UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(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 ]
Exhibit index begins on page 17
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PART I
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 1 - DESCRIPTION OF BUSINESS
(a) Business Development.
Integrated Spatial Information Solutions, Inc. (the "Company") was incorporated
as DCX, Inc., a Colorado corporation, on December 8, 1981. During two of the
past three years the Company was in the custom design and contract manufacture
of aircraft related electronic interconnect assemblies, principally under
contracts for Department of Defense acquisition programs or for military
aircraft maintenance support. The Company sought to expand and diversify its
business and as a result, on September 22, 1997 it acquired all the outstanding
shares of PlanGraphics, Inc. a geographic information systems ("GIS") company
headquartered in Frankfort, Kentucky. Subsequently, on October 8, 1997 the
Company completed the sale of its defense electronics manufacturing assets which
was effective September 30, 1997. On June 29, 1998, the Company's name changed
to Integrated Spatial Information Solutions, Inc.. For the fiscal year reported
herein, the Company's principal business is carried out through its wholly owned
subsidiary, PlanGraphics, Inc. ("PGI"). PGI's principal business is the design
and implementation of geographic information systems for local, state and
foreign governments, gas, electric and telephone utilities, and other commercial
entities. PGI is a Maryland corporation and was incorporated in 1979.
(b) Business of Issuer
Primary operations.
The Company specializes in the design and implementation of geographic
information systems ("GIS"). GIS combines computer-based interactive map
displays with database management software to analyze and display spatial data.
The digital GIS files manipulated by software become powerful information tools,
which enable public and private sector users to save money and improve operating
efficiencies. GIS is being adopted for an increasing range of commercial
applications as computer technology costs decline. The Company is a fully
integrated GIS implementer providing services in three areas:
Advisory services including strategic planning, feasibility studies,
implementation planning and technology evaluation.
Implementation services including the procurement, installation, training,
operation and development of GIS applications for clients.
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Data integration services including quality control, custom database
construction and maintenance, and data dissemination to facilitate the use of
GIS data by technical and other users with a need for resulting information.
GIS applications and services have become decision making tools for utilities,
local and state government agencies, and land and resource management
organizations in a wide range of applications, including land management,
mineral exploration, crop management and forecasting, environmental remediation,
military planning and surveillance, infrastructure development and construction,
and business market analysis. The domestic GIS market is presently estimated in
excess of $2 billion and the worldwide market in excess of $6 billion.
The Company's operating subsidiary has a Vice President for Business Development
and three business development representatives and also develops additional
business and follow-on assignments through its executive management staff. In
addition, the Company maintains strategic alliances with, among others, Oracle,
ESRI, Autodesk, Intergraph and Smallworld.
During 1998 the Company's subsidiary became a reseller of high resolution space
imagery pursuant to an agreement with Space Imaging/EOSAT.
The market for GIS services is divided into two broad categories--the government
sector, which includes agencies at all levels and is presently the larger of the
two categories, and the commercial sector. The GIS market is highly competitive
and the Company competes with a number of companies engaged in offering similar
services. Competition emanates from four principal sources: competing GIS
services companies with financial ties to software vendors, the internal
consulting practices of GIS software vendors, engineering firms, and small GIS
specialty firms. Some of these competitors are better funded and some of them
are small companies with much lower indirect costs. The Company believes it
competes effectively on the basis of breadth and depth of expertise,
independence, and sensitivity to the client's requirement for responses and
timeliness; however, there can be no assurance that the Company will be able to
compete successfully in the future on these terms.
The Company regards as proprietary certain of its developed software
applications, and attempts to protect these with a combination of copyright,
trademark and trade secret laws, employee and third party nondisclosure
agreements, and other methods of protection. As in any attempt to protect
proprietary matters, despite precautions it may be possible for unauthorized
third parties to copy certain portions of the Company's products or reverse
engineer or obtain and use information the Company regards as proprietary. There
can be no assurance that the Company's intellectual property rights can be
successfully asserted in the future or will not be invalidated, circumvented or
challenged. In addition, the laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United States. Any
misappropriation of the Company's intellectual property could have an adverse
effect on the Company's business and results of operations. Furthermore,
regardless of the degree of caution exercised by the Company, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future with respect to current or future products. Any such
assertion could require the Company to enter into royalty arrangements or defend
its proprietary rights.
Historically PGI has had some concentration of revenue (and associated accounts
receivable balances) in certain customers. During the FY 1998 approximately 11.6
percent of its sales were concentrated in one customer as compared to fiscal
year 1997 when 25.6 percent of its sales were concentrated in another customer.
In addition, at September 30, 1998, two customers accounted for 14.3 percent and
11.1 percent of accounts receivable. The loss of such a key customer could have
an adverse impact on near term revenue.
The Company has incurred only de minimis costs in complying with environmental
laws. No research and development costs were incurred.
Presently the Company employs a total of 70 full time employees and 16 part-time
employees.
Discontinued operations.
Until September 30, 1997, the Company historically provided custom manufacturing
services and products to the aerospace and commercial markets and was successful
in increasing revenues and diversifying its customer base. The Company focused
primarily on the engineering design, development, test and custom manufacture of
medium technology electrical, electronic and electromechanical assemblies and
systems. The Company also manufactured wire harnesses and cable assemblies for
use by industrial, commercial, computer and communications industries and for
the Federal Government.
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Item 2 - DESCRIPTION OF PROPERTY
The Company leases commercial property suitable for its purposes in several
locations. The Company leases land and a building of approximately 20,500 square
feet in Frankfort, Kentucky under a triple net capital lease. It also leases
office space in Golden, Colorado of approximately 4,918 square feet and in
Silver Spring, Maryland, of approximately 3,854 square feet.
The Company owns rental property, its former manufacturing facility, which is a
34,000 square foot facility located on a 9.45 acre site on State Highway 83,
north of Franktown, Colorado, between Denver and Colorado Springs. The Company's
property is subject to a mortgage as indicated in the financial statements
included in this report. (See also Note 4 and Note 11 to the Financial
Statements). The facilities are leased to a third party who has exercised an
option to buy the entire facility. The Company and the third party are currently
negotiating the purchase price.
Item 3 - LEGAL MATTERS
The Company has appealed the Government's assessment of excessive reprocurement
costs against the Company on a manufacturing contract terminated for default in
1988. The appeal of the default termination was unsuccessful. The Company has a
reserve of approximately $479,000 for the effect of a possible loss of this
assessment appeal. Final briefs related to a decision on this issue must be
submitted by February 19, 1999; the Company believes it will favorably resolve
the reprocurement cost assessment (See also Note 5 to Financial Statements and
Item 6, Management Discussion and Analysis).
The Company is engaged in various other litigation matters from time to time in
the ordinary course of business. The Company believes the outcome of any such
litigation will not have a material effect on the Company.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) From June 10, 1989 through September 8, 1998, the Company's common stock was
traded on the National Association of Securities Dealers Automated Quotation
("NASDAQ") system on the NASDAQ Small Cap Systemsm.. As a result of not meeting
certain NASDAQ listing requirements, the Company's common stock ceased trading
on the NASDAQ Small Cap Market System and began trading on the Over-The-Counter
Bulletin Board system effective September 9, 1998. The trading symbol is ISSS.
Such quotations reflect inter-dealer prices without retail markup, markdown, or
commission, and may not necessarily represent actual transactions. The quarterly
range of high and low sales prices per share for the past two fiscal years have
been as follows:
Sales Price
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Quarters Ended High Low
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December 31, 1996 $2.56 $ .44
March 31, 1997 1.46 .48
June 30, 1997 1.56 1.16
September 30, 1997 2.24 1.20
December 31, 1997 1.88 .81
March 31, 1998 2.13 .81
June 30, 1998 2.63 1.00
September 30, 1998 1.25 .31
December 31, 1998 .40 .38
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As of December 31, 1998, the Company believes there are approximately 4,250
beneficial owners of the Company's common stock of which 2,212 are registered
with the transfer agent and the balance are held in street name. The Company has
never paid a cash dividend on its common stock. The Company currently intends to
retain any earnings for use in business development.
(b) During fiscal year 1998 the Company sold its Common Stock (No Par Value) in
several private offerings pursuant to Regulation D or Section 4(2) of the
Securities Act of 1933. The shares issued do not have any preemptive rights nor
are they entitled to any dividends.
(1) On April 1, 1998, the Company sold 125,000 shares of its common stock
to two investors. The Company received cash proceeds of $88,000.
(2) On April 17, 1998, the Company sold 480,000 shares of its common stock
in a private placement pursuant to Regulation D. The Company received cash
proceeds of $540,000.
(3) On August 18, 1998, the Company sold 57,142 shares of its common stock
to two investors, one affiliated with the Company and the other unaffiliated.
The Company received cash proceeds of $50,000 in a private placement.
(c) During fiscal year 1998 the Company sold its Series A 6% cumulative
Convertible Redeemable Preferred Stock par value $.001 ("Series A Preferred") in
two private placements to investors in order to restructure debt and to carry
out its plans to move the Company forward. Terms of the Series A Preferred
provide for cumulative dividends at a 6% annual interest rate payable in cash
or, at the option of the Company, in additional shares of Series A Preferred at
the rate of one share of Series A Preferred for each $1,000 of such dividend not
paid in cash. The dividends are cumulative whether or not earned. The Series A
Preferred has a stated value of $1,000 per share. The Series A Preferred do not
have voting rights.
(1) On October 14, 1997, the Company sold a total of 250 shares of its
Series A Preferred Stock, pursuant to Regulation S. The total offering price was
$250,000 and the sale was made in a private offshore transaction to two non US
entities who represented to the Company that they were sophisticated investors.
LH Financial of New York, NY acted as the Company's placement agent for the
transaction. The Company paid total commissions of 15% of the total offering
price. The holders of the 250 shares of Series A Preferred have since converted
all of the preferred stock into common stock. The preceding private sale of the
Series A Preferred was exempt from registration under Regulation S. The sale was
made in an offshore transaction to non US persons or entities, and the purchases
made representations to the Company regarding their status and actions necessary
to comply with Regulation S.
(2) On August 19, 1998, the Company sold a total of 700 shares of its
Series A Preferred Stock in a private placement pursuant to Regulation D. The
total offering price was $700,000 and the sale was made in a private transaction
to two entities who represented to the Company that they were sophisticated
investors. The Ridgefield Group of Ridgefield, CT acted as the Company's
placement agent for the transaction. The Company paid total commissions of 12%
of the total offering price. The holders of the 700 shares of Series A
Preferred, a small quantity of which has since been converted into common stock,
each have a demand and piggy back registration right to permit the public sale
of the underlying common stock. The Company has filed a registration statement
that includes the underlying common stock with the Securities and Exchange
Commission; it was declared effective on November 14, 1998.
