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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ 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
_____________________
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
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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 April 9, 1997, 22,049,981 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 9,764,330 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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PART I
ITEM 1. GENERAL DEVELOPMENT OF BUSINESS.
VISTA Information Solutions, Inc. ("VISTA" or the "Company") provides
environmental risk information and address-based hazard and risk classification
information to bankers, engineers, insurance companies and corporations
throughout the United States. VISTA is comprised of two primary product lines.
The first, conducted principally in California, provides address and name based
environmental risk information about properties and companies in the United
States to bankers, engineers and corporations. The second, conducted
principally in Minnesota, provides information on address-based hazard and
classification information to property/casualty underwriters.
The Company, originally known as DataMap, Inc. ("DMI"), was founded in
1975 to develop geographic-demographic analysis tools for business. From
inception until 1995, the Company focused on developing its geocoding
technologies (more fully explained below) and the related databases that provide
small area demographic information and address-based hazard and classification
information, and preparing geographically-based demographic reports used for
direct marketing and real estate site location. The Company focused its initial
selling efforts for its database services on the insurance industry through a
joint venture arrangement with the Insurance Services Office, Inc. ("ISO"). In
1995, the Company expanded its product offerings by acquiring, through a wholly
owned subsidiary, VISTA Environmental Information, Inc. ("VISTA Environmental").
The acquisition of VISTA Environmental expanded the Company's existing product
line to include environmental risk information and significantly increased the
marketing capability within the Company. On May 23, 1995, the Company changed
its name from DataMap, Inc. to "VISTA Information Solutions, Inc."
In early 1996, the Company sold the assets relating to three product
lines to Business Information Technology, Inc. ("BITI"). These product lines
included the Company's: (i) compliance products for the banking and mortgage
industry, known as Census Traks Plus ("CTP"); (ii) desktop marketing products,
known as MarketPro ("MP"); and (iii) custom mapping services, known as the
Service Bureau business. As part of the asset sale, VISTA also granted certain
non-exclusive licenses to BITI for use of the VISTA mapping module Geocoder 2.0
(hereinafter defined), the "DataMap" name (for a limited period of time) and
ZIPR Extracts (hereinafter defined). The consideration provided to VISTA in
connection with the sale includes various royalty payments on the products sold
to BITI ranging from 5 percent to 25 percent of sales for a period of two years.
BITI is controlled by Gary S. Mertz, the former Chief Executive Officer of the
Company. Revenues related to these products sold and licensed were $875,100,
$722,200, for the years ended December 31, 1995 and 1994 respectively. The book
value of the assets sold were not significant.
The Company was incorporated under the laws of the State of Minnesota
in 1975. The Company's executive office is located at 5060 Shoreham Place,
#300, San Diego, CA 92122, phone number (619) 450-6100.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company operates in a single industry segment: information
services including environmental risk information and address-based hazard and
classification information.
NARRATIVE DESCRIPTION OF THE BUSINESS.
VISTA provides environmental risk information and address-based hazard
and classification information to bankers, engineers, insurance companies and
corporations throughout the United States. VISTA is comprised of two primary
product lines. The first, conducted principally in California, provides address
and name based environmental risk information about properties and companies in
the United States to bankers, engineers and corporations. The second, conducted
principally in Minnesota, provides information on address-based hazard and
classification information to property/casualty underwriters.
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ENVIRONMENTAL RISK INFORMATION SERVICES
The environmental risk information services portion of VISTA's
business was organized with the goal of meeting the needs of bankers, engineers,
corporations and others for environmental risk information relating to
properties and companies in the United States. VISTA gathers and collects
information from hundreds of federal, state, and local governmental agencies and
stores such information in proprietary databases. From this information, the
Company has developed a diverse family of products, each tailored for the unique
needs of specific customer markets.
INDUSTRY FOCUS. The need for environmental risk information
originated with the enactment of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) which imposes strict liability
for the full cost of cleanup of environmentally contaminated property regardless
of responsibility for the contamination or fault. The Superfund Amendments and
Reauthorization Act of 1986 (SARA) established an "Innocent Landowner" defense
which eliminated liability provided certain due diligence was performed before
acquisition. One step in the process of satisfying the Innocent Landowners
Defense requires routine, timely and complete searching of government records
for notice of environmental risk. As a result of this legislation and
additional enactments of state and federal environmental laws, banks,
corporations, attorneys, insurance companies and environmental engineering firms
have been and are continuing to seek efficient means to gather environmental
information. The consulting engineering market segment has been serving
bankers, developers, corporations and others by providing Phase I and Phase II
site assessments and many other types of remediation and compliance review
services. During 1993, the industry and its clientele adopted new standards,
ASTM-E 1527 and E-1528, which, for the first time, provided clear guidelines for
environmental due diligence in commercial real estate transactions. These
guidelines require a search of government environmental records to check the
known risks associated with a property. VISTA provides a set of software and
services that meet the requirements set out in the standards. VISTA also
provides environmental database reports to help this clientele conduct
compliance audits, waste disposal audits, benchmark reviews and marketing for
strategic planning programs.
In addition to using environmental information to establish the
Innocent Landowners Defense, the economic impact of environmental problems on
properties and companies arises in a number of other contexts, all having
potentially adverse effects on a company's finances. For example, banks are
monitored by the FDIC as to impact of environmental risk on property values and
the subsequent effect this has on the value of collateral and on the banks'
financial stability. Also the federal securities laws require disclosure
regarding the material effects of compliance with federal, state and local
environmental laws and pending legal proceedings, and may require discussion of
the impact of such compliance.
DEVELOPMENT OF THE ENVIRONMENTAL DATABASE. As a result of the
enactment of federal and state environmental laws and regulations during the
1970's and 1980's, various governmental agencies began collecting massive
quantities of information about environmental contamination and the activities
of businesses that could impact the environment. These governmental agencies
continue to collect, update and enhance information on environmental issues.
Each governmental agency, however, has different information that it provides
and various media formats for the information collected. Furthermore, each
governmental agency has its own database and communication process and updates
its information on different timelines throughout the year. As a result of this
lack of centralization of environmental information, environmental engineers,
financial institutions and other companies did not have a cost-effective, timely
way to gain access to this extensive environmental risk information directly
from the governmental sources. The need for this information has greatly
increased since the 1970s and 1980s as a number of judicial, statutory,
regulatory and economic factors have encouraged participants in the real estate
markets (including owners, operators, lenders and insurers) to demand such
information to avoid potentially catastrophic environmental cleanup liability.
In response to this need, VISTA has developed a national database
containing environmental information on approximately 3.5 million facilities and
properties by gathering information from more than 500 public sources. On an
annual basis, VISTA regularly processes approximately 50 million environmental
records from such sources, with approximately 50,000 facilities or properties
added or deleted each month. VISTA has developed this database using its
proprietary geographic information systems capabilities, and has also created
on-line distribution channels.
PRODUCT LINES. The Company has developed a diverse family of
products, each tailored for the unique needs of specific customer markets. The
following depicts the broad categories of current VISTA products organized by
general application.
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REAL ESTATE TRANSACTION SCREEN REPORTS ("RETSR"). RETSRs are
specifically designed to provide easy to understand, basic environmental hazard
data about a specific piece of property and its immediate surrounding area.
RETSRs come in a variety of formats, from a single page screen to a more
detailed data report containing a map depicting the property and risk
discovered. These reports give the client the ability to identify environmental
hazards from public records with a low price screening tool and add more layers
of detail (and higher prices) as the need is discovered. All VISTA RETSRs
conform to the "Government Records Search" element of the ASTM standards.
