    440,000   $4,400             -     $(1,225,170)    
                                                                                                                          
Issuance of common stock            1,050,159    10,502     298,978   (440,000)  (4,400)      $(1,500)              -     
                                                                                                                          
Sale of common stock subscription           -         -     753,665    833,500    8,335             -               -     
                                                                                                                          
Net loss                                    -         -           -          -        -             -      (1,640,852)    
                                   ----------  --------  ----------  ---------  -------  ------------     -----------     
                                                                                                                          
Balance, March 31, 1993            21,050,159   210,502   1,695,483    833,500    8,335        (1,500)     (2,866,022)    
                                                                                                                          
Issuance of common stock            1,585,750    15,858     716,638   (833,500)  (8,335)            -               -     
                                                                                                                          
Sale of stock subscription                  -         -     295,465    450,000    4,500             -               -     
                                                                                                                          
Collection of stock subscription            -         -           -          -        -         1,500               -     
                                                                                                                          
Net loss                                    -         -           -          -        -             -      (2,567,932)    
                                   ----------  --------  ----------  ---------  -------  ------------     -----------     
                                                                                                                          
Balance, March 31, 1994            22,635,909  $226,360  $2,707,586    450,000   $4,500  $          -     $(5,433,954)    
                                   ==========  ========  ==========  =========  =======  ============     ===========     
</TABLE>



     See accompanying notes to consolidated financial statements.


                                       F-9


<PAGE>   40


            PHOENIX INFORMATION SYSTEMS CORPORTION AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, Continued
      for the period from incorporation, June 25, 1987, to March 31, 1997

                                  -----------




<TABLE>
<CAPTION>      

                                                                                                                       Losses That  
                                                                                                         Common Stock  Have Accumu- 
                                                         Common Stock             Additional              Subscribed   lated During 
                                                         ------------              Paid-In               ------------   Development 
                                                   Shares            Amount         Capital      Shares     Amount        Stage
                                                   ------           ------         -------      ------     ------     -------------
<S>                                                 <C>            <C>          <C>             <C>         <C>        <C>          
Balance, March 31, 1994                             22,635,909     $ 226,360    $ 2,707,586      450,000    $4,500     $(5,433,954)
                                                                                                                      
Issuance of common stock subscribed                    450,000         4,500             --     (450,000)   (4,500)             --
                                                                                                                      
Sale of common stock                                   133,334         1,333         98,667           --        --              --
                                                                                                                      
Acquisition of minority interest of subsidiary         533,333         5,334        461,332           --        --              --
                                                                                                                      
Conversion of indebtedness to related                                                                                 
     parties to common stock                         5,050,137        50,501      3,305,320           --        --              --
                                                                                                                      
Compensation paid through issuance of stock            225,000         2,250        172,750           --        --              --
                                                                                                                      
Services paid through issuance of stock                816,014         8,159        495,656           --        --              --
                                                                                                                      
Conversion of notes payable to stock                 9,666,666        96,667      5,103,333           --        --              --
                                                                                                                      
Net loss                                                    --            --             --           --        --      (4,841,824)
                                                   -----------     ---------    -----------     --------    ------    ------------
                                                                                                                      
Balance, March 31, 1995                             39,510,393       395,104     12,344,644           --        --     (10,275,778)
                                                                                                                      
Sale of common stock                                   776,070         7,761        680,184           --        --              --
                                                                                                                      
Conversion of indebtedness to related                                                                                 
     parties to common stock                           172,222         1,722        230,778           --        --              --
                                                                                                                      
Compensation paid through issuance of stock            547,500         5,475        830,296           --        --              --
                                                                                                                      
Services paid through issuance of stock                 83,100           831        196,668           --        --              --
                                                                                                                      
Conversion of notes payable to stock                 4,633,333        46,333      4,753,667           --        --              --
                                                                                                                      
Transaction fee paid through issuance of options            --            --      1,140,000           --        --              --
                                                                                                                      
Net loss                                                    --            --             --           --        --      (9,704,318)
                                                   -----------     ---------    -----------     --------    ------    ------------
                                                                                                                      
Balance, March 31, 1996                             45,722,618     $ 457,226    $20,176,237           --    $   --    $(19,980,096)
                                                   ===========     =========    ===========     ========    ======    ============
</TABLE>   
           

          See accompanying notes to consolidated financial statements.


                                      F-10


<PAGE>   41


            PHOENIX INFORMATION SYSTEMS CORPORATION AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY , Continued
      for the period from incorporation, June 25, 1987, to March 31, 1997

                                  -----------




<TABLE>
<CAPTION>                                                              
                                                                                               
                                                 Common Stock               Preferred Stock
                                            ---------------------         --------------------
                                            Shares         Amount         Shares        Amount      
                                            ------         ------         ------        ------      
<S>                                        <C>          <C>              <C>            <C>  
Balance, March 31, 1996                    45,722,618   $    457,226             --     $    --  
                                                                                                                 
Exercise of stock options                     132,371          1,324             --          --
                                                                                                                 
Reclassification of                      
        liabilities for stock                                                                 
       options issued as compensation              --             --             --          --
Issuance of convertible preferred stock                                                                          
       Series A                                    --             --      1,250,000      12,500 
                                                                                                                 
Issuance of convertible preferred stock                                                                          
       Series B                                    --             --      1,250,000      12,500   
                                                                                                                 
Issuance of convertible preferred stock                                                                          
       Series C                                    --             --        833,333       8,333
                                                                                                                 
Series C convertible preferred stock                                                                             
       issued as a dividend                        --             --         20,661         207
                                                                                                                 
Conversion of Series A convertible                                                                               
       preferred stock                                                                                           
       to common stock                      2,698,333         26,983     (1,040,250)    (10,402)  
                                                                                                                 
Conversion of Series B convertible                                                                               
       preferred stock to common stock        129,473          1,295        (55,500)       (555)
                                                                                                                 
Common stock options issued as           
       compensation                                --             --             --          --
                                                                                                                 
Issuance of common stock as payment      
       of services                             97,417            974             --          --
                                                                                                                 
Common stock issued as an adjustment of                                                                          
       the conversion price              
       of the tranche E                                                                     
       note payable                           325,000          3,250             --          --
                                                                                                                 
Treasury stock issued for the           
       sale of American                                                                
       International Travel Agency, Inc.           --             --             --          --
                                                                                                                 
Series A & B convertible preferred       
       stock dividends                             --             --             --          --
                                                                                                                 
Warrants issued as preferred stock                                                                               
       non-conversion incentive                    --             --             --          --
                                                                                                                 
Dividend issued for Series A preferred                                                                           
       stock conversion discount                   --             --             --          --
                                                                                          
Net loss                                           --             --             --          --
                                         ------------   ------------   ------------    --------
                                                                                                                 
Balance, March 31, 1997                    49,105,212   $    491,052   $  2,258,244    $ 22,583
</TABLE>

<TABLE>
<CAPTION>                                                                 

                                              Additional            Treasury Stock           Losses That Have
                                               Paid-In       --------------------------    Accumulated During
                                               Capital       Shares           Amount         Development Stage
                                               -------       ------           ------         -----------------
<S>                                         <C>          <C>               <C>             <C>          
Balance, March 31, 1996                     20,176,237        --           $       --      $(19,980,096)
                                                                         
Exercise of stock options                      146,233        --                   --                --
                                                                         
Reclassification of                                                      
        liabilities for stock                                            
       options issued as compensation          332,250        --                   --                --
                                                                         
Issuance of convertible preferred stock                                  
       Series A                              4,737,500        --                   --                --
                                                                         
Issuance of convertible preferred stock                                  
       Series B                              3,867,500        --                   --                --
                                                                         
Issuance of convertible preferred stock                                  
       Series C                             14,682,188        --                   --                --
                                                                         
Series C convertible preferred stock                                     
       issued as a dividend                    371,691        --                   --          (371,898)
                                                                         
Conversion of Series A convertible                                       
       preferred stock                                                   
       to common stock                         (16,581)       --                   --                --
                                                                         
Conversion of Series B convertible                                       
       preferred stock to common stock            (740)       --                   --                --
                                                                         
Common stock options issued as                                           
       compensation                            689,012        --                   --                --
                                                                         
Issuance of common stock as payment                                      
       of services                             224,536        --                   --                --
                                                                         
Common stock issued as an adjustment of                                  
       the conversion price                                              
       of the tranche E                                                  
       note payable                            190,158        --                   --                --
                                                                         
Treasury  stock issued for the                                           
     sale of American                                                    
     International Travel Agency, Inc.              --   (31,579)             (90,000)               --
                                                                         
Series A & B convertible preferred                                       
     stock dividends                                --        --                   --          (332,138)
                                                                         
Warrants issued as preferred stock                                       
     non-conversion incentive                  591,031        --                   --                --
                                                                         
Dividend issued for Series A preferred                                   
     stock conversion discount                 658,015        --                   --          (658,015)
                                                                         
Net loss                                            --        --                   --       (11,031,821)
                                         -------------  --------           ----------      ------------
                                                                         
Balance, March 31, 1997                   $ 46,649,030   (31,579)          $  (90,000)     $(32,373,968)
                                         =============  ========           ==========      ============
</TABLE>                                                  
                                         

          See accompanying notes to consolidated financial statements.



                                      F-11



<PAGE>   42


                     PHOENIX INFORMATION SYSTEMS CORPORATED
            CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended
                         March 31, 1997, 1996, and 1995
        and cumulative for the period from inception of development stage
                activities, April 1, 1989, through March 31, 1997

                                  -----------




<TABLE>
<CAPTION>
                                                                                                                       Cumulative
                                                                                                                          Since
                                                                   1997              1996               1995         April 1, 1989
                                                                   ----              ----               ----         -------------
<S>                                                            <C>               <C>               <C>               <C>          
Cash flows from operating activities:
   Net loss                                                    $(11,031,821)     $ (9,704,318)     $ (4,841,824)     $(31,011,917)
   Adjustments to reconcile net loss to
    net cash used in operating activities:
     Depreciation and amortization expense                        1,149,782         1,143,842           212,730         2,554,389
     Compensation paid through issuance of stock                    225,512           300,000           228,750           805,964
     Transaction fee                                                     --         1,140,000                --         1,140,000
     Services paid through issuance of stock                             --           835,771           503,815         1,698,307
     Common stock options and warrants 
      issued as compensation                                        401,010                --                --           401,010
     Common stock issued as an adjustment of the
      Tranch E note conversion price                                193,408                --                --           193,408
     Warrants issued as a preferred stock 
      non-conversion incentive                                      591,031                --                --           591,031
     Write-off of amount due from joint venture partner             737,662                --                --           737,662
     Rent paid through in-kind contribution                              --           340,920           170,460           511,380
     Minority interest in net loss of subsidiary                    896,892          (903,977)         (345,065)         (352,150)
     Other                                                               --                --            81,590           157,985
                                                               ------------      ------------      ------------      ------------
                                                                 (6,836,524)       (6,847,762)       (3,989,544)      (22,572,931)
    Changes in assets and liabilities:

    Prepaids, deposits and trade receivables                       (704,866)         (259,908)           15,653          (964,637)
    Accounts payable                                             (1,048,124)        1,485,396           175,464         1,016,998
    Accrued payroll and payroll taxes                                32,466           151,990          (347,381)          248,471
    Accrued interest                                                (15,507)          (54,531)          163,530           200,885
                                                               ------------      ------------      ------------      ------------
       Net cash used in operating activities                     (8,572,555)       (5,524,815)       (3,982,278)      (22,071,214)
                                                               ------------      ------------      ------------      ------------

Cash flows from investing activities:
    Purchase of property and equipment                             (892,344)       (1,129,196)         (992,168)       (3,117,160)
    Purchase of securities                                          (22,000)               --                --           (22,000)
    Investment in American Aviation Ltd.                         (7,500,000)               --                --        (7,500,000)
                                                               ------------      ------------      ------------      ------------

       Net cash used in investing activities                     (8,414,344)       (1,129,196)         (992,168)      (10,639,160)
                                                               ------------      ------------      ------------      ------------
</TABLE>




          See accompanying notes to consolidated financial statements.


                                      F-12


<PAGE>   43


            PHOENIX INFORMATION SYSTEMS CORPORATION AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) for the years
                      ended March 31, 1997, 1996, and 1995
        and cumulative for the period from inception of development stage
                activities, April 1, 1989, through March 31, 1997

                                   -----------




<TABLE>
<CAPTION>
                                                                                         Cumulative
                                                                                            Since
                                                      1997         1996        1995     April 1, 1989
                                                   -----------  ----------  ----------  -------------
<S>                                                <C>          <C>          <C>          <C>     
Cash flows from financing activities:
    Issuance of common stock                       $         -  $  666,445   $ 100,000    $ 1,858,095
    Proceeds from exercise of stock options            147,557           -           -        147,557
    Issuance of preferred stock                     23,320,521           -           -     23,320,521
    Stock subscriptions                                      -           -           -      1,297,000
    Proceeds from notes payable                              -     523,000   5,046,670        538,000
    Payments on notes payable                         (309,814)   (224,770)    (56,406)      (635,990)
    Proceeds from related parties                       65,469   5,911,962   2,036,206     15,595,287
    Payments to related parties                     (1,046,633)          -    (281,314)    (2,153,579)
    Payments on capital lease obligation                     -     ( 8,697)    (10,509)        12,194
    Preferred stock dividends                         (256,434)          -           -       (256,434)
                                                   -----------  ----------  ----------    -----------

        Net cash provided by financing activities   21,920,666   6,867,940   6,834,647     39,722,651
                                                   -----------  ----------  ----------    -----------

Increase in cash and cash equivalents                4,933,767     213,929   1,860,201      7,012,277

Cash and cash equivalents, beginning of period       2,078,510   1,864,581       4,380              -
                                                   -----------  ----------  ----------    -----------

Cash and cash equivalents, end of period            $7,012,277  $2,078,510  $1,864,581    $ 7,012,277
                                                   ===========  ==========  ==========    ===========
</TABLE>






          See accompanying notes to consolidated financial statements.



                                      F-13
<PAGE>   44



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

1.   Organization and Operations:

     The accompanying consolidated financial statements include the accounts of
     Phoenix Information Systems Corp. ("Phoenix Information") and its
     subsidiaries, Phoenix Systems Group, Inc. (wholly owned since March 27,
     1995), Phoenix Systems Ltd. (wholly owned since November 11, 1993), Hainan
     Phoenix Information Systems, Ltd. (70% owned since November 22, 1993) and
     American International Travel Agency, Inc. (wholly owned since September
     15, 1994 and sold in December, 1996). The consolidated group of companies
     is collectively referred to herein as "Phoenix". All significant
     inter-company accounts and transactions have been eliminated.

     Phoenix, formerly Dynasty Travel Group, Inc. (earlier CS Primo Corp.), was
     incorporated in Delaware on April 4, 1986, for the purpose of seeking
     potential business opportunities through the acquisition of an existing
     business. Prior to the acquisition discussed below, Phoenix was a shell
     company with no material assets, liabilities or operations.

     Phoenix Systems Group, Inc. ("PSG"), formerly Dynasty World Express, Inc.,
     was incorporated on June 25, 1987 under the laws of the State of Delaware
     and commenced development-stage operations on April 1, 1989 to become
     involved in the growth of both business and leisure travel to the People's
     Republic of China ("China"), and to participate in the emerging
     developments of associated travel infrastructure within China, including
     transportation, lodging, funds transfer, and data communications.

     Phoenix Systems Ltd. ("PSL"), a Bermuda corporation and wholly-owned
     subsidiary of Phoenix, was formed in 1993 to establish foreign reservation
     systems joint ventures. PSL formed its first joint venture company with
     China Hainan Airlines ("Hainan Airlines"). Phoenix expects to enter into
     additional joint venture opportunities in China, other countries, and the
     United States. PSL has the responsibility, outside of China, to market all
     Phoenix products. PSL entered into an Agreement on October 20, 1993 with
     Hainan Airlines, whereby PSL and Hainan Airlines agreed to establish a
     joint venture to market in China Phoenix's airline reservations system
     called PHOENIX-AIR and its hotel reservations system called PHOENIX-HOTEL
     and to establish airline and hotel reservation systems and a tour wholesale
     system within China. On November 22, 1993, the Joint Venture Contract was
     signed between Hainan Airlines and PSL. The name of the joint venture is
     Hainan Phoenix Information Systems, Ltd. ("Hainan-Phoenix"), an equity
     joint venture using Chinese and foreign investment.

