<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[X] AMENDMENT NO. 2 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________.
COMMISSION FILE NO.: 0-20312
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VISTA INFORMATION SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1293754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5060 SHOREHAM PLACE, #300, SAN DIEGO, CA 92122
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (619) 450-6100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
----------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X].
Revenues for the period ended December 31, 1996 were approximately
$8,387,000.
As of November 26, 1997, 32,603,139 shares of Common Stock of the
Registrant were deemed outstanding (assuming conversion of 976,433 shares of the
Registrant's convertible voting preferred stock into 9,647,650 shares of Common
Stock) and the aggregate market value of the Registrant's voting stock as of
that date (based upon such assumed conversion into Common Stock and the average
of the closing bid and asked prices of the Common Stock as of that date reported
by the NASDAQ SmallCap Market), excluding outstanding shares beneficially owned
by directors and executive officers, was approximately $9,583,673.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-KSB incorporates by
reference information (to the extent specific sections are referred to herein)
from the Registrant's Proxy Statement for its 1997 Annual Meeting (the "1997
Proxy Statement").
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Index to Consolidated Financial Statements F-1
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3 to F4
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in Stockholders' Equity F-6
Consolidated Statement of Cash Flows F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-28
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
VISTA Information Solutions, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheets of VISTA
Information Solutions, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We 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 accounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the financial position of VISTA Information
Solutions Inc. as of December 31, 1996 and 1995 and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our previous report on the 1996 financial statements, dated March 18, 1997,
included an explanatory paragraph that expressed substantial doubt about the
Company's ability to continue as a going concern. As explained in Note 15, the
Company received the proceeds of $5 million of equity financing in August of
1997. Due to this event, we have removed the explanatory paragraph about the
Company's ability to continue as a going concern.
McGLADREY & PULLEN, LLP
San Diego, California
March 18, 1997, except for Note 15 as to which the date is August 29, 1997
F-2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS (Note 5) 1996 1995
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Current Assets
Cash (Note 4) $ 56,277 $ 21,027
Trade accounts receivable, less allowance for
doubtful accounts of $284,000 and $248,500,
respectively (Note 4) 1,211,933 1,843,782
Prepaid expenses 326,994 98,756
-------------------------
TOTAL CURRENT ASSETS 1,595,204 1,963,565
-------------------------
Equipment, furniture and purchased software, at
cost (Note 7)
Equipment and furniture 2,906,056 2,363,148
Purchased software 264,575 109,751
-------------------------
3,170,631 2,472,899
Less accumulated depreciation and amortization (2,160,506) (1,595,965)
-------------------------
NET EQUIPMENT, FURNITURE AND PURCHASED
SOFTWARE 1,010,125 876,934
-------------------------
Capitalized software development costs,
less accumulated amortization of $1,309,571 and - 104,848
$1,212,919, respectively
Acquired technology and environmental databases,
less accumulated amortization of $7,330,904 and
$3,332,229, respectively 4,665,120 8,663,795
Deposits 30,793 105,941
-------------------------
$7,301,242 $ 11,715,083
-------------------------
-------------------------
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
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Current Liabilities
Note payable to bank (Note 4) $ 601,316 $ 1,111,790
Current maturities of long-term
obligations (Note 5) 945,882 655,081
Accounts payable and other 979,949 1,029,574
Accrued development costs (Note 6) 487,500 487,500
Accrued compensation and employee benefits 182,139 380,910
Accrued interest, current maturities 68,684 278,318
Deferred revenue 122,000 -
Other current liabilities 117,310 120,007
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TOTAL CURRENT LIABILITIES 3,504,780 4,063,180
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Long-term obligations, less current maturities
(Note 5) 2,948,640 1,624,939
Accrued interest 336,016 -
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3,284,656 1,624,939
---------------------------
Commitments and contingencies (Notes 2 and 7)
Stockholders' Equity (Notes 3, 5, 9 and 10)
Preferred stock, Series B convertible, par
value $.01; liquidation value $3,000,000,
authorized 200,000 shares; 200,000 shares
issued and outstanding 2,000 2,000
Preferred stock, Series C convertible, par
value $.01; liquidation value $9,851,901,
authorized 670,000 shares; issued and
outstanding 589,299 and 643,935 shares
respectively 5,893 6,439
Preferred stock, Series D convertible, par
value $.01; liquidation value $2,499,982,
authorized 240,000 shares; 187,134 shares issued
and outstanding 1,871 1,871
Common stock, par value $.01; authorized
43,890,000 shares; issued and outstanding
12,285,651 and 10,989,777 shares,
respectively 122,857 109,898
Additional paid-in capital 28,068,560 27,097,419
Accumulated deficit (27,689,375) (21,190,663)
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511,806 6,026,964
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$ 7,301,242 $ 11,715,083
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F-4
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
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Revenues (Note 13) $ 8,387,052 $ 7,839,926 $ 943,209
Cost of revenues 2,574,348 3,026,009 791,283
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GROSS MARGIN 5,812,704 4,813,917 151,926
Operating expenses:
Selling, general and
administrative 6,326,166 6,650,431 2,233,724
Research and development 497,939 1,010,153 1,418,652
Depreciation and amortization 4,586,572 3,820,043 167,171
-----------------------------------------
11,410,677 11,480,627 3,819,547
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-----------------------------------------
OPERATING LOSS (5,597,973) (6,666,710) (3,667,621)
Other income (expense):
Interest income - 8,079 56,179
Interest expense (910,143) (403,708) (31,256)
Other income 9,404 41,602 60,000
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(900,739) (354,027) 84,923
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NET (LOSS) $(6,498,712) $ (7,020,737) $(3,582,698)
-----------------------------------------
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Net (loss) per share $ (0.56) $ (0.67) $ (0.44)
