-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nl5fHZBInNNihUUYd0abXUciNoLADHL+FFOc42qJxAi4Oo9qfed/tcbz8CV2TYOZ EM/UlDMusYc3IltBd1M8AQ== 0001000096-02-000068.txt : 20020414 0001000096-02-000068.hdr.sgml : 20020414 ACCESSION NUMBER: 0001000096-02-000068 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED SPATIAL INFORMATION SOLUTIONS INC /CO/ CENTRAL INDEX KEY: 0000783284 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 840868815 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14273 FILM NUMBER: 02546343 BUSINESS ADDRESS: STREET 1: 112 E MAIN ST STREET 2: STE 300B CITY: FRANKFORT STATE: KY ZIP: 40601 BUSINESS PHONE: 3032748708 MAIL ADDRESS: STREET 1: 1597 COLE BLVD STREET 2: STE 300B CITY: GOLDEN STATE: CO ZIP: 80401 FORMER COMPANY: FORMER CONFORMED NAME: DCX INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DOUGLAS COUNTY INDUSTRIES INC DATE OF NAME CHANGE: 19860109 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED SPATIAL INFORMATION SYSTEMS INC DATE OF NAME CHANGE: 19980710 10QSB 1 isis1231.txt FORM 10-QSB (12-31-2001) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2001. 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 INTEGRATED SPATIAL INFORMATION SOLUTIONS, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) COLORADO 84-0868815 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19039 East Plaza Drive, Suite 245 Parker, CO 80134 -------------------------------------- (Address of principal executive offices) (Zip Code) (720) 851-0716 -------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No 19,763,175 Shares of common stock were outstanding as of December 31, 2001. Number of pages in this report is 17. CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-QSB 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-QSB regarding: o our ability to compete effectively; o the strength of our technical expertise and customer service; o our acquisition strategy; o the potential fluctuation of the market price of our stock; o our ability to raise funds through equity and debt financing; o estimates regarding our financing needs; o the evolving market for global information systems; o the potential gross profit margin in information technology; o our capacity to meet our immediate cash and liquidity needs; and o the impact of recent accounting pronouncements. Although we believe that the expectations that we expressed 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 contemplated. Our actual results could be materially different from our expectations, including the following: o we may lose customers or fail to grow our customer base; o we may not be able to sustain our current growth or to successfully integrate new customers or assets obtained through future acquisitions; o we may fail to compete successfully with existing and new competitors; o we may not adequately anticipate and respond to technological developments impacting information services and technology; o we may issue a substantial number of shares of our common stock upon exercise of options and warrants, thereby causing dilution in the value of your investment; o we may fail to settle outstanding litigation; and o we may not be able to obtain needed financing. 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 period ended September 30, 2001 and filed on Form 10-KSB under the caption "Item 1. Business - Risk Factors" beginning on page 7, our other Securities and Exchange Commission filings, and our press releases. The use of pronouns "we," "us," and "our" refer to the company and its subsidiary, Plangraphics, Inc., collectively. We may refer to the investor or investors in our company as "you" or "your" in this report. We may also refer to our company as "ISIS" in this report. 2 Table of Contents Cautionary Note About Forward-Looking Statements 2 Part I Financial Information 4 Item 1. Financial Statements 4 Condensed and Consolidated Balance Sheets 4 Condensed and Consolidated Statements of Operations 6 Condensed and Consolidated Statements of Cash Flow 7 Notes to Condensed and Consolidated Financial Statements 8 Item 2. Management Discussion and Analysis 11 Part II Other Information 16 Signature 17 3 Part I Financial Information Item 1. Financial Statements Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Balance Sheets December 31 September 30 2001 2001 (Unaudited) (Audited) Assets Current: Cash and Cash Equivalents $ 328,551 $ 18,799 Accounts receivable (net of allowance for doubtful accounts of $12,754 and $12,754) 2,162,284 2,134,739 Prepaid expenses and other 147,790 123,144 - -------------------------------------------------------------------------------- Total current assets 2,638,625 2,276,682 - -------------------------------------------------------------------------------- Property and Equipment: Land and building under capital lease - related party 1,866,667 1,866,667 Equipment and furniture 714,160 710,054 Other leased assets 255,600 255,600 - -------------------------------------------------------------------------------- 2,836,427 2,832,321 Less accumulated depreciation and amortization (1,426,171) (1,372,613) - -------------------------------------------------------------------------------- Net property and equipment 1,410,258 1,459,708 - -------------------------------------------------------------------------------- Other Assets: Goodwill, net of accumulated amortization 3,948,343 3,948,343 Other 227,265 101,959 - -------------------------------------------------------------------------------- Total other assets 4,175,608 4,050,302 - -------------------------------------------------------------------------------- $ 8,224,491 $ 7,786,692 - -------------------------------------------------------------------------------- See accompanying notes to financial statements 4 Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Balance Sheets December 31 September 30 2001 2001 (Unaudited) (Audited) - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current: Notes payable - current maturities $ 411,530 $ 788,780 Obligations under capital leases - related party - current 105,554 102,263 Checks written against future deposits -- 24,100 Accounts payable 787,617 1,406,455 Accrued payroll costs and vacation 372,381 428,438 Accrued expenses 358,937 387,265 Accrued litigation costs -- 358,344 Deferred revenue 296,095 181,575 - -------------------------------------------------------------------------------- Total current liabilities 2,332,114 3,677,220 - -------------------------------------------------------------------------------- Long-term Liabilities Obligations under capital leases - related party 1,582,299 1,609,955 - -------------------------------------------------------------------------------- Total liabilities 3,914,413 5,287,175 - -------------------------------------------------------------------------------- Commitments and Contingencies: Stockholders' Equity: Cumulative convertible preferred stock, $.001 par value, 20,000,000 shares authorized, none outstanding -- -- Common stock, no par value, 2,000,000,000 shares authorized, 19,763,175 and 19,649,539 shares issued and outstanding at December 31, and September 30, 2001, respectively 18,128,781 18,103,781 Common stock to be issued 49,932,171 shares at December 31, 2001 only 1,747,626 -- Accumulated deficit (15,566,329) (15,604,264) - -------------------------------------------------------------------------------- Total stockholders' equity 4,310,078 2,499,517 - -------------------------------------------------------------------------------- $ 8,224,491 $ 7,786,692 - -------------------------------------------------------------------------------- See accompanying notes to financial statements 5
Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Statements of Operations (Unaudited) Three Months Ended December 31, 2001 2000 - ---------------------------------------------------------------------------------------- Revenues $ 2,120,216 $ 1,649,022 - ---------------------------------------------------------------------------------------- Costs and expenses: Salaries and employee benefits 466,472 369,240 Direct contract costs 1,164,375 968,271 General & Administrative Costs 217,492 290,287 Marketing Costs 46,427 40,829 Being Public & Corporate Affairs 32,541 118,291 Other operating costs 53,559 164,183 - ---------------------------------------------------------------------------------------- Total costs and expenses 1,980,866 1,951,101 - ---------------------------------------------------------------------------------------- Operating income (loss) 139,350 (302,079) - ---------------------------------------------------------------------------------------- Other Income (expense): Interest expense (including non-cash interest of $46,250) (113,840) (80,597) Other income 12,424 13,424 - ---------------------------------------------------------------------------------------- Total other expense (101,416) (67,173) - ---------------------------------------------------------------------------------------- Net income (loss) $ 37,934 $ (369,252) - ---------------------------------------------------------------------------------------- Basic and diluted loss per common share: Basic Income (loss) per share $ 0.00 $ (0.02) Diluted income (loss) per share $ 0.00 $ (0.02) - ---------------------------------------------------------------------------------------- Weighted average shares outstanding Basic 69,638,528 19,112,635 Diluted 69,638,528 19,112,635 - ---------------------------------------------------------------------------------------- See accompanying notes to financial statements 6 Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Statements of Cash Flow (Unaudited) Three Months Ended December 31, 2001 2000 - -------------------------------------------------------------------------------------------- Operating Activities: Net income (loss) $ 37,934 $ (369,252) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 53,559 161,684 Amortization of debt discount 46,250 -- Provision for losses on accounts receivable -- 2,456 Stock options and warrants issued/to be issued for services performed 25,000 81,000 Changes in operating assets: Increase in accounts receivable (27,546) (81,692) Increase (decrease) in prepaid expenses (100,892) 26,191 Increase (decrease) in accounts payable (618,838) 29,543 Increase in accrued expenses (442,727) (49,561) Increase (decrease) in deferred revenue 114,519 (8,142) Increase in other assets (49,060) (5,500) - -------------------------------------------------------------------------------------------- Net cash used in operating activities (961,801) (213,273) - -------------------------------------------------------------------------------------------- Investing Activities: Purchase of equipment (4,109) (7,507) - -------------------------------------------------------------------------------------------- Net cash used in investing activities (4,109) (7,507) - -------------------------------------------------------------------------------------------- Financing Activities: Checks written against future deposits (24,100) (29,426) Proceeds from borrowing 45,000 185,000 (Payments) borrowings on debt (492,864) 11,541 Proceeds from issuance of common stock -- 140,612 Proceeds from rights offering stock to be issued 1,747,626 -- - -------------------------------------------------------------------------------------------- Net cash provided by financing activities 1,275,662 307,727 - -------------------------------------------------------------------------------------------- Net increase in cash 309,752 86,947 Cash and cash equivalents, beginning of period 18,799 20,306 - -------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 328,551 $ 107,253 - -------------------------------------------------------------------------------------------- See accompanying notes to financial statements 7
