UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-14273
INTEGRATED SPATIAL INFORMATION SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 84-0868815
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13119 Professional Drive, Jacksonville, FL 32225
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(Address of principal executive offices)
(Zip Code)
(904) 220-4747
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
11,496,571 Common Shares were outstanding as of December 31, 1998.
Number of pages in this report is 12.
<PAGE>
Table of Contents
Part I, Financial 3
Consolidated Balance Sheet 3
Consolidated Statement of Operations 5
Consolidated Statements of Cash Flow 6
Notes to Consolidated Financial Statements 7
Management Discussion and Analysis 9
Part II Other Information 11
Signature Page 12
<PAGE>
Part 1
Financial Statements
Integrated Spatial Information Solutions, Inc., and Subsidiary
Condensed and Consolidated Balance Sheets
(Unaudited)
December 31, 1998
- --------------------------------------------------------------------------------
Assets
Current:
Cash and Cash Equivalents $ 12,231
Accounts receivable (net of allowance) 2,095,909
Land and building, held for resale, net 1,076,371
Restricted cash 100,000
Prepaid expenses and other 168,388
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Total current assets 3,452,899
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Property and Equipment:
Land and building under capital lease - related party 1,866,667
Equipment and furniture 469,904
Leased assets 289,234
- --------------------------------------------------------------------------------
2,625,805
Less accumulated depreciation (456,893)
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Net property and equipment 2,168,912
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Other Assets
Goodwill, net of accumulated amortization 4,893,692
Other 82,795
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Total other assets 4,976,487
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$10,598,298
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See accompanying notes to financial statements
3
<PAGE>
Integrated Spatial Information Solutions, Inc., and Subsidiary
Condensed and Consolidated Balance Sheets
(Unaudited)
December 31, 1998
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current:
Notes payable - current portion $ 883,094
Obligations under capital leases - related party - current 156,724
Accounts payable 790,920
Accrued expenses 639,004
Deferred revenue 152,314
Accrued litigation settlement 478,165
- --------------------------------------------------------------------------------
Total current liabilities 3,100,221
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Long-term Liabilities
Notes payable, less current maturities 369,052
Obligations under capital leases - related party 1,919,935
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Total long-term liabilities 2,288,987
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Total liabilities 5,389,208
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Commitments and Contingencies
Stockholders' Equity
Cumulative convertible preferred stock,
$.001 par value, 20,000,000 shares authorized,
590 shares issued and
outstanding 1
Common stock, no par value, 2,000,000,000
shares authorized, 11,496,571 shares issued
and outstanding 12,635,423
Additional paid-in capital 3,754,275
Accumulated deficit (11,180,609)
- --------------------------------------------------------------------------------
Total stockholders' equity 5,209,090
- --------------------------------------------------------------------------------
$ 10,598,298
================================================================================
See accompanying notes to financial statements
4
<PAGE>
Integrated Spatial Information Solutions, Inc., and Subsidiary
Condensed and Consolidated Statements of Operations
(Unaudited)
Three Months Ended December 31, 1998 1997
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Revenues $ 2,043,168 $ 1,800,929
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Costs and expenses:
Salaries and employee benefits 1,303,375 1,271,394
Direct contract costs 348,700 325,051
Other operating costs 635,570 823,144
- --------------------------------------------------------------------------------
Total costs and expenses 2,287,645 2,419,589
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Operating loss (244,477) (618,660)
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Other Income (expense):
Interest expense (130,142) (94,706)
Other income 595 59,657
Other expense -- (103,171)
- --------------------------------------------------------------------------------
Total other income (expense) (129,547) (138,220)
- --------------------------------------------------------------------------------
Net loss from continuing operations (374,024) (756,880)
Loss from discontinued operations (109,959)
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Net loss (374,024) (866,839)
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Preferred stock dividends (12,241) (14,910)
Deemed preferred stock dividends (83,333)
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Net loss attributable to
common stockholders $ (388,265) $ (965,082)
- --------------------------------------------------------------------------------
Basic and diluted loss per common share:
Loss from continuing operations attributable to
common stockholders $ (0.03) $ (0.09)
Loss from discontinued operations (0.01)
Loss attributable to common stockholders (0.03) (0.10)
- --------------------------------------------------------------------------------
Weighted average number of shares of
common stock outstanding 11,462,223 8,346,053
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
5
<PAGE>
