<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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)
(858) 450-6100
(Issuer's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed
since last report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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__
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Stock, $.001 par value,
20,606,921 shares outstanding on November 12, 1999.
Transitional Small Business Format (check one) YES __ NO X
<PAGE>
INDEX
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
------ ----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE 3
MONTHS AND NINE MONTHS 3 ENDED SEPTEMBER 30, 1999
(UNAUDITED) AND 1998 (UNAUDITED)
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND 4,5
DECEMBER 31, 1998
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 6
30, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7,8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 9-14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $6,452,881 $6,202,297 $19,405,862 $18,767,979
Cost of revenues 1,686,709 1,623,066 4,176,229 4,555,914
----------------- -------------- --------------- ----------------
Gross margin 4,766,172 4,579,861 15,229,633 14,212,065
Operating Expenses
Sales and general and administrative 4,440,348 4,377,585 13,808,398 11,997,953
Research and development 191,412 311,940 736,464 933,336
Integration charges - - 1,309,303 -
Restructuring costs - 1,360,932 - 1,360,932
Write-down of intangible assets 7,063,186 - 7,063,186 -
Depreciation and amortization 895,416 708,006 2,680,475 1,656,331
----------------- -------------- --------------- ----------------
Operating income (loss) (7,824,190) (2,178,602) (10,368,193) (1,736,487)
Interest expense (352,104) (200,672) (713,863) (451,292)
Other expense (36,403) (12,723) (56,782) (18,462)
----------------- -------------- --------------- ----------------
Net loss $(8,212,697) $(2,391,997) $(11,138,838) $(2,206,241)
----------------- -------------- --------------- ----------------
----------------- -------------- --------------- ----------------
Minority interest share of net loss - (80,493) - (80,493)
Preferred stock dividends 75,000 150,000 324,876 450,000
Accretion of convertible preferred stock - - - 500,000
----------------- -------------- --------------- ----------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(8,287,697) $(2,461,504) $(11,463,714) $(3,075,748)
----------------- -------------- --------------- ----------------
----------------- -------------- --------------- ----------------
Basic and diluted net loss per common share
$(0.43) $(0.23) $(0.64) $(0.30)
----------------- -------------- --------------- ----------------
----------------- -------------- --------------- ----------------
Weighted average common shares outstanding 19,435,698 10,787,183 17,836,985 10,151,950
----------------- -------------- --------------- ----------------
----------------- -------------- --------------- ----------------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 (UNAUDITED) DECEMBER 31,
ASSETS 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $2,812,306 $475,863
Trade accounts receivable, less allowance for doubtful accounts of
$920,000 and $950,000, respectively 4,858,994 5,180,964
Notes receivable - 2,500,000
Prepaid expenses and other assets 483,363 608,194
------------------- --------------------
TOTAL CURRENT ASSETS 8,154,663 8,765,021
EQUIPMENT, FURNITURE AND SOFTWARE:
Equipment and furniture 7,305,295 6,351,059
Purchased software 4,097,203 2,676,064
------------------- --------------------
11,402,498 9,027,123
Less accumulated depreciation (6,302,709) (5,201,478)
------------------- --------------------
NET EQUIPMENT, FURNITURE AND SOFTWARE 5,099,789 3,825,645
ACQUIRED TECHNOLOGY, ENVIRONMENTAL DATABASES AND GOODWILL 1,480,465 8,452,290
Less accumulated amortization of $33,662,000 and $13,169,000,
respectively
DEPOSITS 6,657,838 340,171
------------------- --------------------
$21,392,755 $21,383,127
------------------- --------------------
------------------- --------------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term obligations $733,193 $3,204,601
Obligation to bank - 1,533,083
Accounts payable and accrued expenses 2,376,477 1,735,271
Notes payable 10,033 -
Deferred revenue 121,804 323,521
Other current liabilities 693,689 1,841,584
------------------- --------------------
TOTAL CURRENT LIABILITIES 3,935,196 8,638,060
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES 3,462,140 581,522
STOCKHOLDERS' EQUITY:
Preferred stock, Series A convertible, par value $.001; liquidation value
$5,000,000, authorized 110,000 shares; 102,564 and zero shares issued
and outstanding, respectively 103 -
Preferred stock, Series B convertible, par value $.001; authorized
200,000 shares; zero and 200,000 shares issued and
outstanding, respectively - 200
