-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ThNzaobWwupJnUq75f8SVAgNSEBrdRxv6ecZ/d/7tK81TdMVE1xFcHfuj2u5MgBn 4+CIrERWBn1r7UKdTsyXfw== 0001050502-99-000014.txt : 19990114 0001050502-99-000014.hdr.sgml : 19990114 ACCESSION NUMBER: 0001050502-99-000014 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED SPATIAL INFORMATION SOLUTIONS INC /CO/ CENTRAL INDEX KEY: 0000783284 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 840868815 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-14273 FILM NUMBER: 99505760 BUSINESS ADDRESS: STREET 1: 200 WEST FORSYTH STREET STREET 2: SUITE 800 CITY: JACKSONVILLE STATE: FL ZIP: 32202 BUSINESS PHONE: 9043461319 MAIL ADDRESS: STREET 1: 200 WEST FORSYTH ST. STE 800 STREET 2: PO BOX 569 CITY: JACKSONVILLE STATE: FL ZIP: 32202 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED SPATIAL INFORMATION SYSTEMS INC DATE OF NAME CHANGE: 19980710 FORMER COMPANY: FORMER CONFORMED NAME: DCX INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DOUGLAS COUNTY INDUSTRIES INC DATE OF NAME CHANGE: 19860109 10KSB 1 FORM 10-KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB (Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 30, 1998 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from_____________to_____________ Commission file number 0-14273 Integrated Spatial Information Solutions, Inc. ---------------------------------------------- (Name of small business issuer) Colorado 84-0868815 - ------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 13119 Professional Drive, Suite 200, Jacksonville, Florida 32225 ---------------------------------------------------------------- (Address of principal executive offices) (Zip code) Issuer's telephone number (904) 220-4747 Securities registered pursuant to Section 12(g) of the Exchange Act: Title of each class ------------------- Common Stock, no par value Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The issuer's revenues for its most recent fiscal year were $8,146,367. As of December 31, 1998, the aggregate market value of the shares of the issuer's voting stock held by non-affiliates of the issuer based on the average of closing bid and asked prices of the Common Stock as reported on the OTC Bulletin Board, was approximately $4,013,295. As of December 31, 1998, the issuer had outstanding 11,456,571 shares of Common Stock. Transitional Small Business Disclosure Format: Yes [ ]; No [ X ] Exhibit index begins on page 17 PART I This annual report contains forward-looking statements that describe the business and prospects of Integrated Spatial Information Solutions, Inc. (the "Company") and the expectations of the Company and management. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth. These risks and uncertainties include but are not limited to: the timing of and expense associated with, expansion and modification of the Company's operations in accordance with its business strategy or in response to competitive pressures or other factors arising in the future. All statements other than statements of historical fact included in this annual report, including without limitation, expected growth of the domestic and global geographical information systems markets, beliefs regarding the strength of the Company's market position with respect to new or contemplated business strategies and activities, expectations regarding availability and marketability of new digital imaging products, anticipated growth in the Company's revenue and profitability, cash operating costs and certain significant expenses, and potential acquisitions of, or strategic partnering with, other geographic information system providers, are forward-looking statements. Factors that could cause actual results to differ materially include, among others, the entry of new companies into the geographic information systems business, unanticipated competition from new strategic alliances in the industry, increased price competition from software manufacturers and affiliated vendors, decreased reliance on custom design software services, shifts in governmental policy on the availability of government-owned data and difficulties in hiring and retaining sufficient numbers of professional and other skilled personnel. All forward-looking statements included in this annual report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update such statements. Although the Company believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct or that the Company will take any actions that may presently be planned. Item 1 - DESCRIPTION OF BUSINESS (a) Business Development. Integrated Spatial Information Solutions, Inc. (the "Company") was incorporated as DCX, Inc., a Colorado corporation, on December 8, 1981. During two of the past three years the Company was in the custom design and contract manufacture of aircraft related electronic interconnect assemblies, principally under contracts for Department of Defense acquisition programs or for military aircraft maintenance support. The Company sought to expand and diversify its business and as a result, on September 22, 1997 it acquired all the outstanding shares of PlanGraphics, Inc. a geographic information systems ("GIS") company headquartered in Frankfort, Kentucky. Subsequently, on October 8, 1997 the Company completed the sale of its defense electronics manufacturing assets which was effective September 30, 1997. On June 29, 1998, the Company's name changed to Integrated Spatial Information Solutions, Inc.. For the fiscal year reported herein, the Company's principal business is carried out through its wholly owned subsidiary, PlanGraphics, Inc. ("PGI"). PGI's principal business is the design and implementation of geographic information systems for local, state and foreign governments, gas, electric and telephone utilities, and other commercial entities. PGI is a Maryland corporation and was incorporated in 1979. (b) Business of Issuer Primary operations. The Company specializes in the design and implementation of geographic information systems ("GIS"). GIS combines computer-based interactive map displays with database management software to analyze and display spatial data. The digital GIS files manipulated by software become powerful information tools, which enable public and private sector users to save money and improve operating efficiencies. GIS is being adopted for an increasing range of commercial applications as computer technology costs decline. The Company is a fully integrated GIS implementer providing services in three areas: Advisory services including strategic planning, feasibility studies, implementation planning and technology evaluation. Implementation services including the procurement, installation, training, operation and development of GIS applications for clients. 2 Data integration services including quality control, custom database construction and maintenance, and data dissemination to facilitate the use of GIS data by technical and other users with a need for resulting information. GIS applications and services have become decision making tools for utilities, local and state government agencies, and land and resource management organizations in a wide range of applications, including land management, mineral exploration, crop management and forecasting, environmental remediation, military planning and surveillance, infrastructure development and construction, and business market analysis. The domestic GIS market is presently estimated in excess of $2 billion and the worldwide market in excess of $6 billion. The Company's operating subsidiary has a Vice President for Business Development and three business development representatives and also develops additional business and follow-on assignments through its executive management staff. In addition, the Company maintains strategic alliances with, among others, Oracle, ESRI, Autodesk, Intergraph and Smallworld. During 1998 the Company's subsidiary became a reseller of high resolution space imagery pursuant to an agreement with Space Imaging/EOSAT. The market for GIS services is divided into two broad categories--the government sector, which includes agencies at all levels and is presently the larger of the two categories, and the commercial sector. The GIS market is highly competitive and the Company competes with a number of companies engaged in offering similar services. Competition emanates from four principal sources: competing GIS services companies with financial ties to software vendors, the internal consulting practices of GIS software vendors, engineering firms, and small GIS specialty firms. Some of these competitors are better funded and some of them are small companies with much lower indirect costs. The Company believes it competes effectively on the basis of breadth and depth of expertise, independence, and sensitivity to the client's requirement for responses and timeliness; however, there can be no assurance that the Company will be able to compete successfully in the future on these terms. The Company regards as proprietary certain of its developed software applications, and attempts to protect these with a combination of copyright, trademark and trade secret laws, employee and third party nondisclosure agreements, and other methods of protection. As in any attempt to protect proprietary matters, despite precautions it may be possible for unauthorized third parties to copy certain portions of the Company's products or reverse engineer or obtain and use information the Company regards as proprietary. There can be no assurance that the Company's intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Any misappropriation of the Company's intellectual property could have an adverse effect on the Company's business and results of operations. Furthermore, regardless of the degree of caution exercised by the Company, there can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products. Any such assertion could require the Company to enter into royalty arrangements or defend its proprietary rights. Historically PGI has had some concentration of revenue (and associated accounts receivable balances) in certain customers. During the FY 1998 approximately 11.6 percent of its sales were concentrated in one customer as compared to fiscal year 1997 when 25.6 percent of its sales were concentrated in another customer. In addition, at September 30, 1998, two customers accounted for 14.3 percent and 11.1 percent of accounts receivable. The loss of such a key customer could have an adverse impact on near term revenue. The Company has incurred only de minimis costs in complying with environmental laws. No research and development costs were incurred. Presently the Company employs a total of 70 full time employees and 16 part-time employees. Discontinued operations. Until September 30, 1997, the Company historically provided custom manufacturing services and products to the aerospace and commercial markets and was successful in increasing revenues and diversifying its customer base. The Company focused primarily on the engineering design, development, test and custom manufacture of medium technology electrical, electronic and electromechanical assemblies and systems. The Company also manufactured wire harnesses and cable assemblies for use by industrial, commercial, computer and communications industries and for the Federal Government. 3 Item 2 - DESCRIPTION OF PROPERTY The Company leases commercial property suitable for its purposes in several locations. The Company leases land and a building of approximately 20,500 square feet in Frankfort, Kentucky under a triple net capital lease. It also leases office space in Golden, Colorado of approximately 4,918 square feet and in Silver Spring, Maryland, of approximately 3,854 square feet. The Company owns rental property, its former manufacturing facility, which is a 34,000 square foot facility located on a 9.45 acre site on State Highway 83, north of Franktown, Colorado, between Denver and Colorado Springs. The Company's property is subject to a mortgage as indicated in the financial statements included in this report. (See also Note 4 and Note 11 to the Financial Statements). The facilities are leased to a third party who has exercised an option to buy the entire facility. The Company and the third party are currently negotiating the purchase price. Item 3 - LEGAL MATTERS The Company has appealed the Government's assessment of excessive reprocurement costs against the Company on a manufacturing contract terminated for default in 1988. The appeal of the default termination was unsuccessful. The Company has a reserve of approximately $479,000 for the effect of a possible loss of this assessment appeal. Final briefs related to a decision on this issue must be submitted by February 19, 1999; the Company believes it will favorably resolve the reprocurement cost assessment (See also Note 5 to Financial Statements and Item 6, Management Discussion and Analysis). The Company is engaged in various other litigation matters from time to time in the ordinary course of business. The Company believes the outcome of any such litigation will not have a material effect on the Company. Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) From June 10, 1989 through September 8, 1998, the Company's common stock was traded on the National Association of Securities Dealers Automated Quotation ("NASDAQ") system on the NASDAQ Small Cap Systemsm.. As a result of not meeting certain NASDAQ listing requirements, the Company's common stock ceased trading on the NASDAQ Small Cap Market System and began trading on the Over-The-Counter Bulletin Board system effective September 9, 1998. The trading symbol is ISSS. Such quotations reflect inter-dealer prices without retail markup, markdown, or commission, and may not necessarily represent actual transactions. The quarterly range of high and low sales prices per share for the past two fiscal years have been as follows: Sales Price ------------------------- Quarters Ended High Low -------------- ---- --- December 31, 1996 $2.56 $ .44 March 31, 1997 1.46 .48 June 30, 1997 1.56 1.16 September 30, 1997 2.24 1.20 December 31, 1997 1.88 .81 March 31, 1998 2.13 .81 June 30, 1998 2.63 1.00 September 30, 1998 1.25 .31 December 31, 1998 .40 .38 4 As of December 31, 1998, the Company believes there are approximately 4,250 beneficial owners of the Company's common stock of which 2,212 are registered with the transfer agent and the balance are held in street name. The Company has never paid a cash dividend on its common stock. The Company currently intends to retain any earnings for use in business development. (b) During fiscal year 1998 the Company sold its Common Stock (No Par Value) in several private offerings pursuant to Regulation D or Section 4(2) of the Securities Act of 1933. The shares issued do not have any preemptive rights nor are they entitled to any dividends. (1) On April 1, 1998, the Company sold 125,000 shares of its common stock to two investors. The Company received cash proceeds of $88,000. (2) On April 17, 1998, the Company sold 480,000 shares of its common stock in a private placement pursuant to Regulation D. The Company received cash proceeds of $540,000. (3) On August 18, 1998, the Company sold 57,142 shares of its common stock to two investors, one affiliated with the Company and the other unaffiliated. The Company received cash proceeds of $50,000 in a private placement. (c) During fiscal year 1998 the Company sold its Series A 6% cumulative Convertible Redeemable Preferred Stock par value $.001 ("Series A Preferred") in two private placements to investors in order to restructure debt and to carry out its plans to move the Company forward. Terms of the Series A Preferred provide for cumulative dividends at a 6% annual interest rate payable in cash or, at the option of the Company, in additional shares of Series A Preferred at the rate of one share of Series A Preferred for each $1,000 of such dividend not paid in cash. The dividends are cumulative whether or not earned. The Series A Preferred has a stated value of $1,000 per share. The Series A Preferred do not have voting rights. (1) On October 14, 1997, the Company sold a total of 250 shares of its Series A Preferred Stock, pursuant to Regulation S. The total offering price was $250,000 and the sale was made in a private offshore transaction to two non US entities who represented to the Company that they were sophisticated investors. LH Financial of New York, NY acted as the Company's placement agent for the transaction. The Company paid total commissions of 15% of the total offering price. The holders of the 250 shares