Integrated Spatial Information Solutions, Inc., and Subsidiary
Condensed and Consolidated Statements of Cash Flow
(Unaudited)
Three Months Ended December 31, 1998 1997
- --------------------------------------------------------------------------------
Operating Activities
Net loss $ (374,024) $ (866,840)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 206,910 226,509
Stock options and warrants issued for
services performed 15,236 65,451
Forgiveness of debt (16,207)
Write off of accumulated depreciation due to
discontinued operations (129,002)
(Increase) decrease in accounts receivable 472,814 173,946
Decrease in accrued settlement liability (832) (42,003)
(Increase) decrease in other assets 7,526 88,972
Increase (decrease) in accounts payable 108,954 (499,961)
Decrease (increase) in accrued expenses (219,021) 81,093
Increase (decrease) in deferred revenue 39,268 (107,379)
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Net cash generated (used) by operating activities 237,751 (1,025,421)
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Investing Activities
Purchase of equipment (23,543)
Accumulated depreciation adjustment (3,286)
Receipt from sale of assets 994,069
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Net cash (used) provided by investing activities (26,829) 994,069
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Financing Activities
Payments on checks written against future deposits (207,650) (209,591)
Proceeds from borrowing 60,000
Payments on debt (106,086) (450,256)
Issuance of common stock 5,031
Issuance of convertible preferred stock 212,500
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Net cash provided (used) by financing activities (253,736) (442,316)
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Net decrease in cash (42,814) (473,668)
Cash and cash equivalents, beginning of period 55,045 582,326
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Cash and cash equivalents, end of period $ 12,231 $ 204,476
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See accompanying notes to financial statements
6
<PAGE>
Integrated Spatial Information Solutions, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. The Company believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position as of December 31, 1998, the consolidated results of its operations for
the three-month periods ended December 31, 1998, and 1997 and statements of cash
flows for the three-month periods then ended.
The accounting policies followed by the Company are set forth in the annual
report of September 30, 1998, filed on Form 10-KSB, as amended, and the audited
consolidated financial statements therein with the accompanying notes thereto.
While management believes the procedures followed in preparing these
consolidated financial statements are reasonable, the accuracy of the amounts
are in some respects dependent upon the facts that will exist, and procedures
that will be accomplished by the Company later in the year.
The consolidated results of operations for the three-month period ended December
31, 1998, are not necessarily indicative of the results to be expected for the
full year ending September 30, 1999.
(2) Accounts Receivable
Accounts receivable contain amounts computed under the cost-to-cost method to
determine percentage of completion as described in the Form 10-KSB for September
30, 1998.
(3) Provision for Income Taxes
At the beginning of the fiscal year the Company had net operating loss
carryforwards of $6.0 million with expirations through 2018. At December 31,
1998, the amount of the net operating loss carryforward balance is estimated at
$6.4 million. The Company expects to incur a minimal amount of alternative
minimum tax for the fiscal year. Since the Company is unable to determine that
deferred tax assets exceeding tax liabilities are more likely than not to be
realized, it will record a valuation allowance equal to the excess deferred tax
assets at fiscal year end.
(4) Litigation
The Company previously filed with the Armed Services Board of Appeals an appeal
of certain reprocurement costs related to the difference between the Company's
contract price and the price incurred by DLA from the next lowest vendor as
provided for in the Federal Acquisition Regulations. A hearing date was
eventually set for February of 1999 and has recently been rescheduled to late
March to allow execution of a settlement agreement. The Company had also
recorded a reserve of $521,000 for the loss in June, 1996 and believed that
amount to be sufficient for the possible reprocurement costs. Subsequent to this
quarter, counsel for DLA has verbally agreed to a de minimis settlement of the
appeal. (See also Item 3, Legal Matters, and Note 5, Litigation, to the
financial statements in Form 10-KSB, as amended, for September 30, 1998.)
7
<PAGE>
(5) Lease Obligations
The Company leases various equipment as well as facilities under capital leases
that expire through the year 2003 as noted in Note 7 to the Financial Statements
in Form 10-KSB, as amedned, September 30, 1998.
(6) Subsequent Events
Convertible Preferred Stock. In January, 1999, the holders of Series A, 6%
Cumulative Convertible Redeemable Preferred Stock converted 100 shares into
common stock in accordance with the issue agreement. Accordingly, the Company
issued 461,552 shares of its common stock in exchange.
Litigation Settlement. See also, Note 4, Litigation, above regarding the pending
verbal settlement with the Government.
Line of Credit Commitment Letter. On February 9, 1999 the Company was verbally
advised by a representative of the lending institution the institution was
withdrawing the commitment letter for the line of credit and refunding the
origination fee. The Company is in discussions with two other institutions for
alternative sources of working capital.
