UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-14273
PLANGRAPHICS, INC.
------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0868815
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
112 East Main Street
Frankfort, KY 40601
--------------------------------------
(Address of principal executive offices)
(Zip Code)
(502) 223-1501
----------------------------------------------
(Issuer's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 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 [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large Accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule 12b-2) Yes [ ] No [X]
99,158,706 shares of common stock (no par value) were
outstanding as of May 20, 2009.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
Information in this Quarterly Report on Form 10-Q and the information
incorporated by reference includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and are covered
by its safe harbor provisions for such forward-looking statements.
Forward-looking statements may relate to, among other things, our expected
financial position and operating results, our business strategy, our financing
plans and the outcome of any contingencies. Our use of forward-looking words
such as "may," "believe," "plan," "will," "anticipate," "estimate," "expect,"
"intend," and similar expressions are intended to identify such statements.
Forward-looking statements are based on currently available information and our
current assumptions, expectations and projections about future events. We
undertake no obligation to update such statements except as required by law. You
are cautioned not to place undue reliance on our forward-looking statements as
they are not guarantees of future performance.
Forward-looking statements include, but are not limited to, statements in this
Form 10-Q regarding:
o availability of working capital to meet our immediate cash and liquidity
needs;
o our ability to raise funds through debt and equity financing;
o estimates regarding our financing needs;
o our prospects for growth;
o our ability to reduce costs and expenses
o the collectibility of our accounts receivable;
o cancellation of our contracts and order assignments;
o the continuation of our relationship with the City of New York and other
key clients;
o the increase in competition and our ability to compete effectively;
o our ability to take advantage of spatial information technology markets;
o the strength of our technical expertise and customer service;
o the potential fluctuation of the market price of our stock;
o the potential gross profit margin in information technology;
o the projections regarding our financial results for fiscal years ("FY")
2009 and 2010;
o fluctuations in exchange rates;
o the impact of recent accounting pronouncements; and
o the availability and affordability of alternative lease facilities.
Although we believe that the expectations expressed in our forward-looking
statements are reasonable, we cannot promise that our expectations will turn out
to be correct or will be accomplished in the time frame we contemplate. Our
actual results could be materially different from our expectations, including
the following:
o We may continue to experience significant liquidity issues and may not
overcome the underlying causes;
o we may not be able to obtain needed financing for operations or
diversification;
o we may issue a substantial number of shares of our common stock to redeem
our outstanding preferred stock, thereby causing dilution in the value of
your investment;
o We may not find an adequate market for our goods and services in the
current economic environment;
o we may experience work stoppages by subcontractors due to our late
payments;
o we may lose customers or fail to grow our customer base;
o we may fail to compete successfully with existing and new competitors;
o we may not achieve profitability;
o we may not adequately anticipate and respond to technological developments
impacting information services and technology; and
o we may issue a substantial number of shares of our common stock upon
exercise of options and warrants to secure funds, thereby causing dilution
in the value of your investment.
The above list identifies some of the principal factors that could cause actual
results to differ materially from those in the forward-looking statements
included elsewhere in this report but does not represent a complete list of all
risks and uncertainties inherent in our business. It should be read in
conjunction with the more detailed cautionary statements included in our Annual
Report on Form 10-KSB for the year ended September 30, 2008, and our other
Securities and Exchange Commission filings, and our press releases.
2
PlanGraphics, Inc.
Table of Contents
Part I Financial Information 4
Item 1. Consolidated Financial Statements (Unaudited) 4
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management Discussion and Analysis 13
Item 4. Controls and Procedures 19
Part II Other Information 20
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 6. Exhibits 20
Signature Page 21
Exhibits 22
3
Part I Financial Information
Item 1. Financial Statements
PlanGraphics, Inc.
CONSOLIDATED BALANCE SHEETS
March 31, 2009 September 30, 2008
(Unaudited) (Derived from
audtited financial
statements)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 40,173 $ 404
Accounts receivable, less allowance for doubtful accounts of
$14,151and $49,718 for March 31, 2009 and September 30,
2008, respectively 534,921 733,472
Prepaid expenses and other 10,782 20,405
------------ ------------
Total current assets 585,876 754,281
------------ ------------
PROPERTY AND EQUIPMENT
Equipment and furniture 371,117 371,117
Less accumulated depreciation and amortization (353,262) (347,948)
------------ ------------
17,855 23,169
------------ ------------
OTHER ASSETS
Software development costs, net of accumulated amortization
of $877,129 and $822,986 at March 31, 2009 and September 30,
2008, respectively 134,406 187,743
Other 6,222 8,016
------------ ------------
140,628 195,759
------------ ------------
TOTAL ASSETS $ 744,359 $ 973,209
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Mandatory redeemable Series A preferred stock, $0.001 par
value, 500 shares issued and outstanding at
March 31, 2009 and at September 30, 2008 $ 500,000 $ 500,000
Notes payable - current maturities 75,083 42,650
Accounts payable 2,854,920 2,786,834
Accrued payroll costs 228,487 201,331
Accrued expenses 360,121 380,637
Deferred revenue and prebillings 147,762 312,303
------------ ------------
Total current liabilities 4,166,373 4,223,755
------------ ------------
Total liabilities 4,166,373 4,223,755
------------ ------------
STOCKHOLDERS' DEFICIT
Common stock, no par value, 2,000,000,000 shares authorized,
99,158,706 and 97,214,418 shares issued and outstanding
at March 31, 2009 and September 30, 2008, respectively 20,706,005 20,706,005
Accumulated deficit (24,128,019) (23,956,551)
------------ ------------
Total Stockholders' Deficit (3,422,014) (3,250,546)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 744,359 $ 973,209
============ ============
See accompanying nots to unaudited consolidated financial statements
4
PlanGraphics, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three and six month periods ended March 31,
Six months ended Three months ended
-------------------------------- --------------------------------