     Hainan Airlines and PSL submitted the joint venture contract in
     mid-December 1993 for approval with the appropriate Chinese government
     authorities. The Chinese Ministry of Foreign Economic Relations and Trade
     approved the joint venture agreement and on March 12, 1994, Phoenix was
     given official notification that Hainan-Phoenix received its business
     license from the Chinese State Administration of Industry and Commerce. In
     addition to operating the reservation system, the business license
     authorizes Hainan-Phoenix to operate in the following lines of business,
     among others: the development of other software systems and networks,
     computer sales, leasing and after-sales service, technical training, and
     consulting services for computer and network applications.

     On November 15, 1996, in a trilateral agreement between Phoenix, China
     Southern, and the Company's former Joint Venture partner, Hainan Airlines,
     China Southern acquired the entire equity interest held by Hainan Airlines
     for $2,580,000. Furthermore, China Southern agreed to invest an additional
     $4,780,000 in cash and real estate capital contributions in exchange for an
     additional 15% interest in the Joint Venture. Upon the completion of the
     additional contribution, China Southern's stake will increase to 45%.




                                      F-14



<PAGE>   45


     On September 15, 1994, Phoenix consummated the acquisition of all the
     capital stock of American International Travel Agency, Inc. ("American") in
     exchange for 25,000 shares of common stock in Phoenix. The acquisition was
     accounted for under the purchase method. Results of operations were
     immaterial for the period September 15, 1994 through March 31, 1995.
     American was incorporated in 1977 in the State of Florida to provide retail
     leisure travel services, but has expanded its customer base to include
     commercial travel services. On November 20, 1996, the disinterested members
     of the Board of Directors of Phoenix approved the sale of American
     International Travel Agency, Ltd. to Visitors Services, Inc. (a Company
     controlled by Robert P. Gordon, Chairman of the Board of Phoenix) for
     31,579 shares of Phoenix's common stock valued at $90,000.

     In May 1995 and April 1996, PSL entered into agreements with existing
     airlines to provide airline reservation systems and reservation services.
     Phoenix is still in the development stage and has yet to generate any
     significant revenues. Accordingly, the consolidated financial statements
     are presented on the basis of a development stage company since April 1,
     1989, which was the inception of development stage operations. Even if
     Phoenix is ultimately successful in generating significant revenues, it is
     uncertain as to how much time may pass before they are realized.

     The Company has financed operations since inception by the sale of common
     and preferred stock and the conversion of indebtedness and notes payable to
     stock. Management is currently seeking additional capital for the Company
     in various international equity markets, and is seeking approval for the
     sale of its $7,500,000 investment in American Aviation Ltd. Management
     believes that the capital raised through these efforts will be sufficient
     to carry the Company for the next eighteen months, at which time cash flow
     profitability is projected. However, it is uncertain that the Company will
     be successful in its efforts to raise sufficient capital on a timely basis
     for this to occur.

     The accompanying consolidated financial statements have been prepared on
     the basis of accounting principles applicable to a going concern.
     Accordingly, these financial statements do not include adjustments, if any,
     which might be necessary should Phoenix be unable to continue as a going
     concern.

2.   Summary of Significant Accounting Policies:

     Property and Equipment - Property and equipment are stated at cost.
     Depreciation and amortization, which includes the amortization of assets
     recorded under capital leases, is computed using the straight-line method
     over the estimated useful lives of the related assets or the remaining
     terms of the leases, whichever is shorter. Upon sale or retirement, the
     cost and related accumulated depreciation are eliminated from the
     respective accounts and any gain or loss is credited or charged to
     operations. Maintenance and repairs are charged to expense when incurred;
     expenditures for renewals and betterments are capitalized.

     Goodwill - Goodwill of approximately $466,700 represents the excess of the
     value of PSG stock acquired by Phoenix upon the conversion of PSG shares
     and certain Harvest notes into shares of Phoenix (see Note 6) Goodwill is
     being amortized over 5 years on a straight-line basis. Amortization expense
     was approximately $101,000, $93,100 and $41,200 for 1997, 1996 and 1995,
     respectively. There was no goodwill prior to 1995.

     Preferred Stock Conversion Discounts - In March 1997, the Securities and
     Exchange Commission Staff (the "Staff") announced its position on
     accounting for preferred stock which is convertible into common stock at a
     discount from the market rate at the date of issuance. In accordance with
     the Staff's position, the company records preferred stock dividends for
     differences between the discounted conversion price and the quoted market
     price of the Company's common stock at the date of issuance or amendment in
     terms of the related preferred stock.



                                      F-15
<PAGE>   46

     Stock-Based Compensation - During the fiscal year ended March 31, 1997, the
     Company adopted Statement of Financial Accounting Standards No. 123
     "Accounting for Stock-Based Compensation" (FAS 123) which requires that
     transactions in which goods or services are the consideration received for
     the issuance of equity instruments be accounted for based on the fair value
     of the consideration received or the fair value of the equity instruments
     issued, whichever is more reliably measurable. As allowed by FAS 123, the
     Company has elected to continue to apply APB Opinion 25 "Accounting for
     Stock Issued to Employees" and related interpretations in accounting for
     its stock-based employee compensation arrangements. Stock-based
     compensation transactions with non-employees entered into after December
     15, 1995 are accounted for based on the fair value method prescribed by FAS
     123.

     Revenue recognition - Travel commissions and fees from airline ticketing
     are recognized when tickets are written. Hotel and car rental commissions
     are recorded as income when cash is received. Cruises and tour commissions
     are recorded after the cruises and tours depart.

     Management Fee Income - Management fee income represents amounts charged to
     Visitors Services, Inc. ("VSI"), a related party, for management and
     accounting services.

     License Fee Income - License fee income represents monthly fees received
     from VSI, for use on a non-exclusive basis of Phoenix's PHOENIX-HOTEL
     software.

     Income Taxes - The Company accounts for income taxes under the provisions
     of Statement of Financial Accounting Standards No. 109, "Accounting for
     Income Taxes" which requires recognition of estimated income taxes payable
     or refundable on income tax returns for the current year and for the
     estimated future tax effect attributable to temporary differences and
     carryforwards. Measurement of deferred income tax is based on enacted tax
     laws including tax rates, with the measurement of deferred income tax
     assets being reduced by available tax benefits not expected to be realized.

     Software Development Costs - The Company classifies the cost of planning,
     designing and establishing the technological feasibility of a computer
     software product as research and development costs and charges those costs
     to expense when incurred. The Company has not capitalized any
     internally-developed software costs.

     Foreign currencies - Foreign currency account balances at year-end are
     translated into U.S. dollars at the rate of exchange in effect at year-end
     for balance sheet accounts and at average exchange rates for the statements
     of operations. Gains and losses resulting from foreign currency
     transactions are included in net loss as a component of start-up and
     organizational expenses as such amounts are immaterial.

     Investment Accounting - As of March 31, 1997 Phoenix held a 25% interest in
     American Aviation Ltd., acquired for $7,500,000 through the exercise of an
     option. The valuation of the investment at the lower of cost or market is
     based on public information, and the carrying value is not impaired.
     Phoenix accounted for the investment by the cost method, because it has no
     ability to exercise influence on the operations of American Aviation Ltd.
     As stated in APB Opinion 18, ability to exercise influence may be indicated
     in several ways, such as representation on the board of directors,
     participation in policy making processes, material intercompany
     transactions, interchange of managerial personnel, or technological
     dependency. None of these guidelines apply to Phoenix's relationship with
     American Aviation Ltd. As further clarification of Phoenix's use of the
     cost method, FASB Interpretation 35 (FIN 35) cites the following examples
     of inability to exercise significant influence, all of which apply to
     Phoenix's relationship with American Aviation Ltd.: the signing of an
     agreement under which the investor surrenders significant rights as a
     shareholder; majority ownership of the investee is concentrated among a
     small group of shareholders who operate the investee without regard to the
     views of the investor; and the investor requires more financial information
     to apply the equity method, but is unable to obtain that information.



                                      F-16
<PAGE>   47

     Loss Per Common Share - Loss per common share is computed by dividing the
     net loss by the weighted average number of common shares outstanding during
     the period. Common stock equivalents totaling approximately 31,847,000,
     25,482,000 and 20,081,000 for March 31, 1997, 1996, and 1995, respectively,
     have not been included since the effect would be antidilutive.

     Concentrations of Credit Risk - Financial instruments which potentially
     subject Phoenix to concentrations of credit risk consist principally of
     cash and cash equivalents. As of March 31, 1997 and 1996, substantially all
     of Phoenix's cash balances, including amounts representing outstanding
     checks, were maintained with Barnett Bank, N.A..

     Use of Estimates - The preparation of the consolidated 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 consolidated financial statements. Estimates
     also affect the reported amounts of revenues and expenses during the
     reporting period. Actual results could differ from those estimates.

     Reclassifications - Certain reclassifications have been made to Phoenix's
     fiscal year 1995 and 1994 consolidated financial statements to conform with
     1997 consolidated financial statement presentation.

3.   Property and Equipment:

     Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                     1997              1996
                                                  ----------        ----------

          <S>                                     <C>               <C>       
          Equipment and Furniture                 $  664,327        $  440,353
          Computers and Software                   3,133,332         2,554,962
                                                  ----------        ----------
                                                   3,797,659         2,995,315
          Less accumulated depreciation
               and amortization                    2,125,137         1,112,766
                                                  ----------        ----------

                                                  $1,672,522        $1,882,549
                                                  ==========        ==========
</TABLE>


    Depreciation expense for the years ended March 31, 1997, 1996, 1995 and
    cumulative for the period from inception through March 31, 1997 was
    approximately $1,052,000, $893,200, $171,500, and $2,164,700, respectively.




                                      F-17
<PAGE>   48


4.   Notes Payable:



<TABLE>
<CAPTION>
     Notes payable consist of the following as of March 31: 

                                                            1997        1996
                                                            ----        ----
     <S>                                                  <C>         <C>     
     Note payable to bank, payable in monthly 
       installments of $7,805, including interest 
       of 9.75%, collateralized by certain property 
       and equipment
                                                          $123,249    $200,574

     Note payable to bank, payable in monthly 
       installments of $2,563, including
       interest of 8.75%, collateralized by 
       a certificate of deposit maintained at
       the bank                                             40,785      66,680

     Note payable to investment company, 
       payable in fiscal 1997,
       with interest at 4%                                       -     200,000

     Capital lease obligation, payable 
       in monthly installments of $670                           -       6,594
                                                          --------    --------


                                                           164,034     473,848

     Less current portion                                 (113,766)   (300,773)
                                                          --------    --------
                                                          $ 50,268    $173,075
                                                          ========    ========
</TABLE>

     Annual maturities of notes payable for the fiscal years following fiscal
     1997 are approximately as follows:

              1998        114,000
              1999        50,000

     In addition, on December 9, 1994, Phoenix entered into a Convertible Note
     Purchase Agreement with S-C Phoenix Partners (see note 5).

5.   Equity Transactions:

     On December 9, 1994, Phoenix entered into a Convertible Note Purchase
     Agreement ("Agreement") with S-C Phoenix Partners, a New York general
     partnership ("S-C"), comprised of affiliates of Quantum Industrial
     Holdings, Ltd., George Soros and Purnendu Chatterjee. The Agreement
     provides for the sale of up to $10,000,000 of Phoenix's convertible notes
     ("Notes").

     On December 9, 1994, Phoenix issued its Tranche A Convertible Note, in the
     principal amount of $3,000,000, in exchange for net proceeds of $2,846,670.
     On February 17, 1995, Phoenix issued its Tranche B Convertible Note, in the
     principal amount of $1,200,000 pursuant to the terms of the Agreement.
     Under the Agreement, Phoenix was to offer the $1,200,000 Tranche B
     Convertible Note to S-C after completing the installation of Phoenix's
     airline reservation system in China, which was completed on February 9,
     1995. On March 15, 1995, Phoenix and S-C entered into an amendment (the
     "Amendment") to the Agreement providing, among other things, for the issue
     by Phoenix of a Tranche C Note, in the principal amount of $1,000,000,
     prior to the target date specified in the Agreement and conversion of all
     outstanding notes, in the aggregate principal amount of $5,200,000, into
     9,666,666 shares of Phoenix's common stock at the conversion prices
     provided in the notes. The conversion took place effective March 16, 1995.





                                      F-18
<PAGE>   49


     On August 3, 1995, Phoenix and S-C entered into an amendment (the
     "Amendment") to the Agreement providing, among other things, for the issue
     by Phoenix of the remaining $200,000 Tranche C Convertible Note along with
     $150,000 from the Tranche D Convertible Note prior to the target dates
     specified in the Agreement.

     On September 15, 1995, February 9, 1996 and March 15, 1996, Phoenix and S-C
     entered into amendments (the "Amendments") to the Agreement providing,
     among other things, for the acceleration of issuance by Phoenix of
     $1,200,000 and $1,150,000 under the Tranche D Convertible Note and
     $2,100,000 under the Tranche E Convertible Note. On December 30, 1996
     Phoenix issued to S-C 325,000 common shares in accordance with the terms of
     the March 15, 1996 Amendment, which required a reduced conversion price for
     the Tranche E Convertible Note.

     Note issuances during fiscal year 1996 aggregating $4,800,000 were
     converted on the then dates of issue into 4,333,333 shares of Phoenix's
     common stock at the conversion prices provided in the notes. Furthermore,
     300,000 additional common shares were issued on March 12, 1996. As of March
     16, 1996, S-C had purchased all $10,000,000 in notes and had converted the
     notes into Phoenix common stock. The notes bore interest at short-term
     LIBOR plus 2%.

     In connection with the execution of the Note Agreement, the Company granted
     S-C three-year warrants to purchase up to 4,000,000 shares of Common Stock
     at an exercise price of $3.00 per share.

     S-C will also have registration rights, first purchase rights on subsequent
     issues by the Company to maintain the percentage ownership of the Company,
     and the right to nominate one or more directors to the Company's Board.
     Further, if the Company enters into a joint venture to install and operate
     its reservation system in India, then S-C has the right to participate in
     such joint venture on an equal basis with the Company and its joint venture
     partner (i.e., each partner would own one-third if the Partnership elects
     to participate fully).

     In consideration of S-C's agreement to purchase the Tranche C Note prior to
     the specified target date and conversion of the note to equity, Phoenix
     issued to S-C a three-year warrant to purchase 2.5 million shares of its
     Common Stock at a purchase price of $2.00 per share. This warrant is fully
     exercisable at any time, but otherwise contains substantially the same
     terms as the warrant to purchase 4 million shares at $3.00 per share issued
     in connection with the execution of the Note Agreement. Phoenix also agreed
     to certain modifications to the Registration Rights Agreement entered into
     with S-C. Furthermore, in consideration of S-C's agreements to purchase a
     portion of the Tranche C Note and all of the Tranche D and E Notes prior to
     the specified target dates and conversion of the notes to equity, Phoenix
     issued to S-C three-year warrants as follows:


<TABLE>
                              <S>      <C>  <C>
                              600,000  @    $4.00
                              345,000  @     3.00
                              140,000  @     3.28
                              700,000  @     3.00
</TABLE>

     These warrants are fully exercisable at any time, but otherwise contain
     substantially the same terms as the 2,500,000 warrants specified above.

     On December 7, 1995, Phoenix and S-C Phoenix Holdings entered into an
     agreement granting Phoenix the option to purchase from S-C Phoenix Holdings
     a 50% interest in American Aviation Limited, a company formed to purchase
     25% or more of the equity in Hainan Airlines. Under the agreement, Phoenix
     could purchase a 50% interest in American Aviation Limited for $15,000,000,
     exercisable for one year from the date of American's purchase of the Hainan
     shares. As consideration for the option, Phoenix granted to S-C Phoenix
     Holdings warrants to purchase shares of Phoenix common stock as



                                      F-19
<PAGE>   50

     follows: 2 million shares exercisable for 120 days at the price of $4.00
     per share, which warrant expired unexercised; and 2 million shares as of
     the date of American's $25,000,000 investment in Hainan, exercisable for a
     period of three years at a price of $3.28 per share, commencing on December
     22, 1997. In addition, Phoenix granted to S-C Phoenix and Quantum an option
     to sell all or part of American Aviation to Phoenix for up to a maximum of
     8,000,000 shares of Phoenix's common stock, subject to certain adjustments
     and conditions, exercisable from December 22, 1997, through December 22,
     2000.

     In April 1996, Phoenix issued $5,000,000 of Series A 6% convertible
     preferred stock. The preferred stock was convertible into common stock at a
     15% discount to market, originally subject to a maximum conversion price of
     $4.00 per share and a minimum of $2.00 per share. The market value of the
     Company's common stock at the date of issuance of the Series A 6%
     convertible preferred stock was below the $2.00 per share minimum
     conversion price. If not converted by the purchaser prior to the second
     anniversary of the issuance date, the preferred stock will automatically be
     converted into common stock.

