10QSB 1 isis-10q301.txt QUARTERLY REPORT FOR MARCH 31, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . -------------- --------------- Commission file number 0-14273 INTEGRATED SPATIAL INFORMATION SOLUTIONS, INC. (Exact name of registrant as specified in its charter) COLORADO 84-0868815 ............................... .................. (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19039 East Plaza Drive, Suite 245 Parker, CO 80134 .................................................................... (Address of principal executive offices) (Zip Code) (720) 851-0716 ............................................. (Registrant's telephone number, including area code) ....................................................................... Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No 19,606,525 Common Shares were outstanding as of May 17, 2001. Number of pages in this report is 16. 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. We may also refer to our company as "ISIS" in this report. 2 Table of Contents Cautionary Note About Forward-Looking Statements 2 Part I Financial Information 4 Item 1. Financial Statements 4 Condensed and Consolidated Balance Sheets 4 Condensed and Consolidated Statements of Operations 6 Condensed and Consolidated Statements of Cash Flow 7 Notes to Condensed and Consolidated Financial Statements 8 Item 2. Management Discussion and Analysis 11 Part II Other Information 15 Signature 16 3 Part I Financial Information Item 1. Financial Statements
Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Balance Sheets March 31 September 30 2001 2000 (Unaudited) (Audited) -------------------------------------------------------------------------------- Assets Current: Cash and Cash Equivalents $ 9,910 $ 20,306 Accounts receivable (net of allowance for doubtful accounts of $0 and $1,007) 1,843,120 1,386,774 Prepaid expenses and other 99,734 172,154 --------------------------------------------------------------------------- Total current assets 1,952,764 1,579,234 --------------------------------------------------------------------------- Property and Equipment: Land and building under capital lease - related party 1,866,667 1,866,667 Equipment and furniture 706,670 699,165 Other leased assets 255,600 255,600 --------------------------------------------------------------------------- 2,828,937 2,821,432 Less accumulated depreciation and amortization 1,223,502 1,084,027 --------------------------------------------------------------------------- Net property and equipment 1,605,435 1,737,405 --------------------------------------------------------------------------- Other Assets: Goodwill, net of accumulated amortization 4,130,305 4,312,267 Other 86,954 102,974 --------------------------------------------------------------------------- Total other assets 4,217,259 4,415,241 --------------------------------------------------------------------------- $7,775,458 $7,731,880 ---------------------------------------------------------------------------
See accompanying notes to financial statements 4
Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Balance Sheets March 31 September 30 2001 2000 (Unaudited) (Audited) -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current: Notes payable - current maturities $ 574,793 $ 559,647 Other notes payable 246,530 -- Obligations under capital lease - current 1,630 13,286 Obligations under capital leases - related party - current 106,933 90,091 Checks written against future deposits 94,582 61,612 Accounts payable 935,086 871,288 Accrued payroll costs and vacation 379,701 325,613 Accrued expenses 545,767 696,841 Deferred revenue 299,834 201,578 -------------------------------------------------------------------------------- Total current liabilities 3,184,856 2,819,956 -------------------------------------------------------------------------------- Long-term Liabilities Obligations under capital leases - related party 1,662,705 1,712,217 -------------------------------------------------------------------------------- Total liabilities 4,847,561 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, 19,546,525 and 18,674,382 shares issued and outstanding March 31, 2001, and September 30, 2000, respectively 14,467,115 14,254,487 Common stock to be issued -- 25,000 Additional paid-in capital 3,553,366 3,400,882 Accumulated deficit (15,092,584) (14,480,662) -------------------------------------------------------------------------------- Total stockholders' equity 2,927,897 3,199,707 -------------------------------------------------------------------------------- $ 7,775,458 $ 7,731,880 --------------------------------------------------------------------------------
See accompanying notes to financial statements 5
Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Statements of Operations (Unaudited) Six months ended Three months ended March 31, March 31, --------- --------- 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------1 Revenues $ 3,438,028 $ 3,368,138 $ 1,789,006 $ 1,561,989 Cost and expenses Salaries and employee benefits 799,037 944,924 429,797 486,495 Direct contract costs 1,935,946 1,990,534 967,674 972,116 General & administrative costs 548,616 635,917 258,329 330,582 Marketing costs 103,491 154,655 62,661 88,007 Public & corporate affairs expense 145,573 33,127 27,281 18,730 Other operating costs 322,928 336,488 158,747 185,004 -------------------------------------------------------------------------------------------------------------- Total costs and expenses 3,855,591 4,095,645 1,904,489 2,080,934 -------------------------------------------------------------------------------------------------------------- Operating loss (417,563) (727,507) (115,483) (518,945) -------------------------------------------------------------------------------------------------------------- Other income (expense): Interest expense (238,763) (172,843) (158,166) (99,741) Other income 44,404 32,727 30,978 16,785 Loss on litigation -- (584,892) -- (584,892) -------------------------------------------------------------------------------------------------------------- Total other income (expense) (194,359) (725,008) (127,188) (667,848) -------------------------------------------------------------------------------------------------------------- Loss from continuing operations (611,922) (1,452,515) (242,671) (1,186,793) -------------------------------------------------------------------------------------------------------------- Net loss (611,922) (1,452,515) (242,671) (1,186,793) -------------------------------------------------------------------------------------------------------------- Preferred stock dividends -- (18,002) -- (9,152) -------------------------------------------------------------------------------------------------------------- Net loss attributable to common stockholders $ (611,922) $ (1,470,517) $ (242,671) (1,195,945) -------------------------------------------------------------------------------------------------------------- Basic and diluted loss per common share: Loss from continuing operations attributable to common stockholders $ (.03) $ (.10) $ (.01) $ (.08) Loss attributable to common stockholders $ (.03) $ (.10) $ (.01) $ (.08) Weighted average number of shares of common stock outstanding 19,260,453 14,484,849 19,411,556 15,544,840 --------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements 6
Integrated Spatial Information Solutions, Inc., and Subsidiary Condensed and Consolidated Statements of Cash Flow (Unaudited) Six Months Ended March 31, 2001 2000 ------------------------------------------------------------------------------- Operating Activities: Net loss $ (611,922) $(1,452,515) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 321,437 366,043 Provision for losses on accounts receivable (1,007) (51,577) Stock options and warrants issued/to be issued for services performed 124,500 181,050 Loss on litigation -- 505,000 Sale of assets -- (2,426) Write off of acquisition costs 25,608 -- Amortization of debt discount 75,000 -- Changes in operating assets: (Increase) decrease in accounts receivable (455,339) 248,184 (Increase) decrease in other assets 62,832 (25,784) Increase in accounts payable 310,529 196,768 Increase in accrued expenses (28,718) (228,371) Increase (decrease) in deferred revenue 51,191 (1,011) Increase in deposits 47,065 (143,187) ------------------------------------------------------------------------------- Net cash used in operating activities (78,824) (407,826) ------------------------------------------------------------------------------- Investing Activities: Purchase of equipment (7,505) (112,041) Restricted cash -- 25,000 ------------------------------------------------------------------------------- Net cash used in investing activities (7,505) (87,041) ------------------------------------------------------------------------------- Financing Activities: Payments on checks written against future deposits 32,970 102,450 Proceeds from borrowing 75,000 -- Payments on debt (172,649) (110,220) Proceeds from issuance of common stock 120,000 382,610 Proceeds from exercise of stock options 20,612 -- Payments on stock repurchase liability -- (47,556) ------------------------------------------------------------------------------- Net cash provided by financing activities 75,933 327,284 ------------------------------------------------------------------------------- Net increase (decrease) in cash (10,396) (167,583) Cash and cash equivalents, beginning of period 20,306 373,825 ------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 9,910 $ 206,242 -------------------------------------------------------------------------------
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 March 31, 2001, the consolidated results of our operations for the three and six-month periods ended March 31, 2001, and 2000 and statements of cash flows for the six-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 six-month period ended March 31, 2001, are not necessarily indicative of the results to be expected for the full year ending September 30, 2001. Certain prior year financial statements have been restated to conform to the current year presentation. (2) Accounts Receivable The components of accounts receivable are as follows:
March 31 September 30 2001 2000 ------------------------------------------------------------------------------- Contract Receivables: Billed 1,483,869 1,225,741 Unbilled 359,251 162,040 ------------------------------------------------------------------------------- 1,843,120 1,387,781 Less allowance for doubtful accounts -- 1,007 ------------------------------------------------------------------------------- Accounts receivable, net $ 1,843,120 $ 1,386,774