of Series A Preferred have since converted all of the preferred stock into common stock. The preceding private sale of the Series A Preferred was exempt from registration under Regulation S. The sale was made in an offshore transaction to non US persons or entities, and the purchases made representations to the Company regarding their status and actions necessary to comply with Regulation S. (2) On August 19, 1998, the Company sold a total of 700 shares of its Series A Preferred Stock in a private placement pursuant to Regulation D. The total offering price was $700,000 and the sale was made in a private transaction to two entities who represented to the Company that they were sophisticated investors. The Ridgefield Group of Ridgefield, CT acted as the Company's placement agent for the transaction. The Company paid total commissions of 12% of the total offering price. The holders of the 700 shares of Series A Preferred, a small quantity of which has since been converted into common stock, each have a demand and piggy back registration right to permit the public sale of the underlying common stock. The Company has filed a registration statement that includes the underlying common stock with the Securities and Exchange Commission; it was declared effective on November 14, 1998. Shares of Series A Preferred Stock have the following conversion rights: (1) Each holder of shares of Series A Preferred Stock shall have the right at any time and from time to time after sixty (60) days, or such longer period which may have been agreed to, from the date on which a share of Series A Preferred Stock was issued, to convert some or all such share into fully paid and non-assessable shares of Common Stock of the Corporation determined in accordance with the Conversion Rate provided in Paragraph (2) below (the "Conversion Rate"). (2) The number of shares Common Stock issuable upon conversion of each share of Series A Preferred Stock shall equal (I) the sum of (A) the Stated Value per share and (B) accrued and unpaid dividends on such share, divided by 5 (ii) the Conversion Price. The Conversion Price shall be equal to the lessor of: (I) 105% of the average of the Closing Bid Price (as hereinafter defined) of the Corporation's Common Stock for the five (5) trading days immediately preceding the date of issuance of the Series A Preferred Stock; and (ii) eighty percent (80%) of the average of the lowest Closing Bid Price for three of the 10 trading days immediately preceding the conversion of the Series A Preferred Stock(referred to as the "look-back period"). After 150 days following the issuance of shares of Series A Preferred Stock, the look-back period for such respective shares will be increased by two days per month for up to a total of 20 days' trading prices to be used in the calculation of the conversion price. The Closing Bid Price shall mean the Closing Bid Price of the Company's Common Stock as reported by NASDAQ (or if not reported by NASDAQ as reported by such other exchange or market where traded). The Series A Preferred is subject to mandatory conversion two years after the date of issue. On September 22, 1997, the Company and PGI consummated the transaction whereby PGI became a wholly-owned subsidiary of the Company, pursuant to an agreement whereby the existing stockholders of PGI exchanged their shares of PGI common stock for shares of the common stock of the Company at an exchange ratio of 2.4476 shares of Company common stock for each share of outstanding PGI common stock. A total of 2,631,145 shares of Company common stock were subsequently issued in exchange for PGI common stock held by its former shareholders in a Regulation D transaction exempt from registration under Section 3(b) of the Act. As required by the acquisition agreement between the Company and PGI, the Company subsequently filed a registration statement on Form S-2 for these shares; the registration statement was declared effective on November 14, 1998. The Company has issued shares, and warrants and options to acquire shares of its common stock to various persons and entities in connection with the payment by the Company of consulting fees and other accounts payable or Company debt. In each instance, the shares, or warrants or options and the underlying shares were offered by the Company in a private offering exempt from registration under Section 4(2) of the Act, based upon the possession by the recipient of relevant investment information regarding the Company, and the investment intent of the recipient. These shares, warrants and options consist of the following: 1. On October 15, 1997, the Company converted $289,902 of debt into 170,531 shares of common stock. 2. On October 21, 1997, the Company issued 65,790 shares of common stock to Transition Partners, Ltd. in consideration of $100,000 of commissions earned as a result of their professional services. 3. On December 31, 1997, March 31, 1998, and June 30, 1998, anti-dilution warrants to Transition Partners Ltd. to acquire up to 33,836; 42,707, and 19,500 shares of the Company's common stock at an exercise price of $1.00, $2.125, and $1.25 per share, respectively, exercisable upon and to the extent of additional issuances of shares of common stock by the Company after January 15, 1997. 4. On December 31, 1997, March 31, 1998, and June 30, 1998, anti-dilution warrants to Copeland Consulting Group, Inc. to acquire up to 33,835; 42,708, and 19,500 shares of the Company's common stock at an exercise price of $1.00, $2.125, and $1.25 per share, respectively, exercisable upon and to the extent of additional issuances of shares of common stock by the Company after January 15, 1997. 5. On January 7, 1998, options to B. Edward Haun & Company to acquire up to 2,493 shares of the Company's common stock at a price of $0.813, in exchange for services provided to the Company, exercisable through January 6, 1999. 6. On January 19, 1998, the Company issued 10,538 shares of common stock to FTS Worldwide and 1,448 shares of common stock to Kemsley Trading in payment of accrued dividends on preferred stock. 7. On March 3, 1998, options to Steven R. Perles to acquire up to 72,000 shares of the Company's common stock at a price of $1.03, in connection with professional services rendered to the Company. The options may be exercised by submitting outstanding invoices in exchange for the exercise price until March 2, 2000. 8. On March 31, 1998, warrants to Ladenburg Thalmann to acquire up to 300,000 shares of the Company's common stock at a price of $2.125, pursuant to an investment banking agreement, exercisable through March 30, 2000. 9. On March 31, 1998, warrants to James Kaufman to acquire up to 30,000 shares of the Company's common stock at a price of $2.125, in connection with an investment made in the Company. The warrants are exercisable through March 30, 2000. 6 10. On April 16, 1998, the Company issued 100,000 shares of common stock to First Capital Partners valued at $168,750 in settlement of certain claims against the Company. 11. On April 20, 1998, the Company issued a total of 7,110 shares of the Company's common stock to two principals of Find at a price of $1.688, in exchange for recruiting service fees owed to Find by the Company. 12. On May 28, 1998, warrants to Centex Securities to acquire up to 48,000 shares of the Company's common stock at a price of $1.25 in connection with financial advisory services, exercisable through March 29, 2002. 13. On May 28, 1998, warrants to certain investors in a private placement under Regulation D to acquire up to a total of 360,000 shares of the Company's common stock at a price of $2.50, exercisable through May 27, 2000. 14. On July 23, 1998, the Company issued 13,000 shares of common stock to B. Edward Haun & Co. in consideration of $9,750 in professional services rendered to the Company. 15. On August 18, 1998, warrants to an investor affiliated with the Company and to an unaffiliated investor to acquire up to 5,000 shares each of the Company's common stock at a price of $0.98 per share, exercisable through August 17, 2001. 16. On August 19, 1998, warrants to Libra Finance to acquire up to 140,000 and 52,500 shares of the Company's common stock at a price of $0.788 and $0.75, respectively, in connection with financial advisory services, exercisable through August 18, 2001. 17. On August 19, 1998, warrants to The Ridgefield Group to acquire up to 52,500 shares of the Company's common stock at a price of $0.75, in connection with financial advisory services, exercisable through August 18, 2001. 18. On September 30, 1998, the Company issued 13,000 shares of common stock to B. Edward Haun & Co. in consideration of $6,500 of professional services rendered to the Company. 19. On September 30, 1998, the Company issued 12,500 shares of common stock to B. Edward Haun & Co. in exchange for $16,406 of professional services previously rendered to the Company. Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition (Liquidity and Capital Resources) The following discussion of liquidity and capital resources addresses the combined requirements and sources of the Company and its subsidiaries as of September 30, 1998. Liquidity At September 30, 1998, the Company had working capital of $653,180 and its current ratio was 1.20:1; unrestricted cash balances available for immediate use amounted to $55,045. Compared with negative working capital in the prior year of ($413,041) when the current ratio was .91:1 and cash balances available for use amounted to $582,326. The increase in working capital is primarily associated with the imminent sale of the property, land and building combined with reductions of liabilities and debt. Changes in cash during fiscal year 1998 (FY 1998) resulted in a net decrease of $527,281 as compared to an increase during fiscal year 1997 (FY 1997) of $372,689. The primary cause for the decrease in cash during FY 1998 was reduction of debt and accounts payable. The Company has, at the end of FY 1998, lease payment commitments through 2003 of $1,976,864 which will require total annual payments of approximately $543,000 in fiscal year 1999 (FY 1999). Of this required payment amount, approximately 7 $419,000 is for capital lease obligations and $124,000 relates to operating leases. Management believes normal operating cash flows are adequate to fund these payments. (See also Note 7 to the Financial Statements). The Company considers its facilities adequate to support anticipated sales and operations for the next several years; accordingly, no commitments for additional facilities expansion have been entered into for the twelve months ended September 30, 1998. Approximately $831,000 of principal payments on notes payable are due during fiscal year 1999. Of this amount, $620,000 is related to the property in Franktown, Colorado and is expected to be paid from proceeds received from the pending sale of the building. The remaining balance of $211,000 is structured in monthly payments and management believes monthly cash flows will be adequate to meet these obligations. Cost reductions and other efficiencies associated with improved operational performance at the operating subsidiary during the third and fourth fiscal quarters of FY 1998 have achieved enhanced financial performance. This coupled with the increased backlog of work ($9.7 million as compared with $7.5 million a year ago) is expected to have a positive effect on future cash flows from operations. Subsequent to fiscal year end, the Company has secured a line of credit for up to $3 million based upon accounts receivable; the line of credit provides cash advances of up to 75 percent of eligible receivables thereby resulting in enhanced available cash resources by making cash available sooner from qualifying outstanding accounts receivable. The pending sale of the Franktown, Colorado real property (See Item 2, Description of Property, above) will also yield net cash after liquidation of the debt associated with the property which is expected to fund parent company recurring cash requirements for FY 1999. While the Company has a litigation reserve of $478,997 for reprocurement costs assessed by the federal government, it has recently learned it may be able to resolve the matter for a lesser amount including its own legal costs which are already accrued as a liability. Accordingly, the Company believes it has adequate liquidity and capital resources to be able to meet the known cash requirements resulting from pending litigation and its current level of operations from presently projected cash inflows. In order to carry out its expansion plans during FY 1999, the Company believes it will need to raise additional funds through equity or debt placements in order to meet its cash needs for expansion efforts until it can operate on internally generated cash flows in the expanded form. While the Company has been successful in raising funds through debt and equity, there is no guarantee the Company will be successful in raising additional funds. The Company does not believe that its business has been significantly impacted during the past three years by general cost inflation; however, it has noted a trend of increasing compensation required to fill its key professional staffing positions during the past year. As a result of SEC guidance issued in early 1997 with respect to beneficial conversion features in connection with the issuance of convertible preferred stock, the Company was deemed to recognize non-cash preferred stock dividends totaling approximately $476,112 in FY 1998 and $892,592 in FY 1997. This amount is equivalent to the discount from the fair market value of the common stock given to the purchasers of the Preferred Stock calculated as of the date of issuance of such stock. Primarily as a result of collection of the amount due from sale of assets of $1.1 million, the reclassification of the property, land and building held for sale, and application of the proceeds to reduction of payables and debt, current assets decreased $136,285 from $4,120,826 in the prior year to $3,984,541 in the current year. Cash used in operating activities during FY 1998 ($2.4 million) increased significantly ($2.1 million) over the FY 1997 usage of $249,346. Major causes for the increased use were reductions of accounts payable ($669,604 decrease versus an increase of $95,803 in FY 1997), reductions of accrued expenses ($299,089 decrease versus increase of $526,883 in FY 1997) and a decrease in deferred revenue ($76,308 decrease versus an increase of $156,701 in FY 1997). In addition, operating activities of the subsidiary encompassed an entire year for FY 1998 versus only nine business days in the report for FY 1997, thereby contributing to the increased use of cash in FY 1998. Sources for the cash used were the $527,281 reduction of cash available, investing activities provision of net cash of $856,823 and a net amount of $972,832 cash provided by financing activities after making $2 million in payments on debt. Capital Resources The Company has taken actions to increase its exposure to the investment banking community by apprising relevant principals of its diversification activities, acquisition program and other business development endeavors designed to result in new business. As a result the Company has secured needed financing through the placement of equity pursuant to Regulations D and S, as noted in Item 5, 8 Market For Common Equity and Related Stockholder Matters. The Company has also secured a $3 million asset based line of credit for internal working capital needs. In addition, the Company has received expressions of interest from several entities for providing additional credit facilities in support of its acquisition program. An additional placement of equity or debt or the successful negotiation of a credit facility will be needed to meet projected cash demands for expansion programs. There can be no assurance the Company will be successful in these efforts. Results of Operations The following discussion of Results of Operations addresses the Company's operations in light of its September 1997 acquisition of PlanGraphics, Inc. (the "subsidiary") which now constitutes its Continuing Operations. See also the forward looking statement disclaimer in Part I as it pertains to nonfactual and non-historical statements appearing within this section. Continuing Operations--Fiscal Year 1998 compared to Fiscal Year 1997 The reported consolidated revenue for FY 1998 is not comparable with that reported for the prior year as only eight days of revenue from the operating subsidiary were included in FY 1997 revenue. Revenue