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Weighted average common shares
outstanding 11,522,274 10,542,734 8,222,306
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-----------------------------------------
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Preferred Common Additional
Stock Stock Paid-in Accumulated
(Note 9) (Note 10) Capital Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 2,000 $ 78,916 $ 13,287,033 $(10,587,228) $ 2,780,721
Issuance of common stock for:
Conversion of debentures - 3,650 1,091,350 - 1,095,000
Exercise of incentive stock options (Note 10) - 656 124,200 - 124,856
Net loss (3,582,698) (3,582,698)
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Balance, December 31, 1994 2,000 83,222 14,502,583 (14,169,926) 417,879
Issuance of Series D preferred stock (Note 9) 1,871 - 2,498,122 - 2,499,993
Issuance of common and Series C preferred
stock on acquisition of VEI (Note 3) 6,461 26,437 10,096,781 - 10,129,679
Exercise of incentive stock options (Note 10) - 18 132 - 150
Conversion of Series C preferred stock (Note 9) (22) 221 (199) - -
Net loss - - - (7,020,737) (7,020,737)
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Balance, December 31, 1995 10,310 109,898 27,097,419 (21,190,663) 6,026,964
Issuance of warrants with note payable
to finance and bridge financing company - - 697,180 - 697,180
Exercise of incentive stock options (Note 10) - 4,736 95,124 - 99,860
Conversion of debentures (Note 5) - 2,759 183,755 - 186,514
Conversion of Series C preferred stock (Note 9) (546) 5,464 (4,918) - -
Net loss - - - (6,498,712) (6,498,712)
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Balance, December 31, 1996 $ 9,764 $ 122,857 $ 28,068,560 $(27,689,375) $ 511,806
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</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
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<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $ (6,498,712) $ (7,020,737) $ (3,582,698)
Adjustments to reconcile net loss to net
cash (used in) operating activities
Depreciation 581,878 480,256 166,154
Amortization 4,189,947 3,749,363 452,813
Other - 25,286 (60,000)
Changes in assets and liabilities, net of
effects of acquisition of VEI in 1995 (Note 3):
(Increase) decrease in:
Trade accounts receivable 631,849 (421,906) 33,190
Prepaid expenses and other assets (153,090) 114,580 (50,914)
Increase (decrease) in:
Accounts payable (49,625) 142,055 65,171
Accrued development costs - - 487,500
Accrued compensation and employee
benefits (198,771) 186,138 (44,104)
Deferred revenues 122,000 - -
Other current liabilities 140,100 (60,859) (31,992)
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NET CASH (USED IN) OPERATING ACTIVITIES (1,234,424) (2,805,824) (2,564,880)
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Cash Flows from Investing Activities
Purchases of equipment and software (380,454) (261,028) (162,027)
Additions to capitalized software
development costs - (42,814) (120,689)
Cash acquired on acquisition of VEI - 29,546 -
Decrease in short-term investments - - 80,000
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NET CASH (USED IN) INVESTING ACTIVITIES (380,454) (274,296) (202,716)
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</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
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<S> <C> <C> <C>
Cash Flows from Financing Activities
Net (repayments) borrowings under
note payable to bank (510,474) 390,493 -
Payments on notes payable to officers
and shareholders - (250,005) (10,520)
Proceeds from issuance of warrants 697,180 - -
Proceeds from long-term obligations 2,226,820 - -
Payments on long-term obligations (863,258) (208,425) (11,428)
Proceeds from issuance of preferred stock - 2,499,021 200,000
Proceeds from issuance of common stock 99,860 150 124,856
Proceeds from issuance of debentures - 446,000 -
--------------------------------------------------
--------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,650,128 2,877,234 302,908
--------------------------------------------------
NET INCREASE (DECREASE) IN CASH 35,250 (202,886) (2,464,688)
Cash
Beginning 21,027 223,913 2,688,601
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--------------------------------------------------
Ending $ 56,277 $ 21,027 $ 223,913
--------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 734,761 $ 221,380 $ 78,392
Supplemental Schedule of Non-Cash Investing
and Financing Activities
Convertible debentures and accrued interest
converted into common stock 186,514 - 1,095,000
Accounts payable converted to notes payable - 390,453 -
Capital leases incurred for use of equipment 334,615 - -
Conversion of 55,636 shares of preferred
Series C stock to 546,360 shares of
common stock 5,464 - -
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
VISTA Information Solutions, Inc. (the "Company") is an information company that
provides environmental risk information and address-based hazard and
classification information to bankers, engineers, insurance companies and
corporations throughout the United States.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Vista Environmental Information, Inc. (VEI) since
the date of acquisition (Note 3). All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUES AND DEFERRED REVENUE
The Company recognizes revenue in the month in which product is shipped or in
which information is transmitted to the customer. The Company extends credit to
certain customers, located throughout the United States, generally on a net 30
day basis.
Deferred revenue represents amounts billed in advance for certain software
program license fees. The license fee agreement is typically one year in
length, and revenue is recognized ratably over the life of the agreement.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1995 the Company adopted Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments. The
methods and assumptions used to estimate the fair value of the Company's current
and long-term obligations are based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for debt of the
same remaining maturities with similar collateral requirements. Due to the
inherent uncertainty in determining the approximate interest rate required to
calculate the fair value of the convertible debt and note payable to ISO (Note
6), the Company used an average interest rate of approximately 26%. The rate
applied to those long-term debt instruments would yield a fair value of
approximately $1,305,000 compared to their carrying value of $1,484,000 at
December 31, 1996. The estimated fair value of the Company's other current and
long-term debt obligation's approximated their carrying value at December 31,
1996. At December 31, 1996, the fair value of all of the Company's current and
long-term debt obligations approximated their fair value.
CASH
The Company maintains its cash accounts in various commercial banks located
throughout the United States. Accounts at each bank are insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000 per bank. The Company's
accounts at these institutions, at times, may exceed the federally insured
limit. The Company has not experienced any losses in such accounts.