Preferred stock, Series C convertible, par value $.001; authorized
670,000 shares; zero and 382,527 shares issued and
outstanding, respectively - 371
Preferred stock, Series D convertible, par value $.001; authorized
240,000 shares; zero and 187,124 shares issued and
outstanding, respectively - 187
Preferred stock, Series E convertible, par value $.001; authorized
2,500 shares; zero and 2,500 shares issued and outstanding,
respectively - 3
Preferred stock, Series F convertible, par value $.001;
liquidation value $2,500,000, authorized, issued and
outstanding 2,500 shares 3 3
Common stock, par value $.001; authorized 43,000,000 shares;
issued and outstanding 1999- 20,557,281 shares and 1998-
11,952,329 shares 21,857 11,952
Additional paid-in capital 63,971,853 50,592,016
Accumulated deficit (49,998,397) (38,441,187)
------------------- --------------------
TOTAL EQUITY 13,995,419 12,163,545
------------------- --------------------
$21,392,755 $21,383,127
------------------- --------------------
------------------- --------------------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) including minority interest $(11,138,838) $(2,125,748)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,680,475 1,656,331
Write-down of intangible assets 7,063,186 -
Changes in current assets and liabilities:
Accounts receivable - trade 321,970 (325,622)
Prepaid expenses and other assets 644,602 (98,393)
Trade accounts payable (8,659) 1,395,958
Accrued compensation and employee benefits (169,561) (39,782)
Deferred revenue (201,717) (86,967)
Other current liabilities 81,978 265,733
------------ -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (726,564) 641,510
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and development of equipment and software (1,870,875) (1,057,247)
Increase in other assets (1,317,667) (1,314,100)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (3,188,542) (2,371,347)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations (9,488,204) (6,103,821)
Proceeds from long-term obligations 7,124,009 8,002,878
Proceeds from note receivable 2,500,000 -
Payments of preferred dividends (324,876) (450,000)
Net distributions to partners (93,496) (276,819)
Proceeds from issuance of common and preferred stock 6,534,116 379,946
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,251,549 1,552,184
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,336,443 (177,653)
Cash and cash equivalents at beginning of period 475,863 596,424
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,812,306 $ 418,771
------------ -----------
------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of VISTA Information
Solutions, Inc. (the "Company") 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 except as disclosed)
necessary for a fair presentation of the results for interim periods
presented. Operating results for the three months and nine months ended
September 30, 1999 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, 1998, the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1998, the Company's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 1999 and the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999.
The consolidated financial statements of VISTA Information Solutions,
Inc. include the accounts of all majority-owned subsidiaries and all significant
intercompany amounts have been eliminated. The consolidated financial statements
contained herein have been restated to give retroactive effect to the
acquisitions of GeoSure, LP (GeoSure) on January 14, 1999 and EcoSearch
Environmental Resources, Inc. (EcoSearch) on March 1, 1999, both of which were
accounted for as pooling-of-interests business combinations (see discussion
below).
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.
ACQUISITION OF GEOSURE, LP
On January 14, 1999, the Company acquired GeoSure, LP, which provides
environmental risk and due diligence information and is a party to a 99-year
license agreement with the Sanborn Company to distribute Sanborn fire insurance
maps, pursuant to the terms of a Partnership Interest Purchase Agreement (the
GeoSure Agreement). In exchange for the partnership interests of GeoSure, the
Company issued an aggregate of 2,590,000 shares of its common stock with 259,000
of such shares being deposited into an escrow account in accordance with the
terms of the GeoSure Agreement. Under the terms of the license agreement,
GeoSure may distribute copies of historical fire insurance maps known as
"Sanborn maps" for a royalty fee equal to 30 percent of Sanborn's prevailing
price. GeoSure also owns all shares of National Research Center, LLC, a provider
of flood determination information and a majority interest in National Research
Center Insurance Services, Inc., a provider of flood insurance services.
7
<PAGE>
ACQUISITION OF ECOSEARCH ENVIRONMENTAL RESOURCES, INC.
