<PAGE>
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
March 31, 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 March 31, 1996:
Common Stock, par value $.01, 462,053 shares
Transitional small business disclosure format.
Yes __________ No x
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INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996
ASSETS
Current assets
Cash and cash equivalents $ 122,656
Accounts receivable 3,405,689
Employee advances 37,074
Deferred income taxes 95,887
Prepaid expenses 143,545
Other receivables 62,012
Total current assets 3,866,863
Fixed assets
At cost, net of accumulated depreciation
and amortization of $1,108,537 245,639
Equipment under capital leases
Net of accumulated amortization of $40,180 65,641
Investments 10,000
Other receivables 157,660
Total assets $4,345,803
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INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $1,759,422
Accrued payroll 406,104
Other accrued liabilities 31,100
Note payable - bank 0
Current maturities of capital 18,229
lease obligations
Income taxes payable 36,229
Deferred rent 8,520
Total current liabilities 2,259,604
Capital lease obligations, net of 54,428
current portion
Deferred income taxes 19,000
Total liabilities 2,333,032
Common stock, par value $0.01
1,000,000 shares authorized; 621,232
shares issued 6,212
Paid in capital in excess of par value 772,219
Retained earnings 2,056,153
Less treasury stock; 159,179 shares at cost (821,813)
Total stockholders' equity 2,012,771
Total liabilities and stockholders' equity $4,345,803
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INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31,
1996 1995
Sales
Professional fees $4,053,087 $4,229,242
Software sales 26,437 56,979
Total sales 4,079,524 4,286,221
Cost of sales
Cost of professional fees 3,311,057 3,362,169
Cost of software sales 21,598 52,111
Total cost of sales 3,332,655 3,414,280
Gross profit 746,869 871,941
Selling, general and administrative expenses 581,778 828,489
Income from operations 165,091 43,452
Other income and expenses
Interest income 601 2,096
Interest expense (8,103) (33,423)
Income before provision for income 157,589 12,125
taxes
Provision for income taxes 56,924 4,607
Net income $ 100,665 $ 7,518
Net income per common and common
equivalent share $0.22 $0.02
Weighted average common and common
equivalent shares outstanding 465,978 486,430
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INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ending March 31,
1996 1995
Cash flows from operating activities
Cash received from customers $3,925,478 $4,061,343
Cash paid to suppliers and employees (3,258,374) (4,266,564)
Interest received 601 2,096
Interest paid (8,103) (33,423)
Net cash provided (used) by
operating activities 659,602 (236,548)
Cash flows from investing activities
Loans and advances (12,450) (8,242)
Acquisition of furniture and equipment (6,295) (43,412)
Net cash used in investing activities (18,745) (51,654)
Cash flows from financing activities
Net borrowing under bank revolving line of credit (550,000) 285,000
Principal payments on debt and capital leases (4,467) (3,910)
(Repurchase) of common stock (20,750) (19,125)
Net cash (used) provided by financing activities (575,217) 261,965
Net increase (decrease) in cash and cash equivalents 65,640 (26,237)
Cash and cash equivalents at beginning of the period 57,016 35,211
Cash and cash equivalents at end of the period $ 122,656 $ 8,974
Reconciliation of net loss to cash provided by operating activities
Net income $ 100,665 $ 7,518
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 39,155 43,087
Changes in operating assets and liabilities
Accounts receivable (154,046) (224,878)
Other receivables and prepaid expenses 5,912 (21,361)
Accounts payable and accrued expenses 613,548 (42,965)
Deferred rent (2,556) (2,556)
Income tax liability 56,924 4,607
Net cash provided (used) by operating activities $659,602 $(236,548)
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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 three months ended
March 31, 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.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Results of Operations
The Company's revenues in the first quarter of 1996 from its computer
and software related services and sales segment increased by $901,905
or by 28.6%, to $4,045,511, from $3,143,606 for the first quarter of 1995.