EQUIPMENT, FURNITURE AND SOFTWARE
Equipment, furniture and purchased software are stated at cost. Depreciation
and amortization are provided on accelerated and straight-line methods over the
estimated useful lives of individual assets over the following periods:
Years
-----
Equipment and furniture 3 - 7
Purchased software 3
ASSET IMPAIRMENT
The Company reviews its intangibles and other long-lived assets periodically to
determine potential impairment by comparing the carrying value of the assets
with estimated future cash flows expected to result from the use of the assets,
including cash flows from disposition. Should the sum of the expected future
net cash flows be less than the carrying value, the Company would determine
whether an impairment loss should be recognized. An impairment loss would be
measured by comparing the amount by which the carrying value exceeds the fair
value of the asset being evaluated for impairment. To date, management has
determined that no impairment of intangibles and other long-lived assets exists.
Statement of Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS 121) was adopted as of January 1, 1996. SFAS 121 establishes the
accounting practice for the recognition and measurement of impairment losses on
certain long-lived assets. There were no adjustments required for the adoption
of SFAS 121.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Software development costs incurred after the establishment of the software's
technological feasibility have been capitalized. The establishment of
technological feasibility and the on-going assessment of recovery of capitalized
software costs requires considerable judgment by management with respect to
certain factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technologies. Capitalization ceases when the software is
available for general release to customers at which time amortization of the
capitalized costs begin. These costs were amortized using the straight-line
method over three years. Amortization expense for capitalized software
development costs was approximately $105,000, $410,000 and $453,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences, and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred. The Company
is involved in activities which include continual development of new products
and improvement of existing products.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. SFAS 123 establishes financial accounting and reporting standards
for stock-based compensation plans. SFAS 123 encourages the adoption of a fair
value based method of accounting for stock-based compensation plans, but also
allows entities to continue to measure compensation cost for employees using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). The
Company elected to continue to use the intrinsic value method of APB 25 to
account for compensation costs. As required by SFAS 123, certain proforma
disclosures are made at Note 10. All stock based compensation for new employees
must be recorded at fair value.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER COMMON SHARE
Loss per common share has been computed by dividing net loss by the weighted
average number of shares of common shares outstanding during the year. Common
stock equivalents, consisting of options, warrants and convertible securities,
are not included in the calculation as their effect is anti-dilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for the periods ended December 31, 1995, and 1994, in order to
conform to the presentation used for the year ended December 31, 1996. These
reclassifications had no effect on net loss or stockholders' equity as
previously reported.
NOTE 2. CORPORATE LIQUIDITY
The financial statements have been prepared on a going-concern basis that
contemplates the recoverability of assets and the satisfaction of liabilities in
the ordinary course of business at their recorded amounts. The Company has
incurred a loss of $6,498,712 (which includes approximately $4,772,000 of
depreciation and amortization) for the year ended December 31, 1996, has an
accumulated deficit of $27,698,375, and has negative working capital of
$1,909,576.
Management principally attributes the Company's financial challenges to its
decisions to continue to support the GUS product line (Note 6) in anticipation
of expected growth in revenue. In this regard, the Company has signed an
agreement with ISO (Note 6) in March 1997 in anticipation of the award of two
contracts with major insurance underwriters and management believes the
contracts will generate sufficient revenues to achieve positive cash flow
sometime in mid-1997. Management of the Company believes that the Company's
ability to generate sufficient cash flow to meet its obligations in the future
is dependent upon the attainment of certain revenue projections related to the
sales of new products and GUS related contracts. The projections show that the
Company must attain an annual sales level of approximately $10,000,000 to
achieve positive cash flows from operations. The new products necessary to
achieve these revenues have been developed and introduced in the market place.
The Company will be required to obtain additional debt or equity financing to
fund its operations in 1997. The Company estimates it needs at least $1,000,000
of additional debt or equity financing, of which approximately $600,000 has been
committed. The Company is in the process of negotiating with a prospective
lender for an additional $400,000. Subsequent to December 31, 1996, the Company
received $263,000 of the $600,000 through the issuance of convertible debentures
to members of its Board of Directors. The debentures bear interest at 16% and
are due in twelve months. They also include warrants for 425,000 shares with an
exercise price of 125% of fair market value of the stock using a 21 day average.
The debentures can be converted into shares of the Company's common stock at a
rate of 70% of the fair market value of the stock using a 21 day average. In
addition, the Company has accepted a proposal from a current lender for an
additional $300,000 of the $600,000. Under the proposed terms, the loan will be
due in 12 months and bear interest at 14%. The lender will also receive warrants
to purchase 160,000 shares of common stock at $0.01. If the revenue projections
are not met, the Company will be required to obtain additional debt financing or
equity financing to fund its operations. If sales levels for 1997 are similar to
those achieved in 1996, the Company estimates it would need at least $600,000 of
additional debt or equity financing beyond the needs discussed above.
Although no assurances can be given, management believes that its projected
increased revenue, continued monitoring of operations and the additional
financing being arranged will be sufficient to satisfy the Company's cash
requirements during 1997. No adjustments have been made as a result of this
uncertainty.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. ACQUISITION OF VISTA ENVIRONMENTAL INFORMATION, INC.
On February 28, 1995, the Company acquired all the outstanding stock of VEI in
exchange for newly issued common and preferred shares of the Company. Under the
terms of the agreement, the stockholders of VEI received 2,643,694 shares of
common stock and 646,141 shares of Series C preferred stock, which are
convertible into an aggregate of 6,461,410 shares of common stock. Option and
warrant holders of VEI were issued options and warrants to purchase
approximately 1,500,000 common equivalent shares of the Company, at prices
ranging from $0.04 to $2.51, in replacement of their VEI options and warrants at
exercise prices equal to the pre-merger exercise price adjusted for the
conversion ratio.