2009 2008 2009 2008
------------ ------------ ------------ ------------
Revenues $ 1,209,663 $ 2,070,054 $ 553,819 $ 1,036,424
Costs and expenses
Direct contract costs 563,921 1,247,362 229,552 716,454
Salaries and employee benefits 492,444 572,002 220,223 275,002
General and administrative expenses 307,801 290,542 129,595 157,371
Marketing expenses 586 7,060 426 4,534
Other operating expenses 73,593 113,087 (1,650) 56,008
------------ ------------ ------------ ------------
Total costs and expenses 1,438,345 2,230,053 578,146 1,209,369
------------ ------------ ------------ ------------
Operating income (loss) (228,682) (159,999) (24,327) (172,945)
------------ ------------ ------------ ------------
Other income and (expense):
Other income 123,605 43,380 15,779 13,341
Interest expense (66,391) (92,021) (31,116) (48,350)
------------ ------------ ------------ ------------
57,214 (48,641) (15,337) (35,009)
------------ ------------ ------------ ------------
Net loss $ (171,468) $ (208,640) $ (39,664) $ (207,954)
============ ============ ============ ============
Basic and diluted loss per common share $ (0.002) $ (0.002) $ (0.000) $ (0.002)
============ ============ ============ ============
Weighted average number of shares of common
stock outstanding - basic and diluted 99,158,706 97,214,418 99,158,706 97,214,418
============ ============ ============ ============
See accompanying nots to unaudited consolidated financial statements
5
PlanGraphics, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended March 31,
2009 2008
--------- ---------
Cash flows provided by operating activities:
Net loss $(171,468) $(208,640)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 59,458 98,936
Allowance for doubtful accounts (35,555) 14,151
Gain on debt extinguishment (7,414) --
Gain on fair value recognition of accounts payable (91,516) --
Changes in operating assets and liabilities
Accounts receivable 234,117 (22,072)
Prepaid expenses and other 9,622 6,135
Other assets 1,794 4,647
Accounts payable 160,673 148,633
Accrued expenses 7,277 (117,929)
Deferred revenue and prebillings (164,540) 157,125
--------- ---------
Net cash provided by operating activities 2,448 80,986
--------- ---------
Cash flows used in investing activities:
Purchases of equipment -- (836)
Software developed for future use (806) (24,424)
--------- ---------
Net cash used in investing activities (806) (25,260)
--------- ---------
Cash flows provided by (used in) financing activities:
Proceeds from note payable - related party 13,750 --
Proceeds from debt 30,000 --
Payments on debt (5,623) (111,428)
--------- ---------
Net cash provided by (used in) financing activities 38,127 (111,428)
--------- ---------
Net increase (decrease) in cash 39,769 (55,702)
Cash and cash equivalents at beginning of year 404 78,642
--------- ---------
Cash and cash equivalents at end of period $ 40,173 $ 22,940
========= =========
See accompanying nots to unaudited consolidated financial statements
6
PLANGRAPHICS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Consolidated Financial Statements
The summary of our significant accounting policies is incorporated herein by
reference to our annual report of September 30, 2008, on Form 10-KSB filed with
the Securities and Exchange Commission. Readers are also herewith advised to
read the going concern statement in the report of our Independent Registered
Accounting Firm and also the liquidity caution in Note B in our financial
statements for the period ended September 30, 2008.
The accompanying unaudited consolidated financial statements in this report have
been presented on the going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
While we secured an improved factoring agreement for accounts receivable during
2007 that has been extended through September 30, 2009, our viability as a going
concern is dependent upon our ability to achieve and increase profitable
operations through increased sales and the higher profit margins received from
Xmarc sales. During the fiscal years of 1998 through 2008 we have experienced
significant operating losses with corresponding reductions in working capital
and stockholders' equity. We do not currently have any external financing in
place to support operating cash flow requirements. Our revenues and backlog have
also decreased substantially.
To address the going concern issue, management implemented financial and
operational plans to improve operating efficiencies, reduce overhead and
accelerate cash from our contracts, reduce and eliminate cash losses, and
position us for future profitable operations. We have reduced our general and
administrative expenses by reducing occupancy costs, streamlining our executive
and administrative support team, and using attrition to reduce costs.
The accompanying unaudited consolidated financial statements for PlanGraphics,
Inc. and its operating subsidiary in this quarterly report reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of operations, financial position and cash flows.
All significant inter-company balances and transactions have been eliminated in
our consolidation. We believe that the disclosures are adequate to make the
information presented not misleading. The results of this interim period are not
necessarily indicative of the results for the full fiscal year ending September
30, 2009. These consolidated financial statements should be read in conjunction
with the Company's financial statements and notes for the year ended September
30, 2008, included in the Company's Annual Report on Form 10-KSB.
Certain prior year financial statement amounts have been reclassified to conform
to the current year presentation.
(2) Going Concern Statement and Management's Plan
Going Concern. As reported in the consolidated financial statements accompanying
our annual report on Form 10-KSB for the year ended September 30, 2008, the
Company incurred net losses for the years ended September 30, 2008 and 2007. The
Company has also suffered recurring losses, has a negative working capital
position and a stockholders' deficit. As noted in the auditor's report on our
September 30, 2008, financial statements, these factors raise substantial doubt
about the Company's ability to continue as a going concern.
For the six months ended March 31, 2009, the Company is reporting a net loss of
$171,468 and cash provided by operations amounted to $2,448, representing a
small decrease in net loss and deterioration of cash flows from the same period
of the prior year. The Company has had a history of net losses over the years.
These consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
Management has taken aggressive action to reduce operating costs to the maximum
extent possible and has taken steps intended to increase the sales of the
Company's products and services. Management continues to seek financing to
provide funds needed to increase liquidity, fund growth in revenues and to
implement its business plan. We continue to explore sources of working capital
7
from additional debt or equity financings or from the sale of certain assets.
Any additional equity financing could dilute the equity interests of existing
security holders. If adequate funds are not available or are not available on
acceptable terms, our ability to operate our business and fund our operations
could be materially and adversely affected. No assurance can be given that the
Company will be able to raise any additional capital.