On March 1, 1999, the Company acquired EcoSearch Environmental
Resources, Inc. (EcoSearch), a national provider of environmental information
services, pursuant to the terms of a Stock Purchase Agreement (the EcoSearch
Agreement). In exchange for all the outstanding common stock of EcoSearch, the
Company issued an aggregate of 396,351 shares of its common stock with 39,635 of
such shares being deposited into an escrow account in accordance with the terms
of the EcoSearch Agreement.
The acquisitions of GeoSure and EcoSearch have been accounted for under the
pooling-of-interests method of accounting and, accordingly, historical financial
data in this and future reports has been restated to include GeoSure and
EcoSearch data for all periods presented.
AGREEMENT TO ACQUIRE MOORE DATA MANAGEMENT SERVICES.
On July 28, 1999, the Company signed a definitive agreement with Moore
North America, Inc. ("Moore"), a subsidiary of Moore Corporation Limited of
Toronto, Canada, to acquire certain assets of Moore's Data Management Services
Division (MDMS). Under the agreement, Moore will receive consideration of
approximately $57.5 million, consisting of a combination of cash, Common Stock
of the Company and convertible debt.
AGREEMENT TO ACQUIRE ACE USA FLOOD SERVICES.
On August 31, 1999, the Company signed a definitive agreement with
CIGNA Financial Institution Solutions, Inc. ("CFIS"), a subsidiary of CIGNA
Corporation, to acquire certain assets of CIGNA Flood Services ("CFS"). Under
the agreement, CFIS will receive approximately $7 million in cash, common
stock and debt. If certain financial performance levels are achieved,
additional consideration will be paid to a maximum of $4 million in cash and
Common Stock of the Company. On July 2, 1999, ACE Limited completed the
acquisition of the property and casualty insurance business of CIGNA
Corporation. On November 9, 1999, ACE Limited terminated the agreement to
sell CFS to the Company.
2. WRITE-DOWN OF INTANGIBLE ASSETS
The Company evaluates the recoverability of long-lived assets not
held for sale by measuring the carrying amount of the assets against the
estimated undiscounted future cash flows associated with them. At the time
such evaluations indicate that future undiscounted cash flows are not
sufficient to recover the carrying values of such assets the assets are
adjusted to their fair values.
As a result of conditions which became apparent in the third
quarter, the Company engaged an outside consultant to conduct an analysis of
the value of certain intangible assets. The fair values of acquired
technology and goodwill related to the acquisitions of E/Risk, Environmental
Information Services ("EIS") and National Research Center ("NRC") were
determined to be less than their respective carrying values. Accordingly, the
Company recorded a one-time, pre-tax charge of approximately $7,063,000 to
adjust these assets to their appropriate fair values.
8
<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, the Annual Report on Form 10-KSB for the year
ended December 31, 1998 and the Company's Quarterly Report on Form 10-QSB for
the quarters ended March 31, 1999 and June 30, 1999.
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 those sections. 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 discussed at the
end of this section and the Company's actual future results could differ
materially from those projected in the forward-looking statements as a result
of several factors, including the business risks discussed below. 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(R)") 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 March 27, 1998, the Company completed a reincorporation in
Delaware and one-for-two reverse stock split. All references to common
shares, earnings (loss) per common share and conversion rates in the
accompanying financial statements and in this discussion have been restated
to retroactively reflect the effect of the split.
9
<PAGE>
On January 14, 1999, the Company merged with GeoSure, LP (GeoSure),
a company which provides environmental risk and due diligence information.
GeoSure also owns all shares of National Research Center, LLC, a provider of
flood determination information and a majority interest in National Research
Center Insurance Services, Inc., a provider of flood insurance services. On
March 1, 1999, the Company merged with EcoSearch Environmental Resources,
Inc. (EcoSearch), a national provider of environmental information services.
The mergers with GeoSure and EcoSearch have been accounted for under the
pooling-of-interests method of accounting and, accordingly, historical
financial data and the discussions of operating results in this and future
reports will be restated to include GeoSure and EcoSearch financial data for
all periods presented.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 TO THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenue
Total revenues increased four percent from approximately $6,202,000 for
the three months ended September 30, 1998, to approximately $6,453,000 for the
three months ended September 30, 1999 and increased three percent from
approximately $18,768,000 for the nine months ended September 30, 1998 to
approximately $19,406,000 for the nine months ended September 30, 1999.
