-----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, FPtK8RlFRixP8mYcmVpIX/wdh0rsPLQ1wT7NMLR/3TY5OWU3niEZ1laOuXn2s/Wf yrxeU2WCCrc2UCnaSXJ8pg== 0001050502-01-000164.txt : 20010224 0001050502-01-000164.hdr.sgml : 20010224 ACCESSION NUMBER: 0001050502-01-000164 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010220 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: SEC FILE NUMBER: 000-14273 FILM NUMBER: 1550729 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: INTEGRATED SPATIAL INFORMATION SYSTEMS INC DATE OF NAME CHANGE: 19980710 FORMER COMPANY: FORMER CONFORMED NAME: DCX INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DOUGLAS COUNTY INDUSTRIES INC DATE OF NAME CHANGE: 19860109 10QSB 1 0001.txt 10QSB 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, 2000. 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 19,382,955 Common Shares were outstanding as of December 31, 2000. Number of pages in this report is 14. 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, 2000 and filed on Form 10-KSB under the caption "Item 1. Business - Risk Factors" beginning on page 8, 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. 2 Table of Contents Cautionary Note About Forward-Looking Statements 2 Part I, Financial 4 Condensed and Consolidated Balance Sheet 4 Condensed and Consolidated Statement of Operations 6 Condensed and Consolidated Statements of Cash Flow 7 Notes to Condensed and Consolidated Financial Statements 8 Management Discussion and Analysis 10 Part II Other Information 13 Signature 14 3 Part 1 Financial Statements Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Balance Sheets December 31 September 30 2000 2000 ----------- ----------- (Unaudited) (Audited) Assets Current: Cash and Cash Equivalents $ 107,253 $ 20,306 Accounts receivable (net of allowance for doubtful accounts of $3,462 and $1,007) 1,520,984 1,386,774 Prepaid expenses and other 115,730 172,154 ----------- ----------- Total current assets 1,743,967 1,579,234 ----------- ----------- Property and Equipment: Land and building under capital lease - related party 1,866,667 1,866,667 Equipment and furniture 706,668 699,165 Other leased assets 255,602 255,600 ----------- ----------- 2,828,937 2,821,432 Less accumulated depreciation and amortization (1,154,730) (1,084,027) ----------- ----------- Net property and equipment 1,674,207 1,737,405 ----------- ----------- Other Assets: Goodwill, net of accumulated amortization 4,221,286 4,312,267 Other 83,270 102,975 ----------- ----------- Total other assets 4,304,556 4,415,241 ----------- ----------- $ 7,722,731 $ 7,731,880 =========== =========== See accompanying notes to financial statements 4
Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Balance Sheets December 31 September 30 2000 2000 (Unaudited) (Audited) ------------ ------------ Liabilities and Stockholders' Equity Current: Notes payable - current maturities $ 780,762 $ 559,647 Obligations under capital lease - current 6,431 13,286 Obligations under capital leases - related party - current 96,735 90,091 Checks written against future deposits 32,186 61,612 Accounts payable 1,065,655 871,288 Accrued payroll costs and vacation 320,061 325,613 Accrued expenses 494,008 696,841 Deferred revenue 192,972 201,578 ------------ ------------ Total current liabilities 2,988,810 2,819,956 ------------ ------------ Long-term Liabilities Obligations under capital leases - related party 1,687,853 1,712,217 ------------ ------------ Total liabilities 4,676,664 4,532,173 ------------ ------------ 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, 19,382,955 and 18,674,382 shares issued and outstanding at December 31, and September 30, 2000, respectively 14,430,115 14,254,487 Common stock to be issued -- 25,000 Additional paid-in capital 3,465,866 3,400,882 Accumulated deficit (14,849,914) (14,480,662) ------------ ------------ Total stockholders' equity 3,046,067 3,199,707 ============ ============ $ 7,722,731 $ 7,731,880 ============ ============ 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, 2000 1999 ------------ ------------ Revenues $ 1,649,022 $ 1,806,145 ------------ ------------ Costs and expenses: Salaries and employee benefits 369,240 458,429 Direct contract costs 968,271 1,018,418 General & Administrative Costs 290,287 294,267 Marketing Costs 40,829 47,716 Being Public & Corporate Affairs 118,291 14,398 Other operating costs 164,183 181,482 ------------ ------------ Total costs and expenses 1,951,101 2,014,710 ------------ ------------ Operating loss (302,079) (208,565) ------------ ------------ Other Income (expense): Interest expense (80,597) (73,102) Other income(expense) 13,424 15,942 ------------ ------------ Total other income (expense) (67,173) (57,160) ------------ ------------ Net loss (369,252) (265,725) ------------ ------------ Preferred stock dividends -- (8,850) ------------ ------------ Net loss attributable to common stockholders $ (369,252) $ (274,575) ------------ ------------ Basic and diluted loss per common share: Loss from continuing operations attributable to common stockholders $ (0.02) $ (0.02) Loss attributable to common stockholders (0.02) (0.02) ============ ============ Weighted average number of shares of common stock outstanding 19,112,635 13,340,118 ============ ============ 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, 2000 1999 --------- --------- Operating Activities Net loss $(369,252) $(265,725) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 161,684 181,483 Provision for losses on accounts receivable 2,456 (30,000) Stock options and warrants issued/to be issued for services performed 81,000 (5,291) Sale of assets -- (1,213) Changes in operating assets: (Increase) decrease in accounts receivable (81,692) (124,188) (Increase) decrease in other assets 26,191 (32,556) Increase in accounts payable 29,543 284,255 Decrease (increase) in accrued expenses (49,561) (309,191) Increase (decrease) in deferred revenue (8,142) 131,082 Increase in deposits (5,500) (67,266) --------- --------- Net cash used in operating activities (213,273) (238,610) --------- --------- Investing Activities: Purchase of equipment (7,507) (88,317) --------- --------- Net cash used in investing activities (7,507) (88,317) --------- --------- Financing Activities Payments on checks written against future deposits (29,426) -- Proceeds from borrowing 185,000 -- Payments on debt 11,541 (94,435) Proceeds from exercise of stock options 20,612 -- Proceeds from Issuance of common stock 120,000 156,041 Payments on stock repurchase liability -- (25,738) --------- --------- Net cash provided by financing activities 307,727 35,838 --------- --------- Net increase (decrease) in cash 86,947 (291,059) Cash and cash equivalents, beginning of period 20,306 373,825 --------- --------- Cash and cash equivalents, end of period $ 107,253 $ 82,766 ========= ========= 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 The condensed and consolidated financial statements included herein have been prepared by us 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, 2000, the consolidated results of our operations for the three-month periods ended December 31, 2000, and 1999 and statements of cash flows for the three-month periods then ended. The accounting policies followed by us are set forth in the annual report of September 30, 2000, filed on Form 10-KSB and the audited consolidated financial statements in it with the accompanying notes. While management believes 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, 2000, are not necessarily indicative of the results to be expected for the full year ending September 30, 2001. (2) Accounts Receivable The components of accounts receivable are as follows: December 31 September 30 2000 2000 ---------- ---------- Contract Receivables: Billed 1,197,162 1,225,741 Unbilled 327,284 162,040 ---------- ---------- 1,524,446 1,387,781 Less allowance for doubtful accounts 3,462 1,007 ---------- ---------- Accounts receivable, net $1,520,984 $1,386,774 Deferred revenue amounts were $127,6821 and $130,788 at December 31. 2000 and September 30, 2000, respectively, which represents amounts billed in excess of amounts earned. We have historically received greater than 10% of annual revenues from one customer. One customer accounted for 37.5% of revenue for the quarter ended December 31, 2000, compared to 15.6% of revenue for the largest customer for the quarter ended December 31, 1999. In addition, at December 31, 2000 two customers accounted for 32.0% and 13.2% of accounts receivable, compared to two customers who accounted for 15.8% and 11.4% of accounts receivable at December 31, 1999. (3) Provision for Income Taxes At the beginning of the fiscal year we had net operating loss carryforwards of $9.8 million with expirations through 2020. At December 31, 2000, the amount of the net operating loss carryforward balance is estimated at $10.1 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 will record a valuation allowance equal to the excess deferred tax assets at fiscal year end. 8 (4) Going Concern Issues As a result of recurring losses from operations over several years, negative cash flows and certain other factors, the report of our independent certified public accountants for the fiscal year ended September 30, 2000 includes a qualification statement in the audit opinion expressing substantial doubt about our ability to continue as a going concern. Management believes that we have the capacity to address our immediate needs for cash and liquidity through an aggressive approach on a number of fronts. We have entered into a number of formal agreements and promissory notes as well as informal agreements with vendors and professional service providers to extend the terms on payables currently due. We also have reduced or delayed expenditures on items that are not critical to operations. The credit line available to our subsidiary organization has been extended through April 30, 2001. We have initiated a recapitalization effort based on a rights offering to shareholders of our common stock. Furthermore, during the course of FY 2000 we reduced monthly operational cash flow in excess of $27,000 per month and made final payments to our former CEO and to a former shareholder of PlanGraphics as well as "right" sizing our office leases. We recommend you review the Form 10-KSB for September 30, 2000 and read the more extensive Going Concern discussion at the beginning of Item 6, Management's Discussion and Analysis of Financial Condition and Results of Operations, appearing on page 12 of that report and footnote 1 to the consolidated financial statements. (5) 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. He claimed that he was constructively discharged and sought severance compensation equal to three year's compensation as allegedly provided for in his employment agreement. We asserted that he resigned and was not constructively discharged; therefore he was entitled to no severance compensation. 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 filed an appeal of that award in State Circuit Court for Duval County, Florida. The appeal was not sustained. We will have to pay our former CFO the awarded sum and have entered into discussion with him to develop a schedule for the payment. At this point in time the payment schedule has not yet been finalized. (6) Sale of Common Stock During a limited private offering that began in the fourth quarter of this fiscal year we sold 630,000 shares of our common stock and raised $157,500 with accredited investors and certain affiliates of our company. The offering consisted of $1,000 units each of which included 4,000 shares of common stock and three-year warrants to purchase 2,000 shares of common stock at $0.50 per share. We expect to receive a portion of the offering, $12,500 for 50,000 shares, in the ensuing quarter. The resulting shares from the offering have not been registered with the Securities and Exchange Commission and the resulting shares of stock are subject to the restrictions in Rule 144. The issuance of this common stock in this transaction was exempt from registration under the Securities Act of 1933 in reliance upon Section 4(2) promulgated under Section 3(b) of the 1933 Act. (7) Lease Obligations We lease various equipment as well as facilities under capital and operating leases that expire through the year 2005 as noted in Note 7 to the Consolidated Financial Statements in Form 10-KSB September 30, 2000. (8) Subsequent Events 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 Board directed management to prepare the S-1 registration statement and related prospectus documents and to file them with the SEC. The Board established March 16, 2001 as the record date and that the rights would be non-transferable. The company determined that it would establish and announce the pricing, volume, subscription ratio, other terms of the offering and the anticipated issuance date at the time of its filings with the SEC. The offering will be completed during the first half of calendar year 2001. 9 On February 9, 2001, the Board of Directors also approved a loan of $75,000 and we entered into a convertible promissory note payable to an entity controlled by a director. The proceeds are to be used for certain specified working capital requirements. The note matures on October 21, 2001 and is convertible into our common stock at the option of the holder at a designated conversion price of $0.07 per share or the price per share of any rights offering, whichever is lower. The Board also approved a resolution authorizing us to provide to a related party 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 with National City Bank of Kentucky. In a related matter, National City Bank provided an extension of a $500,000 line of credit for our operating subsidiary through April 30, 2001. See the discussion in Item 6, Management Discussion and Analysis in our Form 10-KSB for the fiscal year ended September 30, 2000. We previously reported that our backlog of contracts and assignments increased from $8.6 million as of September 30, 2000 to $9.3 million as of December 31, 2000 an increase of 8% from the prior quarter and 102% from the comparable period in the prior year. In November 2000 we announced that we entered into a Letter of Intent to acquire certain business assets of both Microhard Technology, Inc and Certified Professionals and Engineers, Inc. As a result of due diligence reviews we decided to allow the Letter of Intent to lapse at the end of January, 2001 without a transaction. Both parties to the Letter of Intent have agreed to work together on a number of strategic and tactical initiatives and to revisit the acquisition discussions in the future. (9) Net Loss Per Common Share. 