10QSB 1 plang1206.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, 2006. 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] Indicate by check mark whether the small business issuer is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes [ ] No [X] Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] 97,214,418 shares of common stock were outstanding as of August 31, 2007. 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; 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") 2006 and 2007; 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; 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 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, 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, 2006, (filed with the SEC 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. 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 10 Item 3. Controls and Procedures 15 Part II Other Information 15 Item 1. Legal Proceedings 15 Item 6. Exhibits 15 Signature Page 16 Exhibits 17 3
Part I Financial Information Item 1. Financial Statements PLANGRAPHICS, INC. CONSOLIDATED BALANCE SHEET (Unaudited) December 31, 2006 ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,469 Accounts receivable, net 1,438,437 Prepaid expenses and other 59,240 ------------ Total current assets 1,504,146 ------------ PROPERTY AND EQUIPMENT Equipment and furniture 361,057 ------------ 361,057 Less accumulated depreciation and amortization 316,751 ------------ 44,306 ------------ OTHER ASSETS Software, for future project use, net of accumulated amortization of $519,412 351,086 Other 10,926 ------------ 362,012 ------------ TOTAL ASSETS $ 1,910,464 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Mandatory redeemable Series A preferred stock, $0.001 par value, 500 shares issued and outstanding at December 31, 2006 $ 500,000 Notes payable - current maturities 253,051 Accounts payable 2,331,815 Accrued payroll costs 281,733 Accrued expenses 344,466 Deferred revenue and prebillings 495,707 ------------ Total current liabilities 4,206,772 ------------ LONG-TERM LIABILITIES Notes payable, less current maturities 35,460 ------------ TOTAL LIABILITIES 4,242,232 ------------ STOCKHOLDERS' DEFICIT Convertible preferred stock, $.001 par value, 20,000,000 shares authorized, no shares issued or outstanding -- Common stock, no par value, 2,000,000,000 shares authorized, 97,214,418 shares issued and outstanding 20,697,839 Accumulated deficit (23,029,607) ------------ (2,331,768) ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,910,464 ============ See accompanying notes to unaudited consolidated financial statements 4 PLANGRAPHICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three Months ended December 31, (Unaudited) 2006 2005 ------------ ------------ Revenues $ 1,426,039 $ 1,080,069 Cost of sales: Direct contract costs 759,243 718,032 Salaries and employee benefits 338,024 344,856 General and administrative expenses 144,461 257,497 Marketing expenses 6,814 21,068 Other operating expenses 63,404 58,671 ------------ ------------ Costs and expenses 1,311,946 1,400,124 ------------ ------------ Operating income (loss) 114,093 (320,055) ------------ ------------ Other income (expense): Other income 27,942 11,703 Interest expense (38,155) (30,539) ------------ ------------ (10,213) (18,836) ------------ ------------ Net income (loss) 103,880 (338,891) ------------ ------------ Preferred stock dividend (15,123) -- ------------ ------------ Net income (loss) available to common shareholders $ 88,757 $ (338,891) ============ ============ Net income (loss) per common share available to common shareholders Basic and diluted income (loss) per common share $ 0.001 $ (0.003) ------------ ------------ Weighted average number of shares of common stock stock outstanding - basic and diluted 97,214,418 97,214,418 ============ ============ See accompanying notes to unaudited consolidated financial statements 5 PLANGRAPHICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months ended December 31, (Unaudited) 2006 2005 --------- --------- Cash flows provided by (used in) operating activities: Net income (loss) $ 103,880 $(338,891) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 60,927 58,671 Allowance for doubtful accounts 1,011 -- Changes in operating assets and liabilities: Accounts receivable 148,539 126,663 Prepaid expenses and other 18,506 2,874 Other assets (1,510) (2,604) Accounts payable (83,837) 193,810 Accrued expenses (92,229) 6,658 Deferred revenue and prebillings (121,311) (177,851) --------- --------- Net cash provided by (used in) operating activities 33,976 (130,670) --------- --------- Cash flows provided by (used in) investing activities: Addition to software for future project use (12,477) (50,380) Purchases of equipment (6,925) -- Proceeds from sale of Jobview -- 198,250 --------- --------- Net cash provided by (used in) investing activities (19,402) 147,870 --------- --------- Cash flows used in financing activities: Payments on debt (10,000) -- Payments on notes payable - related parties -- (13,500) --------- --------- Net cash used in financing activities (10,000) (13,500) --------- --------- Net Increase in cash 4,574 3,700 Cash and cash equivalents at beginning of period 1,895 1,428 --------- --------- Cash and cash equivalents at end of period $ 6,469 $ 5,128 ========= ========= See accompanying notes to unaudited consolidated financial statements 6