for FY 1998 was $8,146,367 compared with the subsidiary's operating revenue of $8,204,236 for the period ended September 30, 1997 as disclosed in Note 1 to the consolidated financial statements, a slight decrease of $57,869 or 0.7% from the prior year. The decrease in revenue is associated with the winding down of a several contracts and delays in the startup of replacement contract activities. The Company recognized the potential for flat revenue and added two full time sales persons to help develop the increased backlog for FY 1999 as discussed below. Total FY 1998 costs and expenses amounted to $10,548,156, or 129.5% of revenue. This amount is also not comparable to the reported prior year total as only eight days of subsidiary costs and expenses were included in the reported figure along with costs of operating the parent company. Comparable costs and expenses for FY 1997 amounted to $10,115,628, which when compared to FY 1998 amounts results in an increase of $432,528, or 4.1%. Significant reductions in costs and expenses were experienced in overhead at the subsidiary ($584,000) and noncash compensation expenses required by SFAS 123 and APB 25 ($487,000). These decreases were offset by increases in salaries and benefits of $582,000 at the subsidiary, and $173,886 at the parent, consulting fees of $316,000, and audit and legal fees of approximately $174,000. Interest expense amounted to $540,490 during FY 1998, which is comparable to the $541,744 of interest expense actually incurred during the prior year. It is not comparable to the amount of $126,263 reported for the prior year, however, as $415,481 FY 1997 interest expense was embedded partially within the costs of discontinued operations for FY 1997 as well as partially within subsidiary activities occurring prior to consummation of the acquisition. Other income and expense decreased significantly from the prior year as the prior year period included a one-time receipt of key man life insurance proceeds of $400,000. In addition, FY 1998 included the expense for the write down of capitalized software of $262,927. These reductions to the total are somewhat offset by the collection of rent ($149,750) from the lease on the Franktown, Colorado real property. Discontinued Operations--Fiscal Year 1998 Compared to Fiscal Year 1997 There were no manufacturing operations during fiscal year 1998. Operations Outlook. The Company believes the Geographic Information Systems (GIS) is a global market, which is rapidly evolving and becoming the basis for a myriad of new applications creating additional markets. The Company believes the gross potential profit margins are much higher than presently experienced and is working to grow the GIS business according to forward looking statements in its business plan, augmenting growth to be achieved through acquisitions. Presently the consolidated results are adversely impacted by the overhead structure developed at the parent company in anticipation of its developing acquisition program. Subsequent to fiscal year end, the Company has received new contract and project awards of approximately $4.5 million bringing its backlog and assignments to approximately $9.7 million. Management believes this is a result of a more focused marketing and sales program. At the same date in the prior year, the Company had approximately $7.5 Million in backlog and assignments. 9 Currently, the Company plans to expand through additional acquisitions. Tax Valuation Allowance--FY 1998 As discussed in Note 6 in the accompanying financial statements, the Company has net operating loss carry forwards for income tax purposes of approximately $6.1 million. The Company has established a 100 percent valuation allowance on the net deferred tax asset arising from the loss carry forwards in excess of the deferred tax liability. The valuation allowance has been recorded as the Company's management has not been able to determine that it is more likely than not that the deferred tax assets of the Company will be realized. Year 2000 Effect The Company has completed its review of the extent to which its own computer systems and hardware, and non-information technology equipment, are capable of operating on and after January 1, 2000 without error or other deficiency ("Year 2000 Compliance"), and believes that the year 2000 will not have a material impact upon its own software, hardware and non-information technology equipment. Updates and upgrades which are required are underway, the Company believes that these will be completed prior to the end of its fiscal year 1999. To date, the Company has incurred minimal capital expenditures to investigate and remediate Year 2000 Compliance problems. Suppliers to the Company consist of database software developers and geographic information system providers. The Company's review has also included an analysis of its material suppliers and customers as to the Year 2000 compliance of their systems and equipment, and the Company has set in motion an effort to obtain written assurances from these suppliers and customers regarding their Year 2000 Compliance status. The Company's contingency plan in the event of any customer Year 2000 Compliance problems is to offer direct consulting and programming services to offset the demands placed on the clients' internal resources. The Company believes that its customers would require database construction and development services to continue during any period in which supplier products experience Year 2000 issues. The Company also believes that the various satellite, airborne and ground-based sources of data provided to the Company are presently or will timely be Year 2000 Compliant. The Company's contingency plan in the event material suppliers are not Year 2000 Compliant is to assist customers in developing alternate means of obtaining the decision-making guidance previously provided by non-functioning or unavailable data or database products. There can be no assurance that the failure of the Company and/or its material customers and suppliers to timely attain Year 2000 Compliance will not materially reduce Company revenues, or that these failures and/or the impacts of broader compliance failures by telephone, mail, data transfer or other utility or general service providers or government or private entities will not have a material adverse effect upon the Company. The Company has incurred de minimis costs insuring it is Year 2000 compliant and based upon its reviews expects only de minimis costs in the future. Effect of Recent Accounting Pronouncements. The issuance of several accounting pronouncements was evaluated by the Company in FY 1998 (see the Financial Statements, Summary of Accounting Policies). None of them had a material effect on the consolidated financial statements. The Company adopted three of these pronouncements in FY 1998 and they are: Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. This pronouncement provides a different method of calculating earnings per share which requires the calculation of "Basic" and "Dilutive" earnings per share. SFAS 129, Disclosure of Information About an Entity's Capital Structure, establishes standards for disclosing information about an entity's capital structure. Statement of Position 97-2, Software Revenue Recognition, provides guidance on when revenue should be recognized and in what amounts for licensing, selling, leasing or other marketing of computer software. 10 The pronouncements required to be adopted in the following fiscal years (FYs 1999 and 2000) are: SFAS 130 and 131 are effective for financial statements for periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. Because of the recent issuance of these standards, management has been unable to fully evaluate the impact, if any, the standards may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by the implementation of these standards. SFAS 132, Employers' Disclosures about Pensions and Other Post-retirement Benefits, standardizes the disclosure requirement for pensions and other post-retirement benefits and requires additional information on changes in the benefits obligations and fair values of plan assets that will facilitate financial analysis. SFAS 132 is effective for years beginning after December 15, 1997 and requires comparative information for earlier years to be restated, unless such information is not readily available. Management believes the adoption of this statement will have no material impact on the Company's consolidated financial statements. SFAS No. 133 established standards for recognizing all derivative instruments including those for hedging activities as either assets or liabilities in the statement of financial position and measuring those instruments at fair value. This Statement is effective for fiscal years beginning after June 30, 1999. The Company has not yet determined the effect of SFAS No. 133 on its consolidated financial statements. SFAS No. 134 establishes accounting and reporting standards for certain activities of mortgage banking enterprises and other enterprises that conduct operations that are substantially similar to the primary operations of a mortgage banking enterprise. The statement is effective for the first fiscal quarter beginning after December 15, 1998. Because the Company does not conduct mortgage banking or similar activities, management believes this statement does not apply to the Company. Item 7 - FINANCIAL STATEMENTS The financial statements required by this item are included at the end of this Form 10-KSB. An index to such financial statements and applicable schedules is contained in that separate section. Item 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Item 9 - DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The directors and executive officers of the Company are: Name Age Position ---- --- -------- Jeanne M. Anderson 47 Director John C. Antenucci 52 Vice Chairman, President and Director and President, PlanGraphics, Inc. Frederick G. Beisser 56 Vice President - Finance and Adminis- tration, Secretary, Treasurer and Director Stephen Carreker 48 Chairman, CEO and Director Raymund E. O'Mara 57 Director Gary S. Murray 47 Director J. Gary Reed 50 Director and Chief Operating Officer, PlanGraphics, Inc. Robert S. ("Robin") Vail 52 Chief Financial Officer 11 NOTES: Ms. Jeanne M. Anderson is a former President and CEO of the Company. She served as President and Chief Executive Officer from October 1, 1991 through December 31, 1996. She was Chairman of the Board of Directors from January 1, 1997 through October 2, 1997 and has been a Director of the Company continuously since 1987. Mr. John C. Antenucci, President, became a director of the Company on November 3, 1997 and is also founder, president and CEO of PlanGraphics, Inc. since 1979. He is also a member of AM/FM International, a professional association for utility industry users of GIS. He is also a former member of the National Academy of Sciences Advisory Committee for the future of the U.S. Geological Survey, an advisor to Ohio State University's Center for Mapping and editor of a leading textbook on geographic information systems. Mr. Antenucci holds an MS in Civil Engineering/Water Resources from Catholic University of America in Washington, DC and a Bachelor of Civil Engineering from the same institution. Mr. Frederick G. Beisser, Vice President - Finance and Administration, joined the Company as Chief Financial Officer in July, 1990 and was promoted to his present position on March 28, 1997. He was appointed to the Board of Directors in March, 1991, at which time he became Treasurer and was appointed Secretary on October 1, 1991. Mr. Beisser is a Colorado Certified Public Accountant. Previously he headed Budget & Cost Analysis for the Air Force Accounting & Finance Center in Denver, Colorado, from 1985 to 1989. He held Air Force budget management positions in Europe, and controller and accounting positions with the Air Force in the United States and abroad. Retired with the rank of Major in 1989, he holds a Ph.D. from American International University in Canoga Park, California, an MBA from Golden Gate University in San Francisco and a BS in Business Administration from the University of Southern Colorado at Pueblo, Colorado. In addition he has diplomas from the Air Force's Air War College and the Air Command & Staff College. Mr. Stephen Carreker, Chairman and CEO, became a director of the Company on December 12, 1995. He was Director of Strategic Planning until he became President and Chief Executive Officer effective January 1, 1997. On October 2, 1997 he became Chairman and CEO. Prior to joining the Company he was manager of the geographic information systems department of IDS/IBM Manama, Bahrain; was Vice President, Geonex Corporation, Inc., and GIS Project Manager for Gwinnet County, Georgia. Mr. Carreker has over 20 years of domestic and international GIS experience. He holds a Bachelor of Landscape Architecture from the University of Georgia and was a Georgia-licensed landscape architect. Mr. Raymund E. O'Mara was appointed a director on November 3, 1997. He is a principal with Booz Allen & Hamilton, consultants since 1996. Prior to joining Booz Allen & Hamilton, Mr. O' Mara was vice president of Mason and Hanger Company, Lexington, Kentucky from 1994 to 1996. Mr. O'Mara retired from the United States Air Force in 1994 with the rank of major general; from 1993 until his retirement he was Director, Defense Mapping Agency, Bethesda, Maryland and prior to that was Vice Commander in Chief, Atlantic Command, Norfolk, Virginia for two years. Mr. O'Mara holds a Master of Arts from State University of New York at Plattsburgh, NY and BS in Electrical Engineering from the New Jersey Institute of Technology at Newark. Mr. Gary S. Murray, was appointed a director on June 26, 1998. He is the President and founder of Human Vision Corporation, Greenbelt, Maryland, Prior to that he was Chairman and President of Sylvest Management Systems Corporation from 1987 until its acquisition by Federal Data Corporation in June 1997. Mr. Murray holds a BBA from Howard University and is a Certified Public Accountant. Mr. J. Gary Reed, Chief Operating Officer of PlanGraphics, Inc. has been employed with PlanGraphics in several capacities since 1995. Prior to joining them he held several executive positions during a 21-year career with Geonex Corporation and was named President of the corporation in 1994. Mr. Reed holds an MBA from the Keller Graduate School of Management in Chicago and a BS in Biology from Virginia Polytechnic Institute and State University in Blacksburg, Virginia. He has been a director of the Company since November 3, 1997. 12 Mr. Robert ("Robin") S. Vail, became Chief Financial Officer of the Company on March 18, 1998. A Certified Public Accountant, he was previously Director of Operations for Price Waterhouse in Houston, TX from 1990 until joining the Company. Prior to that he was a mergers and acquisitions consultant and has held positions as chief financial officer, CPA firm partner, vice president--finance & administration. Mr. Vail holds a Master of Accountancy from Florida State University and a Bachelor of Business Administration from the University of Georgia. All directors hold office until the next annual meeting of shareholders and serve until their successors are duly elected and qualified or until their earlier death, resignation or removal. Compliance with Section 16(a) of the Exchange Act Based solely upon a review of Forms 3, 4 and 5 submitted to the Company during and with respect to its most recent fiscal year, the Company believes that all directors, officers and any beneficial owner of more than 10 percent of its registered shares timely filed all reports required by Section 16(a) of the Exchange Act. Item 10 - EXECUTIVE COMPENSATION The following table sets forth information concerning the cash compensation paid and accrued by the Company for services rendered during the fiscal years ended September 30, 1998, 1997 and 1996 to the CEO and other executive officers of the Company who had aggregate compensation exceeding $100,000. Ms. Anderson was President and CEO through December 31, 1996 when Mr. Carreker became President and CEO on January 1, 1997. On November 3, 1997 the position of president was assumed by Mr. Antenucci while Mr. Carreker remained CEO and became Chairman of the Board of Directors. Eight days of compensation was paid to Mr. Antenucci as an employee of the Company during fiscal year 1997 subsequent to the acquisition of PlanGraphics, Inc. although the table, below, reflects his entire compensation during that year.
