<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

[X]      Annual report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the Fiscal Year ended December 31, 1999 or

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the transition period from _____________ to
         ______________

                         COMMISSION FILE NUMBER:                 0-20937

                        PHOENIX INTERNATIONAL LTD., INC.

                    (Exact name of registrant in its charter)
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          Florida                                              59-3171810
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(State or other jurisdiction of incorporation or   (I.R.S. Employer Identification No.)
               organization

500 International Parkway, Heathrow, Florida                           32746
   (Address of principal executive offices)                          (Zip Code)

(Registrant's telephone number, including area code)             (407) 548-5100

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

                                                         None
                     None             (Name of each exchange on which
                                                 registered)

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


Common Stock, $0.01 Par Value Per Share
      (Title of each class)
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Indicate by check mark whether the Registrant: (1) 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 in response 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. [ ]

The estimated aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the closing sale price of Common Stock on March
27, 2000, as reported on the Nasdaq National Market, was approximately
$37,990,000. As of March 27, 2000, the Registrant had outstanding 9,410,172
shares of Common Stock. As of August 23, 2000, the last date that Phoenix's
stock traded on the Nasdaq National Market prior to the trading halt, the
estimated aggregate market value of the
<PAGE>   2
voting stock held by non-affiliates of the Registrant, was approximately
$19,756,890. As of September 30, 2000, the Registrant had outstanding 9,410,689
shares of Common Stock.
<PAGE>   3
                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of the Registrant's Registration Statement Declared Effective by
     the Securities and Exchange Commission on August 13, 1997 (333-31415) are
     Incorporated by reference in Part I and Part II of this Form 10-K/A.

2.   Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of
     Shareholders held on May 5, 2000 are incorporated by reference in Part III
     of this Form 10-K/A.

3.   Portions of the Registrant's Annual Report on Form 10-K, File Number
     0-20937, Filed on March 30, 2000 are incorporated by reference in Part IV
     of this Form 10-K/A.

                                EXPLANATORY NOTE

         As a result of the nonpayment of amounts due under certain software
license arrangements that had been previously recognized as revenue, Phoenix
conducted a comprehensive review of its software licensing arrangements and the
recognition of revenue for the years 1997 through 1999. As a result of that
review, Phoenix determined that, in certain instances, revenue that had been
recognized at the time the software was delivered should have been recognized
either as payments became due, as the related services were performed, upon
completion of all services required under the arrangements, or over the life of
the contract (up to five years). Additionally in some instances revenue should
have been offset against development costs. In addition, Phoenix has determined
that certain software development costs were capitalized prior to the related
software reaching technological feasibility, or were otherwise capitalized in
error. As a result, the financial statements for the years ended December 31,
1999, 1998, and 1997 have been restated. The effects of the restatement are more
particularly described in Note 1 to the financial statements contained in this
report. Phoenix's auditors have previously issued unqualified opinions with
respect to Phoenix's previously filed financial statements for the years ended
December 31, 1999, 1998 and 1997.


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The cumulative effects of the restatement of Phoenix's financial statements for
the years ending December 31, 1999, 1998, and 1997 are as follows (in
thousands except for per share amounts):
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                                                  1999                          1998                         1997
                                                  ----                          ----                         ----
                                          As Reported   As Restated    As Reported   As Restated    As Reported    As Restated
                                          -----------   -----------    -----------   -----------    -----------    -----------

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Capitalized software costs, net              $ 14,540      $ 10,077       $  7,155      $  5,770       $  3,522       $  3,362
Total assets                                 $ 44,523      $ 36,536       $ 59,502      $ 45,813       $ 52,157       $ 45,777
Deferred revenue                             $  4,576      $ 14,003       $  2,649      $  7,898       $  1,851       $  5,577

Retained earnings (accum. deficit)           $(11,377)     $(26,905)      $  4,298      $ (9,910)      $  1,867       $ (5,499)
Shareholders' equity                         $ 34,481      $ 16,524       $ 50,811      $ 34,322       $ 45,835       $ 37,019

License fees and other                       $  7,749      $  9,642       $ 16,034      $ 10,683       $ 12,664       $  8,226
Implementation, customer and software
     support and other service fees          $ 11,901      $  8,543       $  9,903      $  8,658       $  5,178       $  5,213
Total revenues                               $ 19,651      $ 18,186       $ 25,938      $ 19,341       $ 17,843       $ 13,439
Total operating expenses                     $ 35,159      $ 36,138       $ 23,921      $ 25,127       $ 14,762       $ 14,691
Net income (loss)                            $(15,675)     $(16,994)      $  2,431      $ (4,410)      $  3,040       $   (766)
Net income (loss) per share - basic          $  (1.84)     $  (2.00)      $   0.29      $  (0.53)      $   0.45       $  (0.11)
Net income (loss) per share - diluted        $  (1.84)     $  (2.00)      $   0.27      $  (0.53)      $   0.41       $  (0.11)
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This Form 10-K/A includes such restated financial statements and related notes
thereto for the fiscal years ended December 31, 1999, 1998, and 1997, and other
information related to such restated financial statements, including revisions
to Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations. Except for the material under the caption "Business -
Subsequent Events and Changes in Phoenix's business Since December 31, 1999,"
which is set forth at the end of Item 1 of Part I, certain items in Part 1,
items 3, 5, 6, 7 and 8 of Part II, Item 14 of Part IV, and Exhibits 23.1 and
27.1, no other information included in the original report on Form 10-K is
amended by this Form 10-K/A.



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                        TABLE OF CONTENTS OF FORM 10-K/A

                                     PART I
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Item 1.

Business.......................................................................................   1

Item 2.

Properties.....................................................................................  27

Item 3.

Legal Proceedings..............................................................................  27

Item 4.

Submission of Matters to a Vote of Security Holders............................................  28

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                                     PART II
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Item 5.

Market for Registrant's Common Equity and Related Stockholder Matters..........................  29

Item 6.

Selected Financial Data........................................................................  30

Item 7.

Management's Discussion and Analysis of Financial Condition and

     Results of Operations.....................................................................  32

Item 7A.
Quantitative and Qualitative Disclosure on Market Risk.........................................  39

Item 8.

Financial Statements and Supplementary Data....................................................  40

Item 9.

Changes and Disagreements with Accountants in Accounting and

     Financial Disclosure......................................................................  67

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                                    PART III
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Item 10.

Directors and Executive Officers of the Registrant.............................................  68
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Item 11.

Executive Compensation.........................................................................  71

Item 12.

Security Ownership of Certain Beneficial Owners and Management.................................  71

Item 13.

Certain Relationships and Related Transactions.................................................  71
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                                     PART IV
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Item 14.

Exhibits, Financial Statement Schedules and Reports on Form 8-K................................  72
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                                     PART I

ITEM 1.                 BUSINESS

         This report contains statements which constitute forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements appear in a number of places in this report and include all
statements that are not historical statements of fact regarding our intent,
belief, current expectations, and those of our management with respect to, among
other things:

         -        our financing plans;

         -        trends affecting our financial condition or results of
                  operations;

         -        our growth strategy and operating strategy;

         -        the development and implementation of the Phoenix System and
                  our other products;

         -        sales performance and prospects; and

         -        the possible impact on our operations and financial
                  performance of market conditions and other factors that have
                  hindered us in the past, such as currently-pending litigation
                  and the slowdown in purchases of software during 1999.

The words "may," "would," "could," "continue," "will," "expect," "estimate,"
"anticipate," "goal," "strategy," "believe," "hope," "intend," "plan" and
similar expressions are intended to identify forward looking statements.
Forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, many of which we cannot control. Our actual results may
differ materially from those projected in forward looking statements. Among the
key risks, assumptions, and factors that may adversely affect our operating
results, performance, and financial condition are:

         -        whether we will be able to complete a transaction with London
                  Bridge or otherwise raise sufficient capital to continue
                  operations;

         -        whether the market conditions and other factors which hindered
                  our success in 1999, such as a slowdown in purchase decisions
                  as a result of Year 2000 concerns and the negative publicity
                  and litigation against us, will continue to affect our
                  operations in the future;

         -        unanticipated delays in developing new products and
                  enhancements;

         -        unanticipated delays in deploying our products and services
                  through our application service centers;

         -        whether the market accepts our new products and services,
                  including those under development and our e-commerce operating
                  environment and services;

         -        our reliance on significant new customers to reach or exceed
                  market expectations for our performance;


         -        the timing of customer contracts, which may slip from one
                  quarter to later quarters or fiscal periods;

         -        the timing of the recognition of revenue under new contracts;


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         -        our ability to leverage our sales force, marketing
                  relationships, and other distribution channels worldwide to
                  generate new customers;

         -        the distraction of management's time and attention, increased
                  legal and other costs, and other adverse impacts of pending
                  litigation and negative publicity;

         -        our ability to grow and manage our growth despite adverse
                  market and other factors described above; and

         -        competition and other factors discussed in detail in our prior
                  press releases and filings with the Securities and Exchange
                  Commission, including the "Risk Factors" section of our
                  registration statement on Form S-1, as declared effective on
                  August 13, 1997 (No. 333-31415).

GENERAL

         Phoenix is a leading provider of highly adaptable, enterprise-wide
client/server application software and related services to the financial
services industry. Our flagship product, the Phoenix System (TM), is a fully
integrated processing solution that manages financial institutions' retail and
wholesale operations in an open-system environment. We offer the Phoenix System
to financial institutions around the world along with our trade finance and
global payments software products and a full suite of professional and systems
integration services. Our market in the United States includes new, or "de
novo," financial institutions and existing institutions with assets up to $3
billion. Internationally, we focus on retail-oriented institutions in Africa,
the Asia-Pacific region, Europe, Central and South America, and the Middle East
that have up to 300 branches and/or up to 2 million accounts. As of December 31,
1999, Phoenix's client base included over 140 institutions in 25 countries.

         Phoenix's Chairman of the Board and Chief Executive Officer, Bahram
Yusefzadeh, has 31 years of experience in the banking software industry, and
Phoenix's senior management team has over 190 combined years of experience in
the banking software and financial services industry. Mr. Yusefzadeh founded
Phoenix to develop and market a new generation of integrated banking software
applications using client/server technology capable of replacing less flexible
and technologically dated "legacy" systems. To develop the Phoenix System, we
have combined:

         -        our management's extensive experience with banking and banking
                  software systems;

         -        input from a consortium of financial institutions; and

         -        advances in client/server and e-commerce technology.

         During 1999, we formed additional alliances with U.S. and international
financial institutions and technology and service providers to further develop,
enhance and expand the Phoenix System and its capabilities for all of our
markets.

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INDUSTRY BACKGROUND

         Many financial institutions employ computer systems for their core
processing needs that are based on older "legacy" computer architecture. These
legacy systems were originally developed to operate on large mainframe and
mid-range computers. Like these legacy systems, the Phoenix System supports all
of the core areas of financial institution data processing, including: system
administration; processing of accounts, loans, and deposits; nightly processing;
general ledger; budgeting; teller functions; and holding company accounting.
Although some modified legacy systems have introduced newer technologies to make
them easier to use, increase data storage, and provide more flexible access to
data, these systems generally are limited because they are based on decades-old
architecture which does not allow full integration of available data. Without
such integration, the information provided by these modified legacy systems
generally is neither complete nor readily accessible to the user. Thus, Phoenix
believes that financial institutions using legacy-based systems are at a
competitive disadvantage to those using more modern and open architectures, such
as client/server based systems like the Phoenix System.

         In recent years, the competitive landscape of the financial services
industry has changed dramatically. Financial institutions now compete directly
with diversified non-financial institution financial service providers,
including insurance companies and investment banks. Financial institutions, like
other businesses, face pressures and challenges to do things faster, more
efficiently, and more profitably. Recent developments such as the rapid
acceptance and use of electronic commerce have further elevated customer
expectations of convenient access to a full suite of financial services. In
order to stay competitive, we believe that financial institutions must have easy
access to detailed information about their institution and their customers in
order to effectively develop and market profitable products and services and
expand their relationships with their customers. The Phoenix System provides
such access and a consolidated presentation of each customer's total
relationship with the financial institution.

         We believe that client/server computing makes possible the development
of powerful applications capable of addressing enterprise-wide business problems
in a flexible and cost-effective manner. The client/server model consists of a
centrally located "server" or group of "servers" which are responsible for data
storage and account and system processing, and remote PC-based workstation
"clients" which are connected to the servers through an enterprise-wide network
and which are used to enter, change, manipulate and analyze the institution's
data. Because of this allocation of functions, a client/server system is
scalable, meaning that its responsiveness and capacity can be increased by
upgrading the server or replacing it with a more powerful model. Client/server
systems also offer the level of data integrity and security that financial
institutions require because access to information can be controlled by
server-based relational database management systems.

         Due to the recent and rapid developments in banking software technology
and e-commerce and the demand for easy access to an institution's data, we
believe that an increasing number of U.S. and international financial
institutions are re-evaluating the functionality of their current software and
hardware systems and will be looking for alternative systems which

                                       3
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can improve their performance and increase their flexibility and functionality.
We created the Phoenix System to help these financial institutions meet their
needs.

THE PHOENIX SOLUTION

         The Phoenix System allows financial institutions to integrate their
customer and account data in a comprehensive management information system. This
system is readily accessible throughout the entire institution, can be modified
to suit the particular needs of each institution, and is easily interfaced with
other products. Phoenix believes that the Phoenix System is easy to use, simple
to learn, and that it can enable a financial institution to provide higher
quality customer service with reduced operating and training costs. Unlike some
legacy systems, the Phoenix System is an integrated system that provides
advantages in three critical areas: customer relationship management, management
decision support, and financial product development. Due to its inherent
structure, the Phoenix System is flexible and scalable, stores dates and
performs calculations using four-digit years, and allows financial institutions
to take advantage of many emerging technologies relatively easily and cost
efficiently. In addition, when used in conjunction with our trade finance
product and our third party treasury product, the Phoenix System provides an
integrated "universal" banking system for international clients.

         Advanced Technology. The Phoenix System operates in an "open systems"
environment using a graphical user interface, modern relational database
technology and nonproprietary hardware and software components. The Phoenix
System divides core processing functions among seven discrete but integrated
software modules:


         -        system administration

         -        holding company financial

         -        teller system

         -        statements

         -        account processing

         -        executive information system

         -        nightly processing

         -        budgeting

The core applications of the Phoenix System include:

         -        account processing for deposits and loans;

         -        a self-balancing general ledger system;

         -        full on-line transaction processing capabilities; and

         -        a comprehensive set of access controls.

         Because of the Phoenix System's architecture and features, account
processing can be customized to provide an analysis-based approach tailored to
each institution's products and services. The ledger system supports both batch
and on-line memo post transaction processing functions, and includes
multi-currency functionality in some international versions. The on-line
processor allows users to post on-line transactions to any account in the
Phoenix System, some of which can be accomplished in real time. Finally, the
access control system allows an institution to restrict access to different
levels of information, allowing the institution to limit

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transactional activity, implement logging activities for audit purposes and
combine connections with an interactive context sensitive on-line help system.

         Financial Product Development. The Phoenix System allows a financial
institution to quickly develop, deliver and process new financial products and
services. Each product can be as simple or as sophisticated as an institution's
customers and competition demand. In the Phoenix System, financial product
development is parameter-driven, meaning that institutions can design products
and services by simply selecting product features from a variety of options. An
institution can develop several kinds of new financial products rapidly without
significant technical programming or support personnel. In addition, the Phoenix
System allows institutions to analyze the profitability of both individual loans
and customer relationships and broad categories of customers. Institutions can
also perform "what if" calculations to model the financial impact of new
products and services based upon information maintained on the Phoenix System.

         Customer Relationship Management. The Phoenix System places a
structural emphasis on managing customer relationships, allowing an institution
to pursue a more personalized approach to its products and services. Our
Relationship Information Management system, or "RIM", integrates a customer's
account data, transactional activity, financial data from third party financial
applications, marketing information, relationships with other customers and
accounts, financial statements and other types of information in order to
present each customer's total relationship portfolio in one place. The RIM
benefits an institution by providing its management with critical assistance in
managing, tracking and analyzing the financial condition, profitability,
creditworthiness and overall relationship with each customer and groups of
customers. The RIM includes the following features:

         -        Marketing and Other Personal Information. The RIM tracks a
                  range of personal information, such as employment history,
                  homeownership status, other credit providers and other bank
                  accounts.

         -        On-line Financial Statements and Portfolios. The RIM maintains
                  information regarding a customer's assets, liabilities,
                  income, expenses and net worth, and can provide cash flow
                  analysis.

         -        Extensive Customer Relationship Tracking. The RIM can track
                  relationships between customers, groups of customers, accounts
                  and groups of accounts.

         -        Customer-Based Statements. The RIM enables the Phoenix System
                  to allow customer statements to be customized to contain an
                  unlimited number of accounts, and each statement can be
                  configured to show summary information, detailed account
                  information, or both summary and detailed account information.

         -        Integrated Signature, Photograph and Document Imaging. The RIM
                  provides on-line images of a customer's signature card and
                  personal photograph and can store

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                  and display images including images of loan collateral, other
                  assets, Social Security cards and drivers' licenses.

         -        Flexible Inquiry Capability. The RIM allows users to progress
                  through increasingly detailed levels of information, enabling
                  thorough and quick research of customer inquiries without
                  having to enter arcane codes or search through voluminous
                  printed reports.

         -        Third Party Information. The RIM is able to integrate the data
                  existing in the RIM with data from external and third party
                  software and service providers, including information on
                  trust, brokerage, insurance and credit card accounts.

         Management Decision Support.  The Phoenix System provides a financial
institution's executives with the following functions:

         -        a fully integrated general ledger;

         -        a broad suite of standard reports augmented by an ad hoc
                  reporting capability;

         -        an integrated set of budgeting templates; and

         -        customer and account profitability analysis.

         The Phoenix System's executive information system, or "EIS", allows
senior executives to track performance and model the effect of business
strategies and changes in market conditions on their financial institution. The
EIS takes into account both the relationship of a particular indicator to other
related categories of information, as well as the trends for that indicator over
time. In addition, the EIS provides an institution with statistical measures of
product penetration, profitability and performance.

         Future Development Plans. We intend to continue to enhance our current
products and to develop and introduce additional products to keep pace with
technological developments and emerging industry standards and to address the
increasingly sophisticated needs of our clients. As in the past, we plan to
consult with our financial institution clients to help identify and prioritize
future product enhancements. We also intend to continue to enter into strategic
relationships with third party product providers, allowing us to offer new
products and solutions to our clients more quickly than if we developed such
systems ourselves. We are currently participating on the advisory council for
Microsoft's Windows Distributed Internet Applications Architecture for Financial
Services, or "Windows DNAfs", a new industry "framework," or method of producing
software, being developed by Microsoft to allow software from different
financial services industry software providers to exchange data and communicate
with each other. See "Product Development and New Products."


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STRATEGY

         Our primary objective is to advance our position as a leading provider
of enterprise-wide client/server application software for the financial services
industry worldwide by pursuing the following strategies:

         Maintain and Extend Technology Leadership. We intend to integrate new
technologies, add new applications, enhance existing applications, and expand
functionality for the Phoenix System in an effort to maintain our technology
leadership position. In 1998 and 1999, we delivered significant upgrades in the
U.S. and international versions of the Phoenix System. The Phoenix System runs
on both the Unix and Windows NT operating systems, and in conjunction with the
Sybase and Microsoft SQL Server database management systems. The system is
32-bit enabled and runs on hardware platforms from leading suppliers in the
world, including IBM(R), Unisys(R), Sun Microsystems(R), Compaq(R), and
Hewlett-Packard(R), among others. Most recently, Phoenix introduced significant
performance improvements to manage the more demanding processing needs of larger
financial institutions and multiple institutions processed in a service bureau
environment. We intend to continue to commit substantial resources to maintain
and extend our technological leadership.

         Expand U.S. Distribution. We plan to continue to expand our U.S.
distribution by increasing our direct sales and implementation forces in key
geographic locations and by seeking additional strategic sales and marketing
relationships. We have continued to expand our U.S. client base and now have
clients in 29 states. As discussed in more detail below, Phoenix has also
entered the application service provider business in the United States, which
allows financial institutions to outsource the maintenance and operation of the
Phoenix System to our remote service centers, as opposed to running the system
themselves "in-house." This capability will allow us to market the Phoenix
System to a large number of financial institutions which prefer to outsource
their processing operations, a market which Phoenix has not previously
addressed. We estimate that as many as half of the financial institutions in our
target market are potential candidates for our application service center
outsourced processing solution, significantly increasing our potential market
for the Phoenix System.

         Expand International Distribution. Since 1998, we have successfully
expanded our global distribution and market penetration by increasing our
international direct sales and implementation forces, enlarging our
international offices, opening additional sales and marketing offices in
strategically located cities around the world, and by leveraging our strategic
alliances and third party distribution channels. We currently have offices in
London, England; Sydney, Australia; Singapore; and Wellington, New Zealand.
Approximately 60 of our more than 350 employees are based overseas. In addition,
we have marketing alliances with several overseas distributors, including:

         -        Siemens Business Services, a division of Siemens Nixdorf
                  Informationssysteme AG, one of the world's leading suppliers
                  of financial services information technology;

         -        Data Action in Adelaide, Australia, who focus on marketing the
                  Phoenix System to Australia's credit union industry. To-date,
                  15 credit unions representing

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                  approximately 10% of the total market in Australia in
                  financial assets have committed to implement the Phoenix
                  System;

         -        Computer System Associates (Nigeria) Limited, or "CSA," a
                  leading supplier of financial services software in Africa;

         -        International Turnkey Systems, or "ITS," a computer services
                  company based in Kuwait, who has recently established a
                  development facility in Cairo, Egypt through their software
                  division, ITSoft, and completed training for providing support
                  and modification services for the Phoenix System in the Middle
                  East; and

         -        Ultima A.S., a Turkish based software company which provides
                  marketing support, software support, and implementation and
                  development services to Phoenix's clients in Turkey.

         e-Commerce Services. In October 1999, we implemented the first phase of
our strategy to offer the Phoenix System in an outsourcing or "application
service center" environment by (1) purchasing a controlling interest in Phoenix
International New York, Inc. (formerly Servers On-Line, Inc.), an application
service center using the Phoenix System located in Ronkonkoma, New York, and (2)
acquiring the account processing clients of ERAS JV, an application service
center using the Phoenix System located in Miami, Florida. These acquisitions
provided us with application service centers, or "ASCs," in the Northeast and
the Southeast. As part of the integration of the acquired operations, we intend
to relocate ERAS JV's Miami application service center to our Orlando facilities
in early 2000. These acquisitions are part of our ongoing strategy to broaden
our market and deliver our client/server-based core banking system both to U.S.
financial institutions that wish to run their processing services at their own
facilities and those institutions that would prefer to outsource their account
processing functions to a third party. We plan to establish additional Phoenix
application service centers in the near future in other parts of the U.S. as
demand permits. The ASCs will also provide Phoenix with more recurring revenue
because such contracts involve larger monthly service fees, as opposed to the
large up front license fee and smaller annual support fees we receive from our
in-house clients. Our current client processing agreements have an average term
of five years.

         Leverage Existing Customer Base. At the end of 1999, Phoenix's client
base included over 140 financial institutions worldwide. We leverage our
implemented client base by:

         -        attempting to maximize recurring revenues from our clients by
                  offering service fee-based complementary products and
                  services;

         -        licensing additional subsidiaries of our clients' holding
                  companies;

         -        obtaining favorable references from existing clients in the
                  course of developing new client relationships; and

         -        consulting with existing clients in the development of new
                  products and product enhancements.

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         We believe that many financial institutions looking for updated
technology solutions are hesitant to be the first institution to implement new
technologies within their region. As we secure new clients in new regions of the
world, we believe that these "anchor" installations will help us generate new
business from each region. Last year in the United States, we successfully
leveraged our relationships with our installed clients to generate 12 new U.S.
clients, and to collect additional license fees from and sell additional
products to 21 pre-existing U.S. clients. We intend to continue to build our
presence worldwide by securing new clients in new regions and capitalizing on
our installed client base in each region where we already have a presence.

