SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission
June 30, 1996 File No. 33-9390
INFORMATION ANALYSIS INCORPORATED
(Exact name of Registrant as specified in its charter)
Virginia 54-1167364
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2222 Gallows Road, Suite 300
Dunn Loring, VA 22027
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number,
including area code) (703) 641-0955
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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
-------------- -------------
State the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1996:
Common Stock, par value $.01, 464,303 shares
Transitional small business disclosure format.
Yes No x
---------- ----------
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1996
ASSETS
Current assets
Cash and cash equivalents $ 93,765
Accounts receivable 2,838,593
Employee advances 33,721
Deferred income taxes 95,887
Prepaid expenses 164,839
Other receivables 68,867
-----------------
Total current assets 3,295,672
Fixed assets
At cost, net of accumulated depreciation
and amortization of $1,135,694 237,254
Equipment under capital leases
Net of accumulated amortization of $45,471 60,350
Investments 10,000
Goodwill 99,606
Other receivables 157,660
-----------------
Total assets $ 3,860,542
=================
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1996
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,120,111
Accrued payroll 280,291
Other accrued liabilities 95,911
Note payable - bank 50,000
Current portion of note payable - other 115,413
Current maturities of capital 18,229
lease obligations
Income taxes payable 7,664
Deferred rent 5,964
--------------
Total current liabilities 1,693,583
Note payable - other 123,172
Capital lease obligations, net of 49,020
current portion
Deferred income taxes 19,000
--------------
Total liabilities 1,884,775
--------------
Common stock, par value $0.01
1,000,000 shares authorized; 627,482
shares issued 6,275
Paid in capital in excess of par value 797,156
Retained earnings 2,010,149
Less treasury stock; 163,179 shares at cost (837,813)
--------------
Total stockholders' equity 1,975,767
--------------
Total liabilities and stockholders' equity $3,860,542
==============
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the six months ended June 30,
----------------------------------------------
1996 1995
-------------- --------------
<S> <C>
Sales
Professional fees $ 6,999,875 $ 8,388,366
Software sales 126,893 114,831
-------------- --------------
Total sales 7,126,768 8,503,197
-------------- --------------
Cost of sales
Cost of professional fees 5,633,024 6,593,315
Cost of software sales 102,088 102,554
-------------- --------------
Total cost of sales 5,735,112 6,695,869
-------------- --------------
Gross profit 1,391,656 1,807,328
Selling, general and administrative expenses 1,297,438 1,599,756
-------------- --------------
Income from operations 94,218 207,572
Other income and expenses
Interest income 2,785 3,349
Interest expense (13,983) (70,640)
-------------- --------------
Income before provision for income 83,020 140,281
taxes
Provision for income taxes 28,359 53,306
-------------- --------------
Net income $ 54,661 $ 86,975
============== ==============
Net income per common and common
equivalent share $0.12 $0.18
Weighted average common and common
equivalent shares outstanding 464,499 484,800
</TABLE>
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended June 30,
---------------------------------------------
1996 1995
-------------- --------------
<S> <C>
Sales
Professional fees $ 2,946,788 $ 4,159,124
Software sales 100,456 57,852
-------------- --------------
Total sales 3,047,244 4,216,976
-------------- --------------
Cost of sales
Cost of professional fees 2,321,967 3,231,146
Cost of software sales 80,490 50,443
-------------- --------------
Total cost of sales 2,402,457 3,281,589
-------------- --------------
Gross profit 644,787 935,387
Selling, general and administrative expenses 715,660 771,267
-------------- --------------
Income (loss) from operations (70,873) 164,120
Other income and expenses
Interest income 2,184 1,253
Interest expense (5,880) (37,217)
-------------- --------------
Income (loss) before provision for income (74,569) 128,156
taxes
Provision (benefit) for income taxes (28,565) 48,699
-------------- --------------
Net income (loss) $ (46,004) $ 79,457
============== ==============
Net income per common and common
equivalent share ($0.10) $0.16
Weighted average common and common
equivalent shares outstanding 461,353 483,171
</TABLE>
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ending June 30,