     In September 1996, Phoenix issued $4,000,000 of Series B 6% convertible
     preferred stock. The preferred stock is convertible into common stock at
     the market value of the Company's common stock at the date of conversion.
     If not converted by the purchaser prior to the second anniversary of the
     issuance date, the preferred stock will automatically be converted into
     common stock. In conjunction with the issuance of the Series B shares, the
     discount on the Series A convertible preferred stock was amended from 15%
     to 20% and the maximum conversion price of $4.00 per share and minimum of
     $2.00 per share were removed. The Company recorded a Series A 6%
     convertible preferred stock dividend of $658,015 for the difference between
     the conversion prices of the Series A 6% convertible preferred stock and
     the fair market value of the Company's common stock at the date of the
     amendment.

     On December 23, 1996, Phoenix acquired for $7,500,000 a 25% interest in
     American Aviation Limited, through the exercise of an option. American
     Aviation is a company owned by affiliates of Quantum Industrial Holdings
     Ltd., George Soros and Purnendu Chatterjee. American Aviation's sole asset
     is a 25% interest in Hainan Airlines, which it purchased for $25,000,000 in
     December 1995.

     Phoenix accounted for the investment by the cost method, because it has no
     influence on the operations of American Aviation Ltd. despite holding a 25%
     interest. Phoenix can neither sell or collateralize the investment without
     the unanimous consent of the owners, who have stated that material
     financial concessions would be required of Phoenix for such consent.

     The acquisition of the interest in American Aviation was financed by the
     sale to S-C Phoenix Partners ("S-C"), one of Phoenix's major shareholders,
     of 833,333 shares of the Company's Series C Convertible Preferred Stock
     ("Series C Shares") for $15,000,000. S-C is an investment partnership
     comprised of affiliates of Quantum Industrial Holdings Ltd., George Soros
     and Purnendu Chatterjee. W. James Peet, a director of the Company, is a
     non-managing member of S-C Phoenix Holdings, L.L.C. ("Holdings"), with
     respect to its investment in Phoenix. Holdings is a general partner of S-C.

     From the date of issue until January 1, 2003, the Series C Shares will
     accrue cumulative quarterly dividends of 0.0247935 additional Series C
     Shares for each Series C Share outstanding and each dividend previously
     accrued on such Share. The Series C Shares will also participate, on an as
     converted basis, with the common stock, par value $.01 per share, of
     Phoenix ("Common Stock") in dividends declared and paid on the Common
     Stock.

     Each Series C Share may be converted at any time at the option of the
     holder into ten shares of




                                      F-20
<PAGE>   51

     Common Stock of the Company and will be automatically converted on the date
     after June 23, 1997, on which the market price of the Common Stock shall be
     at least $3.60 per share for ten consecutive trading days. Immediately
     prior to any conversion, the Series C Shares shall receive all dividends
     which have accrued or would have accrued from the date of issuance through
     January 1, 2003, regardless of whether such conversion shall occur prior to
     such date. The Series C shares also have certain liquidation preferences,
     the right to consent to certain transactions and the same voting rights, on
     an as fully converted basis, applicable to the Common Stock. S-C has
     certain demand and piggyback registration rights with respect to the Common
     Stock it owns in the Company. Such registration rights apply to Common
     Stock issued upon conversion of the Series C Shares.

6.   Related Party Transactions:

     During fiscal years 1997, 1996 and 1995, Phoenix earned licensing fee
     income from VSI, a related entity. VSI is owned by the President of Phoenix
     along with certain shareholders of Phoenix. Phoenix has an agreement with
     VSI to license on a nonexclusive basis the PHOENIX-HOTEL software for a
     period of 15 years at a fee of $2,000 per month subject to Phoenix's right
     to increase the monthly fee after a period of one year in the event Phoenix
     is able to enter into similar licensing arrangements with non-affiliated
     third parties at higher fees. The revenue of $2,000 per month for the
     license is consideration for VSI performing as a beta testing site for the
     software.

     Phoenix has advanced to and received from related entities, operating
     funds, on a non-interest bearing basis. For the years ended March 31, 1997
     and 1996, the balances were as follows:

<TABLE>
<CAPTION>
                                      1997         1996
                                      ----         ----
       <S>                         <C>           <C>

       VSI, receivable             $     -       $ 44,043
       VSI, payable                               159,643
</TABLE>

     The payable to related parties at March 31, 1996, included $ 77,200 of
     accrued expenses for travel and services rendered, which are payable to
     various related parties; and $39,100 in legal fees from a company that is
     controlled by a past director of Phoenix.

     In November 1994, the Board of Directors approved converting certain of
     Phoenix's existing debt into stock. The Board of Directors authorized the
     conversion of $1,700,000 of principal amount non-interest bearing loans due
     Harvest and VSI (both owned and controlled by Robert P. Gordon) into
     3,400,000 shares of the Common Stock of Phoenix from the authorized but
     unissued stock of Phoenix. The conversion was completed effective December
     2, 1994.


     On September 30, 1994, the Securities and Exchange Commission ("S.E.C.")
     issued an Order Instituting Proceedings Pursuant to Section 8A of the
     Securities Act of 1933 ("933 Act") and Section 21C of the Securities
     Exchange Act of 1934 ("1934 Act"), Making Findings' and Imposing a Cease
     and Desist Order against Harvest and Robert P. Gordon. The findings and
     remedial sanctions imposed by the Order were in accordance with Offers of
     Settlement dated July 24, 1994, submitted by Harvest and Mr. Robert P.
     Gordon, which the S.E.C. accepted. Without admitting or denying liability,
     Harvest and Mr. Robert P. Gordon consented to the cease and desist order
     alleging violations of Section 17 (a) of the 1933 Act and Section 10 (b)
     and Rule 10b-5 of the 1934 Act by reason of alleged misrepresentations in
     1990 and 1991 in connection with the offer and sale of Harvest non-interest
     bearing promissory notes convertible into common stock of the predecessors
     of Phoenix and PSG, and which common stock was to have been issued and
     registered within 30 or 60 days from the dates of the various notes. During
     fiscal 1996, Robert P. Gordon, Chairman of the Board lent the Company
     $1,182,500 as working capital, of which $232,500


                                      F-21
<PAGE>   52

     was then utilized to exercise 172,222 stock options; $850,000 was converted
     into a 5% note, payable on demand; and $100,000 as a non-interest bearing
     loan. In April 1996, the demand note and the non-interest bearing loan were
     repaid.

     During fiscal 1996, Hainan Phoenix Information Systems, Ltd. borrowed
     $19,395 from the wife of its President, which loan included interest at 4%.
     The loan was repaid in full during fiscal year 1997.

7.   Commitments and Contingencies:

     Litigation - On April 13, 1995, a third party filed a complaint in the
     United States District Court with claims that essentially relate to alleged
     agreements, misrepresentations and omissions made prior to the time of, or
     in connection with, a written settlement agreement entered into on April
     15, 1993 (the "Settlement Agreement") between Plaintiff and Robert P.
     Gordon ("Gordon"), Phoenix and Harvest (the "Defendants"). The Plaintiff
     alleges that Gordon made oral promises to induce Plaintiff to enter into
     the Settlement Agreement including a promise to give Plaintiff additional
     Phoenix stock which Plaintiff claims that he initially received. Plaintiff
     alleges that he was fraudulently induced to enter into the Settlement
     Agreement pursuant to which he released his rights to, among other things,
     options, payments and a finders fee in connection with investment monies
     subsequently received by Phoenix. The Plaintiff seeks rescission, and
     compensatory and treble damages in the amount of $60 million.

     On August 7, 1996, the District Court granted Phoenix's motion to dismiss
     substantial portions of Plaintiff's claims. The court rejected Plaintiff's
     claims of fraudulent inducement to enter into the Settlement Agreement,
     which effectively precludes Plaintiff from trying to enforce a finders fee
     agreement or any of the options, payments, or other rights which he
     released as part of the Settlement Agreement. Plaintiff was given leave to
     amend his Complaint, but the court's order required him to do so in a
     manner consistent with the court's order, which precludes Plaintiff's
     claims related to alleged oral promises made prior to the signing of the
     Settlement Agreement. On August 22, 1996, Plaintiff filed a Second Amended
     Complaint, which in its first eight counts essentially reiterated the
     claims which the District Court dismissed on August 7, 1996. Plaintiff also
     has sued Phoenix for allegedly participating in repossessing 1.2 million
     shares of Phoenix stock from Plaintiff and failing to perform oral promises
     which Plaintiff contends were part of the Settlement Agreement. The
     Defendants have moved to dismiss or strike the Second Amended Complaint, in
     part because the allegations contradict the rulings contained in the
     District Court's August 7, 1996 order. The case was referred to mediation
     for settlement discussions. However, mediation has been postponed because
     Plaintiff's counsel moved for and was granted leave to withdraw from the
     case as reflected by the court's September 2, 1996 order. On January 16,
     1997, new counsel entered an appearance on behalf of Plaintiff.

     On April 16, 1996, a third party filed an Amended Complaint in the United
     States District Court, against Robert P. Gordon and Phoenix. The Amended
     Complaint alleges claims against Phoenix for violation of Federal
     securities laws, the Racketeering Influenced and Corrupt Organizations Act,
     common law fraud, and for an accounting. The Amended Complaint seeks an
     unspecified amount of damages to be determined and purports to seek
     punitive damages in the sum of $10,000,000.

     The action appears to be based on an alleged business relationship between
     Robert P. Gordon and a third party to engage in business in China. In
     addition, the Amended Complaint alleges that Robert P. Gordon and a third
     party had an oral agreement to exchange certain shares of Harvest owned by
     the third party for certain shares of Phoenix held by Robert P. Gordon.
     Plaintiffs do not allege that Phoenix was a party to any of the
     transactions alleged in the Amended Complaint.

     Management of Phoenix is of the opinion that the lawsuits are without
     merit, and that there are meritorious defenses to the claims. The
     occurrence or outcome of such litigation cannot presently be



                                      F-22
<PAGE>   53

     determined. Accordingly, no provision for liability that may result, if
     any, has been made in the accompanying consolidated financial statements.
     If Phoenix does not prevail in its defense of the Plaintiff's claims,
     Phoenix's business, financial condition and future prospects would be
     materially adversely affected.

     Marketing Alliance - During September 1992, Phoenix purchased applications
     software for an airline reservation system. On September 29, 1993, Phoenix
     formed a marketing alliance with Stratus Computer, Inc. ("Stratus") of
     Marlboro, Massachusetts whereby Phoenix will act as a Systems Integrator in
     Stratus' "Pinnacle Partner Program." This agreement will allow both
     companies to market Phoenix software products and Stratus hardware products
     worldwide.

     Leases - The Company leases its office space under long-term operating
     leases expiring at various dates. Rent expense for the years ended March
     31, 1997, 1996, 1995 and cumulative for the period from inception through
     March 31, 1997 was approximately $988,000, $730,000, $188,000, and
     $2,390,000, respectively. At March 31, 1997, the approximate minimum annual
     rental commitments under these non-cancelable leases were:

<TABLE>
                                <S>      <C>
                                FY1998       643,000
                                FY1999       302,000
                                FY2000       268,000
                                FY2001       144,000
                                FY2002       145,000
                                             -------

                                         $ 1,502,000
                                         ===========
</TABLE>

     Employment Agreements - The Company has entered into employment agreements
     with certain key executives for periods up to four years. The agreements
     provide for base compensation as follows:

                               Year ending March 31,
                               ---------------------

<TABLE>
                                 <S>         <C>
                                 1998        $925,600
                                 1999         539,000
                                 2000         539,000
                                 2001         470,786
</TABLE>

8.   Registration Statements:

     In May 1994, Phoenix sold privately to an accredited investor two units for
     shares of its restricted common stock at a purchase price of $50,000 per
     unit. Each unit consists of 66,667 shares of Phoenix's common stock and an
     equal number of common stock purchase warrants (the "warrant") which expire
     on May 10, 1999 (the "Expiration Date"). For each unit, the warrant
     entitles the holder to purchase 66,667 shares of common stock at an
     exercise price of $2.00 per share from May 10, 1994 through the Expiration
     Date. Such proceeds were utilized to pay for salaries and other general
     operating expenses.

     Phoenix filed a Form S-8 Registration Statement with the S.E.C. in
     connection with an employee benefit plan (the "Plan") covering 4,000,000
     shares. On December 4, 1995, Phoenix filed a Registration Statement and
     reoffer prospectus covering registered securities of the same class of
     5,000,000 additional shares of Phoenix's common stock, pursuant to the
     Plan. The Plan allows Phoenix to issue common stock and/or options to
     purchase common stock to certain consultants, service providers and
     employees. The purpose of the plan is to promote the best interests of
     Phoenix and its stockholders by providing a means of non-cash remuneration
     to eligible participants who contribute to the operating progress and
     earning power of Phoenix. The Plan is administered by Phoenix's Board of
     Directors or a committee consisting of




                                      F-23
<PAGE>   54

     three members which has the discretion to determine from time to time the
     eligible participants to receive an award; the number of shares of stock
     issuable directly or to be granted pursuant to option; the price at which
     the option may be exercised or the price per share in cash or cancellation
     of fees or other payments which Phoenix is liable for. As of March 31,
     1997, a total of 1,139,611 shares were issued under the plans, including
     75,000 shares to two executive officers of American, 347,222 shares to four
     executive officers of Phoenix, 379,191 shares to four former employees,
     117,500 shares for public relations services and 220,698 shares for legal
     services.

9.   Stockholder's Equity:

          At March 31, 1997, the Company has granted nonplan stock options. The
     Company applies APB Opinion 25, "Accounting for Stock Issued to Employees,"
     and related interpretations in accounting for the options. Under APB
     Opinion 25, if options are granted or extended at exercise prices less than
     fair market value, compensation expense is recorded for the difference
     between the grant price and the fair market value.

     Statement of Financial Accounting Standards No. 123 (FAS 123) "Accounting
     for Stock-Based Compensation," requires the Company to provide pro forma
     information regarding net income and earnings per share as if compensation
     cost for the Company's stock options had been determined in accordance with
     the fair value based method prescribed in FAS 123. The Company estimates
     the fair value of each stock option at the grant date by using the
     Black-Scholes option-pricing model with the following weighted-average
     assumptions used for grants: no dividend yield, volatility ranging from 82%
     to 112%, risk-free interest rates ranging from 5.2% to 6.3% and expected
     lives ranging from one to eight years.

     Under the accounting provisions of FASB Statement 123, the Company's net
     loss and loss per share would have been increased to the pro forma amounts
     indicated below:


<TABLE>
<CAPTION>
                                  1997             1996                1995
                                  ----             ----                ----
    <S>                       <C>              <C>             <C>           
    Net loss
          As reported         $ (12,393,872)   $ (9,704,318)   $  (4,841,824)
          Pro forma             (13,698,328)    (10,490,967)      (4,943,282)

     Loss per common share
          As reported         $        (.26)   $       (.23)   $        (.19)
          Pro forma                    (.29)           (.25)            (.19)
</TABLE>















                                      F-24
<PAGE>   55


     Changes in options outstanding are summarized as follows:

<TABLE>
<CAPTION>
                                                     Weighted-Avg.  Weighted-Avg.
                                                    Exercise Price  Fair Value of
                                          Shares      Per Share    Options Granted
                                          ------      ---------    ---------------
          <S>                           <C>             <C>           <C>  
           Balance, March 31,1994       10,572,191      $   1.31      $   -
             Granted - lower than
                market price             1,822,500          1.62       1.39
             Granted - above
                market price               240,000          1.50        .44
                                       -----------      --------       ----
           Balance, March 31, 1995      12,634,691      $   1.37      $   -

             Granted - lower than
                market price             2,625,000          3.56       4.43
             Granted - equal to
                market price               141,667          3.93       4.57
             Granted - above
                market price                83,333          5.00       2.34

             Exercised                    (459,042)         1.38          -
             Forfeited                    (175,000)         1.35          -
                                       -----------      --------      -----
           Balance, March 31, 1996      14,850,649      $   2.25      $   -

             Granted - equal to
                market value               650,000          1.91       1.12
             Granted - above
                market value             2,179,000          1.88       1.05
             Exercised                    (132,371)         1.15          -
             Forfeited                  (2,576,832)         3.43          -
                                       -----------      --------      -----
           Balance, March 31, 1997      14,970,446      $   1.73      $   -
</TABLE>

          At March 31, 1997, a total of 11,892,912 of the outstanding options
          were exercisable with a weighted-average exercise price of $1.60 per
          share. During the fiscal year ended March 31, 1997, The Company
          granted 600,000 and 60,000 common stock options with exercise prices
          of $1.50 and $2.00 per share, respectively, and vesting terms that may
          vary depending on the Company's attainment of certain performance
          goals. The 600,000 option shares become fully vested on January 31,
          2004 unless certain Company performance goals are met, which would
          accelerate vesting. The 60,000 option shares do not vest unless the
          Company reaches certain other performance goals. These options have
          been accounted for as variable stock options as required by APB 25. No
          compensation expense has been recorded for these options during the
          year ended March 31,1997.