This increase is primarily attributable to the Company's contract with the
U.S. Customs Service ("USCS"). The USCS contract generated $3,171,109 in
revenue in the first quarter of 1996 as compared to $1,692,240 in the first
quarter of 1995, an increase of $1,478,869. This increase principally arose
because the USCS assigned to the Company contractual responsibility for
certain tasks which were previously contracted to other parties. The
Company has subcontracted these additional tasks to others. It should be
noted that the USCS contract is scheduled to terminate on June 30, 1996,
the Company having failed to be awarded the renewal of this contract under
recompetition. The Company has protested the award. No assurances can be
provided that this protest will be successful.
Even though revenues increased for the computer and software services
related segment, profit margins for this segment decreased from 23.9% in
the first quarter of 1995 to 18.5% in the first quarter of 1996. This
reduction is mostly attributable to lower profit margins the Company has
realized on subcontracted services under the USCS contract. Selling,
general and administrative expenses, as a percentage of revenue, decreased
for the first quarter of 1996 compared to the corresponding quarter of
1995, or 13.9% this year compared to 21.5% last year. This decrease is due
to a $111,341 reduction in indirect expenses for the first quarter of 1996,
as compared to the first quarter of 1995, coupled with the increased
revenue generated from the contract with USCS. Primarily, by reducing its
selling, general, and administrative expenses, the computer and software
segment was able to generate a profit of $184,236 during the first quarter
of 1996, as compared to a $73,322 profit during the first quarter of 1995.
The Company's revenue generated from the health care segment of its
business through Allied Health and Information Systems, Inc. ("AHISI")
declined in the first quarter of 1996 to $34,013 from $1,142,615 during the
corresponding quarter of 1995. This reduction in revenue resulted from the
Company's implementation of its objective to wind-down the health care
segment of its business. As of April 1, 1996, AHISI's funded backlog was
reduced to $54,280 under one contract it maintains with the United States
Department of Justice. This contract will terminate May 3, 1996 because the
option year was not exercised. Effective May 3, 1996, the Company will
generate no further revenue through AHISI. AHISI's first quarter 1996 loss
was $19,145 compared to a $29,870 loss realized during the corresponding
quarter of 1995.
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On a consolidated basis, as a result of winding-down its health care
services business, the Company's overall 1996 first quarter revenues
declined by $206,697, to $4,079,524 from $4,286,221 in the first quarter of
1995. Consolidated gross profit margins also declined to 18.3% in the first
quarter of 1996 compared to 20.3% in the first quarter of 1995. Selling,
general and administrative expenses as a percentage of revenue decreased by
5.1% in the first quarter of 1996, to 14.2% from 19.3% in the corresponding
quarter of 1995. After considering the effect of interest and taxes, the
Company generated a consolidated first quarter profit of $100,665 in 1996
compared to a $7,518 profit which was generated in the first quarter of
1995.
Liquidity and Capital Resources
In the first quarter of 1996, as with the first quarter of 1995, the
Company financed its operations from current collections and through
advances on its line of credit with its bank. As of March 31, 1996, the
outstanding balance on its line of credit was zero, as compared to
$1,667,000 as of March 31, 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 March
31, 1996 were $122,656, compared to $8,974 at March 31, 1995.
The Company's $2,000,000 line of credit was renewed on June 5, 1995.
This line of credit expires May 30, 1996 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.
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PART II - FINANCIAL INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed by the registrant during the
quarter ended March 31, 1996.
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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: May 10, 1996 By:______________________
Sandor Rosenberg
Chairman of the Board
and President
Date: May 10, 1996 By:______________________
Brian R. Moore
Treasurer
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 122,656
<SECURITIES> 0
<RECEIVABLES> 3,405,689
<ALLOWANCES> 0
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<CURRENT-ASSETS> 3,866,863
<PP&E> 1,460,007
<DEPRECIATION> 1,148,717
<TOTAL-ASSETS> 4,345,803
<CURRENT-LIABILITIES> 2,259,604
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6,212
0
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<OTHER-SE> 2,006,559
<TOTAL-LIABILITY-AND-EQUITY> 4,345,803
<SALES> 4,079,524
<TOTAL-REVENUES> 4,080,125
<CGS> 3,332,655
<TOTAL-COSTS> 3,914,433
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 157,589
<INCOME-TAX> 56,924
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