Revenues from Environmental Risk and Due Diligence Information
Services increased three percent from approximately $4,413,000 for the three
months ended September 30, 1998, to approximately $4,539,000 for the three
months ended September 30, 1999 and decreased six percent from $14,325,000
for the nine months ended September 30, 1998 to approximately $13,433,000 for
the nine months ended September 30, 1999. Decreases in Environmental Risk and
Due Diligence Information Services revenues were primarily due to a decline
in loan securitization activity, which began in the fourth quarter of 1998
and upon which GeoSure customers were heavily dependent. The Company believes
this decline has stabilized and has begun to reverse in the third quarter of
1999, as evidenced by the improved performance in the third quarter compared
to the prior year third quarter. This statement is forward-looking in nature
and subject to risks and uncertainties. Influencing factors include, among
other things, interest rate fluctuations, general economic conditions and
stock market performance. No assurances can be given that the aforementioned
decline will not continue or that revenues will increase in any future period.
Revenues from Property Disclosure Information Services increased 38
percent from approximately $721,000 for the three months ended September 30,
1998 to approximately $995,000 for the three months ended September 30, 1999
and increased 326 percent from $752,000 for the nine months ended September
30, 1998 to approximately $2,927,000 for the nine months ended September 30,
1999. These increases are primarily due to the inclusion of E/Risk revenue
for the entire three and nine-month periods in 1999 compared to only two
months of revenue for the same periods in 1998. E/Risk was acquired by the
Company on July 28, 1998, therefore only two months' revenue was recorded in
the third quarter of 1998.
Revenues from Insurance Information Services decreased 14 percent
from approximately $1,068,000 for the three months ended September 30, 1998,
to approximately $919,000 for the three months ended September 30, 1999 and
decreased 18 percent from approximately $3,691,000 for the nine months ended
September 30, 1998 to approximately $3,045,000 for the nine months ended
September 30, 1999. In the second quarter of 1999, the Company recorded a
write-off of a receivable from ISO of approximately $830,000, which was the
subject of an arbitration. The Company also discontinued recording revenue
which was the subject of this arbitration, resulting in lower revenues for
the third quarter of 1999. Following this adjustment, the Company expects
that revenues from Insurance Information Services will generally return to
levels consistent with past periods. This statement is forward-looking and
subject to risks and uncertainties, including those relating to the rate of
industry acceptance and utilization of these services and the effects of
competition. Accordingly, no assurances can be provided as to revenue levels
in any future periods.
10
<PAGE>
Gross Margin
Gross margins increased four percent from approximately $4,580,000
for the three months ended September 30, 1998 to approximately $4,766,000 for
the three months ended September 30, 1999 and increased seven percent from
approximately $14,212,000 for the nine months ended September 30, 1998 to
approximately $15,229,000 for the nine months ended September 30, 1999,
primarily as a result of the aforementioned changes in revenues. Gross
margins as a percent of revenues remained at 74 percent for the three months
ended September 30, 1998 and the three months ended September 30, 1999 and
increased from 76 percent for the nine months ended September 30, 1998 to 78
percent for the nine months ended September 30, 1999. This increase was
primarily due to an increase in revenues from Property Disclosure Information
Services which have lower costs of sales than Environmental Risk and Due
Diligence Information Services.
Operating Expenses
Total operating expenses increased 86 percent from approximately
$6,758,000 for the three months ended September 30, 1998 to approximately
$12,590,000 for the three months ended September 30, 1999 and increased 60
percent from approximately $15,949,000 for the nine months ended September
30, 1998, to approximately $25,598,000 for the nine months ended September
30, 1999. The increases are largely due to the write-down of intangible
assets in the third quarter of 1999. If the impact of this impairment charge
is removed, total operating expenses decreased 18 percent to approximately
$5,528,000 for the three months ended September 30, 1999 and increased 16
percent to approximately $18,535,000 for the nine months ended September 30,
1999. Decreases in selling, general and administrative costs for the third
quarter were primarily due to a one-time restructuring charge taken in 1998.