SITE ASSESSMENT REPORTS ("SAR"). SARs are designed specifically for
the environmental engineering market and are consistent with the ASTM-E 1527
standards. These reports provide a quick and accurate, low cost supplement to
the "Phase I" site assessment process which is the common standard in all
commercial real estate transactions. VISTA supports these clients with
additional information obtained from third parties including Sanborn historical
maps, topographical maps, aerial photos and chain of title records.
COMPLIANCE REPORTS. In addition to map based reports, the RETSR and
SAR, VISTA offers a full line of compliance reports which provide extensive
information about operational compliance with all the major pieces of
environmental legislation including the Clean Air Act, as amended, Clean Water
Act, as amended, Resource Conservation and Recovery Act of 1976, Occupational
Safety and Health Act of 1970, Toxic Substances Control Act and several others.
Compliance reports can be prepared for a specific facility or an entire company
including all its facilities. Clients may order these reports to audit their
own facilities, for vendor audits or for acquisition analysis and due diligence.
Pricing is based on the number of facilities and the level of detail the
customer requests. During 1995, VISTA began offering a new line of compliance
reports which allow companies to compare their environmental records with those
of competitors, or other companies in the same geographic area. The studies
normally include comparisons of compliance records, remediation requirements,
Superfund responsibility, toxic release reporting and waste minimization
efforts. Major companies seeking ISO 14000 certification can use this product
to establish a baseline from which to measure future operational improvements.
Others can use it for setting internal goals and management incentives, or for
demonstrating superior performance to regulators, investors and other
constituencies.
VISTAEXPRESS-TM-. In order to facilitate the distribution of the
various transaction reports, including, for example, an electronic image of a
SAR report, VISTA has developed a proprietary on-line system, VISTAEXPRESS that
electronically delivers products directly to customer workstations.
VISTAEXPRESS provides users the opportunity to order, retrieve, and query the
status of their orders. This service is typically used by customers in all of
VISTA's market segments who prefer faster delivery and the benefits of
electronic interchange with the Company as its principle means of doing
business.
VISTA INFONET-TM-. A new generation of VISTAEXPRESS, utilizing
Internet technology and access is being deployed to service clients on the
Internet. This new service is commercially known as VISTA INFONET. Clients who
have established INFONET accounts are given special access to the VISTA Internet
Website where they are able to order certain VISTA reports and receive an
electronic file of the report via their Internet Email which can be printed or
archived.
STARVIEW-TM-. The Company has developed an "off-the-shelf" family of
Windows based products known as STARVIEW. The various modules of STARVIEW
bring the power of VISTA risk information and VISTA reports to the desktop of
the customer. Currently VISTA sells three modules in the STARVIEW suite:
1. REAL ESTATE. The Real Estate module is used to prepare Site
Assessment and Transaction Screen radius reports which provide a
concise review of known and potential environmental risk
associated with a specific property and surrounding area.
Standard Real Estate report templates conform to or exceed ASTM
standards for government record searches. Reports using extended
radii or user-specified search criteria can also be easily
defined and prepared.
2. TSDF PERFORMANCE. The TSDF Performance Monitor module is a
cost-effective way to screen and evaluate waste handler
performance. The Performance Monitor contains more than 650
complete TSDF audits. It allows users to benchmark performance
between TSDFs, or monitor changes within individual facilities
as new information is released. The Performance Monitor is also
valuable in identifying what generators use specific TSDFs and
evaluating potential deep pocket" exposure.
3. SEARCH!. The SEARCH! module is an entirely new tool for
environmental risk managers and provides immediate desktop access
to the 3.5 million record VISTA database. Clients use the
SEARCH! module for both risk management and business development,
and have the ability to screen environmental risk associated with
specific companies, properties, or geographic areas.
CUSTOMER BASE. VISTA's customer base for environmental information
services include consulting engineers, financial institutions, law firms, real
estate finance companies, insurance companies and major corporations nationwide.
VISTA's products are sold
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directly to its customers and through well-established resellers, including Reed
Elsevier's Lexis-Nexis services, Equifax Insurance & Special Services, Marshall
and Swift Publications Co. VISTA's products have an exclusive endorsement by
the American Bankers Association and many state banking associations.
SALES AND MARKETING. VISTA markets its environmental information
services and products through direct sales and through value-added resellers and
other strategic relationships mentioned above. VISTA has approximately 11
direct sales representatives in 8 cities. These sales representatives target
the banking, corporate and engineering markets and are supported through
regional sales centers in Philadelphia and San Diego. The sales force is
supplemented by the value-added resellers described above and other sales
agents.
COMPETITION. The Company believes that the principal competitive
factors in the environmental information services business are price, accuracy
and completeness of data, readability of reports and the speed and ease of
delivery. While the Company competes on the basis of each of these factors,
management believes that the Company's primary competitive strengths in the
environmental information services business are the accuracy and completeness of
its data, the readability of its reports and the speed and ease of delivery
particularly through the STARVIEW suite of products.
VISTA is aware of only two other firms with national environmental
database services and numerous small local companies focused on a single state
or regional market. These national competitors are Environmental Data
Resources, Inc. ("EDR") and Environmental Risk Information & Imaging Services
("ERIIS"). In addition to the two national competitors, there are a number of
smaller regional and local competitors. These firms often originate out of an
environmental engineering background, focus on a city, state or small region and
have their strength in understanding the local available data sources.
GEOGRAPHIC INFORMATION SERVICES
The Company's second line of business had its origin in 1975 and has
focused on the development of geographic-demographic data analysis tools for
businesses. Supporting this business line, the Company has developed a
proprietary service known as the Geographic Underwriting System ("GUS-Registered
Trademark-") which delivers address-based hazard and classification information
to property/casualty insurance underwriters. GUS provides insurance
underwriters and loss control groups of insurance companies with on-line or
batch access to a series of reports presenting specific classification and
hazard information about the property to be insured. The Company's
geo-demographic information databases, technological understanding and
techniques of geographic information processing provide the basis for its
current products. Additional insurance information layers can be added to the
Company's current GUS service offering due to the application's modular design.
The Company's GUS services are the subject of an exclusive arrangement
with ISO, a company providing services to approximately 1,400 participating
property/casualty companies which collectively write approximately 80 percent of
all property and casualty insurance in the United States. In October 1992, the
Company and ISO entered into a 15-year mutually exclusive contract with a five
year extension option to offer a national system to electronically provide
geographically based information to insurers (the "ISO Agreement"). The GUS
project links the Company's geographic information systems technology with ISO's
insurance underwriting and other insurance information. Under the provisions of
the ISO Agreement, the Company provides its GUS software and support and ISO
provides contract administration and marketing of the product to its customer
base. Generally, the Company and ISO share project revenues equally. Both
companies also equally share the incremental costs of GUS project development
through the term of the ISO Agreement, which include costs incurred to date in
connection with the development of the Public Protection Classification Layer
(see " -- Product Lines", below).
INDUSTRY FOCUS. In the geographic information service area, the
Company focuses primarily on the property/casualty insurance industry for sales
of its products through ISO. The Company believes that the implementation of
GUS service can improve a property/casualty insurer's underwriting process by
reducing the number of misclassifications due to human error, reduce the amount
of personnel time involved in the underwriting process, and provide an objective
measure which will support the insurer in defending rate determinations before
state insurance commissioners and consumer groups. In addition, GUS services
provide a total package of risk information that the Company believes is not
presently available on-line or in an easily accessible electronic format.
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DESCRIPTION OF THE DATABASE. GUS contains two principal databases
that provide information to the Company's customers: (i) insurance hazard data
(the "Hazard Database") and (ii) road, street and postal database (the "Road
Database"). The Hazard Database is structured geographically as well as by the
type of hazard (e.g. crime ratings, auto territories, windstorm, extended
coverage zones, public protection classifications, earthquake risk and fire
districts) and includes information for all 50 states and the District of
Columbia. The Road Database contains two sources of "raw data," the digital map
of the United States - TIGER ("Topologically Integrated Geographically Encoded
Referencing System") which is produced by the Census Bureau of the U.S.