                                      F-25
<PAGE>   56


The following table summarizes information about fixed stock options at March
31, 1997:

<TABLE>
<CAPTION>
                                      Options Outstanding                       Options Exercisable
                                      -------------------                       -------------------
                               Number     Weighted-Average   Weighted-        Number           Weighted-
                            Outstanding       Remaining      Average        Exercisable          Average
        Exercise Prices  at Dec. 31,1996 Contractual Life Exercise Price  at Dec. 31, 1996    Exercise Price
        ---------------  --------------- ---------------- --------------  ----------------    --------------

          <S>               <C>              <C>             <C>              <C>                <C>  
          $1.00 - 1.35      10,040,778       1.8 years       $1.30             9,911,578         $1.30
          $1.50 - 2.00       3,895,167       4.3 years        1.70             1,413,833          1.69
          $2.50 - 3.25         497,000       3.2 years        2.69               325,000          2.77
          $3.60 - 5.00         537,501       7.2 years        3.87               242,501          4.16
                            ----------                                        ----------
                            14,970,446                                        11,892,912
                            ==========                                        ==========
</TABLE>


Stock Warrants

At March 31, 1997, the Company had 11,680,607 common stock warrants outstanding.
Information relating to these warrants is summarized as follows:


<TABLE>
<CAPTION>                           
                                          Number of          Exercise       
                   Expiration date         Warrants            Price        
                   ---------------        ----------           -----        
                   <S>                   <C>                <C>            
                   March 1998             6,500,000           $2.00 - 3.00   
                   April 1998                75,000            4.00          
                   September 1998           810,000            3.00 - 4.00   
                   March 1999               200,000            2.00          
                   May 1999                 146,667            2.00          
                   January 2000             513,940            2.57          
                   August 2000              250,000            2.08          
                   December 2000          2,000,000            3.28          
                   Pending *              1,185,000            3.00 - 3.28   
                                         ----------                         
                     Total               11,680,607                         
</TABLE>

*    The expiration dates of these warrants will be determined at a future date
     based on certain performance goals to be attained by the company.

     Shares Reserved

     At March 31, 1997, the Company has reserved common stock for future
     issuance under all of the above arrangements totaling 26,651,053 shares.

     Common Stock Options and Warrants Issued for Compensation and Consulting

     During the fiscal years ended March 31, 1997, 1996 and 1995, compensation
     and consulting expense of $401,010, $278,500 and $53,750, respectively, was
     recognized on common stock options and warrants granted to officers,
     directors and consultants. Prepaid consulting expense of $288,000 is
     recorded as of March 31, 1997 for common stock warrants issued in fiscal
     1997 for services to be rendered in fiscal 1998.



                                      F-26
<PAGE>   57

10   Deferred Tax Assets

     The components of net deferred tax assets consist of the following:

<TABLE>
<CAPTION>
                                                 1997                                1996
                                                 ----                                ----
     <S>                                     <C>                                  <C>       
     Deferred tax assets:
     --------------------
         Net operating loss carryforwards     $9,682,000                          $5,998,000
         Stock option compensation               274,000                             123,000
         Amortization                            190,000                             381,000
         Accruals                                124,000                              52,000
         Other                                    85,000                                  -
                                             -----------                          ----------
     Gross deferred income tax assets         10,355,000                           6,554,000
     Valuation allowances                    (10,355,000)                         (6,554,000)

     Total Deferred income tax assets                 -                                   -
</TABLE>

     The following summary reconciles differences from taxes at the federal
     statutory rate with the effective rate:
 
<TABLE>
<CAPTION>

     Year ended March 31,                      1997        1996        1995
     --------------------                      ----        ----        ----

     <S>                                      <C>         <C>          <C>    
     Federal income taxes at statutory rates  (34.0%)     (34.0%)      (34.0%)

     Losses without tax benefits               34.0%       34.0%        34.0%

     Income taxes at effective rates             -           -            -
</TABLE>

     Unused net operating losses for income tax purposes, expiring in various
     amounts from 2007 through 2012, of approximately $25,731,000 are available
     at March 31, 1997 for carryforward against future years' taxable income.
     Under Section 382 of the Internal Revenue Code, the annual utilization of
     these losses may be limited due to changes in ownership. The tax benefit of
     these losses of approximately $9,682,000 has been offset by a valuation
     allowance due to it being more likely than not that the deferred tax assets
     will not be realized.




                                      F-27
<PAGE>   58

11.  Cash and cash equivalents

     Cash and cash equivalents consist of instruments with original maturities
     of three months or less.

     Non-Cash Transactions - Phoenix had the following non-cash financing
     activities during the years ended March 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                      1997          1996            1995
                                                                   ---------     ----------     ----------
      <S>                                                         <C>            <C>            <C>       
           Investing
           ---------
           Acquisition of subsidiary, net                                 --             --     $   55,655
           Acquisition of minority interest                               --             --        466,666

           Financing
           ---------
           Contribution of joint venture partner                          --             --        170,460
           Accrued preferred stock dividends                          75,704             --             --
           Conversion of debt to equity                                   --     $5,032,500      8,555,821
           Reclassification of accrued interest to equity                 --             --        160,502
           Warrants issued as prepaid consulting fees                288,000             --             --
           Treasury shares issued for the sale of American
                International Travel Agency Inc.                      90,000             --             --
           Reclassification of accrued compensation to equity     $  332,250             --             --

      Cash paid for interest                                      $   17,040     $   43,631     $  355,675
      ----------------------
</TABLE>











                                      F-28
<PAGE>   59

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

          On January 17, 1997, Coopers & Lybrand notified the Registrant that
the client-auditor relationship between the Registrant and Coopers & Lybrand had
ceased.

          There were no disagreements between Coopers & Lybrand and Phoenix on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. Phoenix hereby reiterates, as
required by the Form 8-K rules, the previously disclosed fact that Coopers &
Lybrand rendered an opinion, for the year ended March 31, 1996, that there was
substantial doubt as to the Registrant's ability to continue as a going concern.
However, neither Coopers & Lybrand nor the Company has cited this or any other
reason for the cessation of the client-auditor relationship.


          On March 25, 1997, Phoenix retained BDO Seidman, LLP as its auditing
firm.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

          The Company has a Board of Directors (the "Board") which is comprised
of seven members. Each director holds office until the next annual meeting of
Shareholders or until a successor is elected or appointed. The members of the
Board and the executive officers of the Company and their respective age and
position are as follows:


<TABLE>
Name                Age       Position
----                ---       --------
<S>                 <C>       <C>
Robert P. Gordon    46        Chairman of the Board
Delbert F. Bloss    53        Director, Chief Executive Officer
Frank A. Cappiello  71        Director
Robert J. Conrads   50        Director
Yu Yan'en           60        Director, Chairman and President of China Southern
                                          Airlines                        
Paul W. Henry       50        Director and Secretary                                
W. James Peet       42        Director                                              
Peter J. Ford       51        Vice President and Chief Financial Officer            
Frank Streine       59        Vice President, Product Development                   
Robert O. Harlan    53        Vice President, President of PTS                      
Vincent P. Gordon   41        Vice President, President of Hainan-Phoenix           
Leo O. Parisi       58        Vice President, Systems Architecture                  
Larry E. McGee      49        Vice President, Communications and Operations for PSL 
Judith A. Schafers  54        Vice President, Customer Service and Operations for PSL
</TABLE>


          ROBERT P. GORDON, age 46, has been an officer and director of the
Company since March 1991. He is a brother of Vincent P. Gordon, President of
Hainan Phoenix Information System Ltd. Mr. Gordon has been Chairman and Chief
Executive Officer of Harvest International of America, Inc. ("Harvest"), which
has been engaged in the development of global tourism and trade in China and the
United States since July 1989. Mr. Gordon founded Phoenix Systems Group, Inc.
("PSG") in 1987 and serves as its Chairman. Since November 1992, Mr. Gordon has
been an executive officer, director and the beneficial owner of Visitors
Services, Inc., an operating company that is engaged in the business of
providing reservation sales and automated reservations and informational
services in support of the special needs of convention and visitors bureaus.

          DELBERT F. BLOSS, age 53, has been Chief Executive Officer of the
Company since February 10, 1997 and President and a Director of the Company
since March 21, 1997. Prior to joining Phoenix, Mr. Bloss had



                                       30





<PAGE>   60

been President of the Airlines Systems Division of Unisys Corporation where he
was responsible for all product, services, and operations support relating to
the airline industry. From 1983 - 1995, Mr. Bloss was President of The Forge
Group, a consulting firm he formed that specializes in airline reservations
systems, where he developed airline industry strategies for the firm's primary
client, Siemens AG.

          FRANK A. CAPPIELLO, age 71, has been a Director of the Company since
November 1993. Mr. Cappiello is President of an investment counseling firm:
McCullough, Andrews & Cappiello, Inc., providing asset management services to
funds in excess of $1 billion. He is Chairman of three No-Load Mutual Funds;
Founder and Principal of Closed-End Fund Advisors, Inc.; publisher of
Cappiello's Closed-End Fund Digest; author of several books and a regular
panelist on "Wall Street Week with Louis Rukeyser." For more than 12 years, Mr.
Cappiello was Chief Investment Officer for an insurance holding company with
overall responsibility for managing assets of $800 million. Prior to that, he
was the Research Director of a major stock brokerage firm.

          ROBERT J. CONRADS, age 50, has been a Director of the Company since
March 1995 and is currently President of Conrads, Inc., an investment and
advisory services firm. Since March 1, 1996, Mr. Conrads has served on the Board
of Directors of Visitors Services Inc. From 1994 until January 1997, Mr. Conrads
served as Executive Vice President, Chief Financial Officer and member of the
Supervisory Board of Indigo, N.V., and President of Indigo America, Inc.,
developers of the Indigo E-Print 1000, the world's first digital offset color
press. From 1987 to 1993, Mr. Conrads was Managing Director of The First Boston
Corporation and headed that firm's Investment Banking Technology Group based in
New York. During his career in the investment banking industry, Mr. Conrads was
involved in the execution of several strategic alliances, mergers and
acquisitions and financing transactions with technology based companies in the
U.S. and abroad. Prior to entering the investment banking industry, Mr. Conrads
was with McKinsey & Co. for twelve years where he was a Director and headed that
firm's Electronics Industry Practice. He has also conducted research in atomic
and molecular physics for the U.S. Atomic Energy Commission and the National
Science Foundation.

          YU YAN'EN, age 60, has been a Director of the Company since November
1996. Since January 1993, Captain Yu has served as President of Southern
Airlines, the largest domestic airline in China and the Company's joint venture
partner. From March 1983 to December 1992, Captain Yu served as the Director
General of CAAC Guangzhou Administration Bureau. From March 1980 to February
1983, he also served as the Director General of CAAC Heilongjiang Provincial
Administration Bureau.

          PAUL W. HENRY, age 50, has been Secretary and a Director of the
Company and PSG since April 1992. Since March 1, 1996 Mr. Henry has also served
on the Board of Directors of Visitors Services Inc. During the past ten years,
Mr. Henry has been an independent financial consultant. From 1991 to 1992, he
was retained by Essex Investment Management Company, an institutional money
management firm. From 1988 to 1991, Mr. Henry was retained by the Caithness
Corporation, a natural resources development company. From 1988 to 1989 he was
an advisor to Veronex Resources, an international oil and gas exploration
company. From 1987 to 1989, Mr. Henry served as a consultant to Harvest.

          W. JAMES PEET, age 42, has been a Director for the Company since March
1995 and has worked at The Chatterjee Group, a New York based investment group
directed by Mr. Purnendu Chatterjee, since 1991. Mr. Chatterjee, Mr. George
Soros, and affiliates of Quantum Industrial Holdings, Ltd. recently acquired a
significant equity interest in the Company. Prior to his association with The
Chatterjee Group, Mr. Peet was at McKinsey & Company where, as a core member of
the electronics and technology practices, he focused on projects involving
product and marketing strategies for manufacturers of computers, semiconductors,
software and other electronic-related products. Mr. Peet has also been involved
with entrepreneurial activities in technology and real estate.



                                       31



<PAGE>   61





          PETER J. FORD, age 51, became Vice President and Chief Financial
Officer of the Company on March 24, 1997. Prior to joining the Company, Mr. Ford
was with EnviroSys International, Inc., where he was one of its founders. Prior
to EnviroSys, he was CFO at Highland Environmental Group, Inc., and Hearx Ltd.
Mr. Ford previously held divisional CFO positions with Corning, Macmillan, Inc.,
and Bausch & Lomb, where he was responsible for finance, planning, and the MIS
function. As part of Mr. Ford's new responsibilities, he will focus on
forecasting, business planning, and financial management, including spending and
cost controls.

          ROBERT O. HARLAN, age 53, President of Phoenix Transaction Services,
joined the Company in March 1997. From 1987 to March 1997, Mr. Harlan was the
President of The Harlan Group, a company which he formed to provide counsel,
advice, and project management to select major corporations for their business
development requirements, including such corporations as Unisys Corporation,
Electronic Data Systems, Hilton Hotels, MCI, et al. Prior to this, Mr. Harlan
held various senior positions with American Airlines from 1964 to 1987,
including management of American's reservation system. Mr. Harlan brings a very
diversified background in planning, implementation, and the operation of major
programs, businesses, and services.

          FRANK F. STREINE, age 59, became Vice President of Product Development
for the Company on May 12, 1997. Prior to joining the Company, Mr. Streine was
employed with Unisys since 1977 where his most recent position was that of
Director-Customer Management System Technology within the Airline Systems
Division with responsibility for the selection and deployment of emerging
application development and deployment environments. Mr. Streine held other
positions at Unisys as Director responsible for the design, development and
implementation of new computer CAD systems for Unisys. Prior to Unisys, Mr.
Streine was employed with United Airlines where he became one of the chief
designers of United's Unimatic Operation System. Mr. Streine brings 30 years of
diversified experience in the computer industry.

          LEO O. PARISI, age 58, became Vice President of System Architecture
for PSG in March 1997, after serving as Vice President of Operations for PSG
since November 1991. During 1991, Mr. Parisi served as an independent consultant
to the travel industry. During 1990, Mr. Parisi served as a Director of
Operations for World ComNet where he was responsible for network management,
software and systems development, customer services and operations. From 1988 to
1990, he was Senior Director, Application Department, for System One
Corporation, where he was responsible for all software development, project
management and support of airline reservations for 15 airlines, flight planning
for 75 airlines and critical operational systems for Continental Airlines. From
1969 to 1988, he was Vice President, Applications Department, of Trans World
Airlines/PARS Service Partnership, where he was responsible for all software
development in support of travel agency functionality, airline reservations and
critical operational systems.


          VINCENT P. GORDON, age 40, became President of Hainan Phoenix
Information Systems Ltd. in January 1995 after serving as Vice President of
China Operations for PSG since November 1993. Mr. Gordon is a brother of Robert
P. Gordon, Chairman of Phoenix. From 1978 to 1993, Mr. Gordon worked in the
information processing and telecommunications industry with the IBM Corp. and as
an independent consultant. In 1984, Mr. Gordon became the Telecommunication
Development Manager of IBM's Telecom Partnership Program, where he led a team of
IBM, MCI, and Rolm Corp. employees in the implementation of high-speed wide-area
integrated voice and data communications networks for Fortune 100 companies. In
1988, Mr. Gordon became the Manager of Competitive Marketing for IBM's
Mid-Atlantic Region. Since 1990, Mr. Gordon has worked as an independent
consultant and has traveled extensively in China, Taiwan and Japan until he
joined the Company in May, 1993.


          LARRY E. MCGEE, age 49, became Vice President of Communications and
Operations for PSL in March 1997, after serving as Vice President of Operations
for PSL since February 1995. From 1991 to 1995, he was a consultant to Worldspan
Inc. where he was responsible for designing and implementing OS/2 software for

                                       32


<PAGE>   62



testing network applications. From 1988 to 1991, he was a consultant to IBM
Corp. where he was responsible for designing and implementing software to
support Host-to-Host applications running in the IBM TPF operating system. The
work required interface with IBM Germany personnel, IBM USA and customer contact
in the US and Europe.