PLANGRAPHICS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) Consolidated Financial Statements The summary of our significant accounting policies is incorporated herein by reference to our annual report of September 30, 2006, 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, 2006. 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 January 2006, our viability as a going concern is dependent upon our ability to achieve profitable operations through increased sales and the higher profit margins received from Xmarc sales. During the fiscal years of 1998 through 2006, we have experienced significant operating losses with corresponding reductions in working capital and stockholders' equity. We do not currently have any additional 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 team, and using attrition of senior and middle management to reduce costs. In August 2006, the Company sold $500,000 of redeemable preferred. 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, 2007. These financial statements should be read in conjunction with the Company's financial statements and notes for the year ended September 30, 2006, 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 financial statements accompanying our annual report on Form 10-KSB for the year ended September 30, 2006, the Company incurred net losses for the years ended September 30, 2006 and 2005. 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, 2006, financial statements, these factors raise substantial doubt about the Company's ability to continue as a going concern. While the Company is reporting net income for the three months ended December 31, 2006, and operations provided cash amounting to $33,976, the Company has a history of recurring losses over the years. These 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 funds needed to increase liquidity, fund growth in revenues and to implement its 7 business plan. We need to obtain working capital through additional debt or equity financings or from the sale of certain assets. Any additional equity financing could dilute the equity interests of existing security holders. If adequate funds are not available or are not available on acceptable terms, our ability to operate our business and fund our operations could be materially and adversely affected. No assurance can be given that the Company will be able to raise any additional capital. (3) Accounts Receivable The components of contract receivable are as follows: December 31, 2006 ---------- (Unaudited) Billed $ 869,216 Unbilled 670,819 ---------- 1,540,035 Less allowance for doubtful accounts 101,598 ---------- Accounts receivable, net $1,438,437 ========== At December 31, 2006, customers exceeding 10% of billed accounts receivable were international clients in China, 12%, and the New York City Department of Environmental Engineering (NYDEP), 26%. At the same date, a sole customer exceeded 10% of revenue for the quarter, NYDEP, 49%. At December 31, 2005, clients in China accounted for 18% of billed accounts receivable, the NYDEP 17% and the County of Los Angeles 13%. At the same date, customers exceeding 10% of revenue for the quarter were China, 16%, Los Angeles, 13%, and NYDEP, 12%. Billing terms are negotiated in a competitive environment and are 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 $495,707 at December 31, 2006 and represents amounts billed in excess of amounts earned. (3) Lease Obligations We lease various equipment as well as facilities under operating leases that expire through the year 2012. (4) Stock-Based Compensation. We adopted the provisions of SFAS No. 123R effective January 1, 2006. 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. Prior to January 1, 2006, we accounted for employee options under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, we would recognize compensation expense only if we granted options with a discounted exercise price. Any resulting compensation expense would then have been recognized ratably over the associated service period. No stock-based 8 employee compensation expense relating to our stock options was reflected in net loss, as all options granted had an exercise price equal to or greater than the market value of the underlying Common Stock on the respective date of grant. Prior to January 1, 2006, we provided pro-forma disclosure amounts in accordance with Statement of Financial Accounting Standard, ("SFAS") No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure" ("SFAS No. 148"), as if the fair value method defined by "Accounting for Stock-Based Compensation" ("SFAS No. 123"), SFAS No. 123 had been applied to the stock-based compensation. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition method. Under that transition method, compensation cost recognized in the three months ended December 31, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2006, (we had none) based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). There were no options exercised during the period ending December 31, 2006; accordingly, the total intrinsic value of options exercised to date during FY 2007 is $0. The weighted-average grant date fair value for options granted during FY 2006 was approximately $0.01. No options have been granted during the current fiscal year. For the three months ended December 31, 2006, net loss and the loss per share include and reflect the actual deduction for stock-based compensation expense. The total stock-based compensation expense for the three months ended December 31, 2006 was nil. The expense for stock-based compensation, had there been any, would have been a non-cash expense item. Because we did not have any unvested options or warrants as of December 31, 2006, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Equity Compensation Plan. (5) Net Loss Per Common Share. Basic loss per share includes no dilution and is computed by dividing income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, when appropriate. The total number of shares of common stock issuable upon exercise of warrants and options outstanding and exercisable at December 31, 2006 and 2005, were 15,174,116 and 14,255,639, respectively. 