Department of Commerce and the AMS II database produced and maintained by the
United States Postal Service ("USPS").
Both of the GUS databases are updated periodically throughout the
calendar year based on the source of the raw data. For the Hazard Database,
much of the input data is processed on a monthly basis. At a minimum, all
"hazard types" are updated annually. Most of the insurance-specific data is
updated through a process of collection, assessment, classification,
normalization, formatting, dataset archiving, and uploading activities for test
and production systems.
The Road Database is generally updated on an quarterly basis. AMS II
is generated and released monthly by the US Postal Service; however, the
processing of those updates into the Company's Road Database requires
significant integration. To accomplish this integration, the Company has
developed a proprietary system, ZIPR, that integrates both the TIGER files and
the USPS files, automatically normalizing, matching, correcting, filling in, and
inferring information. ZIPR also links the raw databases. This process
ultimately produces a geographically complete, current and consistent data
structure, capable of accurately locating "postal compliant" addresses in the
United States. Then, ZIPR links the raw databases and performs quality
assurance testing. The Road Database that is uploaded into GUS is, in fact, an
extract of the entire master database created and maintained within ZIPR. With
each update, the Road Database consists of the "most current" road names, street
positions and postal data all optimally structured for the address matching and
query process portion of a GUS transaction.
As additional opportunities are identified, the Company intends to
evaluate adding additional hazard database layers to GUS to complement the
existing Hazard Database and the Road Database and thereby provide "one-stop
shopping" for insurance underwriting information. For example, the company
released a new "Earthquake Information Layer" in 1996 that provides underwriters
with important earthquake-related data.
DESCRIPTION OF THE UNDERLYING TECHNOLOGY. Central to the development
of the information database is a process called geocoding. Geocoding is the
ability to accurately process a street address and convert this address to a
latitude and longitude coordinate pair. If it is not possible (because of
incomplete or inaccurate raw data from either TIGER or the USPS) to assign
unique coordinates to an individual address, the Company's geocoding process
will assign latitude/longitude coordinates corresponding to its street range,
postal carrier route, zip code or city centroid. The Company believes that the
resulting geocode assignments offer the broadest coverage available of any
competitive geocoding technology. The Company has developed proprietary
software that performs this geocoding function ("Geocoder 2").
GUS is intended to deliver location-specific risk information to
insurance underwriters via the proprietary electronic network operated by ISO
("ISOTEL") and may be accessed by either telecommunication or batch processing.
GUS information can also be accessed by subscribers of the Equifax Insurance
Services information network which has a direct on-line link to the ISOTEL
network. Insurance company subscribers are connected directly to GUS service
through an office terminal utilizing ISOTEL. The process to connect to ISO's
network is easy and is used regularly by many ISO participating companies. In
batch mode, large numbers of property location addresses are submitted for
processing to ISO and are performed during off-peak hours by ISO as they
generally require considerable computer time and produce a large number of
reports. The reports requested are written to tape and returned to the
insurance company. While batch processing generally has a lower per-transaction
cost, the application of batch processing is more limited, often involving
industry analyses or audit functions.
The primary computer system for processing GUS service transactions is
capable of processing up to 15,000 transactions per hour. The primary system
located at ISO's data processing facility has a functionally equivalent back-up
system capable of assuming the transaction load for GUS service within one hour
of a failure of the primary system. VISTA maintains the back-up system at its
Minnesota location and is connected to the ISO network with a dedicated
communication line.
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As an alternative to receiving access to GUS through the ISO
electronic network, the Company has developed a "flat file version" of GUS to
market to insurance companies that have developed their own application
software. The flat file version of GUS, or ZIP+GUS, is a pre-processed
geographic file to which the Company appends all of the hazard layer ratings and
classifications found in the standard on-line GUS. Using standard database look
up software or the insurance company's own application software, the user can
submit addresses to the system and obtain GUS ratings and classifications.
ZIP+GUS converts GUS information into a database that can be incorporated into
the insurance company's internal MIS operations. Development of the "flat file
version" of GUS for a customer requires customization to the customer's specific
needs as each customer typically requests different GUS layers for its system.
PRODUCT LINES. GUS currently provides the following information
layers to insurance companies:
PUBLIC PROTECTION CLASSIFICATION LAYER (AVAILABLE IN 49 STATES)
("PPC"). PPC reports provide the following information to the insurance company:
(i) ISO standard protection classification; (ii) fire district name; (iii) name
of and distance to nearest fire station (measured in tenths of miles); (iv)
water supply type; and (v) revision dates for all data and confidence factors
for measured distances;
AUTO LAYER (AVAILABLE IN 50 STATES). GUS's Auto Layer provides the
following information: (i) ISO territory classifications; (ii) drive distances
for up to two work addresses; and (iii) revision dates for all data and
confidence factors.
WIND LAYER (AVAILABLE IN 50 STATES). GUS's Wind Layer provides the
following information: (i) ISO extended coverage zone (residential and
commercial); (ii) ISO extended territory code (residential and commercial);
(iii) wind pool eligibility; (iv) distance to nearest large body of water and
ocean or gulf; (v) five historical wind storm events closest to the insured
property, date of occurrence and measured wind speed; and (vi) revision dates
for all data and confidence factors for measured distances.
CRIME LAYER (AVAILABLE IN 50 STATES). GUS's Crime Layer provides the
following information: (i) composite crime rating factor; (ii) arson rating;
(iii) motor vehicle theft rating; (iv) robbery rating; (v) aggravated assault
rating; (vi) burglary rating; (vii) personal crime index; (viii) property crime
index; and (ix) revision dates for all data.
EARTHQUAKE LAYER. The GUS Earthquake Layer is particularly important
to the California market and provides the following information: (i)ISO and
California DOI earthquake zones; (ii) risk index (iii) soil type, landslide,
liquefaction, and ground failure risk; (iv) five closest faults with related
data; and (v) site seismity.
MISCELLANEOUS LAYERS. The Company also provides an information layer
that identifies California property that is located in brush fire zones and an
information layer providing windpool data in 8 states,.
CUSTOMER BASE AND SALES AND MARKETING. GUS is currently being
marketed to the insurance industry exclusively through the ISO Agreement. Under
the terms of the ISO Agreement, a national sales force employed by ISO is
responsible for sales of the Company's GUS services to members of ISO. The
Company supports ISO's sales efforts by providing sales and technical training
presentations for ISO personnel, assisting ISO field sales representatives in
preparing proposals, participating in joint field sales calls and sharing
resources with ISO at industry trade shows and conferences.
The Company estimates that the selling and implementation cycle for
GUS service to a typical insurance company takes approximately six to nine
months. Implementation of GUS requires an insurance company to make a
commitment to alter its current way of doing business. For example, a majority
of insurance companies do not currently collect work addresses on auto policy
applications therefore making it difficult to calculate drive distances.
COMPETITION. Given the exclusive nature of the ISO Agreement, the
Company believes that it does not have any direct competitors for sales through
ISO utilizing the GUS software. Certain of the GUS layers, or subfiles, do have
competitors, however, the Company does not believe that there are any
competitors that presently offer an on-line hazard and risk data service
comparable to that offered by GUS. No assurance can be given, however, that
competing services will not be developed in the future.
