UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from_____________to_____________
Commission file number 0-14273
Integrated Spatial Information Solutions, Inc.
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(Name of small business issuer)
Colorado 84-0868815
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13119 Professional Drive, Suite 200, Jacksonville, Florida 32225
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(Address of principal executive offices) (Zip code)
Issuer's telephone number (904) 220-4747
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class
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Common Stock, no par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act during the past 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
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $8,146,367.
As of December 31, 1998, the aggregate market value of the shares of the
issuer's voting stock held by non-affiliates of the issuer based on the average
of closing bid and asked prices of the Common Stock as reported on the OTC
Bulletin Board, was approximately $4,013,295.
As of December 31, 1998, the issuer had outstanding 11,456,571 shares of Common
Stock.
Transitional Small Business Disclosure Format: Yes [ ]; No [ X ]
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PART I
This Amendment No. 1 to Annual Report on Form 10-KSB is filed to clarify at
Management's Discussion and Analysis of Financial Condition and Result of
Operations information set forth more fully at Note 15 of the financial
statements accompanying the originally-filed Report.
This annual report contains forward-looking statements that describe the
business and prospects of Integrated Spatial Information Solutions, Inc. (the
"Company") and the expectations of the Company and management. These statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those set forth. These risks and uncertainties include
but are not limited to: the timing of and expense associated with, expansion and
modification of the Company's operations in accordance with its business
strategy or in response to competitive pressures or other factors arising in the
future. All statements other than statements of historical fact included in this
annual report, including without limitation, expected growth of the domestic and
global geographical information systems markets, beliefs regarding the strength
of the Company's market position with respect to new or contemplated business
strategies and activities, expectations regarding availability and marketability
of new digital imaging products, anticipated growth in the Company's revenue and
profitability, cash operating costs and certain significant expenses, and
potential acquisitions of, or strategic partnering with, other geographic
information system providers, are forward-looking statements. Factors that could
cause actual results to differ materially include, among others, the entry of
new companies into the geographic information systems business, unanticipated
competition from new strategic alliances in the industry, increased price
competition from software manufacturers and affiliated vendors, decreased
reliance on custom design software services, shifts in governmental policy on
the availability of government-owned data and difficulties in hiring and
retaining sufficient numbers of professional and other skilled personnel. All
forward-looking statements included in this annual report are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update such statements. Although the Company believes that the
assumptions and expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct or that the Company will take any actions that may presently be
planned.
Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition (Liquidity and Capital Resources)
The following discussion of liquidity and capital resources addresses the
combined requirements and sources of the Company and its subsidiaries as of
September 30, 1998.
Liquidity
At September 30, 1998, the Company had working capital of $653,180 and its
current ratio was 1.20:1; unrestricted cash balances available for immediate use
amounted to $55,045. Compared with negative working capital in the prior year of
($413,041) when the current ratio was .91:1 and cash balances available for use
amounted to $582,326. The increase in working capital is primarily associated
with the imminent sale of the property, land and building combined with
reductions of liabilities and debt. Changes in cash during fiscal year 1998 (FY
1998) resulted in a net decrease of $527,281 as compared to an increase during
fiscal year 1997 (FY 1997) of $372,689. The primary cause for the decrease in
cash during FY 1998 was reduction of debt and accounts payable.
The Company has, at the end of FY 1998, lease payment commitments through 2003
of $1,976,864 which will require total annual payments of approximately $543,000
in fiscal year 1999 (FY 1999). Of this required payment amount, approximately
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$419,000 is for capital lease obligations and $124,000 relates to operating
leases. Management believes normal operating cash flows are adequate to fund
these payments. (See also Note 7 to the Financial Statements). The Company
considers its facilities adequate to support anticipated sales and operations
for the next several years; accordingly, no commitments for additional
facilities expansion have been entered into for the twelve months ended
September 30, 1998. Approximately $831,000 of principal payments on notes
payable are due during fiscal year 1999. Of this amount, $620,000 is related to
the property in Franktown, Colorado and is expected to be paid from proceeds
received from the pending sale of the building. The remaining balance of
$211,000 is structured in monthly payments and management believes monthly cash
flows will be adequate to meet these obligations.
