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 December 31, 2008.
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)
(720) 851-0716
----------------------------------------------
(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 February 20, 2009.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and the information incorporated by reference
may include "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended. We intend the forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements in these
sections. All statements regarding our expected financial position and operating
results, our business strategy, our financing plans and the outcome of any
contingencies are forward-looking statements. These statements can sometimes be
identified by our use of forward-looking words such as "may," "believe," "plan,"
"will," "anticipate," "estimate," "expect," "intend," and other phrases of
similar meaning. Known and unknown risks, uncertainties and other factors could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.
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 ability of information technology to benefit from geospatial
capabilities within their technologies;
o the potential gross profit margin in information technology;
o the projections regarding our financial results for fiscal years ("FY")
2007 and 2008;
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 that we express in these
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 not achieve continued profitability;
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 find an adequate market for our goods and services in the
current economic environment;
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;
This list is intended to identify some of the principal factors that could cause
actual results to differ materially from those described in the forward-looking
statements included elsewhere in this report. These factors are not intended to
represent a complete list of all risks and uncertainties inherent in our
business, and should be read in conjunction with the more detailed cautionary
statements included in our Annual Report for the year ended September 30, 2008,
(filed with the SEC on Form 10-KSB) under the caption "Item 1. Business - Risk
Factors" beginning on page 8, 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 18
Part II Other Information 18
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 19
Item 2, Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 6. Exhibits 19
Signature Page 20
Exhibits
3
Part I Financial Information
Item 1. Financial Statements
PLANGRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2008 September 30, 2008
(Unaudited) (Derived from audtited
financial statements)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,528 $ 404
Accounts receivable, less allowance for doubtful accounts of
$86,697 and $49,718 for December 31, and September 30,
2008, respectively 553,504 733,472
Prepaid expenses and other 14,424 20,405
------------ ------------
Total current assets 574,456 754,281
------------ ------------
PROPERTY AND EQUIPMENT
Equipment and furniture 371,117 371,117
Less accumulated depreciation and amortization (350,677) (347,948)
------------ ------------
20,440 23,169
------------ ------------
OTHER ASSETS
Software development costs, net of accumulated amortization
$851,964 and $822,986 at December 31 and September 30,
2008, respectively 159,571 187,743
Other 4,961 8,016
------------ ------------
164,532 195,759
------------ ------------
TOTAL ASSETS $ 759,428 $ 973,209
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Mandatory redeemable Series A preferred stock, $0.001 par value,
500 shares issued and outstanding at December 31,
and September 30, 2008 $ 500,000 $ 500,000
Notes payable - current maturities 31,333 42,650
Accounts payable 2,723,143 2,786,834
Accrued payroll costs 202,539 201,331
Accrued expenses 390,906 380,637
Deferred revenue and prebillings 293,844 312,303
------------ ------------
Total current liabilities 4,141,765 4,223,755
------------ ------------
Total liabilities 4,141,765 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 December 31, 2008 and September 30, 2008, respectively 20,706,005 20,706,005
Accumulated deficit (24,088,342) (23,956,551)
------------ ------------
Total Stockholders' Deficit (3,382,337) (3,250,546)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 759,428 $ 973,209
============ ============
See accompanying notes to unaudited consolidated financial statements
4
PLANAGRAPHICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
December 31, 2008 December 31, 2007
----------------- -----------------
Revenues $ 655,844 $ 1,033,630
Costs and expenses
Direct contract costs 334,370 530,909
Salaries and employee benefits 272,221 297,000
General and administrative expenses 178,194 133,171
Marketing expenses 159 2,527
Other operating expenses 75,243 57,078
------------ ------------
Total costs and expenses 860,187 1,020,685
------------ ------------
Operating income (loss) (204,343) 12,945
------------ ------------
Other income (expense):
Other income 107,827 30,040
Interest expense (35,275) (43,671)
------------ ------------
72,552 (13,631)
