<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
or
[ ]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 small business issuer as specified in its charter)
DELAWARE 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 office) (Zip Code)
(619) 450-6100
(Issuer's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check marke whether the Issuer (I) has filed 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
--- ---
The number of shares of the Issuer's Common Stock, $.001 par value, outstanding
on November 11, 1998 was 11,110,463
Transitional Small Business Format (check one) YES NO X
--- ---
<PAGE>
INDEX
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997 (UNAUDITED) 3
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1998
AND DECEMBER 31, 1997 (UNAUDITED) 4,5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) 6,7
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 8,9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS 10-14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $3,776,590 $2,650,453 $11,036,945 $7,212,673
Cost of revenues 974,826 588,453 2,451,884 1,761,016
----------- ----------- ----------- -----------
Gross margin 2,801,764 2,062,000 8,585,061 5,451,657
Operating Expenses
Sales, General and Administrative 2,899,769 1,756,869 7,002,622 4,569,490
Research and development 311,940 258,964 933,336 692,367
Depreciation and amortization 561,580 2,098,899 1,202,314 4,472,254
Restructuring costs 1,360,932 1,360,932
----------- ----------- ----------- -----------
Operating (loss) (2,332,457) (2,052,732) (1,914,143) (4,282,454)
Interest expense (106,025) (823,295) (190,233) (1,399,080)
Other income (expense) (12,723) (7,994) (18,462) (18,809)
----------- ----------- ----------- -----------
Net (loss) before minority interest (2,451,205) $(2,884,021) (2,122,838) (5,700,343)
Minority interest share of net loss 80,493 80,493
Preferred stock dividends (150,000) - (450,000) -
Accretion of convertible preferred stock - - (500,000) -
----------- ----------- ----------- -----------
NET (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(2,520,712) $(2,884,021) $(2,992,345) $(5,700,343)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted net (loss) per common
share $(0.23) $(0.43) $(0.29) $(0.87)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common shares
outstanding 10,787,183 6,713,587 10,151,950 6,529,731
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $285,726 $341,781
Trade accounts receivable, less allowance for doubtful accounts
of $548,000 and $190,000, respectively 3,732,243 2,589,466
Prepaid expenses and other assets 269,755 272,030
----------- ----------
TOTAL CURRENT ASSETS 4,287,724 3,203,277
EQUIPMENT, FURNITURE AND SOFTWARE:
Equipment and furniture 4,210,264 3,767,826
Purchased software 974,271 439,884
----------- ----------
5,184,535 4,207,710
less accumulated depreciation (2,563,100) (2,810,435)
----------- ----------
NET EQUIPMENT, FURNITURE AND SOFTWARE 2,621,435 1,397,275
ACQUIRED TECHNOLOGY, ENVIRONMENTAL DATABASES AND GOODWILL 6,629,502 593,200
Includes accumulated amortization of $12,551,000 and
$11,729,000, respectively
DEPOSITS 328,695 185,134
----------- ----------
$13,867,356 $5,378,886
----------- ----------
----------- ----------
</TABLE>
See Notes to Financial Statements
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
Liabilities and Stockholders' Equity 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Note payable to bank $1,177,651
Current maturities of long-term obligations 2,082,234 $391,872
Accounts payable and accrued expenses 2,029,121 497,744
Deferred revenue 157,000 243,967
Other current liabilities 780,755 426,323
----------- ----------
TOTAL CURRENT LIABILITIES 6,226,761 1,559,906
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES 686,100 471,196
STOCKHOLDERS' EQUITY:
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 $6,279,398, authorized 670,000 shares; 375,607 shares
issued and outstanding 3,756 3,756
Preferred stock, Series D convertible, par value $.01; liquidation
value $2,499,977, authorized 240,000 shares; 187,124 shares
issued and outstanding 1,871 1,871
Preferred stock, Series E convertible, par value $.01; liquidation
value $2,500,000, authorized, issued and outstanding 2,500 shares 25 25
Preferred stock, Series F convertible, par value $.01; liquidation
value $2,500,000, authorized issued and outstanding 2,500 shares 25 25
Common stock, par value $.001; authorized 43,000,000 shares;
issued and outstanding 1998; 11,072,964 shares and 1997;
9,440,956 shares 199,195 188,819
Additional paid-in capital 43,786,449 37,197,769
Accumulated deficit (37,038,826) (34,046,481)