Shares of Series A Preferred Stock have the following conversion rights:
(1) Each holder of shares of Series A Preferred Stock shall have the right
at any time and from time to time after sixty (60) days, or such longer period
which may have been agreed to, from the date on which a share of Series A
Preferred Stock was issued, to convert some or all such share into fully paid
and non-assessable shares of Common Stock of the Corporation determined in
accordance with the Conversion Rate provided in Paragraph (2) below (the
"Conversion Rate").
(2) The number of shares Common Stock issuable upon conversion of each
share of Series A Preferred Stock shall equal (I) the sum of (A) the Stated
Value per share and (B) accrued and unpaid dividends on such share, divided by
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(ii) the Conversion Price. The Conversion Price shall be equal to the lessor of:
(I) 105% of the average of the Closing Bid Price (as hereinafter defined) of the
Corporation's Common Stock for the five (5) trading days immediately preceding
the date of issuance of the Series A Preferred Stock; and (ii) eighty percent
(80%) of the average of the lowest Closing Bid Price for three of the 10 trading
days immediately preceding the conversion of the Series A Preferred
Stock(referred to as the "look-back period"). After 150 days following the
issuance of shares of Series A Preferred Stock, the look-back period for such
respective shares will be increased by two days per month for up to a total of
20 days' trading prices to be used in the calculation of the conversion price.
The Closing Bid Price shall mean the Closing Bid Price of the Company's Common
Stock as reported by NASDAQ (or if not reported by NASDAQ as reported by such
other exchange or market where traded).
The Series A Preferred is subject to mandatory conversion two years after the
date of issue.
On September 22, 1997, the Company and PGI consummated the transaction whereby
PGI became a wholly-owned subsidiary of the Company, pursuant to an agreement
whereby the existing stockholders of PGI exchanged their shares of PGI common
stock for shares of the common stock of the Company at an exchange ratio of
2.4476 shares of Company common stock for each share of outstanding PGI common
stock. A total of 2,631,145 shares of Company common stock were subsequently
issued in exchange for PGI common stock held by its former shareholders in a
Regulation D transaction exempt from registration under Section 3(b) of the Act.
As required by the acquisition agreement between the Company and PGI, the
Company subsequently filed a registration statement on Form S-2 for these
shares; the registration statement was declared effective on November 14, 1998.
The Company has issued shares, and warrants and options to acquire shares of its
common stock to various persons and entities in connection with the payment by
the Company of consulting fees and other accounts payable or Company debt. In
each instance, the shares, or warrants or options and the underlying shares were
offered by the Company in a private offering exempt from registration under
Section 4(2) of the Act, based upon the possession by the recipient of relevant
investment information regarding the Company, and the investment intent of the
recipient. These shares, warrants and options consist of the following:
1. On October 15, 1997, the Company converted $289,902 of debt into 170,531
shares of common stock.
2. On October 21, 1997, the Company issued 65,790 shares of common stock to
Transition Partners, Ltd. in consideration of $100,000 of commissions earned as
a result of their professional services.
3. On December 31, 1997, March 31, 1998, and June 30, 1998, anti-dilution
warrants to Transition Partners Ltd. to acquire up to 33,836; 42,707, and 19,500
shares of the Company's common stock at an exercise price of $1.00, $2.125, and
$1.25 per share, respectively, exercisable upon and to the extent of additional
issuances of shares of common stock by the Company after January 15, 1997.
4. On December 31, 1997, March 31, 1998, and June 30, 1998, anti-dilution
warrants to Copeland Consulting Group, Inc. to acquire up to 33,835; 42,708, and
19,500 shares of the Company's common stock at an exercise price of $1.00,
$2.125, and $1.25 per share, respectively, exercisable upon and to the extent of
additional issuances of shares of common stock by the Company after January 15,
1997.
5. On January 7, 1998, options to B. Edward Haun & Company to acquire up to
2,493 shares of the Company's common stock at a price of $0.813, in exchange for
services provided to the Company, exercisable through January 6, 1999.
6. On January 19, 1998, the Company issued 10,538 shares of common stock to
FTS Worldwide and 1,448 shares of common stock to Kemsley Trading in payment of
accrued dividends on preferred stock.
7. On March 3, 1998, options to Steven R. Perles to acquire up to 72,000
shares of the Company's common stock at a price of $1.03, in connection with
professional services rendered to the Company. The options may be exercised by
submitting outstanding invoices in exchange for the exercise price until March
2, 2000.
8. On March 31, 1998, warrants to Ladenburg Thalmann to acquire up to
300,000 shares of the Company's common stock at a price of $2.125, pursuant to
an investment banking agreement, exercisable through March 30, 2000.
9. On March 31, 1998, warrants to James Kaufman to acquire up to 30,000
shares of the Company's common stock at a price of $2.125, in connection with an
investment made in the Company. The warrants are exercisable through March 30,
2000.
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10. On April 16, 1998, the Company issued 100,000 shares of common stock to
First Capital Partners valued at $168,750 in settlement of certain claims
against the Company.
11. On April 20, 1998, the Company issued a total of 7,110 shares of the
Company's common stock to two principals of Find at a price of $1.688, in
exchange for recruiting service fees owed to Find by the Company.
12. On May 28, 1998, warrants to Centex Securities to acquire up to 48,000
shares of the Company's common stock at a price of $1.25 in connection with
financial advisory services, exercisable through March 29, 2002.
13. On May 28, 1998, warrants to certain investors in a private placement
under Regulation D to acquire up to a total of 360,000 shares of the Company's
common stock at a price of $2.50, exercisable through May 27, 2000.
14. On July 23, 1998, the Company issued 13,000 shares of common stock to
B. Edward Haun & Co. in consideration of $9,750 in professional services
rendered to the Company.
15. On August 18, 1998, warrants to an investor affiliated with the Company
and to an unaffiliated investor to acquire up to 5,000 shares each of the
Company's common stock at a price of $0.98 per share, exercisable through August
17, 2001.
16. On August 19, 1998, warrants to Libra Finance to acquire up to 140,000
and 52,500 shares of the Company's common stock at a price of $0.788 and $0.75,
respectively, in connection with financial advisory services, exercisable
through August 18, 2001.
17. On August 19, 1998, warrants to The Ridgefield Group to acquire up to
52,500 shares of the Company's common stock at a price of $0.75, in connection
with financial advisory services, exercisable through August 18, 2001.
18. On September 30, 1998, the Company issued 13,000 shares of common stock
to B. Edward Haun & Co. in consideration of $6,500 of professional services
rendered to the Company.
19. On September 30, 1998, the Company issued 12,500 shares of common stock
to B. Edward Haun & Co. in exchange for $16,406 of professional services
previously rendered to the Company.
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. Subsequent to fiscal year end, the Company has secured a line of
credit for up to $3 million based upon accounts receivable; the line of credit
provides cash advances of up to 75 percent of eligible receivables thereby
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. The Company has also
secured 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.
9
<PAGE>
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.
10
<PAGE>
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.
Item 7 - FINANCIAL STATEMENTS
The financial statements required by this item are included at the end of this
Form 10-KSB. An index to such financial statements and applicable schedules is
contained in that separate section.
Item 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 9 - DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are:
Name Age Position
---- --- --------
Jeanne M. Anderson 47 Director
John C. Antenucci 52 Vice Chairman, President and Director
and President, PlanGraphics, Inc.
Frederick G. Beisser 56 Vice President - Finance and Adminis-
tration, Secretary, Treasurer and
Director
Stephen Carreker 48 Chairman, CEO and
Director
Raymund E. O'Mara 57 Director
Gary S. Murray 47 Director
J. Gary Reed 50 Director and Chief Operating Officer,
PlanGraphics, Inc.
Robert S. ("Robin") Vail 52 Chief Financial Officer
11
<PAGE>
NOTES:
Ms. Jeanne M. Anderson is a former President and CEO of the Company. She served
as President and Chief Executive Officer from October 1, 1991 through December
31, 1996. She was Chairman of the Board of Directors from January 1, 1997
through October 2, 1997 and has been a Director of the Company continuously
since 1987.
Mr. John C. Antenucci, President, became a director of the Company on November
3, 1997 and is also founder, president and CEO of PlanGraphics, Inc. since 1979.
He is also a member of AM/FM International, a professional association for
utility industry users of GIS. He is also a former member of the National
Academy of Sciences Advisory Committee for the future of the U.S. Geological
Survey, an advisor to Ohio State University's Center for Mapping and editor of a
leading textbook on geographic information systems. Mr. Antenucci holds an MS in
Civil Engineering/Water Resources from Catholic University of America in
Washington, DC and a Bachelor of Civil Engineering from the same institution.
Mr. Frederick G. Beisser, Vice President - Finance and Administration, joined
the Company as Chief Financial Officer in July, 1990 and was promoted to his
present position on March 28, 1997. He was appointed to the Board of Directors
in March, 1991, at which time he became Treasurer and was appointed Secretary on
October 1, 1991. Mr. Beisser is a Colorado Certified Public Accountant.
Previously he headed Budget & Cost Analysis for the Air Force Accounting &
Finance Center in Denver, Colorado, from 1985 to 1989. He held Air Force budget
management positions in Europe, and controller and accounting positions with the
Air Force in the United States and abroad. Retired with the rank of Major in
1989, he holds a Ph.D. from American International University in Canoga Park,
California, an MBA from Golden Gate University in San Francisco and a BS in
Business Administration from the University of Southern Colorado at Pueblo,
Colorado. In addition he has diplomas from the Air Force's Air War College and
the Air Command & Staff College.
Mr. Stephen Carreker, Chairman and CEO, became a director of the Company on
December 12, 1995. He was Director of Strategic Planning until he became
President and Chief Executive Officer effective January 1, 1997. On October 2,
1997 he became Chairman and CEO. Prior to joining the Company he was manager of
the geographic information systems department of IDS/IBM Manama, Bahrain; was
Vice President, Geonex Corporation, Inc., and GIS Project Manager for Gwinnet
County, Georgia. Mr. Carreker has over 20 years of domestic and international
GIS experience. He holds a Bachelor of Landscape Architecture from the
University of Georgia and was a Georgia-licensed landscape architect.