TECHNOLOGY

         Phoenix works with leading hardware manufacturers and development tool
and relational database vendors in the client/server community to produce
software based on leading-edge technological developments. These vendors include
Microsoft(R), Hewlett-Packard Company(R), IBM(R), Centura(R) Software
Corporation, Sun Microsystems(R), and Sybase(R), among others. The Phoenix
System operates on Microsoft Windows(R) 95/98, Windows NT(R), and UNIX. During
2000, we will be looking at certifying the Phoenix System for use with Windows
2000(R). During 1999, Phoenix released U.S. Version 2.5 and 2.5 YE containing
many upgrades to the Phoenix System, and completed International Version I-2.0.4
and Version of I-2.0.5 for international clients adding new functionality to
support multi-currency retail banking. In addition, Phoenix has developed a
version of the Phoenix System to run on Microsoft's new SQL Server 7 and is
currently beta-testing the Microsoft SQL Server 7 version of the Phoenix System.
Some of the key technological features of the Phoenix System are described
below.

         Centralized Relational Database Management System. An advantage of the
Phoenix System as compared to legacy or modified legacy systems is that the
Phoenix System stores and maintains data in an open relational database rather
than in a proprietary flat file format. As a result, an institution's data can
be easily accessed and integrated by many third-party products, such as
commercially available query and report writing tools. In addition, a structured
query language, or "SQL", relational database allows users to expand and change
the structures of the tables and manipulate data stored and maintained in the
Phoenix System.

         Both the Windows NT and UNIX versions of the Phoenix System, as well as
Phoenix's ancillary products TradeWind(TM) and TradeCentre(TM), use Sybase
System 11.x, a relational database technology provided by Sybase. Phoenix is
currently in the process of certifying the new version 12.0 of the Sybase
relational database management system. The Phoenix System, TradeWind, and
TradeCentre can run on hardware platforms from Hewlett-Packard, IBM, NCR(R)
Corporation, Sun Microsystems, Inc., Unisys(R), and other hardware platforms
that are UNIX or Microsoft Windows NT compliant. During 1999, we conducted
benchmark studies on the newest and largest platform from Hewlett-Packard, the
V2500, continuing our focus on scaling the Phoenix System for use by larger
institutions.

                                       9
<PAGE>   16
         Replication and Distributed Data Processing. We have leveraged the open
architecture of the Phoenix System to implement an advanced distributed database
for support of our off-line teller system. The off-line teller system uses a
local database on each branch server to maintain normal processing in the event
of hardware or network failure at the central server. Off-line branches are
supported using Centura's SQL Base for either Novell(R) NetWare or Microsoft
Windows NT.

         Open Protocols for Data Communication. We use the industry standard
TCP/IP protocol for communicating with the relational database server, and
either IPX/SPX or TCP/IP for communicating with the local area network file
server. These protocols allow Phoenix clients using either Windows NT or Novell
NetWare networks to implement a broad array of local area network and wide area
network topologies and configurations. In addition, clients that have an
existing network infrastructure in place that supports TCP/IP do not have to
reinvest in new technology to run Phoenix products.

         32-bit Application Support. U.S. Version 2.5 and International Version
I-2.0.5 of the Phoenix System, which Phoenix released on a widespread basis to
its clients in 1999, are native 32-bit applications which enable Phoenix clients
to take further advantage of operating systems from Microsoft (Windows 95/98 and
Windows NT Workstation). These systems offer Phoenix clients substantial
benefits in the areas of fault tolerance, ability to support more complex
transaction processing (multi-tasking), performance and security.

TARGET MARKETS

         The United States Market. The following table shows the number of FDIC
insured depository institutions grouped by asset size as of the end of the third
quarter of 1999:

         -        5,912 institutions with assets of less than $100 million;

         -        2,827 institutions with assets from $100 million to $300
                  million;

         -        994 institutions with assets from $300 million to $1 billion;

         -        312 institutions with assets from $1 billion to $3 billion;
                  and

         -        226 institutions with assets of more than $3 billion.

         These numbers include both commercial banks and savings institutions.
We primarily focus our direct in-house sales efforts in the U.S. on commercial
financial institutions and savings institutions with asset sizes from $100
million to $3 billion, a range that includes over 4,000 institutions. Our
application service center business will target institutions with less than $300
million in assets, which includes over 9,000 institutions. We believe that many
of these financial institutions seek cost-effective, flexible, and sophisticated
technology solutions that can help them compete more effectively in the changing
financial services marketplace. The Phoenix System operates with both the
Microsoft Windows NT and UNIX operating system environments. We believe the
Windows NT version is attractive to much of Phoenix's market of U.S. financial
institutions because of the lower overall hardware and operating expenses
associated with a Windows NT environment. We intend to take advantage of
improvements

                                       10
<PAGE>   17
that are being made to both the UNIX and Windows NT operating systems to expand
the capabilities of the Phoenix System to address the needs of institutions with
larger numbers of branches, accounts and transactions.

         The International Market. We currently divide international financial
institutions into two groups based upon the number of branches and accounts:
those with more than 300 branches and/or 2 million accounts, which we refer to
as "Tier 1," and those with less than 300 branches or 2 million accounts, which
we refer to as "Tier 2." Today, Phoenix primarily focuses its international
sales and marketing efforts on Tier 2 institutions located in Africa, the
Asia-Pacific region, Europe, Latin America, the Caribbean and the Middle East.
We also target Tier 1 institutions who can use the Phoenix System in regional or
market segment areas of their operations. One of our clients, Bank of Hawaii, is
a Tier 1 institution that uses the Phoenix System to run its operations in
particular regions. We believe that the international market offers significant
opportunity because economic diversity and other market factors have increased
the demand for sophisticated wholesale and retail banking products and services.
Sophisticated international financial institutions offer a broad array of
financial products and services and demand technology that is open, powerful and
economical. Phoenix also believes that these technology-minded institutions are
looking for software solutions that will last at least 10 to 15 years.
Therefore, these institutions appreciate the flexibility, scalability,
functionality and expandability of our client/server technology. During 1999,
Phoenix derived over half of its revenues from its international clients. There
are many risks associated with significant international operations which could
have a material impact on Phoenix's operations and financial performance,
including governmental and regulatory changes, the relative political and
economic instability of foreign markets, the diminished ability to monitor and
maintain client relationships across larger geographical areas, the increased
costs incurred to maintain international operations, and the other risks
discussed in our filings with the Securities and Exchange Commission, including
this report and in the "Risk Factors" section of our registration statement on
Form S-1 (No. 333-31415) declared effective on August 13, 1997.

SALES AND MARKETING

         We market our software and services directly through our sales and
marketing personnel and through third party agents that provide products and
services to the financial services industry. As of December 31, 1999, Phoenix's
sales and marketing department, including administrative staff, consisted of 21
individuals, including personnel in our Singapore, Sydney and London sales
offices. In addition, we have established local representation relationships
with agents located in several countries that assist in the sales,
implementation, and support processes. Through these relationships, we continue
to add clients and believe that these relationships will assist us in building
our international following in the future.

         Phoenix's direct sales and marketing personnel and consultants are
experienced in the sales process for banking software products and generate
leads through a marketing program which includes direct mail, networking,
telemarketing, seminars, and trade shows. White papers and other sales support
literature and ongoing client communications also contribute to

                                       11
<PAGE>   18
the lead development process. We also actively market our products and services
through our Internet web site which allows prospects to read or download product
information, access online product presentations, and register to receive
information by mail or email. We believe that an increasing number of future
clients will initially learn about us and our products and services through our
Internet web site.

         Our direct sales and marketing force is complemented, particularly in
the international market, by various indirect distribution channels, including a
growing network of sales, marketing and support agents. Some agents also provide
implementation, training, support and other services to end-users. In all cases,
the Phoenix System remains the sole property of Phoenix. In most cases, if we
terminate our relationship with an agent, clients sold by that agent continue to
pay support fees to Phoenix. We intend to expand our network for indirect
distribution primarily on a non-exclusive basis and anticipate that the
percentage of our total revenues derived from indirect sales will increase in
the future.

         In the international market, we have relationships with several third
party marketing agents:

         -        Computer Systems Associates (Nigeria) Limited which
                  exclusively markets the Phoenix System to financial
                  institutions in certain countries of Africa and
                  semi-exclusively in others;

         -        International Turnkey Systems which markets the Phoenix System
                  to financial institutions in certain countries in the Middle
                  East; and

         -        Siemens Nixdorf Informationssysteme AG, a large multinational
                  company which markets, sublicenses, and distributes the
                  Phoenix System to financial institutions located in Australia
                  and in those countries in Africa, Asia-Pacific, Europe, and
                  the Middle East that are not a part of other agents exclusive
                  territories.

PRODUCT PRICING

         In-House System Pricing. For those clients who license the Phoenix
System for in-house use, we price the Phoenix System and related services in two
components: (1) license fees for software products and other revenues and
commissions from the sale and delivery of software and hardware products of
third party vendors; and (2) fees for a full range of complementary services,
including implementation, programming, conversion, training, and installation
services, interface services for tying the Phoenix System to third-party
applications, client and software support services, disaster recovery services,
and Internet/Intranet consulting services. License agreements generally have a
term of five years and automatically renew for one-year periods thereafter until
cancelled. Each agreement also contains a five-year commitment to pay customer
and software support fees, which we recognize as revenue on a quarterly basis.
Most license agreements provide that Phoenix can cancel the license if the
client does not continue to pay for client and software support. Implementation,
conversion, training, installation and interface fees are generally paid at the
beginning of a license relationship or when the particular service is performed.

                                       12
<PAGE>   19
         In the United States, license fees are based on the asset size of each
institution client. Internationally, each institution pays a base license fee
and an incremental license fee based on the number of branches and/or accounts
of such financial institution. Implementation, programming services, conversion,
training and interface fees vary based on the complexity of a particular
project. Implementation fees in the United States are generally fixed, and
internationally are charged on a time and materials basis for work performed.
Customer and software support fees both in the U.S. and internationally are paid
annually or quarterly and are generally calculated as a percentage of the total
license fees. Both in the U.S. and internationally, as the asset size of each
client institution increases or as branches or accounts are added, clients pay
additional incremental license fees, and the client's software support fees are
increased proportionately over the life of the license agreement.

         Application Service Center Pricing. Our new application service
centers, or "ASCs," use the Phoenix System to provide remote institution and
account processing services to clients. ASC clients pay an up-front fee for
hardware and implementation of the Phoenix System, and then a monthly fee for
processing services based on the number of accounts and transactions processed
each month. Since there is no license fee, the up-front fees received are lower,
but the recurring fees to Phoenix are higher as a percentage of total contract
value than the support fees received from in-house clients.

         Pricing to Our Sales Agents. Our agents license our products at a
discount for sublicensing or are paid a commission based upon sales. Under many
of these agreements, we anticipate that primary responsibility for
implementation and training services will shift to the agents as they
successfully complete the requisite training and successfully complete one or
more installations under our supervision. Under these sublicensing arrangements,
agents will retain a greater percentage of the implementation, conversion, and
training service fees as they accept more of the responsibility for these
services. We believe, however, that the difference in the margins obtained from
direct and indirect sales should not have a material adverse effect on our
business, operating results, and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in our 1999 Annual Report, included in this report as an exhibit.

WORLDWIDE SERVICES

         In 1999, we consolidated our implementation services and client
services divisions into the new Worldwide Services Division. While the functions
remain largely the same, the consolidation allows us to manage implementation
and support functions as a cohesive unit, to better utilize resources and to
provide service continuity to our clients. Specifically, the restructured
Worldwide Services Division has dedicated resources to support both U.S. and
international clients. Both the U.S. group and the international group provide a
comprehensive range of direct client care services including implementation,
training and ongoing support. We have created a separate group dedicated to
providing services for clients utilizing our application service centers, or
"ASCs," an option that delivers the Phoenix System to clients

                                       13
<PAGE>   20
who wish to outsource their processing operations, and have dedicated units for
ongoing technical, education and professional services for ASC customers.

         Implementation Services. Our comprehensive implementation services help
new clients and banks acquired by existing clients convert to the Phoenix System
by providing extensive project planning and coordination. As part of the overall
implementation process, each client is assigned an Implementation Manager and a
dedicated team of implementation experts that guide the client through the
entire installation and coordinate the conversion and implementation process,
including data conversion, software installation, network certification,
education, training and consulting. Each implementation team consists primarily
of data conversion analysts and conversion programmers who convert a client's
current account data to the Phoenix System. Data conversion activities include
data mapping, program development, data conversion, extensive testing, detailed
data auditing and a complete trial, or "mock," conversion prior to the final
implementation date.

         As of December 31, 1999, Phoenix had 61 people directly assigned to
implementation and training responsibilities. To support our growing client
base, as well as to support the customization necessary for additional onsite
resources and international clients, we constantly monitor our staffing
requirements in order to alter resources as necessary.

         Education and Training Services. We offer a comprehensive education and
training program both for new and existing clients. As part of the
implementation process for new clients, we provide training classes to
familiarize them with the Phoenix System and train them to set up the Phoenix
System's customized parameters. Training courses are available both on-site and
at Phoenix's headquarters in Orlando. We also provide hands-on application
training services at the client site prior to installation, and post-conversion
support. Additional on-site training for the Phoenix System and ancillary
products is available upon request.

         Consulting and Development Services. We offer consulting and
development services, including assistance for clients planning large-scale
implementations, assistance in managing operational reorganizations, and
customized programming services for clients who wish to customize the Phoenix
System to meet their own unique information processing needs.

         International Services. Through a number of international strategic
alliance agreements, we may transfer responsibility for implementation, support,
development and/or product localization services to an agent servicing the
particular area of the world. To ensure quality control, each agent is required
to send their staff to Phoenix for training and to work side-by-side with a
Phoenix implementation team on at least one implementation project. Upon
successful completion of training, the agent then assumes direct primary
responsibility for the client care services in their region for which they have
been certified. Some agents are able to provide more local services than others,
depending on their resources and the experience of their personnel. This process
allows Phoenix to deliver and install its software faster and across more areas.
While these alliances add depth and breadth to our worldwide client support
capabilities, Phoenix still remains focused on ensuring client satisfaction and
quality assurance levels through its many worldwide offices.

                                       14
<PAGE>   21
         Ongoing Customer Support. Once implementation is complete, each client
is transitioned to a Client Care Unit for ongoing support. Each Client Care Unit
is led by a Client Care Manager and a dedicated team of support representatives.
A Client Care Manager is assigned to each client at contract signing and works
with the Implementation Manager to provide indirect support during the
implementation process to insure a smooth transition.

         We deliver ongoing support via a range of communication vehicles
including telephone, Internet, electronic mail, and fax. Our support personnel
are available on a 24 hour per day, seven day per week basis. Our Internet
support, called SupportNet, is a special client-only area of Phoenix's web site.
It provides a free, online support mechanism for our clients allowing clients
with Internet access to obtain online support through features such as a
discussion forum, online support documents for the Phoenix System, online
software defect reporting, online enhancement requests, and on-line file
transfers.

         Clients are given a single phone number and email address for all
support services. The client care team members answer inquiries directly when
possible, but are also accessible by pager, cellular telephone, and laptop
computer so the Client Care Manger has maximum utilization of resources at all
times. This enables clients to have their questions answered, addressed and
resolved as expediently as possible. Additionally, many client support
activities can be performed through high-speed data lines connected directly to
a client's location. Phoenix support personnel have the ability to connect
remotely to the server at the client site and perform work as if they were
physically at the client's site. This approach helps Phoenix deliver
cost-effective support services to clients without the traditional expense
associated with on-site visits.

         We are committed to maintaining high levels of service and support to
ensure our client's satisfaction due to the mission-critical nature of the
Phoenix System and its impact on the client's day-to-day operations. Our Client
Care Units provide support not only for the ongoing use and maximization of the
Phoenix System, but also can help clients identify potential network and
technology infrastructure problems. As of December 31, 1999, Phoenix had 52
people in its Client Services Units dedicated to providing these services.

         Internet/Intranet Product and Customization. In conjunction with our
Internet banking product, we offer Internet consulting services to help clients
design their web sites and establish a presence on the World Wide Web. We also
help clients create their own internal web environment, or Intranet, enabling
them to improve the flow of communication, eliminate paper, increase
productivity levels and enhance the dissemination of information with less
additional hardware and infrastructure costs.

         Business Recovery Services. We offer business recovery services to
assist clients in re-establishing processing capacity within 24 hours of an
interruption in processing capability caused by a disaster or other event. Our
disaster recovery service offering is a separate 5-year contract that has an
initial implementation fee and annual service fees. We provide this service
through a third party service provider, SunGard Recovery Services, Inc. We
receive a

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<PAGE>   22
commission based on the monthly fees SunGard charges to our clients. This
service satisfies current United States financial institution regulatory
obligations to maintain and annually test a disaster recovery plan.

         Additional Services. We continually strive to add value to the Phoenix
System by providing a wide range of professional services, including on-site
operations support, process audits, additional education services, and
customized plans to address specific client needs as they relate to the use and
operation of the Phoenix suite of products. We offer a full range of networking
support, database services, and on-site consulting upon request, both directly
and through our third party service providers. We perform on-site network
certification for all clients during their initial software installation, and
these same network engineers and database analysts are available for ongoing
support as part of our professional services offering.

PRODUCT DEVELOPMENT AND NEW PRODUCTS

         Phoenix was founded in January 1993 for the purpose of developing and
marketing a new generation of integrated banking software applications that
would replace less flexible and technologically dated legacy systems. From our
inception through December 31, 1999, product development expenditures (the total
of product development expense and capitalized software development costs)
represented a significant portion of our aggregate revenues. Hewlett-Packard
provided developmental-stage assistance by supplying computer hardware for
development and testing of Phoenix's products. Early in our history, a group of
U.S. financial institutions participated in a joint application development
program under which end-users were involved in product development and testing.
The joint application development program helped reduce the development cycle by
increasing the efficiency with which design problems were identified and
corrected. U.S. financial institutions continue to contribute to plans for new
products and enhancements as part of the Phoenix user group, known as "PHOCUS."

         We believe that our future success will depend in large part on our
ability to maintain and enhance our current product and service offerings and to
develop, acquire, integrate and introduce new products and features that will
keep pace with technological advances and satisfy evolving client requirements.
As of December 31, 1999, our Research & Development Division consisted of 188
employees. We develop and adjust product direction in response to two core trend
areas: (1) developments in the financial services industry and (2) developments
in technology.

         International Enhancements. Consistent with our original plan,
international versions of the Phoenix System support numerous international
features, such as multi-currency and multi-language capability. The Phoenix
Systems multi-currency capability supports world currencies formatted in
accordance with the standards established by the International Standards
Organization. Phoenix has acquired additional international capabilities, such
as a trade finance system, and has rights to license AFA Systems International's
"Musketeer" treasury and risk management systems to Phoenix clients. The
combination of our retail, trade finance and treasury offerings allows us to
market an integrated, international "universal" banking system. We also intend
to develop and license additional international functionality as

                                       16
<PAGE>   23
we enter new countries that require additional functionality. For instance, to
support our new relationship with Data Action, a major credit union service
bureau provider in Australia, we have established a development center in
Sydney, Australia to work on enhancing the Phoenix System for the Australian
credit union market. Additionally, we have established development capacity in
Cairo, Egypt through International Turnkey Systems and its division ITSoft to
focus on international functionality development required in the Middle East and
Eastern Europe. We intend to continue to incorporate additional international
functionality and to integrate new technologies for the benefit of existing and
future clients around the world.

         Future Technologies. Phoenix is participating on the advisory council
for Windows DNAfs, an industry framework being developed by Microsoft. This
framework is intended to define a way of constructing software applications to
allow different financial services industry software providers to exchange data
and communicate with each other. We continue to work with Microsoft on its DNAfs
specifications for inclusion in our future product enhancements, named "Project
Aurora." Project Aurora is a set of technologies, tools and frameworks that we
are developing to serve as the foundation for a new set of products to be
delivered in the coming years. Fundamentally, Project Aurora is planned as a
distributed Internet-based application that is being designed to run under the
Windows 2000 COM+ environment and is expected to be deployed using an Internet
browser. Project Aurora is designed to enhance and extend the functionality of
the Phoenix System, rather than replace it. We spent much of 1999 evaluating and
testing the underlying technology of the Project Aurora framework. We expect to
continue working on Project Aurora during 2000, capitalizing on (and contingent
on) the planned availability of Windows 2000 in the first quarter. We hope to be
able to demonstrate the technology next year. To help confirm that the project
will address the needs of our target markets, we continue to validate the
Project Aurora strategy with our clients, prospects and industry consultants. We
intend to continue to develop, modify and enhance the Phoenix System to offer
our client institutions what we believe are some of the best technologies
available in the financial services software industry.

         Product Development Cycle. Each year, we host a conference for our
"PHOCUS" users group, which includes all current U.S. and international users of
the Phoenix System. Phoenix uses the suggestions and feedback from this
conference and other sources of client feedback to help develop plans for new
products and enhancements. We meet with PHOCUS approximately twice a year to
offer recommendations and to help prioritize product development and enhancement
projects. For each new market, country or region where we sell our software, we
attempt to adapt and augment the Phoenix System to meet customer needs.
Additionally, our product development personnel continue to independently
develop new product ideas and enhancements. Once a product idea has been
formalized, we use an internal review process to (1) determine whether to
develop the product or enhancement, (2) set a development schedule, and (3)
develop a budget for the product or enhancement.

         Product Plans. Phoenix's product development efforts are currently
focused on enhancing the functionality of the Phoenix System so that it will be
attractive to a broader range of clients both in the U.S. and abroad. In
addition, product plans focus on extending the usefulness of the Phoenix System
into new and emerging alternative delivery channels.


                                       17
<PAGE>   24
Phoenix believes that it will be able to improve its competitive position by
successfully completing, licensing, acquiring, or delivering to client
institutions new products and enhancements including, among others, the
following:

         -        e-Commerce Portal. We are developing an e-commerce portal,
                  which will utilize the Phoenix System Relationship Information
                  Manager, or "RIM". This product strategy provides for the
                  aggregation of multiple value-added products and services to a
                  financial institution's product offering through Internet
                  enabled delivery channels. The portal will extend the reach of
                  relationship management to add-on service providers, providing
                  for stronger relationship building opportunities for Phoenix
                  clients.

         -        Internet Banking. We will continue to enhance our Internet
                  Banking product throughout 2000. We are evaluating current
                  functionality, including the ability to open accounts over the
                  Internet, including fully automated online opening and funding
                  of accounts on the Phoenix System. Additional features planned
                  include ACH support, check imaging, account alerts, on-line
                  stock brokerage services, and biometric security support.

         -        Report Engine. Phoenix continues to focus on further
                  developing the reporting capabilities of the Phoenix System.
                  2000 product plans include further enhancements to enable
                  greater control and flexibility in establishing high
                  performance reporting. In addition, enhancements focusing on
                  user-defined client correspondence are planned to enable
                  Phoenix clients to flexibly control the presentation of
                  information to their customers.

         -        Larger Bank Processing. In 1999 we worked on increasing the
                  scalability of the Phoenix System through an enhanced,
                  multi-threaded, multi-tasking overnight process. We believe
                  that such enhancements will help to broaden the appeal of the
                  Phoenix System for larger institutions. We also continue to
                  develop a variety of enhancements to process larger financial
                  institutions, capitalizing on the latest database and server
                  technological advances. One key project for 2000 includes
                  enhancements to capitalize on the features of the new version
                  12.0 of the Sybase relational database management system, when
                  released.

         The discussion of potential future products, new enhancements and
product development plans are subject to significant technical risks, including:
delays in the development, introduction, production or implementation of the new
enhancements or products; failure to achieve market acceptance; failure to meet
development, functionality and performance expectations; and undetected and
uncorrected errors or failures. These product plans are "forward-looking
statements" which are subject to the risks and uncertainties discussed in this
report and in our filing with the Securities and Exchange Commission, including
the "Risk Factors" described therein.

                                       18
<PAGE>   25
COMPETITION

         The financial services software market is intensely competitive,
rapidly evolving and subject to rapid technological change. Competitors vary in
size and in the scope and breadth of the products and services offered. Phoenix
encounters competition in the U.S. from a number of sources, including:


         -        Fiserv, Inc.

         -        Jack Henry & Associates, Inc.

         -        BISYS, Inc.

         -        ALLTEL Information Services, Inc.

         -        Marshall & Ilsley Corp.

         -        Prologic Corporation

         -        The Kirchman Corporation

         -        East Point Technology, Inc. & a division of Marshall Ilsley
                  Corp.

         -        Open Solutions, Inc.

         -        Electronic Data Systems Corp.

         All of these companies offer core retail software systems or
outsourcing alternatives to the financial services industry. Of these
competitors, we believe that only East Point and Open Solutions offer true
client/server solutions. Many of our competitors have far greater resources then
we do and competition from new companies is possible.