Deferred revenue amounts were $299,834 and $201,578 at March 31, 2001 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 or more customers. One customer accounted for 29.9% of revenue for the quarter ended March 31, 2001, compared to 19.5% of revenue for the largest and different customer for the quarter ended March 31, 2000. In addition, at March 31, 2001 two customers accounted for 40.7% and 15% of accounts receivable, compared to two different customers who accounted for 29.5% and 10% of accounts receivable at March 31, 2000. The largest of our current "customers" represents a contract vehicle utilized by as many as 10 different departments within the contracting organization through individual order assignments. The diversity of order assignments and range of departments as clients diminishes the concentration of revenue and receivables in a manner not obvious from the financial reports. 8 (3) Provision for Income Taxes At the beginning of the fiscal year we had net operating loss carryforwards of $9.8 million with expirations through 2020. At March 31, 2001, the amount of the net operating loss carryforward balance is estimated at $10.3 million. We expect to incur a minimal amount of alternative minimum tax for the fiscal year. Since we are unable to determine that deferred tax assets exceeding tax liabilities are more likely than not to be realized, we have recorded a valuation allowance equal to the excess deferred tax assets at fiscal year end. (4) 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 and 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 expired April 30, 2001 and we have obtained a commitment for a replacement line of credit with Branch Banking and Trust Company ("BB&T") providing for an initial maximum principal amount of $500,000 (See Note 11, below). We have initiated a recapitalization effort based on a rights offering to shareholders of our common stock (see Note 8, below). 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 would have been 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 costs. Subsequent to March 31, 2001 we made an initial payment of $48,000 and have developed a schedule for the balance that is acceptable to both parties. (6) Sale of Common Stock During a limited private offering that began in the fourth quarter of the prior fiscal year we sold 580,000 shares of our common stock and raised $145,000 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. 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 the common stock in this transaction was exempt from registration under the Securities Act of 1933, as amended, in reliance upon Section 4(2). (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. 9 (8) Recapitalization On February 9, 2001 the Board of Directors approved a recapitalization plan as a precedent to the further execution of the company's business plan. The Board of Directors authorized a rights offering to existing shareholders of our common stock and to certain other qualified parties. The Board directed management to prepare the SB-2 registration statement and related prospectus documents and to file them with the SEC. The Board has established April 30, 2001 as the record date and that the rights will 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 final filing with the SEC. The offering will be completed during the first half of calendar year 2001. The Board of Directors authorized consulting agreements with Crossways Consulting Group, Inc. and Brean Murray & Co., Inc. for advice and assistance in the completion of our shareholder rights offering. The agreements provide that we will, upon successful completion of the offering, issue warrants to each of the companies to acquire common stock in a quantity equal to two percent of the number of shares outstanding immediately after completing the offering. The warrant exercise fee will be equal to 110% of the shareholder rights subscription fee. (9) Related Party Transaction 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 Human Vision LLC, 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. As a result of this beneficial conversion feature, we have recorded the debt discount amount of $75,000 as a charge to interest expense and a credit to additional paid in capital as required by Emerging Issues Task Force ("EITF") Issue 98-5. The Board also approved a resolution authorizing us to provide to Human Vision LLC a security interest in the ownership of our subsidiary, PlanGraphics, Inc. as collateral for providing a standby letter of credit to further collateralize an extension of our subsidiary's line of credit with National City Bank of Kentucky. In a related matter, National City Bank provided extensions of the commercial notes underlying a line of credit for our operating subsidiary through June 11, 2001. See the discussion in Item 6, Management Discussion and Analysis in our Form 10-KSB for the fiscal year ended September 30, 2000. (10) 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 the three and six-month periods ending March 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 March 31, 2001 and 2000 were 7,250,747 and 8,065,880, respectively. (11) Subsequent Events. Line of Credit. On April 30, 2001 the Line of Credit with National City Bank with a loan balance of approximately $500,000 expired. Our subsidiary has received a line of credit commitment from a Maryland based banking institution, BB&T, comparable in terms with the previous line and for an initial amount of $500,000. The new line of credit will also be collateralized by the accounts receivable of PlanGraphics, a standby letter of credit provided by a related party, Human Vision L.L.C. and the personal guarantee of an officer and director. The closing of the line of credit is expected to occur by the end of May, 2001. In parallel, PlanGraphics, National City Bank of Kentucky and Human Vision L.L.C have agreed to an extension of the commercial note and the original standby letter of credit through June 11, 2001 to allow for an orderly transition of the line of credit. 