2006 2005 ---------- ---------- Options 11,316,904 10,356,760 Warrants 3,857,212 3,898,879 ---------- ---------- Total outstanding 15,174,116 14,255,639 The following is a reconciliation of the number of shares used in the Basic Earnings Per Share ("EPS") and Diluted EPS computations: Quarter ended December 31, 2006 2005 ---------- ---------- Basic EPS share quantity 97,214,418 97,214,418 Effect of dilutive options and warrants* -- -- ---------- ---------- Diluted EPS share quantity 97,214,418 97,214,418 *The closing market price of PGRA on December 31, 2006 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 would have been exercised and therefore none were included in the computation of diluted 9 earnings per share for the quarter ended December 31, 2006. Further, for the net-loss period ending December 31, 2005 we excluded any effect of outstanding options and warrants as their effect would be anti-dilutive. (6) Supplemental Cash Flow Information During the three months ended December 31, 2006, and 2005, PlanGraphics paid $34,445 and $11,893, respectively of interest. No payments of taxes were made. The increase in increase payments was a result of increased interest costs from factoring of accounts receivable. (7) 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 accounting period. Net sales and expenses denominated in foreign currencies 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 were considered to be insignificant as of the end of the reporting period. (8) Provision for Income Taxes At the beginning of this fiscal year we had net operating loss carryforwards of $16.4 million with expirations through 2026. At December 31, 2006, the amount of the net operating loss carryforward balance is estimated at $16.3 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, 2006 and at December 31, 2006. As a result, no provision or benefit for income tax has been recorded for the three months ended December 31, 2006. (11) Recently Issued Accounting Pronouncements In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. The Company is currently evaluating the impact of SFAS 159 on its consolidated financial position, results of operations, and cash flows. (11) Subsequent Events Extension of Employment Agreements for Parent Company Officers. During February 2007 the Company entered into amendments to the employment agreements of its chief executive officer and its chief financial officer, to extend the term of their existing employment agreements through December 31, 2007. Additional information was provided in Form 8-K, dated January 31, 2007 and filed with the Securities and Exchange Commission. On July 12, 2007 our Master Factoring Agreement with Rockland was extended through June 30, 2008, and effective August 1, 2007 the required minimum volume of transactions was reduced to $250,000 per month. 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 2006 approximately 67% of our sales were to customers in federal, state and local governments, and utilities; 24% to international customers and the remaining 9% to commercial enterprises. Our customers are located in the United States and foreign markets requiring locational or "spatial" information. The percentage of customers changed slightly during the first quarter of FY 2007 as state and local government and utility company revenues increased to 81% and international sales decreased to 13% of total revenues. 10 o We have a working capital deficit at December 31, 2006, of $2,702,626, and have had recurring net losses in all prior fiscal years back to 1998. The future viability of PlanGraphics is dependent upon our ability to achieve profitability in future operations and to secure needed funding to support operations. o Management's foremost challenge is coping with limited cash flows. o The Company does not have a line of credit; we depend 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 and employees to meet temporary working capital shortages. o On July 1, 2007 our Master Factoring Agreement with Rockland was automatically extended through June 30, 2008, and required volume reduced to $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 from time to time have delayed management and employee payrolls. We have experienced the departure of certain technical employees, reduced availability of subcontractors and increased legal costs related to negotiating work-out agreements and settlements with creditors. o About our business: o 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 emergency preparedness and public safety throughout the U.S. o We believe the critical factors for the future success of PlanGraphics are: o Achieving positive cash flows from operations by controlling costs; o Securing financing to support operations by the sale of securities or assets; o Changing our revenue mix to increase the amount of higher margin software sales; o Increasing lagging revenue through expanded lead generation and sales; and o Attaining net income. Financial