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PRODUCT REVENUES AND SIGNIFICANT CUSTOMERS
For the fiscal year ended December 31, 1996, environmental risk
information service revenues comprised 88 percent of total revenues, with the
balance comprised of geographic information services revenues. For the fiscal
year ended December 31, 1995, environmental risk information service revenues
comprised 84 percent of total revenues, with the balance comprised of geographic
information services revenues. For all prior periods, product revenues
consisted solely of geographic information services revenues. No single end
user customer represented more than 10 percent of the Company's total sales for
the year ended December 31, 1996.
RESEARCH AND DEVELOPMENT
Research and development expenditures were approximately $498,000 and
$1,010,000 for the years ended December 31, 1996 and 1995, respectively.
Research and development costs include database building and digitizing costs
and amounted to approximately $183,000 and $623,000 for the years ended December
31, 1996 and 1995, respectively and the development of new operating systems for
the environmental system of approximately $259,000 and 387,000 respectively. To
date, the Company's research and development activities related to the
development of GUS services and the development of new products, have been
conducted at its offices in Edina, Minnesota.
The Company has expended approximately $7.6 million to date on
developing the GUS technology and related information layers. Since the
completion of the PPC layer, the Company has not, and does not expect to make
significant development expenditures for the existing risk information layers in
1997 except for maintenance of the software and update to the existing layers.
EMPLOYEES
As of December 31, 1995, the Company had 148 full time employees
including 75 employees in operations, 43 employees in sales and marketing, 18
employees in research and development and 12 employees in finance and
administration. On December 31, 1996, as a result of the sale of certain assets
to BITI and further streamlining efforts, the Company had decreased its
operating size to 130 full time employees including 64 employees in operations,
33 employees in sales and marketing, 19 employees in research and development
and 14 employees in finance and administration.
No Company employee is currently represented by labor unions and the
Company is not a party to any collective bargaining agreement. The Company has
never been subject to any form of work stoppage or strike and has not
experienced any labor difficulties. Management believes that its employee
relations are good.
PATENTS, COPYRIGHTS AND TRADEMARKS
The Company's business is dependent upon its ability to gather,
manipulate and report publicly available data through the use of proprietary
techniques. Although management believes that the Company's business is not
significantly dependent upon patent protection, the Company has investigated
possible patent protection for several of the software techniques used in the
development of its geographic databases. To date, the Company has no patents
and has made no patent applications.
The Company has registered trademarks of "DataMap-Registered
Trademark-," which registration term expires on August 13, 2001, and
"CAM-1+-Registered Trademark-," which registration term expires on April 30,
2001, and has registered the service mark "GUS-Registered Trademark-" which
registration term expires on August 11, 2002
The unregistered trademarks and service marks which are used by the
Company are ZIPR-TM-, Geosurance-TM-, VISTAEXPRESS-TM-, VISTA Information
ExpressWay-TM-, VISTA INFONET-TM-, TSDMonitor-TM-, TSDF Performance Monitor-TM-,
QuickSite-TM-, STARVIEW-TM-, SEARCH!-TM- Business Trac-TM- and Business
Traks-TM-. In connection with the sale of assets to BITI in early 1996, the
Company sold rights in the unregistered trademarks Census Traks Plus-TM-, Census
Traks Collect-TM- and MarketPro-TM-. As part of the asset sale, the Company
also granted BITI a non-exclusive license to use the "DataMap-Registered
Trademark-" name for one year from the date of purchase.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
The Company's operations are conducted within the United States, and
no material portion of the Company's revenues is generated by export sales.
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ITEM 2. DESCRIPTION OF PROPERTIES
The Company's principal executive offices and environmental risk
information services operations are located at 5060 Shoreham Place, San Diego,
California. The Company leases approximately 18,500 square feet of space at
this facility pursuant to a lease expiring in December, 1997. The lease for
this facility provides for rent of approximately $26,000 per month, subject to
increase on an annual basis not to exceed 5 percent per year. The Company also
pays a pro rata share of operating expenses associated with this space.
The Company also leases approximately 6,300 square feet of space at
4510 W. 77th Street, Edina, Minnesota for its geographic information services
operations pursuant to a lease executed June 1996 and expiring in April, 2001.
The lease for this facility provides for rent of approximately $3,300 per month,
subject to increases in years three and five of $525 per month each. The
Company also pays a pro rata share of taxes associated with this space.
The Company leases approximately 4,100 square feet of office space
located at 5 Sarnowski Drive, Glenville, New York, for a data center and sales
office for its environmental information business pursuant to a lease executed
January, 1997 expiring in December, 2001. The lease for this facility provides
for rent of approximately $3,900 per month, subject to increases in years two
through five of $120 per month each year.
The Company also leases approximately 1,000 square feet of office
space located at 559 W. Uwchlan Avenue, Exton, Pennsylvania, as a sales office
for its environmental information business pursuant to a lease expiring in
February, 1998. The lease for this space provides for rent of approximately
$1,300 per month .
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders of the
Company during the quarter ended December 31, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages and the offices
held, as of March 25, 1997 are as follows:
Name Age Current Position with Company
---- --- -----------------------------
Thomas R. Gay 51 President, Chief Executive Officer
and Director
E. Stevens Hamilton 63 Chief Financial Officer, Secretary
Howard Shuster 46 Vice President, Sales
Donald R. Coley 50 Vice President, Marketing
Arnold E. Jensen 49 Vice President and Manager, VISTA
Information Center
James Mauch 43 Vice President, Market Development
Mark F. Cautone 39 Vice President, Product Development
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<PAGE>
THOMAS R. GAY has been the President and Chief Executive Officer of
the Company since February 1995. Mr. Gay was a co-founder of VISTA
Environmental and served as the President and CEO of VISTA Environmental from
August 1991 to February 1995. From 1988 to August 1991 Mr. Gay served as
President of National Decision Systems, a company involved in marketing
information products, databases and software, which he also co-founded.
E. STEVENS HAMILTON has been the Chief Financial Officer of the
Company since January 1996. From January 1995 to December 1995, Mr. Hamilton
provided consulting services to emerging high technology companies under the
sponsorship of the High Technology Resource Center of San Diego. From 1991 to
January 1995, Mr. Hamilton was the Chief Financial Officer of SECOR
International, Inc., an environmental engineering and information technology
consulting company. In addition to serving as the Company's Chief Financial
Officer, Mr. Hamilton continues to provide consulting services to emerging
businesses on a part-time basis.
HOWARD SHUSTER has been the Vice President of Sales of the Company
since September 1996. Mr. Shuster previously served as Vice President of Sales
for IHS Engineering, Englewood CO. During his 19 year career with IHS Mr.
Shuster held numerous management positions including service as President of
Logicraft, Nashua, NH, an IHS subsidiary.
DONALD R. COLEY has been Vice President of Sales & Marketing since
February 1995. From February 1992 to February 1995, Mr. Coley was employed in
a similar position with DMI. From 1989 to February 1992, Mr. Coley served as a
principal of KDC Enterprises, a manufacturer of floral products. Mr. Coley also
served as a consultant for Aegis Management Group, a marketing consulting firm,
from 1987 to February 1992.
ARNOLD E. JENSEN has been Vice President and Manager, VISTA
Information Center since February 1995. From 1990 to February 1995, Mr. Jensen
was employed by VISTA Environmental as Vice President and Manager, VISTA
Information Center. Prior to 1990, Mr. Jensen was Vice President of Irving
Trust Company, serving as a manager in the areas of corporate finance
consulting, mergers and acquisitions, marketing research and customer service.
JAMES MAUCH has been Vice President of Market Development since
February 1995 and, since January 1996, has been responsible for the company's
GIS operations. From February 1992 to February 1995, Mr. Mauch was employed in
various capacities by VISTA Environmental relating to sales and market
development, including Vice President of Marketing. Prior to February 1992, Mr.