          JUDITH A. SCHAFERS, age 54, became Vice President of Customer Service
and Operations for PSL in March 1997, after serving as Vice President of Product
Marketing for PSL since April 1995. From 1986 to 1994, she was Sr. Vice
President of Customer Relations & Support Services for System One Corporation
where her responsibilities included customer services, re-engineering, the
corporate quality program, product installations, customer and internal
training, distribution services, product development and product communications.
From 1983 to 1986, she was Director of Automation Services for Trans World
Airlines, Inc. where her responsibilities included development of all products
and services for PARS CRS customers, developing and implementing airline
over-booking policies, aircraft capacity management, spoilage objectives and
passenger refusal rates, among others.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

          Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, directors and greater than ten percent
stockholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file. All forms were filed on time.

COMPARATIVE PERFORMANCE BY THE COMPANY

          The Securities and Exchange Commission requires the Company to present
a chart comparing the cumulative total shareholder return on its Common Stock
with the cumulative shareholder return of (1) a broad equity market index, and
(2) a published industry index or peer group for the past five years. Such chart
compares the performance of the Company's Common Stock with (1) the NASDAQ Stock
Market Index and (2) a group of public companies each of whom are listed in the
peer group computer programming and data processing services and assumes an
investment of $100 on June 1, 1992 in each of the Company's Common Stock, the
stock comprising the NASDAQ Stock Market index and the stocks of the computer
programming and data processing services.


                                       33





<PAGE>   63

                     COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
                    AMONG PHOENIX INFORMATION SYSTEMS CORP.,
                    NASDAQ MARKET INDEX AND SIC GROUP INDEX


<TABLE>
<CAPTION>

                                             FISCAL YEAR ENDING
COMPANY                        1992      1993    1994    1995    1996    1997
<S>                             <C>     <C>     <C>     <C>     <C>     <C>
PHOENIX INFORMATION SYSTS       100     100.00   50.00  153.85  119.23  113.46
INDUSTRY INDEX (SIC CODE)       100     113.31  120.47  159.34  231.75  258.41
BROAD MARKET (NASDAQ MKT INDEX) 100     111.91  129.33  137.21  184.56  206.47
</TABLE>

                     ASSUMES $100 INVESTED ON MAR. 31, 1992
                           ASSUMES DIVIDEND REINVESTED
                        FISCAL YEAR ENDING MAR. 31, 1996






                                       34





<PAGE>   64




ITEM 11. EXECUTIVE COMPENSATION.

COMPENSATION OF EXECUTIVE OFFICERS


     The following table sets forth all compensation, including bonuses, stock
option awards and other payments, paid or accrued by the Company during each of
the fiscal years ended March 31, 1997, 1996 and 1995, to the Company's Chairman
(and former CEO), the Company's Chief Executive Officer, the four other most
highly compensated executive officers of the Company, and two former officers.

                           SUMMARY COMPENSATION TABLE




<TABLE>
<CAPTION>
====================================================================================================================================
                                                                        Long Term Compensation
                                                               ----------------------------------------
                                                                           Awards              Payouts
                                                               ------------------------------  --------
          (a)              (b)                       (e)          (f)
          Name            Year                      Other      Restricted                        (h)         (i)
          and             Ended    (c)     (d)      Annual       Stock            (g)            LTIP        All
       Principal          March  Salary   Bonus  Compensation   Award(s)         Shares        Pay-outs     Other
        Position           31      ($)     ($)       ($)          ($)      Underlying Options    ($)     Compensation
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>    <C>       <C>       <C>          <C>          <C>               <C>         <C>
    Robert P. Gordon      1997   180,000   -0-       -0-          -0-             -0-            -0-         -0-
 Chariman of the Board    1996   180,000   -0-       -0-          -0-             -0-            -0-         -0-
          (1)             1995   336,420   -0-       -0-          -0-           108,000          -0-         -0-
------------------------------------------------------------------------------------------------------------------------------------
    Delbert F. Bloss
   Director for PISC      1997    28,846   -0-       -0-          -0-          1,000,000         -0-         -0-
    President & CEO -     1996     -0-     -0-       -0-          -0-             -0-            -0-         -0-
     PISC/PSG/PSL         1995     -0-     -0-       -0-          -0-             -0-            -0-         -0-
          (2)
------------------------------------------------------------------------------------------------------------------------------------
     Leo O. Parisi        1997   209,536   -0-       -0-          -0-            25,000          -0-         -0-
   Vice President of      1996   132,000   -0-       -0-          -0-             -0-            -0-         -0-
Systems Architecture (3)  1995   154,661   -0-       -0-          -0-             -0-            -0-         -0-
------------------------------------------------------------------------------------------------------------------------------------
   Vincent P. Gordon      1997   120,000   -0-       -0-          -0-             -0-            -0-         -0-
      President of        1996   120,000   -0-       -0-          -0-             -0-            -0-         -0-
   Hainan-Phoenix (4)     1995   112,972   -0-       -0-          -0-           150,000          -0-         -0-
------------------------------------------------------------------------------------------------------------------------------------
   Judith A. Schafers     1997   125,188   -0-       -0-          -0-             -0-            -0-         -0-
VP of Customer Service    1996   132,000   -0-       -0-          -0-             -0-            -0-         -0-
and Operations - PSL (5)  1995     -0-     -0-       -0-          -0-           216,000          -0-         -0-
------------------------------------------------------------------------------------------------------------------------------------
     Larry E. McGee       1997   101,488   -0-       -0-          -0-             -0-            -0-         -0-
     Vice President       1996   173,312   -0-       -0-          -0-             -0-            -0-         -0-
 of Operations-PSL (6)    1995     -0-     -0-       -0-          -0-           180,000          -0-         -0-
------------------------------------------------------------------------------------------------------------------------------------
  Xenophon L. Sanders     1997   284,092   -0-       -0-          -0-            66,667          -0-         -0-
    Former President      1996   156,000   -0-       -0-          -0-             -0-            -0-         -0-
      of PISC (7)         1995   151,385   -0-       -0-          -0-            72,000          -0-         -0-
------------------------------------------------------------------------------------------------------------------------------------
   Leonard S. Ostfeld     1997   191,720   -0-       -0-          -0-             -0-            -0-         -0-
       Former CFO         1996    54,669   -0-       -0-          -0-           112,500          -0-         -0-
      of PISC (8)         1995     -0-     -0-       -0-          -0-             -0-            -0-         -0-
====================================================================================================================================
</TABLE>



                                       35



<PAGE>   65

(1)  Robert P. Gordon was granted options to purchase 108,000 shares of the
     Company stock at an exercise price of $1.70 per share on February 15, 1995.

(2)  Delbert F. Bloss was granted options to purchase 1,000,000 shares of the
     Company stock at an exercise price of $1.50 per share on January 31, 1997,
     of which 400,000 are Service Options and 600,000 are Cliff Vesting Options
     based on meeting certain objectives.

(3)  Leo Parisi was granted options to purchase 25,000 shares of the Company
     stock at an exercise price of $2.00 per share on October 15, 1996.

(4)  Vincent Gordon was granted options to purchase 150,000 shares of the
     Company stock at an exercise price of $1.06 per share on January 17, 1995.

(5)  Judith A. Schafers was granted options to purchase 216,000 shares of the
     Company stock at an exercise price of $1.70 per share on February 15, 1995.

(6)  Larry E. McGee was granted options to purchase 180,000 shares of the
     Company stock at an exercise price of $1.70 per share on February 15, 1995.

(7)  Xenophon L. Sanders, former President of the Company, was granted options
     to purchase: 100,000 shares of the Company stock at an exercise price of
     $1.70 per share on December 9, 1994, of which all 100,000 shares did not
     vest and were canceled on March 21, 1997 when Mr. Sanders resigned as
     President of the Company;  108,000 shares of the Company stock at an
     exercise price of $1.70 per share on February 15, 1995, of which 36,000
     shares did not vest and were canceled; and 100,000 shares of the Company
     stock at an exercise price of $2.00 per share on August 14, 1996, of which
     33,333 shares did not vest and were canceled.

(8)  Leonard S. Ostfeld, former CFO, was granted options to purchase 225,000
     shares of the Company stock at an exercise price of $4.00 per share on
     October 17, 1995.  Per a new employment contract, dated October 11, 1996,
     75,000 options vested at $4.00 per share and the exercise price on the
     balance of the 150,000 options was reduced to $2.00 per share.  Per Mr.
     Ostfeld's resignation in March 1997, 112,500 shares did not vest and were
     canceled.

     During the past three fiscal years, the Company has granted stock options.
However, the Company does not have a defined benefit or pension plan.

                                       36



<PAGE>   66


AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

     The information provided in the table below provides information with
respect to each exercise of stock option during fiscal 1997 by the executive
officers named in the Summary Compensation Table and the fiscal year end value
of unexercised options.



<TABLE>
<CAPTION>

                                                                                 (e)
                                                             (d)               Value of
                                                          Number of          Unexercised
                                                         Unexercised         In-the-Money
                                             (c)     Options at FY-End         Options
                             (b)            Value            (#)             at FY-End($)
        (a)          Shares Acquired on    Realized      Exercisable/        Exercisable/
       Name          Exercise (#)           ($)(1)      Unexercisable      Unexercisable(1)
===========================================================================================
<S>                  <C>                   <C>       <C>                   <C>
 Robert P. Gordon            -0-             -0-       7,109,778/36,000     1,495,528/-0-
-------------------------------------------------------------------------------------------
 Delbert F. Bloss            -0-             -0-         16,666/983,334      1,042/61,458
-------------------------------------------------------------------------------------------
   Leo O. Parisi            50,000          71,875       350,000/25,000       196,875/-0-
-------------------------------------------------------------------------------------------
 Vincent P. Gordon           -0-             -0-         270,800/29,200    145,077/14,673
-------------------------------------------------------------------------------------------
Judith A. Schafers           -0-             -0-         138,000/78,000           -0-/-0-
-------------------------------------------------------------------------------------------
  Larry E. McGee             -0-             -0-         100,000/55,000           -0-/-0-
-------------------------------------------------------------------------------------------
Xenophon L. Sanders         50,000          80,000          538,667/-0-       225,000/-0-
-------------------------------------------------------------------------------------------
Leonard S. Ostfeld           -0-             -0-            112,500/-0-           -0-/-0-
===========================================================================================
</TABLE>



                                       37



<PAGE>   67



(1) The aggregate dollar values in columns (c) and (e) are calculated by
determining the difference between the fair market value of the Common Stock
underlying the options and the exercise price of the options at exercise or
fiscal year end, respectively. In calculating the dollar value realized upon
exercise, the value of any payment of the exercise price is not included.

OPTION GRANTS IN LAST FISCAL YEAR

     The information provided in the table below provides information with
respect to individual with respect to individual grants of stock options during
fiscal 1997 of the executive officers named in the Summary Compensation Table
above. The Company did not grant any stock appreciation rights during 1997.

                              OPTION GRANTS TABLE



<TABLE>
<CAPTION>
                                                                                           Potential Realizable
                                                                                           Value at Assumed
                                                                                           Annual Rates of Stock
                                                                                           Price Appreciation
                                    Individual Grants                                      for Option Term (2)
-----------------------------------------------------------------------------------------------------------------
       (a)                  (b)                   (c)              (d)          (e)            (f)        (g)
                                          % of Total Options/     
                                               Granted to       Exercise
                   Options Granted (#)   Employees in Fiscal    Price          
       Name                 (3)                Year (1)          ($/sh)   Expiration Date    5% ($)     10% ($)
=================================================================================================================
<S>                 <C>                   <C>                   <C>       <C>              <C>         <C>
 Delbert F. Bloss        1,000,000              35.76             1.50       Various*       677,000    1,635,000
=================================================================================================================
 Xenophon Sanders           66,667               2.38             2.00       08/16/00        28,667       61,334
=================================================================================================================
 Robert P. Gordon           -0-                   -0-             N/A           N/A           N/A         N/A
=================================================================================================================
Judith A. Schafers          -0-                   -0-             N/A           N/A           N/A         N/A
=================================================================================================================
  Leo O. Parisi             25,000               0.89             2.00       09/30/99         7,750       16,500
=================================================================================================================
Vincent P. Gordon           -0-                   -0-             N/A           N/A           N/A         N/A
=================================================================================================================
  Larry E. McGee            -0-                   -0-             N/A           N/A           N/A         N/A
=================================================================================================================
Leonard S. Ostfeld          -0-                   -0-             N/A           N/A           N/A         N/A
=================================================================================================================

</TABLE>




                                       38




<PAGE>   68





*    Options granted to Mr. Bloss include various expiration dates: 100,000
     expire on 01/31/01; 100,000; expire on 01/31/02; 100,000 expire on
     01/31/03; 100,000 expire on 01/31/04 and 600,000 expire on 01/31/06.

(1)  The percentage of total options granted to employees in fiscal year is
     based upon options granted to officers, directors and employees.

(2)  The potential realizable value of each grant of options assumes that the
     market price of the Company's Common Stock appreciates in value from the
     date of grant to the end of the option term at annualized rates of 5% and
     10%, respectively.

(3)  As of March 31, 1997: 16,666 options of the 1,000,000 granted to Mr. Bloss
     are vested and exercisable at any time until the expiration date; all
     66,667 options granted to Mr. Sanders are vested and exercisable at any
     time until the expiration date; and the 25,000 options granted to Mr.
     Parisi have not yet vested.




                                       39



<PAGE>   69




EMPLOYMENT CONTRACTS

     The Company has entered into employment agreements with each of its
principal officers and those of PSL and PSG. Unless otherwise noted, each of the
officers whose employment agreement is described below, has agreed not to
compete with the Company during the term of his respective employment agreement
and for a period of six months thereafter.

     On November 1, 1993, Phoenix entered into an employment agreement to retain
Robert P. Gordon as Chairman and Chief Executive Officer of Phoenix. Pursuant to
a five-year employment contract, Mr. Gordon receives a salary of $15,000 per
month over the term of his contract. Mr. Gordon s compensation may be increased
by the Compensation Committee or by the other members of the Board of Directors.
Under the terms of the agreement, Mr. Gordon is also retained as a full time
employee of PSG. The Company has agreed to indemnify and hold Mr. Gordon
harmless in the event of any claims from legal actions brought against him
arising out of acts or decisions done or made in the scope of his employment.
Such indemnification is limited to the extent it is contrary to applicable
federal or state law within 30 days of his termination. In the event that the
Company terminates his employment contract without cause, Mr. Gordon will be
entitled to receive one year salary as severance, payable in 12 monthly
installments and a $5,000 relocation payment. On January 28, 1997, Mr. Gordon's
employment agreement was revised to retain him as Chairman of the Board of
Directors for an additional three year period at a salary of $17,000 per month
over the term of his contract.

     On January 31, 1997, Phoenix entered into an employment agreement to retain
Delbert F. Bloss as Chief Executive Officer of the Company. Pursuant to a
four-year employment contract, Mr. Bloss receives a salary of $20,833 per month,
subject to periodic salary adjustments as determined by the Board of Directors.
As further compensation, Mr. Bloss received non-qualified service options to
purchase 400,000 shares of the Company's Common Stock at an exercise price of
$1.50 per share over a period up to seven years. These service options shall
vest at the rate of 8,333 shares per month for the first eleven months and 8,337
shares in the twelfth month, for each year of employment. Mr. Bloss also
received non-qualified cliff vesting options to purchase 600,000 shares of the
Company's Common Stock at an exercise price of $1.50 per share. These cliff
vesting options shall vest in their entirety in seven years and shall expire in
nine years. In the event of accelerated vesting of options, such accelerated
options shall expire on the earlier of three years from their date(s) of vesting
or February 10, 2006. The conditions upon which acceleration and immediate
vesting shall occur are as follows: 1) 100,000 options with cutover of China
Southern; 2) 50,000 options with cutover of China Eastern or Air China or other
carrier that carry a total of more than four million passengers per year; 3)
200,000 options when twenty million transactions are processed through the
PHOENIX-AIR system in China; and 4) 250,000 to be determined by the board within
twelve months, otherwise these options shall vest as service options in twenty
four equal installments beginning February 10, 1999. On March 21, 1997, Mr.
Bloss was further appointed a board member and President of the Company,
replacing Xenophon Sanders, who resigned from the Company. The Company has
agreed to indemnify and hold Mr. Bloss harmless in the event of any claims from
legal actions brought against him arising out of acts or decisions done or made
in the scope of his employment. Such indemnification is limited to the extent it
is contrary to applicable federal or state law within 30 days of his
termination. In the event that the Company terminates his employment contract
without cause, Mr. Bloss will be entitled to receive one year s salary as
severance, payable in 12 monthly installments and a $5,000 relocation payment.