------------ ------------
Net loss $ (131,791) $ (686)
============ ============
Basic and diluted loss per common share $ (0.00) $ (0.00)
------------ ------------
Weighted average shares of common stock
outstanding - basic and diluted 99,158,706 97,214,418
============ ============
See accompanying notes to unaudited consolidated financial statements
5
PLANGRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended December 31,
2008 2007
--------- ----------
Cash flows provided by (used in) operating activities:
Net loss $(131,791) $ (686)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 31,708 42,928
Allowance for doubtful accounts 43,535 14,151
Gain on debt extinguishment (6,330) --
Gain on fair value recognition of accounts payable (91,516) --
Changes in operating assets and liabilities
Accounts receivable 136,445 (171,884)
Prepaid expenses and other 5,980 (871)
Other assets 3,055 65
Accounts payable 27,812 27,701
Accrued expenses 12,114 (89,151)
Deferred revenue and prebillings (18,459) 161,589
--------- ---------
Net cash provided by (used in) operating activities 12,553 (16,158)
--------- ---------
Cash flows used in investing activities:
Software developed for future use (806) --
--------- ---------
Net cash used in investing activities (806) --
--------- ---------
Cash flows used in financing activities:
Payments on debt (5,623) (55,205)
--------- ---------
Net cash used in financing activities (5,623) (55,205)
--------- ---------
Net increase (decrease) in cash 6,124 (71,363)
Cash and cash equivalents at beginning of year 404 78,642
--------- ---------
Cash and cash equivalents at end of year $ 6,528 $ 7,279
========= =========
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
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 three months ended December 31, 2008, the Company is reporting a net
loss of $131,791 and cash provided by operations amounted to $12,553,
representing a decrease in net income and improvement in 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.
7
Management has taken aggressive action to reduce operating costs to the maximum
extent possible and has established plans intended to increase the sales of the
Company's products and services. Management intends to seek financing to provide
funds needed to increase liquidity, fund growth in revenues and to implement its
business plan. We intend to secure working capital through 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.
(3) Accounts Receivable
The components of contract receivable are as follows:
December 31,
2008
------------
Billed $ 568,243
Unbilled 71,958
---------
640,201
Less: net of allowance for doubtful accounts less
prior doubtful account amounts written off (86,697)
=========
Accounts receivable, net $ 553,504
=========
At December 31, 2008, customers exceeding 10% of billed accounts receivable were
the New York City Department of Environmental Engineering (NYDEP), 16%, Fairfax
County Virginia, 14%, and San Francisco Department of Technology and Information
Systems, 14%. At the same date, customers exceeding 10% of revenue for the
quarter were San Francisco Department of Technology and Information Systems,
19%, and the Italian Ministry of Finance, 17% and NYDEP, 16%.
At December 31, 2007, customers exceeding 10% of billed accounts receivable were
New York City Department of Environmental Engineering (NYDEP), 46%, and
Panzhihua Municipal Planning Office (China), 12%. At the same date, customers
exceeding 10% of revenue for the quarter were NYDEP, 31%, San Francisco
Department of Technology and Information Systems, 13%.
Billed receivables include $61,549 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 ($388,646) less the net amount of funds employed by
Rockland in servicing them ($327,097) 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.
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 $293,844 at December 31, 2008, 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.
8
(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 December 31, 2008 and 2007, respectively.
There were no options exercised during the period ending December 31, 2008;
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 December 31,
2008, 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
December 31, 2008 appears in the following tables; we had no warrants
outstanding at that date.
Options
------------------------------------
Weighted
Number of Average
Shares Exercise price
----------- --------------
Outstanding
at 9/30/2008 5,966,432 $ 0.021
Granted -- --
Cancelled -- --
Exercised -- --
--------- ----------
Outstanding
at 12/31/2008 5,966,432 $ 0.018
--------- ----------
Exercisable
at 9/30/2008 5,966,432 $ 0.021
----------
Exercisable
at 12/31/2008 5,966,432 $ 0.018
----------
9
Stock Options
- --------------------------------------------------------------------------------
Range of Weighted-average
Exercise Shares Remaining Years
Prices Contractual Life
- --------------------------------------------------------------------------------
$0.0048-$0.015 4,694,288 2.60
$0.020-$0.040 1,272,144 0.55
---------
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 December
31, 2008 and 2007, were 5,966,432 and 8,447,790, respectively.