Board's Plan for PlanGraphics, Inc. PlanGraphics has experienced declining
revenues in the past several years. The costs for audits, legal advice, other
items related to the Company's SEC reporting and maintaining its status as a
public company are significant and are having an adverse effect on our ability
to successfully operate our business. Based on this combination of declining
revenues and increasing costs, in 2003, the Company's Board of Directors began
examining strategic alternatives for PlanGraphics and retained a number of
specialist investment banking firms to assist with this process. Through these
efforts, and in parallel with efforts to maintain and build on our traditional
lines of business, the Board has concluded that in order to provide shareholders
with some opportunity for achieving value on their investment PlanGraphics needs
to aggressively pursue the option of deriving value from one or more of the
assets of the corporation. One such option that the Company has been pursuing in
recent years is the spin-off of PGI-MD and the sale of PlanGraphics, the public
entity, to a private company interested in going public. As a direct result of
these efforts, the Company has agreed to issue a significant number of shares of
common stock in satisfaction of its redemption payment obligations for its
outstanding Series A Preferred Stock to Integrated Freight Systems, Inc., who
recently purchased the preferred stock from the Nutmeg Group, which will result
in a change in control of PlanGraphics. Once the shares are issued, the Board
understands that it is the intent of Integrated Freight, as the estimated 80.2%
stockholder of PlanGraphics, to solicit the stockholders of PlanGraphics to
approve the spin-off of PGI-MD to John Antenucci, our chief executive officer, a
reverse stock split and a reverse merger of PlanGraphics with and into
Integrated Freight. See also Note 14, Subsequent Events.
(3) Accounts Receivable
The components of contract receivables are as follows:
March 31,
2009
---------
Billed $ 491,484
Unbilled 57,588
---------
549,072
Less: net of allowance for doubtful accounts less prior
doubtful account amounts written off (14,151)
---------
Accounts receivable, net $ 534,921
=========
At March 31, 2009, customers exceeding 10% of billed accounts receivable were
the Italian Ministry of Finance ("IMF"), 18%, Liaoning, China , 16%, and Panjin,
China, 12%. At the same date, customers exceeding 10% of revenue for the six
month period were the San Francisco Department of Technology and Information
Systems, 17%, the IMF, 17%, and Dawson County, Georgia, 11%.
At March 31, 2008, customers exceeding 10% of billed accounts receivable were
international clients in China (in the aggregate), 32%, New York City Department
of Environmental Engineering (NYDEP), 20%, the Italian Ministry of Finance
("IMF"), 17%,and Hunter College, 11%. At the same date, customers exceeding 10%
of revenue were NYDEP, 30%, China clients (in the aggregate), 17%, San Francisco
Department of Technology and Information Systems, 15%, and the IMF, 11%.
Billed receivables include $10,646 for the net amount of factored invoices due
from Rockland. This amount is comprised of the amount of outstanding uncollected
invoices on hand at Rockland ($69,169) less the net amount of funds employed by
Rockland in servicing them ($58,523) which consists of actual cash advances,
payments, and other reserves and fees related to the factoring agreement.
Pursuant to the factoring agreement Rockland was granted a lien and security
interest in all of our cash, accounts, goods and intangibles.
Billing terms are negotiated in a competitive environment and are typically
based on reaching project milestones.
8
When appropriate we establish a reserve ("allowance for doubtful accounts") for
estimated uncollectible amounts of billed and unbilled accounts receivable. When
we determine that the collection of a billed or unbilled account receivable
related to an active contract is not probable, we reduce the contract value
accordingly. When we determine that the collection of a billed or unbilled
account receivable related to a completed contract is not probable, we record
bad debt expense and increase the allowance for doubtful accounts. When we
identify that the collection of a reserved account receivable will not be
collected, we write off the account receivable and reduce the allowance for
doubtful accounts.
Deferred revenue amounted to $147,762 at March 31, 2009, and represents amounts
billed in excess of amounts earned. These amounts are offset by work in progress
which represents work completed but not yet invoiced but included in Accounts
Receivable, typically pending completion of payment milestones.
(4) Lease Obligations
We lease various equipment as well as facilities under operating leases that
expire through the year 2013.
(5) Stock-Based Compensation.
We follow the provisions of SFAS No. 123R, Share Based Payment. SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the statement of operations as compensation
expense (based on their fair values) over the vesting period of the awards.
Option valuation models (we use the Black-Scholes model) to estimate fair value
require the input of highly subjective assumptions including the expected life
of the option. Because our employee stock options have characteristics
significantly different from those of traded options (which we do not have), and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of our employee
stock options.
We have not granted options to acquire shares of common stock during the periods
ended March 31, 2009 and 2008, respectively.
There were no options exercised during the period ending March 31, 2009;
accordingly, the total intrinsic value of options exercised to date during
fiscal year 2009 is $0.
Because we did not have any unvested options or warrants as of March 31, 2009,
there was no unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the now expired Equity Compensation Plan
which continues to have option grants outstanding.
Additional information regarding the status of stock options outstanding at
March 31, 2009 appears in the following tables; we had no warrants outstanding
at that date.
9
Options
-------------------------------------
Weighted
Number of Average
Shares Exercise Price
---------------- --------------
Outstanding
at 9/30/2008 5,966,432 $ 0.021
Granted -- --
Cancelled -- --
Exercised -- --
--------- -----------
Outstanding
at 3/31/2009 5,966,432 $ 0.018
--------- -----------
Exercisable
at 9/30/2008 5,966,432 $ 0.021
-----------
Exercisable
at 3/31/2009 5,966,432 $ 0.018
-----------
Stock Options
- ---------------------------------------------------------------------------
Range of Weighted-average
Exercise Shares Remaining Years
Prices Contractual Life
- ---------------------------------------------------------------------------
$0.0048-$0.015 4,694,288 2.36
$0.020-$0.040 1,272,144 0.31
------------
5,966,432
============
(6) Net Loss Per Common Share.
Basic loss per share includes no dilution and is computed by dividing income or
loss attributable to common shareholders 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, when appropriate. The total number of shares of common stock issuable
upon exercise of warrants and options outstanding and exercisable at March 31,
2009 and 2008, were 5,966,432 and 8,447,790, respectively.
2009 2008
---- ----
Options 5,966,432 8,447,790
Warrants -- --
--------- ---------
Total outstanding 5,966,432 8,447,790
The following is a reconciliation of the number of shares used in the Basic
Earnings Per Share ("EPS") and Diluted EPS computations:
Six months ended March 31,
2009 2008
---------- ----------
Basic EPS share quality 99,158,706 97,214,418
Effect of dilutive options and warrants * -- --
---------- ----------
Diluted EPS share quality 99,158,706 97,214,418
*The closing market price of PGRA on March 31, 2009
was lower than the exercise price of all outstanding options and warrants.