Cost reductions and other efficiencies associated with improved operational
performance at the operating subsidiary during the third and fourth fiscal
quarters of FY 1998 have achieved enhanced financial performance. This coupled
with the increased backlog of work ($9.7 million as compared with $7.5 million a
year ago) is expected to have a positive effect on future cash flows from
operations. As discussed at Note 15 in the accompanying financial statements,
the Company has secured a letter of intent for a line of credit for up to $3
million based upon accounts receivable; the line of credit would provide cash
advances of up to 75 percent of eligible receivables thereby potentially
resulting in enhanced available cash resources by making cash available sooner
from qualifying outstanding accounts receivable. The pending sale of the
Franktown, Colorado real property (See Item 2, Description of Property, above)
will also yield net cash after liquidation of the debt associated with the
property which is expected to fund parent company recurring cash requirements
for FY 1999. While the Company has a litigation reserve of $478,997 for
reprocurement costs assessed by the federal government, it has recently learned
it may be able to resolve the matter for a lesser amount including its own legal
costs which are already accrued as a liability. Accordingly, the Company
believes it has adequate liquidity and capital resources to be able to meet the
known cash requirements resulting from pending litigation and its current level
of operations from presently projected cash inflows.
In order to carry out its expansion plans during FY 1999, the Company believes
it will need to raise additional funds through equity or debt placements in
order to meet its cash needs for expansion efforts until it can operate on
internally generated cash flows in the expanded form. While the Company has been
successful in raising funds through debt and equity, there is no guarantee the
Company will be successful in raising additional funds.
The Company does not believe that its business has been significantly impacted
during the past three years by general cost inflation; however, it has noted a
trend of increasing compensation required to fill its key professional staffing
positions during the past year.
As a result of SEC guidance issued in early 1997 with respect to beneficial
conversion features in connection with the issuance of convertible preferred
stock, the Company was deemed to recognize non-cash preferred stock dividends
totaling approximately $476,112 in FY 1998 and $892,592 in FY 1997. This amount
is equivalent to the discount from the fair market value of the common stock
given to the purchasers of the Preferred Stock calculated as of the date of
issuance of such stock.
Primarily as a result of collection of the amount due from sale of assets of
$1.1 million, the reclassification of the property, land and building held for
sale, and application of the proceeds to reduction of payables and debt, current
assets decreased $136,285 from $4,120,826 in the prior year to $3,984,541 in the
current year.
Cash used in operating activities during FY 1998 ($2.4 million) increased
significantly ($2.1 million) over the FY 1997 usage of $249,346. Major causes
for the increased use were reductions of accounts payable ($669,604 decrease
versus an increase of $95,803 in FY 1997), reductions of accrued expenses
($299,089 decrease versus increase of $526,883 in FY 1997) and a decrease in
deferred revenue ($76,308 decrease versus an increase of $156,701 in FY 1997).
In addition, operating activities of the subsidiary encompassed an entire year
for FY 1998 versus only nine business days in the report for FY 1997, thereby
contributing to the increased use of cash in FY 1998. Sources for the cash used
were the $527,281 reduction of cash available, investing activities provision of
net cash of $856,823 and a net amount of $972,832 cash provided by financing
activities after making $2 million in payments on debt.
Capital Resources
The Company has taken actions to increase its exposure to the investment banking
community by apprising relevant principals of its diversification activities,
acquisition program and other business development endeavors designed to result
in new business. As a result the Company has secured needed financing through
the placement of equity pursuant to Regulations D and S, as noted in Item 5,
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Market For Common Equity and Related Stockholder Matters. As discussed at Note
15 in the accompanying financial statements, the Company has also secured a
letter of commitment for a $3 million asset based line of credit for internal
working capital needs. In addition, the Company has received expressions of
interest from several entities for providing additional credit facilities in
support of its acquisition program. An additional placement of equity or debt or
the successful negotiation of a credit facility will be needed to meet projected
cash demands for expansion programs. There can be no assurance the Company will
be successful in these efforts.