2008 2007
---- ----
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:
Quarter ended December 31,
2008 2007
---------- ----------
Basic EPS share quantity 99,158,706 97,214,418
Effective of dilutive options
and warrants* -- --
---------- ----------
Diluted EPS share quantity 99,158,706 97,214,418
*The closing market price of PGRA on December 31, 2008 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 December 31, 2008. Further, for the
net-loss periods we excluded any effect of outstanding options and warrants as
their effect would be anti-dilutive.
(7) Supplemental Cash Flow Information
During the three months ended December 31, 2008, PlanGraphics paid $13,853 of
interest. Also, payments of $2,366 for taxes were made.
(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 $44,397 during the three month period.
10
(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 December 31, 2008, the amount of
the net operating loss carryforward balance is estimated at $20.0 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 December 31,
2008. As a result, no provision or benefit for income tax has been recorded for
the three months ended December 31, 2008.
(10) Recently Issued Accounting Pronouncements
SFAS 159. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" (SFAS 159). SFAS 159 provides a
"Fair Value Option" under which a company may irrevocably elect fair value as
the initial and subsequent measurement attribute for certain financial assets
and liabilities. This Fair Value Option will be available on a
contract-by-contract basis with changes in fair value recognized in earnings as
those changes occur. The effective date for SFAS 159 is the beginning of each
reporting entity's first fiscal year end that begins after November 15, 2007.
The adoption of SFAS 159 on October 1, 2008 did not have an impact on the
consolidated financial statements.
EITF 08-6. In November 2008, the FASB ratified Emerging Issues Task Force (EITF)
Issue No. 08-6, "Equity Method Investment Accounting Considerations" or EITF
08-6. EITF 08-6 clarifies the accounting for certain transactions and impairment
considerations involving equity method investments. EITF 08-6 is effective for
fiscal years beginning after December 15, 2008, with early adoption prohibited.
The Company does not currently have any investments that are accounted for under
the equity method and therefore EITF 08-6 will not have a significant impact on
the Company's consolidated financial statements.
EITF 08-7. In November 2008, the FASB ratified EITF Issue No. 08-7, "Accounting
for Defensive Intangible Assets" or EITF 08-7. EITF 08-7 clarifies the
accounting for certain separately identifiable intangible assets which an
acquirer does not intend to actively use but intends to hold to prevent its
competitors from obtaining access to them. EITF 08-7 requires an acquirer in a
business combination to account for a defensive intangible asset as a separate
unit of accounting which should be amortized to expense over the period the
asset diminishes in value. EITF 08-7 is effective for fiscal years beginning
after December 15, 2008, with early adoption prohibited. The Company is
currently in the process of evaluating the impact the new EITF will have on its
consolidated financial statements.
(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
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 December 31, 2008:
Fair Value Measurements at December 31, 2008
Using Significant Unobservable Inputs
Description (Level 3)
- --------------------------------------------------------------------------------
Accounts Payable:
Balance before fair value adjustment $ 2,814,659
Charge to accounts payable (91,516)
-----------
Balance after fair value charge $ 2,723,143
===========
11
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 three months ended December 31, 2008
was $91,516 and is recorded in other income on the Company's Consolidated
Statement of Operations.
(12) 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,
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:
Geographic information for the three-month period ended December 31,
Long-lived Accounts
Revenues Assets Receivable
---------- ---------- ----------
2008
United States and Canada $ 435,109 $ 177,046 $ 463,789
Europe 188,843 2,965 89,715
Asia 31,892 -- --
---------- ---------- ----------
Total $ 655,844 $ 180,011 $ 553,504
2007
United States and Canada $ 730,593 $ 267,294 $1,098,070
Europe 263,880 4,388 134,607
Asia 39,157 -- --
---------- ---------- ----------
Total $1,033,630 $ 271,682 $1,232,677
(13) Subsequent Events.
Letter of Intent. On January 9, 2009, the Company entered into a letter of
intent with a merchant banking organization regarding the sale of the Company's
Xmarc line of business.
Business Loan. On January 14, 2009, PlanGraphics, Inc., entered into a business
loan in the amount of $30,000 with an unrelated entity, 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 registrant 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 may not be the beneficial owner of more than 4.99% of the total
12
number of shares of the registrant'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 registrant, the Holder may increase or
decrease this limitation. The Debenture was filed with the SEC as an exhibit to
Form 8-K on January 21, 2009.