         In the international arena, we compete with several global players,
including:


         -        Fiserv, Inc.

         -        Sanchez Computer Associates, Inc.

         -        Prologic Corporation

         -        Midas-Kapiti International Inc.

         -        Financial Network Services

         -        ACT/Kindle Banking Systems

         In addition, there are smaller, regional competitors in the countries
that we target internationally. We expect additional competition from other
established and emerging companies as the client/server application software
market continues to develop and expand.

         In general, we believe we compete on the basis of:

         -        product architecture, including distributed computing
                  capability, access to commercial SQL databases and ease of
                  customization and integration with other applications;

         -        functionality, including the breadth and depth of features and
                  functions and ease of use;

         -        service and support, including the range and quality of
                  technical support, training, implementation and consulting
                  services and the capability to provide these on a global
                  basis;

         -        management expertise, including management's banking software
                  experience and financial services industry knowledge; and

         -        product pricing in relation to performance and support.

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<PAGE>   26
         We believe that the Phoenix System is a market leader in the areas of
product architecture and management expertise and that Phoenix competes
favorably in the areas of functionality, service, support and product pricing.

         We believe that our current competitors do not offer application
software that provides the level of flexibility and functionality featured in
our customer relationship management, customer profitability analysis, or
executive information modules. We expect additional competition from other
established and emerging companies as the client/server market continues to
develop and expand. In addition, competition could increase as a result of
software industry consolidations, including particularly the acquisition of any
of the client/server based retail banking system providers by one of the larger
service providers to the financial services industry. We cannot estimate the
possible adverse consequences to our financial condition or results of
operations from competition.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

         We rely primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
our proprietary rights. We seek to protect our software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. Our license agreements contain provisions which limit the
use of the software, state that title remains with Phoenix, protect
confidentiality, permit the termination of license for misuse or abuse and
require licensees to notify Phoenix of infringements on our property and rights.
We presently do not have any patents, pending patent applications, registered
trademarks or copyright registrations. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our products is difficult, particularly overseas.
While we are unable to determine the extent to which piracy of our software
products exists, we are not aware of any software piracy of our products to
date. However, in our industry, particularly in certain overseas markets,
software piracy is a persistent problem. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as the laws
of the United States. Nevertheless, we believe that due to the rapid pace of
technological change in the information technology and software industries,
factors such as the technological and creative skills of our employees, new
product developments, frequent product enhancements, and the timeliness and
quality of support services are more important to establishing and maintaining a
competitive advantage in the industry than merely copying our software.

         We do not believe that any of our products infringe upon the
proprietary rights of third parties. We cannot be sure, however, that third
parties will not claim infringement by Phoenix with respect to current or future
products. We expect that software product developers will be increasingly
subject to infringement claims as the number of products and competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available at all or

                                       20
<PAGE>   27
on terms acceptable to us. This could have a material adverse effect upon our
business, operating results, and financial conditions.

EMPLOYEES

         As of December 31, 1999, we had a total of 372 employees and contract
workers, of which 188 were engaged in research and development (including
research projects and project development), 61 in implementation and training,
52 in client support, 21 in sales and marketing, 21 in finance and
administration, 6 in executive management, 5 in e-commerce services, and 18 in
product development and support, sales and marketing, and general business
operations at our subsidiary, Phoenix A.P. Limited. All of our executive
officers employed as of the date of this report have entered into employment
agreements with Phoenix. None of our employees are represented by a labor union.
To date, we have not experienced any work stoppages and consider our relations
with our employees to be satisfactory.

FACILITIES

         The following chart summarizes Phoenix's worldwide facilities and the
terms of the lease for each. Phoenix does not own any real property. The New
York facility is used by Phoenix International New York, Inc., which is more
than 50% owned by Phoenix, and the New Zealand facility is used by Phoenix
International A.P. Limited, a wholly owned subsidiary of Phoenix.
<TABLE>
<CAPTION>

                                                                       Square       Lease Term in       Lease
      Location                           Function                      Footage         Months         Expiration
      --------                           --------                      -------         ------         ----------

<S>                                <C>                                 <C>          <C>               <C>
Heathrow, Florida, USA             Headquarters, administration,         48,000         120            3/31/07
                                   sales, development &
                                   implementation
Heathrow, Florida, USA             Development & implementation          22,500         120            3/31/07
Sydney, Australia                  Research & development                 6,500          36            9/30/01
London, England                    Sales & implementation                 3,400         126            1/31/10
Wellington, New Zealand            Sales, development &                   1,500           6            3/31/00
                                   implementation
Singapore                          Sales                                    500           6            6/30/00
Ronkonkoma, New York, USA          Sales & implementation                 5,500          60           12/31/02

</TABLE>
SUBSEQUENT EVENTS AND CHANGES IN PHOENIX'S BUSINESS SINCE DECEMBER 31, 1999

         Many changes have occurred in Phoenix's business since December 31,
1999. These changes and other events subsequent to year end 1999 are described
below.

CUSTOMER DISPUTES

         IBM/Sekerbank. In 1998, Phoenix contracted to provide software and
software development and implementation services as a subcontractor to IBM Turk
Limited Sirketi for the

                                       21
<PAGE>   28
benefit of its customer, Sekerbank T.A.S. In May of 1999, IBM informed Phoenix
that its contract with Sekerbank had been cancelled. IBM then purported to
cancel its contract with Phoenix. According to IBM, Sekerbank cancelled their
contract with IBM because of the failure of Phoenix to perform, called in an IBM
performance bond, and received most of its money back from IBM. IBM has paid
Phoenix over $1 million under the subcontract, has requested a return of all
funds, and has indicated they may have claims against Phoenix for up to $5.2
million in damages. Phoenix disagrees with IBM's position, believes that IBM,
and not Phoenix, is responsible for the cancellation of the contract by
Sekerbank, and believes that it has claims against IBM under its subcontract for
the remaining value of the contract, which amounts to at least $3.9 million. The
parties are in negotiation to resolve the dispute. The contract calls for
arbitration of disputes; however, no arbitration or other action has been filed
by either party.

         Toprakbank. In June of 2000, Phoenix received notice from Toprakbank
A.S., one of its customers in Turkey, that it had canceled its implementation of
the Phoenix System. The parties have exchanged letters making cross claims
against each other. Toprakbank has paid Phoenix $550,000 under the contract and
has requested a refund of this money. Phoenix receivables from Toprakbank exceed
$1.3 million, and Phoenix has requested payment of this amount, plus future
support fees under the contract. The parties are in negotiation to resolve the
dispute. The contract calls for arbitration of disputes; however, no arbitration
or other action has been filed by either party.

         Demirbank. In June of 2000, Phoenix received notice from Demirbank
T.A.S., one of its customers in Turkey, that it has canceled its implementation
of the Phoenix System. To date Demirbank has paid Phoenix over $4.6 million.
Phoenix receivables from Demirbank currently exceed $900,000. No demand has been
received from Demirbank. Phoenix has requested payment of all receivables due.
The parties are in negotiation to resolve the dispute. The contract calls for
arbitration of disputes; however, no arbitration or other action has been filed
by either party.

DISCUSSIONS WITH LONDON BRIDGE

         In February 2000, London Bridge Software Holdings plc purchased 861,623
shares of Phoenix common stock for $5,000,000. This acquisition made London
Bridge a 9.16% equity owner in Phoenix as of the transaction date. In connection
with such purchase, Phoenix entered into an agreement with London Bridge to
market one of its products called "Vectus."

         On August 22, 2000, we entered into an exclusivity agreement with
London Bridge, which among other things, provided for a 30-day period of
exclusivity during which the parties agreed to work towards definitive
agreements regarding an acquisition of Phoenix by London Bridge. On September
22, 2000, Phoenix and London Bridge extended the period of exclusivity through
October 8, 2000, and agreed to negotiate in good faith with respect to the
execution by that date of a definitive agreement providing for the acquisition
of Phoenix by London Bridge and the extension by London Bridge of a working
capital line of credit of up to $10 million for interim financing. On October 7,
2000, the parties agreed to extend the exclusivity period through October 31,
2000 on the same terms. Drafts of acquisition

                                       22
<PAGE>   29
documents have been circulated for comment, and we are continuing our
discussions and negotiations with London Bridge concerning the potential
acquisition and interim financing. Consummation of any transaction, however, is
contingent on several conditions, including resolution of the pending purported
class action lawsuit and successful completion of due diligence.

RESTATEMENT OF FINANCIAL RESULTS

         Phoenix announced on August 23, 2000 that it was reviewing its revenue
recognition policies and might be required to restate its prior financial
results, and would be delayed in finalizing its 10-Q for the second quarter of
2000 as a result. This 10-K/A has been filed as a result of that restatement.

NASDAQ TRADING HALT

         On August 23, 2000, the Nasdaq Stock Market halted trading in our
common stock at the last reported price of $3.00 per share. Trading in our
common stock will remain halted until we have satisfied Nasdaq's request for
additional information primarily regarding accounting issues identified in our
press release dated August 22, 2000. Nasdaq also indicated that it would delist
our common stock from trading on the Nasdaq National Market at the opening of
business on September 1, 2000, because of our failure to timely file our June
30, 2000 Form 10-Q, unless we appealed Nasdaq's decision. We timely requested an
appeal, and appeared at a hearing before the Nasdaq Listing Qualifications Panel
on September 22, 2000. The Listing Qualifications Panel stated that if Phoenix
failed to file its restated financial results and required periodic reports on
or before October 20, 2000, then our common stock would be delisted at that
time. We are fully cooperating with Nasdaq and do not expect that the
restatement of our financial statements will impact our ability to maintain
compliance with Nasdaq's quantitative listing requirements.

         Any delisting by Nasdaq would likely have an adverse and material
effect on the price of our common stock and on the ability of our shareholders
to sell their shares. Such delisting could also adversely affect our ability to
obtain additional debt or equity financing and may result in a reduction in the
amount and quality of security analysts' and news media's coverage of our
business operations. There can be no assurance that our actions will be
successful to maintain listing on the Nasdaq National Market.

WORKFORCE REDUCTION AND REORGANIZATION OF OPERATIONS

         On May 11, 2000, we initiated cost saving measures by eliminating open
positions and terminating approximately 15% of our existing workforce. The cost
of salaries and employee benefits for the terminated employees was approximately
$3.5 million on an annualized basis. Severance-related expenses in connection
with these terminations were approximately $200,000. Following this workforce
reduction, the announcement of the restatement of our financial results, and the
trading halt imposed by Nasdaq, Phoenix has experienced higher than normal
attrition in its employee base.


                                       23
<PAGE>   30

         As of September 30, 2000 Phoenix had 275 employees and contract
workers, of which 99 were engaged in research and development (including
research projects and project development), 64 in U.S. sales, implementation,
training and support, 85 in international sales, implementation, training and
support, 2 in corporate marketing, 18 in finance and administration, and 7 in
executive management. This represents a significant reduction in staff since the
end of 1999 in all areas including sales, development, and support. Phoenix has
also given notice to Siemens in Australia to reduce the number of development
contractors by an additional 17 before the end of the year. Phoenix is not
currently hiring additional employees or expanding its sales or operations. All
of our executive officers, other than William Zayas and Gregory Blalack who
joined us in 2000, have employment agreements with Phoenix.

         In the third quarter of 2000, Phoenix moved most of its Orlando
operations into one building, and is currently seeking a sublessee for a portion
of its second, smaller facility there. Phoenix will accrue a liability in the
third quarter to recognize the estimated cost of carrying the unoccupied portion
of the facility until a sublessee can be found. In addition, Phoenix intends to
relocate its UK operations to a serviced office, and is currently in
negotiations to sublease its UK facilities to a third party.

TENDER OFFER

         In October, Phoenix learned that a mini-tender offer for 400,000 shares
of Phoenix stock at a cash price of $.50 per share, less distributions after
September 7, 2000, was commenced by Sutter Opportunity Fund 2, LLC ("Sutter").
Phoenix recommended to its shareholders that they reject this mini-tender offer
for following reasons:

-        By structuring its offer to acquire less than 5% of Phoenix's stock,
         Sutter's offer falls in the category of mini-tender offers that are
         exempt from the filing, disclosure and procedural requirement of
         Section 14(d) of the Securities Exchange Act of 1934 and Regulation 14D
         adopted by the SEC. The disclosure and procedural requirements of
         Section 14(d) and Regulation 14D are designed to provide protections to
         shareholders who receive a tender offer. However, in connection with
         the Sutter mini-tender offer, Phoenix shareholders will not receive
         those protections. The U.S. Securities and Exchange Commission has
         issued an investor alert regarding mini-tender offers, which can be
         accessed at the SEC's web site at
         www.sec.gov/consumer/keyword/tminiten.html. Among other things, the SEC
         recommends that before accepting such mini-tender offers, shareholders
         should determine the market price, determine the tender price, consult
         with their broker or financial advisor and determine where to get the
         best price if they want to sell. The SEC warns investors not to assume
         that a premium over fair value is being offered for their shares.


-        The Sutter offer was made on a "First-Come, First-Buy Basis," which
         tends to pressure shareholders to make a quick investment decision. If
         more than 400,000 shares should be tendered to Sutter, only those
         shareholders who responded most quickly would get to sell their shares
         to Sutter. Phoenix has entered into an exclusivity



                                       24
<PAGE>   31


         agreement with London Bridge Software Holdings plc. This exclusivity
         agreement has been extended to October 31, 2000. Phoenix and London
         Bridge agreed to negotiate in good faith with respect to the execution
         by that date of a definitive agreement providing for the acquisition of
         Phoenix by London Bridge and the extension by London Bridge of a
         working capital line of credit of up to $10 million for interim
         financing. Shareholders who tender prior to any public announcement of
         the execution of an agreement or the termination of negotiations will
         be making an investment decision without the benefit of knowing whether
         or not a definitive agreement had been executed or the price and terms
         that would apply to London Bridge's acquisition should be a definitive
         agreement be executed and consummated.

-        The price offered by Sutter, $.50 per share less distributions after
         September 7, 2000, is less than the $3.00 per share trading price of
         Phoenix stock on August 23, 2000, the date on which Nasdaq trading in
         Phoenix stock was halted. Further, the Sutter offer states that tenders
         of shares made pursuant to the offer are irrevocable (i.e., there are
         no withdrawal rights) unless the offer is amended (other than to
         increase the offer price or the number of shares that Sutter is willing
         to purchase) or extended beyond November 17, 2000. Although Nasdaq may
         not allow trading in Phoenix stock to resume in the future, Phoenix has
         requested that Nasdaq allow trading to be resumed. Phoenix does not
         know the prices at which Phoenix stock would trade should Nasdaq
         trading be resumed. However, if trading occurred at a price higher than
         Sutter's offer prior to the expiration of Sutter's offer, shareholders
         who had tendered their shares to Sutter could not then withdraw their
         shares and thus could not sell their shares in the Nasdaq market
         (unless the offer is amended or extended as described above).

CHANGES IN BUSINESS

         Downturn in Sales. Phoenix has closed 8 new contracts for the provision
of its core banking solution in the first 9 months of 2000, as compared to 13 in
the first 9 months of 1999, and 29 in the first 9 months of 1998. We believe
that the downturn in sales is attributable to:

         -        negative publicity from the purported class action lawsuit
                  described in "Item 3 - Legal Proceedings",

         -        negative postings on Phoenix's Yahoo! chat board,

         -        a slower than anticipated return to normal sales activity
                  following the year 2000 related downturn,

         -        prospect concerns about Phoenix's viability due to its recent
                  losses and decreasing capital reserves,

         -        the announced restatement of Phoenix's financials results, and

         -        the trading halt imposed by Nasdaq.

         Application Service Centers. Only one new bank has been added to
Phoenix's ASCs in 2000, Phoenix does not anticipate that it will open any
new centers in 2000, and no new centers are currently planned.

                                       25
<PAGE>   32
         Capital Resources. As described above, the events that depressed our
results of operations in 1999 have continued. Since December 31, 1999, sales are
down significantly and Phoenix has continued to lose money and use cash. At
September 30, 2000, Phoenix had approximately $4.1 million of cash and
marketable investment securities. If Phoenix does not complete the potential
transaction with London Bridge or otherwise identify new sources of capital
funding, Phoenix may not have sufficient capital resources to fund its
operations through the end of the year without significantly cutting back its
operations and expenses. As a result, Phoenix has included a "going concern"
note to its financial statements and Phoenix's auditors have included a "going
concern" modification in their audit opinion, both of which are included in
"Item 8 - Financial Statements and Supplementary Data."

         OCC. Our customers are being asked by the Office of the Comptroller of
the Currency to prepare contingency plans for replacing Phoenix as a vendor.

         Project Aurora. Due to lack of funding and employee attrition, Phoenix
has curtailed its development of its future upgrade identified as project
Aurora. Phoenix has written off the costs of this project which were previously
capitalized. The continuation and fruition of this project are currently at
significant risk.

         Professional Fees. Phoenix has incurred substantial professional fees
in relation to the defense of the class action lawsuit, the restatement of
Phoenix's financial results, and the negotiations with London Bridge. The
cumulative total of such fees is expected to exceed $2 million.

         New Software Releases. In February of 2000, Phoenix released version
2.5 of its EIS system. In June of 2000, Phoenix released version I 2.0.5 of the
international code line of the Phoenix core banking system. In October of 2000,
Phoenix released version 3.0 YE of its U.S. core banking system and Phoenix
International A.P. released version 3.6 of the Phoenix Trade Finance System.
Each of these new releases includes significant new functionality, new features,
and fixes for a significant number of previously identified bugs.

         New Marketing Partner in The Philippines. On March 31, 1999, Phoenix
entered into a new Cooperative Marketing agreement with Computer Data Vision,
Inc. (CDVI), pursuant to which Phoenix granted CDVI non-exclusive marketing
rights to Phoenix's products in The Philippines. CDVI brings significant
experience in the financial software area and is already working with two
customers in the region.

         Revision of Marketing Agreement with Towne Services, Inc. On June 28,
2000, Phoenix modified its marketing arrangement for software from Towne
Services, Inc. (TSI). In exchange for $365,000, Phoenix agreed to convert its
exclusive marketing rights for TSI's Collection Works product into non-exclusive
rights. Further, TSI paid Phoenix a total of $175,000 in consideration of the
sale of exclusive marketing rights to such product to an entity in Malaysia.
Phoenix retained non-exclusive rights to market the TSI product on revised
terms.

                                       26
<PAGE>   33
         Regency Systems, Inc. Telephone Banking System. In May of 2000, Phoenix
entered into an agreement with Regency Systems, Inc. pursuant to which Regency
granted Phoenix rights to market Regency's telephone banking system to Phoenix
customers. Additionally, in exchange for $61,000, Regency agreed to replace the
Phoenix telephone banking system for Phoenix customers at no charge to the
customer (other than one or two days worth of on site implementation fees), and
to provide support for such system at the rates previously agreed with Phoenix
for the Phoenix system.

         Relocation of Miami Application Service Center. In March of 2000,
Phoenix successfully relocated its Florida based Application Service Center
previously acquired from ERAS JV from Miami to its main offices in Orlando.

         E-commerce. In March of 2000, Phoenix entered into a marketing
arrangement with Stockwalk.com, Inc., pursuant to which Phoenix will integrate
Stockwalk.com's online brokerage services with Phoenix's Internet banking
products, allowing Phoenix's financial institution clients to offer their
customers seamless retail banking and co-branded online brokerage services. In
compliance with applicable rules and regulations, all brokerage services will be
provided and controlled directly by Stockwalk.com.

ITEM 2.  PROPERTIES

         See the information provided in Item 1 above entitled "Business --
Facilities" for information with respect to Phoenix's facilities.

ITEM 3.  LEGAL PROCEEDINGS

         Phoenix is subject to various claims and legal proceedings covering a
variety of matters arising in the ordinary course of its business activities.

         On November 23, 1999, a lawsuit was filed in the District Court for the
Middle District of Florida as a purported class action initiated by George
Taylor, a former Phoenix employee. Initially, Phoenix and our chief executive
officer were named as defendants. The lawsuit alleges, among other things, that
Phoenix and our chief executive officer improperly recognized revenues,
overstated revenues and failed to disclose that our revenues were allegedly in
decline, all of which allegedly caused our stock price to be higher than it
otherwise would have been during the class period. The lawsuit alleges that
these purported actions violate Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. On May 5, 2000, the plaintiffs filed
an Amended Complaint which, among other things, (1) adds four additional
investors as named plaintiffs and proposed class representatives; (2) expands
the purported class period to the period from May 5, 1997 to April 15, 1999; and
(3) adds Phoenix's president as an additional named defendant. Phoenix and the
other two defendants filed Motions to Dismiss, which were denied by the Court
without opinion in August 2000. The parties are beginning to conduct discovery.
Phoenix's insurance carriers have denied coverage for the claims in this
lawsuit. Phoenix is vigorously defending this case.

                                       27
<PAGE>   34
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted to a vote of our security holders during the
fourth quarter of the year ended December 31, 1999.


                                       28
<PAGE>   35
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Until August 23, 2000, our common stock traded on the Nasdaq Stock
Market under the symbol PHXX (see "Recent Events," below). As of March 15, 2000,
Phoenix International Ltd., Inc. had approximately 2,029 beneficial holders of
our common stock. Of that total, approximately 120 were shareholders of record.
To date, we have not paid cash dividends on our common stock. We currently
intend to retain earnings to support operations and finance expansion and
therefore do not anticipate paying cash dividends in the foreseeable future.

         The following table sets forth the high and low sales price information
as reported by Nasdaq during the last two fiscal years, as adjusted to reflect
our three-for-two stock split, effective May 18, 1998.


<TABLE>
<CAPTION>
  STOCK PRICE                       HIGH              LOW
<S>                              <C>               <C>
1998
First Quarter                    $    16.00        $    10.92
Second Quarter                        20.83             14.75
Third Quarter                         19.69             13.38
Fourth Quarter                        18.81             14.25
</TABLE>


<TABLE>
<CAPTION>
  STOCK PRICE                       HIGH              LOW
<S>                              <C>               <C>
1999
First Quarter                    $    15.25        $     4.87
Second Quarter                         8.50              4.62
Third Quarter                          6.62              4.00
Fourth Quarter                         4.53              3.50
</TABLE>


RECENT EVENTS

On August 23, 2000, the Nasdaq Stock Market halted trading in our common stock
at the last reported price of $3.00 per share. Trading in our common stock will
remain halted until we have satisfied Nasdaq's request for additional
information primarily regarding accounting issues identified in our press
release dated August 22, 2000. Nasdaq also indicated that it would delist our
common stock from trading on the Nasdaq National Market at the opening of
business on September 1, 2000, because of our failure to timely file our June
30, 2000 Form 10-Q, unless we appealed Nasdaq's decision. We timely requested an
appeal, and appeared at a hearing before the Nasdaq Listing Qualifications Panel
on September 22, 2000. The Listing

                                       29
<PAGE>   36
Qualifications Panel stated that if Phoenix failed to file its restated
financial results and required periodic reports on or before October 20, 2000,
then our common stock would be delisted at that time. We are fully cooperating
with Nasdaq and do not expect that the restatement of our financial statements
will impact our ability to maintain compliance with Nasdaq's quantitative
listing requirements.

Any delisting by Nasdaq would likely have an adverse and material effect on the
price of our common stock and on the ability of our shareholders to sell their
shares. Such delisting could also adversely affect our ability to obtain
additional debt or equity financing and may result in a reduction in the amount
and quality of security analysts' and news media's coverage of our business
operations. There can be no assurance that our actions will be successful to
maintain listing on the Nasdaq National Market.


ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data for the years ended December 31, 1999, 1998 and 1997
have been derived from the audited consolidated financial statements, as
restated (see Note 1 to the consolidated financial statements), of Phoenix. The
selected financial data for the years ended December 31, 1996 and 1995 have been
derived from the unaudited consolidated financial statements of Phoenix. There
data should be read in conjunction with the consolidated financial statements
and notes thereto included in Item 8.



