SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10KSB
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission
December 31, 1995 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, Virginia 22027
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number,
including area code) (703) 641-0955
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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.
Yes x/ No
The issuer's revenue for its most recent fiscal year was $15,696,896.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates as of December 31, 1995 was approximately $846,212.
As of December 31, 1995 the Registrant had 467,053 shares of Common
Stock outstanding.
<PAGE>
Item 1. Business
General
Since its incorporation in 1979, Information Analysis Incorporated
("IAI") has been engaged in various facets of the computer and information
field. IAI has continually adapted the nature of its services and the types of
its products it markets to the perceived needs of its client and prospective
client base. Today, IAI's activities, along with those of its subsidiary, DHD
Systems, Inc. ("DHD"), are primarily related to software applications
development, hardware and software consulting services, software sales and
support services. Software sales are limited to a few types of products which
IAI believes it can successfully sell based upon its familiarity with a
particular market niche and potential purchasers for those products.
In 1991, IAI organized DHD to acquire the business of DHD Services,
Inc. This acquisition was intended to provide IAI with the capacity to provide
additional services in the mainframe market since IAI services were principally
geared to personal and microcomputer uses. Until early 1994, IAI and DHD
operated, for the most part, as separate business units. Today, however, the
operations of IAI and DHD operate as a single business unit.
In 1991, IAI organized Allied Health and Information Systems, Inc.
("AHISI") as a wholly-owned subsidiary. AHISI was formed to pursue an
opportunity presented to IAI to provide medical personnel to penal institutions
to provide physical examinations, provide patient management and perform primary
care and minor surgery. In 1995, the determination was made to wind-down AHISI's
business. To this end, AHISI did not seek to renew, or respond to any proposals
for additional, contracts.
In 1995, the combined revenues of IAI, DHD and AHISI (collectively "the
Company") decreased by 6% over 1994. The computer related business revenue of
IAI and DHD (hereafter collectively referred to as "IAI") increased by 26% and
the health care business revenue of AHISI decreased by 70%. The Company is in
the process of winding down AHISI.
See "Medical Services" below.
Computer Related Services
In 1995, the Company continued to provide a broad range of consulting
services to its clients. These services included transition engineering,
feasibility and requirements analysis, systems planning analysis and design,
data base design and management, software development, and project management.
Primarily as a result of consulting services provided to its clients, the
Company has developed expertise for particular applications in areas such as
financial information, systems for the U.S. Customs Service, personnel systems,
and state- of-the-art applications utilizing artificial intelligence and expert
systems. The Company continues to maintain, through its personnel, proficiency
in a multiple number of computer
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languages, hardware and software products, and software applications in both the
local area network and mainframe environments.
Traditionally, IAI's clients have spanned a wide range of enterprises
in the private sector along with government agencies. 1995 was no exception with
IAI providing services to companies such as, The Arbitron Corporation, Lockheed
Martin, Hayes-Ligon Corporation, Caterpillar Corporation, Citicorp, and Mass
Mutual. In 1995 governmental clients included the U.S. Army Personnel Command,
General Services Administration, U.S. Air Force, U.S. Customs Service ("USCS"),
Veterans Benefit Administration, Department of Energy, and the U.S. Navy. In
1995, IAI's largest client remained the U.S. Customs Service, which accounted
for 65% of the Company's computer related revenue.
In 1995 approximately 82% of the Company's revenue from computer
related services was attributed to governmental clients.
On March 26, 1996, the Company was informed that another company had
won the recompetition of IAI's "USCS" contract. This contract has provided over
50% of the Company's revenue over the past two years. IAI has issued a protest
over the selection of the other company, and the results of that protest may not
be decided soon. The loss of this contract will have a severe impact on the
Company's revenue and profitability in the second half of 1996. All efforts will
be made to increase short term revenue in other areas and to reduce costs.
Software Sales
In 1995, IAI continued to maintain marketing rights to two proprietary
software products, Jetform and the Migrator. Jetform is an electric forms
solution which allows users to electronically create and complete any form on
multi-platform environments. Migrator is a re-engineering tool which can convert
older COBOL based systems to the newer technology Computer Aided System
Engineering (CASE) product from Intersolve. IAI does not own the Jetform product
but acts as a reseller, specifically in the Federal government market where
buyers can purchase the product through the General Services Administration
schedule. IAI maintains the right to grant licenses to use the Migrator in both
commercial and government arenas.