Because of that, we assume that none of the outstanding options or warrants at
that date would have been exercised and therefore none were included in the
computation of diluted earnings per share for periods ended March 31, 2009.
Further, for the net-loss periods we excluded any effect of outstanding options
and warrants as their effect would be anti-dilutive.
10
(7) Supplemental Cash Flow Information
During the six months ended March 31, 2009, PlanGraphics paid $39,185 of
interest and $2,748 for taxes. During the six months ended March 31, 2008, the
Company paid $65,102 of Interest and $1,065 for taxes.
(8) Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiary are translated at the
rate of exchange in effect at the end of the period. Net sales and expenses are
translated at the actual rate of exchange incurred for each transaction during
the period. The total of all foreign currency transactions and translation
adjustments resulted in a net loss of $48,408 during the six month period.
(9) Provision for Income Taxes
At the beginning of this fiscal year we had net operating loss carryforwards of
$19.9 million with expirations through 2028. At March 31, 2009, the amount of
the net operating loss carryforward balance is estimated at $20.1 million. Since
we are unable to determine that deferred tax assets exceeding tax liabilities
are more likely than not to be realized, we have recorded a valuation allowance
equal to the net deferred tax assets at September 30, 2008 and at March 31,
2009. As a result, no provision or benefit for income tax has been recorded for
the six months ended March 31, 2009.
(10) Recently Issued Accounting Pronouncements
FSP FAS 107-1 and APB 28-1. In April 2009, the FASB issued FSP FAS 107-1 and APB
28-1, "Interim Disclosures about Fair Value of Financial Instruments," which
requires that publicly traded companies include the fair value disclosures
required by SFAS No. 107 in their interim financial statements. This FSP is
effective for interim reporting periods ending after June 15, 2009, and the
Company will include the required disclosures in its Form 10-Q filings starting
in the second quarter of 2009.
FSP 115-2 and FAS 124-2. In April 2009, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP) FAS 115-2 and FAS 124-2 "Recognition and
Presentation of Other-Than-Temporary Impairments" (FSP FAS 115-2 and FAS 124-2).
FSP FAS 115-2 and FAS 124-2 changes the method for determining whether an
other-than-temporary impairment exists for debt securities and for determining
the amount of an impairment charge to be recorded in earnings. This FSP is
effective for interim and fiscal periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. The Company plans to
adopt FSP 115-2 and FAS 124-2 effective June 30, 2009. The Company is currently
evaluating the impact of FAS 115-2 and FAS 124-2 on its consolidated results of
operation and financial condition.
FSP 157-4. In April 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
FAS 157-4). FSP FAS 157-4 provides application guidance addressing the
determination of (a) when a market for an asset or a liability is active or
inactive and (b) when a particular transaction is distressed. The FSP is
required to be applied prospectively and does not allow retrospective
application. This FSP is effective for interim and fiscal periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009. The Company plans to adopt FSP FAS 157-4 effective June 30, 2009.
Management is currently evaluating the impact of FAS 157-4 on its consolidated
results of operation and financial condition.
(11) Measurement of Fair Value
On October 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements.
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value under generally accepted accounting principles, and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Financial
Accounting Standards Board having previously concluded in those accounting
11
pronouncements that fair value is a relevant measurement attribute. Accordingly,
this Statement does not require any new fair value measurements. However, for
some entities, the application of this Statement will change current practices.
The following table sets forth the liabilities the Company has elected to record
at fair value under SFAS No. 157 as of March 31, 2009:
Fair Value Measurements at March 31, 2009
Using Significant Unobservable Inputs
Description (Level 3)
- --------------------------------------------------------------------------------
Accounts Payable:
Balance before fair value adjustment $ 2,946,436
Charge to accounts payable (91,516)
-----------
Balance after fair value charge $ 2,854,920
===========
The Company has antiquated legacy accounts payable balances that are at least
four years old and some as old as ten years that it believes will never require
a financial payment for a variety of reasons. Accordingly, under SFAS No. 157,
(and in this case for our United Kingdom subsidiary, Financial Reporting
Standard 12, "Provisions, Contingent Liabilities and Contingent Assets" ("FRS
12"), since this is where the balances are located) the Company has analyzed the
accounts and recorded a charge against those legacy balances as permitted under
FSR 12 in the United Kingdom reducing the balances to the amount expected to be
paid out. The income recorded during the Six months ended March 31, 2009 was
$91,516 and is recorded in other income on the Company's Consolidated Statement
of Operations.
(12) Convertible Note.
On January 14, 2009, PlanGraphics, Inc., entered into a business loan in the
amount of $30,000 with the holder of all of the outstanding Series A Preferred
Stock of PlanGraphics, Nutmeg/Fortuna Fund LLLP (the "Holder"), in the form of a
convertible debenture ("the Debenture"). The Debenture provides for an interest
rate of 6% per annum with a maturity date of February 28, 2009. Proceeds of the
Debenture were applied to certain critical working capital needs. The Debenture
will be, in the event of default, convertible into common stock of the Company
if the default is not timely cured. The Debenture will be convertible in whole
or in part at a conversion price on the date of conversion at the lesser of
$0.002 per share or fifty percent (50%) of the average closing price for the
common stock on the five trading days immediately prior to the conversion date.
Conversion of the Debenture into common stock of the registrant is limited and
the Holder or its affiliates, according to the terms of the Debenture agreement,
may not be the beneficial owner of more than 4.99% of the total number of shares
of the Company's common stock outstanding immediately after giving effect to the
issuance of shares permitted upon conversion by the Holder. Upon not less than
61 days notice to the Company, the Holder may increase or decrease this
limitation. The issue of the Debenture was reported on Form 8-K filed with the
SEC January 21, 2009. As of March 1, 2009, the Company is in default with regard
to the terms of the Debenture, and the Holder has the right to require the
Company to convert the amounts owing under the Debenture to common stock.
(13) Segment Information
The Company follows the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement establishes standards
for the reporting of information about operating segments in annual and interim
financial statements. Operating segments are defined as components of an
enterprise for which separate financial information is available that is
evaluated regularly by the chief operating decision maker(s) in deciding how to
allocate resources and in assessing performance. In the opinion of management,
the Company operates in one business segment, business information services, and
all revenue from its services and license fees and royalties are earned in this
segment. Management of the Company makes decisions about allocating resources
based on this one operating segment.