Mauch was employed by Environmental Audit, Inc. as Vice President of Sales and
Marketing.
MARK F. CATONE has been Vice President of Product Development since
November 1996. Mr. Catone previously served as Vice President of Systems
Development and Product Marketing for National Decision Systems, a San
Diego-based division of Equifax, Inc., Atlanta, GA. Mr. Catone began with
Equifax in June 1985.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the NASDAQ SmallCap
Market under the symbol "VINF. The following table sets forth, for each of the
quarters indicated, the range of high and low bid quotations for the Company's
Common Stock. Quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
QUARTER ENDED HIGH LOW
------------- ---- ---
FISCAL 1995
Quarter Ended March 1995 $2.0000 $0.8750
Quarter Ended June 1995 1.6250 1.0000
Quarter Ended September 1995 1.3125 0.8750
Quarter Ended December 1995 1.1875 0.4220
FISCAL 1996
Quarter Ended March 1996 $0.8750 $0.3750
Quarter Ended June 1996 2.2500 0.6250
Quarter Ended September 1996 2.1250 0.6875
Quarter Ended December 1996 1.0000 0.6875
As of April 9, 1997, the Company's transfer agent reported
approximately 600 holders of record.
The Company has never paid any cash dividends on its Common Stock.
The Company currently intends to retain any future earnings to fund the
development of its business and does not anticipate that it will pay cash
dividends on its Common Stock in the foreseeable future. Additionally,
agreements with various lenders restrict the Company's ability to pay cash
dividends.
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the financial statements and footnotes which
appear elsewhere in this Report.
VISTA provides environmental risk information and address-based hazard
and classification information to bankers, engineers, insurance companies and
corporations throughout the United States. The Company, originally known as
DataMap, Inc. ("DMI"), was founded in 1975 to develop geographic-demographic
analysis tools for business ("GIS"). Supporting this business line, the Company
has developed a proprietary service known as the Geographic Underwriting System
("GUS-Registered Trademark-") which delivers address-based hazard and
classification information to property/casualty insurance underwriters. GUS
provides insurance underwriters and loss control groups of insurance companies
with on-line or batch access to a series of reports presenting specific
classification and hazard information about the property to be insured. The
Company's geo-demographic information databases, technological understanding and
techniques of geographic information processing provide the basis for its
current products. Additional insurance information layers can be added to the
Company's current GUS service offering due to the application's modular design.
On February 28, 1995, DMI acquired all the outstanding common stock of
VISTA Environmental Information, Inc. ("VISTA Environmental") in exchange for
newly issued common and preferred shares of DMI. The acquisition of VISTA
Environmental expanded the Company's existing product line to include
environmental risk information and significantly increased the marketing
capability within the Company. VISTA Environmental provides address and name
based environmental risk information about properties and companies in the
United States to bankers, engineers and corporations. On May 23, 1995, the
Company changed its name from DataMap, Inc. to "VISTA Information Solutions,
Inc."
In early 1996, the Company sold the assets relating to three product
lines to Business Information Technology, Inc. ("BITI"). These product lines
included the Company's: (i) compliance products for the banking and mortgage
industry, known as Census Traks Plus ("CTP"); (ii) desktop marketing products,
known as MarketPro ("MP"); and (iii) custom mapping services, known as the
Service Bureau business. As part of the asset sale, VISTA also granted certain
non-exclusive licenses to BITI for use of the DataMap mapping module, Geocoder
2.0 (hereinafter defined), the use of the "DataMap" name for a limited period of
time and ZIPR Extracts (hereinafter defined). The consideration provided to
VISTA in connection with the sale includes various royalty payments on the
products sold to BITI ranging from 5 percent to 25 percent of sales for a period
of two years. BITI is controlled by Gary S. Mertz, the former Chief Executive
Officer of the Company. Revenues related to these products sold and licensed
were $875,100, $722,200 for the years ended December 31, 1995 and 1994
respectively. Royalty payments for 1996 were not significant.
RESULTS OF OPERATIONS
COMPARISON OF THE TWELVE MONTHS ENDED DECEMBER 31, 1996 TO THE TWELVE MONTHS
ENDED DECEMBER 31, 1995.
REVENUE. Total revenues increased 7 percent from $7,840,000 for the
year ended December 31, 1995, to $8,387,000 for the year ended December 31,
1996. A substantial factor for the increase in revenue was the inclusion of
only ten months of revenue for VISTA Environmental for the period ended December
31, 1995 following its acquisition on February 28, 1995. Revenues for VISTA
Environmental decreased 5 percent for the ten month period ended December 31,
1996 totaling $6,254,000 compared to $6,610,000 for the ten month period ended
December 31, 1995. This decrease was primarily due to price erosion in the
engineering market. GIS revenues increased 18 percent, totaling, $1,004,000 for
the year ended December 31, 1995 compared with revenues of $1,230,000 for the
year ended December 31, 1996. The increase in GIS revenues was due to increases
in revenue for the GUS product offset by decreases due to the sale of certain
product lines to BITI in February 1996. GUS revenues increased 151 percent,
totaling $355,000 for the period ended December 31, 1995 compared with $890,000
for the period ended December 31, 1996. The increase in GUS revenue was the
result of increased marketing efforts by ISO to sign contracts with significant
insurance underwriters and the completion of database layers within the GUS
system.
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<PAGE>
GROSS MARGIN. Gross margins increased 21 percent from $4,814,000 for
the period ended December 31, 1995 to $5,813,000 for the period ended December
31, 1996. This increase was due primarily to the inclusion of only ten months
of revenue and costs for VISTA Environmental for the period ended December 31,
1995 combined with an increase in GUS revenue. Gross margin as a percentage of
sales increased from 61 percent for the year ended December 31, 1995 compared to
69 percent for the year ended December 31, 1996. This increase was due to the
sale of certain assets to BITI in February 1996 which have a higher cost of
sales combined with an increase in GUS revenue which was proportionally higher
than the increase in total revenue. GUS revenue typically has a very low cost
of sales. Some cost reductions associated with environmental risk information
revenue as a result of technological advances also contributed to the
improvement in gross margins.
OPERATING EXPENSES. Operating expenses decreased 1 percent from
$11,481,000 for the year ended December 31, 1995, to $11,411,000 for the year
ended December 31, 1996. This decrease is primarily due to lower research and
development costs associated with the GUS system as development of the PPC data
layer nears completion. Selling, general and administrative expenses were also
substantially reduced as a result of management's efforts to consolidate
administrative functions between the Edina, MN office and the Company's
headquarters in San Diego, CA. These reductions were partially offset by the
inclusion of only ten months of operating expense for VISTA Environmental
including amortization on the acquisition of technology and environmental
databases for the period ended December 31, 1995.
INTEREST EXPENSE. Interest expense increased 113 percent from
$404,000 for the year ended December 31, 1995, to $910,000 for the year ended
December 31, 1996. A factor in the increase of interest expense was the
inclusion of only ten months of interest for VISTA Environmental for the period
ended December 31, 1995 following its acquisition on February 28, 1995.
Increased borrowing and interest amortization charges associated with warrants
issued with the SIRROM note payable are also significant factors in the increase
in interest expense
INFLATION. The Company's management believes that inflation has not
had a material effect on the Company's results of operations or financial
condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has negative cash flow from operations and is
dependent on the raising of capital to fund continuing operations. As discussed
below, the Company anticipates raising sufficient capital in 1997 to fund its
operations.