The merger was structured based on the companies having equal value. Before the
merger, the Company, (previously known as DataMap, Inc.) and VEI had common and
common equivalent shares, consisting of convertible preferred stock, options and
warrants, of approximately 12,716,000 and 17,594,000, respectively. For
purposes of the conversion, only options and warrants for both companies with
exercise prices below an agreed upon price of $2 were considered. As a result,
the Company issued approximately 10,600,000 common and common equivalent shares
as described above, resulting in the former VEI stockholders owning 50% of the
combined company. However, as a condition to the closing of the merger, DataMap
was required to obtain additional financing of at least $1,500,000. As a
result, DataMap sold 112,280 shares of Series D preferred stock for $1,500,000,
convertible into 1,122,800 shares of common stock (See Note 9), of which 93,563
shares were sold to DataMap's current preferred stockholders and 18,713 shares
were sold to VEI preferred stockholders. Taking into account this transaction,
the DataMap shareholder group owned approximately 52% of the combined company.
Due to this voting control and other considerations, DataMap was determined to
be the accounting acquiror.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. ACQUISITION OF VISTA ENVIRONMENTAL INFORMATION, INC. (CONTINUED)
The acquisition has been accounted for as a purchase, and accordingly, the
operating results of VEI have been included in the operating results of the
Company from the date of acquisition. The total purchase price was calculated
as follows:
Fair value of common stock issued $ 2,590,820
Fair value of preferred stock issued 6,332,182
Fair value of options and warrants issued 1,207,650
Cash payments for fractional shares (973)
-------------
TOTAL FAIR VALUE OF SECURITIES ISSUED 10,129,679
Excess liabilities assumed, including direct merger
costs of $276,000 (a) 1,866,345
-------------
TOTAL PURCHASE PRICE, ALLOCATED TO ACQUIRED TECHNOLOGY
AND ENVIRONMENTAL DATABASES $ 11,996,024
-------------
-------------
(a) The excess liabilities assumed consisted of current assets of approximately
$1,470,000, long-term assets of $861,000, current liabilities of $3,179,000
and long-term liabilities of $742,000.
The Company valued the securities issued at $0.98, which represented a 30%
discount from the market price of the Company's common stick on the acquisition
date.
The following statement of operations, prepared on a pro forma basis for the
year ended December 31, 1995 presents the results of operations of the Company
and VEI as if the acquisition had occurred on January 1, 1995. Annual
amortization charges of $3,998,675 are included on the pro forma statements of
operations reflecting the amortization of intangibles from the write up of the
assets of VEI. The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had taken place on January 1,
1995. In addition, they are not intended to be a projection of future results
and do not reflect any synergies that might be achieved from the combined
operations.
Pro Forma Statement of Operations (Unaudited)
December 31,
1995
-----------
Revenues 8,900,955
-----------
Gross margin 5,274,033
-----------
Operating loss (5,274,033)
Other income (expense) (405,075)
-----------
Net loss (7,977,935)
-----------
-----------
Pro forma net loss per share (0.73)
-----------
-----------
Pro forma weighted average common shares outstanding 10,970,071
-----------
-----------
NOTE 4. NOTE PAYABLE TO BANK
The Company has a factoring agreement with a bank which expires in September
1997. Transactions under the agreement are not treated as a sale of receivables
due to the existence of repurchase obligations. The borrowings under this
arrangement are collateralized by the Company's cash and trade receivables. The
borrowing arrangement allows the Company to borrow up to $1,250,000 based on 80%
of eligible receivables. Outstanding amounts bear interest at the rate of 1.5%
per month. There are additional administrative fees of 1% per month charged by
the lender based on the value of the receivables submitted for borrowing.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. LONG-TERM OBLIGATIONS
1996 1995
------------------------
Convertible subordinated debentures - interest at
prime plus 2.5% due January 1998, unsecured (a) $ 898,928 $ 898,928
Convertible subordinated debentures - interest
only at 16%, due quarterly through March 1997, 255,901 446,000
unsecured (b)
Note payable to vendor - 390,453
Leases - 8.0% - 15.0%, due in monthly aggregate
installments of approximately $22,000, including
interest, to September 2001, secured by
equipment (d) (Note 7) 462,507 544,639
Note payable to finance company - net of unamortized
discount of approximately $562,000, monthly
payments of interest only at 13.5% through
April 2001, at which time all unpaid amounts are
due, secured by all assets of the Company (c) 1,938,244 -
Note payable to association - interest at 1.5% per
month, due in 1997, unsecured (Note 6) 338,942 -
------------------------
3,894,522 2,280,020
Less current maturities (945,882) (655,081)
------------------------
$ 2,948,640 $ 1,624,939
------------------------
------------------------
(a) The debentures are convertible into Series C preferred stock at a rate of
$16.72 per share. At December 31, 1996, the debentures, including accrued
interest, were convertible into approximately 74,000 shares of Series C
preferred stock. The debentures are due each January. If the Company does
not elect to repay the amount outstanding, the holder then has the option
to either convert the entire amount into Series C preferred stock or extend
the debenture for one year and receive additional warrants. The Company did
not repay the debentures in January 1996 or subsequently in January 1997.
As a result, the holders on both occasions elected to extend the debentures
for one year and received warrants for the purchase of 3,706 and 4,135
shares of Series C preferred stock at $16.72 per share in January 1996 and
1997, respectively. (See Note 10 for cumulative warrants issued in
connection with these debentures).
F-15
<PAGE>
NOTE 5. LONG-TERM DEBT OBLIGATIONS (CONTINUED)
(b) In connection with these debentures, the Company issued warrants in October
and November 1995 to purchase 246,137 shares of Common Stock at $0.906 per
share (See Note 10). The debentures were to automatically convert into
common stock at $0.75 per share if they were not repaid by April 1, 1996.