Integrated Spatial Information Solutions, Inc. and Subsidiaries NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (1) Condensed and Consolidated Financial Statements We have prepared the condensed and consolidated financial statements included herein without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. We believe that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying unaudited condensed and consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our consolidated financial position as of December 31, 2001, the consolidated results of our operations and statements of cash flows for the three-month periods ended December 31, 2001, and 2000. The accounting policies we followed are set forth in the annual report of September 30, 2001, filed on Form 10-KSB and the audited consolidated financial statements in it with the accompanying notes. While we believe the procedures followed in preparing these consolidated financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by us later in the year. The consolidated results of operations for the three-month period ended December 31, 2001, are not necessarily indicative of the results to be expected for the full year ending September 30, 2002. Certain prior year financial statements have been restated to conform to the current year presentation. (2) Accounts Receivable The components of accounts receivable are as follows: December 31 September 30 2001 2001 - -------------------------------------------------------------------------------- unaudited audited Contract Receivables: Billed $1,779,281 $1,609,294 Unbilled 395,757 538,199 - -------------------------------------------------------------------------------- 2,175,038 2,147,493 Less allowance for doubtful accounts 12,754 12,754 - -------------------------------------------------------------------------------- Accounts receivable, net $2,162,284 $2,134,739 Deferred revenue amounts were $296,095 and $181,575 at December 31, 2001 and September 30, 2001, respectively, which represents amounts billed in excess of amounts earned. We have historically received greater than 10% of annual revenues from one or more customers. The Rhode Island Department of Transportation ("RIDOT") represented 13% of revenue and the City of New York's Department of Information Technology and Telecommunications (NYDOITT) accounted for 32% of revenue for the quarter ended December 31, 2001, compared to NYDOITT and Providence Gas Company of Rhode Island who accounted for 38% and 13%, respectively, for the quarter ended December 31, 2000. In addition, at December 31, 2001 two customers, the NYDOITT and RIDOT accounted for 48% and 13% of accounts receivable, respectively, compared to NYDOITT and Providence Gas Company of Rhode Island who accounted for 32% and 13%, respectively, of accounts receivable at December 31, 2000. NYDOITT is the largest of our current customers and represents services both as a client and as a contract vehicle utilized by as many as 20 different departments within the New York City government through individual order assignments. The diversity of order assignments and variety of departments as clients diminishes the concentration of revenue and receivables in a manner not obvious from the financial reports. 8 (3) Provision for Income Taxes At the beginning of the fiscal year we had net operating loss carryforwards of $10.4 million with expirations through 2020. At December 31, 2001, the amount of the net operating loss carryforward balance is estimated at $10.4 million. We expect to incur a minimal amount of alternative minimum tax for the fiscal year. 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 excess deferred tax assets at fiscal year end. (4) Litigation We were the respondent in an arbitration claim by our former Chief Financial Officer filed in August 1999 with the American Arbitration Association in Jacksonville, Florida. The case was arbitrated in February 2000. In a final decision on April 20, 2000 the arbitrator awarded him a total of $330,000 in separation payments, fees and expenses in the dispute stemming from his employment agreement with us. All costs associated with the arbitration award were expensed as of June 30, 2000. On July 18, 2000 we appealed the award in State Circuit Court for Duval County, Florida. The appeal was not sustained. We paid the award, attorney's fees and accrued interest in full during December 2001 and all claims were dismissed with prejudice. (5) Sale of Common Stock During a registered shareholder rights offering that began on October 19, 2001 and closed on February 1, 2002 we received subscriptions for 76,757,134 shares of our common stock and raised $2,686,500. Accordingly, during February 2002 we will issue 76,757,134 shares of free trading common stock. As of December 31, 2001 we had received proceeds of $1,747,626 for which shareholders were entitled to receive 49,932,171 shares