Year-to-date increases in selling, general and administrative costs were
primarily related to additional costs from the Company's acquisition and
growth activities. These costs include office rent and other costs from
acquired locations, staff additions from acquisitions and staffing increases
to support additional administrative requirements. Integration costs include
severance payments made to employees, prepayment penalties to lenders, travel
and legal and accounting costs. Increases in depreciation and amortization
costs were principally the result of amortization of acquired technology
related to the acquisition of E/Risk in July 1998.
Interest Expense
Interest expense increased 75 percent from approximately $201,000
for the three months ended September 30, 1998 to approximately $352,000 for
the three months ended September 30, 1999 and increased 58 percent from
approximately $451,000 for the nine months ended September 30, 1998, to
approximately $714,000 for the nine months ended September 30, 1999
principally due to a increase in overall debt levels of the Company.
Write-down of Intangible Assets
The Company evaluates the recoverability of long-lived assets not
held for sale by measuring the carrying amount of the assets against the
estimated undiscounted future cash flows associated with them. At the time
such evaluations indicate that future undiscounted cash flows are not
sufficient to recover the carrying values of such assets the assets are
adjusted to their fair values.
In August 1999, the Company engaged an outside consultant to conduct
an analysis of the value of certain intangible assets. The fair values of
acquired technology and goodwill related to the acquisitions of E/Risk,
Environmental Information Services ("EIS") and National Research Center
("NRC") were determined to less than their respective carrying values.
Accordingly, the Company recorded a one-time, pre-tax charge of approximately
$7,063,000 to adjust these assets to their appropriate fair values.
The Company had no taxable income and, accordingly, recorded no net
provision for income taxes during the three or nine months ended September 30,
1999 and 1998.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months ended
September 30, 1999 was approximately $727,000 compared to net cash provided by
operating activities of approximately $642,000 during the nine months ended
September 30, 1998. This decrease was primarily the result of higher net losses,
as well as significant decreases in Accounts Payable.
Net cash used in investing activities for the nine months ended
September 30, 1999 was approximately $3,189,000 compared to $2,371,000 for the
nine months ended September 30, 1998. The Company expects that investments in
computer and other technological assets will remain steady during 1999 as it
continues with significant development projects. This statement is
forward-looking and is subject to risks and uncertainties including, but not
limited to, the Company's ability to fund these projects from operations or to
secure debt or equity financing.
Net cash provided by financing activities was approximately $6,252,000
during the nine months ended September 30, 1999, compared to $1,552,000 during
the nine months ended September 30, 1998. Proceeds from issuance of Preferred
Stock were the primary causes of this increase.
During 1999, the Company entered into an agreement for a commercial
credit facility of $1,500,000 with Silicon Valley Bank. Borrowings under this
facility would bear interest at 0.5 percent above the prime lending rate
published by Silicon Valley Bank. Borrowings under this agreement were secured
by substantially all the assets of the Company. The Company has repaid all
borrowings under this facility as of June 30, 1999, and this facility is no
longer available for use.
In June 1999 the Company entered into an agreement with IBJ Whitehall
Bank & Trust Company ("IBJW") for a term loan, a revolving credit facility and
an acquisition facility. The term loan, in the amount of $3,500,000, is payable
in full on December 31, 2004, with quarterly principal installments beginning
September 30, 2000. Proceeds from the term loan were used to retire an existing
loan obligation of GeoSure to State Street Bank and to repay a portion of the
principal and accrued interest under the Silicon Valley Bank credit facility.
The revolving credit facility, not to exceed $3,500,000, is payable in full on
December 31, 2004, with quarterly principal installments beginning September 30,
2000. Proceeds from the revolving credit facility were used to repay the
remainder of the principal and accrued interest under the Silicon Valley Bank
credit facility and to provide working capital. As of September 30, 1999,
$550,000 has been borrowed against the revolving credit facility. The
acquisition facility, not to exceed $3,000,000, will mature on June 30, 2005,
and is intended to provide purchase capital for permitted acquisitions. No
borrowings have taken place on this acquisition facility. Interest charges on
these facilities are 3.25 percent above the Eurodollar loan rate and are subject
to adjustments based on the financial condition of the Company. Warrants for the
purchase of the Company's common stock were issued to IBJW in connection with
this credit facility and have been recorded as a note discount. The unamortized
balance of the note discount as of September 30, 1999 was approximately
$1,266,000 and included both the aforementioned warrants and loan origination
fees. The note discount is being amortized over the life of the loans. As of the
filing date the Company is in the process of negotiating a new lending
arrangement with IBJW.