Mr. Raymund E. O'Mara was appointed a director on November 3, 1997. He is a
principal with Booz Allen & Hamilton, consultants since 1996. Prior to joining
Booz Allen & Hamilton, Mr. O' Mara was vice president of Mason and Hanger
Company, Lexington, Kentucky from 1994 to 1996. Mr. O'Mara retired from the
United States Air Force in 1994 with the rank of major general; from 1993 until
his retirement he was Director, Defense Mapping Agency, Bethesda, Maryland and
prior to that was Vice Commander in Chief, Atlantic Command, Norfolk, Virginia
for two years. Mr. O'Mara holds a Master of Arts from State University of New
York at Plattsburgh, NY and BS in Electrical Engineering from the New Jersey
Institute of Technology at Newark.
Mr. Gary S. Murray, was appointed a director on June 26, 1998. He is the
President and founder of Human Vision Corporation, Greenbelt, Maryland, Prior to
that he was Chairman and President of Sylvest Management Systems Corporation
from 1987 until its acquisition by Federal Data Corporation in June 1997. Mr.
Murray holds a BBA from Howard University and is a Certified Public Accountant.
Mr. J. Gary Reed, Chief Operating Officer of PlanGraphics, Inc. has been
employed with PlanGraphics in several capacities since 1995. Prior to joining
them he held several executive positions during a 21-year career with Geonex
Corporation and was named President of the corporation in 1994. Mr. Reed holds
an MBA from the Keller Graduate School of Management in Chicago and a BS in
Biology from Virginia Polytechnic Institute and State University in Blacksburg,
Virginia. He has been a director of the Company since November 3, 1997.
12
<PAGE>
Mr. Robert ("Robin") S. Vail, became Chief Financial Officer of the Company on
March 18, 1998. A Certified Public Accountant, he was previously Director of
Operations for Price Waterhouse in Houston, TX from 1990 until joining the
Company. Prior to that he was a mergers and acquisitions consultant and has held
positions as chief financial officer, CPA firm partner, vice president--finance
& administration. Mr. Vail holds a Master of Accountancy from Florida State
University and a Bachelor of Business Administration from the University of
Georgia.
All directors hold office until the next annual meeting of shareholders and
serve until their successors are duly elected and qualified or until their
earlier death, resignation or removal.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 submitted to the Company during
and with respect to its most recent fiscal year, the Company believes that all
directors, officers and any beneficial owner of more than 10 percent of its
registered shares timely filed all reports required by Section 16(a) of the
Exchange Act.
Item 10 - EXECUTIVE COMPENSATION
The following table sets forth information concerning the cash compensation paid
and accrued by the Company for services rendered during the fiscal years ended
September 30, 1998, 1997 and 1996 to the CEO and other executive officers of the
Company who had aggregate compensation exceeding $100,000. Ms. Anderson was
President and CEO through December 31, 1996 when Mr. Carreker became President
and CEO on January 1, 1997. On November 3, 1997 the position of president was
assumed by Mr. Antenucci while Mr. Carreker remained CEO and became Chairman of
the Board of Directors. Eight days of compensation was paid to Mr. Antenucci as
an employee of the Company during fiscal year 1997 subsequent to the acquisition
of PlanGraphics, Inc. although the table, below, reflects his entire
compensation during that year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
- -------------------------------------------------------------- ----------------------------------
Name and Other Restricted Stock All Other
Principal Annual Comp- Stock Options Compen-
Position Year Salary ($) Bonus ensation Awards (#) sation ($)
- -------- ---- ---------- ----- ---------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeanne M. 1998 $ - $ - - - $ -
Anderson 1997 48,317 - 58,000# - 111,000 435@
1996 116,018 - - - - 1,740@
Stephen 1998 $ 175,000 - - - 327,655+ -
Carreker 1997 106,958 - - - 660,622 -
John C. 1998 $ 175,000 - - - 260,853+ 2,188@
Antenucci 1997 $ 114,500 - 20,407* - 531,851 2,361@
</TABLE>
# Amount of $58,000 Other Annual Compensation represents severance payment in
connection with Ms. Anderson's resignation as President and CEO.
+ Quantity of Stock Options granted during fiscal year 1998 for Carreker and
Antenucci represents the quantity of antidilution stock options accrued
during the year pursuant to Employment Agreements (the Board of Directors
and the employees have since agreed to annul this provision for periods
subsequent to June 30, 1998) at prices ranging from $1.125 to $2.125 per
share.
* Amount of Other Annual Compensation represents payment of certain deferred
compensation accrued in prior fiscal years for Mr. Antenucci.
@ Amounts of All Other Compensation represents the Company's employer
contribution to 401K Retirement Savings Accounts.
A total of 30,000 stock options were issued to officers of the Company under the
1991 Stock Option Plan during fiscal year 1997. None were granted in fiscal year
1996. In addition, the Company granted incentive stock options in connection
with officers' employment agreements amounting to 1,490,000 options, 61,000 to a
director during FY 1997 and 360,000 stock options to a new officer pursuant to
13
<PAGE>
his employment agreement in FY 1998. As a result of antidilution provisions in
employment agreements, 380,657 additional options accrued to officers of the
Company during FY 1997 and 877,543 during FY 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees In Exercise or Base Expiration
Name Granted Fiscal Year Price ($/Sh) Date
- --------------------------------------------------------------------------------
Stephen 115,581 8.9% $ 1.750 Dec 30, 2001
Carreker 145,889 11.2 2.125 Mar 30, 2002
66,185 5.1 1.250 Jun 30, 2002
John C. 91,897 7.1 1.750 Dec 30, 2001
Antenucci 115,994 9.0 2.125 Mar 30, 2002
52,962 4.1 1.250 Jun 30, 2002
The Company did not make new grants of stock options to the named officers
of the Company during fiscal year 1998. Fiscal year 1997 grants to Messrs.
Carreker and Antenucci in connection with their employment agreements
consisted of fully vested options of 200,000 and 300,000 shares,
respectively, which are immediately exercisable, and performance options of
180,000 and 225,000, respectively, for which attainment of certain
management goals vests 35%, 35%, and 30% for each of the ensuing three
fiscal years at which time they become exercisable. During the same fiscal
year they were granted antidilution options of 280,622 and 6,851,
respectively.
The Company granted antidilution options in the aggregate to Messrs.
Carreker and Antenucci of 327,655 and 260,853, respectively during FY 1998
related to employment agreement options noted above. The options are either
fully vested or subject to performance vesting in proportion to the
allocation of vested/performance shares in their original option grant.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Value of Unexercised
Unexercised In-The-Money
Stock Options Stock Options
at FY-End (#) at FY-End ($)
Shares acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- --------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Jeanne M.
Anderson
Former Presi- - - 75,000/61,000(1) $ -/-
dent & CEO
Stephen
Carreker
Chairman & CEO 5,000 8,362.50 526,998/486,279 $ -/-
John C.
Antenucci, Vice
Chairman & President - - 452,966/340,038 $ -0-/-0-
</TABLE>
1. Options for 75,000 shares were granted on April 19, 1995 under the 1991
Plan at $.71875 and a grant of 61,000 shares in connection with the
termination of employment was made on January 15, 1997 at a price of
$1.135. Both grants were at fair market value; no options have been
exercised to date.
14
<PAGE>
2. Mr. Carreker was granted options for 30,000 shares of common stock under
the Company's 1991 Stock Option plan on January 2, 1997 at a price of
$1.125 of which 5,000 have been exercised. In connection with his
employment agreement he received fully vested stock options for 200,000
shares of the Company's common stock awarded effective January 7, 1997. In
addition Mr. Carreker is entitled to 608,277 antidilution options related
to his employment agreement.
3. Mr. Antenucci received fully vested stock options for 300,000 of common
stock at a price of $1.75 in connection with his employment agreement on
September 22, 1997. In addition, Mr. Antenucci is entitled to 268,004
antidilution options related to his employment agreement.
The Company does not have a long term incentive plan or a defined benefit or
actuarial form of pension plan.
Employment Agreements.
Messrs. Carreker, Antenucci and Vail entered into three-year employment
agreements effective January 2, 1997, September 22, 1997, and March 18, 1998,
respectively, at salaries of $175,000 (Carreker and Antenucci) and $120,000
(Vail) per year with provisions for bonuses of up to 21% of base salary if
certain goals are achieved. The executives received fully vested stock options
for 200,000 shares for Mr. Carreker, 300,000 for Mr. Antenucci, and 200,000 for
Mr. Vail with performance options for 180,000, 225,000, and 160,000 shares
respectively, which vest upon attainment of certain performance goals. In
addition, Mr. Antenucci received a one-time advance payment of $50,000 of his FY
1998 salary for entering into the agreement. The employment agreements renew
automatically for a term of three years if the Company does not terminate the
agreements by December 31, 1999 (Carreker), June 30, 2000 (Antenucci) or
December 31, 2000 (Vail), unless earlier terminated under the terms of the
Agreement. Messrs. Carreker, Antenucci and Vail are entitled to continued base
compensation for three years following date of termination if not for death,
disability, cause, voluntary resignation other than constructive termination or
the expiration of the agreement's term; if termination is for one of these
reasons then all benefits including salary are continued for 18 months for
Carreker and Antenucci and no benefits for Vail. Mr. Antenucci is entitled to a
three year consulting period at one half of average annual salary for the
immediately preceding 36 month period should he exercise his option to terminate
his employment voluntarily after June 30, 2000.
On June 26, 1998, the Compensation Committee of the Board of Directors reduced
the annual compensation of both Mr. Carreker and Mr. Antenucci by 10 percent to
a revised annual amount of $157,500. In addition, the Committee also reduced by
10 percent the annual compensation of Mr. Vail and another Company employee,
both whose employment agreements had provided for annual compensation in excess
of $100,000. These reductions became effective October 1, 1998.
Director Compensation.
Directors who are employees of the Company do not receive any additional
compensation above their full time employment compensation. Nonemployee
directors receive reimbursement of expenses incurred in carrying out their
duties. During the fiscal year the Company instituted a standardized
compensation program for nonemployee directors whereby the non employee director
receives stock options on the date of election to the Board of Directors to
purchase 10,000 shares of the Company's common stock at the market price on that
date. Such options vest quarterly provided that the grantee has attended 75
percent or more of the scheduled board meetings. In addition each director is
entitled to reimbursement of expenses incurred on behalf of the Company and
nonemployee directors receive $1,000 for each scheduled Board meeting attended
in person and $250 for each scheduled board meeting attended via conference
call. Meetings of committees of the Board of Directors are compensated at $250
per meeting attended in person or via conference call. One nonemployee director,
Ms. Anderson, is compensated at a rate of $850 per month pursuant to a written
severance agreement of January 15, 1997. During fiscal year 1998 Ms. Anderson
received $10,200 in fees for her services as a director. During the current
fiscal year the Company paid Mr. O'Mara $2,670 in fees and expenses for duties
as an outside director; Mr. Murray has not yet received any such payment. Both
Mr. O'Mara and Mr. Murray were awarded options to purchase 10,000 shares each of
the Company's common stock at a price of $1.25 per share, the closing price on
June 26, 1998, the date of grant.