1996 1995
------------------ ---------------
<S> <C>
Cash flows from operating activities
Cash received from customers $ 8,000,987 $ 8,080,219
Cash paid to suppliers and employees (7,291,638) (7,943,311)
Interest received 2,785 3,349
Interest paid (13,983) (70,640)
---------------- ----------------
Net cash provided by operating activities 698,151 69,617
---------------- ----------------
Cash flows from investing activities
Loans and advances (9,097) 1,260
Acquisition of furniture and equipment (31,074) (66,108)
---------------- ----------------
Net cash used in investing activities (40,171) (64,848)
---------------- ----------------
Cash flows from financing activities
Net borrowing (payments) under bank revolving (500,000) 27,000
line of credit
Principal payments on debt and capital leases (9,875) (8,688)
(Repurchase) of common stock (36,750) (47,350)
Goodwill associated with purchase of a business (99,606) 0
Stock issued in purchase of a business 25,000 0
Proceeds from exercise of incentive stock options 0 275
---------------- ----------------
Net cash used by financing activities (621,231) (28,763)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 36,749 (23,994)
Cash and cash equivalents at beginning of the period 57,016 35,211
---------------- ----------------
Cash and cash equivalents at end of the period $ 93,765 $ 11,217
================ ================
Reconciliation of net income to cash provided by operating activities
Net income $ 54,661 $ 86,975
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 77,610 86,599
Changes in operating assets and liabilities
Accounts receivable 874,219 (422,978)
Other receivables and prepaid expenses (483,406) 43,710
Accounts payable and accrued expenses 151,820 227,117
Deferred rent (5,112) (5,112)
Income tax liability 28,359 53,306
---------------- ----------------
Net cash provided by operating activities $ 698,151 $ 69,617
================ ================
</TABLE>
<PAGE>
INFORMATION ANALYSIS INCORPORATED
Notes to Financial Statements
The interim financial statements are furnished without audit; however, they
reflect all adjustments which are, in the opinion of management, necessary for
the fair statement of the financial position and results of operations for the
six months ended June 30, 1996 and 1995. The financial statements should be read
in conjunction with the summary of significant accounting policies and notes to
financial statements included in the Company's annual report for the year ended
December 31, 1995.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Results of Operations
The Company's revenues in the second quarter of 1996 from its computer and
software related services and sales segment decreased by $464,491 or by 13.3%,
to $3,034,988 from $3,499,479 for the second quarter of 1996. The results of
this segment now include International Software Services Corporation ("ISSC")
which will operate as a subsidiary. ISSC's operating performance has been
included from the date of acquisition, June 5, 1996. For the period June 5
through June 30, 1996, ISSC generated $63,590 in revenue and a $14,473 profit.
Overall, in the second quarter of 1996, the Company incurred a $43,274 loss in
its computer and software related services segment. This represented a
$192,628 reduction in profit compared with the second quarter of 1995, in which
the Company generated a profit of $149,354 profit from this line of business.
In the second quarter of 1996, the gross profit percentage from the computer and
software related services and sales segment decreased to 21.3%, from 22.6% in
the second quarter of 1995. Selling, general, and administrative expenses as a
percentage of revenue increased to 22.7% during the second quarter of 1996, from
18.4% in the second quarter of 1995. This increase is due to $110,000 in legal
fees that the Company incurred in the second quarter of 1996 in its protest of
the award to another party of the renewal of the contract that the Company has
maintained with the U.S. Customs Service ("USCS").
During the second quarter of 1996, the Company completed its intention of
winding down the health care segment of the business provided by Allied Health
and Information Services, Inc. ("AHISI"). AHISI's last remaining contract
terminated May 3, 1996. No further revenue will be generated in AHISI. AHISI had
revenues of $12,256 and a loss of $27,599 during the second quarter of 1996.
On a consolidated basis, as a result of winding-down its health care services
business, the Company's overall 1996 second quarter revenues declined by
$1,169,732 to $3,047,244 from $4,216,976 in the second quarter of 1995.