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. As we incurred net losses in both three month periods ending December 31, none of our outstanding options or warrants were included in the computation of diluted earnings per share as their effect would be anti-dilutive. The total of warrants and options outstanding at December 31, 2000 and December 31, 1999 were 7,008,405 and 6,941,201, respectively. PART 1, ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS Forward-Looking Statements. This quarterly report contains certain forward-looking statements that describe the future business, prospects, actions and possible results of Integrated Spatial Information Solutions, Inc. (the "Company") and the expectations of the Company and its management which are not historical facts and therefore constitute forward-looking statements as contemplated in the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth. As a result, there also can be no assurance that the forward-looking statements included herein will prove to be accurate or that the objectives and plans of the Company will be achieved. Going Concern: In connection with their audit report on our Consolidated Financial Statements as of and for the year ended September 30, 2000, BDO Seidman, LLP, our independent certified public accountants, expressed substantial doubt about our ability to continue as a going concern because of recurring net losses and negative cash flow. Our operations are not currently profitable, although our subsidiary operation when viewed on a stand-alone basis has experienced breakeven or better levels of profitability since June 30, 2000. 10 We require additional funds to bring current our accounts payable, to satisfy our obligations to a former officer as a result of an arbitration award, to repay our operating subsidiary for funds advanced in the normal conduct of business and for working capital for FY 2001. The subsidiary organization requires funds in excess of the amounts due from the parent organization to provide working capital for operations and growth of its business. The minimum level of funding that we require to meet the aforementioned funding requirements for the parent organization is approximately $1.5 million. Management intends to raise approximately $2.5 million through a rights offering during the first half of calendar year 2001 to our shareholders and certain other qualified investors (see Subsequent Events). Sums in excess of the $1.5 million will provide additional working capital for our subsidiary. In addition, management will seek additional and extended lines of credit. Management believes that we have the capacity to address our immediate needs for cash and liquidity through an aggressive approach on a number of fronts. We have entered into a number of formal agreements and promissory notes as well as informal agreements with vendors and professional service providers to extend the terms on payables currently due. We also have reduced or delayed expenditures on items that are not critical to operations. The credit line available to our subsidiary organization has been extended through April 30, 2001. We have initiated a recapitalization effort based on a rights offering to shareholders of our common stock. Furthermore, during the course of FY 2000 we reduced monthly cash flows in excess of $27,000 per month as a result of final payments to our former CEO and to a former shareholder of PlanGraphics as well as "right" sizing our office leases. We also will continue to periodically consider the sale of our interest in Jobsview.com L.L.C., held by our operating subsidiary. The 7.9% ownership interest of this entity is valued at our original investment cost of $56,400 on the PlanGraphics balance sheet. Recent sales of equity by Jobsview.com would value the holdings at approximately $460,000. Efforts to conserve and develop new sources of cash and equity are complimentary of the improved operating performance of our operating subsidiary since June 30, 2000. We anticipate the improved results to continue through the remainder of 2001 as a result of increased contract backlog and assignments as previously discussed. Although management believes there is reasonable basis that we will successfully raise the needed funds through equity and debt financing, no assumption can be made that we will be able to raise sufficient capital to sustain operations or that the subsidiary business will be able to achieve a level of profitability sufficient to carry the parent company's operating expenses. We suggest you read our Going Concern discussion on page 12 of our Form 10-KSB for September 30, 2000. Financial Condition: Liquidity. Cash increased to a total of $107,253 from $20,306 at September 30, 2000. The increase was primarily due to the receipt of proceeds from a private common stock offering. Presently, we have a working capital deficit of approximately $1,244,843 versus working capital of $124,864 a year prior. The primary reason for this decrease was the amount of net losses recognized during FY 2000 resulting from decreased revenue and from non recurring expenses for litigation settlements. As a result of losses from operations and the deficit working capital balance, our ability to timely meet payment due dates could be in question. Our management team estimates that, based upon current expectations for growth, we will require additional funding of up to $2.5 million for the recapitalization of the company and the execution of our current business plan, including the financing of our