Total Jetform related revenue in 1995 was $260,253. This represented
both sales of the product and accompanying services such as training and forms
development. The Company sold additional Jetform product to over a dozen Federal
agencies.
Although no license sales of Migrator product occurred in 1995, the
Migrator software facilitated generating professional services opportunities
through IAI staff use of the product in performing systems modernization
services. Since the product must be customized for each conversion application,
it will probably not generate substantial license revenues in the
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future. The product should, however, enable the Company to achieve higher profit
margins from its professional service business.
Medical Services
AHISI significantly reduced business activities in 1995 by completing
contracts, novating certain government contracts, and not pursuing additional
contracts. As of December 31, 1995, the AHISI's funded backlog was reduced to
$88,293 under one contract it maintains with the United States Department of
Justice. Once this contract expires, the Company does not plan to generate
additional revenue through AHISI.
Employees
As of December 31, 1995, the Company employed 101 full-time and
part-time individuals. In addition, the Company maintained independent
contractor relationships with four individuals for computer services.
Of the Company's employees, 38 hold undergraduate degrees and 16 hold
graduate degrees. Approximately 90% of the Company's professional employees have
at least four years of related experience. For computer related services, the
Company believes that the diverse professional opportunities and interaction
among its employees contribute to maintaining a stable professional staff with
limited turnover.
Marketing
For its computer related services, the Company relies upon a marketing
staff of three full time account executives combined with program managers and
other senior management to market its services. These individuals principally
concentrate on the marketing of professional services and software products. In
addition to these individuals, the Company's technical staff is encouraged to
assist in marketing the Company's various services.
Backlog
As of December 31, 1995, the Company estimated its backlog at
approximately $10,950,000 of which 43.3% of this amount is from one multi-year
government contract with USCS. (Even though the Company was not successful in
recompeting for the USCS contract (see "Computer Related Services" above), the
Company anticipates the full backlog associated with the USCS contract will be
realized.) Of the entire backlog, the Company projects approximately 66.6% will
be completed by December 31, 1996. This backlog consists of outstanding
contracts and general commitments from current clients. The Company regularly
provides services to certain clients on an as-needed basis without regard to a
specific contract. General commitments represent those services which the
Company anticipates providing to such clients during a twelve-month period.
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Competition
The computer services industry is highly competitive. Many of the
Company's competitors are larger and have greater financial resources than the
Company. Smaller firms also present significant competition. The Company
competes for government contracts, either directly or as a subcontractor, on the
basis of competitive procurements. The Company believes that its long-term
success depends upon its ability to consistently offer quality services at
competitive prices. This approach is designed to satisfy current client
requirements and to attract new business opportunities.
Principal Clients
In 1995, on a consolidated basis, the USCS, under its contract with IAI
remained the principal client of the Company. In this regard, the revenue from
USCS accounted for 58% of consolidated revenue and 65% of IAI revenue. The USCS
contract expired September 30, 1995, but was extended through April 30, 1996.
The only other significant client for IAI was the U.S. Army through IAI's
subcontract with PRC Inc. which accounted for 7% of consolidated revenue and 8%
of IAI revenue. For AHISI, the principal client remained the District of
Columbia through its contract with the Department of Corrections which accounted
for 7% of consolidated revenue and 54% of AHISI revenue.
Item 2. Property
The Company's offices are located at 2222 Gallows Road, Dunn Loring,
Virginia 22027. IAI holds a lease for 15,812 square feet which expires January
31, 1997. AHISI has a lease for 5,696 square feet which expires April 30, 1997.
Item 3. Legal Proceedings
The Company is currently engaged in two significant litigation matters.
One case was filed in the fourth quarter, 1995 by AHISI in the United States
District Court for the District of Delaware against Prison Health Services, Inc.
("PHS"). In this case, AHISI is seeking payment of accounts receivable of
approximately $185,000 and other damages emanating from the subcontract PHS
granted to AHISI to provide certain healthcare services in Maryland prisons. PHS
has counterclaimed against AHISI for reimbursement of overpayments.
In the fourth quarter, 1994, one Frank H. Smitley filed a medical
malpractice claim against AHISI and others resulting from the failure to
properly diagnose a bulging disk that eventually left Mr. Smitley a
quadriplegic. This case was initially filed as a health claims arbitration case
under Maryland's malpractice law and was recently transferred to the Circuit
Court of Washington County, Maryland. Although the Company is of the opinion
that Mr. Smitley may be in a position to recover damages, the extent of AHISI's
liability should be covered by malpractice insurance.