----------- ----------
6,954,356 3,347,784
----------- ----------
$13,867,356 $5,378,886
----------- ----------
----------- ----------
</TABLE>
See Notes to Financial Statements
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss including minority interest $(2,042,345) $(5,700,343)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,202,314 3,492,062
Loss on write-off of obsolete equipment, furniture and software 52,129
Write-off of acquired technology - 980,072
Amortization of SIRROM warrant value - 644,756
Decrease in minority interest (80,493)
Changes in current assets and liabilities:
(Increase) decrease in:
Accounts receivable - trade (490,740) (787,832)
Prepaid expenses and other assets 12,320 42,571
Increase (decrease) in:
Trade accounts payable 396,828 (62,305)
Accrued compensation and employee benefits 850,461 (54,814)
Accrued interest - (48,355)
Deferred revenue (86,967) 26,248
Other current liabilities 618,418 (30,019)
----------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 431,925 (1,497,959)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and development of equipment and software (863,162) (46,484)
Increase in other assets (136,755) (89,084)
Business acquisition, net of cash acquired (1,326,078)
----------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES (2,325,995) (135,568)
</TABLE>
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (392,353) (219,226)
Proceeds from long-term obligations 1,475,000 700,000
Net proceeds from (payment to)note payable to bank 1,177,651 (601,316)
Payments on notes payable (458,273)
Net proceeds from ISO note payable - (338,942)
Proceeds from SIRROM note payable - 300,000
Payments on SIRROM note payable - (2,800,000)
Net proceeds from the issuance of preferred stock - 4,779,405
Payments of preferred dividends (450,000) -
Proceeds from issuance of common stock 485,990 15,876
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,838,015 1,835,797
INCREASE (DECREASE) IN CASH (56,055) 202,270
Cash at beginning of period 341,781 56,277
--------- ---------
CASH AT END OF PERIOD $285,726 $258,547
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Capital lease obligations incurred for use of equipment 822,619
Issuance of Common Stock to effect business acquisitions 5,779,628
Accretion of beneficial conversion feature on Preferred Stock 500,000
Net assets acquired in E/Risk business acquisition, excluding goodwill 321,974
Net assets acquired in Entrac business acquisition, excluding goodwill 70,500
Goodwill acquired in business acquisitions 6,740,849
</TABLE>
See Notes to Financial Statements
<PAGE>
VISTA Information Solutions, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, the interim financial statements
include all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the results for interim periods presented. Operating
results for the three months and nine months ended September 30, 1998 are not
necessarily indicative of the operating results that will be achieved for the
year or any other period. These statements should be read in conjunction with
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997
and the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1998.
2. REVERSE STOCK SPLIT AND REINCORPORATION
On January 27, 1998 the Company's Board of Directors approved a
reincorporation of the Company in Delaware and a one-for-two reverse stock split
of its Common Stock. On March 17, 1998, the Company's stockholders approved the
reincorporation and reverse stock split, which went into effect after the close
of the market on March 27, 1998. All references to common shares, earnings
(loss) per common share and conversion rates in the consolidated financial
statements and in these notes have been restated to retroactively reflect the
effect of the reverse split. In connection with the reincorporation of the
Company as a Delaware corporation the par value of the common and preferred
stock was changed to $.001 per share. The change in the par values is not
reflected in the consolidated financial statements.
3. ACQUISITION OF ENSITE CORPORATION
On April 8, 1998, the Company acquired all the outstanding stock of ENSITE
Corporation of Denver (DBA "Entrac") in exchange for newly issued common shares
of the Company. Under the terms of the agreement, the stockholder of Entrac
received 67,500 shares of common stock. The Company engaged an outside
valuation consultant to determine the fair value of the securities issued. The
value was determined to be $5.63 per share, which represented a 25% discount
from the market price of the Company's common stock on the acquisition date.