Results of Operations
The following discussion of Results of Operations addresses the Company's
operations in light of its September 1997 acquisition of PlanGraphics, Inc. (the
"subsidiary") which now constitutes its Continuing Operations. See also the
forward looking statement disclaimer in Part I as it pertains to nonfactual and
non-historical statements appearing within this section.
Continuing Operations--Fiscal Year 1998 compared to Fiscal Year 1997
The reported consolidated revenue for FY 1998 is not comparable with that
reported for the prior year as only eight days of revenue from the operating
subsidiary were included in FY 1997 revenue. Revenue for FY 1998 was $8,146,367
compared with the subsidiary's operating revenue of $8,204,236 for the period
ended September 30, 1997 as disclosed in Note 1 to the consolidated financial
statements, a slight decrease of $57,869 or 0.7% from the prior year. The
decrease in revenue is associated with the winding down of a several contracts
and delays in the startup of replacement contract activities. The Company
recognized the potential for flat revenue and added two full time sales persons
to help develop the increased backlog for FY 1999 as discussed below.
Total FY 1998 costs and expenses amounted to $10,548,156, or 129.5% of revenue.
This amount is also not comparable to the reported prior year total as only
eight days of subsidiary costs and expenses were included in the reported figure
along with costs of operating the parent company. Comparable costs and expenses
for FY 1997 amounted to $10,115,628, which when compared to FY 1998 amounts
results in an increase of $432,528, or 4.1%. Significant reductions in costs and
expenses were experienced in overhead at the subsidiary ($584,000) and noncash
compensation expenses required by SFAS 123 and APB 25 ($487,000). These
decreases were offset by increases in salaries and benefits of $582,000 at the
subsidiary, and $173,886 at the parent, consulting fees of $316,000, and audit
and legal fees of approximately $174,000.
Interest expense amounted to $540,490 during FY 1998, which is comparable to the
$541,744 of interest expense actually incurred during the prior year. It is not
comparable to the amount of $126,263 reported for the prior year, however, as
$415,481 FY 1997 interest expense was embedded partially within the costs of
discontinued operations for FY 1997 as well as partially within subsidiary
activities occurring prior to consummation of the acquisition.
Other income and expense decreased significantly from the prior year as the
prior year period included a one-time receipt of key man life insurance proceeds
of $400,000. In addition, FY 1998 included the expense for the write down of
capitalized software of $262,927. These reductions to the total are somewhat
offset by the collection of rent ($149,750) from the lease on the Franktown,
Colorado real property.
Discontinued Operations--Fiscal Year 1998 Compared to Fiscal Year 1997
There were no manufacturing operations during fiscal year 1998.
Operations Outlook.
The Company believes the Geographic Information Systems (GIS) is a global
market, which is rapidly evolving and becoming the basis for a myriad of new
applications creating additional markets. The Company believes the gross
potential profit margins are much higher than presently experienced and is
working to grow the GIS business according to forward looking statements in its
business plan, augmenting growth to be achieved through acquisitions. Presently
the consolidated results are adversely impacted by the overhead structure
developed at the parent company in anticipation of its developing acquisition
program.
Subsequent to fiscal year end, the Company has received new contract and project
awards of approximately $4.5 million bringing its backlog and assignments to
approximately $9.7 million. Management believes this is a result of a more
focused marketing and sales program. At the same date in the prior year, the
Company had approximately $7.5 Million in backlog and assignments.
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Currently, the Company plans to expand through additional acquisitions.
Tax Valuation Allowance--FY 1998
As discussed in Note 6 in the accompanying financial statements, the Company has
net operating loss carry forwards for income tax purposes of approximately $6.1
million. The Company has established a 100 percent valuation allowance on the
net deferred tax asset arising from the loss carry forwards in excess of the
deferred tax liability. The valuation allowance has been recorded as the
Company's management has not been able to determine that it is more likely than
not that the deferred tax assets of the Company will be realized.