Consolidated gross profit margins also declined to 21.2% in the second quarter
of 1996, compared to 22.2% in the second quarter of 1995. Selling, general
and administrative expenses as a percentage of revenue increased by 5.3%
in the second quarter of 1996, to 23.5% from 18.2% in the corresponding quarter
of 1995, primarily as a result of the reduction of its consolidated revenue.
After considering the effect of interest and taxes, the Company sustained a
consolidated second quarter loss of $46,004 in 1996 compared to a $79,457 profit
which was generated in the second quarter of 1995.
<PAGE>
As a result of winding down AHISI's business, year-to-date revenues for the
Company for the six months ended June 30, 1996 decreased $1,376,429 over the
corresponding six months of 1995, a decrease of 16.2%. The Company's
consolidated gross profit percentage declined by 1.8% from 21.3% during first
six months of 1994, to 19.5% during the first six months of 1996. Selling,
general and administrative expenses as a percentage of revenue declined slightly
to 18.2% during the first six months of 1996, compared to 18.9% during the
first six months of 1995. Interest expense decreased by $56,657 during the
first six months of 1996, as compared to the first six months of 1995. Interest
income declined slightly to $2,785 in the first six months of 1996, from
$3,349 in the first six months of 1995. Net income declined to $54,661 during
the first six months of 1996, compared to a net income of $86,975 during the
first six months of 1995.
Liquidity and Capital Resources
In the second quarter of 1996, as with the second quarter of 1995, the Company
financed its operations from current collections and through advances on its
line of credit with its bank. As of June 30, 1996 the outstanding balance on its
line of credit was $50,000, as compared to $1,419,000 as of June 30, 1995. The
winding down of AHISI has reduced the Company's working capital requirements
allowing it to significantly reduce its borrowings on the line of credit. Cash
and cash equivalents at June 30, 1996 were $93,765, compared to $11,217 at June
30, 1995.
The Company's renewed its line of credit for $1,500,000 on June 25, 1996. This
line of credit represents a $500,000 reduction from the prior line of credit.
This reduction is due to the Company's decreased working capital requirements.
This line of credit expires June 19, 1997 at which time it is subject to
renewal. The line of credit coupled with funds generated from operations is
sufficient to meet the Company's operating cash requirements.
The Company has no material commitments for capital expenditures.
<PAGE>
PART II - FINANCIAL INFORMATION
Item 5. Other Information
On April 9, 1996, the Company protested the award to another bidder of the
renewal of the contract the Company has maintained with USCS. This protest was
not successful. The contract with USCS accounted for 58% and 34% respectively,
of the Company's consolidated revenue for the years ending December 31, 1995 and
1994. Until this revenue is replaced, the Company anticipates that its selling,
general and administrative expenses as a percentage of revenue will increase.
Any and all direct expenses associated with the contract will be eliminated.
Item 6. Exhibits and Reports on Form 8-K
(b) An 8-K was filed by the registrant during the quarter ended June 30, 1996
pertaining to acquisition of International Software Services Corporation on June
5, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Information Analysis Incorporated
(Registrant)
Date: August 15, 1996 By:______________________
Sandor Rosenberg
Chairman of the Board
and President
Date: August 15, 1996 By:______________________
Brian R. Moore
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 93,765
<SECURITIES> 0
<RECEIVABLES> 2,838,593
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,295,672
<PP&E> 1,478,769
<DEPRECIATION> 1,181,165
<TOTAL-ASSETS> 3,860,542
<CURRENT-LIABILITIES> 1,693,583
<BONDS> 0
0
0
<COMMON> 6,275
<OTHER-SE> 1,969,492
<TOTAL-LIABILITY-AND-EQUITY> 3,860,542
<SALES> 7,126,768
<TOTAL-REVENUES> 7,129,553
<CGS> 5,735,112
<TOTAL-COSTS> 7,032,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,983
<INCOME-PRETAX> 83,020
<INCOME-TAX> 28,359
<INCOME-CONTINUING> 54,661
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,661
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