The Company has three geographic regions for its operations, the United States
and Canada, Europe and Asia. Revenues are attributed to geographic areas based
on the location of the customer. The following table depicts the geographic
information expected by FAS 131:
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Geographic information for the six-month period ended March 31,
Long-lived Accounts
Revenues Assets Receivable
---------- ---------- ----------
2009
United States and Canada $ 845,235 $ 209,652 $ 407,524
Europe 332,536 2,609 127,397
Asia 31,892 -- --
---------- ---------- ----------
Total $1,209,663 $ 212,261 $ 534,921
2008
United States and Canada $1,459,092 $ 236,903 $ 851,371
Europe 394,285 4,032 231,495
Asia 216,677 -- --
---------- ---------- ----------
Total $2,070,054 $ 240,935 $1,082,866
(14) Subsequent Events.
Demand for redemption of Preferred Stock. On May 15, 2009, Nutmeg/Fortuna Fund
LLLP, the holder of all of the outstanding shares of our redeemable 12% dividend
preferred stock, submitted a request for redemption of all of such preferred
stock, in the amount of $660,765 consisting of the $500,000 original purchase
amount plus accrued and unpaid dividends of $162,573. Because the Company does
not have, and has no ability to obtain in the foreseeable future, sufficient
cash to redeem the shares, the holder has offered an alternate method of payment
that would involve conversion of the aggregate amount due into shares of the
Company's common stock. Concurrently with delivery of the redemption request,
Nutmeg/Fortuna Fund LLLP entered into an agreement with Integrated Freight
Systems, Inc. pursuant to which Nutmeg sold to Integrated Freight the
PlanGraphics preferred stock and the right to receive the redemption amount, or
in the alternative, the common stock to be issued by PlanGraphics in
satisfaction of the redemption request. If the Company accepts Nutmeg's offer
and issues the common stock in lieu of making the redemption payment, it is
certain that a change of control of PlanGraphics will occur. See also the
caption titled "Management's Plan for PlanGraphics, Inc.," below.
Expiration of Letter of Intent. On December 28, 2008, the Company entered into a
previously announced letter of intent with a merchant banking organization
regarding the sale of the Company's Xmarc line of business. The letter of intent
expired by its terms on February 11, 2009 without action.
Change in Holder of Redeemable Preferred Stock. On May 18, 2009, in response to
instructions from Nutmeg/Fortuna Fund LLLP, the holder of 500 shares of the
Company's Series A Redeemable Preferred Stock, the Company received the holder's
certificate and reissued the 500 shares of redeemable preferred stock to
Integrated Freight Systems, Inc., a Florida corporation located in Sarasota,
Florida.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Executive Summary of PlanGraphics, Inc.
PlanGraphics is a full life-cycle systems integration and implementation
firm, providing a broad range of services in the design and implementation
of information technology related to spatial information management in the
public and commercial sectors. During FY 2008 approximately 59% of our
sales were to customers in federal, state and local governments, and
utilities; 25% to international customers and the remaining 16% to
commercial enterprises. Our customers are located in the United States and
foreign markets requiring locational or "spatial" information. The mix of
customers through the end of the second quarter of fiscal year 2009 has
changed as a result of our decision to not explore further opportunities in
China due to changes in the management of World Bank funded projects
limiting work available to us.
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o We had a working capital deficit at March 31, 2009, of $3,580,497, and
have had recurring net losses in all prior fiscal years back to 1998.
The viability of PlanGraphics is dependent upon our ability to
achieve, and then maintain and increase profitability in future
operations.
o Management's foremost challenges are coping with limited cash flows
and building a profitable business at a time when federal, state and
local governments are experiencing constrained revenues and budget
deficits and the commercial sector is, in part, negatively affected by
a contracting economy.
o The Company depends on internal cash flow to support operations.
Internal cash flow is affected significantly by customer contract
terms, delays in foreign currency transfers and our progress
achieved on projects.
o Management continues to carefully manage payments and from time
to time has borrowed funds from officers to meet temporary
working capital shortages.
o Our Master Factoring Agreement with Rockland continues through
September 30, 2009.
o We have reduced our general and administrative expenses by
reducing occupancy costs, constraining overhead and
administrative costs, instituting partial and variable furloughs
of management and staff and streamlining our management and
production teams.
o As a result of our very constrained cash flows, we sometimes delay
payments to subcontractors and suppliers. From time to time, we have
delayed management and employee payrolls. We have also experienced the
departure of certain technical employees, reduced availability of
subcontractors and legal costs related to negotiating work-out
agreements and settlements with creditors.
About our business:
Our consulting and systems integration and implementation capabilities
include business and web-enabled solutions exploiting the advanced
technologies of spatial information management systems (also known as
geographic information systems), data warehousing, electronic document
management systems and internal and external networks.
o Our contracts are often awarded as long as two to three years
after we initially contact a customer. In many instances we first
provide consulting services to determine an appropriate solution
to a need and then we subsequently receive a larger contract.
o Our consulting and implementation practice operates nationally
and abroad. We are also pursuing opportunities related to
executive dashboards, emergency preparedness and public safety
throughout the U.S.
o Our primary customer base has traditionally included state and
local governments and public utilities. Recently we have begun to
experience a somewhat reduced number of opportunities and
increased sensitivity to pricing in available competitive
procurements that have been available. Federal agencies where
PlanGraphics has expertise are also exhibiting a more cautious
approach and pace to contracting.
o We believe the critical factors for the future success of PlanGraphics
are:
o Achieving and increasing positive cash flows from operations by
controlling costs and increasing revenues
o Securing financing arrangements to fund operations and expansion
while reducing the cost of financing;
o Changing our revenue mix to increase the amount of higher margin
software sales;
o Successfully meeting the challenges of a difficult contracting
economic environment through diversification;
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o Increasing lagging sales and revenue through expanded lead
generation and sales into a more diverse range of clientele; and
o Achieving consistent net income.
Management's Plan for PlanGraphics, Inc.
PlanGraphics has experienced declining revenues in the past several years. The
costs for audits, legal advice, other items related to the Company's SEC
reporting and maintaining its status as a public company are significant and are
having an adverse effect on our ability to successfully operate our business.