Condition The following discussion of liquidity and capital resources addresses our requirements and sources as of December 31, 2006 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, 2006, appearing in our FY 2006 Form 10-KSB. Readers should take into account the auditor's going concern statement as well as the 11 liquidity caution appearing in Note B of the September 30, 2006 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 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 2006, we experienced significant losses with corresponding reductions in working capital and net worth and do not currently have any additional external financing in place to support operating cash flow requirements. Our revenues and backlog have also decreased substantially during the past two years. If we do not have the 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, or the sale of selected assets. These factors, among others, raise substantial doubt about our ability to continue as a going concern. We continue to experience significant liquidity issues that cause us to finance the resources needed with funds from operations and accretion of amounts owed to creditors. As a result, from time to time we have delayed payrolls and payment of subcontractor invoices. As of December 31, 2006, we had a net working capital deficit of ($2,702,626) versus a net working capital deficit of ($2,831,397) at September 30, 2006. This small improvement in working capital resulted from the current period net income. In the three months ended December 31, 2006, operations provided net cash of $33,976, as compared to $130,670 used in operations during the period ended December 31, 2005. This $164,646 change was primarily a result of the $441,771 change from net loss in the prior year period to net income in the current period. Our accounts receivable at December 31, 2006, have decreased by $149,550 since September 30, 2006, as we collected accounts. Notes payable with current maturities decreased $10,000 from September 30, 2006 as a result of payment of certain notes. In the period ended December 31, 2006, investing activities used $19,402 versus $147,870 provided by investing activities during the period ended December 31, 2005. The primary reason for the change was the receipt of amounts due from the sale of our investment in Jobview during the prior year period. Financing activities in the period ended December 31, 2006, used $10,000 as compared to net cash used of $13,500 in financing activities in the period ended December 31, 2005. The change was a result of payments to related parties in the period ended December 31, 2005, and on certain notes in the period ended December 31, 2006. Accounts receivable balances at December 31, 2006 and 2005, 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. Certain 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, coupled with the need to finance projects with cash from operations, places severe cash flow constraints on the Company requiring it to very closely manage its expenses and payables. We do not have a line of credit to support operations cash requirements. From time to time we have also borrowed funds from officers and employees to meet working capital needs. 12 Capital Resources Our Master Factoring Agreement with Rockland Credit Finance, LLC ("Rockland") was automatically extended to June 30, 2008. As of December 31, 2006, our cash and cash equivalents had increased from September 30, 2006 to $6,469. Operations Outlook While our factoring agreement (see above) now expires June 30, 2008, and we have raised funds from the sale of our interest in Jobview and of redeemable preferred stock, we expect that our operations will continue to be impacted by liquidity issues through the end of calendar year 2008. STEPsTM (Spatial Templates for Emergency Preparedness) is our proprietary approach to rapidly meet the growing needs of emergency management operations at state and local governmental levels to implement a clearly defined plan to converge unstructured data into a centralized datamart. It provides improved information sharing and operational efficiency to meet the needs of emergency planning, response and recovery coupled with economical and efficient means of implementing programs to deal with emergency responses and public security issues, giving us a distinct advantage over our competitors. We have partnered with a number of third party suppliers of applications, services and datasets that are embedded into STEPs. We also believe the potential gross profit margins in information technology are much higher than we presently experience. We are working vigorously to grow the spatial data management and integration solutions of our GIS business base. We had work backlog and assignments at December 31, 2006, of approximately $5.5 million, all of which was funded. This is a decrease from $13.1 million in our December 31, 2005 report. Our backlog includes projects that may take from three to 48 months to complete. More recently our backlog and assignments as of May 31, 2007, amount to approximately $3.9 million, all of which is funded. The Company anticipates approximately $2.3 million in additional assignments from clients currently under contract before December 31, 2007.The decrease in backlog and assignments over the past year was caused by the natural drawdown of multi-year contracts, the termination of contracts with a state and local government agency and the transfer of a China based project with associated backlog to a business partner. Delays in the completion of several competitive awards also hampered the process of securing new contracts to replace backlog converted to revenue. 