SUMMARY COMPENSATION TABLE Annual Compensation Long Term Compensation Awards - -------------------------------------------------------------- ---------------------------------- Name and Other Restricted Stock All Other Principal Annual Comp- Stock Options Compen- Position Year Salary ($) Bonus ensation Awards (#) sation ($) - -------- ---- ---------- ----- ---------- ------ ------- ---------- Jeanne M. 1998 $ - $ - - - $ - Anderson 1997 48,317 - 58,000# - 111,000 435@ 1996 116,018 - - - - 1,740@ Stephen 1998 $ 175,000 - - - 327,655+ - Carreker 1997 106,958 - - - 660,622 - John C. 1998 $ 175,000 - - - 260,853+ 2,188@ Antenucci 1997 $ 114,500 - 20,407* - 531,851 2,361@
# Amount of $58,000 Other Annual Compensation represents severance payment in connection with Ms. Anderson's resignation as President and CEO. + Quantity of Stock Options granted during fiscal year 1998 for Carreker and Antenucci represents the quantity of antidilution stock options accrued during the year pursuant to Employment Agreements (the Board of Directors and the employees have since agreed to annul this provision for periods subsequent to June 30, 1998) at prices ranging from $1.125 to $2.125 per share. * Amount of Other Annual Compensation represents payment of certain deferred compensation accrued in prior fiscal years for Mr. Antenucci. @ Amounts of All Other Compensation represents the Company's employer contribution to 401K Retirement Savings Accounts. A total of 30,000 stock options were issued to officers of the Company under the 1991 Stock Option Plan during fiscal year 1997. None were granted in fiscal year 1996. In addition, the Company granted incentive stock options in connection with officers' employment agreements amounting to 1,490,000 options, 61,000 to a director during FY 1997 and 360,000 stock options to a new officer pursuant to 13 his employment agreement in FY 1998. As a result of antidilution provisions in employment agreements, 380,657 additional options accrued to officers of the Company during FY 1997 and 877,543 during FY 1998. OPTION/SAR GRANTS IN LAST FISCAL YEAR Number of % of Total Securities Options/SARs Underlying Granted to Options/SARs Employees In Exercise or Base Expiration Name Granted Fiscal Year Price ($/Sh) Date - -------------------------------------------------------------------------------- Stephen 115,581 8.9% $ 1.750 Dec 30, 2001 Carreker 145,889 11.2 2.125 Mar 30, 2002 66,185 5.1 1.250 Jun 30, 2002 John C. 91,897 7.1 1.750 Dec 30, 2001 Antenucci 115,994 9.0 2.125 Mar 30, 2002 52,962 4.1 1.250 Jun 30, 2002 The Company did not make new grants of stock options to the named officers of the Company during fiscal year 1998. Fiscal year 1997 grants to Messrs. Carreker and Antenucci in connection with their employment agreements consisted of fully vested options of 200,000 and 300,000 shares, respectively, which are immediately exercisable, and performance options of 180,000 and 225,000, respectively, for which attainment of certain management goals vests 35%, 35%, and 30% for each of the ensuing three fiscal years at which time they become exercisable. During the same fiscal year they were granted antidilution options of 280,622 and 6,851, respectively. The Company granted antidilution options in the aggregate to Messrs. Carreker and Antenucci of 327,655 and 260,853, respectively during FY 1998 related to employment agreement options noted above. The options are either fully vested or subject to performance vesting in proportion to the allocation of vested/performance shares in their original option grant.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Value of Unexercised Unexercised In-The-Money Stock Options Stock Options at FY-End (#) at FY-End ($) Shares acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized ($) Unexercisable Unexercisable - --------- --------------- ------------ ------------- ------------- Jeanne M. Anderson Former Presi- - - 75,000/61,000(1) $ -/- dent & CEO Stephen Carreker Chairman & CEO 5,000 8,362.50 526,998/486,279 $ -/- John C. Antenucci, Vice Chairman & President - - 452,966/340,038 $ -0-/-0-
1. Options for 75,000 shares were granted on April 19, 1995 under the 1991 Plan at $.71875 and a grant of 61,000 shares in connection with the termination of employment was made on January 15, 1997 at a price of $1.135. Both grants were at fair market value; no options have been exercised to date. 14 2. Mr. Carreker was granted options for 30,000 shares of common stock under the Company's 1991 Stock Option plan on January 2, 1997 at a price of $1.125 of which 5,000 have been exercised. In connection with his employment agreement he received fully vested stock options for 200,000 shares of the Company's common stock awarded effective January 7, 1997. In addition Mr. Carreker is entitled to 608,277 antidilution options related to his employment agreement. 3. Mr. Antenucci received fully vested stock options for 300,000 of common stock at a price of $1.75 in connection with his employment agreement on September 22, 1997. In addition, Mr. Antenucci is entitled to 268,004 antidilution options related to his employment agreement. The Company does not have a long term incentive plan or a defined benefit or actuarial form of pension plan. Employment Agreements. Messrs. Carreker, Antenucci and Vail entered into three-year employment agreements effective January 2, 1997, September 22, 1997, and March 18, 1998, respectively, at salaries of $175,000 (Carreker and Antenucci) and $120,000 (Vail) per year with provisions for bonuses of up to 21% of base salary if certain goals are achieved. The executives received fully vested stock options for 200,000 shares for Mr. Carreker, 300,000 for Mr. Antenucci, and 200,000 for Mr. Vail with performance options for 180,000, 225,000, and 160,000 shares respectively, which vest upon attainment of certain performance goals. In addition, Mr. Antenucci received a one-time advance payment of $50,000 of his FY 1998 salary for entering into the agreement. The employment agreements renew automatically for a term of three years if the Company does not terminate the agreements by December 31, 1999 (Carreker), June 30, 2000 (Antenucci) or December 31, 2000 (Vail), unless earlier terminated under the terms of the Agreement. Messrs. Carreker, Antenucci and Vail are entitled to continued base compensation for three years following date of termination if not for death, disability, cause, voluntary resignation other than constructive termination or the expiration of the agreement's term; if termination is for one of these reasons then all benefits including salary are continued for 18 months for Carreker and Antenucci and no benefits for Vail. Mr. Antenucci is entitled to a three year consulting period at one half of average annual salary for the immediately preceding 36 month period should he exercise his option to terminate his employment voluntarily after June 30, 2000. On June 26, 1998, the Compensation Committee of the Board of Directors reduced the annual compensation of both Mr. Carreker and Mr. Antenucci by 10 percent to a revised annual amount of $157,500. In addition, the Committee also reduced by 10 percent the annual compensation of Mr. Vail and another Company employee, both whose employment agreements had provided for annual compensation in excess of $100,000. These reductions became effective October 1, 1998. Director Compensation. Directors who are employees of the Company do not receive any additional compensation above their full time employment compensation. Nonemployee directors receive reimbursement of expenses incurred in carrying out their duties. During the fiscal year the Company instituted a standardized compensation program for nonemployee directors whereby the non employee director receives stock options on the date of election to the Board of Directors to purchase 10,000 shares of the Company's common stock at the market price on that date. Such options vest quarterly provided that the grantee has attended 75 percent or more of the scheduled board meetings. In addition each director is entitled to reimbursement of expenses incurred on behalf of the Company and nonemployee directors receive $1,000 for each scheduled Board meeting attended in person and $250 for each scheduled board meeting attended via conference call. Meetings of committees of the Board of Directors are compensated at $250 per meeting attended in person or via conference call. One nonemployee director, Ms. Anderson, is compensated at a rate of $850 per month pursuant to a written severance agreement of January 15, 1997. During fiscal year 1998 Ms. Anderson received $10,200 in fees for her services as a director. During the current fiscal year the Company paid Mr. O'Mara $2,670 in fees and expenses for duties as an outside director; Mr. Murray has not yet received any such payment. Both Mr. O'Mara and Mr. Murray were awarded options to purchase 10,000 shares each of the Company's common stock at a price of $1.25 per share, the closing price on June 26, 1998, the date of grant. 15 Item 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Percentages of shares held by officers and directors of the Company, as well as those parties owning more than five (5) percent of the Company's common stock as of the date of this report, are as follows: Security ownership of certain beneficial owners: Based on Rule 13d-1 filings under the Exchange Act, the Company there is only one party other than management owning more than five percent of the common stock of the Company. Security ownership of certain beneficial owners: Title of Name of Beneficial Amount & Nature of Percent Class(3) Owner(1) Beneficial Ownership - -------------------------------------------------------------------------------- Common Black & Veatch Holding Company 608,713 6.8 7500 Ward Parkway Kansas City, MO 64114 Security ownership of management: Title of Name of Beneficial Amount & Nature of Percent Class(3) Owner(1) Beneficial Ownership(2) - -------------------------------------------------------------------------------- Common Jeanne M. Anderson 114,000 1.0 Director Common John C. Antenucci 1,192,875 10.2 President and Director Common Stephen Carreker, Chairman of None Nil The Board of Directors and CEO Common Frederick G. Beisser 16,900 @ Chief Financial Officer, Secretary Treasurer, and Director Common J. Gary Reed None Nil Director Common Raymund E. O'Mara None Nil Director Common Gary S. Murray 28,471* @ Director Common Robert S. Vail 14,200* @ Chief Financial Officer All Directors and Officers as a group (8 persons) 1,366,446 11.7% NOTES: @ The number of shares constitutes less than one percent of outstanding shares. * The shares reported for Mr. Murray are held by Human Vision Corp. of which he is President and the shares reported for Mr. Vail are held by a member of his household, accordingly, both individuals control the shares indirectly. 16 1. The address for each of the directors of the Company is In Care Of Integrated Spatial Information Solutions, Inc., 13119 Professional Drive, Suite 200, Jacksonville, FL 32225. 2. The number of shares beneficially owned does not include 1,745,222 shares which may be acquired under Non Qualified Stock Options held by Officers and Directors of the Company. Such shares and management personnel holding them are: Ms. Anderson, 75,000; Mr. Antenucci, 452,996 Mr. Carreker, 526,998; Mr. Beisser, 241,843 shares; Mr. O'Mara, 5,000 shares; Mr. Murray, 10,000 shares, Mr. Vail, 211,482 shares and Mr. Reed, 301,904 shares. 3. If the options denoted in Note 2, above, were exercised, Directors and Officers would have the following percentages of outstanding common stock: Ms. Anderson, 1.4 percent; Mr. Antenucci 12.5 percent; Mr. Beisser, 2.0 percent; Mr. Carreker 4.0 percent; Mr. O'Mara, less than 1 percent; Mr. Murray, less than 1 percent, Mr. Vail, 1.7 percent, Mr. Reed, 2.3 percent and Officers and Directors as a group, 23.6 percent. Change in Control Possible Change in Control. The conversion of presently outstanding Preferred Stock will result in the issuance of Common Stock at discounts from future market prices, which could result in substantial dilution to existing holders of Common Stock. Holders of the Preferred Shares are prohibited from converting their shares into common stock in a number that would cause any individual holder to hold more than 9.99% of the then outstanding shares of Common Stock. However, the conversion of all of the Preferred Stock over time, and following successive conversions of Preferred Stock, and associated sales of Common Stock, could nonetheless result in the issuance of a number of shares exceeding 20% of the outstanding Common Stock as of the end of FY 1998, and could conceivable result in a change of control in the Company. Item 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Related party transaction. Mr. Antenucci is a minority partner in the organization that owns the facilities leased by PlanGraphics, Inc. in Frankfort, Kentucky, at an annual lease cost to PGI of approximately $320,000. As of September 30, 1998, the Company owes the related party approximately $1,950,000 under the capital lease obligation. (See also Note 7 to the Financial Statements). On August 18, 1998, warrants were issued to an investor, Human Vision Corp., affiliated with the Company to acquire up to 5,000 shares of the Company's common stock at a price of $0.98 per share, exercisable through August 17, 2001. Also during fiscal 1998, this investor purchased 28,571 of the Company's common stock for $25,000 in cash. The Company restructured related party notes to a minority shareholder, Black and Veatch Holding Co., on October 10, 1997 by converting $289,902 of the note payable into 170,531 shares of the Company's common stock, paying cash of $150,000 and issuing a note with an interest rate of 10 percent for the balance. Certain voting provisions relating to these notes were cancelled with the restructure (See also Note 4 to the Financial Statements.). PART IV Item 13 - EXHIBITS AND REPORTS ON FORM 8-K (a) The following financial statements, schedules and exhibits are filed as a part of this report: 1. Financial