Based on this combination of declining revenues and increasing costs, in 2003,
the Company's Board of Directors began examining strategic alternatives for
PlanGraphics and retained a number of specialist investment banking firms to
assist with this process. Through these efforts, and in parallel with efforts to
maintain and build on our traditional lines of business, the Board has concluded
that in order to provide shareholders with some opportunity for achieving value
on their investment PlanGraphics needs to aggressively pursue the option of
deriving value from one or more of the assets of the corporation. One such
option that the Company has been pursuing in recent years is the spin-off of
PGI-MD and the sale of PlanGraphics, the public entity, to a private company
interested in going public. As a direct result of these efforts, the Company has
agreed to issue a significant number of shares of common stock in satisfaction
of its redemption payment obligations for its outstanding Series A Preferred
Stock to Integrated Freight Systems, Inc., who recently purchased the
preferred stock from the Nutmeg Group, which will result in a change in control
of PlanGraphics. Once the shares are issued, the Board understands that it is
the intent of Integrated Freight, as the estimated 80.2% stockholder of
PlanGraphics, to solicit the stockholders of PlanGraphics to approve the
spin-off of PGI-MD to John Antenucci, our chief executive officer, a reverse
stock split and a reverse merger of PlanGraphics with and into Integrated
Freight.
Financial Condition
The following discussion of liquidity and capital resources addresses our
requirements and sources as of March 31, 2009 and should be read in conjunction
with the accompanying unaudited consolidated interim financial statements and
the notes to those statements appearing elsewhere in this report and our audited
consolidated financial statements and the notes thereto for the year ended
September 30, 2008, appearing in our FY 2008 Form 10-KSB. Readers should take
into account the auditor's going concern statement as well as the liquidity
caution appearing in Note B of the September 30, 2008 financial statements. The
Company presently continues to encounter liquidity issues and is carefully
controlling costs and expenses while managing its resources to deal with very
limited cash availability. As a result, from time to time we have experienced
delays in making payments of management payrolls and amounts owed to
subcontractors.
Cash Flow
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. During fiscal years 1998
through 2008, we experienced significant losses with corresponding reductions in
working capital and net worth, excluding the impact of certain one time gains.
Our revenues and backlog have also decreased substantially during the past two
years. If we are unable to maintain and increase cash flow necessary to meet our
operating and capital requirements, or to obtain outside financing, we will be
forced to restrict operating expenditures to match available resources or seek
additional financing, which may be available only at unfavorable interest rates
or not available at all. These factors, among others, raise substantial doubt
about our ability to continue as a going concern.
We continue to experience significant liquidity issues that cause us to finance
the resources needed with funds from operations and accretion of amounts owed to
creditors. As a result, from time to time we have delayed payment of
subcontractor invoices. As of March 31, 2009, we had a net working capital
deficit of ($3,580,497) versus a net working capital deficit of ($3,469,474) at
September 30, 2008.
Cash provided by operations. In the six months ended March 31, 2009, operations
provided net cash of $2,448, as compared to $80,986 provided by operations
during the period ended March 31, 2008. This $78,538 decrease from the prior
year was primarily a result of:
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A decrease of $37,172 in cash used to fund our current year net loss of $171,468
versus $208,640 for the prior year plus a net decrease from the prior year of
$188,114 in adjustments for non-cash items such as depreciation and
amortization, bad debt expense and, mainly, the gain of $91,516 from the fair
value recognition of accounts payable in the current year.
This was offset by changes in operating assets and liabilities that resulted in
a net change from the prior year of $65,860 increasing cash provided. This
change was due primarily to a net change in accounts receivable of $249,645 and
$125,706 in accrued expenses, both increasing cash provided from the prior year
and offset primarily by a decrease of $321,665 in deferred revenue from the
prior year, all of which was partially offset by the gain from applying fair
value to certain debts of a subsidiary.
Cash used by investing activities. In the period ended March 31, 2009, investing
activities used cash of $806 versus $25,260 used in investing activities during
the period ended March 31, 2008. The primary reason for the change was decreased
purchases of software for future use in the current period.
Cash provided by and used in financing activities. During the period ended March
31, 2009, financing activities provided $38,127 as compared to net cash used of
$111,428 in financing activities in the period ended March 31, 2008. The change
was mainly a result of proceeds received from the issue of a convertible
debenture and a related party note payable versus the paydown of debt in the
prior year period.
Accounts receivable balances at March 31, 2009 and 2008, include both billed
receivables and work-in-process. The payment terms on accounts receivable are
generally net 30 days and collections generally average 45 to 90 days after
invoicing. Although we experienced some delayed collections, the typical
collection period is consistent with industry experience with clients in the
public sector. While this sometimes results in increased aging of the billed
accounts receivable balance, our history reflects consistent collectibility of
the receivable balances. Work-in-process represents work that has been performed
but has not yet been billed. This work will be billed in accordance with
milestones and other contractual provisions. The amount of unbilled revenues
will vary in any given period based upon contract activity. Other delays in
payment are associated with a number of factors, reflecting the financial
vagaries of public sector organizations, routine administrative procedures and
the normal processing delays often experienced in summer and holiday periods.
Management believes that we will receive payment from all remaining sources but
with some delays in timeliness.
The elevated levels of aged accounts receivable we experience periodically,
coupled with the need to finance projects with cash from operations, places cash
flow constraints on the Company requiring it to very closely manage its expenses
and payables. From time to time we have also borrowed funds from officers and
employees to meet working capital needs.
Capital Resources
Our Master Factoring Agreement ("Amendment") with Rockland Credit Finance, LLC
("Rockland") was recently extended through September 30, 2009, and the
requirement for selling them a specific minimum dollar volume of invoices per
month has been deleted.
On January 14, 2009, PlanGraphics, Inc., entered into a business loan in the
amount of $30,000 with the holder of all of the outstanding Series A Preferred
Stock of PlanGraphics, Nutmeg/Fortuna Fund LLLP (the "Holder"), in the form of a
convertible debenture ("the Debenture"). The Debenture provides for an interest
rate of 6% per annum with a maturity date of February 28, 2009. Proceeds of the
Debenture were applied to certain critical working capital needs. The Debenture
will be, in the event of default, convertible into common stock of the Company
if the default is not timely cured. The Debenture will be convertible in whole
or in part at a conversion price on the date of conversion at the lesser of
$0.002 per share or fifty percent (50%) of the average closing price for the
common stock on the five trading days immediately prior to the conversion date.