However, the Company defaulted on these obligations, as the quarterly
interest payments had not been made. The Company remedied this default by
offering the holders the option to either (i) automatically convert at
$0.75 per share (ii) extend the debentures to March, 1997 under the same
terms with an option to convert the balance to common stock at 70% of the
then fair market value or (iii) be repaid. One debenture holder elected to
be repaid ($20,000 principal) and all other holders elected options (i) or
(ii). Principal and accrued interest totaling $186,514 was converted by
holders into 275,922 shares of common stock during March 1996. As of March
18, 1997, the Company and holders of the debentures have not converted or
extended these debentures.
(c) On April 30, 1996, the Company entered into an agreement with a finance
company for a $2,500,000 loan with warrants to purchase 5% of the fully
diluted Common Stock (1,247,582 shares) at an exercise price of $0.01 per
share with additional warrants to be issued for the purchase of 497,776,
603,018 and 749,292 on the anniversary date of the loan, April 1999, 2000,
and 2001, respectively. The warrants contain certain anti-dilution
adjustments. The Company assigned an original value to the 1,247, 582
warrants of $648,180 based on the relative estimated fair value of the
warrants and the debt at the time of issuance. The note payable balance
has been discounted by this amount. The discount is being amortized using
the effective interest method over the expected three year life of the
loan.
(d) Subsequent to December 31, 1996, the Company was notified by a lessor that
given its default status all amounts due under the leases are currently due
and payable and a return of the equipment was requested. Accordingly, all
amounts outstanding to this lessor have been classified as current.
During 1996 the Company obtained bridge financing from certain of its Board of
Directors of approximately $200,000, which was repaid with the note payable
proceeds in April 1996 (subparagraph (c) above). In connection with the bridge
financing the Company issued 215,386 warrants to purchase shares of common stock
at $0.52 per share through March 2001. The warrants were assigned a value of
$49,000 based on the estimated fair value of the warrants at the date of grant,
and the related debt was discounted by such amount. The amortization of the
discount has been included in interest expense for the year ended December 31,
1996.
The annual maturities of long-term obligations, including capital leases and
unamortized discount, as of December 31, 1996 are due as follows:
Years Ending December 31,
- -------------------------------------------------------------------------------
1997 $ 945,882
1998 947,101
1999 40,842
2000 16,762
2001 2,505,694
------------
$ 4,456,281
------------
------------
F-16
<PAGE>
NOTE 6. ISO AGREEMENT
In October 1992, the Company and Insurance Services Office, Inc. (ISO), an
association of 1,500 participating insurance companies which collectively write
80% of all property and casualty insurance in the U.S., signed a 15 year
mutually exclusive contract (Joint Services Agreement) to offer a national
system to electronically provide geographically-based information to insurers.
The Geographic Underwriting System (GUS) project links the Company's proprietary
GIS technology with ISO's insurance underwriting (some of which is proprietary),
as well as with information from selected third party information providers.
Under the provisions of the agreement, the Company will provide its GUS software
and support and ISO will provide sales, marketing, billing and maintenance of
the communications network to the GUS users. The Company and ISO generally
share project revenues equally, net of any payments to third party information
providers. The Company's share of revenues under this agreement were $890,000,
$354,614 and $221,056 for the years ended December 31, 1996, 1995 and 1994,
respectively.
In January of 1994, under the terms of an addendum to the agreement, both
parties agreed to develop a national public protection underwriting data ("PPC")
layer for the GUS project. Under terms of this agreement, if qualified expenses
of one party exceeds that of the other ("qualified expense differential"), the
Company with the higher qualified expense differential will be entitled to
reimbursement for 50% of such differential from incremental revenues generated
by this project. In addition, the agreement specifies that qualified expenses
for ISO would not exceed $1.8 million while the qualified expenses for the
Company could not exceed $825,000.
During the year ended December 31, 1994, the Company expensed the maximum of
$487,500 for development costs due to ISO under this agreement. This amount
remains accrued as of December 31, 1996. However, the actual amount due to ISO
is currently in dispute. According to a supplemental agreement to the Joint
Services Agreement, the Company and ISO are required to begin arbitration as no
agreement to the disputed amount was reached by November 15, 1996. Once an
amount is determined, the balance of the ISO loan (below), plus accrued
interest, and the PPC liability will be combined into a new loan bearing an
interest rate 1.5% per month. The total balance will be paid out of VISTA's
share of GUS revenue to the extent it exceeds $120,000 per month until the
balance of any amounts due ISO, plus accrued interest, is paid.
During 1996, the Company entered into an agreement with ISO for a loan, not to
exceed $500,000. Advances commenced during the first week of February 1996 in
increments of $25,000 to $50,000 and bear interest at 1.5% per month. At
December 31, 1996 the total amount outstanding on the ISO loan was $338,942.
F-17
<PAGE>
NOTE 7. LEASE COMMITMENTS
The Company leases furniture and equipment under leases that meet the criteria
for capital lease classification. The Company also leases its operating
facilities under non-cancelable operating leases. The facility leases require
the payment of taxes, maintenance, utilities and insurance. Leased assets
included in the consolidated balance sheets are as follows:
Leased Assets 1996 1995
- -------------------------------------------------------------------------------
Equipment and furniture $ 578,526 $ 580,099
Less accumulated amortization (127,351) (245,306)
---------------------------------------
Net leased assets $ 451,175 $ 334,793
----------------------------------
----------------------------------
Future minimum lease payments under capital leases and noncancelable operating
leases consist of the following at December 31, 1996:
Capital Operating
Years Ending December 31, Leases Leases
- ------------------------------------------------------------------------------
1997 $ 253,381 $ 418,027
1998 192,988 89,299
1999 76,989 86,698
2000 18,848 86,695
2001 2,659 66,923
--------------------------
TOTAL MINIMUM LEASE PAYMENTS 544,865 $ 747,642
-----------
-----------
Less amounts representing interest (8.0% to 15.0%) (82,358)
----------
PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS $ 462,507
----------
----------
Total rent expense under operating leases for the year ended December 31, 1996,
1995 and 1994 totaled approximately $475,000, $517,000 and $127,000,
respectively.