10 Convertible Promissory Note. On May 21, 2001 the terms of the Human Vision promissory note concerning the note's conversion were amended effective as of the note's date of origination. The note, as amended, provides that any balance of unpaid principle or accrued interest remaining unpaid as of February 3, 2002 will automatically be converted into our common stock and that the holder shall not have the option to convert the note prior to such date. All other terms remain unchanged. ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition 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. 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 PlanGraphics for funds advanced in the normal course of business and for working capital through the fiscal year ending September 30, 2002. PlanGraphics 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 ISIS is approximately $1.5 million. Management intends to raise approximately $2.5 million net of expenses through the pending shareholder rights offering. In addition, management may seek additional and extended lines of credit. Our continued existence is uncertain if we are not successful in obtaining outside funding in an amount sufficient for us to meet our working capital requirements as we resume internal growth. To address our immediate needs for cash and liquidity, we have entered into a number of formal and informal agreements with vendors and professional service providers to extend the terms on payables currently due. Our accounts payable to trade at March 31, 2001 is approximately $200,200 which includes $90,000 beyond standard terms, and $42,000 in payables covered by informal agreements with five of our vendors. PlanGraphics has accounts payable to trade, subcontractors and vendors of approximately $734,900 of which $419,000 are beyond thirty days. It has formal payment arrangements with two vendors totaling $246,530. PlanGraphics also has informal agreements with an additional eight vendors and subcontractors for a total of $224,900. We also have reduced or delayed expenditures on items that are not critical to operations. During May 2001 PlanGraphics obtained a commitment from Branch Banking and Trust Company for a $500,000 line of credit to replace the line of credit with National City Bank of Kentucky that expired on April 30, 2001. The promissory note underlying the expired line of credit has been extended to June 11, 2001 to allow for an orderly transition to the new lender and PlanGraphics expects to finalize the transaction by the end of May, 2001. The new line of credit will expire on January 31, 2002. Furthermore, during the course of the fiscal year ended September 30, 2000, we were able to reduce monthly cash flows in excess of $27,000 per month after we made final payments to our former chief executive officer and to a former shareholder of PlanGraphics as well as "right"-sized our office leases. We also will continue to consider periodically the sale of our interest in Jobsview.com LLC, held by PlanGraphics. The 7.9% ownership interest of this entity is valued at our original investment cost of $56,400 on the PlanGraphics balance sheet. Sales during calendar year 2000 of equity by Jobsview.com would value our 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 during the past two quarters. We anticipate the improved results to continue through the remainder of 2001 as a result of increased contract backlog and assignments as discussed below. Although management feels there is a reasonable basis to believe that we will successfully raise the needed funds through equity and debt financing, and successfully extend or refinance the line of credit, 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. Even though we have successfully obtained working capital in the past by extending our line of credit and raising funds through private placements, there can be no assurance that we will be successful in the future. 11 We also suggest you read our Going Concern discussion on page 12 of our Form 10-KSB for September 30, 2000. Liquidity. Cash decreased to a total of $9,910 from $20,306 at September 30, 2000. The decrease was primarily due to the use of cash in operations. As of March 31, 2001, we had a net working capital deficit of $1,232,092 as compared to a working capital deficit of $440,758 at March 31, 2000. The increase in working capital deficit resulted primarily from the operating loss offset by funds from the private placement received in the first fiscal quarter. In the six months ended March 31, 2001, we used net cash of $78,824 in operations, as compared to $407,826 used in operations in the six months ended March 31, 2000. The reduction in cash use was related primarily to the operating loss coupled with the increase in accounts receivable offset by changes in several other operating asset and liability accounts. We expect to continue to