Statements 2. Exhibit Index The following exhibits are filed as part of this Report: Exhibit Number Exhibit Page - ------ ------- ---- 2.1 Agreement for Exchange of Shares between DCX, Inc. and AIRTECH INTERNATIONAL CORPORATION Note 6 2.1a Acquisition Agreement between DCX, Inc. and PlanGraphics, Inc. Note 7 2.1b Asset Purchase Agreement between DCX, Inc. DCX-CHOL Enterprises, Inc. Note 8 17 3.1 Bylaws of DCX, Inc. Note 1 3.2a Amended and Restated Articles of Incorpor- ation of DCX, Inc., dated July 8, 1991. Note 2 3.2b Articles of Amendment to the Articles of Incorporation of DCX, Inc., dated November 6, 1996 Note 4 3.2c Articles of Amendment to the Articles of Incorporation of DCX, Inc., dated July 30, 1997 Note 9 4.1 Specimen Stock Certificate Note 1 4.2 DCX 1991 Stock Option Plan Note 5 4.3 DCX 1995 Stock Incentive Plan Note 5 4.4 DCX, Inc. Equity Incentive Plan Note 12 4.4 Warrant, dated January 15, 1997 issued to Transition Partners Limited. Note 3 4.5 Warrant, dated October 15, 1997, issued to Transition Partners Limited. Note 3 4.6 Warrant, dated January 15, 1997, issued to Copeland Consulting Group, Inc. Note 3 4.7 Warrant, dated October 15, 1997, issued to Copeland Consulting Group, Inc. Note 3 4.8 Warrant, dated June 19, 1997, issued to Spencer Edwards, Inc. Note 3 4.9 Warrant, dated November 8, 1996, issued to Coretech, Ltd. Note 3 4.10 Warrants, dated August 19, 1998, issued to Libra Finance and to the Ridgefield Group. Note 13 4.11 Warrant, dated October 24, 1997, issued to Gerald Alexander. Note 3 4.12 Form of Option Agreement, dated July 31, 1997, between the Company and the Pension Fund of Steven R. Perles. Note 10 4.13 Form of Option Agreement, dated July 31, 1997, between the Company and Hamilton & Faatz, P.C. Note 10 10.1 Executive Employment Agreement dated March 28, 1997 between the Company and G. Stephen Carreker. Note 11 10.2 Executive Employment Agreement dated March 28, 1997 between the Company and Frederick G. Beisser. Note 11 10.3 Executive Employment Agreement dated March 28, 1997 between the Company and D. Scott McReynolds. Note 11 10.4 Executive Employment Agreement dated September 22, 1997 between the Company and John C. Antenucci. Note 12 10.5 Executive Employment Agreement dated September 22, 1997 between the Company and J. Gary Reed. Note 12 21.1 List of Subsidiaries Page 21 18 27.1 Financial Data Schedules Incorporated by reference from Edgar Filing on January 13, 1999 NOTE: 1. Incorporated by Reference from Registration Statements on Form S-18, file no. 33-1484. 2. Incorporated by Reference from the definitive Proxy Statement, dated May 3, 1991 3. Incorporated by Reference from the Company's Registration Statement on Form S-3 (Registration No. 333-39775) filed with the Commission on November 7, 1997. 4. Incorporated by Reference from Form 8K, dated November 12, 1996. 5. Incorporated by Reference from Form S-8, dated September 29, 1996 6. Incorporated by Reference from Form 10-Q for June 30, 1996, dated August 1, 1996. The agreement was terminated prior to completion. 7. Incorporated by Reference from Form 8-K, dated September 22, 1997. 8. Incorporated by Reference from Form 8-K, dated October 8, 1997. 9. Incorporated by Reference from Form 8-K, dated July 31, 1997. 10. Incorporated by Reference from Form S-8 (Registration No. 333-35293) dated September 5, 1997. 11. Incorporated by Reference from Form 10-QSB for the Quarter ended March 31, 1997. 12. Incorporated by Reference from Form 10-KSB for the fiscal year ended September 30, 1997. 13. Incorporated by Reference from Form 8-K, dated August 13, 1998. (b) Reports on Form 8-K. Following reports were filed on Form 8-K by the Company during fourth quarter of the fiscal year covered by this annual report. Current Report on Form 8-K, dated June 26, 1998, filed with the SEC on July 10, 1998 and reporting the results of the annual shareholders' meeting, election of the board of directors, the change of the Company's name to Integrated Spatial Information Solutions, Inc., the appointment of a new director, Gary S. Murray, and the new stock symbol: ISSS. Current Report on Form 8-K, dated August 13, 1998, filed with the SEC on August 20, 1998 and reporting the Company had entered into a subscription agreement for a private placement under Regulation D and that the NASDAQ had granted an extension of time to meet Small Cap Market listing requirements. No reports were filed on Form 8-K subsequent to the end of the fiscal year: 19 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Integrated Spatial Information Solutions, Inc. Date: 1/13/99 By: /s/ Stephen Carreker --------- -------------------------------- Stephen Carreker Chairman and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signatures below also constitute power of attorney for the Principal Accounting Officer of the Company with the advice of legal and accounting advisors to file amendments as required to insure full and complete disclosure of this form 10-KSB. Signature Title Date --------- ----- ---- - ---------------------- Jeanne M. Anderson Director /S/ Stephen Carreker - ---------------------- Stephen Carreker Chairman, CEO & Director 1/13/99 /S/ Fred Beisser - ---------------------- Frederick G. Beisser Vice President--Finance and 1/13/99 Administration, Secretary, Treasur- er, and Director and Principal Accounting Officer /S/ John C. Antenucci - ---------------------- John C. Antenucci Vice Chairman, President 1/13/989 and Director /S/ J. Gary Reed - ---------------------- J. Gary Reed Director 1/13/99 - ---------------------- Raymund E. O'Mara Director /S/ Gary S. Murray - ---------------------- Gary S. Murray Director 1/13/99 20 List of Active Subsidiaries Registered Name State of Incorporation - --------------- ---------------------- PlanGraphics, Inc. Maryland 21 Integrated Spatial Information Solutions, Inc. and Subsidiary Index to Consolidated Financial Statements ================================================================================ Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheets as of September 30, 1998 and 1997 F-3 - F-4 Consolidated Statements of Operations for the Years Ended September 30, 1998 and 1997 F-5 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1998 and 1997 F-6 - F-9 Consolidated Statements of Cash Flows for the Years Ended September 30, 1998 and 1997 F-10 Summary of Accounting Policies F-11 - F-17 Notes to Consolidated Financial Statements F-18 - F-32 F-1 Report of Independent Certified Public Accountants The Board of Directors and Stockholders Integrated Spatial Information Solutions, Inc. Jacksonville, Florida We have audited the accompanying consolidated balance sheets of Integrated Spatial Information Solutions, Inc. and subsidiary as of September 30, 1998 and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Integrated Spatial Solutions, Inc. and subsidiary as of September 30, 1998 and 1997 and the results of their operations and their cash flows for each of the two years then ended, in conformity with generally accepted accounting principles. /S/ BDO Seidman, LLP Denver, Colorado December 20, 1998 F-2 Integrated Spatial Information Systems, Inc. and Subsidiary Consolidated Balance Sheets ================================================================================ September 30, 1998 1997 - -------------------------------------------------------------------------------- Assets (Note 4) Current: Cash and cash equivalents $ 55,045 $ 582,326 Accounts receivable, less allowance of $161,109 and $188,161 (Notes 1, 3 and 4) 2,568,723 2,236,568 Land and building held for sale, net (Note 11) 1,083,522 -- Amount due from sale of assets (Note 2) -- 1,100,000 Restricted cash 100,000 -- Prepaid expenses and other 177,251 201,932 ----------- ----------- Total current assets 3,984,541 4,120,826 ----------- ----------- Property and equipment (Note 4): Land and building under capital lease - related party 1,866,667 1,866,667 Land and building held for rental (Note 11) -- 1,415,058 Equipment and furniture 456,366 447,003 Leased assets 279,227 183,512 ----------- ----------- 2,602,260 3,912,240 Less accumulated depreciation 361,706 429,597 ----------- ----------- Net property and equipment 2,240,554 3,482,643 ----------- ----------- Other assets: Goodwill, net of accumulated amortization 4,994,976 5,517,872 Capitalized software -- 258,855 Other 81,458 190,604 ----------- ----------- Total other assets 5,076,434 5,967,331 ----------- ----------- $11,301,529 $13,570,800 =========== =========== See accompanying summary of accounting policies and notes to consolidated financial statements. F-3 Integrated Spatial Information Solutions, Inc. and Subsidiary Consolidated Balance Sheets ================================================================================ September 30, 1998 1997 - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Notes payable - current portion (Note 4) $ 801,602 $ 854,060 Notes payable - related party, current portion (Note 4) 29,819 158,928 Obligations under capital leases - related party, current (Note 7) 160,043 134,794 Checks written against future deposits 207,650 269,587 Accounts payable 681,880 1,351,484 Accrued expenses 858,324 1,054,660 Deferred revenue 113,046 189,354 Accrued litigation settlement (Note 5) 478,997 521,000 ------------ ------------ Total current liabilities 3,331,361 4,533,867 ------------ ------------ Long-term liabilities: Notes payable, less current maturities (Note 4) 422,962 576,000 Notes payable - related party, less current maturities (Note 4) -- 446,256 Obligations under capital leases - related party (Note 7) 1,960,462 2,037,673 ------------ ------------ Total long-term liabilities 2,383,424 3,059,929 ------------ ------------ Total liabilities 5,714,785 7,593,796 ------------ ------------ Commitments and Contingencies (Notes 5, 7 and 10) Stockholders' equity (Note 8): Cumulative convertible preferred stock, $.001 par value, 20,000,000 shares authorized, 700 and 1,650 shares issued or outstanding 1 2 Common stock, no par value, 2,000,000,000 shares authorized 11,456,571 and 7,736,380 shares issued and outstanding 12,635,423 9,741,501 Additional paid-in capital 3,743,664 3,550,869 Accumulated deficit (10,792,344) (7,315,368) ------------ ------------ Total stockholders' equity 5,586,744 5,977,004 ------------ ------------ $ 11,301,529 $ 13,570,800 ============ ============ See accompanying summary of accounting policies and notes to consolidated financial statements. F-4 Integrated Spatial Information Solutions, Inc. and Subsidiary Consolidated Statements of Operations ================================================================================ Years Ended September 30, 1998 1997 - -------------------------------------------------------------------------------- Revenues (Note 3) $ 8,146,367 $ 71,098 ------------ ------------ Cost and expenses: Salaries and employee benefits 3,373,338 779,934 Direct contract costs 1,504,123 16,032 Other operating expenses 5,670,695 799,556 ------------ ------------ Total costs and expenses 10,548,156 1,595,522 ------------ ------------ Operating loss (2,401,789) (1,524,424) ------------ ------------ Other income (expense): Other income 204,342 297,622 Interest expense (540,490) (126,263) Writeoff of capitalized software (262,927) -- Life insurance proceeds (Note 14) -- 400,000 ------------ ------------ Total other income (expense) (599,075) 571,359 ------------ ------------ Loss from continuing operations (3,000,864) (953,065) Loss from discontinued operations (Note 2) -- (1,598,313) ------------ ------------ Net loss (3,000,864) (2,551,378) ------------ ------------ Preferred stock dividends -- (9,674) Deemed dividends on preferred stock (Note 8) (476,112) (892,592) ------------ ------------ Net loss available to common stockholders $ (3,476,976) $ (3,453,644) ============ ============ Basic and diluted loss per common share: Loss from continuing operations attributable to common stockholders $ (.34) $ (.39) Loss from discontinued operations $ -- $ (.33) Loss attributable to common stockholders $ (.34) $ (.72) ------------ ------------ Weighted average number of shares of common stock outstanding 10,124,347 4,772,020 ============ ============ See accompanying summary of accounting policies and notes to consolidated financial statements. F-5