The Company believes that the available borrowing facilities
discussed above will be sufficient to fund its operations through 1999.
Factors impacting this forward-looking statement are the levels of the
Company's overall revenues and overhead expenses, changes in the Company's
accounts receivable and accounts payable turnover, the costs incurred to
acquire and integrate desired acquisitions and the financial conditions of
acquired businesses. If revenues do not meet expectations, 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, acquisition 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 or defer or cancel certain
initiatives.
12
<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 and Due Diligence and
Property Disclosure Information Services operate in highly competitive
environments. The ability of competitors to gain market share from VISTA or to
drive down prices for these services may affect the operating margins and
overall 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. Failure to anticipate the
correct relative priorities of these projects would affect the Company's
operating results and competitive position.
DEPENDENCE ON ISO FOR GUS REVENUES. The Company's 15-year agreement
with ISO grants them the exclusive sales and marketing rights for GUS services.
Insurance Information Service revenues, which are a significant portion of the
Company's revenues and contribute to gross margin, are dependent upon ISO's
ability to penetrate this industry segment.
NEED TO INTEGRATE ACQUISITIONS. The Company has engaged in a number of
acquisitions and may continue to do so. Many of these acquisitions require
substantial integration with existing operations to realize their expected
returns on investment. Integration includes, among other things, absorption of
administrative functions that are eliminated from the acquired company,
combining sales and marketing activities with existing departments and
standardizing technological systems across business units. Failure to execute
business integrations successfully may result in increased costs, customer
attrition and decreases in revenue, and would have a material impact on the
operating results and business of the Company.
POTENTIAL ACQUISITION. The Company has recently entered into an
agreement pursuant to which it would acquire substantially all of the assets
of the Data Management Services division of Moore Corporation Limited. The
Company has paid a non-refundable deposit of 501,505 shares of common stock.
Additionally, the Company expects that the acquisition from Moore would
result in the creation of a substantial amount of "goodwill" on its balance
sheet, which would be amortized and reduce reported operating results over at
least the next several years. Finally, entering into the new areas of
business associated with this acquisition will involve the Company in more
complex operations (including activities in Canada), with more potential
competitors and with potential conflicts with existing relationships. As
such, the Moore transaction will present significant challenges to the
Company and its management, as well as the integration issues discussed above.
RISK OF DEFAULT. The Company's agreement with IBJ Whitehall Bank and
Trust Company is subject to covenants tied to the financial performance of the
Company. If the Company fails to meet the specified performance criteria, the
term loan, revolving credit facility and acquisition facility would immediately
become due under the default provisions of the agreement. There can be no
assurance that the Company would be able to obtain the additional funding
required in order to retire this debt upon default.
13
<PAGE>
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 code 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 has issued
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 other 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 has
obtained compliance certificates from substantially all manufacturers of
equipment which reasonably could impact the Company's operations and
continues to seek compliance certificates from additional manufacturers. 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 result in an interruption of its online
commerce system. The Company has obtained confirmation of the readiness of a
majority of third parties and continues to seek confirmation from other third
parties. The Company is in the process of formulating response plans in case
of interruptions of this nature. This statement is forward-looking and
subject to risks and uncertainties. No assurances can be made regarding the
ability of the Company to formulate or execute any response plans or to
correctly identify all risks.
COSTS TO ADDRESS Y2K ISSUES. The Company generally addresses Y2K issues
related to internally developed software as a part of its normal software
development and testing procedures. As such, costs previously incurred to
address these Y2K issues are not easily segregated. Purchased software is
normally replaced or updated within 18 months of the date acquired and, as such,
replacements or updates specifically for the purpose of addressing Y2K issues
are not distinguishable from ordinary replacements or updates. For example, in
1998, the Company replaced its accounting software with new software that is Y2K
compliant. This replacement occurred as part of the ordinary course of
maintaining the Company's information systems, not specifically to address the
Y2K compatibility of the prior system. The Company estimates that the costs
incurred for evaluating and addressing Y2K issues relating to its internal and
commercial software and hardware to be less than $250,000 and that future costs
will not exceed $750,000. 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 potential "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 formal
contingency plan to address Y2K issues but is currently evaluating backup
systems and alternative third party providers that may be required if the
actions and plans discussed above are not sufficient to prevent a material
effect on its operations.