The acquisition has been accounted for as a purchase, and accordingly, the
operating results of Entrac have been included in the operating results of the
Company from the date of acquisition. The total purchase price was calculated
as follows:
<TABLE>
<S> <C>
Fair value of common stock issued $ 379,688
Less excess of assets over liabilities 70,500
-------------
Purchase price, allocated to goodwill $ 309,188
</TABLE>
4. CAPITALIZED SOFTWARE COSTS
Statement of Position No. 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1") was adopted by the
Company on January 1, 1998. SOP 98-1 establishes the accounting practice for
the capitalization of certain costs incurred in connection with the acquisition
or development of computer software to be used for internal purposes.
In accordance with SOP 98-1, the Company has recorded approximately
$322,000 of capitalized costs in connection with the acquisition and development
of computer software to be used by the Company solely for internal purposes.
Such costs incurred through September 30, which generally consist of purchased
software costs as well as direct payroll and related costs incurred in the
internal developmenet of computer software, are being amortized on a
straight-line basis over the estimated useful lives of the related assets,
generally three years. As of September 30, 1998, management of the Company
determined that there had been no impairment of these assets.
<PAGE>
5. ACQUISITION OF E/RISK INFORMATION SERVICES, INC.
On July 24, 1998, the Company acquired 80 percent of the outstanding stock
of E/Risk Information Services, Inc. ("E/Risk") in exchange for cash and newly
issued common shares of the Company. Under the terms of the agreement, one
shareholder received $1,100,000 in cash and the remaining shareholders
collectively received 842,858 shares of common stock. In addition, for a cash
payment of $253,635 the Company acquired a Promissory Note with outstanding
principal and accrued interest of $253,635, representing an obligation owed to
one shareholder by E/Risk. The purchase price for the remaining 20% of the
shares of E/Risk will be calculated as 1.6 times the earnings of E/Risk before
interest, taxes, depreciation and amortization during the calendar year 1999 or,
in the event the closing of that purchase is accelerated, for the six full
calendar months preceding the event causing the acceleration of the purchase.
The purchase price for the remaining 20 percent of the shares of E/Risk will be
settled using the then market value of the Company's common stock.
The Company engaged an outside valuation consultant to determine the fair
value of the securities issued. The value was determined to be approximately
$6.41 per share, which represented a 25% discount from the market price of the
Company's common stock on the acquisition date. The acquisition has been
accounted for as a purchase, and accordingly, the operating results of E/Risk
have been included in the operating results of the Company from the date of
acquisition. From time-to-time, the Company may adjust the amount allocated to
goodwill to reflect purchase price adjustments. The total purchase price was
calculated as follows:
<TABLE>
<S> <C>
Fair value of common stock issued $ 5,400,000
Cash used in purchase 1,353,635
Less excess of assets over liabilities 321,974
-----------
Purchase price, allocated to goodwill $ 6,431,661
</TABLE>
Subsequent to the issuance of the Company's September 30, 1998 financial
statements, the Company's management revised the amount of the purchase price
which was allocated to in-process research and development in accounting for
the acquisition of E/Risk in July 1998. The revised allocation is based upon
methods prescribed in a letter from the Securities and Exchange Commission
(SEC) sent to the American Institute of Certified Public Accountants in
September 1998. The letter sets forth the SEC's views regarding the valuation
methodology to be used in allocating a portion of the pruchase price to
acquired in-process research and development at the date of acquisition. As a
result of the revised allocation, the Company's unaudited interim financial
information for the three and nine month periods ended September 30, 1998 have
been restated to reduce the amount of the acquired in-process research and
development expensed by $2,900,000 and to increase intangible assets by
$2,803,000, net of amortization of approximately $97,000. The change had no
impact on net cash flows provided by operations.
6. RESTRUCTURING CHARGES
During the third quarter of 1998, the Company recorded the following pretax
charges in connection with the restructuring of certain of its operations and
related business acquisition/consolidation activities.