Net cash used in operating activities for the twelve months ended
December 31, 1996 was approximately $1,234,000 compared to $2,806,000 during the
twelve months ended December 31, 1995. A decrease in net loss before by
depreciation and amortization charges and decreases in trade receivables were
the primary reasons for the 56 percent decrease in cash used in operating
activities. Revenues for the GUS product are generally received within 10 to 15
days of the end of the month in which they are earned. An increase in GUS
revenues in relation to total revenue contributed to improved receivables
performance. The environmental risk information services typically experience
low accounts receivable turnover, as the Company often receives payment only
when its customers receive payment on a given project. However, in 1996,
turnover has improved as a result of an increase in subscription based revenue.
Current liabilities decreased in 1996 as the Company began paying vendors closer
to payment terms with the addition of long-term debt financing.
Net cash used in investing activities for the twelve months ended
December 31, 1996, was approximately $380,000 compared to $274,000 for the
twelve months ended December 31, 1995. The Company has invested substantially
in computers, software and other technological equipment over the last twelve
months to accommodate the requirements of newer operating systems and software
development tools.
Net cash provided by financing activities was approximately $1,650,000
as a result of proceeds from long-term debt during the twelve months ended
December 31, 1996, compared to $2,877,000 as a result of proceeds from the sales
of preferred stock during the twelve months ended December 31, 1995.
On April 30, 1996, the Company entered into an agreement with the
SIRROM Capital Corporation for a $2,500,000 loan in the form of a 13.5 percent,
five year, interest only note with warrants to purchase 1,247,582 shares of
Common Stock 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 in years 3, 4 and 5 respectively. The Company assigned a value
to the warrants of $648,179 based on the fair market value of the warrants at
the date of grant. Accordingly, the note payable has been discounted by this
amount and bears an effective interest of 26 percent. This note is secured by
the tangible and intangible assets of the Company. Proceeds have been used to
retire amounts outstanding under the Company's previous factoring agreement and
to pay down existing payables.
The Company had an accounts receivable factoring agreement with
Silicon Valley Bank which was retired in April 1996, following receipt of funds
under the SIRROM loan. In September 1996, the Company entered into another
factoring agreement with the
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<PAGE>
bank. 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 certain assets of VISTA Environmental. The
borrowing arrangement allows the Company to borrow up to 80 percent of eligible
receivables up to a maximum of $1,250,000. Proceeds from the loan bear interest
at the rate of 1.5 percent per month. There are additional administrative fees
of 1 percent per month charged by the lender based on the value of the
receivables submitted for borrowing. The factoring agreement provides for
decreases in the interest rate if certain sales forecasts are achieved.
The Company has outstanding $898,928 of convertible subordinated
debentures assumed in the acquisition of VISTA Environmental. The debentures
are convertible into Series C Preferred Stock ("Series C Preferred Stock") at a
rate of $16.72 per share. At December 31, 1995, the debentures, including
accrued interest, were convertible into approximately 74,000 shares of Series C
Preferred Stock and were due in January 1996. In January 1996, the Company did
not repay the debentures. As a result, under the terms of the debentures, the
repayment date was extended to January 1997 and the debenture holders received,
in aggregate, warrants for the purchase of 3,732 shares of Series C Preferred
Stock at $16.72 per share. In January, 1997, the Company had the option to
either pay these debentures off or extend them for another year and chose to
extend the debentures and issued warrants for the purchase of 4,135 shares of
Series C Preferred Stock at $16.72 per share.
In 1995, the Company received $446,000 from the sales of 16 percent
subordinated convertible debentures. In December 1995 and March 1996, the
Company defaulted on these obligations, as the required quarterly interest
payments were not made. In May 1996, the Company remedied this default by
offering the holders the option to either (a) convert the debentures into Common
Stock at a rate of $0.75 of principal balance to one share of Common Stock, or
(b) extend the term of the debentures to March, 1997 with an option to convert
the balance to common stock at 70 percent of the then market price of the Common
Stock. One debenture holder elected to be repaid ($20,000 principal) and all
other holders elected option (b). During the second quarter, eight debenture
holders elected to convert their principal and accrued interest into common
stock. These transactions converted approximately $187,000 of debt and accrued
interest into 276,000 shares of common stock.
In February 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. The Company ultimately
borrowed $375,000, and repaid approximately $36,000. Under the agreement, the
balance bears interest at a rate of 1 percent per month on any outstanding
amounts, including accrued interest. Under a supplemental agreement, dated
10/24/96, repayment of the loan plus accrued interest will be taken out of GUS
revenue to the extent that it exceeds $120,000 per month. The Company also has
recorded a liability to ISO for reimbursement of costs incurred by ISO for the
development of the Public Protection Classification (PPC) data layer of GUS in
the amount of $487,500 which represents the maximum amount VISTA could be
responsible for under the terms of the agreement with ISO. The actual amount
due to ISO is presently in dispute. According to a Supplemental Agreement to
the Joint Services Agreement, if no agreement was reached by November 15, 1996,
VISTA and ISO would begin arbitration. VISTA and ISO have agreed that the
actual balance will be determined through arbitration, but have not yet begun
arbitration.
The Company is in the process of raising approximately $1,000,000 in
Senior Subordinated Promissory Notes. The notes are due 12 months from the
date executed, will bear interest at 16 percent and will have initial common
stock warrant coverage of 100 percent, using an exercise price of 125 percent
of the fair market value of the common stock 21 business days prior to
funding. As of April 11, 1997, $263,000 has been received by the Company from
members of its Board of Directors and $300,000 from SIRROM Capital
Corporation. The Company is currently in the process of negotiating with a
prospective lender for an additional $400,000.
In March 1997, ISO executed a one year contract with a major insurance
underwriter that has an approximate value of $800,000. This program is expected
to generate approximately $400,000 of revenue for the VISTA's GUS product line.
In addition the Company signed an agreement with ISO in March in anticipation of
the award of a multi-year contract from another major insurance underwriter.
This project will have an estimated value to VISTA of approximately $6.5 million
in revenue over the next three years and it is estimated that the contract will
be executed early in the second quarter of 1997. No assurances can be made,
however, regarding the timing, value or the likelihood of either project.
As reflected in the cash flow statements for 1996, the Company's
operations currently do not generate sufficient cash flows to meet the
on-going cash needs of the Company. The Company believes that the new
financing arrangements and transactions discussed above will be sufficient to
fund operations in 1997. 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 those discussed above. Factors
impacting this forward looking information are the levels of the Company's
overall revenues and overhead expenses and changes in the Company's accounts
receivable turnover. If revenues do not increase as anticipated, however,
the Company may need to raise additional debt or equity financing to meet its
operating capital needs. In addition, the Company may need to raise
additional capital in the future to meet various strategic growth and
research and development initiatives. There can be no assurance that the
Company will be able to obtain any required additional funding on
satisfactory terms, if at all. If the additional funding is not obtained, the
Company will seek alternative sources of debt and/or equity financing and, to
the extent necessary, will reduce overhead expenditures.
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<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT, THE FOLLOWING
FACTORS(AS WELL AS OTHER FACTORS NOT LISTED) HAVE THE POTENTIAL TO MATERIALLY
AFFECT THE COMPANY'S FUTURE OPERATIONS.
COMPETITION. The Company's environmental risk information service
operates in a highly competitive environment. The ability of competitors to
gain market share away from VISTA or to drive down prices for environmental risk
information may affect the profitability of the Company.
TECHNOLOGICAL CHANGE. The Company is dependent upon advanced software
development tools to maintain and upgrade its various database and reporting
systems. As currently popular operating systems and software development tools
are changed or replaced, the Company must continually evaluate the need to
migrate its existing applications to these systems and respond accordingly. The
ability to respond to these changes may affect the performance, compatibility,
level of support and market acceptance the Company is able to achieve for its
products. Furthermore, the cost of maintaining and upgrading technological
software and hardware may affect the profitability and working capital of the
Company.