                                       30
<PAGE>   37
                                           SELECTED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
                                                                                                                       Eleven months
                                                        Year ended      Year ended      Year ended      Year ended         ended
                                                       December 31,    December 31,    December 31,    December 31,    December 31,
                                                         1999(5)         1998(5)         1997(5)         1996(5)        1995(1)(5)
------------------------------------------------------------------------------------------------------------------------------------
                                                        (Restated)      (Restated)      (Restated)     (Restated and   (Restated and
STATEMENT OF OPERATIONS                                                                                  Unaudited)      Unaudited)
<S>                                                    <C>             <C>             <C>             <C>             <C>
Revenues:
     License fees and other                            $  9,642,778    $ 10,683,843    $  8,226,322    $  5,814,195    $  2,580,247
     Implementation, customer and software support
         and other service fees                           8,543,828       8,658,062       5,213,031       3,279,473       1,556,164
                                                       ------------    ------------    ------------    ------------    ------------
Total revenues                                           18,186,606      19,341,905      13,439,353       9,093,668       4,136,411

Expenses:
     Cost of license fees and other                       4,839,219       2,080,569       1,739,398         674,037         375,783
     Cost of implementation, customer
         and software support and other service fees      9,038,765       6,233,850       3,649,284       2,264,290       1,246,886
     Sales and marketing                                  5,295,021       4,440,521       3,264,055       1,377,353         983,290
     General and administrative                           6,292,817       5,219,078       2,748,680       1,822,871       1,058,190
     Product development                                 10,672,362       7,153,589       3,289,653       1,760,691         654,797
                                                       ------------    ------------    ------------    ------------    ------------
Total expenses                                           36,138,184      25,127,607      14,691,070       7,899,242       4,318,946

Other income (expense):
     Interest income                                      1,013,490       1,698,308         799,676         223,548         121,815
     Interest expense                                       (43,958)        (57,102)        (52,376)        (19,231)        (12,060)
     Other income (expense)                                 (34,860)         82,407         133,656          (2,242)         (4,252)
                                                       ------------    ------------    ------------    ------------    ------------
Income (loss) before minority interest and
  income taxes                                          (17,016,906)     (4,062,089)       (370,761)      1,396,501         (77,032)
Minority interest                                            54,248              --              --              --              --
                                                       ------------    ------------    ------------    ------------    ------------
Income (loss) before income taxes                       (16,962,658)     (4,062,089)       (370,761)      1,396,501         (77,032)
Income tax expense                                           32,264         348,265         394,970         481,666         255,999
                                                       ------------    ------------    ------------    ------------    ------------
Net income (loss)                                      $(16,994,922)   $ (4,410,354)   $   (765,731)   $    914,835    $   (333,031)
                                                       ============    ============    ============    ============    ============

Net income (loss) per share - basic                    $      (2.00)   $      (0.53)   $      (0.11)   $       0.18    $      (0.08)
                                                       ============    ============    ============    ============    ============
Net income (loss) per share - diluted                  $      (2.00)   $      (0.53)   $      (0.11)   $       0.16    $      (0.08)
                                                       ============    ============    ============    ============    ============
Weighted average shares outstanding - basic               8,518,323       8,378,784       6,698,317       5,110,173       4,394,276
                                                       ============    ============    ============    ============    ============
Weighted average shares outstanding - diluted             8,518,323       8,378,784       6,698,317       5,572,680       4,394,276
                                                       ============    ============    ============    ============    ============

OTHER DATA
Total product development expenditures(2)              $ 20,506,714    $ 11,705,993    $  5,132,271    $  2,966,515    $  1,788,172
Total personnel(3)                                              372             368             193             124              87
Implemented customers(4)                                        101              64              39              27              12
</TABLE>

<TABLE>
<CAPTION>
                                                                                             At
                                                       -----------------------------------------------------------------------------
                                                       December 31,    December 31,    December 31,    December 31,    December 31,
                                                          1999(5)         1998(5)         1997(5)         1996(5)         1995(5)
------------------------------------------------------------------------------------------------------------------------------------
                                                        (Restated)      (Restated)      (Restated)     (Restated and   (Restated and
                                                                                                         Unaudited)      Unaudited)
<S>                                                    <C>             <C>             <C>             <C>             <C>
BALANCE SHEET DATA
Current assets                                         $ 11,164,099    $ 17,300,800    $ 25,685,700    $  9,174,111    $  1,533,053
Total assets                                             36,536,138      45,813,004      45,777,521      12,083,167       3,228,289
Current liabilities                                      19,539,278      11,133,163       8,162,655       5,868,989       4,811,191
Long-term obligations                                       472,517         357,299         595,821         190,000              --
Total shareholders' equity (deficit)                     16,524,343      34,322,542      37,019,045       6,024,178      (1,582,902)
</TABLE>

(1)  During 1995 Phoenix changed its fiscal year end from January 31 to December
     31. Accordingly, the consolidated financial statements for the period ended
     December 31, 1995, include only eleven months of operations.

(2)  The total of capitalized software development costs, product development
     expenses and purchased software, including amounts expended for which
     Phoenix received funding under funded software development arrangements
     totalling $1,934,261 in 1999 and $428,025 in 1998.

(3)  All personnel, including contract workers and part-time employees.

(4)  Customers that have used a Phoenix product to support daily operations.
     Does not reflect mergers.

(5)  Selected financial and operating data has been restated. See Note 1 to the
     consolidated financial statements.





                                       31
<PAGE>   38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

You should read this discussion in conjunction with our consolidated financial
statements, as restated, and the related notes, which are included elsewhere in
this Annual Report. As discussed in the explanatory note at the front of this
report, and also in Note 1 to the financial statements included herein, Phoenix
has restated its financial results for 1997, 1998, and 1999. The following
discussion has been revised to reflect the results of such restatement.

REVENUES

Phoenix generates revenue primarily from software license sales and from related
services, including implementation and customization services, maintenance and
support activities and training services. Phoenix does not offer third parties
or any of its customers the right to return Phoenix's software products.
Phoenix's software license revenues are generated from licensing Phoenix's
products directly to end users and indirectly through resellers. Phoenix
recognizes revenues in accordance with provisions of Statement of Position 97-2,
"Software Revenue Recognition," in 1998 and 1999, Statement of Position 91-1,
"Software Revenue Recognition," in 1997 and prior periods, and SOP 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts" in all periods. The nature of each licensing arrangement determines
how revenues and the related costs are recognized:

-    Phoenix's customer contracts are multi-element arrangements that include a
     software license, consulting services, maintenance and customer training.
     Undelivered elements typically include maintenance, customer training,
     consulting and, when significant customization services are essential to
     the functionality of the software, the software license is also considered
     undelivered. As required under SOP 97-2, Phoenix allocates the contract
     value to the various elements of the contract using the fair value of the
     elements, regardless of any separate prices stated within the contract.

-    If the contract requires Phoenix to perform significant production,
     modification, or customization of software, revenue from the software
     license, its modification and implementation are recognized using the
     percentage-of-completion method of accounting based on estimates of effort
     expended for modification and implementation to total expected effort. The
     duration of contracts of this type typically ranges from three to twelve
     months.

-    Contracts to modify or customize software are evaluated to determine if
     they constitute funded software development arrangements of the type
     contemplated by SOP 97-2. If so, professional services revenue from those
     arrangements is credited first to the amount of any development costs
     capitalized, and the remainder is deferred. Thereafter, revenue is offset
     against any additional costs that are subsequently capitalized and any
     remaining amounts are recognized in income when the project is completed.

-    If the contract requires delivery of the product to the end user and
     Phoenix is not required to perform significant production, modification, or
     customization, Phoenix recognizes software license revenues under the
     provisions of SOP 97-2. Accordingly, such software license revenues are
     recognized when a noncancelable license agreement has been signed, the
     product has been shipped, the fees are fixed and determinable and
     collectability is probable.

-    If the contract requires delivery of the product to a third-party reseller
     or integrator, and Phoenix is obligated to provided other services to the
     reseller, Phoenix recognizes revenue over the period for which it is
     obligated to provide such services or, where collection is not probable,
     the lesser of over the service period or upon receipt of cash.

                                       32
<PAGE>   39
-    Services under international contracts are generally provided under time
     and materials arrangements. Services under domestic contracts are provided
     under fixed price and time and material arrangements. The resultant service
     revenues and expenses are recognized as services are performed, except in
     the case of funded development arrangements, when they are offset against
     development costs. Revenues from maintenance activities, which consist of
     fees for ongoing support and product updates, are recognized ratably over
     the term of the maintenance contract, typically five years, and the
     associated costs are expensed as incurred. When maintenance is sold with
     software licenses that are subject to the percentage-of-completion method
     of accounting, Phoenix accounts for the maintenance revenues separately
     from the license revenues. Phoenix utilizes objective evidence of the fair
     value to determine the value of the maintenance. This objective evidence of
     fair value consists of the renewal rate for the maintenance. Phoenix's
     resellers are also able to sell maintenance contracts to their end users
     for a separate fee payable to Phoenix. The objective evidence of fair value
     for maintenance revenues in reseller arrangements is the same as the
     objective evidence when the sale is directly between Phoenix and an end
     user.

-    Cost of software license revenues includes the cost of the media, product
     packaging, documentation, and certain third-party royalties. In addition,
     Phoenix generally warrants its products to meet standard specifications for
     a period of 30 to 90 days following the delivery of the product to the
     customer.

-    Cost of service, maintenance, and other revenues consists of compensation
     and related overhead costs for personnel engaged in consulting, training,
     maintenance and support activities, as well as costs for third-party
     consultants utilized in providing such services. Provisions for estimated
     losses on uncompleted contracts are made in the period in which such losses
     are determined. Changes in contract performance and estimated profitability
     may result in revisions to costs and revenues and are recognized in the
     period in which the revisions are determined; the effects of which may be
     material. Costs and estimated earnings in excess of billings have not been
     recognized in the accompanying consolidated balance sheets.

MARKETS

We market the Phoenix System both in the United States and internationally. In
the U.S., we have two different kinds of customers: financial institutions who
license our software and operate it themselves on an "in-house" basis, and
financial institutions who rely on us to host and manage the software for them
through our application service centers, or "ASCs." We have only recently
entered the ASC market, and to date have only a limited number of customers. Our
in-house target market includes financial institutions with assets in the range
of $100 million to $3 billion (over 4,000 institutions), and our ASC target
market includes financial institution with assets of less than $300 million
(over 9,000 institutions). As these markets overlap to some extent, our total
potential target market in the U.S. consists of approximately 10,000 financial
institutions.

Internationally, we also have two different types of customers: retail-oriented
financial institutions with up to 300 branches and/or two million accounts,
which use our software for all of their operations, and larger institutions,
which use our software only for particular divisions and/or regional operations.

We intend to pursue potential customers in all of our markets by increasing our
direct and indirect distribution channels. Historically, the majority of our
revenue has come from our direct sales force. We believe that in the future our
revenue will increasingly come from sales made by our marketing agents,
strategic partners, and other indirect sales channels, particularly in the
international market. Our gross margins and the composition of our revenue and
expenses will vary depending on the relative proportions of direct and indirect
sales. We do not believe, however, that the difference in the margins obtained
from direct and indirect sales will have a material adverse effect on our
business, operating results, or financial condition.

COMPETITION

We have experienced intense competition in our markets and expect increased
competition from many sources. Many of our competitors have significantly
greater resources and operating histories than we do. We intend to invest
significantly in product development and other aspects of our business to stay
competitive. We believe that the banking software market for financial
institutions is diffuse with several barriers to entry, including costs of entry
and time to market. We believe that the use of client/server technology such as
the Phoenix System and the other products we offer will continue to gain market
share in the financial services industry, displacing older "legacy" hardware and
software systems for at least the next several years. Although client/server
technology is rapidly evolving, the open architecture design of the Phoenix
System allows us to adapt to and incorporate changing technologies. We intend to
maintain our leadership position by integrating new technologies, adding new
applications, and enhancing and increasing the functionality of our existing
applications.


                                       33

<PAGE>   40
FLUCTUATIONS IN FINANCIAL RESULTS

Our quarterly and annual operating results have varied significantly in the past
and may vary significantly in the future. Factors that may cause our future
operating results to vary include, but are not limited to:

-    whether adverse market conditions and other factors that hindered our sales
     in 1999 continue to impact our efforts;

-    the size and timing of significant orders;

-    the mix of direct and indirect sales;

-    the mix and timing of U.S. and foreign sales;

-    the manner in which revenue from new orders is recognized as a result of
     the application of generally accepted accounting principles;

-    possible delays or other problems in new product announcements;

-    changes in our pricing policies and those of our competitors;

-    possible delays or other problems in the development, implementation, and
     release of our products and enhancements;

-    the distraction of management's time, adverse impact on sales and marketing
     efforts, and possible increased costs due to pending litigation;

-    whether we will have sufficient capital to satisfy concerns of prospects;

-    resolution of customer disputes;

-    changes in our strategy and operating expenses; and

-    competition and general economic factors.

Product revenues are difficult to forecast because the market for client/server
application software products is evolving and affected by many different
factors, including general considerations beyond our control such as the recent
slowdown attributable to Year 2000 concerns. Our sales cycle varies
substantially from customer to customer and can exceed 12 months in some cases.
In addition, license fee revenue from any particular contract can be recognized
in multiple ways, which can cause significant variations in the recognition of
revenue from customer to customer. Depending on how the contract is structured,
the terms of each transaction, and other factors, license fees can be recognized
immediately upon execution of the contract (up front), over the period required
to implement the software for the customer (over 3 to 12 months), or over the
life of the contract (up to five years). Therefore we do not believe that
quarter-to-quarter comparisons of our results of operations can or should be
relied upon as indications of our future performance.

RESULTS OF OPERATIONS

The following table shows the percentage of total revenues represented by some
of the line items in our consolidated statement of operations for the periods
indicated.

<TABLE>
<CAPTION>
                                                                       Percent of Total Revenues
                                                               -----------------------------------------
                                                                1999              1998              1997
                                                                ----              ----              ----
<S>                                                            <C>               <C>               <C>
Revenues:
     License fees and other                                     53.0%             55.2%             61.2%
     Implementation, customer and software support
        and other service fees                                  47.0%             44.8%             38.8%
                                                               -----------------------------------------
         Total revenues                                        100.0%            100.0%            100.0%

Expenses:
     Cost of license fees and other                             26.6%             10.8%             12.9%
     Cost of implementation, customer and software
         support and other service fees                         49.7%             32.2%             27.2%
     Sales and marketing                                        29.1%             23.0%             24.3%
     General and administrative                                 34.6%             27.0%             20.5%
     Product development                                        58.7%             37.0%             24.5%
                                                               -----------------------------------------
         Total expenses                                        198.7%            129.9%            109.4%

Other income (expense):
     Interest income                                             5.6%              8.8%              6.0%
     Interest expense                                           (0.2)%            (0.3)%            (0.4)%
     Other income (expense)                                     (0.2)%             0.4%              1.0%
                                                               -----------------------------------------
Loss before minority interest and income taxes                 (93.3)%           (21.0)%            (2.8)%
Minority interest                                                0.2%              0.0%              0.0%
                                                               -----------------------------------------
Loss before income taxes                                       (93.1)%           (21.0)%            (2.8)%
Income tax expense                                               0.2               1.8%              2.9%
                                                               -----------------------------------------
Net loss                                                       (93.3)%           (22.8)%            (5.7)%
                                                               =========================================
</TABLE>


                                       34
<PAGE>   41
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999, TO THE YEAR ENDED DECEMBER 31,
1998

Revenues. Total revenues were $18.2 million in 1999, representing a 6% decline
from $19.3 million in 1998. License fee revenues decreased from $10.7 million to
$9.6 million from 1998 to 1999, while service fee revenues decreased from $8.7
million to $8.5 million over the same period. New contracts to license and
implement the Phoenix System were signed with 18 customers in 1999 compared with
38 customers in 1998, and license fees of approximately $7.7 million were
contracted in 1999 compared with license fees of approximately $16.0 million
contracted in 1998. Since a significant portion of our license fees are deferred
under the provisions of SOP 97-2, there is often a lag between the signing of a
contract and the recognition of the related license fee revenue. However, we
believe the decrease in contracts signed was largely attributable to an
industry-wide slowdown in software sales caused by delays in purchase decisions
related to the Year 2000 and to the adverse impact on sales of publicity related
to litigation against us. The 10% decline in license fee revenue resulted from
the decreased number of new contract signings in 1999, almost entirely offset by
the recognition of license fee revenue relating to contacts executed in prior
periods. Service fee revenue declined 1% from 1998 to 1999, as a result of the
decreased level of contract signings, somewhat offset by increased service
activity in 1999 under customer arrangements entered into in prior years.
Customer and software support fees increased 50% from $2.2 million in 1998 to
$3.3 million in 1999 as the base of implemented customers continued to grow, and
a record number of system implementations were completed in 1999. International
revenues increased 12% from $8.3 million in 1998 to $9.3 million in 1999, and
represented 51% of 1999 revenues compared to 43% of 1998 revenues. The increase
in international sales is a result of our expanded presence, through new
customer sites and sales offices, in international markets.

Expenses. Our operating expenses increased 44% to $36.1 million in 1999 from
$25.1 million in 1998.

Cost of license fees and commissions from the sale of third party products
increased 133% to $4.8 million in 1999 from $2.1 million in 1998. The increase
was mainly attributable to higher amortization of capitalized software
development costs, which rose from $1.1 million in 1998 to $2.4 million in 1999,
a write-down of $331,000 of purchased software acquired to assist in the
development of our internet banking product and $100,000 in prepaid royalties
deemed to be impaired in 1999, increases in royalties paid to third parties and
commissions paid to marketing agents related to international sales of the
Phoenix System.

Cost of service fees increased 45.0% to $9.0 million in 1999 from $6.2 million
in 1998 primarily as a result of increased staffing levels, travel and personnel
related costs required to support an increased number of installations and
customers under support agreements. Cost of service fees consists primarily of
personnel-related costs incurred in providing implementation, training, and
customer support services.

Sales and marketing expenses increased 19.2% to $5.3 million in 1999 from $4.4
million in 1998, primarily as a result of an increase of $590,000 in staffing,
travel, and personnel-related costs, $170,000 of expenses related to a new
Singapore sales office, and increased advertising and marketing costs of
$140,000.

General and administrative expenses increased 20.6% to $6.3 million in 1999 from
$5.2 million in 1998, primarily as a result of increases of $486,000 in
professional service fees, $150,000 in depreciation and $300,000 in the
provision to the allowance for doubtful accounts.

Product development expenses increased 49.2% to $10.7 million in 1999 from $7.2
million in 1998. Product development expenses increased primarily as a result of
increased personnel-related costs in the United States to support development of
the U.S. and international code lines, and in our new Australian software
development center, which is developing the credit union version of the code
line.

Other Income (Expense). Interest income was $1.0 million in 1999 compared to
$1.7 million in 1998. Interest income decreased in 1999 primarily due to a
decrease in interest-yielding funds. Interest expense was $44,000 in 1999
compared to $57,000 in 1998.

Minority Interest. During 1999, we increased our ownership interest in Phoenix
International New York, Inc. (formerly Servers On-Line, Inc.) to 54% of the
outstanding common shares, which was in addition to the convertible preferred
stock position we acquired in 1998 for $300,000. Phoenix International New York
runs our Northeast application service center and had a net loss for fiscal year
1999. Minority interest of approximately $54,000 was recognized in 1999 to
reflect the portion of this loss attributable to the minority shareholders of
Phoenix International New York.

Income Tax Expense. In 1999, we had income tax expense of $32,000 compared to
income tax expense of $348,000 in 1998. In both years, tax expense consisted
primarily of foreign taxes. No benefit was recognized for our net operating
losses generated in either year as management determined that there is
significant uncertainty regarding our ability to utilize our net operating loss
carryforwards for the foreseeable future.

Net Loss. Net loss increased 386% to a $17.0 million loss for 1999 from a $4.4
million loss in 1998.


                                       35

<PAGE>   42
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998, TO THE YEAR ENDED DECEMBER 31,
1997

Revenues. Total revenues were $19.3 million in 1998, representing a 44% increase
from $13.4 million in 1997. License fee revenues increased from $8.2 million to
$10.7 million, from 1998 to 1999, while service fee revenues increased from $5.2
million to $8.7 million over the same period. New contracts to license and
implement the Phoenix System were signed with 38 customers in 1998 compared with
35 customers in 1997, and license fees of approximately $16.0 million were
contracted in 1998 compared with license fees of approximately $12.7 million
contracted in 1997. Since a significant portion of our license fees are deferred
under the provisions of SOP 97-2, there is often a lag between the signing of a
contract and the recognition of the related license fee revenue. The 30%
increase in license fee revenue resulted from the moderate increase in the
number of new contract signings in 1998, an increase in the number of high-value
contracts in 1998, and the recognition of license fee revenue relating to
contacts executed in prior periods. Service fee revenue increased 66% from 1997
to 1998 as a result of the increased level of contract signings and increased
service activity under customer arrangements entered into in the current year
and prior year. Customer and software support fees increased 83% from $1.2
million in 1997 to $2.2 million in 1998 as the base of implemented customers
continued to grow. International revenues increased 32% from $6.3 million in
1997 to $8.3 million in 1998, and represented 43% of 1998 revenues compared to
47% of 1997 revenues.

Expenses. Our operating expenses increased 71% to $25.1 million in 1998 from
$14.7 million in 1997.

Cost of license fees and other fees increased 20% to $2.1 million in 1998 from
$1.7 million in 1997. These costs increased mainly as a result of higher
amortization of capitalized software development costs, which rose from $0.6
million in 1997 to $1.1 million in 1998.

Cost of implementation, customer and software support, and other service fees
increased 71% to $6.2 million in 1998 from $3.6 million in 1997 as a result of
increased staffing levels required to support increased numbers of installations
and customers under support agreements.

Sales and marketing expenses increased 36% to $4.4 million in 1998 from $3.2
million in 1997, primarily as a result of increased staffing, travel, and
personnel costs related to our sales efforts.

General and administrative expenses increased 89.9% to $5.2 million in 1998 from
$2.7 million in 1997. The increase was primarily the result of $592,000 of
increased professional service fees; $500,000 of increased rent largely
associated with new facilities occupied in Orlando; $600,000 of increased
personnel-related costs, including employee bonuses, and an increase of $400,000
for the provision to the allowance for doubtful accounts.

Product development expenses increased 118% to $7.2 million in 1998 from $3.2
million in 1997. Product development expenses increased primarily as a result of
increased personnel-related costs in the United States to support development of
the U.S. and international code lines.

Other Income (Expense). Interest income was $1.7 million in 1998 compared to
$800,000 in 1997. Interest income increased in 1998 due to twelve full months of
income earned from interest bearing accounts in 1998, compared to five months in
1997. Interest income is primarily the result of income earned from the
investment of proceeds from our secondary public offering of common stock, which
we completed in August 1997. Interest expense was $57,000 in 1998 and $52,000 in
1997. Other income was $82,000 in 1998 compared to $134,000 in 1997, primarily
as a result of fulfilling obligations under an economic development grant and
realizing foreign exchange gains from the operations of two of our foreign
subsidiaries, Phoenix International A.P. Limited and Phoenix EMEA Limited.

Income Tax Expense. Income tax expense was $348,000 in 1998, compared to
$395,000 in 1997. In both years, tax expense consisted primarily of foreign
taxes. No benefit was recognized for our net operating losses generated in
either year as management determined that there is significant uncertainty
regarding our abilities to utilize our net operating low carryforwards for the
foreseeable future.

Net Loss. Net loss increased 430% to $4.4 million in 1998 from $0.8 million in
1997.


                                       36

<PAGE>   43

LIQUIDITY AND CAPITAL RESOURCES

We have historically funded our cash needs through existing cash and investment
balances, sales of our capital stock, interest on investments and, to a lesser
extent, through cash flow from operations. We have not relied on lines of credit
or other borrowings to fund our operations. At December 31, 1999, we had cash
and cash equivalents of $2.5 million, and long term investments of $9.0 million.
Long-term investments consist primarily of U.S. Treasury securities. For 1999,
net cash used by operations was $6,289,000.

Investing activities provided net cash of $5.4 million, which included $14.8
million from the sale of investments, reduced primarily by $10.1 million
invested in capitalized software development costs, $1.9 million in investment
purchases, $0.7 million for purchase of property and equipment, and $0.6 million
for the purchase of our applications service center and account processing
contracts. The prepayment of royalties, included in other assets, used $0.2
million of cash.

Financing activities provided $1,934,261 of cash from funded software
development arrangements and $140,000 of cash from the issuance of common stock,
and used $144,000 for the payment of capital lease obligations and $389,000 for
the payment of a promissory note. Working capital excluding deferred revenue of
$14,003,270, was $5.6 million as of December 31, 1999.