<TABLE>
<S> <C>
Business consolidation $ 647,000
General downsizing 190,000
Discontinued operations/other 357,000
Failed acquisitions costs 167,000
--------------
Total $ 1,361,000
</TABLE>
This charge allows the Company to continue its focus on its strategic core
business lines and improve overall financial discipline.
<PAGE>
ITEM 2. 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.
This discussion and analysis contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of
the Securities Act of 1933, which are subject to the "safe harbor" created by
that section. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions or variations of such
words are intended to identify forward-looking statements, but are not the
exclusive means of identifying forward-looking statements in this Report.
Additionally, statements concerning future matters such as the features,
benefits and advantages of the Company's products, the development of new
products, enhancements or technologies, business and sales strategies,
competition and facilities needs and other statements regarding matters that are
not historical are forward-looking statements. Such statements are subject to
certain risks and uncertainties and the Company's actual future results could
differ materially from those projected in the forward-looking statements. The
Company assumes no obligation to update the forward-looking statements.
Readers are urged to review and consider carefully the various disclosures made
by the Company in this Report, which attempts to advise interested parties of
the risks and factors that may affect the Company's business, financial
condition and results of operations.
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") 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. The VISTA Environmental product line 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."
On January 27, 1998 the Company's Board of Directors approved a
reincorporation of the Company in Delaware and a one-for-two reverse stock
split. On March 17, 1998, the Company's stockholders approved the
reincorporation and reverse stock split, which went into effect after the close
of the market on March 27, 1998. All references to common shares, earnings
(loss) per common share and conversion rates in the consolidated financial
statements and in these notes have been restated to retroactively reflect the
effect of the split. In connection with the reincorporation of the Company as a
Delaware corporation the par value of the common and preferred stock was changed
to $.001 per share. The change in the par values is not reflected in the
consolidated financial statements.
Subsequent to the issuance of the Company's September 30, 1998 financial
statements, the Company's management revised the amount of the purchase price
which was allocated to in-process research and development in accounting for
the acquisition of E/Risk in July 1998. The revised allocation is based upon
methods prescribed in a letter from the Securities and Exchange Commmission
(SEC) sent to the American Institute of Certified Public Accountants in
September 1998. The letter sets forth the SEC's views regarding the valuation
methodology to be used in allocating a portion of the purchase price to
acquired in-process research and development at the date of acquisition. As a
result of the revised allocation, the Company's unaudited interim financial
information for the three and nine month periods ended September 30, 1998
have been restated to reduce the amount of the acquired in-process research
and development expensed by $2,900,000 and to increase intangible assets by
$2,803,000 net of amortization of approximately $97,000. The change had no
impact on net cash flows provided by operations.
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1997
Revenue
Total revenues increased 42 percent from approximately $2,650,000 for the
three months ended September 30, 1997, to approximately $3,777,000 for the three
months ended September 30, 1998 and increased 53 percent from approximately
$7,213,000 for the nine months ended September 30, 1997, to approximately
$11,037,000 for the nine months ended September 30, 1998. The third quarter
increase resulted from an increase in GUS revenue of approximately $98,000,
increases in environmental revenue of approximately $307,000 and approximately
$721,000 of revenue from the Company's E/Risk subsidiary which was acquired on
July 24, 1998. Increases in environmental revenue are primarily due to an
accumulation of StarView contracts. While the StarView service tends to reduce
the revenue generated per transaction, the Company believes that it has been
able to capture additional market share as a result of these contractual
relationships. The increase in revenue for the nine month period consisted of
increases in GUS revenue of approximately $1,655,000, increases in environmental
revenue of approximately $1,417,000 and revenue from the E/Risk subsidiary
previously discussed. The increase in GUS revenue was attributed to increases in
transactional revenue as well as revenue from testing of the GUS system by
certain major insurance underwriters.
Gross Margin
Gross margins increased 36 percent from approximately $2,062,000 for the
three months ended September 30, 1997 to approximately $2,802,000 for the three
months ended September 30, 1998 and increased 57 percent from approximately
$5,452,000 for the nine months ended September 30, 1997 to approximately
$8,585,000 for the nine months ended September 30, 1998. Previously discussed
increases in GUS and StarView revenue (which have lower costs of sales) have
been the primary reason for the increase in gross margin.