POSSIBLE NASDAQ DELISTING. VISTA common stock is listed on the NASDAQ
SmallCap Market, which requires that listed companies maintain a minimum total
equity of $1,000,000. As of December 31, 1996 the Company had total equity of
approximately $512,000. Should the failure of the Company to meet this
requirement result in the delisting of VISTA common stock, trading would be
conducted in non-NASDAQ over-the-counter markets. Using these markets,
investors may find it more difficult to obtain, dispose of, or receive accurate
price quotations of the Company's common stock.
DEPENDENCE ON ISO FOR GUS REVENUES. The Company's 15 year agreement
with ISO grants them the exclusive sales and marketing rights for GUS products.
Sales of the Company's GUS product line are dependent upon ISO's ability to
penetrate this industry segment.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and Notes thereto, and
the Report of its Independent Auditors thereon, are included in this Annual
Report on Form 10-KSB on pages F-3 to F-21 and on page F-2 of this Report,
respectively.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
(a) DIRECTORS OF THE REGISTRANT.
The information under the captions "Election of Directors --
Information About Nominees" and "-- Other Information about Nominees" contained
in the 1997 Proxy Statement is incorporated herein by reference.
(b) EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning executive officers of the Company is included
in this Annual Report on Form 10-KSB under Item 4A, "Executive Officers of the
Registrant".
(c) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the 1997 Proxy Statement is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
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<PAGE>
The information under the captions "Executive Compensation and Other
Benefits" and "Election of Directors -- Director Compensation" in the 1997 Proxy
Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Principal Shareholders and
Beneficial Ownership of Management" contained in the 1997 Proxy Statement is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Related Transactions" contained in
the 1997 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) FINANCIAL STATEMENTS OF REGISTRANT
The following items are included in this Annual Report on Form 10-KSB
(page numbers refer to pages in this Annual Report on Form 10-KSB):
Consolidated Financial Statements Page
--------------------------------- ----
Index to Consolidated Financial Statements. . . . . . . F-1
Report of Independent Auditors. . . . . . . . . . . . . F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . F-3 to F-4
Consolidated Statements of Operations . . . . . . . . . F-5
Consolidated Statements of Changes in Stockholders'
Equity . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows . . . . . . . . . F-7 to F-8
Notes to Consolidated Financial Statements. . . . . . . F-9 to F-28
(2) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because of the absence of
the conditions under which they are required or because the information required
is included in the financial statements or notes thereto.
(3) EXHIBITS.
The exhibits to this Annual Report on Form 10-KSB are listed in the
Exhibit Index on pages E-1 to E-6 of this Report.
A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of December 31, 1996, upon receipt from any such person of a written
request for any such exhibit. Such request should be sent to VISTA Information
Solutions, Inc., 5060 Shoreham Place, #300, San Diego, CA 92122 (Attn: Chief
Financial Officer).
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 1996.
(c) EXHIBITS.
The response to this portion of Item 14 is included as a separate
section of this Annual Report on Form 10-KSB.
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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 F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in F-6
Stockholders' Equity
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. and subsidiary 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 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 accounts and disclosures in the financial statements. An audit also inc1udes
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. and subsidiary 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.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced recurring losses
from operations and its current liabilities exceed its current assets. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ MCGLADREY & PULLEN, LLP
San Diego, California
March 18, 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
- --------------------------------------------------------------------------------
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 $1,212,919 -- 104,848
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)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
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 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
------------------------------
TOTAL CURRENT LIABILITIES 3,504,780 4,063,180
------------------------------
Long-term obligations, less current maturities (Note 5) 2,948,640 1,624,939
Accrued interest 336,016 --
------------------------------
3,284,656 1,624,939
------------------------------
Commitments and contingencies (Notes 2, 6 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
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 10,989,77 shares
respectively 122,857 109,898
Additional paid-in capital 28,068,560 27,097,419
Accumulated deficit (27,689,375) (21,190,663)
------------------------------
511,806 6,026,964
------------------------------
$ 7,301,242 $ 11,715,083
------------------------------
------------------------------
</TABLE>
F-4
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------------------
<S> <C> <C> <C>
Revenues (Notes 6 and 13) $ 8,387,052 $ 7,839,926 $ 943,209
Cost of revenues 2,574,348 3,026,009 791,283
----------------------------------------------------------------
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
----------------------------------------------------------------
----------------------------------------------------------------
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
----------------------------------------------------------------
(900,739) (354,027) 84,923
----------------------------------------------------------------
NET (LOSS) $ (6,498,712) $ (7,020,737) $ (3,582,698)
----------------------------------------------------------------
----------------------------------------------------------------
Net (loss) per share $ (0.56) $ (0.67) $ (0.44)
----------------------------------------------------------------
----------------------------------------------------------------
Weighted average common shares outstanding 11,522,274 10,542,734 8,222,306
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
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)
--------------------------------------------------------------------------------
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)
--------------------------------------------------------------------------------
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 company and bridge financing -- -- 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)
--------------------------------------------------------------------------------
Balance, December 31, 1996 $ 9,764 $ 122,857 $ 28,068,560 $ (27,689,375) $ 511,806
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</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
- -----------------------------------------------------------------------------------------------------------------------------------
<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 and other (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)
--------------------------------------------------------------
--------------------------------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (1,234,424) (2,805,824) (2,564,880)
--------------------------------------------------------------
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
--------------------------------------------------------------
--------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (380,454) (274,296) (202,716)
--------------------------------------------------------------
</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
- ----------------------------------------------------------------------------------------------------------------------------
<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 stockholders -- (250,005) (10,520)
Proceeds from issuance of long-term obligations
and warrants 2,924,000 -- --
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
------------------------------------------------------------------
------------------------------------------------------------------
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 54,636 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). All
significant inter-company 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%. That rate applied to those long-term debt instruments would yield a fair
value of approximately $1,305,000 compared to their carrying value of
$1,485,000 at December 31, 1996. The estimated fair value of the Company's
other current and long-term debt obligations approximated their carrying
value at December 31, 1996. At December 31, 1995, the fair value of all of
the Company's current and long-term debt obligations approximated their fair
values.
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 PURCHASED 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 are 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 on 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. The Company is negotiating to cure payment defaults on two
obligations and anticipates resolution of the default conditions in the
second quarter of 1997.
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 shareholders 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 stockholder 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 $.98, which represented a 30%
discount from the market price of the Company's common stock 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 occured on January 1, 1995. Annual
amortization charges of $3,998,675 are included on the pro forma statement 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)
<TABLE>
<CAPTION>
December 31,
1995
<S> <C>
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
</TABLE>
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% of the face amount of the receivables submitted for borrowing.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5. LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------
<S> <C> <C>
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
-----------------------------------------------
-----------------------------------------------
</TABLE>
(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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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 exercises 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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 were not reflected in the pro forma SFAS 123 computation.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
effects 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 $ .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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 taxes (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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 125, 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 SFAS 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.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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: April 11, 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/ James E. Hovis
------------------------------------------
James E. Hovis, 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)
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
Item No. Description Method of Filing
- -------- ----------- ----------------
3.1 Restated Articles of
Incorporation of the Company,
as amended to date . . . . . . Incorporated by reference to the
C o m pany's Post Effective
Amendment No. 1 to Form SB-2
Registration Statement on Form S-
3 (File No. 33-72248).
3.2 Restated By-Laws of the
Company, as amended to date . . . .Incorporated by reference to the
Company's Annual Report on Form
10-KSB for the fiscal year ended
June 30, 1993 (File No. 0-20312).
4.1 Specimen form of the Company's
Common Stock Certificate . . . . .Incorporated by reference to the
Company's Registration Statement
on Form 10 (File No. 0-20312).