Conversion of the Debenture into common stock of the registrant is limited and
the Holder or its affiliates, according to the terms of the Debenture agreement,
may not be the beneficial owner of more than 4.99% of the total number of shares
of the Company's common stock outstanding immediately after giving effect to the
issuance of shares permitted upon conversion by the Holder. Upon not less than
61 days notice to the Company, the Holder may increase or decrease this
limitation. The issue of the Debenture was reported on Form 8-K filed with the
SEC January 21, 2009. As of March 1, 2009, the Company is in default with regard
to the terms of the Debenture, and the Holder has the right to require the
Company to convert the amounts owing under the Debenture to common stock.
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While we have a workable factoring arrangement (see above) and we have
previously raised funds from the sale of redeemable preferred stock and the
issue of a convertible debenture, our operations have continued to be impacted
by liquidity issues and the contracting US economy during this reporting period;
we expect that to continue through the end of calendar year 2009.
Our backlog and assignments as of March 31, 2009, amount to approximately
$645,600, of which approximately $400,000 is funded. The decrease in backlog and
assignments over the past two years was caused by the natural drawdown of
multi-year contracts, suspension and cancellation of some assignments as an
outcome of declining client budgets and an overall reduction of project
opportunities in the current recessionary business environment.
We report backlog based on signed contracts and work assignments from our
customers. Assignments include contract awards where documentation is pending or
task orders based on existing indefinite quantity contract vehicles. A typical
contract, standard for the industry, includes terms that permit termination for
convenience by either party with 30 days prior notice. Xmarc and derivative
product licensing sales do not enter our backlog data, although maintenance and
value added reseller fees are included.
Congress recently passed the American Recovery and Reinvestment Act of 2009
("the Bill") which is intended to inject about $800 billion into the United
States' economy. While it is premature to predict exactly how the passage of the
Bill may impact the spending patterns of state and local governments,
particularly in the IT and GIS arenas, passage of the Bill and implementation of
its programs is expected to have a positive effect on our primary customers'
capacity to restore funding to existing long-term contracts and to develop and
fund new projects for which our services would be required. Tangible evidence of
expanded purchasing by our traditional customer base has yet to be established
and the prospects for maintaining even the status quo quite limited.
Results of Operations
Results of operations for the three months ended March 31, 2009
Revenues
Our revenues decreased $482,605 or 47% to $553,819 for the quarter ended March
31, 2009, from $1,036,424 for the quarter ended March 31, 2008. This decrease
was caused primarily by a lower number of active revenue generating projects in
our system due to reduced contracting activity by our primary customers who are
experiencing reduced budgets in the contracting economy.
Costs and Expenses
Total costs and expenses for the quarter ended March 31, 2009 amounted to
$578,146, a $631,223 reduction from $1,209,369, for the quarter ended March 31,
2008. This 52% decrease is primarily due to more efficient utilization of
resources, decreased direct costs and actions taken to reduce management costs
associated with revenue generation; it well exceeded the $482,605 decrease in
revenues and therefore resulted in an 86% decrease from the prior year operating
loss.
Direct contract costs decreased by $486,902, or 68%; the decrease was primarily
related to reduced availability of work to generate revenue for which management
adjusted both direct labor and subcontractor activities. The overall 68%
decrease in direct contract costs exceeded the 47% decrease in revenues.
Salaries and benefits decreased by approximately $54,779, or 20% as a result of
attrition and management's decision to reduce the work week to 32 hours pending
receipt of new contracts. General and administrative expenses decreased $27,776,
or 18%, primarily as a result of decreased insurance premiums, reduced facility
costs and decreased factoring fees; marketing expenses decreased further by
$4,108, or 91%, as a result of limited budgets that reduced travel and a higher
reliance on third party partners; and, finally, other operating costs decreased
$57,658, or 103%, primarily as a result of reduced amortization expenses as
software nears full amortization.
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Net Income
On a consolidated basis, we reported an operating loss of $24,327 for the
quarter ended March 31, 2009, as compared to an operating loss of $172,945 in
the prior year. This decrease is primarily attributable to decreased revenues
during the current quarter coupled with reduction of costs and expenses.
Interest expense amounted to $31,116 in the current quarter compared with
$48,350 during the same period of the prior year; the decrease occurred because
reduced factoring of receivables during the current quarter as compared to the
prior year. Other income increased over the prior year total by $2,438 due
primarily to increased royalty income.
On a consolidated basis, we are reporting a net loss of $39,664 for the quarter
ended March 31, 2009, as compared to net loss of $207,954 for the prior year
period. The items noted above account for the reduction in net loss.
Results of operations for the six months ended March 31, 2009
Revenues
Our revenues decreased $860,391 or 42% to $1,209,663 for the six months ended
March 31, 2009, from $2,070,054 for the six months ended March 31, 2008. This
decrease was caused primarily by a lower number of active revenue generating
projects in our system due to reduced contracting activity by our primary
customers who are experiencing reduced budgets due to the contracting economy.
Costs and Expenses
Total costs and expenses for the six months ended March 31, 2009, amounted to
$1,438,345, a $791,708 reduction from $2,230,053, for the same period ended
March 31, 2008. This 36% decrease is primarily due to more efficient utilization
of resources and the actions taken to reduce direct costs and management
expenses associated with revenue generation; however, it was not sufficient to
offset the $860,391 decrease in revenues and therefore resulted in an operating
loss of $228,682.
Direct contract costs decreased by $683,441, or 55%; the decrease was primarily
related to reduced direct labor and subcontractor costs as we adjusted our
efforts to match availability of revenue generation opportunities. The overall
55% decrease in direct contract costs exceeded the 42% decrease in revenues.
Salaries and benefits decreased by $79,558, or 14% as a result of attrition.
General and administrative expenses increased somewhat by $17,259, or 6%,
primarily as a result increased foreign currency conversion expenses due to
changing exchange rates; marketing expenses decreased further by $6,474, or 92%,
as a result of limited budgets that reduced travel cost responding to requests
for proposals and a higher reliance on third party partners; and, finally, other
operating expense decreased $39,494, or 35%, primarily as a result of reduced
software amortization expenses as software approaches the end of its amortizable
life.