Integrated Spatial Information Solutions, Inc. and Subsidiary Consolidated Statements of Stockholders' Equity ==================================================================================== Series A Years ended Preferred Stock Common Stock September 30, --------------------- ----------------------- 1997 and 1998 Shares Amount Shares Amount - ------------------------------------------------------------------------------------ Balance, October 1, 1996 -- $ -- 4,434,109 $ 5,060,357 Sale of stock through options exercised -- -- 171,394 231,804 Issuance of pre- ferred stock (net of offering costs of $312,000) 2,150 2 -- -- Conversion of preferred stock into common stock (500) -- 499,732 450,000 Stock issued in acquisition (Note 1) -- -- 2,631,145 3,999,340 Stock warrants issued for services -- -- -- -- Stock options issued for: Acquisitions -- -- -- -- Services -- -- -- -- Forgiveness of subscription receivable -- -- -- -- Dividend on preferred stock -- -- -- -- Deemed dividend on warrants issued in connection with preferred stock -- -- -- -- Net loss -- -- -- -- ----------- ----------- ----------- ----------- Balance, September 30, 1997 1,650 $ 2 7,736,380 $ 9,741,501 ----------- ----------- ----------- ----------- F-6 Integrated Spatial Information Solutions, Inc. and Subsidiary Consolidated Statements of Stockholders' Equity (Continued) ==================================================================================================== Additional Years ended Paid-in Capital September 30, -------------------------- Subscriptions Accumulated 1997 and 1998 Common Preferred Receivable Deficit Total - ---------------------------------------------------------------------------------------------------- Balance, October 1, 1996 $ 329,384 $ -- $ (179,000) $(3,861,724) $ 1,349,017 Sale of stock through options exercised -- -- -- -- 231,804 Issuance of pre- ferred stock (net of offering costs of $312,000) -- 1,837,998 -- -- 1,838,000 Conversion of preferred stock into common stock -- (450,000) -- -- -- Stock issued in acquisition (Note 1) -- -- -- 3,999,340 Stock warrants issued for services 198,464 -- -- -- 198,464 Stock options issued for: Acquisitions 296,177 -- -- -- 296,177 Services 436,580 -- -- -- 436,580 Forgiveness of subscription receivable -- -- 179,000 -- 179,000 Dividend on preferred stock 9,674 -- -- (9,674) -- Deemed dividend on warrants issued in connection with preferred stock 892,592 -- -- (892,592) -- Net loss -- -- -- (2,551,378) (2,551,378) ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1997 $ 2,162,871 $ 1,387,998 $ -- $(7,315,368) $ 5,977,004 ----------- ----------- ----------- ----------- ----------- See accompanying summary of accounting policies and notes to consolidated financial statements. F-7 Integrated Spatial Information Solutions, Inc. and Subsidiary Consolidated Statements of Stockholders' Equity (Continued) =========================================================================================== Series A Years ended Preferred Stock Common Stock September 30, ------------------------ -------------------------- 1998 and 1997 Shares Amount Shares Amount - ------------------------------------------------------------------------------------------- Balance, September 30, 1997 1,650 $ 2 7,736,380 $ 9,741,501 Sale of stock for cash on options and warrants exercised -- -- 131,700 124,191 Stock issued for services on options and warrants exercised -- -- 132,871 191,969 Issuance of pre- ferred stock (net of offering costs of $292,100) 950 1 -- -- Conversion of pre- ferred stock into common stock (1,900) (2) 2,609,970 1,600,500 Stock issued for services -- -- 203,776 298,484 Stock issued for cash (net of offering costs of $47,538) -- -- 662,142 630,462 Stock issued in connection with conversion of debt (Note 4) -- -- 170,531 289,902 Stock repossession -- -- (190,799) (241,586) Deemed dividend on preferred stock -- -- -- -- Stock warrants issued for: offering costs -- -- -- -- consulting services -- -- -- -- Stock options issued for services -- -- -- -- Net loss -- -- -- -- - ---------------------------- ------------ ------------ ------------ ------------ Balance, September 30, 1998 700 $ 1 11,456,571 $ 12,635,423 ============================ ============ ============ ============ ============ F-8 Integrated Spatial Information Solutions, Inc. and Subsidiary Consolidated Statements of Stockholders' Equity (Continued) ========================================================================================== Additional Years ended Paid-in Capital September 30, --------------------------- Accumulated 1997 and 1998 Common Preferred Deficit Total - ------------------------------------------------------------------------------------------ Balance, September 30, 1997 $ 2,162,871 $ 1,387,998 $ (7,315,368) $ 5,977,004 Sale of stock for cash on options and warrants exercised -- -- -- 124,191 Stock issued for services on options and warrants exercised -- -- -- 191,969 Issuance of pre- ferred stock (net of offering costs of $292,100) -- 657,900 -- 657,901 Conversion of pre- ferred stock into common stock -- (1,600,498) -- -- Stock issued for services -- -- -- 298,484 Stock issued for cash (net of offering costs of $47,538) -- -- -- 630,462 Stock issued in connection with conversion of debt (Note 4) -- -- -- 289,902 Stock repossession -- -- -- (241,586) Deemed dividend on preferred stock 476,112 -- (476,112) -- Stock warrants issued for: offering costs 165,138 -- -- 165,138 consulting services 465,470 -- -- 465,470 Stock options issued for services 28,673 -- -- 28,673 Net loss -- -- (3,000,864) (3,000,864) - ---------------------------- ------------ ------------ ------------ ------------ Balance, September 30, 1998 $ 3,298,264 $ 445,400 $(10,792,344) $ 5,586,744 ============================ ============ ============ ============ ============ See accompanying summary of accounting policies and notes to consolidated financial statements. F-9
Integrated Spatial Information Solutions, Inc. and Subsidiary Consolidated Statements of Cash Flows ================================================================================ Increase (Decrease) In Cash And Cash Equivalents Years Ended September 30, 1998 1997 - -------------------------------------------------------------------------------- Operating activities: Net loss $(3,000,864) $(2,551,378) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 705,838 98,298 Asset writedowns 262,927 179,000 Provision for losses on accounts receivable (27,052) 158,161 Forgiveness (recovery of) of debt (16,207) (278,069) Provision for litigation (42,003) -- Stock issued for services 490,453 -- Stock options and warrants issued for acquisitions and services 494,143 635,044 (Gain) loss on sale of assets (7,894) 1,261,168 Changes in operating assets and liabilities: Accounts receivable (305,103) (709,755) Prepaid expenses 24,681 -- Other assets 109,146 178,798 Accounts payable (669,604) 95,803 Accrued expenses (299,089) 526,883 Deferred revenue (76,308) 156,701 ----------- ----------- Net cash used in operating activities (2,356,936) (249,346) ----------- ----------- Investing activities: Payments for business acquisitions, net of cash acquired -- (689,735) Purchases of equipment (143,930) -- Proceeds from disposition of assets 1,104,825 -- Additions to capitalized software (4,072) (2,564) Restricted cash (100,000) -- ----------- ----------- Net cash provided by investing activities 856,823 (692,299) ----------- ----------- Financing activities: Payments on checks issued against future deposits (61,937) (269,587) Proceeds from debt 1,516,317 576,000 Payments on debt (2,059,239) (748,475) Debt issue costs -- (101,226) Proceeds from the issuance of common stock 802,191 19,622 Proceeds from issuance of preferred stock net of cash offering costs 775,500 1,838,000 ----------- ----------- Net cash provided by financing activities 972,832 1,314,334 ----------- ----------- Net (decrease) increase in cash (527,281) 372,689 Cash and cash equivalents, beginning of year 582,326 209,637 ----------- ----------- Cash and cash equivalents, end of year $ 55,045 $ 582,326 =========== =========== See accompanying summary of accounting policies and notes to consolidated financial statements. F-10 Integrated Spatial Information Solutions, Inc. and Subsidiary Summary of Accounting Policies ================================================================================ Organization and These consolidated financial statements include the accounts Business of Integrated Spatial Information Solutions, Inc., formerly known as DCX, Inc., and those of its wholly-owned subsidiary PlanGraphics, Inc. (collectively the "Company"). PlanGraphics, Inc. is an independent consulting firm specializing in the design and implementation of Geographic Information Systems ("GIS") as well as advisory services in the United States and foreign markets. The customer base consists primarily of utilities, government agencies, and land and resource management organizations. All intercompany balances and transactions have been eliminated in consolidation. Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Revenue and Revenues are recognized on the percent complete method and Cost Recognition as services are provided, depending on the nature of the project. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as supplies, tools, repairs and depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Goodwill Goodwill represents the excess of the cost over the fair value of its net assets acquired at the date of acquisition and is being amortized on the straight-line method over fifteen years. Deferred Revenue Deferred revenue represents amounts received under certain contracts in excess of revenue recognized. Property, Property and equipment are recorded at cost. Depreciation is Equipment and provided on property and equipment by charging against Depreciation and earnings, amounts sufficient to amortize the costs of the Amortization assets over their estimated useful lives. The ranges of estimated useful lives in computing depreciation and amortization are as follows: F-11 Integrated Spatial Information Solutions, Inc. and Subsidiary Summary of Accounting Policies ================================================================================ ------------------------------------------------------------ Building 31 years Leased assets Life of lease Furniture and equipment 5 to 7 years ============================================================ Depreciation is computed principally on an accelerated method. Taxes on Income The Company accounts for income taxes under SFAS No. 109. Deferred income taxes result from temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Net Loss Per Share The Company implemented Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share. All prior period earnings per share data has been restated to reflect the requirements of SFAS No. 128. The adoption of SFAS No. 128 did not affect the loss per share calculation at September 30, 1997. For the years ended September 30, 1998 and 1997, total stock options and stock warrants of 6,337,880 and 3,465,894 were not included in the computation of diluted loss per share because their effect was anti-dilutive. Concentrations of The Company's financial instruments that are exposed to Credit Risk concentrations of credit risk consist of cash and cash equivalent balances in excess of the insurance provided by governmental insurance authorities. The Company's cash and cash equivalents are placed with financial institutions and are primarily in demand deposit accounts. F-12 Integrated Spatial Information Solutions, Inc. and Subsidiary Summary of Accounting Policies ================================================================================ Concentrations of credit risk with respect to accounts receivable are higher due to a few customers dispersed across geographic areas. The Company reviews a customer's credit history before extending credit and establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other information. Generally, the Company does not require collateral from its customers. Fair Value of The following methods and assumptions were used to estimate Financial the fair value of each class of financial instruments for Instruments which it is practicable to estimate that value: Accounts Receivable, Accounts Payable and Accrued Liabilities Fair values of accounts receivables, accounts payable, and accrued liabilities are assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair value or they are receivable or payable on demand. Notes Payable and Obligations Under Capital Lease Substantially all of these notes bore interest at a floating rate of interest based upon current lending rates of interest. Accordingly, the fair value of these notes approximate their carrying value. Use of The preparation of financial statements in conformity with Estimates generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalized Costs incurred internally in creating software products for Software Costs resale are charged to expense until technological feasibility has been established upon completion of a detail program design. Thereafter, all software development costs are capitalized until the point that the product is ready for sale and subsequently reported at the lower of amortized cost or net realizable value. F-13 Integrated Spatial Information Solutions, Inc. and Subsidiary Summary of Accounting Policies ================================================================================ During fiscal year ended September 30, 1998, the Company decided that it would no longer actively market its internally developed software for resale. As such, the value of the software was expensed in 1998. Software Revenue from licensing of software products is recognized Revenue upon shipment. Revenue from support and update service Recognition agreements is deferred at the time the agreement is executed and recognized ratably over the contractual period. The Company recognizes revenues from customer training and consulting services when such services are provided. All costs associated with licensing of software products, support and update services, and training and consulting services are expensed as incurred. Long-Term Long-lived assets, identifiable intangibles, and associated Assets goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the assets and its eventual disposition is less than the carrying amount of the assets, an impairment loss is recognized and measured using the asset's fair value. Stock Option The Company applies APB Opinion 25, "Accounting for Stock Plans Issued to Employees", and the related Interpretation in accounting for all stock option plans. Under APB Opinion 25, compensation cost is recognized for stock options issued to employees when the exercise price of the Company's stock options granted is less than the market price of the underlying common stock on the date of grant. SFAS No. 123, "Accounting for Stock-Based Compensation", requires the Company to provide pro forma information regarding net income as if compensation cost for the Company's stock options plans had been determined in accordance with the fair value based method prescribed in SFAS No. 123. To provide the required pro forma information, the Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model. F-14 Integrated Spatial Information Solutions, Inc. and Subsidiary Summary of Accounting Policies ================================================================================ Recent Accounting In June 1997, the Financial Accounting Standards Board Pronouncements issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 130 and 131 are effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. Because of the recent issuance of the standard, management has been unable to fully evaluate the impact, if any, the standard may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of the standard. In October 1997, Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), was issued. The SOP provides