15
<PAGE>
Item 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Percentages of shares held by officers and directors of the Company, as well as
those parties owning more than five (5) percent of the Company's common stock as
of the date of this report, are as follows:
Security ownership of certain beneficial owners:
Based on Rule 13d-1 filings under the Exchange Act, the Company there is only
one party other than management owning more than five percent of the common
stock of the Company.
Security ownership of certain beneficial owners:
Title of Name of Beneficial Amount & Nature of Percent
Class(3) Owner(1) Beneficial Ownership
- --------------------------------------------------------------------------------
Common Black & Veatch Holding Company 608,713 6.8
7500 Ward Parkway
Kansas City, MO 64114
Security ownership of management:
Title of Name of Beneficial Amount & Nature of Percent
Class(3) Owner(1) Beneficial Ownership(2)
- --------------------------------------------------------------------------------
Common Jeanne M. Anderson 114,000 1.0
Director
Common John C. Antenucci 1,192,875 10.2
President and Director
Common Stephen Carreker, Chairman of None Nil
The Board of Directors and CEO
Common Frederick G. Beisser 16,900 @
Chief Financial Officer, Secretary
Treasurer, and Director
Common J. Gary Reed None Nil
Director
Common Raymund E. O'Mara None Nil
Director
Common Gary S. Murray 28,471* @
Director
Common Robert S. Vail 14,200* @
Chief Financial Officer
All Directors and Officers
as a group (8 persons) 1,366,446 11.7%
NOTES:
@ The number of shares constitutes less than one percent of outstanding
shares.
* The shares reported for Mr. Murray are held by Human Vision Corp. of
which he is President and the shares reported for Mr. Vail are held by
a member of his household, accordingly, both individuals control the
shares indirectly.
16
<PAGE>
1. The address for each of the directors of the Company is In Care Of
Integrated Spatial Information Solutions, Inc., 13119 Professional
Drive, Suite 200, Jacksonville, FL 32225.
2. The number of shares beneficially owned does not include 1,745,222
shares which may be acquired under Non Qualified Stock Options held by
Officers and Directors of the Company. Such shares and management
personnel holding them are: Ms. Anderson, 75,000; Mr. Antenucci,
452,996 Mr. Carreker, 526,998; Mr. Beisser, 241,843 shares; Mr.
O'Mara, 5,000 shares; Mr. Murray, 10,000 shares, Mr. Vail, 211,482
shares and Mr. Reed, 301,904 shares.
3. If the options denoted in Note 2, above, were exercised, Directors and
Officers would have the following percentages of outstanding common
stock: Ms. Anderson, 1.4 percent; Mr. Antenucci 12.5 percent; Mr.
Beisser, 2.0 percent; Mr. Carreker 4.0 percent; Mr. O'Mara, less than
1 percent; Mr. Murray, less than 1 percent, Mr. Vail, 1.7 percent, Mr.
Reed, 2.3 percent and Officers and Directors as a group, 23.6 percent.
Change in Control
Possible Change in Control. The conversion of presently outstanding Preferred
Stock will result in the issuance of Common Stock at discounts from future
market prices, which could result in substantial dilution to existing holders of
Common Stock. Holders of the Preferred Shares are prohibited from converting
their shares into common stock in a number that would cause any individual
holder to hold more than 9.99% of the then outstanding shares of Common Stock.
However, the conversion of all of the Preferred Stock over time, and following
successive conversions of Preferred Stock, and associated sales of Common Stock,
could nonetheless result in the issuance of a number of shares exceeding 20% of
the outstanding Common Stock as of the end of FY 1998, and could conceivable
result in a change of control in the Company.
Item 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related party transaction. Mr. Antenucci is a minority partner in the
organization that owns the facilities leased by PlanGraphics, Inc. in Frankfort,
Kentucky, at an annual lease cost to PGI of approximately $320,000. As of
September 30, 1998, the Company owes the related party approximately $1,950,000
under the capital lease obligation. (See also Note 7 to the Financial
Statements).
On August 18, 1998, warrants were issued to an investor, Human Vision Corp.,
affiliated with the Company to acquire up to 5,000 shares of the Company's
common stock at a price of $0.98 per share, exercisable through August 17, 2001.
Also during fiscal 1998, this investor purchased 28,571 of the Company's common
stock for $25,000 in cash.
The Company restructured related party notes to a minority shareholder, Black
and Veatch Holding Co., on October 10, 1997 by converting $289,902 of the note
payable into 170,531 shares of the Company's common stock, paying cash of
$150,000 and issuing a note with an interest rate of 10 percent for the balance.
Certain voting provisions relating to these notes were cancelled with the
restructure (See also Note 4 to the Financial Statements.).
PART IV
Item 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements, schedules and exhibits are filed as a
part of this report:
1. Financial Statements
2. Exhibit Index
The following exhibits are filed as part of this Report:
Exhibit
Number Exhibit Page
- ------ ------- ----
2.1 Agreement for Exchange of Shares between
DCX, Inc. and AIRTECH INTERNATIONAL
CORPORATION Note 6
2.1a Acquisition Agreement between DCX, Inc.
and PlanGraphics, Inc. Note 7
2.1b Asset Purchase Agreement between DCX,
Inc. DCX-CHOL Enterprises, Inc. Note 8
17
<PAGE>
3.1 Bylaws of DCX, Inc. Note 1
3.2a Amended and Restated Articles of Incorpor-
ation of DCX, Inc., dated July 8, 1991. Note 2
3.2b Articles of Amendment to the Articles
of Incorporation of DCX, Inc., dated
November 6, 1996 Note 4
3.2c Articles of Amendment to the Articles of
Incorporation of DCX, Inc., dated July 30, 1997 Note 9
4.1 Specimen Stock Certificate Note 1
4.2 DCX 1991 Stock Option Plan Note 5
4.3 DCX 1995 Stock Incentive Plan Note 5
4.4 DCX, Inc. Equity Incentive Plan Note 12
4.4 Warrant, dated January 15, 1997 issued to
Transition Partners Limited. Note 3
4.5 Warrant, dated October 15, 1997, issued to
Transition Partners Limited. Note 3
4.6 Warrant, dated January 15, 1997, issued to
Copeland Consulting Group, Inc. Note 3
4.7 Warrant, dated October 15, 1997, issued to
Copeland Consulting Group, Inc. Note 3
4.8 Warrant, dated June 19, 1997, issued to
Spencer Edwards, Inc. Note 3
4.9 Warrant, dated November 8, 1996, issued to
Coretech, Ltd. Note 3
4.10 Warrants, dated August 19, 1998, issued to
Libra Finance and to the Ridgefield Group. Note 13
4.11 Warrant, dated October 24, 1997, issued to
Gerald Alexander. Note 3
4.12 Form of Option Agreement, dated July 31, 1997,
between the Company and the Pension Fund
of Steven R. Perles. Note 10
4.13 Form of Option Agreement, dated July 31, 1997,
between the Company and Hamilton & Faatz, P.C. Note 10
10.1 Executive Employment Agreement dated March 28,
1997 between the Company and G. Stephen Carreker. Note 11
10.2 Executive Employment Agreement dated March 28,
1997 between the Company and Frederick G. Beisser. Note 11
10.3 Executive Employment Agreement dated March 28,
1997 between the Company and D. Scott McReynolds. Note 11
10.4 Executive Employment Agreement dated September 22,
1997 between the Company and John C. Antenucci. Note 12
10.5 Executive Employment Agreement dated September 22,
1997 between the Company and J. Gary Reed. Note 12
21.1 List of Subsidiaries Page 21
18
<PAGE>
27.1 Financial Data Schedules Incorporated by reference from
Edgar Filing on January 13, 1999
NOTE: 1. Incorporated by Reference from Registration Statements on Form
S-18, file no. 33-1484.
2. Incorporated by Reference from the definitive Proxy Statement,
dated May 3, 1991
3. Incorporated by Reference from the Company's Registration
Statement on Form S-3 (Registration No. 333-39775) filed with the
Commission on November 7, 1997.
4. Incorporated by Reference from Form 8K, dated November 12, 1996.
5. Incorporated by Reference from Form S-8, dated September 29, 1996
6. Incorporated by Reference from Form 10-Q for June 30, 1996, dated
August 1, 1996. The agreement was terminated prior to completion.
7. Incorporated by Reference from Form 8-K, dated September 22,
1997.
8. Incorporated by Reference from Form 8-K, dated October 8, 1997.
9. Incorporated by Reference from Form 8-K, dated July 31, 1997.
10. Incorporated by Reference from Form S-8 (Registration No.
333-35293) dated September 5, 1997.
11. Incorporated by Reference from Form 10-QSB for the Quarter ended
March 31, 1997.
12. Incorporated by Reference from Form 10-KSB for the fiscal year
ended September 30, 1997.
13. Incorporated by Reference from Form 8-K, dated August 13, 1998.
(b) Reports on Form 8-K.
Following reports were filed on Form 8-K by the Company during fourth quarter of
the fiscal year covered by this annual report.
Current Report on Form 8-K, dated June 26, 1998, filed with the SEC on July
10, 1998 and reporting the results of the annual shareholders' meeting, election
of the board of directors, the change of the Company's name to Integrated
Spatial Information Solutions, Inc., the appointment of a new director, Gary S.
Murray, and the new stock symbol: ISSS.
Current Report on Form 8-K, dated August 13, 1998, filed with the SEC on
August 20, 1998 and reporting the Company had entered into a subscription
agreement for a private placement under Regulation D and that the NASDAQ had
granted an extension of time to meet Small Cap Market listing requirements.
No reports were filed on Form 8-K subsequent to the end of the fiscal year:
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Integrated Spatial Information Solutions, Inc.
Date: 1/13/99 By: /s/ Stephen Carreker
--------- --------------------------------
Stephen Carreker
Chairman and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated. The signatures below also constitute power of attorney for the
Principal Accounting Officer of the Company with the advice of legal and
accounting advisors to file amendments as required to insure full and complete
disclosure of this form 10-KSB.