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
first quarter of fiscal year 2009 has begun to change.
o We have a working capital deficit at December 31, 2008, of $3,567,309, 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 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.
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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 Maintaining and increasing positive cash flows from operations by
controlling costs;
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;
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.
Financial Condition
The following discussion of liquidity and capital resources addresses our
requirements and sources as of December 31, 2008 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 December 31, 2008, we had a net working capital
deficit of ($3,567,309) versus a net working capital deficit of ($3,469,474) at
September 30, 2008.
In the three months ended December 31, 2008, operations provided net cash of
$12,553, as compared to $16,158 used by operations during the period ended
December 31, 2007.
This $28,711 change from the prior year was primarily a result of:
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An increase of $131,105 in cash used to fund our current year net loss of
$131,791 versus $686 for the prior year plus a net decrease from the prior year
of $79,682 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 $239,498 increasing cash provided. This
change was due primarily to a net change in accounts receivable of $308,329 and
$101,265 in accrued expenses, both increasing cash provided from the prior year
and offset primarily by a decrease of $180,048 in deferred revenue from the
prior year.
Our accounts receivable at December 31, 2008, have decreased by $179,968 since
September 30, 2008, as we collected payments on billed invoices from customers.
Notes payable with current maturities decreased by $11,317 from September 30,
2008 as a result of the payment of certain notes and accounts payable decreased
by $63,691 during the same period due to the cancellation of debt which was
partially offset by accretion of amounts owed to vendors.
In the period ended December 31, 2008, investing activities used cash of $806
while there was no investing activity during the period ended December 31, 2007.
The primary reason for the change was decreased purchases of software for future
use in the current period.
Financing activities in the period ended December 31, 2008, used $5,623 as
compared to net cash used of $55,205 in financing activities in the period ended
December 31, 2007. The change was a result of the paying down of certain
interest bearing notes.
Accounts receivable balances at December 31, 2008 and 2007, 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.
As noted under "Subsequent Events," below, we recently borrowed funds on a
short-term basis for critical working capital requirements.
Operations Outlook
While we have a workable factoring arrangement (see above) and we have
previously raised funds from the sale of redeemable preferred stock, we expect
that our operations will continue to be impacted by liquidity issues and the
contracting US economy through the end of calendar year 2009.
We continue to believe that information technology, which includes e-solutions,
spatial data management and geographic information systems or "GIS," is a global
market that is rapidly evolving and becoming the basis for a myriad of new
applications and services to solve customer problems and create additional
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markets. Despite the current economic stress on our primary customer base, the
public sector, we foresee subsequent and increased expenditures over the longer
term in the service areas where we are most significantly involved. In addition,
our decision to acquire certain proprietary and licensable technologies for use
as middleware to spatial and non spatial databases provides both a solution
vehicle for an expanded customer base, inclusive of federal and commercial
sectors, and a recurring revenue stream. These solutions include emergency
response, non-emergency client/constituent management systems and asset
management including utility infrastructure and real property. We believe our
decisions were well timed and we further believe that market will produce
material additional work flow for the company.
We believe our purchase of the XMARC intellectual property and spatial
integration software components provides us with increased access with
additional solution architectures to federal, state and local government clients
in addition to commercial enterprises. We have continued to build revenue from
maintenance of existing XMARC systems already in the field resulting from
additional licensing of Xmarc and STEPs, a derivative product. Recurring revenue
from Xmarc based products now during FY 2008 exceeded $725,000 per annum.
More recently our backlog and assignments as of January 31, 2009, amount to
approximately $1.5 million, of which approximately $1.3 million 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.
We will continue building and leveraging strategic partnerships with clients and
other firms. To that end, we have made substantial progress in positioning
PlanGraphics as a provider of Internet-accessible data repositories and
warehouses that leverage spatial data and e-government solutions as well as
offering datamarts and decision dashboards.
We have recently focused on federally funded programs and successfully undertook
the modernization of a military health system forecasting toolset and database
for Altarum Institute; as a result we are now pursuing additional assignments
through this third party that is dependent on federal fiscal year 2009 and
outyear funding.
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.