In February 2000, we sold 861,623 shares of our common stock to London Bridge
Software Holdings plc for a total purchase price of $5.0 million. Including the
cash from the sale of stock to London Bridge, we believe our cash balances,
investments, and cash flow from operations will not be sufficient to meet our
working capital, capital expenditure, and software development requirements at
least through 2000. We will require substantial additional funding in order to
continue to implement our business plan. Cash flows from operating activities
are dependent on continued advance payments from customers, and we cannot be
sure that we will continue to receive these payments or that we will continue to
receive these payments in advance of contract performance on the same terms as
we have in the past. We anticipate that our operating and investing activities
will use cash in the future, due primarily to growth in operations and
development activities. Consequently, we will be required to obtain additional
equity or debt financing. Although we are currently in discussion to obtain
additional short term financing from London in anticipation of London Bridge
acquiring substantially all of the assets of Phoenix, if the London Bridge
transaction is delayed or does not close, additional funding will be required.
There is no assurance that such additional funding will be available on terms
favorable to Phoenix, or at all. These factors raise substantial doubt about the
ability of Phoenix to continue as a going concern. These statements are "forward
looking" statements which are subject to risks and uncertainties as discussed
below.


                                       37
<PAGE>   44
IMPACT OF NEW ACCOUNTING STANDARDS

Effective January 1, 2000, Phoenix adopted the provisions of SOP 97-2 that limit
what is considered vendor-specific objective evidence (VSOE) of the fair value
of the various elements in a multiple-element software arrangement to the price
charged when the same element is sold separately. Because of the structure of
Phoenix's contracts prior to October 1, 2000, Phoenix has determined that it
does not have VSOE, as defined in SOP 97-2, for all undelivered elements in its
software arrangements entered into between January 1, 2000 and October 1, 2000
(the date that Phoenix modified the structure of its contracts). As a result,
all contracts that include maintenance entered during that period will be
required to be recognized over the period Phoenix is to provide post contract
customer software support, generally five years.

In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative financial instruments and requires
recognition of derivatives in the statement of financial position to be measured
at fair value. Gains or losses resulting from changes in the value of
derivatives would be accounted for depending on the intended use of the
derivative and whether it qualifies for hedge accounting. This statement is
effective for our financial statements beginning in 2001. We are currently
studying the future effects of adopting this statement. However, due to our
limited use of derivative financial instruments, adoption of Statement No. 133
is not expected to have a significant effect on our financial position or
results of operation.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" and amended it
in March and June 2000 with respect to the effective dates. We are required to
adopt the provisions of this Bulletin in our fourth fiscal quarter of 2000 and
are currently in the process of assessing the impact of its adoption. While
Staff Accounting Bulletin No. 101 does not supersede the software industry
specific revenue recognition guidance, which Phoenix believes it is in
compliance with, once complete guidance is disseminated, this bulletin may
change current interpretations of software revenue recognition requirements. We
do not expect the adoption of Staff Accounting Bulletin No. 101 to have a
significant effect on our financial position or results of operations.

YEAR 2000 ISSUES

We discussed in our reports filed in 1998 and 1999 the nature and progress of
our plans to become Year 2000 ready. In late 1999, we completed the remediation
and testing of our systems. As a result of those planning and implementation
efforts, we experienced no significant disruptions in mission-critical
information technology and non-information technology systems due to the Year
2000, and believe our systems successfully responded to the Year 2000 date
change. We are not aware of any material problems resulting from Year 2000
issues, either with our products, our internal systems, or the products and
services of third parties used in our operations. We will continue to monitor
our mission critical computer applications and those of

                                       38
<PAGE>   45
our suppliers and vendors throughout the Year 2000 to help ensure that we
promptly address any latent Year 2000 matters that may arise.

INFLATION

The effects of inflation on our operations were not significant during the
periods presented in the financial statements accompanying this Annual Report.
Generally, throughout the periods discussed, any increases in revenue have
resulted primarily from higher volumes, rather than price increases.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK

We do not use derivative financial instruments in our operations or investments.
While we have significant international operations, our contracts are all
written for payments to be made in U.S. Dollars and, therefore, we do not
believe we are materially subject to fluctuations in foreign currency exchange
rates. Our short term and long term investments are principally in a single
financial institution with significant assets and consist of U.S. Treasury bills
and notes with maturities of less than three years. We do not consider the
interest rate risk for these investments to be material. We do not have any
material credit facilities and, therefore, do not have a significant risk due to
potential fluctuations in interest rates for loans at this time. Changes in
interest rates could decrease our interest income and could make it more costly
to borrow money in the future and may impede our future acquisition and growth
strategies if management determines that the costs associated with borrowing
funds are too high to implement these strategies.




                                       39
<PAGE>   46
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Index to Consolidated Financial Statements and Supplementary Financial Data

<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                              ----
<S>                                                                                                           <C>
Consolidated Financial Statements:...................................................................         41

         Consolidated Balance Sheets as of December 31, 1999 and 1998................................         41

         Consolidated Statements of Operations for the years ended December 31,
              1999, 1998 and 1997....................................................................         42

         Consolidated Statements of Shareholders' Equity/(Deficit) for the years
              ended December 31, 1999, 1998 and 1997.................................................         43

         Consolidated Statements of Cash Flows for the years ended December 31,
              1999, 1998 and 1997....................................................................         44

         Notes to Consolidated Financial Statements for the years ended
              December 31, 1999, 1998 and 1997.......................................................         45

Report of Independent Auditors ......................................................................         66
</TABLE>



                                       40
<PAGE>   47
                                                     CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                         December 31,        December 31,
                                                                                             1999                1998
                                                                                         ------------        ------------
                                                                                          (Restated)          (Restated)
<S>                                                                                      <C>                 <C>
ASSETS
Current assets:
       Cash and cash equivalents                                                         $  2,484,977        $  3,795,962
       Investments available for sale                                                              --           5,995,640
       Accounts receivable, net of allowance for doubtful accounts
            of $1,085,000 and $673,000 at December 31, 1999 and 1998, respectively          8,039,819           6,969,793
       Prepaid expenses and other current assets                                              639,303             539,405
                                                                                         ------------        ------------
Total current assets                                                                       11,164,099          17,300,800

Long-term investments, available for sale                                                   8,964,771          16,533,770
Property and equipment:
       Computer equipment and purchased software                                            5,087,369           4,245,907
       Furniture, office equipment and leasehold improvements                               2,481,248           2,307,329
                                                                                         ------------        ------------
                                                                                            7,568,617           6,553,236
       Accumulated depreciation and amortization                                           (3,964,923)         (2,224,508)
                                                                                         ------------        ------------
                                                                                            3,603,694           4,328,728
Capitalized software costs, net of accumulated amortization of
       $4,099,000 and $2,182,000 at December 31, 1999 and 1998, respectively               10,077,480           5,770,556
Goodwill and other intangible assets, net                                                   1,210,268                  --
Equity investment and other assets                                                          1,515,826           1,879,150
                                                                                         ------------        ------------
Total assets                                                                             $ 36,536,138        $ 45,813,004
                                                                                         ============        ============


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
       Accounts payable                                                                  $    905,395        $    597,260
       Accrued expenses                                                                     2,791,894           1,664,219
       Accrued contractor services                                                          1,683,496             830,933
       Capital lease, current portion                                                         155,223             142,051
       Deferred revenue                                                                    14,003,270           7,898,700
                                                                                         ------------        ------------
Total current liabilities                                                                  19,539,278          11,133,163

Capital lease, long-term portion                                                              199,870             357,299
Minority interest                                                                             272,647                  --

Commitments and contingencies

Shareholders' equity:
       Preferred stock, $0.01 par value:
            10,000,000 shares authorized, none issued and outstanding                              --                  --
       Common stock, $0.01 par value:
            50,000,000 shares authorized, 8,526,942 and 8,498,633 issued and
            outstanding at December 31, 1999 and 1998, respectively                            85,269              84,986
       Additional paid-in capital                                                          43,921,394          43,781,279
       Unrealized (losses) gains on investments available for sale                           (577,670)            366,005
       Retained deficit                                                                   (26,904,650)         (9,909,728)
                                                                                         ------------        ------------
Total shareholders' equity                                                                 16,524,343          34,322,542
                                                                                         ------------        ------------
Total liabilities and shareholders' equity                                               $ 36,536,138        $ 45,813,004
                                                                                         ============        ============
</TABLE>



See accompanying notes to consolidated financial statements.



                                       41
<PAGE>   48
                                           CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                    Restated
                                                              ----------------------------------------------------
                                                               Year ended          Year ended          Year ended
                                                              December 31,        December 31,        December 31,
                                                                  1999                1998                1997
                                                              ------------        ------------        ------------
                                                               (Restated)          (Restated)          (Restated)
<S>                                                           <C>                 <C>                 <C>
Revenues:
       License fees and other                                 $  9,642,778        $ 10,683,843        $  8,226,322
       Implementation, customer and software support
            and other service fees                               8,543,828           8,658,062           5,213,031
                                                              ------------        ------------        ------------
Total revenues                                                  18,186,606          19,341,905          13,439,353

Expenses:
       Costs of license fees and other                           4,839,219           2,080,569           1,739,398
       Costs of implementation, customer and
            software support and other service fees              9,038,765           6,233,850           3,649,284
       Sales and marketing                                       5,295,021           4,440,521           3,264,055
       General and administrative                                6,292,817           5,219,078           2,748,680
       Product development                                      10,672,362           7,153,589           3,289,653
                                                              ------------        ------------        ------------
Total expenses                                                  36,138,184          25,127,607          14,691,070

Other income (expense):
       Interest income                                           1,013,490           1,698,308             799,676
       Interest expense                                            (43,958)            (57,102)            (52,376)
       Other income (expense)                                      (34,860)             82,407             133,656
                                                              ------------        ------------        ------------
Loss before minority interest and
  income taxes                                                 (17,016,906)         (4,062,089)           (370,761)
Minority interest                                                   54,248                  --                  --
                                                              ------------        ------------        ------------
Loss before income taxes                                       (16,962,658)         (4,062,089)           (370,761)
Income tax expense                                                  32,264             348,265             394,970
                                                              ------------        ------------        ------------
Net loss                                                      $(16,994,922)       $ (4,410,354)       $   (765,731)
                                                              ============        ============        ============

Net loss per share - basic and diluted                        $      (2.00)       $      (0.53)       $      (0.11)
                                                              ============        ============        ============

Weighted average shares outstanding - basic and diluted          8,518,323           8,378,784           6,698,317
                                                              ============        ============        ============
</TABLE>


See accompanying notes to consolidated financial statements.




                                       42
<PAGE>   49
                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)

                       (RESTATED)

<TABLE>
<CAPTION>
                                                                                            Unrealized
                                                                                              Gains/
                                                                                           (Losses) on
                                              Common Stock                                 Investments
                                               All Classes      Additional       Stock      Available                      Total
                                           ------------------    Paid-In     Subscription      for        Retained     Shareholders'
                                             Shares   Amount     Capital      Receivables      Sale       (Deficit)       Equity
                                           ---------  -------  ------------   -----------  -----------  ------------   ------------
<S>                                        <C>        <C>      <C>           <C>           <C>          <C>            <C>
BALANCE, DECEMBER 31, 1996                 5,758,365  $57,583  $10,708,061   $  (110,683)   $      --   $ (4,630,783)  $  6,024,178
    Common stock issued in
      connection with a public offering,
      net of issuance costs                2,211,000   22,110   31,508,362            --           --             --     31,530,472
    Issuance of common stock from
      exercise of stock options               68,622      686      234,915            --           --             --        235,601
    Payment on employee stock
      receivable                                  --       --           --        97,323           --             --         97,323
    Issuance of common stock in
      connection with acquisition            115,140    1,152       (1,089)           --           --             --             63
    Retained deficit recorded in
      connection with acquisition                 --       --           --            --           --       (102,861)      (102,861)
    Net loss                                      --       --           --            --           --       (765,731)      (765,731)
                                           ---------  -------  -----------   -----------    ---------   ------------   ------------
BALANCE, DECEMBER 31, 1997                 8,153,127   81,531   42,450,249       (13,360)          --     (5,499,375)    37,019,045
    Comprehensive income:
      Net loss                                    --       --           --            --           --     (4,410,354)    (4,410,354)
      Other comprehensive income:
        Unrealized appreciation on
        certain securities available for
        sale                                      --       --           --            --      366,006             --        366,006
                                                                                                                       ------------
        Comprehensive income                      --       --           --            --           --             --     (4,044,348)
    Issuance of common stock from
      exercise of stock options              345,506    3,455    1,331,030            --           --             --      1,334,485
    Payment on employee stock
      receivable                                  --       --           --        13,360           --             --         13,360
                                           ---------  -------  -----------   -----------    ---------   ------------   ------------
BALANCE, DECEMBER 31, 1998                 8,498,633   84,986   43,781,279            --      366,006     (9,909,729)    34,322,542
    Comprehensive income:
      Net loss                                    --       --           --            --           --    (16,994,922)   (16,994,922)
      Other comprehensive loss:
        Unrealized depreciation on
        certain securities available for
        sale                                      --       --           --            --     (943,675)            --       (943,675)
                                                                                                                       ------------
        Comprehensive loss                        --       --           --            --           --             --    (17,938,597)
    Issuance of common stock from
      exercise of stock options and
      employee stock purchase plan            28,309      283      140,115            --           --             --        140,398
                                           ---------  -------  -----------   -----------    ---------   ------------   ------------
BALANCE, DECEMBER 31, 1999                 8,526,942  $85,269  $43,921,394   $        --    $(577,670)  $(26,904,650)  $ 16,524,343
                                           =========  =======  ===========   ===========    =========   ============   ============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       43
<PAGE>   50
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                 Year ended         Year ended         Year ended
                                                                                December 31,       December 31,       December 31,
                                                                                    1999               1998               1997
                                                                                ------------       ------------       ------------
                                                                                 (Restated)         (Restated)         (Restated)
<S>                                                                             <C>                <C>                <C>
OPERATING ACTIVITIES
Net loss                                                                        $(16,994,922)      $ (4,410,354)      $   (765,731)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
      Depreciation and amortization                                                3,711,829          2,363,026          1,150,545
      Provision against accounts receivable                                          849,978            547,225            140,000
      Revenue under economic development grant                                            --            (95,000)           (95,000)
      Minority interest                                                              (54,248)                --                 --
Changes in operating assets and liabilities, net of effects of purchase of
    business:
      Accounts receivable                                                         (2,125,496)        (3,178,383)        (3,828,899)
      Prepaid expenses and other current assets                                      (46,613)          (514,581)           (59,195)
      Accounts payable                                                               285,870            (27,664)           240,231
      Accrued expenses                                                             1,980,238            664,712            908,400
      Deferred revenue                                                             6,104,570          2,321,406          2,203,320
                                                                                ------------       ------------       ------------
Net cash provided by (used in) operating activities                               (6,288,794)        (2,329,613)          (106,329)

INVESTING ACTIVITIES
Sales of investments, available for sale                                          14,801,573          2,058,451                 --
Purchases of investments, available for sale                                      (1,866,094)        (3,428,841)       (18,062,189)
Purchases of property and equipment                                                 (696,911)        (3,235,769)        (1,250,085)
Capitalized software development costs                                            (8,171,613)        (3,947,159)        (1,715,811)
Acquisition of business, net of cash acquired                                       (255,548)                --                 --
Acquisition of service bureau contracts                                             (375,000)                --                 --
Decrease (increase) in other assets                                                       --                 --         (1,369,261)
                                                                                ------------       ------------       ------------
Net cash provided by (used in) investing activities                                3,436,407         (8,553,318)       (22,397,346)

FINANCING ACTIVITIES
Proceeds from funded software development
    arrangements                                                                   1,934,261            428,025                 --
Repayment of promissory note                                                        (389,000)                --                 --
Capital lease payments                                                              (144,257)          (131,468)           (96,182)
Net proceeds from issuance of common stock                                           140,398          1,334,485         31,766,136
Cash payments for stock subscription receivables                                          --             13,360             97,323
                                                                                ------------       ------------       ------------
Net cash provided by (used in) financing activities                                1,541,402          1,644,402         31,767,277

Net increase (decrease) in cash and cash equivalents                              (1,310,985)        (9,238,529)         9,263,602
Cash and cash equivalents at beginning of period                                   3,795,962         13,034,491          3,770,889
                                                                                ------------       ------------       ------------
Cash and cash equivalents at end of year                                        $  2,484,977       $  3,795,962       $ 13,034,491
                                                                                ============       ============       ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
      Interest                                                                  $     38,501       $     54,352       $     50,597
                                                                                ============       ============       ============
      Income taxes                                                              $    213,120       $     43,727       $     24,500
                                                                                ============       ============       ============

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Equipment financed by capital lease                                             $         --       $         --       $    727,000
                                                                                ============       ============       ============
Purchase of developed software through forgiveness of receivable                $         --       $         --       $    286,000
                                                                                ============       ============       ============
Investment in common stock through cancellation of prepaid
royalties                                                                       $         --       $    650,000       $         --
                                                                                ============       ============       ============
</TABLE>



See accompanying notes to consolidated financial statements.



                                       44
<PAGE>   51
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. RESTATEMENT OF FINANCIAL STATEMENTS

As a result of the nonpayment of amounts due under certain software license
arrangements that had been previously recognized as revenue, Phoenix conducted a
comprehensive review of its software licensing arrangements and the recognition
of revenue for the years 1997 through 1999. As a result of that review, Phoenix
determined that, in certain instances, revenue that had been recognized at the
time the software was delivered should have been recognized either as payments
became due, as the related services were performed, upon completion of all
services required under the arrangements or in some instances should have been
accounted for as funded development arrangements. In addition, Phoenix has
determined that certain software development costs were capitalized prior to the
related software reaching technological feasibility, or were otherwise
capitalized in error. As a result, the financial statements for the years ended
December 31, 1999, 1998, and 1997 have been restated.

The effects of the restatement of Phoenix's financial statements for the years
ending December 31, 1999, 1998, and 1997 are as follows (in thousands except for
per share amounts):


<TABLE>
<CAPTION>
                                                       1999                           1998                           1997
                                                       ----                           ----                           ----
                                           As Reported     As Restated     As Reported    As Restated     As Reported    As Restated
                                           -----------     -----------     -----------    -----------     -----------    -----------
<S>                                        <C>             <C>             <C>            <C>             <C>            <C>
Capitalized software costs, net             $ 14,540        $ 10,077        $  7,155       $  5,770
Total assets                                $ 44,523        $ 36,536        $ 59,502       $ 45,813
Deferred revenue                            $  4,576        $ 14,003        $  2,649       $  7,898
Retained earnings (accumulated deficit)     $(11,377)       $(26,905)       $  4,298       $ (9,910)
Shareholders' equity                        $ 34,481        $ 16,524        $ 50,811       $ 34,322

License fees and other                      $  7,749        $  9,642        $ 16,034       $ 10,683        $ 12,664       $  8,226
Implementation, customer and software
     support and other service fees         $ 11,901        $  8,543        $  9,903       $  8,658        $  5,178       $  5,213
Total revenues                              $ 19,651        $ 18,186        $ 25,938       $ 19,341        $ 17,843       $ 13,439
Total expenses                              $ 35,159        $ 36,138        $ 23,921       $ 25,127        $ 14,762       $ 14,691
Net income (loss)                           $(15,675)       $(16,994)       $  2,431       $ (4,410)       $  3,040       $   (766)
Net income (loss) per share - basic         $  (1.84)       $  (2.00)       $   0.29       $  (0.53)       $   0.45       $  (0.11)
Net income (loss) per share - diluted       $  (1.84)       $  (2.00)       $   0.27       $  (0.53)       $   0.41       $  (0.11)
</TABLE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Phoenix International Ltd., Inc., was formed on January 11, 1993, and designs,
develops, markets, and supports highly adaptable, enterprise-wide client/server
application software for the

                                       45
<PAGE>   52
financial services industry and provides account processing services for
financial institutions using such software. Phoenix's primary market is small to
mid-sized financial institutions.

Basis of presentation

The accompanying financial statements, as restated, have been prepared assuming
that Phoenix will continue as a going concern. These financial statements have
been restated for the matters discussed in Note 1. Phoenix suffered a
significant loss in 1999 and used a significant amount of cash in operations in
1999, both prior to the restatement of its financial statements. Management
believed the 1999 results were attributable to the adverse effect on customers'
purchase decisions related to their concerns about the effect of Year 2000, the
publicity related to certain adverse postings on Yahoo!, and certain litigation
against Phoenix, and believed such factors would not continue into 2000.

Actual results in 2000 have not improved as expected by management, sales have
continued to lag, and the Company has continued to use cash to fund operations.
Management believes the factors discussed above, additional adverse publicity
caused by the restatement of its financial statements as discussed in Note 1,
and its continued losses and decline in cash reserves have continued to depress
2000 operating results and adversely impact Phoenix's liquidity. As a result, at
the time of the restatement of its 1999 financial statements, substantial doubt
exists as to whether Phoenix will be able to continue as a going concern without
additional debt or equity financing.

Phoenix is currently in discussions with London Bridge Group of North America,
Inc. regarding the possible acquisition of Phoenix and believes that it will be
able to obtain a bridge loan from London Bridge in connection with the
acquisition that would be sufficient to satisfy its short term working capital
needs. However, if the acquisition does not take place Phoenix will need
additional financing to support its planned operations. If such financing cannot
be obtained Phoenix will be required to significantly curtail its operations.

The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Principles of Consolidation

The consolidated financial statements include the accounts of Phoenix, its
majority-owned subsidiary Phoenix International New York, Inc. (formerly Servers
On-Line, Inc.), and the following wholly-owned subsidiaries: Phoenix
International A.P. Limited in New Zealand, Phoenix EMEA Limited in the United
Kingdom, Phoenix International (Australia) Pty. Limited, Phoenix International
Software (Singapore) Pte. Ltd., and Phoenix FSC Inc., a company domiciled in the
U.S. Virgin Islands. All significant intercompany balances and transactions have
been eliminated.

Minority interests represent outside shareholders' 46% ownership of the common
stock of Phoenix International New York, Inc., a provider of bank processing and
consulting services in which Phoenix purchased a 54% interest during 1999. The
acquisition was recorded as a purchase and the earnings of Phoenix International
New York are included in our results of

                                       46
<PAGE>   53
operations from the date of the acquisition. The loss attributable to the
minority shareholder interest in 1999 was $54,248 and is included in minority
interest in the consolidated statements of operations.

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.

Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per
share:

<TABLE>
<CAPTION>
                                                               1999                1998               1997
                                                           ------------        ------------       ------------
<S>                                                       <C>                  <C>                <C>
          Numerator - net loss                             $(16,994,922)       $ (4,410,354)      $   (765,731)
                                                           ============        ============       ============

          Denominator for basic and diluted net loss
               per share - weighted average shares
               outstanding                                    8,518,323           8,378,784          6,698,317
                                                           ============        ============       ============

          Net loss per share - basic and diluted           $      (2.00)       $      (0.53)      $      (0.11)
                                                           ============        ============       ============
</TABLE>

Due to Phoenix's losses, potentially dilutive shares were anti-dilutive and
therefore not included in the calculation of net loss per diluted share. There
were outstanding options and warrants to purchase 1,775,166 potentially dilutive
shares at December 31, 1999, 1,509,672 potentially dilutive shares at December
31, 1998, and 1,344,015 potentially dilutive shares at December 31, 1997.

Revenue and Cost Recognition

Phoenix generates revenue primarily from software license sales and from related
services, including implementation and customization services, maintenance and
support activities and training services. Phoenix does not offer third parties
or any of its customers the right to return Phoenix's software products.
Phoenix's software license revenues are generated from licensing Phoenix's
products directly to end users and indirectly through resellers. Phoenix
recognizes revenues in accordance with provisions of Statement of Position 97-2,
"Software Revenue Recognition," in 1998 and 1999, Statement of Position 91-1,
"Software Revenue Recognition," in 1997 and prior periods, and SOP 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts" in all periods. The nature of each licensing arrangement determines
how revenues and the related costs are recognized:

     -    Phoenix's customer contracts are multi-element arrangements that
          include a software license, implementation and consulting services,
          maintenance and customer training. Undelivered elements typically
          include maintenance, customer training, consulting and, when
          significant customization services are essential to the functionality
          of the software, the software

                                       47
<PAGE>   54
          license is also considered undelivered. As required under SOP 97-2,
          Phoenix allocates the contract value to the various elements of the
          contract using the fair value of the elements, regardless of any
          separate prices stated within the contract.

     -    If the contract requires Phoenix to perform significant production,
          modification, or customization of software, revenue from the software
          license, its modification and implementation are recognized using the
          percentage-of-completion method of accounting based on estimates of
          effort expended for modification and implementation to total expected
          effort. The duration of contracts of this type typically ranges from
          three to twelve months.