14
<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 in San Diego, CA, 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 the Company's financial results or
business condition.
In June 1999, GeoSure, LP(GeoSure), a subsidiary of the Company, filed
a demand for arbitration against The Sanborn Company, LLC (Sanborn) with the
American Arbitration Association. GeoSure is party to a license agreement with
Sanborn to distribute historical fire insurance maps (Sanborn Maps) subject to
certain restrictions and a royalty based on the prevailing prices charged by
Sanborn for these maps. GeoSure alleges, among other things, that it has been
charged excess royalties and seeks recovery of the excess payments. Sanborn has
responded with allegations that GeoSure has underpaid these royalties and
likewise seeks recovery. The Company believes that Sanborn's 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 the Company's financial results or business condition.
In October 1998, the Company filed a complaint against ISO with the
American Arbitration Association alleging, among other things, that ISO had
incorrectly calculated processing fees from GUS transactions submitted
outside ISO's telecommunications network and withheld these fees from the
monthly GUS revenue distribution to the Company. In August 1999, the
arbitrator dismissed the portion of the Company's complaint that relates to
the disputed receivable. In November 1999, the Company filed a petition with
the State of New York to vacate the arbitrator's action.
15
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a) In connection with the IBJ Whitehall financing, the Company issued
warrants to purchase 321,500 shares of Common stock to IBJW Capital
Corporation and warrants for an aggregate of 60,000 shares of Common
stock to the advisors who assisted the Company in obtaining,
analyzing and negotiating the terms of the IBJW financing. The
warrants issued to IBJW Capital Corporation expire on June 29, 2002
and the warrants issued to the advisors expire on June 29, 2004; the
exercise price for the warrants if $10.35 per share.
b) On September 8, 1999 the Company sold 102,564 shares of Series A
Preferred stock to Century Capital Partners II, L.P. for $5,000,000.
Each share of Series A Preferred stock is convertible into 10 shares
of Common stock, subject to adjustment.
All of these securities were issued to accredited investors in private
placements exempt from registration pursuant to Section 4(2) of the
Securities Act.
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 17 of this Report.
b) Reports on Form 8-K.
None.
SIGNATURE
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:, 1999 BY /s/ Neil Johnson
---------------------------
Neil Johnson
Chief Financial Officer
(Principal Financial Officer)
DATE:, 1999 BY /s/ Brian Dean Conn
---------------------------
Brian Dean Conn
Controller
(Principal Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
3.1 Certificate of Incorporation .. Incorporated by reference to
the Company's definitive Proxy
Statement filed February 17, 1998
3.2 By-laws........................ Incorporated by reference to
the Company's definitive Proxy
Statement filed February 17, 1998
27.1 Financial Data Schedule........ Filed electronically
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATE BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES THREE THROUGH FIVE OF THE COMPANY'S FORM 10-QSB FOR THE YEAR-TO-DATE AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,812,306
<SECURITIES> 0
<RECEIVABLES> 5,778,786
<ALLOWANCES> 919,792
<INVENTORY> 0
<CURRENT-ASSETS> 8,154,663
<PP&E> 11,402,498
<DEPRECIATION> 6,302,709
<TOTAL-ASSETS> 21,392,755
<CURRENT-LIABILITIES> 3,935,196
<BONDS> 0
0
113
<COMMON> 21,857
<OTHER-SE> 13,973,449
<TOTAL-LIABILITY-AND-EQUITY> 21,392,755
<SALES> 19,405,862
<TOTAL-REVENUES> 19,405,862
<CGS> 4,176,229
<TOTAL-COSTS> 29,774,055
<OTHER-EXPENSES> 770,645
<LOSS-PROVISION> 844,866
<INTEREST-EXPENSE> 713,863
<INCOME-PRETAX> (11,138,838)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,138,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,138,838)
<EPS-BASIC> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