In addition, we plan to grow through selected strategic alliances that we
believe will enhance shareholder value and joint marketing initiatives that
allow us to increase business with our limited resources while continuing to
examine a range of options to enhance shareholder value, including
diversification, the sale of operating assets, the licensing of intellectual
property and merger and acquisition opportunities.
Results of Operations
Results of Operations for the three months Ended December 31, 2008
Revenues
Our revenues decreased $377,786 or 37% to $655,844 for the quarter ended
December 31, 2008, from $1,033,630 for the quarter ended December 31, 2007. 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 lower tax revenue collections in the contracting
economy.
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Costs and Expenses
Total costs and expenses for the quarter ended December 31, 2008 amounted to
$860,199, a $160,486 reduction from $1,020,685, for the quarter ended December
31, 2007. This 16% decrease is primarily due to more efficient utilization of
resources and actions taken to reduce management costs associated with revenue
generation but was not sufficient to offset the $377,786 decrease in revenues
and therefore resulted in an operating loss of $204,355.
Direct contract costs decreased by $196,539, or 37%; the decrease was primarily
related to a 55% decrease in subcontractor costs of $152,590 and a decrease of
$40,395 in direct salaries or 17%. The overall 37% decrease in direct contract
costs was commensurate with the 37% decrease in revenues.
Salaries and benefits decreased somewhat by approximately $24,779, or 8% as a
result of attrition. General and administrative expenses increased $45,023, or
34%, primarily as a result of an increase of $46,779 in foreign currency
conversion expenses due to changing exchange rates; marketing expenses decreased
further by $2,368, or 94%, as a result of limited budgets and a higher reliance
on third party partners; and, finally, other operating costs increased $18,165,
or 32%, primarily as a result of an increase to bad debt expense.
Net Income
On a consolidated basis, we reported an operating loss of $204,343 for the
quarter ended December 31, 2008, as compared to operating income of $12,945 in
the prior year. This change is primarily attributable to decreased revenues
during the current quarter coupled with insufficient reduction of costs and
expenses.
Interest expense amounted to $35,275 in the current quarter compared with
$43,671 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 $77,787 due to increases from recording cancellation of debt
which was partially offset by reductions in foreign currency conversion gains
and a reduction in royalties earned.
On a consolidated basis, we are reporting a net loss of $131,791 for the quarter
ended December 31, 2008, as compared to net loss of $686 for the prior year
period. The items noted above account for the change to net loss.
Income Taxes and Deferred Tax Valuation Allowance -- FY 2009
We reported net loss of $131,791 for the three months ended December 31, 2008.
Coupled with losses in prior years, we have generated a sizeable federal tax net
operating loss, or NOL, carryforward which totals approximately $20.0 million as
of December 31, 2008, 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 December 31, 2008.
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.
Subsequent Events
Letter of Intent. On January 9, 2009, the Company entered into a letter of
intent with a merchant banking organization regarding the sale of the Company's
Xmarc line of business.
On January 14, 2009, we borrowed $30,000 from an unrelated entity and issued a
convertible debenture in exchange. The debenture matures on February 28, 2009,
and is further described in Note 12, Subsequent Events, above.
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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 December 31, 2008. 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
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
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subcontractor to the Company. All amounts had been previously recorded in the
Company's financial records. The Company will aggressively defend its interests
and asserts that the summons was erroneously served and challenges the fees
sought. The Company recently waived the deficiencies of service and has entered
into settlement discussions with Sanborn and its representatives.
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 4.1, Convertible Debenture, dated January 14, 2009, and filed on Form
8-K with the SEC on January 21, 2009, is incorporated herein by reference.
Exhibit 31.1, Section 302 Certification for the principal executive officer,
dated February 23, 2009, and filed on page 21 of this report.
Exhibit 31.2, Section 302 Certification for the principal financial officer,
dated February 23, 2009, and filed on page 222 of this report.
Exhibit 32.1, Sarbanes-Oxley Section 906 Certification for Chief Executive
Officer, dated February 23, 2009, and filed on page 23 of this report.
Exhibit 32.2, Sarbanes-Oxley Section 906 Certification for principal financial
officer, dated February 23, 2009, and filed on page 24, 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: February 23, 2008
/S/ Fred Beisser
Frederick G. Beisser
Senior Vice President-Finance,
Secretary & Treasurer
(Principal financial and accounting officer)
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