Net Income
On a consolidated basis, we reported an operating loss of $228,682 for the six
months ended March 31, 2009, as compared to the operating loss of $159,999 in
the prior year. This increase is primarily attributable to decreased revenues
during the current period coupled with insufficient reduction of costs and
expenses.
Interest expense amounted to $66,391 in the current six month period compared
with $92,021 during the same period of the prior year; the decrease occurred
because of reduced factoring of accounts receivable. Other income increased from
the prior year total by $80,225 due primarily to the gain from applying fair
value accounting procedures to old debt which was partially offset by an
decrease in foreign currency conversion gains.
On a consolidated basis, we are reporting a net loss of $171,468 for the six
months ended March 31, 2009, as compared to net loss of $208,640 for the prior
year period. The gain from applying fair value accounting was the primary factor
accounting for the decrease to net loss.
18
Income Taxes and Deferred Tax Valuation Allowance -- FY 2009
We reported net loss of $171,468 for the six months ended March 31, 2009.
Coupled with losses in prior years, we have generated a sizeable federal tax net
operating loss, or NOL, carryforward which totals approximately $20.1 million as
of March 31, 2009, compared to $19.9 million at September 30, 2008. We have
established a 100% valuation allowance on the net deferred tax asset arising
from the loss carryforwards in excess of the deferred tax liability. The
valuation allowance has been recorded as our management has not been able to
determine that it is more likely than not that the deferred tax assets will be
realized. As a result, no provision or benefit for federal income taxes has been
recorded for the period ended March 31, 2009.
Critical Accounting Policies and Estimates
We do not have any updates to the Critical Accounting Policies disclosed in Item
6, Part Two of our Annual Report on Form 10-KSB for September 30, 2008 and filed
with the SEC.
ITEM 4. CONTROLS AND PROCEDURES
Inherent limitations of Control Systems
We maintain appropriate internal controls and disclosure controls, and related
procedures, that are designed to ensure that financial and other information
required to be disclosed in the Company's Exchange Act reports is recorded,
processed, summarized and reported promptly and properly to meet the current
requirements. Such controls and procedures, no matter how well designed and
operated, may have inherent limitations in a cost-effective control system, and
therefore misstatements due to error or fraud may occur and not be detected. See
the expanded discussion in Item 8A of Part Two in our Form 10-KSB for September
30, 2008, in which we identified a number of deficiencies and material
weaknesses in the Companies internal controls over financial reporting; those
findings continue to exist as of the end of this reporting period.
Evaluation of Disclosure Controls and Procedures
Based on their most recent evaluation, which was completed as of the end of the
period covered by this report, and subject to the limitations above, both the
company's Chief Executive Officer and Senior Financial Officer believe that our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) are effective in timely alerting management to material information
required to be included in this Form 10-Q and other Exchange Act filings for
timely disclosure.
Evaluation of Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting that includes effective accounting policies and
procedures as well as staffing.
We previously reported material weaknesses in internal control over financial
reporting resulting from inadequate staffing due to the typical resource
limitations inherent in small companies. The specific material weaknesses were
identified by management as of September 30, 2008 and described in our FY 2008
Form 10-KSB for that year in Item 8A of Part II. Because we do not have the
financial resources to immediately increase our accounting staff, those material
weaknesses and deficiencies continue to exist as of the end of the period
covered by this quarterly report.
While management has concluded that we continue to have material weaknesses
related to internal control over financial reporting, we have devoted a
significant amount of time and resources to the analysis of the financial
statements presented in this Quarterly Report on Form 10-Q for the fiscal period
ended March 31, 2009. Accordingly, management believes that the financial
statements included in this report fairly present in all material respects, our
financial condition, results of operations and cash flows.
Changes in Internal Controls
Based upon their most recent evaluation which was completed as of the end of the
period covered by this report, and subject to the limitations above, both our
Chief Executive Officer and Senior Financial Officer concluded that, except for
19
the departure of a clerk from accounting and the financial officer from our
subsidiary company, there was no significant change in our internal controls
over financial reporting that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
Our independent registered public accounting firm will be required to attest to
the accuracy of management's evaluation report. The requirement is effective
with our fiscal year ending September 30, 2010.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Subcontractor Claim. On December 22, 2008, a subcontractor, Sanborn Map Company,
Inc. ("Sanborn"), asserted in a summons filed in the District Court for Douglas
County, Colorado, that it was entitled to recover an outstanding amount of
$896,475 plus certain unpaid retainage of $18,501 earned for work as a
subcontractor to the Company. All amounts had been previously recorded in the
Company's financial records. The Company will aggressively defend its interests
and challenges the fees sought. The Company recently waived the deficiencies of
service and has entered into settlement discussions with Sanborn. Mediation is
scheduled for July 2009.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should
carefully consider the factors discussed under the heading "Risk Factors" in our
Annual Report on Form 10-KSB filed on January 21, 2009, which could materially
affect our business operations, financial condition or future results.
Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business operations and/or financial condition. There have been no material
changes to our risk factors since the filing of our Form 10-KSB.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On January 14, 2009, we issued a Convertible Debenture in exchange for a
business loan of $30,000 borrowed from an unrelated entity. We will rely upon
Section 4(2) of the Securities Act of 1933 for the issue of any shares should
the debenture be converted into common stock; the certificates will contain a
restrictive legend.
ITEM 6. EXHIBITS.
(a) Exhibits:
Exhibit 31.1, Section 302 Certification for the principal executive officer,
dated May 20, 2009, and filed on page 22 of this report.
Exhibit 31.2, Section 302 Certification for the principal financial officer,
dated May 20, 2009, and filed on page 23 of this report.
Exhibit 32.1, Sarbanes-Oxley Section 906 Certification for Chief Executive
Officer, dated May 20, 2009, and filed on page 24 of this report.
Exhibit 32.2, Sarbanes-Oxley Section 906 Certification for principal financial
officer, dated May 20, 2009, and filed on page 25, of this report.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PLANGRAPHICS, INC .
Dated: May 20, 2009
/S/ Fred Beisser
----------------------------------------------------
Frederick G. Beisser
Senior Vice President-Finance, Secretary & Treasurer
(Principal financial and accounting officer)
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