Signature Title Date
--------- ----- ----
- ----------------------
Jeanne M. Anderson Director
/S/ Stephen Carreker
- ----------------------
Stephen Carreker Chairman, CEO & Director 1/13/99
/S/ Fred Beisser
- ----------------------
Frederick G. Beisser Vice President--Finance and 1/13/99
Administration, Secretary, Treasur-
er, and Director and Principal
Accounting Officer
/S/ John C. Antenucci
- ----------------------
John C. Antenucci Vice Chairman, President 1/13/989
and Director
/S/ J. Gary Reed
- ----------------------
J. Gary Reed Director 1/13/99
- ----------------------
Raymund E. O'Mara Director
/S/ Gary S. Murray
- ----------------------
Gary S. Murray Director 1/13/99
20
<PAGE>
List of Active Subsidiaries
Registered Name State of Incorporation
- --------------- ----------------------
PlanGraphics, Inc. Maryland
21
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Index to Consolidated Financial Statements
================================================================================
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of
September 30, 1998 and 1997 F-3 - F-4
Consolidated Statements of Operations
for the Years Ended September 30,
1998 and 1997 F-5
Consolidated Statements of Stockholders'
Equity for the Years Ended
September 30, 1998 and 1997 F-6 - F-9
Consolidated Statements of Cash Flows
for the Years Ended September 30,
1998 and 1997 F-10
Summary of Accounting Policies F-11 - F-17
Notes to Consolidated Financial Statements F-18 - F-32
F-1
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Integrated Spatial Information Solutions, Inc.
Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Integrated
Spatial Information Solutions, Inc. and subsidiary as of September 30, 1998 and
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the two years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Integrated Spatial
Solutions, Inc. and subsidiary as of September 30, 1998 and 1997 and the results
of their operations and their cash flows for each of the two years then ended,
in conformity with generally accepted accounting principles.
/S/ BDO Seidman, LLP
Denver, Colorado
December 20, 1998
F-2
<PAGE>
Integrated Spatial Information
Systems, Inc. and Subsidiary
Consolidated Balance Sheets
================================================================================
September 30, 1998 1997
- --------------------------------------------------------------------------------
Assets (Note 4)
Current:
Cash and cash equivalents $ 55,045 $ 582,326
Accounts receivable, less allowance
of $161,109 and $188,161 (Notes 1, 3 and 4) 2,568,723 2,236,568
Land and building held for sale, net (Note 11) 1,083,522 --
Amount due from sale of assets (Note 2) -- 1,100,000
Restricted cash 100,000 --
Prepaid expenses and other 177,251 201,932
----------- -----------
Total current assets 3,984,541 4,120,826
----------- -----------
Property and equipment (Note 4):
Land and building under capital lease -
related party 1,866,667 1,866,667
Land and building held for rental (Note 11) -- 1,415,058
Equipment and furniture 456,366 447,003
Leased assets 279,227 183,512
----------- -----------
2,602,260 3,912,240
Less accumulated depreciation 361,706 429,597
----------- -----------
Net property and equipment 2,240,554 3,482,643
----------- -----------
Other assets:
Goodwill, net of accumulated amortization 4,994,976 5,517,872
Capitalized software -- 258,855
Other 81,458 190,604
----------- -----------
Total other assets 5,076,434 5,967,331
----------- -----------
$11,301,529 $13,570,800
=========== ===========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-3
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Consolidated Balance Sheets
================================================================================
September 30, 1998 1997
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable - current portion (Note 4) $ 801,602 $ 854,060
Notes payable - related party,
current portion (Note 4) 29,819 158,928
Obligations under capital leases - related party,
current (Note 7) 160,043 134,794
Checks written against future deposits 207,650 269,587
Accounts payable 681,880 1,351,484
Accrued expenses 858,324 1,054,660
Deferred revenue 113,046 189,354
Accrued litigation settlement (Note 5) 478,997 521,000
------------ ------------
Total current liabilities 3,331,361 4,533,867
------------ ------------
Long-term liabilities:
Notes payable, less current maturities (Note 4) 422,962 576,000
Notes payable - related party, less current
maturities (Note 4) -- 446,256
Obligations under capital leases - related
party (Note 7) 1,960,462 2,037,673
------------ ------------
Total long-term liabilities 2,383,424 3,059,929
------------ ------------
Total liabilities 5,714,785 7,593,796
------------ ------------
Commitments and Contingencies (Notes 5, 7 and 10)
Stockholders' equity (Note 8):
Cumulative convertible preferred stock,
$.001 par value, 20,000,000 shares authorized,
700 and 1,650 shares issued or outstanding 1 2
Common stock, no par value, 2,000,000,000
shares authorized 11,456,571 and 7,736,380
shares issued and outstanding 12,635,423 9,741,501
Additional paid-in capital 3,743,664 3,550,869
Accumulated deficit (10,792,344) (7,315,368)
------------ ------------
Total stockholders' equity 5,586,744 5,977,004
------------ ------------
$ 11,301,529 $ 13,570,800
============ ============
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Consolidated Statements of Operations
================================================================================
Years Ended September 30, 1998 1997
- --------------------------------------------------------------------------------
Revenues (Note 3) $ 8,146,367 $ 71,098
------------ ------------
Cost and expenses:
Salaries and employee benefits 3,373,338 779,934
Direct contract costs 1,504,123 16,032
Other operating expenses 5,670,695 799,556
------------ ------------
Total costs and expenses 10,548,156 1,595,522
------------ ------------
Operating loss (2,401,789) (1,524,424)
------------ ------------
Other income (expense):
Other income 204,342 297,622
Interest expense (540,490) (126,263)
Writeoff of capitalized software (262,927) --
Life insurance proceeds (Note 14) -- 400,000
------------ ------------
Total other income (expense) (599,075) 571,359
------------ ------------
Loss from continuing operations (3,000,864) (953,065)
Loss from discontinued operations (Note 2) -- (1,598,313)
------------ ------------
Net loss (3,000,864) (2,551,378)
------------ ------------
Preferred stock dividends -- (9,674)
Deemed dividends on preferred stock (Note 8) (476,112) (892,592)
------------ ------------
Net loss available to common stockholders $ (3,476,976) $ (3,453,644)
============ ============
Basic and diluted loss per common share:
Loss from continuing operations
attributable to common stockholders $ (.34) $ (.39)
Loss from discontinued operations $ -- $ (.33)
Loss attributable to common stockholders $ (.34) $ (.72)
------------ ------------
Weighted average number of shares
of common stock outstanding 10,124,347 4,772,020
============ ============
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
====================================================================================
Series A
Years ended Preferred Stock Common Stock
September 30, --------------------- -----------------------
1997 and 1998 Shares Amount Shares Amount
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
October 1, 1996 -- $ -- 4,434,109 $ 5,060,357
Sale of stock
through options
exercised -- -- 171,394 231,804
Issuance of pre-
ferred stock (net
of offering costs
of $312,000) 2,150 2 -- --
Conversion of
preferred stock
into common stock (500) -- 499,732 450,000
Stock issued in
acquisition
(Note 1) -- -- 2,631,145 3,999,340
Stock warrants
issued for
services -- -- -- --
Stock options issued for:
Acquisitions -- -- -- --
Services -- -- -- --
Forgiveness of
subscription
receivable -- -- -- --
Dividend on
preferred stock -- -- -- --
Deemed dividend
on warrants
issued in
connection with
preferred stock -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance,
September 30, 1997 1,650 $ 2 7,736,380 $ 9,741,501
----------- ----------- ----------- -----------
F-6
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(Continued)
====================================================================================================
Additional
Years ended Paid-in Capital
September 30, -------------------------- Subscriptions Accumulated
1997 and 1998 Common Preferred Receivable Deficit Total
- ----------------------------------------------------------------------------------------------------
Balance,
October 1, 1996 $ 329,384 $ -- $ (179,000) $(3,861,724) $ 1,349,017
Sale of stock
through options
exercised -- -- -- -- 231,804
Issuance of pre-
ferred stock (net
of offering costs
of $312,000) -- 1,837,998 -- -- 1,838,000
Conversion of
preferred stock
into common stock -- (450,000) -- -- --
Stock issued in
acquisition
(Note 1) -- -- -- 3,999,340
Stock warrants
issued for
services 198,464 -- -- -- 198,464
Stock options issued for:
Acquisitions 296,177 -- -- -- 296,177
Services 436,580 -- -- -- 436,580
Forgiveness of
subscription
receivable -- -- 179,000 -- 179,000
Dividend on
preferred stock 9,674 -- -- (9,674) --
Deemed dividend
on warrants
issued in
connection with
preferred stock 892,592 -- -- (892,592) --
Net loss -- -- -- (2,551,378) (2,551,378)
----------- ----------- ----------- ----------- -----------
Balance,
September 30, 1997 $ 2,162,871 $ 1,387,998 $ -- $(7,315,368) $ 5,977,004
----------- ----------- ----------- ----------- -----------
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-7
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(Continued)
===========================================================================================
Series A
Years ended Preferred Stock Common Stock
September 30, ------------------------ --------------------------
1998 and 1997 Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------
Balance,
September 30, 1997 1,650 $ 2 7,736,380 $ 9,741,501
Sale of stock for
cash on options
and warrants
exercised -- -- 131,700 124,191
Stock issued for
services on options
and warrants
exercised -- -- 132,871 191,969
Issuance of pre-
ferred stock (net
of offering costs
of $292,100) 950 1 -- --
Conversion of pre-
ferred stock into
common stock (1,900) (2) 2,609,970 1,600,500
Stock issued for
services -- -- 203,776 298,484
Stock issued for
cash (net of
offering costs
of $47,538) -- -- 662,142 630,462
Stock issued in
connection with
conversion of
debt (Note 4) -- -- 170,531 289,902
Stock repossession -- -- (190,799) (241,586)
Deemed dividend
on preferred stock -- -- -- --
Stock warrants issued for:
offering costs -- -- -- --
consulting services -- -- -- --
Stock options
issued for services -- -- -- --
Net loss -- -- -- --
- ---------------------------- ------------ ------------ ------------ ------------
Balance,
September 30, 1998 700 $ 1 11,456,571 $ 12,635,423
============================ ============ ============ ============ ============
F-8
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(Continued)
==========================================================================================
Additional
Years ended Paid-in Capital
September 30, --------------------------- Accumulated
1997 and 1998 Common Preferred Deficit Total
- ------------------------------------------------------------------------------------------
Balance,
September 30, 1997 $ 2,162,871 $ 1,387,998 $ (7,315,368) $ 5,977,004
Sale of stock for
cash on options
and warrants
exercised -- -- -- 124,191
Stock issued for
services on options
and warrants
exercised -- -- -- 191,969
Issuance of pre-
ferred stock (net
of offering costs
of $292,100) -- 657,900 -- 657,901
Conversion of pre-
ferred stock into
common stock -- (1,600,498) -- --
Stock issued for
services -- -- -- 298,484
Stock issued for
cash (net of
offering costs
of $47,538) -- -- -- 630,462
Stock issued in
connection with
conversion of
debt (Note 4) -- -- -- 289,902
Stock repossession -- -- -- (241,586)
Deemed dividend
on preferred stock 476,112 -- (476,112) --
Stock warrants issued for:
offering costs 165,138 -- -- 165,138
consulting services 465,470 -- -- 465,470
Stock options
issued for services 28,673 -- -- 28,673
Net loss -- -- (3,000,864) (3,000,864)
- ---------------------------- ------------ ------------ ------------ ------------
Balance,
September 30, 1998 $ 3,298,264 $ 445,400 $(10,792,344) $ 5,586,744
============================ ============ ============ ============ ============
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-9
</TABLE>
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Consolidated Statements of Cash Flows
================================================================================
Increase (Decrease) In Cash And Cash Equivalents
Years Ended September 30, 1998 1997
- --------------------------------------------------------------------------------
Operating activities:
Net loss $(3,000,864) $(2,551,378)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 705,838 98,298
Asset writedowns 262,927 179,000
Provision for losses on accounts receivable (27,052) 158,161
Forgiveness (recovery of) of debt (16,207) (278,069)
Provision for litigation (42,003) --
Stock issued for services 490,453 --
Stock options and warrants issued for
acquisitions and services 494,143 635,044
(Gain) loss on sale of assets (7,894) 1,261,168
Changes in operating assets and liabilities:
Accounts receivable (305,103) (709,755)
Prepaid expenses 24,681 --
Other assets 109,146 178,798
Accounts payable (669,604) 95,803
Accrued expenses (299,089) 526,883
Deferred revenue (76,308) 156,701
----------- -----------
Net cash used in operating activities (2,356,936) (249,346)
----------- -----------
Investing activities:
Payments for business acquisitions,
net of cash acquired -- (689,735)
Purchases of equipment (143,930) --
Proceeds from disposition of assets 1,104,825 --
Additions to capitalized software (4,072) (2,564)
Restricted cash (100,000) --
----------- -----------
Net cash provided by investing activities 856,823 (692,299)
----------- -----------
Financing activities:
Payments on checks issued against future deposits (61,937) (269,587)
Proceeds from debt 1,516,317 576,000
Payments on debt (2,059,239) (748,475)
Debt issue costs -- (101,226)
Proceeds from the issuance of common stock 802,191 19,622
Proceeds from issuance of preferred stock
net of cash offering costs 775,500 1,838,000
----------- -----------
Net cash provided by financing activities 972,832 1,314,334
----------- -----------
Net (decrease) increase in cash (527,281) 372,689
Cash and cash equivalents, beginning of year 582,326 209,637
----------- -----------
Cash and cash equivalents, end of year $ 55,045 $ 582,326
=========== ===========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-10
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Summary of Accounting Policies
================================================================================
Organization and These consolidated financial statements include the accounts
Business of Integrated Spatial Information Solutions, Inc., formerly
known as DCX, Inc., and those of its wholly-owned subsidiary
PlanGraphics, Inc. (collectively the "Company").