Gross margin as a percent of revenue decreased from 78 to 74 percent of
revenue for the three months ended September 30, 1997 and September 30 1998,
respectively and increased from 76 to 78 percent of revenue for the nine months
ended September 30, 1997 and September 30, 1998, respectively. The decrease in
gross margin as a percent of revenue in the third quarter was primarily due to
recent, "whole product" selling strategies in 1998, which resulted in increased
revenue from resale products, particularly in the second and third quarters.
These products typically have substantially lower gross margins than the
Company's traditional information services. The increase in gross margin as a
percent of revenue for the nine month period is due to an increase in GUS
revenue following the State Farm Agreement in March 1997.
Operating Expenses
Total operating expenses before one-time charges decreased 8 percent from
approximately $4,115,000 for the three months ended September 30, 1997, to
approximately $3,773,000 for the three months ended September 30, 1998 and
decreased 6 percent from approximately $9,734,000 for the nine months ended
September 30, 1997, to approximately $9,138,000 for the nine months ended
September 30, 1998. This decrease is primarily the result of decreased
amortization of acquired technology associated with the acquisition of Vista
Environmental due to the completion of the amortization in February 1998. This
decrease was partially offset by increases in selling, general and
administrative and research and development expenses primarily as a result of
added sales and marketing initiatives in 1998 as well as a general increase in
administrative functions necessary to accommodate acquisitions and growth.
Research and development costs increased, primarily due to costs associated with
the maintenance and enhancement of the StarView system.
<PAGE>
Restructuring charges
During the quarter ended September 30, 1998, management executed a plan to
consolidate certain activities in the Home Disclosure division, close its Exton,
PA. office, reduce head count at the San Diego Corporate office and provide for
certain acquisitions and project charges which have been reduced in scope or
cancelled. These activities are intended to allow the Company to continue to
focus on its core strategic business lines and improve overall financial
discipline.
The $1,361,000 charge represents severance costs, the recognition of
previously deferred business acquisition costs, business combination costs and
other charges related to discontinued operations at the Company.
Interest Expense
Interest expense decreased 87 percent from approximately $823,000 for the
three months ended September 30, 1997, to approximately $106,000 for the three
months ended September 30, 1998 and decreased 86 percent from approximately
$1,399,000 for the nine months ended September 30, 1997 to approximately
$190,000 for the nine months ended September 30, 1998. This decrease is
generally due to the retirement of several debt instruments in 1997.
As of December 31, 1997, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $26,149,000 of which
$19,500,000 was available at December 31, 1997 to offset future taxable income.
Accordingly, the Company recorded no provision for income taxes during the three
months and nine months ended September 30, 1998 and 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended
September 30, 1998 was approximately $432,000 compared to net cash used in
operations of approximately $1,498,000 during the nine months ended September
30, 1997. Increases profitability prior to non-cash charges such as accrued
expenses and acquisition related write-offs offset by increases in accounts
receivable of approximately $491,000 were the primary reasons for the
increase in cash provided by operating activities.
Net cash used in investing activities for the nine months ended September
30, 1998 was approximately $2,326,000 compared to approximately $136,000 for the
nine months ended September 30, 1997. The primary component of this increase
was cash expended for the purchase of E/Risk. Substantial investments in
computer systems combined with the capitalized development of internal-use
software also contributed to the increase.
Net cash provided by financing activities was approximately $1,838,000
during the nine months ended September 30, 1998, compared to approximately
$1,836,000 during the nine months ended September 30, 1997. Borrowings on
the Silicon Valley Bank revolving and term loans and proceeds from the
exercise of employee stock options were the primary sources of cash from
financing activities during the nine months ended September 30, 1998.