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. Currently, we plan to continue building and leveraging strategic partnerships. We have made substantial progress in positioning PlanGraphics as a provider of Internet-accessible data repositories and warehouses that leverage spatial data and e-government solutions. As an example, the San Francisco Department of Telecommunications and Information Systems awarded us a project during FY 2006 to build out the "hub" of an inter-agency repository for the City and County's Criminal Justice System and we recently deployed a Societal Datamart for Metropolitan Louisville, Kentucky. We have taken actions to leverage our technical capabilities and reputation in order to improve cash flows and to reduce costs and expenses to the maximum extent possible. 13 Results of Operations Result of Operations for the three months Ended December 31, 2006 Revenues Our revenues increased $345,970 or 32% from $1,080,069 for the quarter ended December 31, 2005 to $1,426,039 for the quarter ended December 31, 2006. This increase was caused primarily by the increase in revenues associated with the NYDEP project. Costs and Expenses Total costs and expenses for the quarter ended December 31, 2006 amounted to $1,311,946, an $88,178 decrease from the $1,400,124 for the quarter ended December 31, 2005. This 6% decrease is primarily due to more efficient utilization of resources and reduced management costs associated with revenue generation. Direct contract costs increased by $41,211, or 6%; the increase was primarily related to a 240% increase in subcontractor costs of $325,834 offset by decreases of $153,052 in direct salaries, $109,495 in miscellaneous expenses and decreases totaling $22,076 in a variety of other direct costs. However, the overall 6% increase in direct contract costs was proportionately lower than the 32% increase in revenues. Salaries and benefits decreased slightly by approximately $6,832, or 2% as a result of attrition experienced in the prior fiscal year. General and administrative expenses decreased $113,036, or 44%, primarily as a result of a $111,337 decrease in overhead costs driven by decreases in rent, audit fee and lodging expenses; marketing expenses decreased further by $14,254, or 67%, as a result of limited budgets; and, finally, other operating costs experienced an increase of $4,733, or 8%, primarily as a result of increased depreciation expenses related Xmarc Version 7 during the current period but absent in the prior year period. Net Income On a consolidated basis, we reported operating income of $114,093 for the quarter ended December 31, 2006, as compared to an operating loss of $320,055 in the prior year. This change is attributable to increased revenues during the current quarter coupled with a small decrease in total costs and expenses in the current period. Interest expense amounted to $38,155 in the current quarter compared with $30,593 during the same period of the prior year; the increase occurred because of increased costs associated with factoring of accounts receivable. Other income increased from the prior year total by $16,239 due to increases in debt forgiveness and in royalties earned. On a consolidated basis, we are reporting net income of $103,880 for the quarter ended December 31, 2006, as compared to the net loss of $338,891 for the prior year period. The items noted above account for the change to net income. Income Taxes and Deferred Tax Valuation Allowance -- FY 2007 We reported net income for the three months ended December 31, 2006. Because of losses in prior years, we have generated a sizeable federal tax net operating loss, or NOL, carryforward which totals approximately $16.3 million as of December 31, 2006, versus $16.4 million at September 30, 2006. 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 three months ended December 31, 2006. 14 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, 2006 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, 2006. 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 year 2005. 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 attest to the accuracy of management's evaluation report. The requirement for management's evaluation of internal controls and the related auditor attestation of the accuracy becomes effective for the Company in the fiscal year ending September 30, 2008. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. There has been no change in status to the information reported in our Form 10-KSB for the year ended September 30, 2006. ITEM 6. EXHIBITS. (a) Exhibits: Exhibit 31.1,Section 302 Certification for the principal executive officer, dated September 6, 2007, and filed on page 17 of this report. Exhibit 31.2, Section 302 Certification for the principal financial officer, dated September 6, 2007, and filed on page 18 of this report. Exhibit 32.1, Sarbanes-Oxley Section 906 Certification for Chief Executive Officer, dated September 6, 2007, and filed on page 19 of this report. Exhibit 32.2, Sarbanes-Oxley Section 906 Certification for principal financial officer, dated September 6, 2007, and filed on page 20, of this report. 15 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: September 6, 2007 /S/ Fred Beisser Frederick G. Beisser Senior Vice President-Finance, Secretary & Treasurer (Principal financial and accounting officer) 16