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
September 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 September 30, 1996:
Common Stock, par value $.01, 460,303 shares
Transitional small business disclosure format.
Yes No x
---------- ----------
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1996
ASSETS
Current assets
Cash and cash equivalents $ 35,764
Accounts receivable 2,189,059
Employee advances 134,073
Deferred income taxes 95,887
Prepaid expenses 163,411
Other receivables 60,777
-----------------
Total current assets 2,678,971
Fixed assets
At cost, net of accumulated depreciation
and amortization of $1,169,396 280,289
Equipment under capital leases
Net of accumulated amortization of $50,762 55,059
Other assets 16,593
Investments 10,000
Goodwill 85,080
Other receivables 157,660
-----------------
Total assets $ 3,283,652
=================
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1996
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 564,560
Accrued payroll 303,138
Other accrued liabilities 60,125
Note payable - bank 75,000
Current portion of note payable - other 120,300
Current maturities of capital 18,229
lease obligations
Income taxes payable 5,317
Deferred rent 3,408
-----------------
Total current liabilities 1,150,077
Note payable - other 123,172
Capital lease obligations, net of 44,355
current portion
Deferred income taxes 19,000
-----------------
Total liabilities 1,336,604
-----------------
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 1,997,930
Less treasury stock; 167,179 shares at cost (854,313)
-----------------
Total stockholders' equity 1,947,048
-----------------
Total liabilities and stockholders' equity $ 3,283,652
=================
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------------
1996 1995
-------------- --------------
<S> <C>
Sales
Professional fees $ 9,343,616 $ 12,016,630
Software sales 339,926 210,911
---------------- ----------------
Total sales 9,683,542 12,227,541
---------------- ----------------
Cost of sales
Cost of professional fees 7,409,611 9,526,293
Cost of software sales 292,717 183,762
---------------- ----------------
Total cost of sales 7,702,328 9,710,055
---------------- ----------------
Gross profit 1,981,214 2,517,486
Selling, general and administrative expenses 1,895,716 2,314,621
---------------- ----------------
Income from operations 85,498 202,865
Other income and expenses
Interest income 9,944 6,037
Interest expense (26,988) (100,055)
---------------- ----------------
Income before provision for income 68,454 108,847
taxes
Provision for income taxes 26,012 41,643
---------------- ----------------
Net income 42,442 67,204
================ ================
Retained earnings:
Beginning of period 1,955,488 2,030,121
---------------- ----------------
End of period $ 1,997,930 $ 2,097,325
================ ================
Net income per common and common
equivalent share $0.09 $0.14
Weighted average common and common
equivalent shares outstanding 463,634 483,467
</TABLE>
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended September 30,
---------------------------------------------
1996 1995
-------------- --------------
<S> <C>
Sales
Professional fees $ 2,343,741 $ 3,628,264
Software sales 213,033 96,080
---------------- ----------------
Total sales 2,556,774 3,724,344
---------------- ----------------
Cost of sales
Cost of professional fees 1,776,587 2,932,978
Cost of software sales 190,629 81,208
---------------- ----------------
Total cost of sales 1,967,216 3,014,186
---------------- ----------------
Gross profit 589,558 710,158
Selling, general and administrative expenses 598,278 714,865
---------------- ----------------
Income (loss) from operations (8,720) (4,707)
Other income and expenses
Interest income 7,159 2,688
Interest expense (13,005) (29,415)
---------------- ----------------
Income (loss) before provision for income (14,566) (31,434)
taxes
Provision (benefit) for income taxes (2,347) (11,663)
---------------- ----------------
Net income (loss) (12,219) (19,771)
================ ================
Retained Earnings:
Beginning of period 2,010,149 2,117,096
---------------- ----------------
End of period $ 1,997,930 $ 2,097,325
================ ================
Net income per common and common
equivalent share ($0.03) ($0.04)
Weighted average common and common
equivalent shares outstanding 463,561 481,800
</TABLE>
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ending September 30,
1996 1995
------------------ ---------------
<S> <C>
Cash flows from operating activities
Cash received from customers $ 10,746,126 $ 12,016,657
Cash paid to suppliers and employees (9,927,705) (11,099,471)
Interest received 9,944 6,037
Interest paid (26,988) (100,055)
------------------ ------------------
Net cash provided by operating activities 801,377 823,168
------------------ ------------------
Cash flows from investing activities
Loans and advances (109,449) 5,537
Acquisition of furniture and equipment (110,310) (71,941)
------------------ ------------------
Net cash used in investing activities (219,759) (66,404)
------------------ ------------------
Cash flows from financing activities
Net borrowing (payments) under bank revolving (475,000) (688,000)
line of credit
Principal payments on debt and capital leases (14,540) (12,866)
(Repurchase) of common stock (53,250) (61,788)
Goodwill associated with purchase of a business (85,080) 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 (602,870) (762,379)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (21,252) (5,615)
Cash and cash equivalents at beginning of the period 57,016 35,211
------------------ ------------------
Cash and cash equivalents at end of the period $ 35,764 $ 29,596
================== ==================
Reconciliation of net income to cash provided by operating activities
Net income $ 42,442 $ 67,204
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 119,102 130,856
Changes in operating assets and liabilities
Accounts receivable 1,062,584 (210,884)
Other receivables and prepaid expenses (29,312) 72,640
Accounts payable and accrued expenses (411,783) 729,377
Deferred rent (7,668) (7,668)
Income tax liability 26,012 41,643
------------------ ------------------
Net cash provided by operating activities $ 801,377 $ 823,168
================== ==================
</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
nine months ended September 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 third quarter of 1996 decreased by $1,167,570 , or
by 31.0%, to $2,556,774 from $3,724,344 for the third quarter of 1995. This
reduction was primarily due to a decrease in revenue from the Company's contract
with the U.S. Customs Service ("USCS") which generated $2,546,698 of revenue in
the third quarter of 1995, compared with $1,111,774 during the third quarter of
1996. The contract with USCS terminated on September 30, 1996. In the third
quarter of 1996, the Company incurred a $12,219 net loss. This represented a
$7,552 improvement over the third quarter of 1995 in which the Company incurred
a net loss of $19,771.