                                       40



<PAGE>   70





     On March 19, 1997 Phoenix entered into an employment contract to retain
Peter J. Ford, who replaced Leonard S. Ostfeld as Vice President of Finance and
Chief Financial Officer for Phoenix. Mr. Ford receives a base salary of $7,083
per month over the term of the four-year contract, subject to periodic salary
adjustments as determined by the Board of Directors. As further compensation,
Mr. Ford received non-qualified service options to purchase 100,000 shares of
the Company's Common Stock at an exercise price of $2.00 per share over a period
up to six years, with vesting to take place in four equal annual installments
beginning April 1, 1998. Mr. Ford was also granted 60,000 performance options,
at an exercise price of $2.00 per share, which expire April 1, 2003. The
conditions upon which acceleration and immediate vesting shall occur are as
follows: 1) 20,000 options when the Company achieves profit in U.S. operations;
2) 20,000 options when certain financing levels are achieved as required by the
Company; and 3) 20,000 options which shall vest when China Southern cutover is
achieved. The Company has agreed to indemnify and hold Mr. Ford harmless in the
event any claims or legal actions are brought against him arising out of acts or
decisions done or made within the scope of his employment. Such indemnification
is limited to the extent it is contrary to applicable federal or state law. In
the event that the Company terminates his employment contract without cause, Mr.
Ford will be entitled to receive the lesser of six months salary or the time
remaining on the balance of the contract, as severance. Pursuant to the
Employment Agreement, any unexercised portion of the stock options that vested
shall be null and void upon the earlier of April 1, 2003, or the 90th day
following the termination date of his employment. 

     On May 1, 1997, Phoenix entered into an employment agreement to retain
Frank Streine as Vice President of Product Development of PSG. Mr. Streine
receives a base salary of $10,000 per month over the term of the two-year
contract, subject to periodic salary adjustments as determined by the Board of
Directors. As further compensation, Mr. Streine was granted 120,000 cliff
vesting options, at an exercise price of $1.50 per share. These cliff vesting
options shall vest in their entirety in two years and shall expire in four
years. In the event of accelerated vesting of options, such accelerated options
shall expire on the earlier of three years from their date(s) of vesting or May
11, 2001. The conditions upon which acceleration and immediate vesting shall
occur if "cutover" of China Southern is successfully achieved on or prior to
June 1, 1998, and is successfully running so as to be a viable commercial
enterprise without significant difficulty for a period of no less than four
consecutive weeks. If "cutover" is not successfully achieved on or prior to June
1, 1998, these non-qualified options will be reduced, at a rate of 1,000 options
per month, beginning on July 1. The Company has agreed to indemnify and hold Mr.
Streine harmless in the event any claims or legal actions are brought against
him arising out of acts or decisions done or made within the scope of his
employment. Such indemnification is limited to the extent it is contrary to
applicable federal or state law. In the event that the Company terminates his
employment contract without cause, Mr. Streine will be entitled to receive the
lesser of six months salary or the time remaining on the balance of the
contract, as severance. Pursuant to the Employment Agreement, any unexercised
portion of the stock options that vested shall be null and void upon the earlier
of May 11, 2001, or the 180th day following the termination date of his
employment.

     On May 21, 1997 Phoenix entered into an employment contract to retain
Robert O. Harlan as President of Phoenix Transaction Services.  Mr. Harlan
receives a base salary of $17,000 per month beginning June 1, 1997 over the
term of the three-year contract, subject to periodic salary

                                       41



<PAGE>   71


adjustments as determined by the Board of Directors. As further compensation,
Mr. Harlan received non-qualified service options to purchase 240,012 shares of
the Company's Common Stock at an exercise price of $1.50 per share over a period
up to six years, with vesting to take place beginning June 1, 1997 for a period
of 36 months. Mr. Harlan was also granted 360,000 cliff vesting options, at an
exercise price of $1.50 per share. These cliff vesting options shall vest in
their entirety in three years and shall expire in five years. In the event of
accelerated vesting of options, such accelerated options shall expire on the
earlier of three years from their date(s) of vesting or May 31, 2002. The
conditions upon which acceleration and immediate vesting shall occur are as
follows: 1) 80,000 options shall vest on March 31, 1998, provided Phoenix
Transaction Systems meets an annual revenue goal of $2.6 million on or before
March 31, 1998; 2) 120,000 options shall vest on March 31, 1999, provided
Phoenix Transaction Systems meets an annual revenue goal, for either of the two
fiscal years ending 1998 and 1999, of $12.2 million on or before March 31, 1999.
In addition, PTS must also meet an annual profit goal, for either of the two
fiscal years ending 1998 and 1999, of $1.9 million on or before March 31, 1999;
and 3) 160,000 options shall vest on March 31, 2000, provided Phoenix
Transaction Systems meets an annual revenue goal, for either of the three fiscal
years ending 1998, 1999 and 2000, of $34.6 million on or before March 31, 2000.
In addition, PTS must also meet an annual profit goal, for either of the three
fiscal years ending 1998, 1999 and 2000, of $7.2 million on or before March 31,
2000. If Mr. Harlan does not meet the goals, he may still be eligible to receive
a proportionate number of the shares available for each of the fiscal years
1998, 1999, 2000. This calculation will be made, by the Company's Chief
Financial Officer and its Chief Executive Officer. The Company has agreed to
indemnify and hold Mr. Harlan harmless in the event any claims or legal actions
are brought against him arising out of acts or decisions done or made within the
scope of his employment. Such indemnification is limited to the extent it is
contrary to applicable federal or state law. In the event that the Company
terminates his employment contract without cause, Mr. Harlan will be entitled to
receive the lesser of six months salary or the time remaining on the balance of
the contract, as severance. Pursuant to the Employment Agreement, any
unexercised portion of the stock options that vested shall be null and void upon
the earlier of May 31, 2002, 2003, or the 180th day following the termination
date of his employment.

     On October 1, 1993, Phoenix entered into an employment agreement to retain
Leo O. Parisi as Vice President of Operations of PSG. Pursuant to a three-year
employment contract, Mr. Parisi received a salary of $9,000 per month which
increased to $11,000 per month as of April 1, 1994 through the end of the term
of the agreement. In addition, Mr. Parisi was granted non-qualified stock
options to purchase 400,000 shares of Common Stock in Phoenix at an exercise
price of $1.00, as amended, per share over a period of up to five years with
vesting to take place in approximately 36 equal monthly installments. Under a
previous employment agreement with the Company, Mr. Parisi received 50,000
shares of the Company s Common Stock. In the event that the Company terminates
his employment contract without cause, Mr. Parisi will be entitled to receive
six months salary as severance and a $5,000 relocation payment. On October 15,
1996, Mr. Parisi's employment contract was amended. Pursuant to a one year
extension to his employment contract, Mr. Parisi was granted non-qualified stock
options to purchase 25,000 shares of Common Stock in Phoenix at an exercise
price of $2.00 per share which expire on September 30, 1999 and vest on October
1, 1997. 

     On November 1, 1993, Phoenix entered into an employment contract to retain
Vincent P. Gordon as Vice President of PSG. Mr. Gordon received a base salary of
$7,500 per month over the term of the original three-year contract.
Compensation may be increased by the Board of Directors

                                       42



<PAGE>   72



or the Compensation Committee. A plan may be instituted whereby the Executive
could earn a bonus based on performance or earnings. As further compensation,
Mr. Gordon received 50,000 shares of Common Stock and five-year non-qualified
options to purchase 150,000 shares of Common Stock of Phoenix at an exercise
price of $1.00, as amended, per share over a period of up to five years with
vesting to take place in approximately 36 equal monthly installments. These
options are fully vested.

     On January 17, 1995, Vincent P. Gordon's employment contract was amended
because Mr. Gordon moved to China as President of the Joint Venture. Mr. Gordon
presently receives a salary of $10,000 per month over the remaining term of the
original employment contract as well as a one year extension. In the event that
the Company terminates his employment contract without cause, Mr. Gordon will be
entitled to receive six months salary as severance and a $5,000 relocation
payment. Mr. Gordon was also granted 100,000 options, at an exercise price of
$1.06 per share, with an expiration date of November 1, 1998, which vested for
achieving certain performance targets and 50,000 options which shall vest on the
first day of each month of the one year extension to the employment contract,
beginning November 1, 1996. On May 1, 1997, Mr. Gordon's employment contract was
amended again and Mr. Gordon's base salary was increased to $11,000 per month
over the term of the employment agreement which was extended until November 1,
2000. Mr. Gordon was also granted 200,000 cliff vesting options, at an exercise
price of $1.50 per share, with an expiration date on the sooner of the following
dates: three years after date of vesting or November 1, 2002, for achieving
certain performance targets: 1) 75,000 options shall vest if "cutover" of China
Southern is successfully achieved on or prior to April 1, 1998, and is
successfully running so as to be a viable commercial enterprise without
significant difficulty for a period of no less than four consecutive weeks. If
"cutover" is not successfully achieved on or prior to April 1, 1998, these
non-qualified options will be reduced, at a rate of 10,000 options per month,
beginning on May 1, 1998; 2) 25,000 options shall vest if "cutover" is
successfully achieved, on or prior to April 1, 1999, for China Eastern, Air
China, or any other carrier or carriers that, jointly or separately, carry four
million or more passengers per year; 3) 25,000 options shall vest provided the
Chinese Joint Venture, Hainan Phoenix Information Systems Ltd., attains a
minimum of twenty million billable airline transactions processed through the
PHOENIX-AIR system, in China, on or prior to July 1, 1999; and 4) 75,000 options
shall vest provided the Chinese Joint Venture, Hainan Phoenix Information
Systems Ltd., attains a minimum of $3.3 million, each month, in hotel booking
fee revenues through the China Travel Network for two consecutive months,
provided that those two months are prior to April 1, 1999.

     On February 15, 1995, PSL entered into an employment contract to retain
Larry E. McGee as Vice President of Operations for PSL. Mr. McGee receives a
base salary of $9,000 per month over the term of the three-year contract. As
further compensation, Mr. McGee received non-qualified options to purchase
180,000 shares of the Company's Common Stock at an exercise price of $1.70 per
share (a 15% discount to the February 15, 1995 closing price of $2.00 of the
Company's Common Stock) with vesting to take place in 36 equal monthly
installments beginning March 1, 1995. In the event that the Company terminates
his employment agreement without cause, Mr. McGee will be entitled to receive
the lesser of six months salary or the time remaining on the balance of the
contract as severance. Pursuant to the Employment Agreement, any unexercised
portion of the stock options shall be null and void upon the earlier of April 1,
1998 or the 90th day following the termination date of his employment.


                                       43



<PAGE>   73




     On February 15, 1995, PSL entered into an employment contract to retain
Judith A. Schafers as Vice President of Product Marketing for PSL. Ms. Schafers
receives a base salary of $11,000 per month over the term of the three-year
contract. In the event that the Company terminates her employment agreement
without cause, Ms. Schafers will be entitled to receive the lesser of six months
salary or the time remaining on the balance of the contract as severance. As
further compensation, Ms. Schafers received non-qualified options to purchase
216,000 shares of the Company's Common Stock at an exercise price of $1.70 per
share (a 15% discount to the February 15, 1995, closing price of $2.00 of the
Company's Common Stock) with vesting to take place in 36 equal monthly
installments beginning May 1, 1995. Pursuant to the Employment Agreement, any
unexercised portion of the stock options shall be null and void upon the earlier
of May 31, 1998 or the 90th day following the termination date of her
employment.

     The Company has $5,000,000 in director and officer liability insurance
coverage. The Company is contemplating obtaining key man life insurance of
between $1 million and $5 million on the life of Robert P. Gordon with the
Company named as the beneficiary of such policy.

BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION

     The Board of Directors is responsible for reviewing and determining the
annual salary and other compensation of the executive officers and key employees
of the Company and for monitoring the performance of such personnel. The goals
of the Board of Directors in determining compensation levels are to align
compensation with business objectives and performance and to enable the Company
to attract, retain and reward executive officers and other key employees who
contribute to the long-term success of the Company. The Company has provided
base salaries and, in certain cases, stock options to its executive officers and
key employees which the Board considered sufficient to provide motivation to
achieve certain operating goals, although such compensation is not tied
specifically to individual performance.

     The Company intends to develop a comprehensive incentive plan based upon
performance to reward its executive officers and key employees with additional
compensation. These forms of compensation may include cash bonuses, common stock
option grants, common stock award grants, and stock appreciation rights. In
addition, the Company implemented a 401K defined contribution plan effective
July 1, 1996. 

     During fiscal 1997, the compensation of the Company's CEO consisted of a
monthly salary of $15,000 based upon the terms of his employment contract that
was entered into in November 1993. The compensation of the Company's other
executive officers and key employees were also based upon the terms of various
employment contracts. During fiscal 1997, no cash bonuses were paid.

     The foregoing report has been approved by all members of the Board.
                                                       Robert P. Gordon  
                                                       Paul W. Henry     
                                                       Delbert F. Bloss  
                                                       Frank A. Cappiello
                                                       Captain Yu Yan'en 
                                                       Robert J. Conrads 
                                                       W. James Peet     
                                                       

                                       44



<PAGE>   74


COMPENSATION OF DIRECTORS

     On November 1, 1993, Phoenix entered into a Consulting Agreement with Paul
W. Henry to retain Mr. Henry as a Director through March 1995. Mr. Henry's
duties include: participating in Phoenix's strategic planning and helping
formulate Phoenix's business plan; assisting in efforts to arrange adequate
financing to carry out Phoenix's business plan; rendering consulting services to
any joint venture, subsidiary or affiliated business of Phoenix; and promoting
Phoenix's relationships with its employees, customers and others in the business
and financial communities. Effective October 1, 1993, Phoenix paid Mr. Henry a
fee of $10,000 per month. At such time as Phoenix were to complete a major
financing, Phoenix was to pay Mr. Henry a one-time fee of $15,000 for various
services rendered in connection with Phoenix's financing efforts. The fee was
paid in April 1996. Mr. Henry also received five-year non-qualified options to
purchase 100,000 shares of Phoenix Common Stock at an exercise price of $1.00
per share, as amended. The options expire on November 1, 1998 and vest as
follows: 25,000 shares on December 15, 1993 and 5,000 shares per month for each
of the 15 months thereafter, beginning on January 15, 1994 and continuing
through March 15, 1995. In addition, Mr. Henry received, on January 17, 1995,
non-qualified options to purchase 120,000 shares of the Common Stock of Phoenix
at an exercise price of $1.06 per share. The options expire on November 1, 1998
and vest at the rate of 5,000 shares per month over the first twenty-four months
of the March 10, 1995 extension to Mr. Henry's Consulting Agreement. Pursuant to
the three-year extension, Mr. Henry's monthly consulting fee was increased to
$10,600 effective April 1, 1995, $11,250 effective April 1, 1996 and will
increase to $12,000 as of April 1, 1997 through the end of the term of the
contract on March 31, 1998. In addition, Mr. Henry received, on October 15,
1996, non-qualified options to purchase 25,000 shares of the Common Stock of
Phoenix at an exercise price of $2.00 per share. The options expire on March 31,
2000 and vest on April 1, 1998. In addition, Mr. Henry received, on January 13,
1997, non-qualified options to purchase 75,000 shares of the Common Stock of
Phoenix at an exercise price of $1.75 per share. The options expire on March 31,
2001 and vest in their entirety on March 31, 1998. In the event that the Company
terminates his consulting agreement without cause, Mr. Henry will be entitled to
receive six months salary as severance.