     -    Contracts to modify or customize software are evaluated to determine
          if they constitute funded software development arrangements of the
          type contemplated by SOP 97-2. If so, professional services revenue
          from those arrangements is credited first to the amount of any
          development costs capitalized, and the remainder is deferred.
          Thereafter, revenue is offset against any additional costs that are
          subsequently capitalized and any remaining amounts are recognized in
          income when the project is completed.

     -    If the contract requires delivery of the product to the end user and
          Phoenix is not required to perform significant production,
          modification, or customization, Phoenix recognizes software license
          revenues under the provisions of SOP 97-2. Accordingly, such software
          license revenues are recognized when a noncancelable license agreement
          has been signed, the product has been shipped, the fees are fixed and
          determinable and collectability is probable.

     -    If the contract requires delivery of the product to a third-party
          reseller or integrator, and Phoenix is obligated to provide other
          services to the reseller, Phoenix recognizes revenue over the period
          for which it is obligated to provide such services or, where
          collection is not probable, the lesser of over the service period or
          upon receipt of cash.

     -    Services under international contracts are generally provided under
          time and materials arrangements. Services under domestic contracts are
          provided under fixed price and time and material arrangements. The
          resultant service revenues and expenses are recognized as services are
          performed, except in the case of funded development arrangements,
          where they are offset against development costs. Revenues from
          maintenance activities, which consist of fees for ongoing support and
          product updates, are recognized ratably over the term of the
          maintenance contract, typically five years, and the associated costs
          are expensed as incurred. When maintenance is sold with software
          licenses that are subject to the percentage-of-completion method of
          accounting, Phoenix accounts for the maintenance revenues separately
          from the license revenues. Phoenix utilizes objective evidence of the
          fair value to determine the value of the maintenance. This objective
          evidence of fair value consists of the renewal rate for the
          maintenance. Phoenix's resellers are also able to sell maintenance
          contracts to their end users for a separate fee payable to Phoenix.
          The objective evidence of fair value for maintenance revenues in
          reseller arrangements is the same as the objective evidence when the
          sale is directly between Phoenix and an end user.


                                       48
<PAGE>   55
     -    Cost of software license revenues includes the cost of the media,
          product packaging, documentation, and certain third-party royalties.
          In addition, Phoenix generally warrants its products to meet standard
          specifications for a period of 30 to 90 days following the delivery of
          the product to the customer.

     -    Cost of service, maintenance, and other revenues consists of
          compensation and related overhead costs for personnel engaged in
          consulting, training, maintenance and support activities, as well as
          costs for third-party consultants utilized in providing such services.
          Provisions for estimated losses on uncompleted contracts are made in
          the period in which such losses are determined. Changes in contract
          performance and estimated profitability may result in revisions to
          costs and revenues and are recognized in the period in which the
          revisions are determined; the effects of which may be material. Costs
          and estimated earnings in excess of billings have not been recognized
          in the accompanying consolidated balance sheets. Billings in excess of
          costs and estimated earnings on uncompleted contracts are classified
          as deferred revenues in the accompanying consolidated balance sheets.

Cash, Cash Equivalents and Investment Securities

We consider all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents. Investments in marketable securities
are classified as available-for-sale and are recorded at fair value with any
unrealized holding gains or losses, net of deferred taxes, included as a
component of equity and other comprehensive income. Realized gains and losses
on investments are determined based on amortized cost using specific
identification.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets (generally three to five years for computer
equipment and purchased software, and four to seven years for furniture and
office equipment). Depreciation expense was $1,699,612 in 1999, $1,252,066 in
1998, and $525,488 in 1997. Leasehold improvements are amortized over the
related lease term. Property and equipment includes $787,281 of furniture
purchased under a capital lease, with accumulated amortization of $309,289 at
December 31, 1999, and $196,820 at December 31, 1998.

Capitalized Software Costs

We capitalize certain software development costs in accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed. Any funding received under
funded-software development arrangements reduces capitalized amounts pursuant to
SOP 97-2. Costs incurred internally to develop a computer software product are
charged to product development expense when incurred until technological
feasibility has been established for the product. Thereafter, all software
production costs are capitalized and recorded at the lower of unamortized cost
or net realizable value. Capitalization ceases upon general release to
customers. After general release, capitalized costs are amortized using the
greater of the amount computed using (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated future

                                       49
<PAGE>   56
gross revenues for that product or (b) the straight-line method over the
remaining estimated economic life of the product (currently five years).
Capitalized software costs also include purchased software costs of $1,262,000
at December 31, 1999, and $761,000 at December 31, 1998. Amortization of
capitalized software development costs and purchased software is included in
costs of license fees and other. Changes in capitalized software costs, net of
accumulated amortization are summarized as follows:

<TABLE>
<CAPTION>
                                                     1999                1998                1997
<S>                                              <C>                 <C>                 <C>
Balance, at beginning of year                    $  5,770,556        $  3,362,382        $  1,985,628
Internal costs capitalized during the year          7,395,549           3,186,159           1,690,811
Purchased software                                  1,262,000             761,000             311,000
Less funding under software development            (1,934,261)           (428,025)                 --
contracts
Less amortization expense                          (2,416,364)         (1,110,960)           (625,057)
                                                 ------------        ------------        ------------
Balance, at end of year                          $ 10,077,480        $  5,770,556        $  3,362,382
                                                 ============        ============        ============
</TABLE>

Goodwill and Other Intangible Assets

Intangible assets, consisting primarily of goodwill and purchased contracts of
approximately $876,000 and $375,000, respectively, resulting from acquisitions
during 1999, are amortized on a straight-line basis over periods ranging from
3.5 years for contracts to 15 years for goodwill. Goodwill and other intangible
assets are periodically reviewed for impairment based on an assessment of future
operations, using estimates of undiscounted future cash flows, to ensure they
are appropriately valued. Accumulated amortization as of December 31, 1999, was
$40,986.

Stock Based Compensation

Stock options granted to our employees are generally for a fixed number of
shares with an exercise price equal to or greater than the fair value of the
shares at the date of grant. We account for stock option grants in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations, and accordingly recognize no compensation expense for stock
option grants for which the terms are fixed. Compensation expense is recognized
for increases in the estimated fair value of common stock for stock options with
variable terms. We have adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
which encourages, but does not require, companies to adopt a fair value based
method for determining expense related to stock-based compensation.


                                       50
<PAGE>   57
Marketing and Advertising Costs

Marketing and advertising costs are expensed as incurred. Advertising expense
was $163,535 in 1999, $222,207 in 1998, and $130,242 in 1997. Marketing and
tradeshow expense was $483,720 in 1999, $273,465 in 1998, and $161,272 in 1997.

Recently Issued Accounting Standards

Effective January 1, 2000, Phoenix is required to adopt the provisions of SOP
97-2 that limit what is considered vendor-specific objective evidence (VSOE) of
the fair value of the various elements in a multiple-element software
arrangement to the price charged when the same element is sold separately.
Because of the structure of Phoenix's contracts prior to October 1, 2000,
Phoenix has determined that it does not have VSOE, as defined in SOP 97-2, for
all undelivered elements in its software arrangements entered into between
January 1, 2000 and October 1, 2000 (the date that Phoenix modified the
structure of its contracts). As a result, all contracts that include maintenance
entered into during that period will be required to be recognized over the
period of post-contract customer support, generally five years.

Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, was issued in June 1998. This statement
establishes accounting and reporting standards for derivative financial
instruments and requires recognition of derivatives in the Statement of
Financial Position to be measured at fair value. Gains or losses resulting from
changes in the value of derivatives would be accounted for depending on the
intended use of the derivative and whether it qualifies for hedge accounting.
This statement is effective for our financial statements beginning in 2001. We
are currently studying the future effects of adopting this statement. However,
due to our limited use of derivative financial instruments, adoption of
Statement No. 133 is not expected to have a significant effect on our financial
position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" and amended it
in March and June 2000 with respect to the effective dates. We are required to
adopt the provisions of this bulletin 101 in our fourth fiscal quarter of 2000
and are currently in the process of assessing the impact of its adoption. While
Staff Accounting Bulletin No. 101 does not supersede the software industry
specific revenue recognition guidance, which Phoenix believes it is in
compliance with, once complete guidance is disseminated, this bulletin may
change current interpretations of software revenue recognition requirements. We
do not expect the adoption of Staff Accounting Bulletin No. 101 to have a
significant effect on our financial position or results of operations.

3. FINANCIAL INSTRUMENTS

Concentrations of Credit Risk

Financial instruments that potentially subject Phoenix to significant
concentrations of credit risk consist principally of cash and cash equivalents,
investments, and trade accounts receivable.


                                       51
<PAGE>   58
Our cash and cash equivalents at December 31, 1999, were held primarily by a
single financial institution. Trade accounts receivable are unsecured and due
under stated terms from a small number of customers which are primarily in the
banking business and are generally subject to regulatory oversight. Trade
receivables due from foreign customers comprised 76% of total trade receivables
as of December 31, 1999, and 72% of total trade receivables as of December 31,
1998. Our long-term investments are held principally by a single financial
institution and consist of United States Treasury bills and United States
Treasury notes with maturities of less than three years (for which interest rate
risk is not considered material).

Fair Value

We used the following methods and assumptions in estimating our fair value
disclosures for financial instruments:

     -    Cash and Cash Equivalents: The carrying amount reported in the balance
          sheet approximates the fair value of cash and cash equivalents.

     -    Investments: Available for sale investments are carried at market
          value as determined by quoted market prices.

4. COMMITMENTS

LEASES

We lease furniture and computer equipment under a capital lease, and office
space and equipment under non-cancelable operating leases. Total rent expense
for all operating leases was $2,315,327 in 1999, $1,382,926 in 1998, and
$701,617 in 1997.

Future minimum lease payments under capital leases and aggregate non-cancelable
operating leases with terms of one year or more consisted of the following at
December 31, 1999:

<TABLE>
<CAPTION>
                                                   Capital            Operating
                                                   Leases              Leases
                                                   ------              ------
<S>                                              <C>                <C>
Years ending December 31,
   2000                                          $  180,552         $  2,199,493
   2001                                             180,552            2,071,254
   2002                                              30,092            1,803,992
   2003                                                   -            1,736,997
   2004                                                   -            1,756,780
   Thereafter                                             -            4,491,595
                                                 ----------         ------------
Total minimum lease payments                        391,196           14,060,110
Amounts representing interest                       (36,103)                  --
                                                 ----------         ------------
Net minimum lease payments                       $  355,093         $ 14,060,110
                                                 ==========         ============
</TABLE>



                                       52

<PAGE>   59
Professional services

Pursuant to its Marketing Agreement with International Turnkey Systems (ITS),
Phoenix agreed to purchase 2,750 man-days of professional services at a cost of
$600 per man-day. However, Phoenix is not obligated to purchase such services
until ITS has been certified to deliver such services and Phoenix has sufficient
requirements contracted from customers for such work.

5.       ACQUISITIONS

In May 1997, Phoenix completed the merger of Hampton Resources Limited, a New
Zealand corporation and its subsidiaries, Priority Solutions Ltd. and Priority
Solutions International, Ltd. (collectively "Priority Solutions") in exchange
for 76,760 shares of Phoenix common stock into Phoenix's wholly-owned
subsidiary, Phoenix International A.P. Limited, a New Zealand corporation
("Phoenix A.P. Limited"). Phoenix A.P. Limited is a provider of international
banking software products and services.

The Phoenix A.P. Limited acquisition has been accounted for as a pooling of
interests. Phoenix believes that the historical results of operations and other
financial information of Priority Solutions are not material in relation to
Phoenix's results of operations and other financial information. Phoenix has
not, therefore, restated its historical financial statements but has included
the results of Phoenix A.P. Limited's ongoing operations in its financial
statements, effective April 1, 1997.

During October 1999, Phoenix increased its ownership interest in Phoenix
International New York, Inc. (formerly Servers On-Line, Inc.) to 54% of the
outstanding common shares, which was in addition to the convertible preferred
stock position acquired in 1998 for $300,000. Phoenix International New York,
Inc. operates our Northeast application service center. The purchase price and
related costs of approximately $960,000 were satisfied by the issuance of a
$389,000 promissory note, conversion of $311,000 of Phoenix International New
York's liabilities to Phoenix into equity, and payment of $260,000 in cash.

Upon satisfaction of specific performance criteria, the minority shareholders of
Phoenix International New York, Inc. have the option to sell their remaining
interests to Phoenix in exchange for a total of $250,000 in cash and $350,000 in
Phoenix common stock. The acquisition of Phoenix International New York, Inc.
was accounted for as a purchase under Accounting Principles Board Opinion No.
16. In accordance with such opinion, we allocated the purchase price based on
the fair value of the assets acquired and liabilities assumed. Acquired
intangibles, which include renewable contracts and goodwill, total $876,000 and
are being amortized over periods ranging from 3.5 to 15 years.

The operations of Phoenix International New York are included in our
consolidated results from the date of acquisition in October of 1999. Pro forma
financial statements for the Servers On-Line acquisition are not required under
APB No. 16 as the effect of the acquisition is not material to our results of
operations.


                                       53
<PAGE>   60
Also during 1999, Phoenix purchased from ERAS JV contracts to provide data
processing services on an outsourced basis to certain financial institution for
a total of $375,000. The value of these contracts is recorded as an intangible
asset which is being amortized over the initial terms of these contracts.

6.       CAPITALIZATION

In May 1997, the shareholders approved an amendment to our articles of
incorporation increasing the number of shares of common stock authorized for
issuance to 50,000,000.

In August 1997, Phoenix completed a secondary public offering of its common
stock. We issued 2,211,000 shares of common stock, including the underwriter's
over-allotment option, at a price of $15.67 per share. The proceeds to Phoenix
from the offering, net of underwriting discounts and offering expenses, were
approximately $31.5 million.

In May 1998, Phoenix effected a three-for-two stock split in the form of a 50%
stock dividend, distributed on May 18, 1998, to shareholders of record on May
11, 1998. Accordingly, all share and per share amounts have been adjusted to
reflect this split.

The Board of Directors is authorized to issue up to 10,000,000 shares of
preferred stock, par value $0.01 per share. The terms of preferred stock have
not been designated and no shares have been issued.

7.       STOCK OPTIONS

Phoenix has various stock option plans that authorize its Board of Directors to
grant employees, officers, and directors qualified and unqualified options to
purchase shares of its common stock. Stock options are generally granted with an
exercise price at or above the fair market value of Phoenix common stock on the
date of the grant. As of December 31, 1999, we had three stock incentive plans:

         -    the Phoenix International Ltd., Inc. 1995 Employee Stock Option
              Plan, effective March of 1995;

         -    the Phoenix International Ltd., Inc. 1995 Employee Stock Option
              Plan, effective October of 1995; and

         -    the Phoenix International Ltd., Inc. 1996 Director Stock Option
              Plan.

Up to 780,000 shares of Phoenix common stock may be issued pursuant to options
granted under the March 1995 Employee Stock Option Plan; however, the Board does
not intend to issue any additional shares under such plan. As of December 31,
1999, the October 1995 Employee Stock Option Plan authorized the grant of
options to purchase up to 1,304,959 shares of Phoenix common stock and the 1996
Director Stock Option Plan authorized the grant of options to purchase up to
352,480 shares of Phoenix common stock. Stock options granted under these plans
have varying vesting schedules, but options typically vest over a three to five
year period from the date of grant and options expire within ten years from the
date of grant.

                                       54
<PAGE>   61
Stock options granted under the 1996 Stock Option Director Plan are
non-qualified, have a term of five years, and may be exercised only after the
six month anniversary of the date of grant.

At December 31, 1999, we had 63,231 shares available for issuance under the
March 1995 Employee Stock Option Plan, 162,126 shares under the October 1995
Employee Stock Option Plan, and 106,480 shares under the 1996 Director Stock
Option Plan. At December 31, 1999, we had reserved 2,781,939 shares of common
stock for issuance upon exercise of options and warrants to purchase common
stock.

Phoenix's Board of Directors approved in February 2000 an amendment to increase
the total number of shares available for issuance under the October 1995
Employee Stock Option Plan to 2,100,000 shares, and an amendment to increase the
number of shares available for issuance under the 1996 Director Stock Option
Plan to total 500,000 shares. Each of these amendments was approved by Phoenix's
shareholders at its annual meeting held on May 5, 2000.

We have elected to follow APB Opinion No. 25 and related interpretations in
accounting for our employee stock options rather than the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123. Under APB Opinion No. 25, because the exercise price of our employee stock
options generally equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

Pro forma information regarding net loss and net loss per share is required by
Statement of Financial Accounting Standards No. 123, which also requires that
the information be determined as if Phoenix had accounted for our employee stock
options granted subsequent to December 31, 1994, under the fair value method of
Statement of Financial Accounting Standards No. 123. The fair value for these
options was estimated at the date of grant using a Black-Scholes option-pricing
model with the following weighted average assumptions and fair values:

<TABLE>
<CAPTION>
                                No dividend yield, weighted average      Weighted average     Weighted average fair
                 Risk-free      volatility factors of the expected       expected life of        value of options
    Year      interest rates   market price of Phoenix common stock      options granted             granted
    ----      --------------   ------------------------------------      ---------------             -------
<S>           <C>              <C>                                       <C>                  <C>
    1997           6.24%                       0.49                         3.97 years                $8.86
    1998           5.18%                       0.54                         2.80 years                $5.21
    1999           5.64%                       0.68                         2.02 years                $2.80
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the option's vesting period. Our pro forma information
follows:

<TABLE>
<CAPTION>
                                                            1999                 1998                    1997
                                                            ----                 ----                    ----
<S>                                                     <C>                 <C>                     <C>
       Pro forma net loss                               ($19,791,719)       ($6,300,104)            ($2,213,581)
       Pro forma net loss per share
             - basic and diluted                              ($2.32)            ($0.75)                 ($0.33)
</TABLE>


                                       55
<PAGE>   62
A summary of our option activity and related information follows:

<TABLE>
<CAPTION>
                                                                                                  Weighted
                                                                                                   Average
                                                                                                  Exercise
                                                                               Options               Price
                                                                               -------               -----
<S>                                                                    <C>                 <C>
                  Outstanding at December 31, 1996                             987,030             $  4.71
                      Granted                                                  408,450             $ 13.97
                      Exercised                                                (68,622)            $  3.47
                      Cancelled                                                (11,343)            $  4.10
                                                                             ---------
                  Outstanding at December 31, 1997                           1,315,515             $  7.66
                      Granted                                                  639,457             $ 14.04
                      Exercised                                               (345,506)            $  4.15
                      Cancelled                                               (128,294)            $  9.65
                                                                             ---------
                  Outstanding at December 31, 1998                           1,481,172             $ 11.06
                      Granted                                                  492,200             $  7.72
                      Exercised                                                (22,352)            $  2.94
                      Cancelled                                               (204,354)            $ 11.94
                                                                             ---------
                  Outstanding at December 31, 1999                           1,746,666             $ 10.11
                                                                             =========
</TABLE>

Exercise prices for options outstanding as of December 31, 1999, range from
$2.86 to $19.33 per share. There were 790,094 options exercisable at a weighted
average exercise price of $10.02 at December 31, 1998, and 774,383 options
exercisable at a weighted average exercise price of $6.72 at December 31, 1997.
The following table sets forth by group of exercise price ranges, the number of
shares, weighted average exercise price, and weighted average remaining
contractual life of options outstanding, and the number and weighted average
exercise price of options currently exercisable as of December 31, 1999.


                                       56
<PAGE>   63
<TABLE>
<CAPTION>
                                               OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                                   -------------------------------------------        -------------------------
                                                   WEIGHTED
                                                   AVERAGE            WEIGHTED                         WEIGHTED
                                                   REMAINING          AVERAGE                          AVERAGE
                  RANGE OF        NUMBER OF        CONTRACTUAL        EXERCISE        NUMBER OF        EXERCISE
           EXERCISE PRICES         SHARES          LIFE (YEARS)       PRICE           SHARES           PRICE
           ---------------         ------          ------------       -----           ------           -----
<S>                             <C>                <C>                <C>             <C>              <C>
          $ 2.86 - $ 6.67         600,028             7.23             $ 4.95           342,453        $ 4.03
          $ 8.00 - $13.75         622,388             7.07             $10.65           433,326        $10.35
          $14.08 - $19.34         524,250             5.85             $15.39           404,700        $15.30
          ---------------         -------             ----             ------           -------        ------
          $ 2.86 - $19.34       1,746,666             6.76             $10.11         1,180,479        $10.21
</TABLE>

We have warrants outstanding at December 31, 1999, to purchase up to 28,500
shares of common stock at an exercise price of $9.60 per share which were issued
in July 1997 to the underwriters of our initial public offering pursuant to the
underwriting agreement. The warrants are exercisable through July 2001.

8.   INCOME TAXES

Significant components of the provision for income taxes are as follows for the
years ended December 31, 1999, December 31, 1998, and December 31, 1997:

<TABLE>
<CAPTION>
                                           1999                1998                1997
                                         --------            --------            --------
<S>                                      <C>                 <C>                 <C>
Current foreign tax expense              $ 32,264            $348,265            $394,970
Deferred domestic tax expense                --                  --                  --
                                         --------            --------            --------
Total tax expense                        $ 32,264            $348,265            $394,970
                                         ========            ========            ========
</TABLE>

Income (loss) before income taxes in the U.S. and foreign tax jurisdictions are
as follows:

<TABLE>
<CAPTION>
                                          1999                    1998                      1997
                                      ------------             ------------             ------------
<S>                                   <C>                      <C>                      <C>
U.S                                   $(17,271,000)            $ (5,162,000)            $   (772,000)
Foreign                                    308,000                1,100,000                  401,000
                                      ------------             ------------             ------------
Loss before income taxes              $(16,963,000)            $ (4,062,000)            $   (371,000)
                                      ============             ============             ============
</TABLE>

Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.


                                       57
<PAGE>   64
Significant components of our deferred income tax assets and liabilities at
December 31, 1999, December 31 1998, and December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                                  1999                     1998                     1997
                                                              ------------             ------------             ------------
<S>                                                           <C>                      <C>                      <C>
Deferred income tax liabilities:
     Tax over book depreciation                               $   (104,000)            $    (94,000)            $    (60,000)
     Capitalized software, net                                  (3,829,000)              (2,245,000)              (1,308,000)
         Total tax liabilities                                  (3,933,000)              (2,339,000)              (1,368,000)
Deferred tax assets:
     Alternative minimum tax credit                           $     51,000                   51,000             $     20,000
     Research and development credit carryforwards               1,482,000                  903,000                  504,000
     Allowance for doubtful accounts                               412,000                  262,000                   60,000
     Net operating loss carryforwards                           12,074,000                6,311,000                2,626,000
     Deferred revenue                                            3,874,000                1,816,000                1,871,000
     Other                                                         101,000                   78,000                   60,000
                                                              ------------                ---------             ------------
         Total tax assets                                       17,994,000                9,421,000                5,141,000
Subtotal                                                        14,061,000                7,082,000                3,773,000
Valuation allowance for deferred tax assets                    (14,061,000)              (7,082,000)              (3,773,000)
                                                              ------------             ------------             ------------
Net deferred tax assets                                       $       --               $       --               $       --
                                                              ============             ============             ============
</TABLE>

The reconciliation of income tax computed at U.S. Federal statutory tax rates to
income tax expense is:

<TABLE>
<CAPTION>
                                             1999                   1998                    1997
                                         -----------             -----------             -----------
<S>                                      <C>                     <C>                     <C>
Tax at U.S. statutory rates              $(5,767,304)            $(1,381,080)            $  (126,059)
State taxes                                 (678,506)               (199,038)                (14,830)
Foreign tax rate differential                 (6,388)                (79,612)                234,205
Tax credits                                 (578,515)               (429,695)               (325,725)
Foreign tax credit                              --                      --                   737,664
Stock option tax deduction                    (2,586)               (959,847)               (346,553)
Other                                         85,986                  88,450                 185,212
Change in valuation allowance              6,979,577               3,309,087                  51,056
                                         -----------             -----------             -----------
     Total tax expense                   $    32,264             $   348,265             $   394,970
                                         ===========             ===========             ===========
</TABLE>

As a result of operating losses incurred in 1999 and earlier, and because of
uncertainties related to the Company's ability to generate sufficient future
taxable income to realize the benefit of net deferred tax assets related
principally to net operating losses, the Company has recorded a valuation
allowance against the net deferred tax assets based on management's belief that
it is "more likely than not" that the net deferred tax assets for which the
valuation allowance has been recorded will not be realized. We will continue to
assess the valuation allowance and to the extent it is determined that such
allowance is no longer required, the tax benefit of the remaining net deferred
tax assets will be recognized in the future.