have operating cash flow deficiencies for the near future as we develop and expand our business. In the six months ended March 31, 2001, net cash used in investing activities was $7,505 as compared to $87,041 of net cash used by investing activities in the six months ended March 31, 2000. Decreased equipment purchases accounted for the change. We generated net cash of $75,933 from financing activities in the six months ended March 31, 2001, as compared to $327,284 in the six months ended March 31, 2000. This decrease was primarily the result of increased payments on debt and a reduction of $262,000 in proceeds received from the issue of common stock. Capital Resources. As of September 30, 2000, we had lease payment commitments through 2005 of $2,403,075, that will require total annual payments of approximately $572,000 during the fiscal year ending September 30, 2001 as compared to $655,000 for the fiscal year ended September 30, 2000. Of the required payment amount for the current fiscal year, approximately $109,000 is for capital lease obligations and $463,000 relates to operating leases. Management believes normal operating cash flows are adequate to fund these payments. (See also Note 6 to the September 30, 2000 Financial Statements.) We consider our facilities adequate to support anticipated sales and operations for the next several years; accordingly, no major commitment for additional facilities expansion has been entered into for the year ending September 30, 2001. In recent years, however, we have transitioned to smaller and less expensive space when possible. If any of the existing leases were to be terminated, we believe there are affordable alternate facilities available and such action would not have an adverse impact. Since entering the information technology sector in 1997, we have funded our operations and working capital needs primarily through the public and private placement of our equity securities. In addition, a portion of our capital expenditures has been financed through capital lease obligations payable to financial institutions. We have also on occasion borrowed limited amounts from John C. Antenucci, our acting chief executive officer and Gary Murphy, PlanGraphics' chief financial officer in order to fund temporary working capital requirements. At March 31, 2001 there was no balance outstanding to them and we owed $75,000 to a director's company as discussed in Note 9, above. During the fiscal year that ended September 30, 2000, we issued 1,658,452 shares of common stock through two private placements in consideration of approximately $463,000 in gross proceeds. In connection with these sales, we also issued warrants to purchase 1,232,452 shares of common stock with varying expiration dates. The warrants are all immediately exercisable and 630,000 are valid for three years and have an exercise price of $.50 per share and 806,452 are valid for five years and have an exercise price of $0.65 per share. In October 2000, we completed the sale of another private offering to accredited investors and officers and directors. Pursuant to that offering, we 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, such warrants being exercisable for three years from the date of issue. 12 On February 9, 2001 we borrowed $75,000 from one of our directors and executed a convertible promissory note as discussed in Note 9, above. On May 15, 2001 we borrowed an additional $40,000 from the same director. The proceeds from these borrowings were used to meet certain working capital requirements. In addition, PlanGraphics has obtained a commitment from Branch Banking and Trust Company for a $500,000 line of credit to replace the line of credit with National City Bank of Kentucky that expired on April 30, 2001. The expired line of credit has been extended to June 11, 2001 to allow for an orderly transition to the new lender and PlanGraphics expects to finalize the transaction by the end of May, 2001. The new line of credit will expire on January 31, 2002. As of March 31, 2001, we had minimal cash and cash equivalents. 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. Our management team believes that our current operating funds along with the additional funds generated by the pending shareholder rights offering will be sufficient to fund our cash requirements through September 30, 2002. 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. Operations Outlook We believe that information technology, which includes geographic information systems or "GIS," continues to be a global market that is rapidly evolving and becoming the basis for a myriad of new applications and services to solve customer problems and creating additional markets. We also believe the potential gross profit margins in information technology are much higher than we presently experience and we are working to grow the spatial data management and integration solutions of our GIS business base according to forward looking statements in our business plan, augmenting growth to be achieved through acquisitions. PlanGraphics had work backlog and assignments of approximately $9.6 million as of March 31, 2001 and $8.6 million as of September 30, 2000, compared to $5.0 million of work backlog and order assignments as of March 31, 2000 and $5.4 million as of September 30, 1999. PlanGraphics reports backlog based on executed contracts. Assignments include contract awards where documentation