7. Accounting for Preferred Stock Convertible at a Discount to the Market.
The statement of operations gives effect for a discount of 25% of the common
stock which would result and be deemed to be additional dividend to the holders
of the Company's 6% convertible preferred stock sold on October 14, 1997. That
convertible preferred stock was convertible into common stock at a 25% discount
to the five day average market price of the common stock immediately preceding
the conversion date which was lower than the five day average market price at
the date of placement. This difference, $83,333 for the prior year first
quarter, on the first possible date of conversion is an imputed discount and is
deemed to be additional dividend available to the holders of the preferred stock
which reduced prior year first quarter income available to common stock
shareholders. Accordingly, it was reduced from cumulative net income to arrive
at net income attributable to common shareholders.
8. Net Loss Per Common Share.
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 128 issued by the Financial
Accounting Standards Board. SFAS No. 128 provides for the calculation of "Basic"
and "Diluted" earnings per share. Basic earnings per share includes no dilution
and is computed by dividing loss available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, to fully diluted earnings per share.
Because the Company incurred net losses in both three month periods ending
December 31, none of its outstanding options or warrants were included in the
computation of diluted earnings per share as their effect would be
anti-dilutive. The total of warrants and options outstanding at December 31,
1998 and December 31, 1997 were 6,499,727 and 6,967,850, respectively.
PART 1, ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OPERATIONS
Forward-Looking Statements. This quarterly report contains certain
forward-looking statements that describe the future business, prospects, actions
and possible results of Integrated Spatial Information Solutions, Inc. (the
"Company") and the expectations of the Company and its management which are not
historical facts and therefore constitute forward-looking statements as
contemplated in the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
8
<PAGE>
uncertainties that could cause actual results to differ materially from those
set forth. As a result, there also can be no assurance that the forward-looking
statements included herein will prove to be accurate or that the objectives and
plans of the Company will be achieved.
Financial Condition:
Liquidity. Cash decreased $42,814 to a total of $12,231 from $55,045 at
September 30, 1998. The decrease was primarily due to the reductions in current
liabilities as well as the net operating loss for the quarter.
Presently, the Company has working capital of approximately $352,678 versus
negative working capital of $957,000 a year prior. The primary reason for this
improvement is the reclassification of $1,076,,371 to current assets
representing the Company's real property in Franktown, Colorado in light of the
lessee's action to exercise his purchase option. The Company and the lessor are
negotiating a final purchase price and expect to complete the transaction in the
near future.
The Company's current ratio of total current assets to current liabilities
increased to 1.11:1 from .71:1 a year ago while it decreased slightly from
1.20:1 at September 30, 1998.
Should the sale of the real property not be timely completed, the Company's
liquidity could be adversely affected by the balloon payment of $680,000
required on March 3, 1999 if management's attempts at extending the due date of
the note or finding a replacement lender were to not be successful.
As a result of losses from operations, the forthcoming required balloon payment
related to the mortgage note, and limited working capital, the Company's ability
to timely meet payment due dates could be in question. Management's plan to
continue the operation of the Company includes: raising funds through additional
debt or equity instruments, of which there can be no assurance; the negotiation
of a credit facility for additional acquisition and operating capital needs;
expected increased cashflows from new contracts awards on which revenue
producing work has begun; and constraining the cost of operations coupled with
an additional contingency plan to generate further cost reductions and improved
cash flows.
Capital Resources. During the fourth quarter of the prior fiscal year the
Company sold a total of 700 shares of convertible preferred stock in a private
offshore transaction which resulted in net funding of approximately $463,000.
The Company has established strong relations with investment banking entities.
Accordingly, management believes it may be able to secure a credit facility
large enough to support its near term acquisition program and required working
capital. In addition, the Company is in discussions with two financial
institutions with the intent of arranging an asset-based line of credit.
The Company's long-term liquidity requirements may be significant in order to
implement its plans. There can be no guarantee such funds can be secured.
Results of Operations:
First Quarter of Fiscal Year 1999
Revenue for the first quarter of FY 1999 reached $2,043,168 and was generated
entirely by the Company's operating subsidiary, PlanGraphics, Inc. from
geographic information systems activities. This level of current quarter revenue
reflects an increase of 11.8% over the same period of the prior year. The
increase over the prior year level of operations for the same quarter resulted
from the expansion of contract activity.
The Company's total costs and expenses reached $2,287,645 or 119.6% of revenue,
an improvement of $131,944 over the prior year. This amount reflects
approximately $187,574 in reductions to other operating costs and is offset by
slight increases in salaries and employee benefits and from increased direct
contract costs.
9
<PAGE>
The operating loss decreased by $373,523 to $244,477 from last fiscal year's
first quarter total of $618,660, reflecting management's efforts to improve
operations.