anticipated capital expenditures, operating losses and the evaluation of acquisition targets. Of the $2.5 million, an estimated $1.2 million will be used to reduce accounts payable and to settle an arbitration award. The balance will be used for general working capital. In addition to increased cash flow from operations and deferrals of payments through agreements with contractors and vendors, we intend to obtain this funding from one or more of the following sources: o a rights offering to shareholders of the company's common stock and other qualified parties during the first half of calendar year 2001; o the receipt of proceeds from the exercise of warrants and options that are priced at $0.50 or less per share of underlying common stock. We have approximately 1,250,464 at December 31, 2000 of such options and warrants that are presently exercisable and if 75% were to be exercised would produce about $332,000 in proceeds. At the present time the market price is too low to expect the receipt of proceeds; and 11 o extending a credit facility to finance working capital and capital expenditures. Our management team believes our current operating funds, along with these additional financing sources, will be sufficient to fund our cash requirements for at least the next twelve months. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders; however, we will provide existing shareholders an opportunity to protect their position through a rights offering during the first half of calendar 2001. In addition, we will, from time to time, consider the acquisition of or investment in additional complementary businesses, products, services, and technologies; and the repurchase and retirement of debt, which might impact our liquidity requirements or cause us to issue additional equity or debt securities. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. Should we be unsuccessful in our efforts to raise capital, we may be required to modify or curtail our plans for growth. Capital Resources. During this period our operating subsidiary successfully negotiated an extension to its asset based line of credit to provide flexibility in managing cash flows. In addition the Company completed a limited private offering to our officers and directors and certain other accredited investors during the current period. As of the filing of this report we have issued 580,000 shares of common stock for gross proceeds of $145,000. We also issued 290,000 warrants to purchase common stock at a price of $0.50 per share. They are valid for three years. The Company's long-term liquidity requirements may be significant in order to implement its plans. There can be no guarantee such funds can be secured. Results of Operations: First Quarter of Fiscal Year 2001 Operating revenue for the first quarter of FY 2001 amounted to $1,649,022 and resulted entirely from our operating subsidiary, PlanGraphics, Inc., geographic information systems activities. This level of current quarter revenue reflects a decrease of 9% from the same period of the prior year. Management believes this decrease was related to delays encountered in the start up of contracts and work assignments awarded in the fourth quarter of FY 2000 and the first quarter of FY2001. Although we typically encounter some lag time finalizing contractual arrangements with client organizations and arranging needed resources before we can begin work, the length of the delay is unpredictable. As a consequence, delays of unexpected length impacted our revenue generation. In large part, notices to proceed were obtained for most of the delayed assignments by mid-December. As a consequence of this recent development, when taken in conjunction with the 102% increase in our backlog of work to $9.3 million from $4.6 million last year at this time, we expect to see increased revenue in the ensuing quarters. Revenue for the first quarter of FY 2001 represented an increase of 6.7% over revenue generated from operations in the fourth quarter of FY 2000 despite the delayed assignments mentioned previously and a 44% increase over revenue generated from operations in the third quarter of FY2000. Management believes this trend of revenue increases is a result of increased levels of contracts and assignments developed over the past 6 months, a trend that is anticipated to continue through the remainder of the year based on our 100% increase in backlog and assignments over last year at this time. Our total operating costs and expenses amounted to $1,951,101 or 118% of revenue. The costs reflect a $63,609 or 3.2% reduction of operating costs from the same period in the prior year. Comparing year to year the major variance was an increase of $103,893 in the first quarter of FY 2001 for expenditures on being public; costs principally associated with increased fees for audits, investment banking and shareholder communications. Reductions in costs were a result of spending constraints implemented to better align costs with revenues while accommodating a need for more aggressive corporate development and communications. General and Administrative costs remained constant and all other categories of cost were reduced in approximate proportion to the reduced revenues (i.e., 9%). Operating costs for our subsidiary for the first quarter of FY 2001 were $1,601,764 or 97% of revenues. Its operating cost in first quarter FY 2001 were down 3% from $1,650,033 of the prior quarter and 10.1% or $161,876 from the same period a year prior. 