guidance on when revenue should be recognized and in what amounts licensing, selling, leasing, or otherwise marketing computer software. SOP 97-2 is effective for transactions entered into in fiscal years after December 15, 1997. As of September 30, 1998, SOP 97-2 is not expected to have a material impact on future financial statement presentations. F-15 Integrated Spatial Information Solutions, Inc. and Subsidiary Summary of Accounting Policies ================================================================================ In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132") which standardizes the disclosure requirements for pensions and other postretirement benefits and requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis. SFAS No. 132 is effective for years beginning after December 15, 1997 and requires comparative information for earlier years to be restated, unless such information is not readily available. Management believes the adoption of this statement will have no material impact on the Company's consolidated financial statements. The FASB has recently issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 established standards for recognizing all derivative instruments including those for hedging activities as either assets or liabilities in the statement of financial position and measuring those instruments at fair value. This Statement is effective for fiscal years beginning after June 30, 1999. The Company has not yet determined the effect of SFAS No. 133 on its financial statements. Management believes the adoption of this statement will have no material impact on the Company's consolidated financial statements. The FASB recently issued Statement of Financial Accounting Standards No. 134 "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" ("SFAS No. 134"). SFAS No. 134 establishes accounting and reporting standards for certain activities of mortgage banking enterprises and other enterprises that conduct operations that are substantially similar to the primary operations of a mortgage banking enterprise. F-16 Integrated Spatial Information Solutions, Inc. and Subsidiary Summary of Accounting Policies ================================================================================ This statement is effective for the first fiscal quarter beginning after December 15, 1998. The Company has not yet determined the effect of SFAS No. 134 on its financial statements. Management believes the adoption of this statement will have no material impact on the Company's consolidated financial statements. Reclassifications Certain items included in the prior year's financial statements have been reclassified to conform to the current presentation. F-17 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ 1. Business On September 22, 1997, the Company acquired all of the Acquisition outstanding stock of PlanGraphics, Inc. for 2,631,145 shares of common stock at the agreed upon rate of $1.52 per share. The 1997 financial statements presented represent the eight days of PlanGraphics, Inc. operations from the date of acquisition to September 30, 1997. The acquisition was accounted for under the purchase method of accounting. The results of operations of PlanGraphics, Inc. have been included in the accompanying statement of operations since the effective date of the acquisition. The total purchase price, including acquisition costs, was $5,517,872 and is recorded as goodwill. Unaudited proforma consolidated results of operations of the Company for 1997 are shown in the following table as if the business was acquired as of October 1, 1996. The unaudited proforma information is based on the Company's accompanying Statements of Operations and the historical financial information of the acquired companies, and includes adjustments to income taxes, depreciation, and goodwill giving effect of the terms of the transaction as if the acquisitions had occurred on the first day presented. The proforma information is not necessarily indicative of the combined results of operations that would have occurred had the acquisition been completed as of October 1, 1996. Unaudited proforma consolidated results of operations: September 30, 1997 ------------------------------------------------------------ Revenue $ 8,204,236 Loss from operations (2,441,497) Net loss from continuing operations (2,174,836) Loss per common share before discontinued operations (0.42) ============================================================ F-18 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ 2. Discontinued Effective September 30, 1997, the Company sold certain Operations assets of its defense industry business unit to a third party for $1,100,000. The Company has subsequently collected this receivable. With the disposal of its defense industry business, the Company discontinued all of its operations in the defense industry. Therefore, it separately reported the losses from this business as discontinued operations for the year ended September 30, 1997 as follows: September 30, 1997 ------------------------------------------------------------ Revenues from discontinued operations $ 5,186,936 Loss from discontinued operations (337,145) Loss on disposal (1,261,168) Net loss from discontinued operations $(1,598,313) ============================================================ 3. Accounts The components of accounts receivable are as follows: Receivable September 30, 1998 1997 ----------------------------------------------------------- Contract receivables: Billed $2,463,758 $2,110,966 Unbilled 266,074 313,763 ---------- ---------- 2,729,832 2,424,729 ---------- ---------- Less allowance 161,109 188,161 ---------- ---------- Accounts receivable, net $2,568,723 $2,236,568 ========== ========== F-19 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ PlanGraphics has historically received greater than 10% of its annual revenues from one customer. One customer accounted for 11.6% and another customer accounted for 25.6% of revenues for the years ended September 30, 1998 and 1997. In addition, at September 30, 1998, two customers accounted for 14.3% and 11.1% of accounts receivable. 4. Notes Notes payable at September 30, 1998 and 1997 are as follows: Payable Years Ended September 30, 1998 1997 ------------------------------------------------------------ Note payable, interest of 15%, with monthly interest only payments, collater- alized by a first lien on land and building held for rental and improvements, maturing on March 3, 1999 (1) $ 620,000 $ 576,000 Note payable to bank in monthly principal installments of $5,000, interest at 8.5% payable quarterly, collateralized by equipment, accounts receivable, and stock pledge agreement of Company shares and an assignment of $500,000 life insurance policy on an individual. Note matured on April 24, 1998 -- 650,000 Line of credit with a bank, interest at 9.5% payable at maturity on August 7, 1997, collateralized by equipment and accounts of the Company, paid in full on October 15, 1997 -- 180,000 Note payable to bank in variable monthly principal payments from $15,000 to $20,745, interest at 8.5%, collateralized by equipment and accounts receivable, maturing on July 24, 2001 604,564 -- Note payable to related party (2) 29,819 605,184 Other -- 24,060 ------------ ------------ 1,254,383 2,035,244 Less current portion 831,421 1,012,988 ------------ ------------ Notes payable - long-term $ 422,962 $ 1,022,256 ============ ============ F-20 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ (1) The note payable collateralized by the land and building was refinanced during fiscal 1998. (2) Notes Payable - Related Party Total amounts under related party notes to a minority stockholder were $29,819 and $605,184 at September 30, 1998 and 1997. The Company restructured these notes on October 10, 1997 by converting $289,902 of the related party notes payable into 170,531 shares of the Company's common stock, paying $150,000 in cash and issuing a note with an interest rate of 10% for the remaining balance. The note requires monthly payments of $14,000 principal and interest through October 15, 1998 and the remaining balance was paid in full on November 15, 1998. Certain voting provisions relating to these related party notes were cancelled with the restructuring of the notes. Principal payments on all notes payable due subsequent to September 30, 1998 are as follows: September 30, Amount ------------------------------------------------------------ 1999 $ 831,421 2000 222,589 2001 200,373 ------------------------------------------------------------ $ 1,254,383 ============================================================ 5. Litigation The Company has appealed the Government's assessment of excessive reprocurement costs against the Company on a manufacturing contract terminated for default in 1998. The appeal of the default termination was unsuccessful. As such, the Company has recorded a reserve for $478,997 and $521,000 as of September 30, 1998 and 1997 for potential losses. F-21 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ The Company is engaged in various litigation matters from time to time in the ordinary course of business. In the opinion of management, the outcome of any such litigation will not materially affect the financial position or results of operations of the Company. 6. Taxes on The provision for income taxes consisted of the following: Income Years ended September 30, 1998 1997 ------------------------------------------------------------ Deferred benefit: Federal $ 867,000 $ 1,084,000 State 84,000 104,000 ----------- ----------- 951,000 1,188,000 Valuation allowance (951,000) (1,188,000) ----------- ----------- $ -- $ -- =========== =========== A reconciliation of the effective tax rates and the statutory U.S. federal income tax rates is as follows: 1998 1997 ------------------------------------------------------------ U.S. federal statutory rates (34.0)% (34.0)% State income tax benefit, net of federal tax amount (3.3) (3.3) Increase in deferred tax asset valuation allowance 37.3 37.3 ---- ---- Effective tax rate - % - % ====== ====== F-22 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ Temporary differences that give rise to a significant portion of the deferred tax asset are as follows: 1998 1997 ------------------------------------------------------------- Net operating loss carryforwards $ 2,258,000 $ 1,472,000 Capital loss carryover 587,000 587,000 Expense for stock options and warrants 296,000 194,000 Provision for losses on accounts receivable 60,000 70,000 Accrued litigation 179,000 194,000 Vacation 51,000 59,000 Capitalized software -- (96,000) ----------- ----------- Total gross deferred tax assets 3,431,000 2,480,000 Valuation allowance (3,431,000) (2,480,000) ----------- ----------- Net deferred tax asset $ -- $ -- =========== =========== A valuation allowance equal to the gross deferred tax asset has been recorded, as management of the Company has not been able to determine that it is more likely than not that the deferred tax assets will be realized. At September 30, 1998, the Company had net operating loss carryforwards of approximately $6,054,000 with expirations through 2018 and a $1,575,000 capital loss carryover which expires through 2002. The net operating losses are limited due to issuances of common stock. 7. Leases Obligation Under Capital Leases - Related Parties The Company leases an office facility from a related party, Capitol View Development, LLC, under a triple net commercial lease. An officer/shareholder owns approximately ten percent of Capitol View Development. The lease includes an annual base rent increasing over the term of the lease plus an adjustment based on Capitol View Development's rate of interest on its loan. The initial lease term is for a period of fifteen years with five renewal options for a term of one year each. Annual payments approximate $320,000 per year. F-23 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ The Company also leases certain equipment under capital leases from a related party. Original lease terms are for five years. The following is a schedule, by years, of future noncancellable minimum payments required under these leases, together with their present value as of September 30, 1998. Related Party Years Ended Land and September 30, Building Equipment Total ------------------------------------------------------------ 1999 $ 311,260 $ 107,350 $ 418,610 2000 311,260 73,285 384,545 2001 311,260 14,529 325,789 2002 311,260 - 311,260 2003 311,260 - 311,260 Thereafter 2,282,573 - 2,282,573 ------------------------------------------------------------ 3,838,873 195,164 4,034,037 Less: amount representing interest 1,887,277 26,255 1,913,532 ------------------------------------------------------------ Present value of minimum lease payments $1,951,596 $ 168,909 2,120,505 ============================================================ Less: current portion 160,043 ------------------------------------------------------------ Obligations under capital leases after current portion $ 1,960,462 ============================================================ As of September 30, 1998 and 1997, accumulated amortization for the building and equipment under capital lease obligations was $243,150 and $0. F-24 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ Operating Lease Commitments The Company leases certain office facilities and certain furniture and equipment under various operating leases. Lease terms range from one to five years. Minimum annual operating lease commitments at September 30, 1998 are as follows: September 30, ------------------------------------------------------------ 1999 $ 124,000 2000 66,700 2001 34,700 ------------------------------------------------------------ $ 225,400 ============================================================ Rental expense for the years ending September 30, 1998 and 1997 totaled approximately $134,600 and $10,000. 