PlanGraphics, Inc. is an independent consulting firm
specializing in the design and implementation of Geographic
Information Systems ("GIS") as well as advisory services in
the United States and foreign markets. The customer base
consists primarily of utilities, government agencies, and
land and resource management organizations.
All intercompany balances and transactions have been
eliminated in consolidation.
Cash Equivalents The Company considers all highly liquid investments
purchased with an original maturity of three months or less
to be cash equivalents.
Revenue and Revenues are recognized on the percent complete method and
Cost Recognition as services are provided, depending on the nature of the
project.
Contract costs include all direct material and labor costs
and those indirect costs related to contract performance,
such as supplies, tools, repairs and depreciation costs.
General and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are
determined.
Goodwill Goodwill represents the excess of the cost over the fair
value of its net assets acquired at the date of acquisition
and is being amortized on the straight-line method over
fifteen years.
Deferred Revenue Deferred revenue represents amounts received under certain
contracts in excess of revenue recognized.
Property, Property and equipment are recorded at cost. Depreciation is
Equipment and provided on property and equipment by charging against
Depreciation and earnings, amounts sufficient to amortize the costs of the
Amortization assets over their estimated useful lives. The ranges of
estimated useful lives in computing depreciation and
amortization are as follows:
F-11
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Summary of Accounting Policies
================================================================================
------------------------------------------------------------
Building 31 years
Leased assets Life of lease
Furniture and equipment 5 to 7 years
============================================================
Depreciation is computed principally on an accelerated
method.
Taxes on Income The Company accounts for income taxes under SFAS No. 109.
Deferred income taxes result from temporary differences.
Temporary differences are differences between the tax basis
of assets and liabilities and their reported amounts in the
financial statements that will result in taxable or
deductible amounts in future years.
Net Loss Per Share The Company implemented Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
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 income
(loss) available to common stockholders 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,
similar to fully diluted earnings per share. All prior
period earnings per share data has been restated to reflect
the requirements of SFAS No. 128. The adoption of SFAS No.
128 did not affect the loss per share calculation at
September 30, 1997.
For the years ended September 30, 1998 and 1997, total stock
options and stock warrants of 6,337,880 and 3,465,894 were
not included in the computation of diluted loss per share
because their effect was anti-dilutive.
Concentrations of The Company's financial instruments that are exposed to
Credit Risk concentrations of credit risk consist of cash and cash
equivalent balances in excess of the insurance provided by
governmental insurance authorities. The Company's cash and
cash equivalents are placed with financial institutions and
are primarily in demand deposit accounts.
F-12
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Summary of Accounting Policies
================================================================================
Concentrations of credit risk with respect to accounts
receivable are higher due to a few customers dispersed
across geographic areas. The Company reviews a customer's
credit history before extending credit and establishes an
allowance for doubtful accounts based upon the credit risk
of specific customers, historical trends and other
information. Generally, the Company does not require
collateral from its customers.
Fair Value of The following methods and assumptions were used to estimate
Financial the fair value of each class of financial instruments for
Instruments which it is practicable to estimate that value:
Accounts Receivable, Accounts Payable and Accrued
Liabilities
Fair values of accounts receivables, accounts payable, and
accrued liabilities are assumed to approximate carrying
values for these financial instruments since they are short
term in nature and their carrying amounts approximate fair
value or they are receivable or payable on demand.
Notes Payable and Obligations Under Capital Lease
Substantially all of these notes bore interest at a floating
rate of interest based upon current lending rates of
interest. Accordingly, the fair value of these notes
approximate their carrying value.
Use of The preparation of financial statements in conformity with
Estimates generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Capitalized Costs incurred internally in creating software products for
Software Costs resale are charged to expense until technological
feasibility has been established upon completion of a detail
program design. Thereafter, all software development costs
are capitalized until the point that the product is ready
for sale and subsequently reported at the lower of amortized
cost or net realizable value.
F-13
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Summary of Accounting Policies
================================================================================
During fiscal year ended September 30, 1998, the Company
decided that it would no longer actively market its
internally developed software for resale. As such, the value
of the software was expensed in 1998.
Software Revenue from licensing of software products is recognized
Revenue upon shipment. Revenue from support and update service
Recognition agreements is deferred at the time the agreement is executed
and recognized ratably over the contractual period. The
Company recognizes revenues from customer training and
consulting services when such services are provided. All
costs associated with licensing of software products,
support and update services, and training and consulting
services are expensed as incurred.
Long-Term Long-lived assets, identifiable intangibles, and associated
Assets goodwill are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount
may not be recoverable. If the expected future cash flow
from the use of the assets and its eventual disposition is
less than the carrying amount of the assets, an impairment
loss is recognized and measured using the asset's fair
value.
Stock Option The Company applies APB Opinion 25, "Accounting for Stock
Plans Issued to Employees", and the related Interpretation in
accounting for all stock option plans. Under APB Opinion 25,
compensation cost is recognized for stock options issued to
employees when the exercise price of the Company's stock
options granted is less than the market price of the
underlying common stock on the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation",
requires the Company to provide pro forma information
regarding net income as if compensation cost for the
Company's stock options plans had been determined in
accordance with the fair value based method prescribed in
SFAS No. 123. To provide the required pro forma information,
the Company estimates the fair value of each stock option at
the grant date by using the Black-Scholes option-pricing
model.
F-14
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Summary of Accounting Policies
================================================================================
Recent Accounting In June 1997, the Financial Accounting Standards Board
Pronouncements issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (SFAS 130), which establishes
standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except
those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS 130 requires that
all items that are required to be recognized under current
accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with
the same prominence as other financial statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information"
which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS No. 131 establishes
standards for the way that public companies report
information about operating segments in annual financial
statements and requires reporting of selected information
about operating segments in interim financial statements
issued to the public. It also establishes standards for
disclosures regarding products and services, geographic
areas and major customers. SFAS No. 131 defines operating
segments as components of a company about which separate
financial information is available that is evaluated
regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
SFAS 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and requires
comparative information for earlier years to be restated.
Because of the recent issuance of the standard, management
has been unable to fully evaluate the impact, if any, the
standard may have on future financial statement disclosures.
Results of operations and financial position, however, will
be unaffected by implementation of the standard.
In October 1997, Statement of Position 97-2, Software
Revenue Recognition (SOP 97-2), was issued. The SOP provides
guidance on when revenue should be recognized and in what
amounts licensing, selling, leasing, or otherwise marketing
computer software. SOP 97-2 is effective for transactions
entered into in fiscal years after December 15, 1997. As of
September 30, 1998, SOP 97-2 is not expected to have a
material impact on future financial statement presentations.
F-15
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Summary of Accounting Policies
================================================================================
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS No. 132")
which standardizes the disclosure requirements for pensions
and other postretirement benefits and requires additional
information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial
analysis. SFAS No. 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.
The FASB has recently issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). 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 financial statements. Management
believes the adoption of this statement will have no
material impact on the Company's consolidated financial
statements.
The FASB recently issued Statement of Financial Accounting
Standards No. 134 "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise" ("SFAS No. 134").
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.
F-16
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Summary of Accounting Policies
================================================================================
This statement is effective for the first fiscal quarter
beginning after December 15, 1998. The Company has not yet
determined the effect of SFAS No. 134 on its financial
statements. Management believes the adoption of this
statement will have no material impact on the Company's
consolidated financial statements.
Reclassifications Certain items included in the prior year's financial
statements have been reclassified to conform to the current
presentation.
F-17
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
1. Business On September 22, 1997, the Company acquired all of the
Acquisition outstanding stock of PlanGraphics, Inc. for 2,631,145 shares
of common stock at the agreed upon rate of $1.52 per share.