is pending and task orders that are placed against existing indefinite quantity contract vehicles. A typical contract, standard for the industry, includes terms that permit termination for convenience by either party with 30 days prior notice. Most of our orders are from existing or previous customers with whom we have a good relationship. Therefore, we do not anticipate cancellation of such contracts or order assignments. The balance of the revenue from existing backlog and assignments will be recognized through the fiscal years ending September 30, 2002. Currently, we plan to grow internally and through acquisitions. We have made substantial progress in positioning PlanGraphics as a provider of Internet-accessible data repositories and warehouses that leverage spatial data. Several of our current assignments and a material portion of our contract backlog and assignments are associated with these initiatives. Furthermore our past marketing investments in China continue to yield results measured by the increased sales of Ikonos imagery, current and anticipated projects funded by the World Bank and a number of alliances and business partner arrangements that have been consummated. In addition, we have taken specific steps to position our company for additional acquisitions including reorganizing our corporate governance and management structure and the retention of third party advisors and investment bankers. Our management team believes that we have the capacity to address the 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 have reduced or delayed expenditures on items that are not critical to operations. Additionally, the underlying promissory note for the credit line available to PlanGraphics expired on April 30, 2001 but has been extended through June 11, 2001 to provide for an orderly transition to the new replacement line of credit. During May, 2001 PlanGraphics obtained a commitment from Branch Banking and Trust Company for a $500,000 line of credit to replace the expired line of credit with National City Bank of Kentucky. The new line of credit will expire on January 31, 2002. 13 We also periodically consider the sale of our interest in Jobsview.com L.L.C., held by PlanGraphics. The 7.9% ownership interest in Jobsview.com is valued at the investment cost of $56,400 on the PlanGraphics balance sheet. Recent sales of common stock by Jobsview.com during fiscal year 2000 would value our holdings at approximately $480,000. Efforts to conserve and to develop new sources of cash and equity are complimentary to the improved operating performance of PlanGraphics during the past two quarters. We anticipate the improvement to continue through the remainder of 2001 and to be accompanied by positive cash flows. Results of Operations: First Half of Fiscal Year 2001 Operating revenue for the first half of FY 2001 amounted to $3,438,028 a slight increase from $3,368,138 in the prior year and resulted entirely from our operating subsidiary, PlanGraphics, Inc., geographic information systems activities. Management believes that revenues were constrained by delays encountered in the start up of contracts and work assignments awarded in the fourth quarter of FY 2000 and the first quarter of FY 2001. As a consequence, delays of unexpected length previously impacted our revenue generation. Notices to proceed were obtained for most of the delayed assignments by mid-December. Accordingly, we have experienced small increases in revenue and expect to see further revenue increases in the ensuing quarters. Our total operating costs and expenses amounted to $3,855,591 or 112% of revenue, The costs reflect a reduction of operating costs from the prior year period of a $240,054 or 5.8%. Comparing year to year the major variances were reductions in salaries, employee benefits and overhead, partially offset by increased expenditures in public and corporate affairs. These costs are associated with the costs of 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 As noted above, revenues for our subsidiary, PlanGraphics, Inc. increased by 2% from the prior year's six month period. Operating costs for our subsidiary for the first half of FY 2001 were $3,251,270 or 94% of revenues, down 8% from $3,522,504 incurred during the same period a year prior. Our operating loss decreased by $309,944 or by 43% from last fiscal year's first half operating loss of $727,507. In addition to the reductions of operating costs and expenses, this decrease reflects a five percent reduction in interest expenses and no charges associated with litigation as was the case in the prior period. PlanGraphics had an operating income of $186,757 for the first half of FY 2001. This compares favorably to PlanGraphic's $154,367 net operating loss in the first half of FY 2000. Management believes PlanGraphics will continue its six month trend of positive cash flows and profitability. Interest expense increased from that of the prior year by $65,620 as a result of amortization of the expense related to a beneficial conversion recorded upon the issue of convertible debt (see Note 9) offset by a small decrease in the average outstanding balance of PlanGraphics' line of credit as compared to the prior year period and lower interest rates. Other income increased slightly to $44,404 from the prior year total of $32,727 principally as a result of improved commissions received on company travel transactions. Preferred