In the third quarter of 1996, the Company's gross profit percentage increased to
23.1%, compared to 19.0% during the third quarter of 1995. This increase is
attributable to the winding-down of the lower margin business which the
Company's health care segment previously conducted. Selling, general, and
administrative expenses as a percentage of revenue increased to 23.4% during the
third quarter of 1996, from 19.0% in the third quarter of 1995. This increase is
due to the Company's declining revenue base.
Year-to-date revenues for the Company for the nine months ended September 30,
1996 were $9,683,542 a $2,543,999 or 20.0% decreased from the corresponding nine
months of 1995. This decrease was primarily attributed to the winding down of
the Company's health care segment which operated through Allied Health and
Information Systems, Inc. ("AHISI"). AHISI generated $47,756 of revenue during
the first nine months of 1996, as compared to $1,915,909 of revenue generated
during the first nine months of 1995. The Company's gross profit percentage
decreased slightly by 0.1% from 20.6% during first nine months of 1995, to 20.5%
during the first nine months of 1996. Selling, general and administrative
expenses as a percentage of revenue increased to 19.6% during the first nine
months of 1996, compared to 18.9% during the first nine months of 1995,
primarily as a result of the decline in revenue, interest expense decreased by
$73,067 during the first nine months of 1996, as compared to the first nine
months of 1995. Interest income increased slightly to $9,944 in the first nine
months of 1996, from $6,037 in the first nine months of 1995. Net income
declined to $42,442 during the first nine months of 1996, compared to net income
of $67,204 during the first nine months of 1995.
In an attempt to expand its revenue base, in the third quarter ending September
30, 1996, the Company intensified its efforts to advance the Year 2,000
remediation process it is offering through the use of the
<PAGE>
Company's proprietary migration/conversion tool, omputer Aided Software
Translator ("CAST"). As has been reported in the press and major trade
publications, in the absence of remediation, many businesses face the threat of
information systems failure when their systems interpret the year 2000 as the
year 1900. The Company is of the opinion that CAST will be a particularly
valuable tool in many environments as companies are forced to migrate their
systems to current day languages or platforms as they also remedy the Year 2000
problem. Therefore, the Company has increased its marketing initiatives and is
seeking to develop strategic alliances with major vendors in order to advance
the Year 2000 solution it offers. Currently, the Company is optimistic about
its prospects for its Year 2000 solution but no assurances can be provided that
the Year 2000 segment of the Company's business will prove successful.
Liquidity and Capital Resources
In the third quarter of 1996, as with the third quarter of 1995, the Company
financed its operations from current collections and through advances on its
line of credit with its bank. As of September 30, 1996 the outstanding balance
on its line of credit was $75,000, as compared to $704,000 as of September 30,
1995. Cash and cash equivalents at September 30, 1996 were $35,764, compared to
$29,596 at September 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
The annual stockholders meeting was held on October 30, 1996. The following
directors were elected to serve until the next annual meeting.
Sandor Rosenberg
George T. DeBakey
John D. Sanders
James D. Wester
Bonnie K. Wachtel
The stockholders approved an employee stock option plan, under which the Company
may issue up to 250,000 options for shares of stock to employees, directors, and
consultants of the Company.
Item 6. Exhibits and Reports on Form 8-K
(b) An amended 8-K was filed by the registrant during the quarter ended
September 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: November 15, 1996 By:______________________
Sandor Rosenberg
Chairman of the Board
and President
Date: November 15, 1996 By:______________________
Richard S. DeRose
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 35,764
<SECURITIES> 0
<RECEIVABLES> 2,189,059
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,678,971
<PP&E> 1,555,506
<DEPRECIATION> 1,220,154
<TOTAL-ASSETS> 3,283,652
<CURRENT-LIABILITIES> 1,150,077
<BONDS> 0
0
0
<COMMON> 6,275
<OTHER-SE> 1,940,772
<TOTAL-LIABILITY-AND-EQUITY> 3,283,652
<SALES> 9,683,542
<TOTAL-REVENUES> 9,693,486
<CGS> 7,702,328
<TOTAL-COSTS> 9,598,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,988
<INCOME-PRETAX> 68,454
<INCOME-TAX> 26,012
<INCOME-CONTINUING> 42,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,442
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