NOTE 8. SALE OF PRODUCTS
On February 1, 1996, the Company sold and licensed certain of the Company's
software and service bureau products to a former officer of the Company. The
purchase price is contingent and consists of royalty payments ranging from 5% to
25% on sales of related products for two years, commencing on February 1, 1996,
with no minimum or maximum amounts. Revenues related to these products sold and
licensed were $875,100, and $722,200 for the years ended December 31, 1995 and
1994, respectively. The net book value of the assets sold were not significant.
Royalty payments for 1996 were not significant.
F-18
<PAGE>
NOTE 9. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors is authorized to issue preferred stock or other senior
securities and determine the series and number of preferred shares to be issued
and any related designations, powers, preferences, rights, qualifications,
limitations or restrictions.
SERIES A PREFERRED STOCK
During fiscal 1990, the Board of Directors authorized the issuance of up to
500,000 shares of Series A cumulative convertible preferred stock of par value
$.0l for $10 per share. From fiscal 1990 to 1992, the Company sold 107,000
shares for total proceeds of $1,070,000. The holders of the Series A preferred
stock were entitled to a dividend in 1991 and 1992 of one additional share of
preferred stock for each ten shares held and a cash dividend of $.80 per share
for each year after 1992. In September, 1993, in conjunction with the issuance
of the Series B preferred stock, discussed below, the Series A cumulative
preferred stock was converted into 695,731 shares of the Company's common stock.
The Company paid cash dividends of $99,087 in September, 1993, to the holders of
the Series A preferred stock. During 1995, the Board eliminated the designation
and authorization of the Series A preferred stock.
SERIES B PREFERRED STOCK
In September, 1993, the Board of Directors authorized the issuance of up to
200,000 shares of Series B preferred stock of par value $.0l for $15 per share.
The stock has a liquidation preference of $15 per share and is convertible at
any time at the holder's option into ten shares of the Company's common stock,
subject to certain anti-dilution provisions. In September, 1993, the Company
entered into a purchase agreement with an institutional investor and privately
sold 150,000 shares of Series B convertible preferred stock for $15 per share.
The Company received $2,250,000 in cash and a commitment for the purchase of an
additional 50,000 shares for $750,000, of which $550,000 was received in 1993,
and $200,000 was received in 1994. Among other terms, the purchase agreement
includes provisions for options to purchase 375,000 of the Company's common
stock at prices ranging from $3.00 to $4.30 per share (See Note 10), subject to
adjustment, and the right to designate one nominee for a seat on the Board of
Directors. The Series B convertible preferred stock has a number of restrictive
covenants including requiring prior approval by the Company of the preferred
stockholders for an increase in the size of the Board of Directors and before
entering into any merger, joint venture, or distribution agreement.
F-19
<PAGE>
NOTE 9. STOCKHOLDER'S EQUITY (CONTINUED)
SERIES C PREFERRED STOCK
Under the terms of the acquisition of VEI, the Company issued 646,141 shares of
Series C preferred stock, which are convertible into an aggregate of 6,461,410
shares of the Company's common stock. The Series C preferred stockholders are
entitled to a liquidation preference of $16.718 per share and are entitled to
elect two directors of the Company. In addition, the Series C preferred
stockholders have other rights and preferences including the requirement of an
affirmative vote of the holders of a majority of the outstanding shares of the
Series C preferred stockholders to amend the Articles of Incorporation or the
Bylaws of the Company or increase the size of the Board of Directors. During
the years ended December 31, 1996 and 1995, 54,636 and 2,206 shares,
respectively of the Series C preferred stock were converted into 546,360 and
22,060 shares of common stock.
SERIES D PREFERRED STOCK
During 1995, the Company sold for approximately $2,500,000, 187,134 shares of
Series D preferred stock to certain holders of Series C and Series B preferred
stock, in a private placement. Each share of the Series D preferred stock is
convertible into 10 shares of the Company's common stock. The Series D
preferred stock has a liquidation preference of $13.36 per share and other
rights and preferences similar to the Series B and Series C preferred stock
except that Series D preferred stockholders do not have the right to designate a
director, but instead vote, on an as-if-converted basis, along with the holders
of common stock in the election of directors of the Company.
NOTE 10. STOCK OPTIONS AND INCENTIVE PLANS
At December 31, 1996, the Company has three stock-based incentive plans which
are described below. In addition, the Company has granted options and warrants
outside of the plans to officers, directors, consultants and certain debt and
equity holders. As permitted under generally accepted accounting principles,
grants to employees are accounted for following APB 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
grants to employees under these plans. Had compensation cost for all awards in
1996 and 1995 under the stock-based compensation plans been determined based on
the grant date fair values of awards (the method described in SFAS 123),
reported net loss and loss per common share would have been as follows:
1996 1995
- -------------------------------------------------------------------------------
Net (loss):
As reported $ (6,498,712) $ (7,020,737)
Proforma (6,582,168) (7,110,086)
Net (loss) per share:
As reported $ (0.56) $ (0.67)
Proforma (0.57) (0.67)
F-20
<PAGE>
NOTE 10. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
The proforma effects of applying SFAS 123 are not indicative of future amounts
since, among other reasons, the proforma requirements of the Statement have been
applied only to options granted after December 31, 1994.
The Company has a 1990 Stock Option Plan that reserved 15% of the then
outstanding common stock for issuance. At December 31, 1996, 933,192 shares had
been issued under this Plan. With the approval of the 1995 Stock Incentive Plan
(see below), the 1990 plan was terminated and accordingly, there were no further
grants under the 1990 Plan.
In connection with the acquisition of VEI, the Company assumed VEI's 1993 Stock
Option Plan. At March 15, 1995, options for 1,309,713 shares were issued under
this requirement. With the approval of the 1995 Stock Incentive Plan (see
below), there were no further grants under this Plan.