The 1997 financial statements presented represent the eight
days of PlanGraphics, Inc. operations from the date of
acquisition to September 30, 1997.
The acquisition was accounted for under the purchase method
of accounting. The results of operations of PlanGraphics,
Inc. have been included in the accompanying statement of
operations since the effective date of the acquisition. The
total purchase price, including acquisition costs, was
$5,517,872 and is recorded as goodwill.
Unaudited proforma consolidated results of operations of the
Company for 1997 are shown in the following table as if the
business was acquired as of October 1, 1996. The unaudited
proforma information is based on the Company's accompanying
Statements of Operations and the historical financial
information of the acquired companies, and includes
adjustments to income taxes, depreciation, and goodwill
giving effect of the terms of the transaction as if the
acquisitions had occurred on the first day presented. The
proforma information is not necessarily indicative of the
combined results of operations that would have occurred had
the acquisition been completed as of October 1, 1996.
Unaudited proforma consolidated results of operations:
September 30, 1997
------------------------------------------------------------
Revenue $ 8,204,236
Loss from operations (2,441,497)
Net loss from continuing operations (2,174,836)
Loss per common share before
discontinued operations (0.42)
============================================================
F-18
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
2. Discontinued Effective September 30, 1997, the Company sold certain
Operations assets of its defense industry business unit to a third
party for $1,100,000. The Company has subsequently collected
this receivable.
With the disposal of its defense industry business, the
Company discontinued all of its operations in the defense
industry. Therefore, it separately reported the losses from
this business as discontinued operations for the year ended
September 30, 1997 as follows:
September 30, 1997
------------------------------------------------------------
Revenues from discontinued
operations $ 5,186,936
Loss from discontinued
operations (337,145)
Loss on disposal (1,261,168)
Net loss from discontinued
operations $(1,598,313)
============================================================
3. Accounts The components of accounts receivable are as follows:
Receivable
September 30, 1998 1997
-----------------------------------------------------------
Contract receivables:
Billed $2,463,758 $2,110,966
Unbilled 266,074 313,763
---------- ----------
2,729,832 2,424,729
---------- ----------
Less allowance 161,109 188,161
---------- ----------
Accounts receivable, net $2,568,723 $2,236,568
========== ==========
F-19
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
PlanGraphics has historically received greater than 10% of
its annual revenues from one customer. One customer
accounted for 11.6% and another customer accounted for 25.6%
of revenues for the years ended September 30, 1998 and 1997.
In addition, at September 30, 1998, two customers accounted
for 14.3% and 11.1% of accounts receivable.
4. Notes Notes payable at September 30, 1998 and 1997 are as follows:
Payable
Years Ended September 30, 1998 1997
------------------------------------------------------------
Note payable, interest of 15%,
with monthly interest only
payments, collater- alized by
a first lien on land and
building held for rental and
improvements, maturing on
March 3, 1999 (1) $ 620,000 $ 576,000
Note payable to bank in
monthly principal installments
of $5,000, interest at 8.5%
payable quarterly,
collateralized by equipment,
accounts receivable, and stock
pledge agreement of Company
shares and an assignment of
$500,000 life insurance policy
on an individual. Note matured
on April 24, 1998 -- 650,000
Line of credit with a bank,
interest at 9.5% payable at
maturity on August 7, 1997,
collateralized by equipment
and accounts of the Company,
paid in full on October 15,
1997 -- 180,000
Note payable to bank in
variable monthly principal
payments from $15,000 to
$20,745, interest at 8.5%,
collateralized by equipment
and accounts receivable,
maturing on July 24, 2001 604,564 --
Note payable to related party
(2) 29,819 605,184
Other -- 24,060
------------ ------------
1,254,383 2,035,244
Less current portion 831,421 1,012,988
------------ ------------
Notes payable - long-term $ 422,962 $ 1,022,256
============ ============
F-20
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
(1) The note payable collateralized by the land and building was
refinanced during fiscal 1998.
(2) Notes Payable - Related Party
Total amounts under related party notes to a minority
stockholder were $29,819 and $605,184 at September 30, 1998
and 1997. The Company restructured these notes on October
10, 1997 by converting $289,902 of the related party notes
payable into 170,531 shares of the Company's common stock,
paying $150,000 in cash and issuing a note with an interest
rate of 10% for the remaining balance. The note requires
monthly payments of $14,000 principal and interest through
October 15, 1998 and the remaining balance was paid in full
on November 15, 1998.
Certain voting provisions relating to these related party
notes were cancelled with the restructuring of the notes.
Principal payments on all notes payable due subsequent to
September 30, 1998 are as follows:
September 30, Amount
------------------------------------------------------------
1999 $ 831,421
2000 222,589
2001 200,373
------------------------------------------------------------
$ 1,254,383
============================================================
5. Litigation The Company has appealed the Government's assessment of
excessive reprocurement costs against the Company on a
manufacturing contract terminated for default in 1998. The
appeal of the default termination was unsuccessful. As such,
the Company has recorded a reserve for $478,997 and $521,000
as of September 30, 1998 and 1997 for potential losses.
F-21
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
The Company is engaged in various litigation matters from
time to time in the ordinary course of business. In the
opinion of management, the outcome of any such litigation
will not materially affect the financial position or results
of operations of the Company.
6. Taxes on The provision for income taxes consisted of the following:
Income
Years ended September 30, 1998 1997
------------------------------------------------------------
Deferred benefit:
Federal $ 867,000 $ 1,084,000
State 84,000 104,000
----------- -----------
951,000 1,188,000
Valuation allowance (951,000) (1,188,000)
----------- -----------
$ -- $ --
=========== ===========
A reconciliation of the effective tax rates and the
statutory U.S. federal income tax rates is as follows:
1998 1997
------------------------------------------------------------
U.S. federal statutory rates (34.0)% (34.0)%
State income tax benefit, net
of federal tax amount (3.3) (3.3)
Increase in deferred tax asset valuation
allowance 37.3 37.3
---- ----
Effective tax rate - % - %
====== ======
F-22
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Temporary differences that give rise to a significant
portion of the deferred tax asset are as follows:
1998 1997
-------------------------------------------------------------
Net operating loss carryforwards $ 2,258,000 $ 1,472,000
Capital loss carryover 587,000 587,000
Expense for stock options and
warrants 296,000 194,000
Provision for losses on accounts
receivable 60,000 70,000
Accrued litigation 179,000 194,000
Vacation 51,000 59,000
Capitalized software -- (96,000)
----------- -----------
Total gross deferred tax assets 3,431,000 2,480,000
Valuation allowance (3,431,000) (2,480,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
A valuation allowance equal to the gross deferred tax asset
has been recorded, as management of the Company has not been
able to determine that it is more likely than not that the
deferred tax assets will be realized.
At September 30, 1998, the Company had net operating loss
carryforwards of approximately $6,054,000 with expirations
through 2018 and a $1,575,000 capital loss carryover which
expires through 2002. The net operating losses are limited
due to issuances of common stock.
7. Leases Obligation Under Capital Leases - Related Parties
The Company leases an office facility from a related party,
Capitol View Development, LLC, under a triple net commercial
lease. An officer/shareholder owns approximately ten percent
of Capitol View Development. The lease includes an annual
base rent increasing over the term of the lease plus an
adjustment based on Capitol View Development's rate of
interest on its loan. The initial lease term is for a period
of fifteen years with five renewal options for a term of one
year each. Annual payments approximate $320,000 per year.
F-23
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
The Company also leases certain equipment under capital
leases from a related party. Original lease terms are for
five years.
The following is a schedule, by years, of future
noncancellable minimum payments required under these leases,
together with their present value as of September 30, 1998.
Related Party
Years Ended Land and
September 30, Building Equipment Total
------------------------------------------------------------
1999 $ 311,260 $ 107,350 $ 418,610
2000 311,260 73,285 384,545
2001 311,260 14,529 325,789
2002 311,260 - 311,260
2003 311,260 - 311,260
Thereafter 2,282,573 - 2,282,573
------------------------------------------------------------
3,838,873 195,164 4,034,037
Less: amount
representing
interest 1,887,277 26,255 1,913,532
------------------------------------------------------------
Present value
of minimum
lease payments $1,951,596 $ 168,909 2,120,505
============================================================
Less: current portion 160,043
------------------------------------------------------------
Obligations under
capital leases
after current portion $ 1,960,462
============================================================
As of September 30, 1998 and 1997, accumulated amortization
for the building and equipment under capital lease
obligations was $243,150 and $0.
F-24
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Operating Lease Commitments
The Company leases certain office facilities and certain
furniture and equipment under various operating leases.
Lease terms range from one to five years.
Minimum annual operating lease commitments at September 30,
1998 are as follows:
September 30,
------------------------------------------------------------
1999 $ 124,000
2000 66,700
2001 34,700
------------------------------------------------------------
$ 225,400
============================================================
Rental expense for the years ending September 30, 1998 and
1997 totaled approximately $134,600 and $10,000.
8. Equity Preferred Stock
Transactions
In November 1996, the Company amended its articles of
incorporation to provide for a Series A 6% cumulative
convertible redeemable preferred stock $.001 par value
(Series A). The Company designated 1,000,000 shares Series A
as part of the authorized class of preferred shares. The
Company issued 500 shares of Series A with a stated value of
$1,000 per share, with net proceeds to the Company of
$450,000 in November 1996. The holders of these 500 shares
of Series A converted the preferred into common stock at
various times during the year in exchange for 499,732 shares
of common stock.
In August 1997, the Company sold 650 shares of its Series A
with net proceeds of $547,500. In September 1997, the
Company sold 1,000 shares of its Series A with net proceeds
of $840,500. The Series A preferred stock and any
accumulated and unpaid dividends are convertible at the
F-25
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
option of the holder at the lesser of 75% of the average of
the closing bid price per share of the Company's common
stock for the five days prior to issuance or 75% of the
average of the closing bid price per share of the Company's
common stock for the five days preceding the date of
conversion.
Warrants issued to purchase 233,781 shares of common stock
were issued in connection with the placement of the Series
A. The warrants can be exercised at various prices from
$1.6875 to $1.875 and expire from November 1998 to August
2000. The Company recognized deemed dividends of $175,925 in
1997 in connection with issuing these warrants under the
accounting provisions of SFAS 123. The Company also
recognized $716,667 of deemed dividends in 1997 due to the
discount associated with the convertibility of the preferred
stock at 75%.
The holders of 1,650 shares of the Company's Series A
converted the preferred into common stock at various times
during fiscal 1998 in exchange for 2,224,508 shares of
common stock.