                                       58
<PAGE>   65
We had net operating loss carryforwards of approximately $31,774,000 available
at December 31, 1999, that expire approximately $188,000 in 2008, $823,000 in
2009, $1,317,000 in 2010, $3,881,000 in 2011, $9,472,000 in 2018, and
$16,093,000 in 2019. In addition, we have available research and development tax
credit carryforwards of approximately $1.5 million that also expire in years
2008 through 2019. These net operating losses and tax credit carryforwards are
subject to change if the Company determines that it is necessary to amend its
prior tax returns to reflect certain changes resulting from the restatement.
Whether we can utilize these carryforwards to reduce future income taxes depends
on our ability to generate sufficient taxable income prior to the expiration of
the carryforwards. Further, ownership changes have occurred that limit the net
operating loss and tax credit carryforwards of the Company, and a may impact the
Company's ability to utilize its net operating loss and tax credit carryforwards
in the future.

9.       EMPLOYEE BENEFITS

We maintain a 401(k) plan that covers substantially all employees. Phoenix may,
at its discretion, contribute by matching employee contributions. Defined
contributions are limited to the maximum amount deductible under the Internal
Revenue Code. In 1999, we made contributions totaling $122,000, and did not make
contributions to the 401(k) plan in 1997 or 1998.

We have a profit sharing plan with discretionary contributions covering
substantially all employees. We did not make contributions to the profit sharing
plan in 1997, 1998, or 1999.

We established an employee stock purchase plan, effective July 1, 1998, in which
substantially all employees may participate. Eligible employees may purchase
Phoenix common stock at a discount to market value at established dates. We have
reserved 150,000 shares of its common stock for issuance under this plan. The
plan is designed as a non-compensatory plan under Section 423 of the Internal
Revenue Code. Payroll deductions used to purchase Phoenix common stock totaled
$79,000 in 1999, compared with $75,000 in 1998.

10.      EMPLOYMENT AGREEMENTS

Phoenix has entered into employment agreements with our senior executives.
Certain agreements commit Phoenix to various obligations if the employee is
terminated without cause or if there is a change in the control of Phoenix. The
major obligations are for salaries and bonus, healthcare premiums, and the
vesting of previously granted stock options.

11.      SEGMENTS, MAJOR CUSTOMERS AND EXPORT SALES

Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, requires disclosure of certain
financial information for reportable operating segments based on our
organizational structure. We have no identifiable segments that meet Statement
of Financial Accounting Standards No. 131 criteria.


                                       59
<PAGE>   66
Major customers as defined by Phoenix are those that individually account for
10% or more of total revenues. There were no major customers in 1999 or 1998.
Sales to one major customer in 1997 comprised 15% of revenues.

Domestic and export sales, as a percentage of total revenues, were as follows:

<TABLE>
<CAPTION>
                               Latin         Europe,
               United        America &       Africa &       Pacific
               States        Caribbean     Middle East        Rim
               ------        ---------     -----------        ---
<S>            <C>           <C>           <C>              <C>
   1999          49%            19%            22%            10%
   1998          57%            17%            24%             2%
   1997          53%            22%            15%            10%
</TABLE>

12.      CONTINGENCIES (ALSO SEE NOTE 14  - SUBSEQUENT EVENTS)

Litigation

Phoenix is subject to various claims and legal proceedings covering a variety of
matters arising in the ordinary course of its business activities.

On November 23, 1999, a lawsuit was filed in the District Court for the Middle
District of Florida as a purported class action initiated by George Taylor, a
former Phoenix employee. Initially, Phoenix and our chief executive officer were
named as defendants. The lawsuit alleges, among other things, that Phoenix and
our chief executive officer improperly recognized revenues, overstated revenues
and failed to disclose that our revenues were allegedly in decline, all of which
allegedly caused our stock price to be higher than it otherwise would have been
during the class period. The lawsuit alleges that these purported actions
violate Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. On May 5, 2000, the plaintiffs filed an Amended
Complaint which, among other things, (1) adds four additional investors as named
plaintiffs and proposed class representatives; (2) expands the purported class
period to the period from May 5, 1997 to April 15, 1999; and (3) adds Phoenix's
president as an additional named defendant. Phoenix and the other two defendants
filed Motions to Dismiss, which were denied by the Court without opinion in
August 2000. The parties are beginning to conduct discovery. Phoenix's insurance
carriers have denied coverage for the claims in this lawsuit. Phoenix is
vigorously defending this case.

Customer Disputes

IBM/Sekerbank. In 1998, Phoenix contracted to provide software and software
development and implementation services as a subcontractor to IBM Turk Limited
Sirketi for the benefit of its customer, Sekerbank T.A.S. In May of 1999, IBM
informed Phoenix that its contract with Sekerbank had been cancelled. IBM then
purported to cancel its contract with Phoenix. According to IBM, Sekerbank
cancelled their contract with IBM because of the failure of Phoenix to perform,
called in an IBM performance bond from a bank, and received most of its money
back from IBM. IBM has paid Phoenix over $1 million under the subcontract, has
requested a return of all funds, and has indicated they may have claims against
Phoenix for up to


                                       60
<PAGE>   67
$5.2 million in damages. Phoenix disagrees with IBM's position, believes that
IBM, and not Phoenix, is responsible for the cancellation of the contract by
Sekerbank, and believes that it has claims against IBM under its subcontract for
the remaining value of the contract, which amounts to at least $3.9 million. The
parties are in negotiation to resolve the dispute. The contract calls for
arbitration of disputes; however, no arbitration or other action has been filed
by either party.

13.      RELATED PARTY TRANSACTIONS

In 1997 and 1998, Phoenix purchased a total of 11% of the equity of Dyad
Corporation in several transactions for a total purchase price of $1.5 million.
In 1999, Dyad Corporation merged with and became a wholly-owned subsidiary of
Netzee, Inc. Pursuant to such merger, Phoenix received 70,976 shares of Netzee
stock representing less than 1% of the shares outstanding, in exchange for its
11% interest in Dyad. A partner with Nelson Mullins Riley & Scarborough, L.L.P.,
Phoenix's primary outside legal counsel, served on Phoenix's Board of Directors
from 1996 until 1999, was a director of Dyad Corporation, and as of December 31,
1999, was a director and the chief executive officer of Netzee.

In December 1998, Phoenix entered into a service agreement and a marketing agent
agreement with Towne Services, Inc. ("TSI"). This marketing agent agreement
allows Phoenix exclusive marketing and distribution rights in various regions of
the world for Collections Works, one of TSI's software products. The agreement
provides for payment by Phoenix of $485,000 for this right. Phoenix's chief
executive officer is a director of TSI and another one of our shareholders and
directors is also a shareholder and director of TSI. On June 28, 2000, Phoenix
modified its marketing arrangement for software from TSI. In exchange for
$365,000, Phoenix agreed to convert its exclusive marketing rights for TSI's
Collection Works product into non-exclusive rights. Further, TSI paid Phoenix a
total of $175,000 in consideration of the sale of exclusive marketing rights to
Collection works to an entity in Malaysia. Phoenix retained non-exclusive rights
to market the TSI product on revised terms. In December of 1998 TSI also
purchased an internet and intranet site and associated services from Phoenix for
a total of $275,000.

In September 1997, Phoenix entered into a software license and cooperative
marketing agreement with Servers On-Line. In October of 1999, we acquired a 54%
controlling interest in Servers On-Line, Inc., and changed the name of the
company to Phoenix International New York, Inc. Prior to such acquisition,
Phoenix recognized $169,000 in revenues during 1999 from this company, and
$181,500 in 1998. Certain officers of the acquired company are now officers of
Phoenix.

To encourage certain bank shareholders' initial investment in Phoenix, we
offered a discount, equal to the shareholders' initial investment in Phoenix, to
be applied toward license fees if and when each shareholder licensed the Phoenix
System for use in the normal course of its operations. Discounts offered since
inception total $896,250. Discounts of $41,250 were used in 1998 and no
discounts were used in 1997 or 1999. Net of discounts used, license fee revenue
from these shareholders totaled $95,316 in 1999, $68,778 in 1998, and $340,660
in


                                       61
<PAGE>   68
1997. Implementation, support, and other service revenues from these
shareholders totaled $358,074 in 1999, $485,647 in 1998, and $588,198 in 1997.

14.      SUBSEQUENT EVENTS

Phoenix's Board of Directors approved in February 2000 an amendment to increase
the total number of shares available for issuance under the October 1995
Employee Stock Option Plan to 2,100,000 shares, and an amendment to increase the
number of shares available for issuance under the 1996 Director Stock Option
Plan to total 500,000 shares. Each of these amendments was approved by Phoenix's
shareholders at the annual shareholders meeting on May 5, 2000.

In February 2000, London Bridge purchased 861,623 shares of Phoenix common stock
for $5,000,000. This acquisition made London Bridge a 9.16% equity owner in
Phoenix as of the transaction date. In connection with such purchase, Phoenix
entered into an agreement with London Bridge to market one of its products
called "Vectus."

On August 22, 2000, we entered into an exclusivity agreement with London Bridge
Software Holdings plc, which among other things, provided for a 30-day period of
exclusivity during which the parties agreed to work towards definitive
agreements regarding an acquisition of Phoenix by London Bridge. On September
22, 2000, Phoenix and London Bridge extended the period of exclusivity through
October 8, 2000, and agreed to negotiate in good faith with respect to the
execution by that date of a definitive agreement providing for the acquisition
of Phoenix by London Bridge and the extension by London Bridge of a working
capital line of credit of up to $10 million for interim financing. On October 7,
2000, the parties agreed to extend the exclusivity period through October 31,
2000 on the same terms. Drafts of acquisition documents have been circulated for
comment, and we are continuing our discussions and negotiations with London
Bridge concerning the potential acquisition and interim financing. Consummation
of any transaction, however, is contingent on several conditions, including
resolution of the pending purported class action lawsuit and successful
completion of due diligence.

On August 23, 2000, the Nasdaq Stock Market halted trading in our common stock
at the last reported price of $3.00 per share. Trading in our common stock will
remain halted until we have satisfied Nasdaq's request for additional
information primarily regarding accounting issues identified in our press
release dated August 22, 2000. Nasdaq also indicated that it would delist our
common stock from trading on the Nasdaq National Market at the opening of
business on September 1, 2000, because of our failure to timely file our June
30, 2000 Form 10-Q, unless we appealed Nasdaq's decision. We timely requested an
appeal, and appeared at a hearing before the Nasdaq Listing Qualifications Panel
on September 22, 2000. The Listing Qualifications Panel stated that if Phoenix
failed to file its restated financial results and required periodic reports on
or before October 20, 2000, then our common stock would be delisted at that
time. We are fully cooperating with Nasdaq and do not expect that the
restatement of our financial statements will impact our ability to maintain
compliance with Nasdaq's quantitative listing requirements.


                                       62
<PAGE>   69
Any delisting by Nasdaq would likely have an adverse and material effect on the
price of our common stock and on the ability of our shareholders to sell their
shares. Such delisting could also adversely affect our ability to obtain
additional debt or equity financing and may result in a reduction in the amount
and quality of security analysts' and news media's coverage of our business
operations. There can be no assurance that our actions will be successful to
maintain listing on the Nasdaq National Market.

On May 11, 2000, we initiated cost saving measures by eliminating open
positions, terminating approximately 15% of our existing workforce, and
reorganizing employees along US and International business lines. The cost of
salaries and employee benefits for the terminated employees was approximately
$3.5 million on an annualized basis. Severance-related expenses in connection
with these terminations was approximately $200,000.

In the third quarter of 2000, Phoenix moved most of its Orlando operations into
one building, and is currently seeking a sublessee for a portion of its second,
smaller facility there. In addition, Phoenix intends to relocate its UK
operations to a serviced office, and is currently in negotiations to sublease
its UK facilities to a third party.

In the second quarter of 2000, we determined that the completion of project
Aurora was at significant risk. We, therefore wrote off approximately $406,000
in capitalized software development costs in the second quarter of 2000 related
to this project.

In the third quarter of 2000, we determined that the decrease of the value of
our investment in Netzee was other than temporary and we will therefore record a
loss in that quarter.

In June of 2000, Phoenix received notice from its customer in Turkey, Toprakbank
A.S., that it intended to cancel its implementation of the Phoenix System. The
parties have exchanged letters making cross claims against each other.
Toprakbank has paid Phoenix $550,000 under the contract and has requested a
refund of this money. Phoenix receivables from Toprakbank exceed $1.3 million,
and Phoenix has requested payment of this amount, plus future support fees under
the contract. The parties are in negotiation to resolve the dispute. The
contract calls for arbitration of disputes; however, no arbitration or other
action has been filed by either party.

In June of 2000, Phoenix received notice from its customer in Turkey, Demirbank
T.A.S., that it intended to cancel its implementation of the Phoenix System. No
demand has been received from Demirbank. Demirbank has paid Phoenix over $4.6
million to date. Phoenix receivables from Demirbank exceed $900,000. Phoenix is
in discussions with Demirbank for amicable termination of the relationship and
settlement of outstanding issues.

On June 28, 2000, Phoenix modified its marketing arrangement for software from
TSI. In exchange for $365,000, Phoenix agreed to convert its exclusive marketing
rights for TSI's Collection Works product into non-exclusive rights. Further,
TSI paid Phoenix a total of $175,000 in consideration of the sale of exclusive
marketing rights to Collection works to an entity in Malaysia. Phoenix retained
non-exclusive rights to market the TSI product on revised


                                       63
<PAGE>   70
terms. In December of 1998 TSI also purchased an Internet and intranet site and
associated services from Phoenix for a total of $275,000.

In October, Phoenix learned that a mini-tender offer for 400,000 shares of
Phoenix stock at a cash price of $.50 per share, less distributions after
September 7, 2000, was commenced by Sutter Opportunity Fund 2, LLC ("Sutter").
Phoenix recommended to its shareholders that they reject this mini-tender offer.

11. QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>
                                                                             Three months ended (1)
                                               -------------------------------------------------------------------------------
                                               March 31, 1999       June 30, 1999      September 30, 1999    December 31, 1999
------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                  <C>                <C>                   <C>
1999 - RESTATED
Revenues                                        $  5,424,176         $  4,263,270         $  3,752,828         $  4,746,332
Operating loss                                  $ (2,510,360)        $ (4,792,553)        $ (5,202,006)        $ (5,446,659)
Net loss                                        $ (2,267,014)        $ (4,600,647)        $ (4,990,959)        $ (5,136,302)
Net loss per share - basic & diluted (2)        $      (0.27)        $      (0.54)        $      (0.59)        $      (0.60)
Weighted average shares
     outstanding - basic & diluted                 8,504,949            8,514,802            8,526,768            8,526,772

Capitalized software costs, net                 $  6,738,391         $  8,473,554         $  9,230,454         $ 10,077,480
Total assets                                    $ 44,145,160         $ 45,030,951         $ 41,883,557         $ 36,536,138
Deferred revenue                                $  8,514,115         $ 11,989,526         $ 14,149,798         $ 14,003,270
Shareholders' equity                            $ 31,945,448         $ 27,197,358         $ 22,179,856         $ 16,524,343

1999 - AS REPORTED
Revenues                                        $  5,534,755         $  5,736,256         $  2,938,436         $  5,441,755
Operating loss                                  $ (2,290,856)        $ (2,553,530)        $ (5,914,011)        $ (4,750,222)
Net loss                                        $ (1,308,092)        $ (1,473,056)        $ (3,702,690)        $ (9,191,333)
Net loss per share - basic & diluted (2)        $      (0.15)        $      (0.17)        $      (0.43)        $      (1.08)
Weighted average shares
     outstanding - basic & diluted                 8,504,949            8,514,802            8,526,768            8,526,772

Capitalized software costs, net                 $  8,893,023         $ 11,328,576         $ 12,884,808         $ 14,540,780
Total assets                                    $ 58,305,593         $ 59,139,663         $ 56,695,535         $ 44,523,804
Deferred revenue                                $  2,775,422         $  3,408,621         $  4,978,905         $  4,576,804
Shareholders' equity                            $ 49,459,438         $ 47,912,421         $ 44,192,477         $ 34,481,933


<CAPTION>
                                                                             Three months ended (1)
                                               ------------------------------------------------------------------------------
                                               March 31, 1998        June 30, 1998     September 30, 1998   December 31, 1998
-----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                   <C>               <C>                  <C>
1998 - RESTATED
Revenues                                        $  4,515,114         $  4,709,601         $  5,476,932         $  4,640,258
Operating loss                                  $   (546,977)        $   (627,550)        $ (1,453,440)        $ (3,157,736)
Net loss                                        $   (184,438)        $   (233,552)        $ (1,149,422)        $ (2,842,942)
Net loss per share - Basic (2)                  $      (0.02)        $      (0.03)        $      (0.14)        $      (0.33)
Weighted average shares
     outstanding - basic & diluted                 8,231,703            8,366,344            8,422,974            8,494,114

Capitalized software costs, net                 $  4,163,103         $  4,714,097         $  5,204,825         $  5,770,556
Total assets                                    $ 45,536,552         $ 44,825,733         $ 47,788,645         $ 45,813,003
Deferred revenue                                $  4,464,648         $  4,726,559         $  6,814,101         $  7,898,700
Shareholders' equity                            $ 37,545,562         $ 37,421,930         $ 37,387,549         $ 34,322,542

1998 - AS REPORTED
Revenues                                        $  4,598,444         $  5,666,703         $  8,002,479         $  7,670,583
Operating (loss)                                $   (381,856)        $    361,326         $  1,251,261         $    785,673
Net loss                                        $     35,124         $    497,664         $  1,116,285         $    781,938
Net income per share - Basic (2)                $       0.00         $       0.06         $       0.13         $       0.09
Net income per share - Diluted (3)              $       0.00         $       0.06         $       0.13         $       0.09
Weighted average shares
     outstanding - basic                           8,231,703            8,366,344            8,422,974            8,494,114
Weighted average shares
     outstanding - diluted                         8,725,628            8,928,034            8,874,710            8,934,755

Capitalized software costs, net                 $  4,446,610         $  5,306,812         $  6,271,374         $  7,155,436
Total assets                                    $ 53,022,437         $ 53,402,203         $ 57,241,428         $ 59,502,573
Deferred revenue                                $  1,632,636         $  2,253,915         $  2,499,216         $  2,649,364
Shareholders' equity                            $ 46,574,968         $ 47,174,110         $ 49,215,840         $ 50,811,992
</TABLE>



                                       64
<PAGE>   71

<TABLE>
<CAPTION>
                                                                           Three months ended (1)
                                               -------------------------------------------------------------------------------
                                               March 31, 1997       June 30, 1997    September 30, 1997      December 31, 1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                  <C>                  <C>
1997 - RESTATED
Revenues                                        $  3,134,737        $  3,498,845         $  2,417,304         $  4,388,467
Operating income (loss)                         $    540,366        $    (88,010)        $ (1,406,111)        $   (297,962)
Net income                                      $    465,672        $   (181,289)        $ (1,198,637)        $    148,523
Net income (loss) per share - Basic (2)         $       0.08        $      (0.03)        $      (0.17)        $       0.02
Net income (loss) per share - Diluted (3)       $       0.07        $      (0.03)        $      (0.16)        $       0.02
Weighted average shares
     outstanding - basic                           5,773,046           5,917,110            6,950,588            8,152,524
Weighted average shares
     outstanding - diluted                         6,429,960           6,568,083            7,647,260            8,672,229

Capitalized software costs, net                 $  2,534,212        $  2,814,925         $  3,069,306         $  3,362,382
Total assets                                    $ 11,961,457        $ 11,571,671         $ 42,976,378         $ 45,777,521
Deferred revenue                                $  3,227,609        $  2,790,846         $  3,613,306         $  5,577,294
Shareholders' equity                            $  6,640,618        $  6,425,029         $ 36,849,415         $ 37,019,045

1997 - AS REPORTED
Revenues                                        $  3,713,724        $  4,706,108         $  3,354,710         $  6,068,492
Operating income (loss)                         $  1,111,610        $    856,953         $   (312,324)        $  1,423,313
Net income                                      $  1,013,296        $    763,674         $      9,971         $  1,253,575
Net income per share - Basic (2)                $       0.18        $       0.13         $       0.00         $       0.15
Net income per share - Diluted (3)              $       0.16        $       0.12         $       0.00         $       0.14
Weighted average shares
     outstanding - basic                           5,773,046           5,917,110            6,950,588            8,152,524
Weighted average shares
     outstanding - diluted                         6,429,960           6,568,083            7,647,260            8,672,229

Capitalized software costs, net                 $  2,534,212        $  2,814,925         $  3,124,397         $  3,522,484
Total assets                                    $ 13,764,384        $ 15,029,073         $ 46,548,965         $ 52,157,495
Deferred revenue                                $    899,453        $  1,172,202         $  1,031,360         $  1,851,960
Shareholders' equity                            $ 10,748,081        $ 11,477,455         $ 43,110,449         $ 45,835,131
</TABLE>

(1)  Quarterly financial data has been restated. See Note 1.
(2)  Due to rounding of quarterly calculations being different from rounding of
     year to date information, the sum of basic net income per share for the
     four quarters does not equal basic net loss per share for the year.
(3)  Due to the calculation of weighted average shares outstanding for the year
     as the average of quarterly weighted average shares outstanding, the sum of
     diluted net income per share for the four quarters does not equal diluted
     net income per share for the year.


                                       65
<PAGE>   72
REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders
Phoenix International Ltd., Inc.

We have audited the accompanying consolidated balance sheets, as restated, of
Phoenix International Ltd., Inc. as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows, all as restated, for each of the three years in the period ending
December 31, 1999. Our audits also included the financial statement schedule, as
restated, listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of Phoenix's management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements, as restated, referred to
above present fairly, in all material respects, the consolidated financial
position of Phoenix International Ltd., Inc. at December 31, 1999 and 1998, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ending December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, as restated, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

The accompanying financial statements have been prepared assuming that Phoenix
International Ltd., Inc. will continue as a going concern. As more fully
described in Note 2, the Company's operating losses and negative cash flows have
continued into 2000 and have adversely impacted the Company's liquidity. 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 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

The accompanying consolidated financial statements for the years ended December
31, 1999, 1998, and 1997 have been restated as discussed in Note 1.

                                                           /S/ Ernst & Young LLP

Atlanta, Georgia
February 7, 2000, except for
Note 1, the second through the
fifth paragraphs of Note 2, and Note 14, as to
which the date is October 21, 2000


                                       66
<PAGE>   73
ITEM 9.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
         FINANCIAL DISCLOSURES

         Not applicable.



                                       67


<PAGE>   74
                                    PART III

         We have omitted certain information required by Part III in this report
and will file a definitive Proxy Statement pursuant to Regulation 14A (the
"Proxy Statement") not later than 120 days after the end of the financial year
covered by this Report. Certain information included in the Proxy Statement is
incorporated in this report by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS AND DIRECTORS

         The following table lists our directors and executive officers and
directors and their ages as of March 29, 2000:

<TABLE>
<CAPTION>
           NAME                 AGE      CLASS (1)                     POSITION
           ----                 ---      ---------                     --------
<S>                             <C>      <C>         <C>
Bahram Yusefzadeh (2)(3)        53          III      Chairman of the Board and Chief Executive
                                                     Office
Raju M. Shivdasani              49          III      President, Chief Operating Officer and Director
Theodore C. Burns               43          --       Senior Vice President and Chief Financial
                                                     Officer
Richard T. Powers               52          --       Executive Vice President, U.S. Business
Daniel P. Baker                 37          --       Senior Vice President, Research and Development
Harold C. Boughton              48          --       Senior Vice President, Corporate Marketing
C. Russell Pickering            31          --       Senior Vice President, Corporate Counsel
Ronald G. Welsh                 52          --       Senior Vice President, Worldwide Services
Ruann F. Ernst (2)(3)           53           I       Director
Ronald E. Fenton (2)(3)(4)      71          III      Director
William C. Hess (4)             63           I       Director
J. Michael Murphy (3)(4)        59          II       Director
O. Jay Tomson (4)               63           I       Director
</TABLE>

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

(1)  Class I term expires in 2000; Class II term expires in 2001; and Class III
     term expires in 2002.