of common stock as of that date, however the common stock has not yet been issued. At December 31, 2001 we had accrued deferred offering costs of $125,655 that will be deducted from the total amount of the offering receipts credited to common stock during the second quarter. See also "Recapitalization" in Note 7, below. (6) Lease Obligations We lease various equipment as well as facilities under capital and operating leases that expire through the year 2006 as noted in Note 6. to the Consolidated Financial Statements in Form 10-KSB September 30, 2001. (7) Recapitalization On February 9, 2001 the Board of Directors approved a recapitalization plan as a precedent to the further execution of the company's business plan. The Board of Directors authorized a rights offering to existing shareholders of our common stock and to certain other qualified parties. The offering, described in our prospectus of October 19, 2001, was successfully completed February 1, 2002 and resulted in proceeds of $2,686,500. The Board of Directors authorized consulting agreements with Crossways Consulting Group, Inc. and Brean Murray & Co., Inc. for advice and assistance in the completion of our shareholder rights offering. The agreements provide that we will, upon successful completion of the offering, issue warrants to each of the companies to acquire common stock in a quantity equal to two percent of the number of shares outstanding immediately after completing the offering. The warrant exercise fee is equal to 110% of the shareholder rights subscription fee, or $0.0385 per share. We will issue each of the two entities warrants to acquire 1,535,142 shares of our common stock for a total of 3,070,285 shares. (8) Related Party Transaction On February 9, 2001, the Board of Directors approved a loan of $75,000 and we entered into a convertible promissory note payable to Human Vision LLC, an entity controlled by a director. On May 15, 2001, we borrowed an additional $40,000 from Human Vision LLC pursuant to the same terms. See Note 6 to the Consolidated Financial Statements and Loan Transactions of Item 6 in our Form 10-KSB for the fiscal year ended September 30, 2001 for more information. Both of the notes were paid in full along with accrued interest on December 3, 2001. 9 The Board concurrently approved a resolution authorizing us to provide to Human Vision LLC a security interest in the ownership of our subsidiary, PlanGraphics, Inc. as collateral for providing a standby letter of credit to further collateralize an extension of our subsidiary's line of credit. See also the Loan Transaction discussion in Item 6, Management Discussion and Analysis in our Form 10-KSB for the fiscal year ended September 30, 2001. During May 2001 our subsidiary obtained a line of credit from a Maryland based banking institution, Branch Banking & Trust ("BB&T"), comparable in terms with the previous line and for an initial amount of $500,000. The new line of credit which matured on February 2, 2002 was also collateralized by the accounts receivable of PlanGraphics, a standby letter of credit provided by a related party, Human Vision L.L.C. and the personal guarantee of an officer and director. On January 31, 2002 the line of credit was extended 30 days in connection with a commitment letter for a replacement line of credit obtained by PlanGraphics with the same institution for $750,000 and similar terms except that the standby letter of credit will no longer be required and will be released. (9) Net Income and Loss Per Common Share. Our presentation of earnings per share for the current quarter includes the number of shares of common stock already issued and outstanding, 19,763,175, plus the number of shares, 49,932,171, that were required to be issued in exchange for nonrefundable purchases of shares in the shareholder rights offering that occurred through close of business on December 31, 2001. Subsequent to December 31, 2001 we received $938,874 of additional subscriptions representing nonrefundable purchases of 26,824,971 additional shares that are also to be issued that are not included in our earnings per share computation. We have adopted Statement of Financial Accounting Standard ("SFAS") No. 128 issued by the Financial Accounting Standards Board. SFAS No. 128 provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing 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, in order to disclose fully diluted earnings per share, when appropriate. The total of warrants and options outstanding and exercisable at December 31, 2001 and 2000 were 5,226,955 and 7,008,405, respectively. In addition, had the shareholder rights offering been concluded at December 31, 2001, we would have issued warrants to acquire 2,787,813 shares of common stock at an exercise price of $0.0385 per share. The computation of diluted shares outstanding at December 31, 2001 does not include this quantity of warrants to be issued nor the 5,226,955 total of options and warrants already issued at that date because all exercise prices exceeded the closing price at that date and doing so would be anti-dilutive to earnings per share. Further, as we incurred a net loss in the three-month period ended December 31, 2000 none of our outstanding options or warrants were included in the computation of diluted earnings per share for that period as their effect would also be anti-dilutive. (10) Supplemental Cash Flow Information During the three months ended December 31, 2001 and 2000 we disbursed $71,183 and $79,156 for interest expense, respectively. During the current quarter we also recorded in interest expense a noncash interest amount of $46,250 that is the discount amortization expense related to the beneficial conversion feature of a convertible note issued to Human Vision LLC. (11) Recently Issued Accounting Pronouncements In June 2001 the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations (SFAS 141) and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 142 also requires that we recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 142 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that we reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. 10 SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that we identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance on SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires us to complete a transitional goodwill impairment test six months from the date of adoption. We are also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. We accounted for our previous business combinations using the purchase method. As of December 31, 2001, the net carrying amount of goodwill is $3,948,343 and other intangible assets nil. We have elected voluntary early implementation of SFAS 141 and 142 as of October 1, 2001, and we have not yet performed the transitional goodwill impairment test required within six months of adoption. However, we have determined that approximately $30,000 of goodwill amortization expense will no longer be required each month. Accordingly, because we have not yet performed impairment testing, we have not yet determined what total impact the adoption of SFAS 141 and 142 will have on our financial position and results of operations. The following table reflects unaudited pro forma results of operations of ISIS, giving effect to SFAS 142 as if it were adopted on October 1, 2000: Three months ended December 31, 2001 2000 - -------------------------------------------------------------------------------- Net income (loss), as reported $37,934 $(369,252) Add back: amortization expense -- 90,981 - -------------------------------------------------------------------------------- Pro forma net income $37,934 $(278,271) Basic net income (loss) per share: As reported $ 0.00 $ (0.02) Pro forma $ 0.00 $ (0.01) Diluted net income (loss) per share: As reported $ 0.00 $ (0.02) Pro forma $ 0.00 $ (0.01) - -------------------------------------------------------------------------------- ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition Subsequent Events ISIS' rights offering to existing stockholders and to certain other qualified parties commenced on October 19, 2001. It is part of a recapitalization plan initiated in February 2001. The offering closing date was extended from its original December 3, 2001 closing date through close of business on February 1, 2002 to accommodate certain shareholders and standby investors who experienced delays receiving offering materials caused by certain national security issues. As of December 31, 2001, we had raised approximately $1.65 million in nonrefundable cash through the offering and approximately $100,000 in conversion of certain liabilities into common stock. Subsequent to December 31, 2001 we received $938,874 in additional subscriptions from shareholders and standby investors resulting in the offering being subscribed for a total of $2,686,500. The funds received during the quarter were used primarily to pay down certain notes payable, accrued expenses and accounts payable. We also utilized a portion of the proceeds from the rights offering to pay all outstanding notes and accounts payable beyond 30-day terms by December 31, 2001. The remaining funds, including those received subsequent to December 31, 2001, will become working capital and used for general operational purposes. Our management team believes that as a result of the successful rights offering and the anticipated cash flow from operations in FY 2002, ISIS has the cash resources to meet its obligations for the current fiscal year. See also Notes 1 and 13 to the financial statements in our Form 10-KSB for September 30, 2001. 11 We have categorized below the participation in the shareholder rights offering as to sources of funds: Directors and Officers of ISIS $ 720,106 Other employees of ISIS 67,157 Exercise of Shareholder Rights 548,599 Standby Investors 1,350,638 ---------- Total Proceeds $2,686,500 Were all the funds from the shareholder rights offering received on or before December 31, 2001, selected portions of the balance sheet at that date would have shown the following changes for amounts received after the end of the quarter:
Post Dec 31 Pro Forma Balance Sheet Item At Dec 31, 2001 Adjustment Dec 31, 2001 - ------------------ --------------- ---------- ------------ Cash and Equivalents $ 328,551 $ 701,663 $ 1,030,214 Notes Receivable 183,750 183,750 -- Current Assets 2,638,425 759,748 3,398,173 Deferred Offering Costs 125,655 (125,655) -- Accounts Payable & Accrued Expenses 1,518,935 (53,461) 1,465,474 Current Liabilities 2,332,114 (53,461) 2,278,653 Working Capital 306,511 813,209 1,119,720 Shareholder Equity 4,310,078 813,209 5,123,287
The shareholder rights offering has resulted in significant enhancement of our working capital position and, as seen above, increased our working capital from $306,511 at December 31, 2001 to about $1.1 million. On January 7, 2002 we reached an agreement to license exclusive North American rights to intellectual property and spatial integration software components owned by Xmarc Ltd. for use in the public sector and utility markets. United Kingdom-based Xmarc provides wireless and Internet-enabled software solutions that aid in the access of location-based information from data warehouses and repositories. We also agreed to support existing Xmarc clients, work in progress and proposals in North America. This arrangement effectively gives us increased access to federal, state and local government clients in addition to commercial enterprises. We will pay Xmarc Ltd. a royalty stream for a period of 21 months ending Sept. 30, 2003, after which we will have the right to acquire in perpetuity the exclusive rights to Xmarc technology and all subsequent enhancements for the North American public sector and utility markets. On January 31, 2002, BB&T extended the $500,000 line of credit for 30 days in connection with their commitment letter of the same date. That commitment letter is for an increase in the line of credit to $750,000 and to remove the requirement for the Human Vision Standby Letter of Credit. Upon release of the standby letter of credit the pledge of the outstanding shares of PlanGraphics to Human Vision LLC will no longer be required. Financial Condition The following discussion of liquidity and capital resources addresses our combined requirements and sources, including our subsidiary, PlanGraphics, Inc., as of December 31, 2001 and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. 12 Cash Flow As of December 31, 2001 we had net working capital of $306,511 as compared to a net working capital deficit of $1,400,538 at September 30, 2001 and to $1,244,843 at December 31, 2000. This significant increase in working capital resulted from our successful shareholder rights offering. The additional funds received from the shareholder rights offering subsequent to December 31, 2001 will provide cash for operations and general working capital. In the quarter ended December 31, 2001, operations used net cash of $961,801, as compared to $213,273 used in operations in the quarter ended December 31, 2000. This increase in cash use was primarily related to the application of funds received from the shareholder rights offering to pay down liabilities, accrued expenses and accounts payable that were 30 days or more old as seen the decreases in these accounts. Accounts receivable remained relatively unchanged. In the quarter ended December 31, 2001, net cash used in investing activities was $4,108 as compared to $7,507 of net cash used in investing activities in the quarter ended December 31, 2000. Decreased equipment purchases accounted for the change. Financing activities in the quarter ended December 31, 2001 provided $1,275,663 as compared to net cash of $307,727 provided by financing activities in the quarter ended December 31, 2000. Cash provided by the issuance of common stock and stock to be issued increased by $1,747,626 in the current period accounting for most of the increase and the net use of funds from payments on and proceeds from debt transactions increased $504,405. Capital Resources On February 9, 2001, we borrowed $75,000 from an entity controlled by one of our directors and executed a convertible promissory note. On May 15, 2001 we borrowed an additional $40,000 from the same entity. The proceeds from these borrowings were used to meet certain working capital requirements. These notes were subsequently paid during December 2001 with proceeds from the shareholder rights offering. On May 31, 2001, PlanGraphics obtained a $500,000 line of credit from Branch Banking and Trust Company ("BB&T") to replace the line of credit with National City Bank of Kentucky that expired on April 30, 2001. The BB&T line of credit matured on February 2, 2002 and was extended in connection with a January 31, 2002 commitment letter from BB&T to replace it with a new line of credit for $750,000 from the same institution with similar terms, but removing the requirement for a standby letter of credit. As of December 31, 2001, our cash and cash equivalents had increased to $328,551. Our management team believes that our current operating funds along with the additional funds received from the completed shareholder rights offering will be sufficient to fund our cash requirements through September 30, 2003. As of December 31, 2001 we have received approximately $1.65 million of offering proceeds and approximately $100,000 from conversion of accounts payable to stock. Subsequent to the quarter's end, we have received additional proceeds of $938,874 bringing the total funds raised via the offering to $2.7 million. We also periodically consider the sale of our interest in Jobsview.com L.L.C., held by PlanGraphics. The 7.9% ownership interest in Jobsview.com is valued at the original investment cost of $56,400 in our books. Efforts to conserve and to develop new sources of cash and equity are complimentary to the improved operating performance achieved during the past fiscal year. We anticipate the improvement to continue during the fiscal year ending September 30, 2002, and to be accompanied by positive cash flows. Operations Outlook We believe that information technology, which includes e-solutions, spatial data management and geographic information systems or "GIS," continues to be a global market that is rapidly evolving and becoming the basis for a myriad of new applications and services to solve customer problems and creating additional markets. We also believe the potential gross profit margins in information technology are much higher than we presently experience and we are working to grow the spatial data management and integration solutions of our GIS business base according to forward looking statements in our business plan, augmenting growth to be achieved through acquisitions. 13 We had work backlog and assignments at our operating subsidiary, PlanGraphics, of approximately $8.5 million as of December 31, 2001, slightly less than the $9.3 million as of December 31, 2000 and a small decrease from $9.1 million as of September 30, 2001. Of the $8.5 million, approximately $7.0 million is expected to be completed within 12 months. Revenue from existing backlog and assignments will be recognized through the fiscal year ending September 30, 2003. PlanGraphics reports backlog based on executed contracts. 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. Most of our orders are from existing or previous customers with whom we have a good relationship. Therefore, we do not anticipate cancellation of such contracts or order assignments. Currently, we plan to grow internally and through acquisitions. We have made substantial progress in positioning PlanGraphics as a provider of Internet-accessible data repositories and warehouses that leverage spatial data. Several of our current assignments and a material portion of our contract backlog and assignments are associated with these initiatives. Further, our past marketing investments in China continue to yield results measured by increased sales from current and anticipated projects funded by the World Bank and a number of alliances and business partner arrangements that have been consummated. In addition, we have taken specific steps to position ISIS for additional acquisitions including reorganizing our corporate governance and management structure and the retention of third party advisors and investment bankers. Results of Operations Result of Operations for the Quarter Ended December 31, 2001 Revenues Our revenues increased $471,194 or 29% from $1,649,022 for the quarter ended December 31, 2000 to $2,120,216 for the quarter ended December 31, 2001. This increase was related to new orders and work assignments received during the past 12 months. Accounts receivable balances at December 31, 2001 and 2000, 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 60 days after invoicing. The actual collection period is consistent with industry experience with clients in the public sector. While this results in an elevation and 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. Deferred revenue increased by $114,520 from the beginning of fiscal year balance in response to new orders to proceed on work that were received during the quarter. Costs and Expenses The costs and expenses for the quarter ended December 31, 2001 amounted to $1,980,866, an increase of only $29,765 compared to $1,951,101 for the quarter ended December 31, 2000. This 2% increase compares very favorably to the 29% increase in revenue for the period. While direct contract costs increased 20% following the increase of 29% in revenue and salaries and benefits increased by approximately 26%; general and administrative expenses decreased by approximately 25%, costs associated with being a public company decreased by about 72% and other operating costs decreased by 67% due to reductions in acquisition costs and depreciation expense. Close management attention contained the expenses and resulted in the reductions. Net Income (Loss) Our operating income for the quarter ended December 31, 2001 was $139,350 compared to an operating loss of $302,079 for the prior year period. This positive change is a result of significantly increased revenues and closely controlled operating costs and expenses. 14 Interest expense increased by $33,243 to $113,840 in the current quarter as compared to $80,597 during the same period of the prior year, an increase of 41%. The increase is attributable to increased use of interest bearing debt and amortization of the $46,250 discount for a beneficial conversion feature on a promissory note. Other income decreased slightly from the prior year total by $1,000 as a result of decreases in miscellaneous income. We achieved net income of $37,934 for the quarter ended December 31, 2001 as compared to a net loss of $369,252 for the prior year period. The improvement was primarily from increased revenues coupled with closely controlled operating expenses. Net income attributable to common stockholders equals net income for the quarter. Loan Transactions On February 9, 2001, the board of directors ratified a loan of $75,000 from HumanVision L.L.C, a related party, in exchange for a promissory note dated February 2, 2001. The funds were to be used for certain specified working capital requirements. During December 2001, this note was paid in full with proceeds from the shareholder rights offering. Also on February 9, 2001, the board approved a resolution authorizing us to provide to HumanVision, L.L.C. a security interest in the PlanGraphics' accounts receivable and subordinately, the ownership of PlanGraphics as further collateral for providing a standby letter of credit to collateralize an extension of PlanGraphics' line of credit with National City Bank of Kentucky and, subsequently, Branch Banking and Trust Company. On May 31, 2001, PlanGraphics obtained a line of credit from Branch Banking and Trust Company in the maximum principal amount of $500,000. This line of credit, which replaced the National City Bank of Kentucky line of credit, matured on February 2, 2002. On January 31, 2002 BB&T extended the line of credit for 30 days in connection with a commitment letter for a replacement letter of credit in the amount of $750,000. The pending BB&T replacement line of credit will be collateralized by PlanGraphics' accounts receivable and general intangibles. It will no longer require the pledge of a $325,000 Branch Banking and Trust Company account held by HumanVision, L.L.C. and will result in the release of the PlanGraphics shares pledged as collateral to Human Vision back to ISIS. On May 15, 2001, we issued a promissory note in favor of HumanVision, L.L.C., a related party, in the principal amount of $40,000. During December 2001, this note was paid in full with proceeds from the rights offering. Historically, PlanGraphics' accounts receivable have been more than adequate to cover its line of credit and management believes that this will continue to be the case. Had PlanGraphics defauled on its line of credit with Branch Banking and Trust Company and had its accounts receivable been inadequate to cover its standby letter of credit with HumanVision L.L.C., ISIS could have lost its interest in PlanGraphics which could have resulted in the loss of the Company's sole source of revenue. HumanVision L.L.C. has not expressed an interest in obtaining the underlying collateral used to support the standby letter of credit. The requirement for the standby letter of credit from Human Vision LLC will be removed from the pending BB&T line of credit. Further, sufficient proceeds received to date from the shareholder rights offering are adequate to pay the promissory note in full prior to or at maturity. Other Matters We received notification on November 15, 2000 that our appeal in State Circuit Court for Duval County, Florida of an arbitration award made to our former chief financial officer, Robert S. Vail was unsuccessful. The case had been arbitrated in February 2000. In a final decision on April 20, 2000, the arbitrator awarded Mr. Vail a total of $330,000 plus expenses and interest for an overall total of approximately $362,000. The arbitration award and all accrued interest and expenses were paid in full during December 2001 and pending actions were dismissed with prejudice. Deferred Tax Valuation Allowance -- FY 2002 We have net operating loss carryforwards of approximately $10.4 million (See Note 4 to the Condensed and Consolidated Financial Statements in our Form 10-KSB for September 30, 2000). 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. 15 Effect of Recent Accounting Pronouncements The accounting pronouncements that may affect us in the current fiscal year are: In June 2001, the FASB finalized SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS No. 141 also requires that companies recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria and, upon adoption of SFAS No. 142, that companies reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS No. 141. SFAS No. 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS No. 142 requires that companies identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with and indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS No. 142. Our previous business combinations were accounted for using the purchase method. As of October 1, 2001, the net carrying amount of goodwill was $3,948,343. We have determined that ISIS has one reportable unit. We have elected early implementation of SFAS 141 and 142. This election obviates amortization of goodwill beginning October 1, 2001 that otherwise would have resulted in amortization expenses of approximately $30,000 per month. However, while we have determined that approximately $30,000 of goodwill amortization expense will no longer be required each month, we have not yet performed the transitional goodwill impairment test required within six months of adoption. Accordingly, we have not yet determined what impact, if any, the adoption of SFAS 141 and 142 will have on our financial position and results of operations. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective June 30, 2003 for ISIS. We believe the adoption of this statement will have no material impact on our consolidated financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value, less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. PART II- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 4 to the Financial Statements. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION. Not Applicable. 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8K. (a) Exhibits: (b) Reports on Form 8-K filed since the beginning of the current quarter: Form 8-K, dated November 1, 2001 reporting the contents of a conference call to shareholders, stockbrokers and potential investors regarding the preliminary fiscal year 2000 results. Form 8-K, dated November 30, 2001 reporting the extension of the Shareholder Rights Offering closing date to Dec 21, 2001, payment in full of the arbitration award and amounts purchased and/or committed to date in the Shareholder Rights Offering. Form 8-K, dated December 20, 2001 reported the extension of the Shareholder Rights Offering closing date to January 18, 2002. Form 8-K, dated January 17, 2002 reported the extension of the Shareholder Rights Offering closing date to February 1, 2002 and the scheduling of the Annual Shareholder's Meeting for April 30, 2002 for shareholders of record at close of business on March 28, 2002. 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. Integrated Spatial Information Solutions, Inc. Dated: February 14, 2002 /S/ Fred Beisser ---------------------------------------------- Frederick G. Beisser Vice President-Finance & Administration, Secretary & Treasurer and Principal Financial Accounting Officer 17 -----END PRIVACY-ENHANCED MESSAGE-----