The Company entered into an agreement for a commercial credit facility of
$1,500,000 with Silicon Valley Bank in March 1998. Borrowings under this
facility bear interest at 0.5 percent above the Prime Lending Rate published by
Silicon Valley Bank. If the Company earns a positive after-tax net profit, for
one quarter, the interest rate will be adjusted to 0.25 percent above the Prime
Lending Rate. Borrowings under this agreement are secured by substantially all
the assets of the Company. In October 1998, the Company was notified by
Silicon Valley Bank that it was in violation of certain covenants of the loan
agreement and, accordingly, no further cash advances would be permitted under
the agreement. The Company is currently negotiating modifications to the
agreement under which borrowings would be permitted.
The Company believes that cash provided by operations combined with
borrowing facilities discussed above will be sufficient to fund its operations
through 1998. 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 and accounts payable turnover. If revenues do not
increase as anticipated, 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.
<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 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
services. Furthermore, the cost of maintaining and upgrading technological
software and hardware may affect the profitability and working capital of the
Company.
DEPENDENCE ON ISO FOR GUS REVENUES. The Company's 15 year agreement with
ISO grants ISO the exclusive sales and marketing rights for GUS services. Sales
of the Company's GUS product line are dependent upon ISO's ability to penetrate
this industry segment.
INTEGRATION OF OPERATIONS. The Company may embark on future strategic
initiatives such as acquisitions, joint ventures or other alliances, which may
require significant integration of operations to realize the anticipated
benefits of such initiatives. Integration of operations may include research
and development, sales and marketing, finance and administration and product
lines and would present significant challenges to the management of the Company.
There can be no assurance that any integration process will be successful or
that the anticipated benefits of an integration would be realized. Similarly,
there can be no assurance that the stockholders of the Company would achieve
value through share ownership greater than they would have achieved as
stockholders of the Company had no integration process been undertaken.
Difficulties encountered in any integration process may include coordinating
geographically-separated operations, retention of key management or staff
personnel and the integration of different technologies. Furthermore, the
dedication of management resources to an integration process may detract
attention from the day-to-day operations of the company.
YEAR 2000 COMPLIANCE.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date codes fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by organizations may need to be upgraded to comply
with the "Y2K" requirements. There is significant uncertainty in the software
and information services industries concerning the potential effects associated
with such compliance. The Securities and Exchange Commission ("the SEC" or "the
Commission") has issued specific guidelines for disclosure of known and
potential risks of Y2K issues and of plans to minimize or mitigate those risks.
STATE OF READINESS. The Company believes that the majority of its
software, networks and computer operating systems comply with Y2K readiness
standards. Certificates of Y2K compliance have been obtained from manufacturers
of certain software in use by the Company. The Company is currently seeking
such certificates from all manufacturers of software which it expects could be
affected by Y2K issues. Since the majority of its computer hardware and other
electronic equipment with embedded software have been purchased during the past
18 months, the Company believes that such equipment will not be impaired or
disabled by Y2K issues. The Company is seeking compliance certificates from
manufacturers of this type of equipment. Lack of readiness for Y2K issues on
the part of suppliers, customers and other third parties could materially impact
the Company's ability to maintain operations. In particular, the lack of
readiness of Internet providers and telecommunications companies could
<PAGE>
result in an interruption of its online commerce system. The Company is
currently evaluating the readiness of third parties and formulating response
plans in case of interruptions of this nature.
COSTS TO ADDRESS Y2K ISSUES. Though a thorough budget has not been
prepared, the Company believes that the costs for evaluating and addressing Y2K
issues relating to its internal and commercial software and hardware to be less
than $1 million. This statement is forward-looking and subject to risks and
uncertainties. No assurances can be given that, if an effective readiness plan
can be designed and implemented, costs can be held to this level and that
sources of capital to fund such a project could be obtained. Costs to address
Y2K issues with third parties have not been estimated, though the Company
expects that a substantial portion of such costs would be borne by the
respective third parties.