Interest expense increased over that of the prior year by $35,436 as a result of
two factors, the payment of a line of credit origination fee and increased rate
of interest connected with the new mortgage on the Company's former
manufacturing facility, increased interest attributable to lease financing at
the operating subsidiary. Other expense decreased $103,171 from the prior year
amount primarily due the absence of certain consulting fees and acquisition
expenses.
Other income also decreased from prior year totals because $16,207 reflecting
nonrecurring forgiveness of debt in the 1997 first quarter.
First Quarter of Fiscal Year 1998
Revenue for the first quarter of FY 1998 amounted to $1,800,929 and was
generated entirely by the Company's operating subsidiary, PlanGraphics, Inc.,
from geographic information systems activities and was not comparable with
restated revenue of nil for the first quarter of the prior fiscal year. This
level of first quarter revenue reflected a decline of 28.1% from the
subsidiary's revenue for the same period of the prior year. The decline from the
subsidiary's prior year level of operations for the same quarter resulted from
the winding down of a significant long-term contract and a delay in the
commencement of work on replacement contract activity. It was, however, an
increase over the subsidiary's FY 1997 fourth quarter revenue reflecting growing
backlog increased sales over that period.
The Company's total costs and expenses reached $2,419,589 or 134.4% of revenue.
Approximately $381,176 was related to parent company general and administrative
costs and was not comparable to reported costs for the prior year that resulted
from discontinued operations of the Company. Of this amount, approximately
$125,000 was related to actions resulting from merger and acquisition
activities; and another $98,000 of acquisition amortization expenses were
recorded also. The balance, $1,940,413, was related to GIS operations and
reflected a decrease from the costs for the same period, a year prior which were
not publicly reported. The decline in GIS related costs resulted from management
actions to reduce staffing and operating costs in response to the impending
temporary decline in revenue.
Interest expense for FY 1998 first quarter increased over that of the prior year
by $60,757 as a result of the interest costs added from the GIS subsidiary
acquired late in the fourth quarter of FY 1997. However, trend analysis of both
parent company interest ($6,452) and subsidiary interest ($88,254) for the FY
1998 first quarter compared to interest expenses for the same period of FY 1997
revealed a decrease of 78% for the parent company due to certain leased
equipment costs no longer occurring because of the divestiture of manufacturing
assets and due to the retirement of an SBA-held note and a decrease of 15% in
subsidiary generated interest expenses resulting from retirement of certain
debt.
Other expense increased over prior year expense primarily due to acquisition
expenses ($75,475) which were not reported in prior year totals.
Other income increased over prior year totals as a result of forgiveness of debt
from restructuring ($16,207) and the balance from inclusion of the subsidiary
results.
Loss from discontinued operations is a result of certain first quarter expenses
related to the Company's manufacturing operations which were not accrued during
the same period of the prior year.
Contract Backlog
The Company's has reported a backlog of GIS contracts and work assignments
amounting to approximately $9.0 million. The year prior there was $8.0 million
of uncompleted work in the backlog.
10
<PAGE>
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 4.
ITEM 2. CHANGES IN SECURITIES
During the current quarter, a holder of convertible preferred stock submitted 10
shares of Series A 6% Convertible Redeemable Preferred Stock for conversion into
common stock. The Company issued 40,000 shares of its common stock in exchange.
Subsequent to the end of the quarter, the holders submitted100 shares of
preferred stock for which the Company issued 461,552 shares of common stock in
exchange.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K.
Exhibits filed since the beginning of the current quarter:
Exhibit 10.6 Executive Employment Agreement between the Company and Robert S.
Vail, filed as part of Form 10-KSB on January 13, 1999.
Reports on Form 8-K filed since the beginning of the current quarter:
Not applicable.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Integrated Spatial Information Solutions, Inc .
Dated: February 15, 1999
/S/ Fred Beisser
-------------------------------------------
Frederick G. Beisser
Vice President-Finance & Administration,
Secretary & Treasurer and Principal
Financial Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTIANS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 12,231
<SECURITIES> 0
<RECEIVABLES> 2,095,909
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,452,899
<PP&E> 2,625,805
<DEPRECIATION> (456,893)
<TOTAL-ASSETS> 10,598,298
<CURRENT-LIABILITIES> 3,100,221
<BONDS> 0
1
0
<COMMON> 12,635,423
<OTHER-SE> (7,426,334)
<TOTAL-LIABILITY-AND-EQUITY> 10,598,298
<SALES> 0
<TOTAL-REVENUES> 2,043,168
<CGS> 0
<TOTAL-COSTS> 2,287,645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,142
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (374,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (388,265)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