8. Equity Preferred Stock Transactions In November 1996, the Company amended its articles of incorporation to provide for a Series A 6% cumulative convertible redeemable preferred stock $.001 par value (Series A). The Company designated 1,000,000 shares Series A as part of the authorized class of preferred shares. The Company issued 500 shares of Series A with a stated value of $1,000 per share, with net proceeds to the Company of $450,000 in November 1996. The holders of these 500 shares of Series A converted the preferred into common stock at various times during the year in exchange for 499,732 shares of common stock. In August 1997, the Company sold 650 shares of its Series A with net proceeds of $547,500. In September 1997, the Company sold 1,000 shares of its Series A with net proceeds of $840,500. The Series A preferred stock and any accumulated and unpaid dividends are convertible at the F-25 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ option of the holder at the lesser of 75% of the average of the closing bid price per share of the Company's common stock for the five days prior to issuance or 75% of the average of the closing bid price per share of the Company's common stock for the five days preceding the date of conversion. Warrants issued to purchase 233,781 shares of common stock were issued in connection with the placement of the Series A. The warrants can be exercised at various prices from $1.6875 to $1.875 and expire from November 1998 to August 2000. The Company recognized deemed dividends of $175,925 in 1997 in connection with issuing these warrants under the accounting provisions of SFAS 123. The Company also recognized $716,667 of deemed dividends in 1997 due to the discount associated with the convertibility of the preferred stock at 75%. The holders of 1,650 shares of the Company's Series A converted the preferred into common stock at various times during fiscal 1998 in exchange for 2,224,508 shares of common stock. In October 1997, the Company sold 250 shares of its Series A with net proceeds of $212,500. The holders of these 250 shares of Series A converted the preferred into common stock at various times during the year in exchange for 385,462 shares of common stock. In August 1998, the Company sold 700 shares of its Series A with net proceeds of $445,400, of which $100,000 is held as restricted cash as specified in the subscription agreements. The Series A preferred stock and any accumulated and unpaid dividends are convertible at the option of the holder within two years of the issue date at the lesser of 105% of the average of the closing bid price per share of the Company's common stock for the five days prior to issuance or 20% below the average of the closing bid price per share of the Company's common stock for the three days preceding the date of conversion. As of September 30, 1998 and 1997, dividend on arrears associated with the Series A amounted to $30,875 and $6,125. F-26 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ Warrants were issued to purchase 245,000 shares of common stock in connection with the placement of the Series A. The warrants can be exercised at various prices from $0.75 to $0.788 and expire in August 2001. The Company recognized deemed dividends of $117,600 in 1998 in connection with issuing these warrants in conjunction with offering costs under the accounting provisions of SFAS 123. The Company also recognized $476,112 of deemed dividends in 1998 due to the discount associated with the convertibility of the preferred stock. The Series A Preferred is subject to mandatory conversion two years after the date of issue. Common Stock During fiscal year 1997, the Company exchanged $212,182 in services for the exercise price of 144,094 shares of common stock. Employees exercised options to purchase 27,300 shares with the Company recognizing proceeds of $19,622. The Company forgave the $179,000 subscription receivable in exchange for services provided during the year ended September 30, 1997. During fiscal year 1998, the Company exchanged $298,484 in services for the equivalent value of 203,776 shares of common stock. The Company also issued 662,142 shares of common stock for cash with net proceeds totaling $630,462, which include 28,571 shares issued to a related party for $25,000 in cash. Individuals exercised options and warrants to purchase 264,571 common shares with the Company recognizing proceeds of $124,191 and services of $191,969. The Company issued options and warrants to purchase 1,127,415 shares of common stock to outside consultants, brokers and directors during fiscal 1998 with a total value of $659,281, of which $165,138 relates to offering costs. Of the 1,127,415 options and warrants granted in fiscal year 1998, the Company granted 5,000 warrants to a related party for $4,650 in services. The warrants are exercisable at $0.98 per share through August 17, 2001. The options and warrants are valued using the Black Scholes model in accordance with SFAS 123. F-27 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ On October 10, 1997, the Company issued 170,531 shares of common stock worth $289,902 in payment of a note payable to a related party. See Note 4. Anti-dilution Provisions The Company has granted certain officers and consultants anti-dilution rights in employment and service agreements. The provision calls for the issuance of options at fixed prices at each date more stock is issued to enable the parties to retain their ownership percentage. Under the accounting provisions of SFAS 123 and APB 25, the Company realized costs of approximately $163,160 for the 492,615 options and 192,086 warrants issued during 1998 and costs of approximately $406,000 for the 380,340 options and 164,298 warrants issued during 1997. Stock Options ------------- The Company's Board of Directors has reserved 300,000, 1,150,000 and 4,000,000 shares under three stock option plans (1991, 1995, and 1997, respectively). The Company grants options under the Plan in accordance with the determinations made by the Option Committee. The Option Committee will, at its discretion, determine the individuals to be granted options, the time or times at which options shall be granted, the number of shares subject to each option and the manner in which options may be exercised. The option price shall be the fair market value on the date of the grant and expire five years subsequent to the date of grant. Financial Accounting Standards Board Statement 123, "Accounting for Stock-Based Compensation" (SFAS No. 123"), requires the Company to provide pro forma information regarding net income and net income per share as if compensation costs for the Company's stock option plans and other stock awards had been determined in accordance with the fair value based method prescribed in SFAS No. 123. The Company estimated the fair value of each stock award at the grant date by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the years ended September 30, 1998 and 1997: dividend yield of 0 percent for all years; expected F-28 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ volatility of 95 to 105 percent in 1998 and 45 to 95 percent in 1997; risk-free interest rates between 4 and 6 percent in 1998 and 4 and 6.4 percent in 1997; and expected option lives of three to five years in 1998 and five years in 1997. Under the accounting provisions for SFAS No. 123, the Company's net loss and net loss per share would have been adjusted to the following pro forma amounts: Years Ended September 30, 1998 1997 ------------------------------------------------------------ Net loss As reported $ (3,000,864 $ (2,551,378) Pro forma (3,983,943) (3,908,402) Net loss per share As reported $ (.34) $ (.72) Pro forma (.39) (.89) ============================================================ A summary of the status of the Company's stock option plans and outstanding options and warrants as of September 30, 1998 and 1997 and changes during the years ending on those dates is presented below: 1998 1997 --------------------- ------------------- Weighted Weighted Average Average Range of Exercise Range of Exercise Shares Price Shares Price ----------------------------------------------------------------- Outstanding, beginning of year 3,465,894 $ 1.36 478,000 $ 0.84 Granted 3,403,467 1.74 3,495,623 1.38 Cancelled (266,910) 1.43 (312,000) 0.81 Exercised (264,571) 1.19 (195,729) 1.39 ----------------------------------------------------------------- Outstanding, end of year 6,337,880 $ 1.53 3,465,894 $ 1.36 ================================================================= F-29 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ Options and warrants exercisable, end of year 4,792,388 $ 1.51 3,010,894 $ 1.35 Weighted average fair value of options and warrants granted during the year $ 0.79 $ 0.72 ====================================================================== The following table summarizes information about stock options and warrants outstanding and exercisable at September 30, 1998: Outstanding Exercisable --------------------------------------------------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 9/30/98 Life Price at 9/30/98 Price --------------------------------------------------------------------- $0.72-1.00 1,080,665 2.82 $0.86 1,070,665 $0.86 1.03-1.75 3,561,774 3.52 1.43 2,376,262 1.40 1.81-4.25 1,695,441 2.27 2.17 1,345,461 2.22 --------------------------------------------------------------------- $0.72-4.25 6,337,880 2.96 $1.53 4,792,388 $1.51 ===================================================================== 9. Employee 401(k) Plan Benefit Plans ----------- Integrated Spatial Information Solutions, Inc. has a Section 401(k) profit sharing plan covering substantially all employees. Participants in the plan may contribute up to 15% of their compensation, subject to certain limitations. Under the plan, the Company makes matching contributions equal to 25% of the participants elected deferred contribution up to a maximum of 6% of compensation. Company matching contributions vest ratably over 5 years. Additional contributions may be made at the Company's discretion based upon the Company's performance. Total Company contributions under the plan were approximately $7,700 and $8,900 in 1998 and 1997. F-30 Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ================================================================================ PlanGraphics has a qualified profit sharing plan with a 401(k) deferred compensation provision covering substantially all employees. The plan allows employees to defer up to 21% of their annual salary with a tiered matching contribution by the Company up to 1.75%. Additional contributions are at the Company's discretion. PlanGraphics contributed approximately $54,300 under the plan in 1998 and $0 for the eight days in 1997 after the Company's acquisition of PlanGraphics. 10. Commitments The Company is partially self insured for employee medical Self Insurance liabilities which covers risk up to $20,000 per individual covered under the plan. The Company has purchased excess medical liability coverage for individual claims in excess of $20,000 and approximately $250,000 in aggregate with a national medical insurance carrier. Premiums and claim expenses associated with the medical self insurance program are included in the accompanying statements of income. Employment Agreements The Company has entered into employment agreements that extend from December 31, 1999 through December 31, 2000 with five of its officers. The employment agreements set forth annual compensation to the five officers of between $60,000 and $157,500 each. 11. Lease The Company owns the land and manufacturing facility Agreement previously used for its business operations which were of Former discontinued in fiscal 1997 through a sale of the assets. Manufacturing The buyer of the certain assets of the Company currently Facility leases the facilities and has exercised an option to buy the entire property at $1.5 million. The Company and the third party are currently negotiating the purchase price and anticipate closing this transaction during fiscal 1999. 12. Significant During the quarter ended September 30, 1998, the Company Fourth Quarter recorded the prorated portion of a deemed dividend of Adjustments approximately $225,000 related to the preferred stock issued in fiscal 1997. The Company also recorded approximately $200,000 in expense for stock options and warrants granted throughout the year. F-31
Integrated Spatial Information Solutions, Inc. and Subsidiary Notes to Consolidated Financial Statements ====================================================================================== 13. Supplemental Years Ended September 30, 1998 1997 Schedule of ------------------------------------------------------------------ Non-Cash Investing and Financing Activities Business acquired with common stock $ -- $3,999,340 Common stock issued for services and debt -- 508,359 Conversion of preferred stock into common stock 1,600,500 450,000 Stock issued in connection with conversion of debt 289,902 -- Resolution of stock repossession 241,586 -- Stock warrants issued for offering costs 165,138 -- Cash paid for interest 540,490 126,000
14. Life The Company recorded other income of $400,000 related to the Insurance proceeds of two company owned key man life insurance policies on a director of the Company during the year ended September 30, 1997. 15. Subsequent The Company secured a commitment for a $3 million line of Events credit. Based on the commitment letter received, the Company's borrowing base will be based on eligible accounts receivable. The line of credit will accrue interest at a rate per annum of 3.5 percentage points above the 30-day LIBO Rate as published in the Wall Street Journal and will mature one year from the date of closing. The Company anticipates closing on the loan in January 1999. F-32 EX-27 2 FINANCIAL DATA SCHEDULE
5 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 55,045 0 2,568,723 0 0 3,984,541 2,602,260 361,706 11,301,529 3,331,361 0 1 0 12,635,423 7,048,680 11,301,529 0 8,146,367 10,548,156 10,548,156 58,585 0 540,490 0 0 (3,000,864) 0 0 0 (3,476,976) (.34) (.34) Net loss was $3,000,864. Deemed dividends of $476,112 increased the loss to $3,476,976 or ($0.34) per common share.
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