4.2 Specimen form of the Company's
Warrant Certificate . . . . . . . .Incorporated by reference to the
Company's Registration Statement
on Form 10 (File No. 0-20312).
Incorporated by reference to the
4.3 Warrant Agreement . . . . . . . . Company's Registration Statement
on Form 10 (File No. 0-20312).
4.4 Certificate of Designation of
the Rights and Preferences of
the Company's Series B
Convertible Preferred Stock . . . .Incorporated by reference to the
Company's Quarterly Report on
Form 10-QSB for the quarter ended
September 30, 1993 (File No. 0-
20312).
4.5 Certificate of Designation of
the Rights and Preferences of
the Company's Series C
Convertible Preferred Stock . . . .Incorporated by reference to the
Company's Current Report on Form
8-K filed March 7, 1995 (File No.
0-20312).
4.6 Certificate of Designation of
the Rights and Preferences of
the Company's Series D
Convertible Preferred Stock . . . .Incorporated by reference to the
Company's Current Report on Form
8-K filed March 7, 1995 (File No.
0-20312).
E-1
<PAGE>
Item No. Description Method of Filing
- -------- ----------- ----------------
4.7 Option Agreement by and among
Paul S. Bachow Co-Investment
Fund, L.P., Paul S. Bachow and
the Company dated September 15,
1993 . . . . . . . . . . . . . . .Incorporated by reference to the
Company's Annual Report on Form
10-KSB for the fiscal year ended
June 30, 1993 (File No. 0-20312).
4.8 Rockwin Corp. Warrant
Certificate dated September 3,
1993 . . . . . . . . . . . . . . .Incorporated by reference to the
Company's Registration Statement
on Form S-8 (File No. 33-73212).
4.9 Grant Warfield Option Agreement
dated October 3, 1991 . . . . . . .Incorporated by reference to the
Company's Registration Statement
on Form S-8 (File No. 33-73212).
4.10 Alex Tassos Warrant Agreements
dated January 1, 1993 and
April 19, 1993 . . . . . . . . . .Incorporated by reference to the
Company's Registration Statement
on Form S-8 (File No. 33-73212).
4.11 James Hovis Warrant Agreement
dated December 10, 1993 . . . . . .Incorporated by reference to the
Company's Registration Statement
on Form S-8 (File No. 33-73212).
4.12 Purchase Agreement dated
February 28, 1995 among the
Company and certain investors. .
identified in the Agreement . . . .Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1994 (File No. 0-
20312).
4.13 Standby Bridge Loan Facility
dated January 15, 1994 between
the Company and certain persons
listed on Exhibit A attached
thereto . . . . . . . . . . . . . .Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1995 (File No. 0-
20312).
E-2
<PAGE>
Item No. Description Method of Filing
- -------- ----------- ----------------
4.14 Amendment to Subordinated
Promissory Notes dated February
28, 1995 between the Company
and certain persons listed on
Exhibit A attached thereto. . . . .Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1995 (File No. 0-
20312).
4.15 Form of Subordinated
Convertible Debenture issued
from October through December
1995. . . . . . . . . . . . . . . .Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1995 (File No. 0-
20312).
4.16 Form of Warrant issued in
connection with the
Subordinated Convertible
Debenture financing issued from
October through December 1995. . . Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1995 (File No. 0-
20312).
10.1 Geographic Underwriting System
Agreement among ISO Commercial
Risk Services, Inc. and ISO
Telecommunications, Inc. and
the Company, dated June 3, 1991. . Incorporated by reference to the
Company's Registration Statement
on Form 10 (File No. 0-20312).
10.2 Supplement to Joint Service
Agreement dated February 5,
1996 between Insurance Services
Office, Inc. and the Company . . .Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1995 (File No. 0-
20312).
10.3 Office Building Lease dated
December 9, 1992 by and between
Governor Park Partners and the
Company . . . . . . . . . . . . . .Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1995 (File No. 0-
20312).
10.5 1990 Stock Option Plan, as
amended . . . . . . . . . . . . . .Incorporated by reference to the
Company's Registration Statement
on Form S-8 (File No. 33-73212).
10.6 Profit Sharing Plan . . . . . . . .Incorporated by reference to the
Company's Registration Statement
on Form 10 (File No. 0-20312).
10.7 1995 Stock Incentive Plan. . . . .Incorporated by reference to the
Company's Registration Statement
on Form S-8 (File No. 333-09417).
10.8 401(k) Plan . . . . . . . . . . . .Incorporated by reference to the
Company's Registration Statement
on Form 10 (File No. 0-20312).
10.9 Employment Agreement of Donald
R. Coley, dated August 10, 1992. . Incorporated by reference to the
Company's Annual Report on Form
10-KSB for the fiscal year ended
June 30, 1993 (File No. 0-20312).
E-3
<PAGE>
Item No. Description Method of Filing
- -------- ----------- ----------------
10.10 Geographic Underwriting System
Joint Service Agreement between
Insurance Services Offices,
Inc. and the Company, dated
October 1, 1992 . . . . . . . . . .Incorporated by reference to the
Company's Annual Report on Form
10-KSB for the fiscal year ended
June 30, 1993 (File No. 0-20312).
10.11 Agreement for Services between
Insurance Services Office, Inc.
and the Company dated August
28, 1992 . . . . . . . . . . . . .Incorporated by reference to the
Company's Annual Report on Form
10-KSB for the fiscal year ended
June 30, 1993 (File No. 0-20312).
10.12 Addendum One to Geographic
Underwriting System Joint
Service Agreement between
Insurance Services Offices,
Inc. and the Company, dated
January 21, 1994 . . . . . . . . .Incorporated by reference to the
Company's Annual Report on Form
10-KSB for the transition period
ended December 31, 1993 (File No.
0-20312).
10.13 Employment Agreement with
Thomas R. Gay dated February
28, 1995 . . . . . . . . . . . . .Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1994 (File No. 0-
20312).
10.14 1993 VISTA Stock Option Plan. . . .Incorporated by reference to the
Company's Registration Statement
on Form S-8 (File No. 333-09417).
10.16 Agreement Regarding Board
Observer dated April 18, 1995
between the Company and Century
Capital Partners, L.P. . . . . . .Incorporated by reference to the
Company's Quarterly Report on
Form 10-Q for the quarter ended
September 30, 1995 (File No. 0-
20312).
10.17 Equipment Lease Agreement dated
August 10, 1995 between the
Company and Ally Capital
Corporation . . . . . . . . . . . .Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1995 (File No. 0-
20312).
10.18 Asset Purchase Agreement dated
February 1, 1996 between the
Company and Business
Information Technology Inc. . . . .Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1995 (File No. 0-
20312).
10.19 Equipment Lease Agreement dated
August 10, 1995 between the
Company and Ally Capital
Corporation . . . . . . . . . . . .Incorporated by reference to the
Company's Annual
E-4
<PAGE>
Item No. Description Method of Filing
- -------- ----------- ----------------
Report on Form 10-K for the
period ended December 31, 1995
(File No. 0-20312).
21.1 List of subsidiaries of the
Registrant. . . . . . . . . . . . .Filed herewith, page ___.
23.1 Consent of Independent
Auditors. . . . . . . . . . . . . .Filed herewith, page ___.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
VISTA Environmental Information, Inc. Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of our report, dated March 18, 1997,
(which includes an explanatory paragraph regarding the Company's ability to
continue as a going concern) included in this Form 10-KSB in the previously
filed Registration Statement of Vista Information Solutions, Inc. on Form S-8
(No. 33-73212).
/s/ MCGLADREY & PULLEN, LLP
San Diego, California
April 14, 1997
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<PERIOD-END> DEC-31-1996
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<RECEIVABLES> 1,211,933
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