stock dividends decreased from $18,002 to zero for the current period as there was no preferred stock outstanding during the period. Net losses, attributable to common stockholders amounted to $611,922 for the current period, a decrease of 58% or $840,593 from the prior period and resulted principally from the absence of litigation settlement costs of $584,892 that were reported in the prior year in addition to the factors described above. Second Quarter of Fiscal Year 2001 Operating revenue for the second quarter of FY 2001 amounted to $1,789,006 and resulted entirely from our operating subsidiary, PlanGraphics, Inc., geographic information systems activities. This level of current quarter revenue reflects an increase of 15% from the same period of the prior year. Management believes this increase 14 was related to the initiation of contracts awarded during the fourth quarter of FY 2000 and the first quarter of FY 2001. Our total operating costs and expenses amounted to $1,904,489 or 106% of revenue. The costs reflect a $176,445 or 8.5% reduction of operating costs from the same period in the prior year. Comparing year to year, cost incurred in all areas were reduced, the largest reduction in salaries, benefits and general overhead. The reductions were offset in some part with a small increase in public & corporate affairs expenses to $27,281. 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. Operating costs for PlanGraphics for the second quarter of FY 2001 were $1,641,877 or 92% of revenues. The subsidiary's operating costs in the second quarter FY 2001 increased 2% from $1,609,393 in the first quarter FY 2001, and decreased 7% or $116,987 from the same period a year prior. Our operating loss decreased by $403,462 or by 78% from last fiscal year's second quarter operating loss of $518,942. This change reflects $227,017 increase in revenues, a decrease of $176,445 in operating expenses and a suspension of acquisition activities and associated expenses. PlanGraphics had an operating income of $147,129 or 8% of revenue for the second quarter of FY 2001. This compares favorably to its net operating loss of $196,872 in the same quarter of the prior year. Management believes our PlanGraphics will continue its trend of positive cash flows and profitability. Interest expense increased from that of the prior year by $58,425 as a result of a amortization expense related to a beneficial conversion recorded upon the issueance of convertible debt (see Note 9) offset by a small decrease in the average outstanding balance of PlanGraphics' line of credit as compared to the prior year period. Other income increased 85% to $30,978 from the prior year total of $16,785 principally as a result of increased commissions received on travel transactions. Preferred stock dividends decreased from $9,152 to zero for the current period as there was no preferred stock outstanding during the period. Net loss attributable to common stockholders amounted to $242,671, or ($.01) per share for the current period, a decrease of $953,274 over the prior year quarter and resulted principally from the absence of $584,892 in litigation settlement expenses reported in the prior year and the reduction of $403,462 in operating losses. Net income of PlanGraphics was approximately $92,500 or 0.5(cent) per share Contract Backlog As of March 31, 2001, our operating subsidiary, PlanGraphics, had work backlog and order assignments of approximately $9.6 million comparing favorably to a total of $5.0 million of work backlog and assignments at March 31, 2000, $9.3 million on December 31, 2000, $8.6 million on September 30, 2000 and $5.4 million on September 30, 1999. We expect this 92% increase in backlog over the prior year to be reflected as increased revenue and profitability in the ensuing quarters. Deferred Tax Valuation Allowance -- FY 2001 We have net operating loss carryforwards of approximately $10.3 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. 15 ITEM 2. CHANGES IN SECURITIES During the month of March, 2001 we issued a total of 86,028 shares of unregisterd common Stock valued at $25,000 to Gary S. Murray as compensation for services as Chairman of the Board of Directors in a private offering pursuant to our Services Agreement of July 1999 with him. The resulting shares from the offering have not been registered with the Securities and Exchange Commission and 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) of the 1933 Act. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION. Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8K. Exhibits filed since the beginning of the current quarter: Exhibits 10.9, 10.10 and 10.11 filed February 20, 2001 with our Form 10-KSB for the period ended September 30, 2000 for documents related to a standby letter of credit provided by Human Vision LLC and a convertible promissory note we entered into with Human Vision LLC. Reports on Form 8-K filed since the beginning of the current quarter: 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. Form 8-K filed on March 14, 2001 announcing the revised record date of April 30, 2001 for shareholders entitled to participate in the Shareholder Rights Offering. 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: May 21, 2001 /S/ Fred Beisser ----------------- Frederick G. Beisser Vice President-Finance & Administration, Secretary & Treasurer and Principal Financial Accounting Officer