(2)  Member of the Compensation and Stock Option Committee. Ms. Ernst is the
     chairman of the Compensation and Stock Option Committee, and Mr. Yusefzadeh
     is a non-voting member of the Compensation and Stock Option Committee.

(3)  Member of the Executive Committee. Mr. Yusefzadeh is the Chairman of the
     Executive Committee.

(4)  Member of Audit Committee. Mr. Murphy is the Chairman of the Audit
     Committee.

     Bahram Yusefzadeh. Mr. Yusefzadeh is Phoenix's founder, chairman of the
board, and chief executive officer. He has 31 years of experience in the banking
software industry. In 1969, he co-founded Nu-Comp Systems, Inc., where he
developed the Liberty Banking System and served as Nu-Comp's president and chief
executive officer. Mr. Yusefzadeh became chairman of the board of Broadway &
Seymour, Inc. upon its acquisition of Nu-Comp in June 1986 and remained in that
position until November 1986. From 1986 to 1992, he worked for The Kirchman
Corporation, first as president of the product and marketing strategies
division,


                                       68
<PAGE>   75
and later as president of both the independent banking group and the outsourcing
division. Mr. Yusefzadeh founded Phoenix in 1993 and currently serves as a
member of the Executive Committee and as a non-voting member of the Compensation
and Stock Option Committee. Mr. Yusefzadeh has been a director of Towne
Services, Inc., a publicly traded company, since 1997 and has been a member of
its audit and compensation committees since 1998.

         Raju M. Shivdasani. Mr. Shivdasani joined Phoenix in July 1996 as a
senior vice president and president of the International Sales Division. In
January 1998, Mr. Shivdasani assumed the position of president and chief
operating officer and was appointed a director of Phoenix. From 1990 to 1996, he
worked for Fiserv, Inc. where he served as group executive vice president of the
bank services sector and president of CBS Worldwide, a banking software
division. Mr. Shivdasani has over 28 years of experience working for companies
in the banking software, service bureau, and data center services industries.

         Theodore C. Burns. Mr. Burns joined Phoenix in October 1998 as senior
vice president and chief financial officer. From 1993 to 1998, Mr. Burns worked
with PricewaterhouseCoopers LLP (and its predecessor, Price Waterhouse LLP) in
the U.S., Indonesia, India, and South Korea, most recently as a director in
their Financial Advisory Services Group. He previously advised banking
institutions in the areas of mergers & acquisitions, capital raising, and
strategy for over eight years, first with Golembe Associates, Inc. and later
with Fox-Pitt, Kelton Inc. Mr. Burns holds an MBA from Columbia University and
is a certified public accountant.

         Richard T. Powers. Mr. Powers was promoted to executive vice president
U.S. Business in March 2000, and is the executive responsible for U.S.
operations, including Phoenix's in-house and Application Service Center
businesses. He joined Phoenix in October 1999 as senior vice president of
e-Commerce Services and was responsible for Phoenix's U.S. e-commerce
initiatives. He brings more than 26 years experience in all facets of the
financial services industry, both as a banker and as founder, president, and
chief operating officer of Servers On-Line, Inc., a New York information
processing business for financial institutions which began in 1998, now
majority-owned and managed by Phoenix. Prior to that, he served as president and
chief operating officer of Waterhouse National Bank, a virtual financial
institution and affiliate of Waterhouse Securities of New York from 1993 to
1997. During his tenure, Mr. Powers was instrumental in growing the organization
from $30 million to more than $1.3 billion in assets in just two years. Mr.
Powers also served as executive vice president and chief operations officer of
North Fork Bank located in Long Island, New York, where the bank grew from $484
million in assets to $6 billion in assets under his leadership.

         Daniel P. Baker. Mr. Baker joined Phoenix in February 1998 as senior
vice president for Research and Development and is responsible for U.S. and
international product development and quality assurance of the Phoenix System
and Phoenix ancillary products. From 1995 to 1998, Mr. Baker served as senior
vice president, Information Technology Division and director of Market Systems
Strategy at the John H. Harland Company. From 1993 to 1995, he worked for Fiserv
Inc., where he served as vice president of Technology Services. Prior to Fiserv,
Mr. Baker served over 15 years in the banking industry.


                                       69
<PAGE>   76
         Harold C. Boughton. Mr. Boughton joined Phoenix in June 1996 as senior
vice president of U.S. Business Development and became senior vice president of
Corporate Marketing in March 2000. From 1992 to 1996, Mr. Boughton worked for
Fiserv, Inc., first as national sales manager for the CBS Service Bureau and
later as national sales manager for InformEnt. From 1990 to 1992 he served as
regional sales manager and national sales manager for DCR Technologies, an
optical storage technology company.

         C. Russell Pickering. Mr. Pickering joined Phoenix in February 2000 as
senior vice president and corporate counsel. Prior to joining Phoenix, Mr.
Pickering was an associate with Nelson Mullins Riley & Scarborough, L.L.P., from
1994 to 2000 where he practiced in the areas of general corporate law,
securities, mergers and acquisition and computer law, specializing in the
representation of emerging technology companies and financial institutions. As
outside counsel, Mr. Pickering managed Phoenix's U.S. and international
intellectual property, software licensing, third party distributor and third
party product contracts. Mr. Pickering received his J.D. from the University of
Texas at Austin in 1994, and is a licensed member of the State Bar of Georgia.

         Ronald G. Welsh. Mr. Welsh joined Phoenix in February 1999 as senior
vice president of Worldwide Services. He is responsible for the ongoing support
and implementation functions for Phoenix's clients around the world. He brings a
wide range of hands-on expertise in bank data processing, data center
management, strategic technology planning, training, and support, as well as
mergers and acquisitions. Prior to joining Phoenix, he served as both vice
president of Strategic Technology Planning and vice president of Operations and
Information Technology for NationsBank from 1985 to 1994. Mr. Welsh also worked
with Honeywell Information Systems in their North American banking and
government divisions and managed independent service bureaus for S&Ls and banks
in the 1980s.

         Ruann F. Ernst. Ms. Ernst has been a director of Phoenix since 1996 and
currently serves as a member of the Executive Committee and is the chairman of
the Compensation and Stock Option Committee. Ms. Ernst has served as chairman of
the board of Digital Island, Inc. since December 1999 and as its chief executive
officer and as a director since June 1998. She was president of Digital Island,
Inc. from June 1998 until December 1999. Prior to joining Digital Island, Ms.
Ernst served with Hewlett Packard, a computer equipment and services company,
for approximately ten years, most recently as general manager of the Financial
Services Business Unit. Ms. Ernst serves on the Board of Directors of The
Institute for the Future and Advanced Fibre Communications, Inc.

         Ronald E. Fenton. Mr. Fenton has been a director of Phoenix since 1993
and currently serves as a member of the Executive Committee and Compensation and
Stock Option Committee. Mr. Fenton is the chairman of the board of directors of
F&M Bank - Iowa Central and a board member of F&M Bank - Iowa Story County and
F&M Bank - Iowa South Central. He also serves as chairman of the board of
directors of BancSecurity Corporation (where he has been since 1982), and
recently retired as president, chief executive officer and director of Security
Bank (where he had been since 1976). He is also a director and former


                                       70
<PAGE>   77
chairman of the board of Shazam, Inc. ("Shazam"), a regional electronic funds
transfer network.

         William C. Hess. Mr. Hess has been a director of Phoenix since 1993 and
currently serves as a member of the Audit Committee. Since 1984, he has been the
president of Iowa Savings Bank, and since 1988, he has been chairman of the
board of Sac City State Bank. Mr. Hess serves as an officer and director of
several bank holding companies and he is also a director of Audubon State Bank,
Iowa Savings Bank, Perry State Bank and Raccoon Valley State Bank. Mr. Hess is a
past director of Shazam, a past director of the Iowa Bankers Mortgage
Association and Iowa Bankers Association and a past member of the Board of
Directors of the Iowa Department of Banking.

         J. Michael Murphy. Mr. Murphy has been a director of Phoenix since 1993
and currently serves as a member of the Executive Committee and as chairman of
the Audit Committee. Since 1977, he has served as president of Drum Service Co.
of Florida, which in February 1998 merged into Palex, Inc., where he now serves
as a senior vice president. From 1988 to 1998 he served as a director of
Lochaven Federal Savings and Loan Association in Orlando Florida and served as
its chairman of the board from 1995 to 1996. He is a past chairman of the
Reusable Industrial Packaging Association and was chairman of the International
Confederation of Drum Reconditioners from 1990 to 1993. Mr. Murphy holds an
M.B.A. from the Harvard Graduate School of Business Administration.

         O. Jay Tomson. Mr. Tomson has been a director of Phoenix since 1993 and
was chairman of the board of Phoenix from August 1993 to February 1994. Mr.
Tomson is also a member of the Audit Committee. Since 1974, he has served as
chairman and chief executive officer of First Citizens National Bank, and since
1977, he has been chairman of the board of First Citizens Financial Corporation.
Mr. Tomson was a member of the Board of Directors of the Federal Reserve Bank of
Chicago from 1980 to 1986. He is a former director and president of Shazam. In
1987, he served as the president of the Independent Community Bankers
Association, formerly the Independent Bankers Association of America.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         The information required by this Item is incorporated by reference from
the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by Item 11 is incorporated by reference from
the Proxy Statement, except for those portions relating to the Compensation and
Stock Option Committee's Report on Executive Compensation and Phoenix's Stock
Performance Graph.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 12 is incorporated by reference from
the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 13 is incorporated by reference from
the Proxy Statement.




                                       71
<PAGE>   78
                                     PART IV

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

(a)(1)   FINANCIAL STATEMENTS

         The restated consolidated financial statements of Phoenix as of
December 31, 1999 and 1998 and for each of the years in the three-year period
ending December 31, 1999, together with the report of Ernst & Young LLP, dated
February 7, 2000 (except for Note 1, the second through the fifth paragraphs of
Note 2, and Note 14, as to which the date is October 21, 2000), are included
in Item 8 of Part II of this Form 10-K/A and incorporated by reference herein.

(a)(2)   FINANCIAL STATEMENT SCHEDULES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

         The following information has been restated.

<TABLE>
<CAPTION>
                                              BALANCE OF THE                                     BALANCE AT
                                               BEGINNING OF                                      THE END OF
           DESCRIPTION                             YEAR          PROVISION      WRITE-OFFS          YEAR
           -----------                             ----          ---------      ----------       ----------
<S>                                           <C>               <C>             <C>              <C>
Allowance For Doubtful Accounts
         1999                                   $(673,425)      $(849,978)       $ 438,311       $(1,085,092)
         1998                                    (155,000)       (547,225)          28,800          (673,425)
         1997                                     (15,000)       (140,000)               -          (155,000)
</TABLE>

         Financial statement schedules other than the one listed above are
omitted because they are either: (1) not applicable or not required; or (2) the
information required is contained in the consolidated financial statements or
the notes thereto.

(a)(3)   EXHIBITS

         The Exhibit Index set forth after the signature pages of this Form 10-K
is incorporated by reference herein.

(a)(4)   REPORTS ON FORM 8-K

         None.


                                       72
<PAGE>   79
                                   SIGNATURES

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


                                             Phoenix International Ltd., Inc.

                                             By:  /s/ Bahram Yusefzadeh
  October 24, 2000                               Bahram Yusefzadeh
Date                                             Chairman and Chief Executive
                                                 Officer


                                POWER OF ATTORNEY

         KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Bahram Yusefzadeh
and Raju M. Shivdasani, and each one of them, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any and
all amendments to this Annual Report or Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorneys-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchanges Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signatures                                      Title                                 Date
----------                                      -----                                 ----
<S>                                             <C>                                   <C>
/s/ Bahram Yusefzadeh.......................... Chairman of the Board and Chief       October 24, 2000
    Bahram Yusefzadeh                           Executive Officer (principal
                                                executive officer)

/s/ Theodore C. Burns.......................... Chief Financial Officer (principal    October 24, 2000
    Theodore C. Burns                           financial and accounting officer)

/s/ Raju M. Shivdasani......................... President, Chief Operating Officer    October 24, 2000
    Raju M. Shivdasani                          and Director
</TABLE>


                                       73
<PAGE>   80
<TABLE>
<CAPTION>
Signatures                                      Title                                 Date
----------                                      -----                                 ----
<S>                                             <C>                                   <C>
/s/ Ruann F.
Ernst...........................................Director                              October 24, 2000
    Ruann F. Ernst

/s/ Ronald E.
Fenton..........................................Director                              October 24, 2000
    Ronald E. Fenton

/s/ William C.
Hess............................................Director                              October 24, 2000
    William C. Hess

/s/ J. Michael
Murphy..........................................Director                              October 24, 2000
    J. Michael Murphy

/s/ O. Jay Tomson...............................Director                              October 24, 2000
    O. Jay Tomson
</TABLE>


                                       74
<PAGE>   81
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number            Description
------            -----------
<S>               <C>
3.1               Restated Articles of Incorporation filed with the Secretary of
                  State of Florida on January 24, 2000 (incorporated by
                  reference to Exhibit 3.1 to Phoenix's Annual Report on Form
                  10-K for the year ended December 31, 1999 filed March 30, 2000
                  (File No. 0-20937) (the "1999 Form 10-K")).

3.2               Amended and Restated Bylaws (incorporated by reference to
                  Exhibit 3.2 of Phoenix's Form 10-Q dated August 14, 1996, File
                  No. 0-20937 (the "Second Quarter 1996 10-Q")).

4.1               See Exhibits 3.1 and 3.2 for provisions of the Restated
                  Articles of Incorporation and Amended and Restated Bylaws
                  defining the rights of the holders of common stock of Phoenix.

10.1              Phoenix International Ltd., Inc. 1995 Employee Stock Option
                  Plan, effective as of March 18, 1995 (incorporated by
                  reference to Exhibit 10.12 of Phoenix's Registration Statement
                  on Form S-1 (Registration No. 33-03355), as declared effective
                  by the Securities and Exchange Commission on July 1, 1996 (the
                  "1996 Registration Statement")).*

10.2              Amendment, dated May 24, 1996, to the Phoenix International
                  Ltd., Inc. 1995 Employee Stock Option Plan, effective March
                  18, 1995 (incorporated by reference to Exhibit 10.43 of the
                  1996 Registration Statement).*

10.3              Phoenix International Ltd., Inc. 1995 Employee Stock Option
                  Plan, effective as of October 21, 1995 (the "October Plan")
                  (incorporated by reference to Exhibit 10.13 of the 1996
                  Registration Statement).*

10.4              Amendment, dated May 24, 1996, to the October Plan
                  (incorporated by reference to Exhibit 10.44 of the 1996
                  Registration Statement).*

10.5              Second Amendment, dated as of January 24, 1997, to the October
                  Plan (incorporated by reference to Exhibit 4.1 of Phoenix's
                  Registration Statement on Form S-8, as filed with the
                  Securities and Exchange Commission on December 31, 1996 and as
                  amended by Phoenix's Registration Statement on Form S-8, as
                  filed July 3, 1997 (the "Form S-8")).*

10.6              Third Amendment, dated as of January 30, 1998, to the October
                  Plan (incorporated by reference to Exhibit A of Phoenix's
                  definitive proxy statement on Schedule 14A for its 1998 annual
                  meeting of shareholders, File No. 0-20937 (the "1998 Proxy")).

10.7              Revised Form of Stock Option Agreement for the October Plan
                  (incorporated by reference to Exhibit 10.45 of the 1996
                  Registration Statement).*

10.8              Phoenix International Ltd., Inc. 1996 Director Stock Option
                  Plan (the "Director Plan") (incorporated by reference to
                  Exhibit 10.46 of the 1996 Registration Statement).*

10.9              First Amendment to the Director Plan (incorporated by
                  reference to Exhibit B to the 1998 Proxy).*
</TABLE>
<PAGE>   82
10.10             Form of Stock Option Agreement under the Phoenix International
                  Ltd., Inc. 1996 Director Stock Option Plan (incorporated by
                  reference to Exhibit 4.7 of the Form S-8).*

10.11             Phoenix International Ltd., Inc. 1998 Employee Stock Purchase
                  Plan (incorporated by reference to Exhibit C of the 1998
                  Proxy).*

10.12             Form of Phoenix's Director Indemnity Agreement (incorporated
                  by reference to Exhibit 10.47 of the 1996 Registration
                  Statement).

10.13             Employment Agreement by and between Phoenix and Bahram
                  Yusefzadeh, dated December 28, 1995 (incorporated by reference
                  to Exhibit 10.14 of the 1996 Registration Statement).*

10.14             First Amendment to Employment Agreement by and between Phoenix
                  and Bahram Yusefzadeh, dated May 22, 1996 (incorporated by
                  reference to Exhibit 10.15 of the 1996 Registration
                  Statement).*

10.15             Amended and Restated Employment Agreement by and between
                  Phoenix and Raju M. Shivdasani, dated as of March 20, 1998
                  (incorporated by reference to Exhibit 10.3 of Phoenix's Form
                  10-Q, dated May 6, 1998, File No. 0-20937 (the "First Quarter
                  1998 10-Q")).*

10.16             Employment Agreement by and between Phoenix and Harold C.
                  Boughton, dated June 3, 1996 (incorporated by reference to
                  Exhibit 10.1 of the Second Quarter 1996 10-Q).*

10.17             Employment Agreement dated as of March 6, 1998 by and between
                  Phoenix and Daniel P. Baker (incorporated by reference to
                  Exhibit 10.4 of the First Quarter 1998 10-Q).*

10.18             Form of Employment Agreement by and between Phoenix and its
                  senior vice presidents (incorporated by reference to Exhibit
                  10.20 to Phoenix's Annual Report on Form 10-K for the year
                  ended December 31, 1998 (File No. 0-20937) (the "1998 Form
                  10-K")).

10.19             Form of Employee Confidentiality Agreement (incorporated by
                  reference to Exhibit 10.19 of Phoenix's Annual Report on Form
                  10-K for the year ended December 31, 1996, File No. O-20937)
                  (the "1996 10-K")).

10.20             OEM Software License Agreement, dated June 30, 1995, between
                  Phoenix and Gupta Corporation (incorporated by reference to
                  Exhibit 10.26 of the 1996 Registration Statement).+

10.21             Form of Domestic Software License Agreement (incorporated by
                  reference to Exhibit 10.1 of Company's Form 10-Q, dated July
                  31, 1998, File No. 0-20937 (the "Second Quarter 1998 10-Q")).

10.22             Form of International Software License Agreement (incorporated
                  by reference to Exhibit 10.2 of the Second Quarter 1998 10-Q).

10.23             Form of Confidentiality and Non-Disclosure Agreement
                  (incorporated by reference to Exhibit 10.34 of the 1996
                  Registration Statement).

10.24             Form of Confidentiality Agreement (incorporated by reference
                  to Exhibit 10.35 of the 1996 Registration Statement).

10.25             Form of Mutual Non-Disclosure Agreement (incorporated by
                  reference to Exhibit 10.36 of the 1996 Registration
                  Statement).
<PAGE>   83
10.26             Form of Confidentiality/Non-Disclosure Agreement Remitting
                  Access to System Documentation and Data Files for Data
                  Conversion (incorporated by reference to Exhibit 10.37 of the
                  1996 Registration Statement).

10.27             Form of Phoenix International Ltd., Inc. Confidentiality
                  Agreement (incorporated by reference to Exhibit 10.38 of the
                  1996 Registration Statement).

10.28             The Principal Financial Group Prototype for Savings Plans
                  (401k), as amended, and the Group Annuity Contract for Phoenix
                  (incorporated by reference to Exhibit 10.41 of the 1996
                  Registration Statement).*

10.29             Remarketing Agreement and Support Authorization, dated as of
                  April 22, 1996, between Phoenix and Computer Systems
                  Associates (Nigeria) Limited ("CSA") (incorporated by
                  reference to Exhibit 10.42 of the 1996 Registration Statement)
                  (the "CSA Agreement").+

10.30             Lease Agreement, dated September 11, 1996, between Phoenix and
                  500 International Parkway Development Company (incorporated by
                  reference to Exhibit 10.1 of Phoenix's Form 10-Q, dated
                  November 5, 1996, File No. 0-20937).

10.31             Addendum to Lease Agreement, dated March 17, 1997, between
                  Phoenix and 500 International Parkway Development Company
                  (incorporated by reference to Exhibit 10.1 of Phoenix's Form
                  10-Q, dated May 8, 1997, File No. 0-20937 (the "First Quarter
                  1997 10-Q")).

10.32             Cooperative Marketing Agreement, dated March 26, 1997, between
                  Phoenix and International Turnkey Systems (incorporated by
                  reference to Exhibit 10.2 of the First Quarter 1997 10-Q).+

10.33             Cooperative Marketing Agreement, dated June 28, 1997, between
                  Phoenix and Siemens Nixdorf Informations systeme AG
                  (incorporated by reference to Exhibit 10.49 of Phoenix's
                  Registration Statement on Form S-1 (No. 333-31415), as
                  declared Effective by the Securities and Exchange Commission
                  on August 13, 1997 (the "1997 Registration Statement")).

10.34             Cooperative Marketing Agreement, dated April 16, 1997, between
                  Phoenix and Advanced Financial Systems, Inc. (incorporated by
                  reference to Exhibit 10.51 of the 1997 Registration
                  Statement).+

10.35             Software License and Development Agreement, dated as of
                  January 15, 1998, between Phoenix and Intercept Systems, Inc.
                  (incorporated by reference to Exhibit 10.2 of the First
                  Quarter 1998 10-Q).+

10.36             Source Code License and Marketing Agreement, dated as of March
                  31, 1998, between Phoenix and CSA (incorporated by reference
                  to Exhibit 10.2 to the First Quarter 1998 10-Q).+

10.37             Agreement for Software Services in Relation to Phoenix Banking
                  system dated September 30, 1998 between Phoenix and Siemens
                  Nixdorf Information Systems Pty. Limited (incorporated by
                  reference to Exhibit 10.1 to Phoenix's Form 10-Q, dated
                  November 4, 1998, File No. 0-20937).

10.38             Disaster Recovery Services Marketing Agreement dated as of
                  December 15, 1998 between Phoenix and SunGard Recovery
                  Services Inc. (incorporated by reference to Exhibit 10.51 of
                  the 1998 Form 10-K).+
<PAGE>   84
10.39             Reorganization and Stock Purchase Agreement dated as of
                  October 5, 1999 between Phoenix and Servers On-Line, Inc. and
                  certain of the shareholders of Servers On-Line, Inc.
                  (incorporated by reference to Exhibit 10.39 to the 1999 Form
                  10-K).

10.40             Contract Purchase Agreement dated as of October 21, 1999
                  between Phoenix, ERAS JV, ERAS, Inc. and TIB Software &
                  Services, Inc. (incorporated by reference to Exhibit 10.40 to
                  the 1999 Form 10-K).

10.41             Master Services Agreement Number 1014 dated as of December 14,
                  1999 between Phoenix and GE Capital Information Technology
                  Solutions - North America, Inc. (incorporated by reference to
                  Exhibit 10.41 to the 1999 Form 10-K).

10.42             Master Software Distribution Agreement dated as of July 6,
                  1999 between Phoenix and Financialware, Inc. (incorporated by
                  reference to Exhibit 10.42 to the 1999 Form 10-K).

10.43             Two Party Escrow Agreement dated as of June 1, 1999 between
                  Phoenix and Fort Knox Escrow Services, Inc. (incorporated by
                  reference to Exhibit 10.43 to the 1999 Form 10-K).

10.44             Commercial Application Partner (CAP) Agreement dated as of
                  November 1, 1996 between Phoenix and Sybase, Inc.
                  (incorporated by reference to Exhibit 10.44 to the 1999 Form
                  10-K).

21.1              Subsidiaries of Phoenix (incorporated by reference to Exhibit
                  21.1 to the 1999 Form 10-K).

23.1              Consent of Ernst & Young LLP, Independent Auditors.

24.1              Power of Attorney (contained on the signature page of this
                  filing).

27.1              Restated Financial Data Schedule for the period ended
                  December 31, 1999 (for Securities and Exchange Commission
                  purposes only).

27.2              Restated Financial Data Schedule for the period ended
                  December 31, 1998 (for Securities and Exchange Commission
                  purposes only).

27.3              Restated Financial Data Schedule for the period ended
                  December 31, 1997 (for Securities and Exchange Commission
                  purposes only).


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

+ Confidential treatment previously granted for portions of such exhibit.

* This agreement is a compensatory plan or arrangement required to be filed as
an exhibit to this Form 10-K/A pursuant to Item 14(c).