5
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Item 4. Submission of Matters to a Vote of Security Holders
In the fourth quarter of 1995, the Company had its annual meeting of
shareholders at which Sandor Rosenberg, George T. DeBakey, James C. Wester, John
D. Sanders and Bonnie K. Wachtel were elected as directors.
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PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders' Matters
The Company's Common Stock is traded in the over-the-counter market.
The range of bid price quotations for the last two years on a quarter-by-quarter
basis is as follows:
<TABLE>
<CAPTION>
=================================================================================================================================
1994 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Qtr. 1st 2nd 3rd 4th 1st 2nd 3rd 4th
- ---------------------------------------------------------------------------------------------------------------------------------
Low Bid 4 4 4 4 4 4 4 4
- ---------------------------------------------------------------------------------------------------------------------------------
High Bid 4 4 4 4 4 4 4 4
=================================================================================================================================
</TABLE>
The quotations on which these data are based reflect inter-dealer
prices without adjustment for retail markup, markdown or commission, and may not
necessarily represent actual transactions.
As of December 31, 1995, the Company had 108 stockholders of record.
The Company has never paid a cash dividend on its Common Stock, and intends to
follow a policy of retaining earnings to finance future growth and possible
acquisitions. Accordingly, the Company does not anticipate the payment of cash
dividends to the holders of Common Stock in the foreseeable future.
7
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations 1995 Compared to 1994
The Company's revenue from its computer and software related services
and sales increased by $2,893,845, or by 26.0%, to $14,012,017 in 1995 from
$11,118,172 in 1994. In 1995, the Company generated profit from this business
segment of $333,198 (before interest income and expenses, taxes and certain
miscellaneous other items of income and expense which were not allocated to this
segment or any other business segment). This represented a slight decrease from
1994 in which the Company generated a $334,651 profit from this line of
business.
In 1995, the Company's gross profit margin from computer and software
related services and sales declined to 21.0% from 24.2% in 1994. This reduction
was principally caused by expanding the scope of services the Company was
providing under its USCS contract for which a subcontractor was utilized. The
Company's profit margins for the services provided under the subcontract were
substantially less than the profit margins the Company generally realizes from
its own services. Selling, general and administrative expenses as a percentage
of revenue declined to 18.6% in 1995 from 21.2% in 1994. The Company attributes
this reduction to greater utilization of its resources in response to its
escalating revenue base from the business associated with IAI and DHD.
The Company's revenue from the healthcare related services through AHISI
declined by $3,886,483, or by 69.7% to $1,684,879 in 1995 from $5,571,362 in
1994. This reduction was a direct result of the decision to wind-down AHISI's
business. AHISI lost $330,619 (before interest income and expenses, taxes and
certain other miscellaneous other items of income and expense which were not
allocated to AHISI or any other business segment). This loss was caused, in
part, by a reduction in gross margin in 1995 to 0.6% from 15.1% in 1994. This
reduction is primarily attributable to reserves established for certain
receivables and substantially lower margins in the AHISI business remaining
through the winding-down process. Also, in 1995, selling, general and
administrative expenses as a percentage of revenue declined to 20.1% from 21.0%
in 1994.
On a consolidated basis, the Company's overall revenues in 1995 declined
by $992,638, or by 6% to $15,696,896 in 1995 from $16,689,534 in 1994. The
Company's consolidated gross profit margin decreased in 1995 to 18.8% from 21.2%
in 1994. Selling, general and administrative expenses as a percentage of revenue
was 2.4% lower in 1995 than in 1994 or 18.8% compared to 21.2%. Income from
operations decreased slightly to $2,579 in 1995 from $6,240 in 1994. Overall,
considering the effect of interest and taxes, in 1995, the Company sustained a
consolidated loss of $74,633 compared to a loss in 1994 of $58,695.
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Liquidity and Capital Resources
In 1995, as in 1994, the Company financed its operations from current
collections and through advances under its line of credit with the bank. As of
December 31, 1995 the Company's outstanding balance on its line of credit was
$550,000, a $842,000 decrease over the prior year. Cash and cash equivalents at
the end of 1995 had increased by $21,805 in comparison to the end of the prior
year. The winding down of AHISI during 1995 resulted in significantly decreased
working capital requirements.
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.
Item 7. Financial Statements
The following Financial Statements are filed as part of this report:
<TABLE>
<CAPTION>
Page(s)
<S> <C>
(i) Report of Independent Certified Public 18
Accountants
(ii) Consolidated Balance Sheet as of December 31, 1995 19-20
(iii) