10QSB 1 plang308.txt FORM 10-QSB (3-31-08) 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 March 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) Administrative Office at 1940 South Parker Road, #533 Parker, CO 80134 (720) 851-0716 -------------- (Registrant'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 [ ] No [X] Indicate by check mark whether the small business issuer is a shell company (as defined in Exchange Act Rule 12b-2) Yes [ ] No [X] 97,214,418 shares of common stock (no par value) were outstanding as of April 30, 2008. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] 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 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 fund diversification efforts, 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, 2007, (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 Table of Contents Part I Financial Information 4 Item 1. Consolidated Financial Statements (Unaudited) 4 Consolidated Balance Sheet 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 11 Item 3. Controls and Procedures 16 Part II Other Information 17 Item 1. Legal Proceedings 17 Item 6. Exhibits 17 Signature Page 18 Exhibits 3 Part I Financial Information Item 1. Financial Statements
PLANGRAPHICS, INC. CONSOLIDATED BALANCE SHEETS March 31, 2008 September 30, 2007 -------------- ------------------ (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents Cash $ 22,940 $ 36,711 Restricted cash -- 41,931 ------------ ------------ 22,940 78,642 Accounts receivable, less allowance for doubtful accounts of $14,151 and $0 for March 31, 2008 and September 30, 2007, 1,082,866 1,074,944 respectively Prepaid expenses and other 24,226 30,362 ------------ ------------ Total current assets 1,130,032 1,183,948 ------------ ------------ PROPERTY AND EQUIPMENT Equipment and furniture 368,352 367,515 Less accumulated depreciation and amortization (344,856) (337,837) ------------ ------------ 23,496 29,678 ------------ ------------ OTHER ASSETS Software development costs, net of accumulated amortization $749,884 and $657,967 at March 31, 2008 and September 30, 217,439 284,932 2007, respectively Other 5,871 10,518 ------------ ------------ 223,310 295,450 ------------ ------------ Total assets $ 1,376,838 $ 1,509,076 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Mandatory redeemable Series A preferred stock, $0.001 par value, 500 shares issued and outstanding at March 31, 2008 and September 30, 2007 $ 500,000 $ 500,000 Notes payable - current maturities 105,899 182,786 Accounts payable 2,706,898 2,558,265 Accrued payroll costs 203,577 304,366 Accrued expenses 350,078 367,217 Deferred revenue and prebillings 509,099 351,974 ------------ ------------ Total current liabilities 4,375,551 4,264,608 Notes payable - long-term, less current maturities -- 34,541 ------------ ------------ Total liabilities 4,375,551 4,299,149 ------------ ------------ STOCKHOLDERS' DEFICIT Common stock, no par value, 2,000,000,000 shares authorized, 97,214,418 and 97,214,418 shares issued and outstanding 20,697,839 20,697,839 Accumulated deficit (23,696,552) (23,487,912) ------------ ------------ Total Stockholders' Deficit (2,998,713) (2,790,073) ------------ ------------ Total liabilities and stockholder's deficit $ 1,376,838 $ 1,509,076 ============ ============ The accompanying notes are an integral part of these stateemnts. 4 PLANGRAPHICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the three and six month periods ended March 31, Six months ended Three months ended -------------------------------- -------------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ Revenues $ 2,070,054 $ 2,295,789 $ 1,036,424 $ 869,751 Costs and expenses Direct contract costs 1,247,362 1,271,401 716,454 512,158 Salaries and employee benefits 572,002 678,684 275,002 340,660 General and administrative expenses 290,542 300,003 157,371 155,542 Marketing expenses 7,060 14,767 4,534 7,953 Recovery of bad debt -- (95,497) -- (95,497) Other operating expenses 113,087 117,323 56,008 53,919 ------------ ------------ ------------ ------------ Total costs and expenses 2,230,053 2,286,681 1,209,369 974,735 ------------ ------------ ------------ ------------ Operating income (loss) (159,999) 9,108 (172,945) (104,984) ------------ ------------ ------------ ------------ Other income and (expense): Other income 43,380 38,646 13,341 10,704 Interest expense (92,021) (93,758) (48,350) (40,480) ------------ ------------ ------------ ------------ (48,641) (55,112) (35,009) (29,776) ------------ ------------ ------------ ------------ Net loss $ (208,640) $ (46,004) $ (207,954) $ (134,760) ============ ============ ============ ============ Basic and diluted loss per common share $ (0.002) $ (0.000) $ (0.002) $ (0.001) ============ ============ ============ ============ Weighted average number of shares of common stock outstanding - basic and diluted 97,214,418 97,214,418 97,214,418 97,214,418 ============ ============ ============ ============ The accompanying notes are an integral part of these statements. 5 PLANGRAPHICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the six months ended March 31, 2008 2007 --------- --------- Cash flows provided by operating activities: Net loss $(208,640) $ (46,004) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 98,936 114,844 Allowance for doubtful accounts 14,151 (94,484) Changes in operating assets and liabilities Accounts receivable (22,072) 86,954 Prepaid expenses and other 6,135 40,104 Other assets 4,647 (837) Accounts payable 148,633 122,091 Accrued expenses (117,929) (36,370) Deferred revenue and prebillings 157,125 (97,723) --------- --------- Net cash provided by operating activities 80,986 88,575 --------- --------- Cash flows used in investing activities: Purchases of equipment (836) (13,383) Software developed for future use (24,424) (32,858) --------- --------- Net cash used in investing activities (25,260) (46,241) --------- --------- Cash flows used in financing activities: Payments on debt (111,428) (41,916) --------- --------- Net cash used in financing activities (111,428) (41,916) --------- --------- Net increase (decrease) in cash (55,702) 418 Cash and cash equivalents at beginning of year 78,642 1,895 --------- --------- Cash and cash equivalents at end of period $ 22,940 $ 2,313 ========= ========= The accompanying notes are an integral part of these 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, 2007, 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, 2007. 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, our viability as a going concern is dependent upon our ability to maintain and increase profitable operations through increased sales and the higher profit margins received from Xmarc sales. During the fiscal years of 1998 through 2007 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, 2008. These consolidated financial statements should be read in conjunction with the Company's financial statements and notes for the year ended September 30, 2007, 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, 2007, the Company incurred net losses for the years ended September 30, 2007 and 2006. 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, 2007, financial statements, these factors raise substantial doubt about the Company's ability to continue as a going concern. For the six months ended March 31, 2008, the Company is reporting net loss of $208,640 and cash provided by operations amounted to $80,986, representing a decrease in net income from the same period of the prior year but an improvement in cash flow. The Company has had a history of net losses over the years. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. Management has taken aggressive action to reduce operating costs to the maximum extent possible and has established plans intended to increase the sales of the Company's products and services. Management intends to seek financing to provide 7 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: March 31, 2008 ---------- Billed $ 865,988 Unbilled 231,029 ---------- 1,097,017 Less allowance for doubtful accounts 14,151 ---------- Accounts receivable, net $1,082,866 ========== At March 31, 2008, customers exceeding 10% of billed accounts receivable were international clients in China (in the aggregate), 32%, New York City Department of Environmental Engineering (NYDEP), 20%, the Italian Ministry of Finance ("IMF"), 17%,and Hunter College, 11%. At the same date, customers exceeding 10% of revenue for the quarter were NYDEP, 30%, China clients (in the aggregate), 17%, San Francisco Department of Technology and Information Systems, 15%, and the IMF, 11%. At March 31, 2007, customers exceeding 10% of billed accounts receivable were the New York City Department of Environmental Protection (NYDEP), 26% and international clients in China, 35% (in the aggregate). At the same date, customers exceeding 10% of revenue for the quarter were NYDEP, 26%, and the IMF, 10%. Billed receivables include $52,427 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 ($346,298) less the net amount of funds employed by Rockland in servicing them ($293,872) which consists of actual cash advances, payments, and other reserves and fees related to the factoring agreement. Pursuant to the factoring agreement we have granted Rockland 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 $509,099 at March 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. (4) Lease Obligations We lease various equipment as well as facilities under operating leases that expire through the year 2012. 8 (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 did not grant options to acquire shares of common stock during the quarters ended March 31, 2008 and 2007, respectively. There were no options exercised during the period ending March 31, 2008; accordingly, the total intrinsic value of options exercised to date during fiscal year 2008 is $0. Because we did not have any unvested options or warrants as of March 31, 2008, there was no unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Equity Compensation Plan. (6) Net Loss Per Common Share. Basic loss per share includes no dilution and is computed by dividing income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, when appropriate. The total number of shares of common stock issuable upon exercise of warrants and options outstanding and exercisable at March 31, 2008 and 2007, were 8,447,790 and 11,254,904, respectively. 2008 2007 ---------- ---------- Options 8,447,790 11,254,904 Warrants -- -- ---------- ---------- Total outstanding 8,447,790 11,254,904 The following is a reconciliation of the number of shares used in the Basic Earnings Per Share ("EPS") and Diluted EPS computations: Periods ending March 31, Six months Three months ----------------------- ----------------------- 2008 2007 2008 2007 Basic EPS share quantity 97,214,418 97,214,418 97,214,418 97,214,418 Effect of dilutive options and warrants* -- -- -- -- ---------- ---------- ---------- ---------- Dilutted EPS share quantity 97,214,418 97,214,418 97,214,418 97,214,418 *The closing market price of PGRA on March 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 period ended March 31, 2008. Further, for the net-loss periods we excluded any effect of outstanding options and warrants as their effect would be anti-dilutive. 9
(7) Supplemental Cash Flow Information During the six months ended March 31, 2008, PlanGraphics paid $65,102 of interest. Also, payments of $1,065 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 gain of $14,339 during the six month period. (9) Provision for Income Taxes At the beginning of this fiscal year we had net operating loss carryforwards of $19.1 million with expirations through 2027. At March 31, 2008, the amount of the net operating loss carryforward balance is estimated at $19.3 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, 2007 and at March 31, 2008. As a result, no provision or benefit for income tax has been recorded for the six months ended March 31, 2008. (10) Recently Issued Accounting Pronouncements On February 6, 2008, the Financial Accounting Standards Board ("FASB") issued Financial Staff Position FAS 157-2, "Effective Date of FASB Statement No. 157." This Staff Position delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The delay is intended to allow the FASB and constituents additional time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of SFAS No. 157. The remainder of SFAS No. 157 was adopted by us effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of SFAS 157 in FY 2009 to have a significant impact on results of operations or financial condition. In March 2008, the FASB issued FASB Statement No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement 133" ("SFAS No. 161"). SFAS No. 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"; and (c) derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Earlier application is encouraged. Because the Company does not have derivative instruments nor hedging activities, Management does not expect adoption of this pronouncement to have any impact on its financial statements. (11) 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: 10 Geographic Information for the six month period ended March 31, Long-lived Accounts Revenues Assets Receivable ---------- ---------- ---------- 2008 United States $1,459,092 $ 236,903 $ 851,371 Europe 394,285 4,032 231,495 Asia 216,677 -- -- ---------- ---------- ---------- Total $2,070,054 $ 240,935 $1,082,866 2007 United States $1,832,697 $ 393,936 $1,311,746 Europe 308,515 5,456 181,433 Asia 154,577 -- -- ---------- ---------- ---------- Total $2,295,789 $ 399,392 $1,493,179 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 2007 approximately 67% of our sales were to customers in federal, state and local governments, and utilities; 22% to international customers and the remaining 11% to commercial enterprises. Our customers are located in the United States and foreign markets requiring locational or "spatial" information. The mix of customers remained comparable through the second quarter of fiscal year 2008. o We have a working capital deficit at March 31, 2008, of $3,245,519, 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, 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 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 June 30, 2008; it requires us to submit invoices amounting to an average of $250,000 per month. 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 as well as delayed payments to subcontractors and suppliers. 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. 11 About our business: Our consulting and systems integration and implementation capabilities include business and web-enabled solutions exploiting the advanced technologies of spatial information management systems (also known as geographic information systems), data warehousing, electronic document management systems and internal and external networks. o Our contracts are often awarded as long as two to three years after we initially contact a customer. In many instances we first provide consulting services to determine an appropriate solution to a need and then we subsequently receive a larger contract. o Our consulting and implementation practice operates nationally and abroad. We are also pursuing opportunities related to executive dashboards, emergency preparedness and public safety throughout the U.S. o Our primary customer base has traditionally included state and local governments and public utilities. Recently we have begun to experience a somewhat reduced number of opportunities and increased sensitivity to pricing in available competitive procurements that have been available. Federal agencies where PlanGraphics has expertise are also exhibiting a more cautious approach and pace to contracting. o We believe the critical factors for the future success of PlanGraphics are: o Maintaining and increasing positive cash flows from operations by controlling costs; o Securing financing arrangements to fund operations and expansion; o Changing our revenue mix to increase the amount of higher margin software sales; o Successfully meeting the challenges of an increasingly contracting economic environment through diversification; o Increasing lagging revenue through expanded lead generation and sales into a more diverse range of clientele; and o Increasing net income. Financial Condition The following discussion of liquidity and capital resources addresses our requirements and sources as of March 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, 2007, appearing in our FY 2007 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, 2007 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 2007, 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, 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. 12 We continue to experience significant liquidity issues that cause us to finance the resources needed with funds from operations and accretion of amounts owed to creditors. As a result, from time to time we have delayed payment of subcontractor invoices. As of March 31, 2008 we had a net working capital deficit of ($3,245,519) versus a net working capital deficit of ($3,080,660) at September 30, 2007. In the six months ended March 31, 2008, operations provided net cash of $80,986, as compared to $88,575 provided by operations during the period ended March 31, 2007. This $7,589 change was primarily a result of the decrease in our accrued payrolls and accrued expenses. Our accounts receivable at March 31, 2008, have increased slightly by $7,922 since September 30, 2007, as we earned revenue that had not yet been paid for by customers. Notes payable with current maturities decreased by $76,887 from September 30, 2007 as a result of the payment of certain notes while accounts payable grew by $148,898 during the same period due to cash unavailability. In the period ended March 31, 2008, investing activities used cash of $25,260 while it used $46,241 during the period ended March 31, 2007. The primary reason for the change was decreased purchases of equipment and software for future use in the current period. Financing activities in the period ended March 31, 2008, used $111,426 as compared to net cash used of $41,916 in financing activities in the period ended March 31, 2007. The change was a result of the paying down of certain interest bearing notes. Accounts receivable balances at March 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") continues through June 30, 2008, and it requires us to sell them an average of $250,000 of invoices per month. 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 apparently contracting US economy through the end of calendar year 2008. 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 markets. Subsequent to the economic stress of previous years on our primary customer base, the public sector, we see continuing 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 13 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 exceeds $600,000 per annum. As of February 28, 2008, we had work backlog and assignments of approximately $3.98 million, a decrease from the $4.8 million reported for March 31, 2007. All of the backlog at March 31, 2007, was funded while $3.1 million of our current backlog is funded. Xmarc and derivative product licensing sales do not enter our backlog data, although maintenance and value added reseller fees are included. We report 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. The decrease in backlog and assignments from March 31, 2007 was caused by the natural drawdown of multi-year contracts, the transfer of a China based project with associated backlog to a business partner; the completion of certain China based projects without replacement assignments, and, generally, a reduced number of competitive opportunities, in part as a result of a contracting economy and in part as a consequence of our need to constrain marketing budgets because of cash flow issues. Management has also taken the course of reducing its efforts in pursuit of additional projects in China as a prime contractor as a result of increased national (i.e. Chinese) and international competition and the bundling by the World Bank of multiple projects and multiple jurisdictions into single contracts. Delays in the completion of several competitive awards also impeded the receipt of new contracts to replace backlog converted to revenue. Recently we increased our focus on providing spatially enabled datamarts and decision dashboards. We have also made progress in positioning ourselves as a provider of Internet-accessible data repositories and warehouses that leverage spatial data through portals and executive dashboards. Several of our current assignments and a material portion of our contract backlog and assignments are associated with these initiatives. A recent example is the San Francisco Department of Telecommunications and Information Systems that awarded us a project during fiscal year 2006 to build out the "hub" of an inter-agency repository for the City and County's Criminal Justice System; they subsequently extended that assignment on two occasions. Recently we also successfully undertook the modernization of a military health systems forecasting toolset and database for Altarum Institute and we are now pursuing additional assignments through this third party. 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 Result of Operations for the three months Ended March 31, 2008 Revenues Our revenues increased $166,673 or 19% to $1,036,424 for the quarter ended March 31, 2008 from $869,751 for the quarter ended March 31, 2007. This increase was caused by induced activities on open contracts and by a greater number of active contracts in the 2008 period. 14 Costs and Expenses Total costs and expenses for the quarter ended March 31, 2008 amounted to $1,209,369, an increase of $234,634 from $974,735 for the quarter ended March 31, 2007. This 24% increase exceeds the 19% increase in revenue noted above. Direct contract costs increased by $204,296, or 40%; the increase was primarily related to an increase in subcontractor costs. The overall percent increase in direct contract costs well exceeded the 19% increase in revenues because of cost management decisions for continued and increased use of subcontractors over full-time staff. Salaries and benefits decreased by approximately $65,658, or 19% because of decreased salaries due to attrition. General and administrative expenses increased slightly by $1,829, or 1%; marketing expenses decreased further by $3,419, or 43%, due to prioritization of cash expenditures and a shift in marketing strategy; and other operating costs experienced a slight increase of $2,089 because of decreased depreciation and amortization. In addition, during the prior year period the Company recovered $95,497 previously recorded as bad debt expense which did not recur this year. Net loss On a consolidated basis, our operating loss for the quarter ended March 31, 2008 was $172,945, an increase of $67,961 over the prior year operating loss of $104,984. This change is attributable to the increase in total cost and expenses during the current quarter well exceeding the increase in revenue. Interest expense amounted to $48,350 in the current quarter and compares with $40,480 during the same period of the prior year; the 19% increase occurred because of increased factoring and interest paid to settle with creditors. Other income increased from the prior year total by $2,367 primarily as a result of increased interest income. On a consolidated basis, we incurred a net loss of $207,954 for the quarter ended March 31, 2008 as compared to the net loss of $134,760 for the prior year period. The impacts noted above account for the increase in the net loss. Result of operations for the six months ended March 31, 2008 Revenues Our revenues decreased $225,735 or 10% from $2,295,789 for the six month period ended March 31, 2007 to $2,070,054 for the period ended March 31, 2008. This decrease was caused primarily by a decrease in revenues from the subcontractor work. Costs and Expenses Total costs and expenses for the period ended March 31, 2008 amounted to $2,230,053, a decrease of $56,628, or 2%, compared to $2,286,681 for the period ended March 31, 2007. While costs and expenses decreased by 2%, revenues decreased by approximately 10% during the period. The decrease in costs and expenses is related to the items noted in the following paragraph. Direct contract costs decreased $24,039, or 2%, which was less than the 10% decrease in revenue. Salaries and benefits decreased by approximately $106,682, or 16%, primarily due to lower compensation costs compared to the prior year resulting from attrition of staff. General and administrative expenses decreased slightly by $9,461, or 3%; marketing expense decreased further by $7,707, or 52%, as a result of prioritization of cash expenditures and increased reliance on business partners for business development, other operating expenses decreased slightly by approximately 4% due to decreased depreciation and amortization. However, other operating expenses include a non-cash amortization amount of approximately $91,918 required to be recognized on our continuing investments in Xmarc software upgrades. Additionally, during the prior year period the Company recovered $95,497 previously recorded as bad debt expense which did not recur during the current year. 15 Net Income/Loss On a consolidated basis, we had an operating loss for the six month period ended March 31, 2008 of $159,999, a decrease from the prior year operating income of $9,108. This change is attributable to decreased revenues during the current period coupled with the very slight 2% decrease in total costs and expenses. Interest expense amounted to $92,021 in the current six month period and compares with $93,758 during the same period of the prior year. Other income increased from the prior year total by $4,734 primarily as a result of interest income in the current period. On a consolidated basis, we incurred a net loss of $208,640 for the six months ended March 31, 2008, as compared to the net loss of $46,004 for the prior year period. The decreased revenues and the impacts noted above account for the increased net loss. Income Taxes and Deferred Tax Valuation Allowance -- FY 2008 We reported net loss of $208,640 for the six months ended March 31, 2008. Coupled with losses in prior years, we have generated a sizeable federal tax net operating loss, or NOL, carryforward which totals approximately $19.3 million as of March 31, 2008, compared to $19.1 million at September 30, 2007. We have established a 100% valuation allowance on the net deferred tax asset arising from the loss carryforwards in excess of the deferred tax liability. The valuation allowance has been recorded as our management has not been able to determine that it is more likely than not that the deferred tax assets will be realized. As a result, no provision or benefit for federal income taxes has been recorded for the period ended March 31, 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, 2007 and filed with the SEC. ITEM 3. 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 14 of Part Two in our Form 10-KSB for September 30, 2007. 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-QSB and other Exchange Act filings. 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 believe that, other than as described below, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any significant deficiencies or material weaknesses of internal controls that would require corrective action. As of the date of filing this Form 10-QSB, we have begun the extensive process of documenting and evaluating our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act for fiscal 16 year 2008. Section 404 requires an annual management report of the effectiveness of our internal controls over financial reporting and that our independent registered public accounting firm will be required to attest to the accuracy of management's evaluation report effective with our fiscal year ending September 30, 2009. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. N/A ITEM 6. EXHIBITS. (a) Exhibits: Exhibit 31.1 Section 302 Certification for the principal executive officer, dated May 12, 2008, and filed on page 19 of this report. Exhibit 31.2, Section 302 Certification for the principal financial officer, dated May 12, 2008, and filed on page 20 of this report. Exhibit 32.1, Sarbanes-Oxley Section 906 Certification for Chief Executive Officer, dated May 12, 2008, and filed on page 21 of this report. Exhibit 32.2, Sarbanes-Oxley Section 906 Certification for principal financial officer, dated May 12, 2008, and filed on page 22, of this report. 17 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PLANGRAPHICS, INC. Dated: May 12, 2008 /S/ Fred Beisser ----------------------------------- Frederick G. Beisser Senior Vice President-Finance, Secretary & Treasurer (Principal financial and accounting officer) 18