On March 15, 1995, the Board approved the Company's 1995 Stock Incentive Plan.
The Plan reserves a maximum of 3,000,000 shares for issuance.
Awards granted under the plans are exercisable over a period determined at the
time of grant, not to exceed ten years. The types of awards issuable under the
1995 Plan are incentive options, non-qualified options, restricted stock awards,
performance units and stock appreciation rights. Incentive options under the
Plan are granted at an exercise price of not less than 100% of the fair market
value at the date of grant and vest over a period of one to three years. Non-
qualified options may be granted at exercise prices not less than 85% of market
value at the date of grant, with vesting determined at the time of grant.
Incentive options must be granted with exercise prices equal to the fair market
value on the date of grant, except that incentive options granted to persons
owning stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company may not be granted at less that 110% of the fair
market value on the date of grant.
F-21
<PAGE>
NOTE 10. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
The 1995 Plan provides for an annual automatic grant of 10,000 non-qualified
options to non-employee members of the Board of Directors.
A summary of the stock option activity under all of the aforementioned plans is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
Fixed Options OPTIONS PRICE Options Price Options Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 2,470,567 $ 1.02 863,192 $ 2.66 793,142 $ 2.24
Granted 389,000 1.02 1,878,500 0.44 144,550 4.68
Exercised (473,593) (0.21) (1,794) (0.80) (65,667) (1.93)
Expired
/Surrendered (423,139) (2.08) (269,331) (2.79) (8,833) (3.21)
Outstanding at
end of year 1,962,835 $ 1.02 2,470,567 $ 1.02 863,192 $ 2.66
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Exercisable at
end of year 1,439,796 $ 0.90 1,856,988 $ 0.44 732,957 $ 2.91
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Weighted-average
fair value per option of
options granted
during the year $0.32 $0.12 $ -
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
Of the options granted during the year ended December 31, 1995, 1,309,713 were
assumed in conjunction with the merger with VEI (see Note 3). The fair value of
the options was included in the purchase price in Note 3, and therefore, the
amounts are not reflected in the proforma SFAS 123 calculations.
F-22
<PAGE>
NOTE 10. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
A further summary about fixed options outstanding under these plans at December
31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.00 to 1.00 1,091,669 8.1 $ 0.17 957,669 $ 0.09
1.01 to 2.00 693,470 9.4 1.50 307,045 1.68
2.01 to 3.00 49,846 7.4 2.33 49,846 2.33
3.01 to 4.00 40,000 6.7 3.30 40,000 3.30
4.00 to 6.00 87,850 8.8 5.12 85,236 5.15
-------------------------------------------------------------------------------
1,962,835 8.5 $ 0.98 1,439,796 $ 0.90
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
F-23
<PAGE>
NOTE 10. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
In addition, the Company has granted options and warrants for the purchase of
common stock outside of the plans to officers, directors, consultants and
certain debt and equity holders as follows (including all options and warrants
to purchase common stock discussed in Notes 5 and 9 but excluding the effect of
any conversion rights):
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 1,738,970 $ 2.87 1,530,933 $ 3.15 1,530,933 $ 3.15
Granted 1,462,968 0.08 246,137 0.90 - -
Exercised - - - - - -
Expired/
Surrendered (1,088,832) 3.07 (38,100) (1.50) - -
--------------------------------------------------------------------------------------
Outstanding at
end of year 2,113,106 $ 0.84 1,738,970 $ 2.87 1,530,933 $ 3.15
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Exercisable at
end of year 2,113,106 $ 0.84 1,613,971 $ 2.80 1,134,785 $ 3.15
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Weighted average
fair value per
option of
options granted
during the year $0.47 $ $ - $ -
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
NOTE 10. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
A further summary about the options and warrants granted outside of the
Company's formal plans outstanding at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.00 to 1.00 1,709,105 4.0 $ 0.20 1,709,105 $ 0.20
1.01 to 2.00 25,000 7.9 2.00 25,000 2.00
2.01 to 3.00 127,001 8.7 2.99 127,001 2.99
3.01 to 4.00 127,000 8.7 3.60 127,000 3.60
4.01 to 6.00 125,000 6.0 4.30 125,000 4.30
-------------------------------------------------------------------------------
2,113,106 4.7 $ 0.84 2,113,106 $ 0.84
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
Not included in the above table are warrants granted in conjunction with current
and prior extensions of the $898,928 of Convertible Subordinated Debentures. The
holders have received warrants for the purchase of 25,374 shares of Series C
preferred stock at $16.718 per share (See Note 5).
NOTE 11. INCOME TAXES
As of December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $24,326,000 available to offset
future taxable income, which include carryforwards from VEI. In addition, the
Company has investment tax and research credit carryforwards of approximately
$126,000. Future utilization of these loss credit carryforwards are subject to
certain limitations under provisions of the Internal Revenue Code including
limitations subject to Section 382, which relates to a 50% change in control
over a three year period, and are further dependent upon the Company attaining
profitable operations. Shares issued to acquire VEI and shares issued in
previous private placement transactions, have caused the Company to exceed the
50% change in control threshold. This has subjected the Company to limitations
of annual net operating loss and credit carryforwards and may result in the
expiration of a portion of these carryforwards before they can be utilized. The
estimated annual limitation of operating losses is approximately $524,000. In
addition, the net operating losses generated by VEI before the merger totaling
approximately $6,600,000 can only be used to offset future VEI income.