     On November 11, 1993, Phoenix entered into a Consulting Agreement to retain
Mr. Frank A. Cappiello as a Director and Consultant from November 15, 1993
through December 31, 1995. As a Director, Mr. Cappiello performs such functions
as are typically carried out by a Director. He participates in Phoenix's
strategic and business planning, monitors Phoenix's progress towards carrying
out its plans and reaching its goals, renders advice relative to any affiliated
business of Phoenix, promotes Phoenix's relationships with its employees,
customers and others in the business and financial communities, and takes steps
to maximize the value of Phoenix for its shareholders. As a Consultant, Mr.
Cappiello performs the following duties: (i) interfacing with investment groups
and other members of the financial community to inform them about Phoenix and
assisting Phoenix in developing relationships with portfolio managers; and (ii)
appearing when schedules permit at Securities Analysts' Group Meetings. In
consideration of Mr. Cappiello's services as a Director through December 31,
1995, Phoenix granted him as of November 15, 1993 the right and option to
purchase 60,000 shares of Phoenix, exercisable over 5 years at an exercise price
of $1.00 per share, as amended. 12,000 of these options vested as of November
15, 1993, and the 48,000 share balance vest at the rate of 2,000 shares per
month over the 24-month period that commenced on January 1, 1994. For Mr.
Cappiello's services as a Consultant through December 31, 1996, Phoenix granted
him (a) 50,000 shares of Phoenix's Common Stock and (b) options to purchase

                                       45



<PAGE>   75



150,000 shares of Phoenix's Common Stock, exercisable over 5 years at an
exercise price of $1.00 per share, as amended. The options for serving as a
Consultant vest at the rate of 6,000 shares per month over the 25-month period
that commenced on December 1, 1993. Pursuant to a two year extension to Mr.
Cappiello's Consultant Agreement, the Company granted him as of January 13, 1997
the right and option to purchase an additional 200,000 shares of Phoenix,
exercisable through December 31, 2001 at an exercise price of $1.75 per share.
100,000 options vest on December 31, 1997 and 1998, respectively.

     On October 15, 1996, Phoenix entered into a Consulting Agreement to retain
Captain Yu Yan'en as a Director and a Consultant from November 15, 1996 through
December 31, 1998. Mr. Yu is Chairman of China Southern Airlines. As a Director,
Mr. Yu is performing such functions as are typically carried out by a Director,
as described above for Mr. Cappiello. As a consultant, Mr. Yu is performing the
following duties: (i) advising Phoenix how best to conduct itself in its
dealings with the Chinese airline community; (ii) assisting Phoenix in matters
relating to Chinese government authorities, at both the provincial and national
levels; and (iii) assisting Phoenix in establishing and developing its
relationships with Chinese airlines, hotels and other entities that could
further Phoenix's business interests in China. For his services as a Director
and a consultant, Phoenix granted him a total of 300,000 shares of Phoenix's
Common Stock, to be received as follows: (1) for his services as a Director,
90,000 shares, of which 60,000 vested as of November 15, 1996 and 30,000 shall
vest at the rate of 1,250 shares per month for 24 months beginning on December
1, 1996 (through November 1, 1998); and (2) for his services as a
consultant/employee, 210,000 shares, of which 150,000 shares vested as of
November 15, 1996 and the balance to vest at the rate of 2,500 shares per month
for 24 months beginning December 1, 1996 (through November 1, 1998).

     On February 25, 1994, Phoenix entered into a Consulting Agreement to retain
Mr. Robert J. Conrads as a Consultant effective as of February 25, 1994, which
agreement continued through February 24, 1996. As a Consultant, Mr. Conrads has
agreed to perform the following duties: (i) assisting in developing business
relationships; (ii) providing financial advisory services; and (iii) assisting
management in developing business plans. In consideration of Mr. Conrads'
services as a Consultant, Phoenix granted him the right and option to purchase
200,000 shares of Phoenix Common Stock, exercisable over 5 years at an exercise
price of $1.00 per share, as amended. In addition, on February 15, 1995, Mr.
Conrads was granted the right to purchase 20,000 shares as Director to the Board
of Hainan Phoenix Joint Venture as compensation for services at $1.70 per share
expiring on February 14, 1998. Pursuant to a three year extension to Mr.
Conrad's Consultant Agreement, the Company granted him as of January 13, 1997
the right and option to purchase an additional 300,000 shares of Phoenix,
exercisable through February 25, 2002 at an exercise price of $1.75 per share.
100,000 options vest on February 25, 1997, 1998 and 1999, respectively.

     On February 15, 1995, the Board of Directors approved the establishment of
a uniform compensation plan for those individuals who serve on the Company's
Board of Directors. Under this plan, the Company granted five year non-qualified
stock options to purchase shares of Common Stock at an exercise price of $1.70
per share (which was based on a 15% discount to market value) to each of Robert
P. Gordon, Frank A. Cappiello, Paul W. Henry, Chen Feng (former director),
Xenophon L. Sanders (former director), W. James Peet and Robert J. Conrads. If,
under prior agreements with the Company, a Director had been granted less than
3,000 options per month for his services as a Director, then such Director shall
be granted a sufficient number of new options

                                       46



<PAGE>   76



such that a total of 3,000 options shall vest for each month of his service as a
Director. Such new options vest for a period of 36 months commencing April 1,
1995 and expire on February 15, 2000. Since Robert P. Gordon, Xenophon L.
Sanders and Paul W. Henry had not previously been granted options for their
service as Directors, and since W. James Peet and Robert J. Conrads became
Directors on March 31, 1995, these five Directors each were granted 108,000
options, such options to vest for a period of 36 months, commencing April 1,
1995, and expiring on February 15, 2000. Chen Feng was granted new options, such
options to vest at the rate of 500 per month for 21 months commencing April 1,
1995 and at the rate of 3,000 per month on the remaining 15 months commencing
January 1, 1997. Frank A. Cappiello was granted 81,000 new options, such options
to vest at the rate of 3,000 per month for the final 27 months commencing on
January 1, 1996. The options granted provide for the respective options to
immediately terminate as to all unexercised options commencing on or after April
1, 1995 in the event such person is not a director of Phoenix at all times
during the period from April 1, 1995 until March 31, 1998. Mr. Sanders and Mr.
Feng resigned on March 21, 1997 and November 15, 1996, respectively and of the
options granted, 72,000 shares and 10,000 shares, respectively, vested on behalf
of the two former directors.

     On September 28, 1995, the Board granted 400,000 non-qualified stock
options to Robert J. Conrads, a director of the Company, to purchase shares of
Phoenix s Common Stock at an exercise price of $3.60 (equal to a $1.25 discount
from September 27, 1995 s closing stock price of $4.85). These options shall
vest in their entirety in nine years and shall expire in ten years. In the event
of accelerated vesting of options, such accelerated options shall expire at the
end of the later of a) three years from the date of grant or b) one year from
the date of vesting. If Mr. Conrads is responsible for the Company receiving
gross proceeds of $80,000,000 in financing, these options shall accelerate and
immediately vest according to the following schedule: 280,000 options for the
first $40,000,000 raised; and 120,000 options for the second $40,000,000 raised,
on a prorated basis. On December 23, 1996, S-C Phoenix, one of Phoenix's major
shareholders, invested $15,000,000 in the Company. Since Mr. Conrads was
responsible for the Company receiving $15,000,000 in gross proceeds, an option
for 105,000 shares was accelerated and vested, based on a prorated basis.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER COMPENSATION

     The Board of Directors is composed of Robert P. Gordon, Chairman of the
Board and Chief Executive Officer of the Company; Paul W. Henry, Secretary of
the Company; Delbert F. Bloss, President and Chief Executive Officer of PISC,
PSG and PSL; Frank A. Cappiello, Captain Yu Yan'en, Robert J. Conrads and W.
James Peet.  Mr. Gordon and Mr. Bloss are full-time employees of the Company.
Mr. Henry, Mr. Cappiello and Mr. Conrads have acted as paid consultants to the
Company.

     The Board of Directors is responsible for reviewing and determining the
compensation paid by the Company. While the Board of Directors has established a
compensation committee, the Board of Directors maintained responsibility through
the Company's fiscal year ended March 31, 1997. As a result, all current members
of the Board of Directors participated in deliberations relating to executive
compensation for the 1997 fiscal year.

     Robert J. Conrads and Paul Henry serve as directors and, Robert P. Gordon,
as director and as Chairman, of TeleServices International Group Inc. (TSIG).
TSIG is a publicly traded company offering teleservices and telemarketing
services in the travel industry.  TSIG is

                                       47



<PAGE>   77


beneficially owned by Robert P. Gordon. In addition, the Company and TSIG,
through its wholly owned subsidiary Visitors Services Inc. (VSI), have entered
into a software license and maintenance agreement pursuant to which VSI licenses
the Company's software on a non-exclusive basis at a rate of $2,000 per month
subject to the Company's right to increase the monthly fee after a period of one
year in the event the Company is able to enter into similar licensing
arrangements with non-affiliated third parties at higher fees.

INDEMNIFICATION AND LIMITATION OF DIRECTORS' LIABILITY

     The Company's Certificate of Incorporation provides that Phoenix shall
indemnify, in the manner and to the extent permitted by law, any person (or that
person's testator or intestate successor) made or threatened to be made a party
to any action or proceeding, whether domestic or foreign, civil or criminal,
judicial or administrative, or federal or state, by reason of the fact that the
person was a director or officer of Phoenix or served any other corporation in
any capacity at the request of Phoenix, in the manner and to the extent
permitted by law. Further, Phoenix has entered into employment contracts with
various officers and directors to indemnify and hold such persons harmless, to
the extent permitted by law, if at all, in the event any claims or legal actions
are brought against such person arising out of his acts or decisions done or
made in the authorized scope of such person's employment or position with
Phoenix. Phoenix has obtained $5,000,000 in director and officer liability
insurance.

     The General Corporation Law of Delaware permits a corporation through its
Certificate of Incorporation to eliminate the personal liability of its
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty of loyalty and care as a director, with certain exceptions.
The exceptions include a breach of the director's duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, improper declarations of dividends, and transactions from
which the directors derived an improper personal benefit. Phoenix amended its
Certificate of Incorporation to include a provision to exonerate its directors
from monetary liability to the fullest extent permitted by this statutory
provision.

     Phoenix has been advised that it is the position of the Securities and
Exchange Commission that insofar as the foregoing provisions may be invoked to
disclaim liability for damages arising under the Act, that such provisions are
against public policy as expressed in the Act and are therefore unenforceable.

EMPLOYEE BENEFIT PLAN


     The Company filed a Form S-8 Registration Statement with the S.E.C. in
connection with an employee benefit plan (the Plan ) covering 4,000,000 shares.
On December 4, 1995, Phoenix filed a Registration Statement and reoffer
prospectus covering registered securities of the same class of 5,000,000
additional shares of Phoenix common stock, pursuant to the Plan. The Plan allows
Phoenix to issue common stock and/or options to purchase common stock to certain
consultants, service providers and employees. The purpose of the plan is to
promote the best interests of Phoenix and its stockholders by providing a means
of non-cash remuneration to eligible participants who contribute to the
operating progress and earning power of Phoenix. The Plan is administered by the
Phoenix Board of Directors or a committee consisting of three members which has
the discretion to determine from time to time the eligible participants to
receive an award; the number

                                       48



<PAGE>   78


of shares of stock issuable directly or to be granted pursuant to option; the
price at which the option may be exercised or the price per share in cash or
cancellation of fees or other payments which Phoenix is liable for. As of March
31, 1997, a total of 1,139,611 shares were issued under the plans, including
75,000 shares to two executive officers of American, 347,222 shares to four
executive officers of Phoenix, 379,191 shares to four former employees, 117,500
shares for public relations services and 220,698 shares for legal services.

ITEM 12. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

     The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of May 31,
1997 (except as indicated below) by (a) each stockholder known by the Company to
be the beneficial owner of more than five percent of the Company's Common Stock,
(b) each of the Company's directors, (c) each of the Company's executive
officers and (d) all executive officers and directors of the Company as a group.
The shareholders listed below have sole voting and investment power except as
noted. The number of shares owned beneficially by certain persons named in the
table below includes shares issuable upon the exercise of options and warrants
that were presently exercisable at May 31, 1997 or within 60 days thereafter. In
calculating the percentage of beneficial ownership owned by any person, it is
assumed that the number of shares subject to any option beneficially owned by
such person are outstanding but are not outstanding for determining the
percentage of ownership beneficially owned by any other person.


                                       49



<PAGE>   79


<TABLE>
<CAPTION>
                                    Amount and Nature of       Percent Owned
   Name and Address of               Beneficial Ownership   Beneficially and of
     Beneficial Owner                       (1) (2)             Record
<S>                                        <C>                   <C> 
S-C Phoenix Partners (3)
c/o Chatterjee Group
888 7th Avenue, Ste 3300
New York, NY 10106                         41,269,999            55.5

Robert P. Gordon (4)
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                   10,893,445            19.4

Robert J. Conrads (5)
38 Meadow Wood Drive
Greenwich, CT 06830                         1,809,000             3.6

Paul Henry (6)
56 Lawrence Road
Chestnut Hill, MA  02167                      484,000             1.0

Delbert Bloss (7)
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                       49,998              *

Leo O. Parisi (8)
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                      350,000              *

Vincent P. Gordon (9)
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                      450,940              *

Frank Cappiello (10)
10751 Falls Rd, Ste 250
Lutherville, MD 21093                         317,000              *

Yu Yan'en (11)
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                      240,000              *

W. James Peet (12)
c/o Chatterjee Group
888 7th Avenue, Ste 3300
New York, NY 10106                             84,000              *

Larry McGee (13)
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                      120,000              *

Peter Ford
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                          -0-              *

Frank Streine
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                          -0-              *

Robert O. Harlan (14)
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                       13,334              *

Judith Schafers (15)
100 Second Avenue South
City Center, Suite 1100
St. Petersburg, FL 33701                      162,000              *

All Officers and Directors
of the Company and Phoenix
as a group (fifteen) (16)                  56,243,716            66.8
</TABLE>



                                       50



<PAGE>   80




-----------------------
      *    Represents less than one percent of the outstanding Common
           Stock.






(1)  Unless otherwise indicated, all shares are directly owned and investing
     power is held by the persons named.

(2)  Based upon 49,105,212 shares issued and outstanding as of March 31, 1997.

(3)  Includes warrants to purchase 10,285,000 shares of the Company's Common
     Stock at exercise prices of $2.00 to $4.00 per share, and includes 833,333
     shares of the Company's Series C Convertible Preferred Stock that may be
     converted into 15,000,000 shares of common stock.

(4)  Includes the following shares deemed to be beneficially owned by Mr.
     Gordon (a) 3,089,142 shares of the Company's Common Stock, representing
     6.7% of the issued and outstanding shares, held by Harvest/Mr. Gordon and
     (b) 682,525 shares of the Company's Common Stock, representing 1.4% of the
     issued and outstanding shares, held by Visitors Services, Inc.  Also
     includes options to purchase a balance of 7,037,778 shares of the
     Company's Common Stock at an exercise price of $1.35 per share (which does
     not reflect options to purchase 1,115,000 shares assigned to family member
     and non-affiliated persons) and 84,000 shares subject to options
     exercisable at $1.70 per share commencing on or before July 31, 1997.

(5)  Includes (a) warrants to purchase 200,000 shares of the Company's Common
     Stock at an exercise price of $2.00 per share, (b) options to purchase
     200,000 shares of the Company's Common Stock at an exercise price of $1.00
     per share, (c) 104,000 shares subject to options exercisable at $1.70 per
     share commencing on or before July 31, 1997, (d) options to purchase
     105,000 shares of the Company's Common Stock at an exercise price of $3.60
     per share, (e) options to purchase 150,000 shares of the Company's Common
     Stock at an exercise price of $1.50 per share, held by Voyager Capital
     Group and deemed beneficially owned by Mr. Conrads, and (f) options to
     purchase 100,000 shares of the Company's Common Stock at an exercise price
     of $1.75 per share.

(6)  Includes (a) options to purchase 100,000 shares of the Company's Common
     Stock at an exercise price of $1.00 per share, (b) options to purchase
     120,000 shares of the Company's Common Stock at an exercise price of $1.06
     per share, and (c) 84,000 shares of the Company's Common Stock subject to
     options exercisable at $1.70 per share commencing on or before July 31,
     1997.
(7)  Includes 58,331 shares subject to options exercisable at $1.50 per share
     commencing on or before July 31, 1997.

(8)  Includes options to purchase 350,000 shares of the Company's Common Stock
     at an exercise price of $1.00 per share.

(9)  Includes options to purchase 150,000 shares of the Company's Common Stock
     at an exercise price of $1.00 per share, (b) options to purchase 100,000
     shares of the Company's

                                       51


<PAGE>   81



     Common Stock at an exercise price of $1.06 per share, and (c) 37,440
     shares subject to options exercisable at $1.06 per share commencing on or
     before July 31, 1997.

(10) Includes options to purchase 210,000 shares of the Company's Common Stock
     at an exercise price of $1.00 per share and 57,000 shares subject to
     options exercisable at $1.70 per share commencing on or before July 31,
     1997.

(11) Includes 240,000 shares subject to options exercisable at $2.50 per share
     commencing on or before July 31, 1997.

(12) Includes 84,000 shares subject to options exercisable at $1.70 per share
     commencing on or before July 31, 1997.

(13) Includes 120,000 shares subject to options exercisable at $1.70 per share
     commencing on or before July 31, 1997.