In October 1997, the Company sold 250 shares of its Series A
with net proceeds of $212,500. The holders of these 250
shares of Series A converted the preferred into common stock
at various times during the year in exchange for 385,462
shares of common stock.
In August 1998, the Company sold 700 shares of its Series A
with net proceeds of $445,400, of which $100,000 is held as
restricted cash as specified in the subscription agreements.
The Series A preferred stock and any accumulated and unpaid
dividends are convertible at the option of the holder within
two years of the issue date at the lesser of 105% of the
average of the closing bid price per share of the Company's
common stock for the five days prior to issuance or 20%
below the average of the closing bid price per share of the
Company's common stock for the three days preceding the date
of conversion.
As of September 30, 1998 and 1997, dividend on arrears
associated with the Series A amounted to $30,875 and $6,125.
F-26
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Warrants were issued to purchase 245,000 shares of common
stock in connection with the placement of the Series A. The
warrants can be exercised at various prices from $0.75 to
$0.788 and expire in August 2001. The Company recognized
deemed dividends of $117,600 in 1998 in connection with
issuing these warrants in conjunction with offering costs
under the accounting provisions of SFAS 123. The Company
also recognized $476,112 of deemed dividends in 1998 due to
the discount associated with the convertibility of the
preferred stock.
The Series A Preferred is subject to mandatory conversion
two years after the date of issue.
Common Stock
During fiscal year 1997, the Company exchanged $212,182 in
services for the exercise price of 144,094 shares of common
stock. Employees exercised options to purchase 27,300 shares
with the Company recognizing proceeds of $19,622. The
Company forgave the $179,000 subscription receivable in
exchange for services provided during the year ended
September 30, 1997.
During fiscal year 1998, the Company exchanged $298,484 in
services for the equivalent value of 203,776 shares of
common stock. The Company also issued 662,142 shares of
common stock for cash with net proceeds totaling $630,462,
which include 28,571 shares issued to a related party for
$25,000 in cash. Individuals exercised options and warrants
to purchase 264,571 common shares with the Company
recognizing proceeds of $124,191 and services of $191,969.
The Company issued options and warrants to purchase
1,127,415 shares of common stock to outside consultants,
brokers and directors during fiscal 1998 with a total value
of $659,281, of which $165,138 relates to offering costs. Of
the 1,127,415 options and warrants granted in fiscal year
1998, the Company granted 5,000 warrants to a related party
for $4,650 in services. The warrants are exercisable at
$0.98 per share through August 17, 2001. The options and
warrants are valued using the Black Scholes model in
accordance with SFAS 123.
F-27
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
On October 10, 1997, the Company issued 170,531 shares of
common stock worth $289,902 in payment of a note payable to
a related party. See Note 4.
Anti-dilution Provisions
The Company has granted certain officers and consultants
anti-dilution rights in employment and service agreements.
The provision calls for the issuance of options at fixed
prices at each date more stock is issued to enable the
parties to retain their ownership percentage. Under the
accounting provisions of SFAS 123 and APB 25, the Company
realized costs of approximately $163,160 for the 492,615
options and 192,086 warrants issued during 1998 and costs of
approximately $406,000 for the 380,340 options and 164,298
warrants issued during 1997.
Stock Options
-------------
The Company's Board of Directors has reserved 300,000,
1,150,000 and 4,000,000 shares under three stock option
plans (1991, 1995, and 1997, respectively). The Company
grants options under the Plan in accordance with the
determinations made by the Option Committee. The Option
Committee will, at its discretion, determine the individuals
to be granted options, the time or times at which options
shall be granted, the number of shares subject to each
option and the manner in which options may be exercised. The
option price shall be the fair market value on the date of
the grant and expire five years subsequent to the date of
grant.
Financial Accounting Standards Board Statement 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123"),
requires the Company to provide pro forma information
regarding net income and net income per share as if
compensation costs for the Company's stock option plans and
other stock awards had been determined in accordance with
the fair value based method prescribed in SFAS No. 123. The
Company estimated the fair value of each stock award at the
grant date by using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for
grants in the years ended September 30, 1998 and 1997:
dividend yield of 0 percent for all years; expected
F-28
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
volatility of 95 to 105 percent in 1998 and 45 to 95 percent
in 1997; risk-free interest rates between 4 and 6 percent in
1998 and 4 and 6.4 percent in 1997; and expected option
lives of three to five years in 1998 and five years in 1997.
Under the accounting provisions for SFAS No. 123, the
Company's net loss and net loss per share would have been
adjusted to the following pro forma amounts:
Years Ended September 30, 1998 1997
------------------------------------------------------------
Net loss
As reported $ (3,000,864 $ (2,551,378)
Pro forma (3,983,943) (3,908,402)
Net loss per share
As reported $ (.34) $ (.72)
Pro forma (.39) (.89)
============================================================
A summary of the status of the Company's stock option plans
and outstanding options and warrants as of September 30,
1998 and 1997 and changes during the years ending on those
dates is presented below:
1998 1997
--------------------- -------------------
Weighted Weighted
Average Average
Range of Exercise Range of Exercise
Shares Price Shares Price
-----------------------------------------------------------------
Outstanding, beginning
of year 3,465,894 $ 1.36 478,000 $ 0.84
Granted 3,403,467 1.74 3,495,623 1.38
Cancelled (266,910) 1.43 (312,000) 0.81
Exercised (264,571) 1.19 (195,729) 1.39
-----------------------------------------------------------------
Outstanding, end
of year 6,337,880 $ 1.53 3,465,894 $ 1.36
=================================================================
F-29
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Options and warrants
exercisable, end of year 4,792,388 $ 1.51 3,010,894 $ 1.35
Weighted average fair
value of options and
warrants granted
during the year $ 0.79 $ 0.72
======================================================================
The following table summarizes information about stock
options and warrants outstanding and exercisable at
September 30, 1998:
Outstanding Exercisable
---------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 9/30/98 Life Price at 9/30/98 Price
---------------------------------------------------------------------
$0.72-1.00 1,080,665 2.82 $0.86 1,070,665 $0.86
1.03-1.75 3,561,774 3.52 1.43 2,376,262 1.40
1.81-4.25 1,695,441 2.27 2.17 1,345,461 2.22
---------------------------------------------------------------------
$0.72-4.25 6,337,880 2.96 $1.53 4,792,388 $1.51
=====================================================================
9. Employee 401(k) Plan
Benefit Plans -----------
Integrated Spatial Information Solutions, Inc. has a Section
401(k) profit sharing plan covering substantially all
employees. Participants in the plan may contribute up to 15%
of their compensation, subject to certain limitations. Under
the plan, the Company makes matching contributions equal to
25% of the participants elected deferred contribution up to
a maximum of 6% of compensation. Company matching
contributions vest ratably over 5 years. Additional
contributions may be made at the Company's discretion based
upon the Company's performance. Total Company contributions
under the plan were approximately $7,700 and $8,900 in 1998
and 1997.
F-30
<PAGE>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
PlanGraphics has a qualified profit sharing plan with a
401(k) deferred compensation provision covering
substantially all employees. The plan allows employees to
defer up to 21% of their annual salary with a tiered
matching contribution by the Company up to 1.75%. Additional
contributions are at the Company's discretion. PlanGraphics
contributed approximately $54,300 under the plan in 1998 and
$0 for the eight days in 1997 after the Company's
acquisition of PlanGraphics.
10. Commitments The Company is partially self insured for employee medical
Self Insurance liabilities which covers risk up to $20,000 per individual
covered under the plan. The Company has purchased excess
medical liability coverage for individual claims in excess
of $20,000 and approximately $250,000 in aggregate with a
national medical insurance carrier. Premiums and claim
expenses associated with the medical self insurance program
are included in the accompanying statements of income.
Employment Agreements
The Company has entered into employment agreements that
extend from December 31, 1999 through December 31, 2000 with
five of its officers. The employment agreements set forth
annual compensation to the five officers of between $60,000
and $157,500 each.
11. Lease The Company owns the land and manufacturing facility
Agreement previously used for its business operations which were
of Former discontinued in fiscal 1997 through a sale of the assets.
Manufacturing The buyer of the certain assets of the Company currently
Facility leases the facilities and has exercised an option to buy the
entire property at $1.5 million. The Company and the third
party are currently negotiating the purchase price and
anticipate closing this transaction during fiscal 1999.
12. Significant During the quarter ended September 30, 1998, the Company
Fourth Quarter recorded the prorated portion of a deemed dividend of
Adjustments approximately $225,000 related to the preferred stock issued
in fiscal 1997. The Company also recorded approximately
$200,000 in expense for stock options and warrants granted
throughout the year.
F-31
<PAGE>
<TABLE>
<CAPTION>
Integrated Spatial Information
Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
======================================================================================
13. Supplemental Years Ended September 30, 1998 1997
Schedule of ------------------------------------------------------------------
Non-Cash
Investing and
Financing
Activities
<S> <C> <C>
Business acquired with common stock $ -- $3,999,340
Common stock issued for services
and debt -- 508,359
Conversion of preferred stock into
common stock 1,600,500 450,000
Stock issued in connection with
conversion of debt 289,902 --
Resolution of stock repossession 241,586 --
Stock warrants issued for offering costs 165,138 --
Cash paid for interest 540,490 126,000
</TABLE>
14. Life The Company recorded other income of $400,000 related to the
Insurance proceeds of two company owned key man life insurance
policies on a director of the Company during the year ended
September 30, 1997.
15. Subsequent The Company secured a commitment for a $3 million line of
Events credit. Based on the commitment letter received, the
Company's borrowing base will be based on eligible accounts
receivable. The line of credit will accrue interest at a
rate per annum of 3.5 percentage points above the 30-day
LIBO Rate as published in the Wall Street Journal and will
mature one year from the date of closing. The Company
anticipates closing on the loan in January 1999.
F-32
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 55,045
<SECURITIES> 0
<RECEIVABLES> 2,568,723
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,984,541
<PP&E> 2,602,260
<DEPRECIATION> 361,706
<TOTAL-ASSETS> 11,301,529
<CURRENT-LIABILITIES> 3,331,361
<BONDS> 0
1
0
<COMMON> 12,635,423
<OTHER-SE> 7,048,680
<TOTAL-LIABILITY-AND-EQUITY> 11,301,529
<SALES> 0
<TOTAL-REVENUES> 8,146,367
<CGS> 10,548,156
<TOTAL-COSTS> 10,548,156
<OTHER-EXPENSES> 58,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 540,490
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,000,864)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,476,976)<F1>
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
<FN>
<F1> Net loss was $3,000,864. Deemed dividends of $476,112 increased the loss to
$3,476,976 or ($0.34) per common share.
</FN>
</TABLE>