F-25
<PAGE>
NOTE 11. INCOME TAXES (CONTINUED)
A reconciliation of the effective tax rates with the federal statutory rate is
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax benefit at statutory rate $ (2,274,500) $ (2,457,300) $ (1,218,100)
Change in valuation allowance, net of temporary
differences acquired in acquisition of VEI in 1995 2,640,500 2,853,300 1,463,400
State taxes (366,000) (396,000) (245,300)
-----------------------------------------------------
$ - $ - $ -
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
The tax effect of temporary differences consisted of the following as of
December 31:
1996 1995
- -------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 9,764,100 $ 8,349,400
Accrued development costs 195,000 195,000
Compensation element of stock options issued 94,900 94,900
Accrued payroll 45,000 94,800
Allowance for doubtful accounts 115,000 98,800
Tax credit carryforwards 126,000 99,100
Equipment and purchased software - 30,400
Accrued sales tax 32,000 -
------------ ------------
Gross deferred tax assets 10,372,000 8,962,400
Less valuation allowance (8,115,800) (5,475,300)
------------ ------------
$ 2,256,200 $ 3,487,100
------------ ------------
Deferred tax liabilities:
Equipment and purchased software (379,200) -
Deferred rent (11,000) (21,600)
Acquired technology (1,866,000) (3,465,500)
------------ ------------
(2,256,200) (3,487,100)
------------ ------------
$ - $ -
------------ ------------
------------ ------------
F-26
<PAGE>
NOTE 11. INCOME TAXES (CONTINUED)
As of December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes expiring as follows:
1997 $ 188,200
1998 119,500
1999 38,600
2000 35,600
2001 42,100
2002 438,600
2003 1,385,800
2004 1,378,000
2005 3,852,300
2006 3,460,500
2007 2,562,400
2008 4,533,700
2009 3,829,900
2010 2,460,800
-------------
$ 24,326,000
-------------
-------------
NOTE 12. 401(k) AND PROFIT SHARING PLAN
Effective January 1, 1992 the Board of Directors adopted a 401(k) Plan ("the
Plan") for its employees. Under the terms of the Plan, a participant may
contribute, on a pre-tax basis, up to twenty percent (20%) of compensation,
subject to IRS limitations. The Company may contribute to the Plan on behalf of
each participant. The Company's contribution is discretionary and depends on
the Company's profits and performance during the year.
At the same time, the Board of Directors adopted a Profit Sharing Plan for its
employees. The Company's contribution is discretionary and depends on the
Company's profits and performance during the year.
There were no contributions made by the Company to these Plans during the years
ended December 31, 1996, 1995 or 1994.
NOTE 13. SIGNIFICANT CUSTOMER
Sales through one distributor amounted to 24% during the year ended December 31,
1994.
F-27
<PAGE>
NOTE 14. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 125 (SFAS 125) and No. 127 (SFAS 127) which
relate to accounting for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS, among other provisions, provides
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996 and early adoption is prohibited. SFAS 127 deferred the
effective date of certain provisions of SFAS 125 until after December 31, 1997.
Management does not believe the impact of adopting FAS 125 will have a material
impact on the consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128): Earnings per Share. SFAS 128
establishes standards for computing and presenting earnings per share (EPS),
including replacing the presentation of primary EPS with a presentation of basic
EPS. SFAS 128 also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with a complex capital structure
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS 128 will be effective for the Company's year ended December 31, 1997 and
will require restatement of any prior period EPS data presented. The Company
has not determined what effect this new standard will have on its earnings per
share presentations.
NOTE 15. SUBSEQUENT EVENTS
PREFERRED STOCK ISSUANCE
On August 29, 1997, the Company issued 2,500 shares of Series E Convertible
Preferred Stock (Series E) and 2,500 shares of Series F Convertible Preferred
Stock (Series F), both with a par value of $.01 per share, to SIRROM Capital
Corporation d/b/a Tandem Capital at a stated value and purchase price of $1,000
per share for an aggregate gross purchase price of $5,000,000. Shares of Series
E and Series F have a dividend rate of 12% which is payable quarterly. Shares of
Series E are convertible into the Company's common stock at an initial
conversion price of $2.75 per share, subject to adjustment upon certain
conditions. Shares of Series F shall be convertible into the Company's common
stock, subject to the contemplation of certain events, at a conversion price
equal to 75% of the average closing bid price for the Company's common stock for
the 20 consecutive trading days prior to the conversion date.
RESULTS OF OPERATIONS, OTHER FINANCING ACTIVITIES AND MANAGEMENT'S PLANS
(UNAUDITED)
For the nine months ended September 30, 1997, the Company reported
a net loss of approximately $5,700,000 on revenues of approximately $7,200,000.
Cash used in operating activities was approximately $1,500,000. The losses from
operations were funded, in part, with the proceeds of the preferred stock
issuance noted above and the issuance of $1,000,000 in Senior Subordinated
Promissory Notes which were later converted into the Company's common stock.
Management of the Company believes that the financing transactions discussed
above and elsewhere in these consolidated financial statements will be
sufficient to fund its 1997 operations.
F-28
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VISTA INFORMATION SOLUTIONS, INC.
(registrant)
Dated: November 26, 1997 By: /s/ Thomas R. Gay
----------------------------------
Thomas R. Gay
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below on April 11, 1997 by the following persons on behalf of
the Company and in the capacities indicated.
SIGNATURE AND TITLE
/s/ Thomas R. Gay
---------------------------------------
Thomas R. Gay, Chief Executive Officer
and Director
/s/ Jay D. Seid
---------------------------------------
Jay D. Seid, Chairman of the Board
/s/ Patrick A. Rivelli
---------------------------------------
Patrick A. Rivelli, Director
/s/ Martin F. Kahn
---------------------------------------
Martin F. Kahn, Director
/s/ Robert Boscamp
---------------------------------------
Robert Boscamp, Director
/s/ Robert J. Moeller
---------------------------------------
Robert J. Moeller, Director
/s/ Richard J. Freeman
---------------------------------------
Richard J. Freeman, Director
/s/ Steven Hamilton
---------------------------------------
Steven Hamilton
(Principal Financial Officer)
/s/ Brian Conn
---------------------------------------
Brian Conn
(Principal Accounting Officer)