(14) Includes 13,334 shares subject to options exercisable at $1.50 per share
     commencing on or before July 31, 1997.

(15) Includes 162,000 shares subject to options exercisable at $1.70 per share
     commencing on or before July 31, 1997.

(16) Includes (a) warrants to purchase 10,485,000 shares of the Company's Common
     Stock, (b) conversion of Preferred Series C stock into 15,000,000 shares of
     the Company's Common Stock, and (c) options to purchase 9,666,883 shares of
     the Company's Common Stock.

     The Company does not know of any arrangement or pledge of its securities by
persons now considered in control of the Company that might result in a change
of control of the Company.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     In June 1993, Robert P. Gordon offered the Company the opportunity to
purchase VSI from him at a purchase price to be determined by an independent
appraisal. The Board of Directors of the Company rejected Mr. Gordon's offer
primarily due to financial constraints. Mr. Gordon abstained from voting on this
matter. The Board of Directors of the Company did, however, authorize the
Company to enter into a software license and maintenance agreement pursuant to
which VSI licenses the Company's software on a nonexclusive basis at a rate of
$2,000 per month subject to the Company's right to increase the monthly fee
after a period of one year in the event the Company is able to enter into
similar licensing arrangements with non-affiliated third parties at higher fees.

     On November 1, 1993, Michael Gordon, a brother of the Chairman of Phoenix,
agreed to convert the outstanding balance of $219,700 in demand loans into a 10%
Convertible Note. The outstanding principal amount and accrued and unpaid
interest on the Note were, under the terms of the Note, convertible into Phoenix
s common stock at a conversion rate of $1.25 per share before the

                                       52


<PAGE>   82



maturity date on January 1, 1995. On December 31, 1994, Michael Gordon converted
the 10% Convertible Note, with an outstanding balance of $246,780, at a
conversion rate of $1.25 per share as specified in the 10% Convertible Note,
into 197,424 shares of Phoenix's Common Stock. 

     In November 1993 and February 1994, Robert and Elizabeth Gordon converted
$1,275,618 in demand loans into 10% Convertible Notes. Each of the 10%
Convertible Notes permitted the Gordons to convert the outstanding principal
balance of the note plus interest into Phoenix common stock before the maturity
date of the 10% Convertible Notes on January 1, 1995. In November 1994, Robert
and Elizabeth Gordon elected to convert their 10% Convertible Notes, with an
outstanding balance of $1,409,041 (based on conversion rates of $1.25 and $0.75
per share as specified in the 10% Convertible Note Agreements dated November 1,
1993 and February 25, 1994) into 1,452,713 shares of Phoenix s common stock.

     In February 1994, the Company sold privately to Robert J. Conrads, an
accredited investor who has since become a member of the Company's Board of
Directors, a unit for shares of its restricted common stock at a purchase price
of $250,000 for the unit. The unit consisted of 350,000 shares of Phoenix's
common stock and 200,000 common stock purchase warrants which expire on March 1,
1999. Each warrant entitles the holder to purchase common stock at an exercise
price of $2.00 per share from March 1, 1994 through the expiration date. 

     In November 1994, the Board of Directors approved converting certain of
Phoenix's existing debt into stock. The Board of Directors authorized the
conversion of $1,700,000 of principal amount non-interest bearing loans due
Harvest and VSI (both owned and controlled by Robert P. Gordon) into 3,400,000
shares of the Common Stock of Phoenix from the authorized but unissued stock of
Phoenix. The conversion was completed effective December 2, 1994.

     In November 1994, the Company exchanged 200,000 shares of PSG issued in
1989 to 17 investors for 533,333 shares of the Common Stock of the Company.  As
a result, PSG is a wholly-owned subsidiary of Phoenix.

     On December 9, 1994, Phoenix Information Systems Corp. entered into a
Convertible Note Purchase Agreement (" Agreement" ) with S-C Phoenix Partners, a
New York general partnership (" S-C" ), comprised of affiliates of Quantum
Industrial Holding, Ltd., George Soros and Purnendu Chatterjee. The Agreement
provided for the sale of up to $10,000,000 of Phoenix's convertible notes (
Notes ). Reference is made to Note 5 of the Consolidated Financial Statements.

     During fiscal 1996, Robert P. Gordon, Chairman of the Board, lent the
Company $1,182,500 as working capital of which $232,500 was then utilized to
exercise 172,222 stock options; $850,000 was converted into a 5% note, payable
on demand; and $100,000 as a non-interest bearing loan. In April 1996, the
demand note and the non-interest bearing loan were repaid. See Note 10 to the
Consolidated Financial Statements in the Company's Form 10-K for the fiscal year
ended March 31, 1996. Interest expense on the demand note amounted to $12,007 in
fiscal 1996.

OTHER MATTERS

     In November 1994, the Board of Directors directed that an aggregate of
$30,000 in cash be collected promptly from Harvest and/or Robert P. Gordon as
their share of approximately 50% of

                                       53



<PAGE>   83



the total costs of the legal fees and expenses paid or to be paid by Phoenix in
connection with a Securities and Exchange Commission informal investigation.
This investigation culminated on September 30, 1994 with the issuance of a cease
and desist order against Harvest and Robert P. Gordon, to which the parties
consented, without admitting or denying liability. Robert P. Gordon and Harvest
have paid the Company the requested sum.

     In January 1995, the Board discussed the granting of registration rights to
Robert P. Gordon and the entities that he controls, Harvest and VSI, in light of
the registration rights that were granted to S-C as part of the Convertible Note
Financing of December 9, 1994. S-C was granted piggyback registration rights as
well as two demand registrations at the expense of Phoenix. The two demand
registrations must be at least 180 days apart and must each be for at least 15%
of the total stock held by S-C. With Robert P. Gordon absent from the meeting
and not participating in the discussion or the vote, the Board approved that Mr.
Gordon (including Harvest and VSI) be granted the same registration rights as
the Soros Group.

     Reference is made to Note 6 of the Consolidated Financial Statements in the
Company's Form 10-K for the fiscal year ended March 31, 1997 for additional
details of related party transactions between the Company and its affiliated
parties.

     On November 20, 1996, Captain Yu Yan'en, President of China Southern
Airlines Company Ltd. was appointed a member of the Board of Directors to
replace Chen Feng who resigned, effective November 1, 1996.

     On January 20, 1997, Voyager Capital Group was granted non-qualified
options to purchase 150,000 shares of the Company's Common Stock at an exercise
price of $1.50, exercisable from April 1, 1997 to March 31, 2000. Voyager
Capital Group is owned by Mr. Robert Conrads, a paid consultant and director of
the Company. 

     Effective February 10, 1997, Mr. Delbert F. Bloss was appointed Chief
Executive Officer.  As CEO, Mr. Bloss will oversee all aspects of daily
operations, including marketing, sales, financial, and administrative matters.
Mr. Robert P. Gordon, Phoenix's Chairman, will remain actively involved in the
Company and will continue to direct the Company's long term strategic plan.


ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.

          (a)(1)(2) Financial Statements/Schedules

     A list of the Financial Statements and Financial Statement Schedules filed
as a part of this Report is set forth in Item 8, and appears at Page F-1 of this
Report, which list is incorporated herein by reference.

         (a)(3)  Exhibits

             3   Certificate of Incorporation as Amended
 
           3.1   By-Laws


                                       54



<PAGE>   84


<TABLE>
         <S>      <C>         
         10.1     China Hainan Airline Agreement dated October 20, 1993 (1)

         10.2     Employment Contract with Robert P. Gordon dated November 1,
                  1993 (1)

         10.3     Employment Contract with Xenophon L. Sanders dated August 16,
                  1993 (2)

         10.4     Consultant Agreement with Frank Cappiello dated November 11,
                  1993 (1)

         10.5     Consultant Agreement with Chen Feng dated November 11, 1993
                  (1)

         10.6     Consulting Agreement with Paul W. Henry dated November 1, 1993
                  (1)

         10.7     Employment Contract with Leo O. Parisi dated October 1, 1993
                  (1)

         10.8     Employment Contract with Joseph Avila dated October 1, 1993
                  (1)

         10.9     Employment Contract with Vincent P. Gordon dated November 1,
                  1993 (1)

         10.10    Phoenix Consulting and Services Compensation Agreement dated
                  February 25, 1994 (employee benefit plan covering 4,000,000
                  shares) (1)

         10.11    Hainan-Phoenix Joint Venture Contract dated November 22, 1993
                  (3)

         10.12    Articles of Association of Hainan-Phoenix dated November 22,
                  1993 (3)

         10.13    Amendment No. 1 to Hainan-Phoenix Joint Venture Contract dated
                  February 4, 1994 (3)

         10.14    Amendment to Agreement and Plan of Share Exchange dated
                  February 9, 1994 (4)

         10.15    Amendment to Agreement and Plan of Share Exchange dated May 9,
                  1994 (5)

         10.16    Consultant Agreement between the Company and Robert J. Conrads
                  dated February 25, 1994 (5)

         10.17    Software License & Software Maintenance Agreement between the
                  Company and Visitors Services, Inc. dated April 27, 1993 (5)
</TABLE>


                                       55



<PAGE>   85



<TABLE>
         <S>      <C>

         10.18    Systems Integrator Purchase and License Agreement between the
                  Company and Stratus Computer, Inc. dated September 29, 1993
                  (5)

         10.19    Tranche B Convertible Note, dated February 17, 1995, between
                  the Company and S-C Phoenix Partners. (6)

         10.20    Tranche C Convertible Note, dated March 15, 1995, between the
                  Company and S-C Phoenix Partners. (6)

         10.21    Amendment Agreement, dated March 15, 1995, between the Company
                  and S-C Phoenix Partners. (6)

         10.22    Warrant Agreement, dated March 15, 1995, between the Company
                  and S-C Phoenix Partners. (6)

         10.23    Registration Rights Agreement Amendment, dated March 15, 1995,
                  between the Company and S-C Phoenix Partners. (6)

         10.24    Contract for an Automated Airline Reservation System, dated
                  March 1, 1995 between Hainan Phoenix Information Systems Ltd.
                  and Hainan Airlines. (9)

         10.25    Agreement, dated May 5, 1995 between Phoenix Systems Ltd. and
                  Eastwind Airline Inc. (9)

         10.26    Galileo International Global Airline Distribution Agreement,
                  dated January 10, 1995 between Galileo International
                  Partnership, Galileo International Limited and Hainan
                  Airlines. (9)

         10.27    Galileo International Globalfares Access Agreement, dated
                  February 3, 1995 between Galileo International Partnership and
                  Phoenix Systems Ltd. (9)

         10.28    System One Participating Airline Distribution and Services
                  Agreement between System One Information Management, Inc. and
                  Phoenix Systems Ltd. (9)

         10.29    Amendment Agreement, dated December 9, 1994, between the
                  Company and S-C Phoenix Partners, a warrant agreement between
                  the Company and S-C Phoenix Partners and (iii) a registration
                  rights agreement between the Company and S-C Phoenix Partners
                  (7)

         10.30    Complaint filed on April 20, 1995 by Bruce A. Ungerleider,
                  M.D., as Plaintiff, against Robert P. Gordon, the Company,
                  Harvest International of America, Inc. and John Does 1 through
                  10 inclusive in the Middle District of Florida (Tampa
                  District) (8)

         10.31    Amended Consulting Agreement with Paul W. Henry dated March
                  10, 1995
</TABLE>

                                       56



<PAGE>   86





<TABLE>
         <S>      <C>                                                              
         10.32    Amended Employment Contract with Vincent P. Gordon dated
                  January 17, 1995

         10.33    Employment Agreement with Leonard S. Ostfeld dated November 1,
                  1995

         10.34    Phoenix Consulting and Services Compensation Agreement dated
                  December 4, 1995 (employee benefit plan covering 5,000,000
                  shares) (10)

         10.35    Amendment Agreement, dated August 3, 1995, between the Company
                  and S-C Phoenix Partners to the Tranche C and D Notes

         10.36    Amendment Agreement, dated September 15, 1995, between the
                  Company and S-C Phoenix Partners (6)

         10.37    Options Agreement dated December 7, 1995 between the Company
                  and S-C Phoenix Holdings to purchase a 50% interest in
                  American Aviation Limited

         10.38    Amendment Agreement, dated February 9, 1996, between the
                  Company and S-C Phoenix Partners to the Tranche D Note

         10.39    Amendment Agreement, dated March 15, 1996, between the Company
                  and S-C Phoenix Partners to the Tranche E Note

         10.40    Agreement to issue $5,000,000 of 6% convertible preferred
                  stock

         11       Earnings Per Share (see notes to consolidated financial
                  statements)

         *21      Subsidiaries of the Registrant


         *23      Consents of Coopers & Lybrand and BDO Seidman, LLP,
                  independent auditors for Phoenix Information Systems Corp.


         27       Financial Data Schedule for the fiscal year ended March 31,
                  1996. 
</TABLE>

         -----------------

(1)  Incorporated by reference to Exhibit 10(a)(1), (2), (4), (5), (6), (7),
     (8), (9), (10), and (11), filed as Exhibits to the Form 10-Q dated
     September 30, 1993.

(2)  Incorporated by reference to Exhibit 10 in the Form 10-Q dated June 30,
     1993.

(3)  Incorporated by reference to Exhibit 10(a)(14), (15), (16), and (17), filed
     as Exhibits to the Form 10-Q dated December 31, 1993.

(4)  Incorporated by reference to Exhibit 2(a) in the Form 8-K/A - No. 1, under
     Item 7, date of earliest event reported - December 1, 1993.


                                       57



<PAGE>   87




(5)  Incorporated by reference to Exhibit 10(a)(19), (20), (21), (22), (23),
     (24), (25), (26), and (27), filed as Exhibits to the Form 10-K dated March
     31, 1994.

(6)  Incorporated by reference to Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to
     the Company's Current Report on Form 8-K filed on April 14, 1995.

(7)  Incorporated by reference to the Company's Current Report on Form 8-K filed
     on April 14, 1995.

(8)  Incorporated by reference to the Company's Current Report on Form 8-K filed
     on April 20, 1995.

(9)  Incorporated by reference to the Company's 10K filed for the fiscal year
     ended March 31, 1995.

(10) Incorporated by reference to the Company's S-8 filed on February 16,
     1996.

 *   Filed herewith

     (b) Reports on Form 8-K


     The Company filed a Current Report on Form 8-K on January 7, 1997 relating
to an acquisition of an interest in American Aviation Ltd. which was financed by
the issuance of Series C Convertible Preferred Stock. On March 7, 1997 the
Company filed a Current Report on Form 8-K Amendment to report the subject
transaction under Item 5 rather than Item 2.

     The Company filed a Current Report on Form 8-K on January 27, 1997 relating
to the resignation of Coopers & Lybrand L.L.P. as the Company's certifying
accountants.

     The Company filed a Current Report on Form 8-K on March 24, 1997 relating
to the engagement of BDO Seidman LLP as certifying accountants.


























                                       58



<PAGE>   88



                                   SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                Phoenix Information Systems Corp.

                                By      /s/ Robert P. Gordon
                                     ---------------------------------------
                                     Robert P. Gordon, Chairman of the Board

    Dated:  St. Petersburg, FL
            July 11, 1997
            ------------------

     Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:


       Signatures                          Title                  Date
       ----------                          -----                  ----

 /s/ Robert P. Gordon      Chairman of the Board                  July 11,  1997
-------------------------                                         --------
  Robert P. Gordon                                      

 /s/ Delbert F. Bloss      President, Chief Executive Officer,    July 11,  1997
-------------------------  and Director                           --------      
  Delbert F. Bloss                                                              

 /s/ Paul W. Henry         Secretary, and Director                July 11,  1997
-------------------------                                         --------      
  Paul W. Henry                                                                 
                                                                                

 /s/ Peter J. Ford         Vice President and Chief Financial     July 11,  1997
-------------------------  Officer                                --------      
  Peter J. Ford                                                                 

 /s/ Yu Yan'en             Director                               July 11,  1997
-------------------------                                         --------      
  Yu Yan'en                                                                     
                                                                                
 /s/ Frank Cappiello       Director                               July 11,  1997
-------------------------                                         --------      
  Frank Cappiello                                                               
                                                                                
 /s/ Robert J. Conrads     Director                               July 11,  1997
-------------------------                                         --------      
  Robert J. Conrads                                                             
                                                                                
 /s/ W. James Peet         Director                               July 11,  1997
-------------------------                                         --------      
 W. James Peet                                                                  





                                       59



<PAGE>   89






                            Supplemental Information


     As such time as an annual report is sent to the security holders of the
Company, copies will be forwarded to the Securities and Exchange Commission.




























                                       60