RISKS OF Y2K ISSUES. The Company is not aware of any specific issues
which would have a material effect on its operations, liquidity or financial
condition, but can make projections of reasonably likely, "worst case"
scenarios which could have such an effect. An interruption of Internet or
telecommunications services for an extended period of time would prevent the
Company from providing service to a substantial portion of its customers,
resulting in a material loss of revenue. A protracted "crash" of the
Company's internal networking and operating software would also result in a
material loss of revenue as well as an interruption of research and
development activities. This scenario could also result in the inoperability
of the Company's financial systems which could hinder its ability to collect
revenue and comply with financial reporting requirements.
CONTINGENCY PLANS. The Company has not yet developed a contingency plan to
address Y2K issues but intends to do so during the first six months of 1999.
Several of the statements made in the preceding discussion are
forward-looking in nature and subject to certain risks and uncertainties. No
assurances can be given with respect to the company's ability to effectively
implement any of the above-mentioned plans or, if implemented, what the
implementation would cost or whether the Company can obtain sufficient
capital to fund these plans.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 28, 1998 the Company terminated a strategic alliance with Phase One
Inc. ("POI"). On August 19, 1998 POI filed a complaint against the Company with
the American Arbitration Association alleging, among other things, that the
Company incorrectly terminated the alliance and withheld revenue distributions
from POI. The Company believes that these claims have no merit and that any
outcome of this arbitration would not have a material impact on the Company's
financial results or business condition. This statement is forward-looking and
subject to risks and uncertainties inherent in any legal proceeding.
Accordingly, no assurances can be given that the outcome or the process of
resolving the claims made in this proceeding will not adversely affect to the
Company's financial results or business condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On July 24, 1998, the Company issued 842,858 shares of Common Stock to
three shareholders of E/Risk Information Services, Inc. ("E/Risk") as part of a
merger transaction in which E/Risk became a majority-owned subsidiary of the
Company. These shares were issued pursuant to the exemption from registration
provided by section 4(2) of the Securities Act, in reliance in part on the
investment representations of the shareholders of E/Risk.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
The exhibits to this Form 10-QSB are listed in the Exhibit Index on
page 14 of this Report.
b) Reports on Form 8-K.
The registrant filed a current report on Form 8-K dated July 2, 1998.
Under Item 4, the registrant reported the dismissal of McGladrey & Pullen, LLP
as its independent auditors. On July 15, 1998, the registrant amended this
filing to report the engagement of Deloitte & Touche LLP as its independent
auditors. On July 16, 1998 the registrant further amended this filing to
include, as an exhibit, a letter addressed to the Securities and Exchange
Commission stating whether McGladrey & Pullen, LLP agreed with certain
statements made by the registrant.
The registrant filed a current report on Form 8-K dated August 10, 1998.
Under Item 2, the registrant reported the acquisition of E/Risk Information
Services, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
VISTA INFORMATION SOLUTIONS, INC.
(REGISTRANT)
DATE: April 30, 1999 By /s/E. Stevens Hamilton
-------------- ---------------------------------
E. Stevens Hamilton
Chief Financial Officer
(Principal Financial Officer)
DATE: April 30, 1999 By /s/Brian Dean Conn
-------------- ---------------------------------
Brian Dean Conn
Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------ ----------- --------
<C> <S> <C>
27.1 Financial Data Filed electronically
Schedule.............
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 285,726
<SECURITIES> 0
<RECEIVABLES> 4,279,975
<ALLOWANCES> 547,732
<INVENTORY> 0
<CURRENT-ASSETS> 4,287,724
<PP&E> 5,184,535
<DEPRECIATION> 2,563,100
<TOTAL-ASSETS> 13,867,356
<CURRENT-LIABILITIES> 6,226,761
<BONDS> 0
0
10,775,540
<COMMON> 33,217,781
<OTHER-SE> (39,842,159)
<TOTAL-LIABILITY-AND-EQUITY> 13,867,356
<SALES> 10,935,225
<TOTAL-REVENUES> 11,036,945
<CGS> 2,451,884
<TOTAL-COSTS> 6,227,795
<OTHER-EXPENSES> 208,695
<LOSS-PROVISION> 54,031
<INTEREST-EXPENSE> 190,233
<INCOME-PRETAX> (2,520,712)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,520,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,520,712)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