12 Our operating loss increased by $93,514 or by 45% from last fiscal year's first quarter operating loss of $208,565. This change reflects the $103,893 of increased expenditures for being public and corporate affairs. Had the company elected to constrain expenditures on corporate affairs and shareholder communications, operating losses could have been lower; reducing the loss to a level comparable to the same period of the prior year. Our subsidiary had an operating income of $47,307 or 3% for the first quarter of FY 2001. This compares favorably to the subsidiary's $89,672 net operating loss in the fourth quarter of FY 2000 and is comparable to the prior year period operating income of $42,504. The operating loss in the prior quarter was offset in part by a $70,000 settlement of an infringement of a non compete agreement to the benefit of our subsidiary. Management believes our operating subsidiary will continue its six month trend of positive cash flows and profitability. Interest expense increased slightly from that of the prior year by $7,495 as a result of higher interest rates and a small increase in the average outstanding balance of PlanGraphics' line of credit as compared to the prior year period. Other income decreased slightly to $13,425 from the prior year total of $15,952 principally as a result of reduced commissions on travel expenditures. Preferred stock dividends decreased from $8,850 to zero for the current period as there was no preferred stock outstanding at December 31, 2000. Net loss attributable to common stockholders amounted to $369,252 for the current period, an increase of $94,677 over the prior quarter resulted principally from the first quarter increase in expenses related to corporate affairs and being public. Contract Backlog We have a backlog of GIS contracts and work assignments amounting to approximately $9.3 million. The year prior there was $4.6 million of uncompleted work in the backlog. We expect this 102% increase in backlog to be reflected as significantly increased revenue in the ensuing quarters. Deferred Tax Valuation Allowance -- FY 2001 We have net operating loss carryforwards of approximately $10.1 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 carry forwards 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. PART II- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 5. ITEM 2. CHANGES IN SECURITIES During a limited private offering that began in the third quarter of fiscal year 2000 we sold 630,000 shares of our common stock and to raise $157,500 with accredited investors and certain affiliates of our company. The offering consisted of $1,000 units each of which included 4,000 shares of common stock and three-year warrants to purchase 2,000 shares of common stock at $0.50 per share. We expect to receive the remaining subscription for $12,500 and 50,000 shares in the ensuing quarter. The resulting shares from the offering have not been registered with the Securities and Exchange Commission and the resulting shares of stock are subject to the restrictions in Rule 144. The issuance of this common stock in this transaction was exempt from registration under the Securities Act of 1933 in reliance upon Section 4(2) promulgated under Section 3(b) of the 1933 Act. 13 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 16, 2000 our shareholders elected the following Board of Directors at the Annual Shareholders' Meeting. The results of the election were: Director Nominee Votes for Votes Withheld ---------------- --------- -------------- Jeanne Anderson 14,075,216 913,480 John C. Antenucci 14,874,511 114,185 Frederick G. Beisser 14.828,195 160,501 Gary S. Murray 14,875,171 113,525 Raymund E. O'Mara 14,874,671 114,028 Gary Reed 14,791,772 194,924 No other matters were voted on during the meeting. ITEM 5. OTHER INFORMATION. Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8K. Exhibits filed since the beginning of the current quarter: See Exhibits 10.9, 10.10 and 10.11 filed with our Form 10-KSB for the period ended September 30, 2000 for documents related to a standby letter of credit provided by a related party and a convertible promissory note we entered into with a related party. Reports on Form 8-K filed since the beginning of the current quarter: See Form 8-K filed on January 16, 2001 disclosing the delay in filing our Form 10-KSB for September 30, 2000 and that it would be filed in approximately 30 days. 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 19, 2001 /S/ Fred Beisser ---------------- Frederick G. Beisser Vice President-Finance & Administration, Secretary & Treasurer and Principal Financial Accounting Officer 14 -----END PRIVACY-ENHANCED MESSAGE-----