Year 2000 Effect
The Company has completed its review of the extent to which its own computer
systems and hardware, and non-information technology equipment, are capable of
operating on and after January 1, 2000 without error or other deficiency ("Year
2000 Compliance"), and believes that the year 2000 will not have a material
impact upon its own software, hardware and non-information technology equipment.
Updates and upgrades which are required are underway, the Company believes that
these will be completed prior to the end of its fiscal year 1999. To date, the
Company has incurred minimal capital expenditures to investigate and remediate
Year 2000 Compliance problems.
Suppliers to the Company consist of database software developers and geographic
information system providers. The Company's review has also included an analysis
of its material suppliers and customers as to the Year 2000 compliance of their
systems and equipment, and the Company has set in motion an effort to obtain
written assurances from these suppliers and customers regarding their Year 2000
Compliance status.
The Company's contingency plan in the event of any customer Year 2000 Compliance
problems is to offer direct consulting and programming services to offset the
demands placed on the clients' internal resources. The Company believes that its
customers would require database construction and development services to
continue during any period in which supplier products experience Year 2000
issues. The Company also believes that the various satellite, airborne and
ground-based sources of data provided to the Company are presently or will
timely be Year 2000 Compliant. The Company's contingency plan in the event
material suppliers are not Year 2000 Compliant is to assist customers in
developing alternate means of obtaining the decision-making guidance previously
provided by non-functioning or unavailable data or database products. There can
be no assurance that the failure of the Company and/or its material customers
and suppliers to timely attain Year 2000 Compliance will not materially reduce
Company revenues, or that these failures and/or the impacts of broader
compliance failures by telephone, mail, data transfer or other utility or
general service providers or government or private entities will not have a
material adverse effect upon the Company.
The Company has incurred de minimis costs insuring it is Year 2000 compliant and
based upon its reviews expects only de minimis costs in the future.
Effect of Recent Accounting Pronouncements.
The issuance of several accounting pronouncements was evaluated by the Company
in FY 1998 (see the Financial Statements, Summary of Accounting Policies). None
of them had a material effect on the consolidated financial statements. The
Company adopted three of these pronouncements in FY 1998 and they are:
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share. This pronouncement provides a different method of calculating earnings
per share which requires the calculation of "Basic" and "Dilutive" earnings per
share.
SFAS 129, Disclosure of Information About an Entity's Capital Structure,
establishes standards for disclosing information about an entity's capital
structure.
Statement of Position 97-2, Software Revenue Recognition, provides guidance on
when revenue should be recognized and in what amounts for licensing, selling,
leasing or other marketing of computer software.
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The pronouncements required to be adopted in the following fiscal years (FYs
1999 and 2000) are:
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and require comparative information for earlier years to
be restated. Because of the recent issuance of these standards, management has
been unable to fully evaluate the impact, if any, the standards may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by the implementation of these standards.
SFAS 132, Employers' Disclosures about Pensions and Other Post-retirement
Benefits, standardizes the disclosure requirement for pensions and other
post-retirement benefits and requires additional information on changes in the
benefits obligations and fair values of plan assets that will facilitate
financial analysis. SFAS 132 is effective for years beginning after December 15,
1997 and requires comparative information for earlier years to be restated,
unless such information is not readily available. Management believes the
adoption of this statement will have no material impact on the Company's
consolidated financial statements.
SFAS No. 133 established standards for recognizing all derivative instruments
including those for hedging activities as either assets or liabilities in the
statement of financial position and measuring those instruments at fair value.
This Statement is effective for fiscal years beginning after June 30, 1999. The
Company has not yet determined the effect of SFAS No. 133 on its consolidated
financial statements.
SFAS No. 134 establishes accounting and reporting standards for certain
activities of mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. The statement is effective for the first fiscal
quarter beginning after December 15, 1998. Because the Company does not conduct
mortgage banking or similar activities, management believes this statement does
not apply to the Company.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this Amendment No. 1 to Form 10-KSB to be signed
on its behalf by the undersigned, thereunto duly authorized.
Integrated Spatial Information Solutions, Inc.
Date: 1/15/99 By: /s/ Fred Beisser
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Frederick G. Beisser,
Vice President Finance and
Administration
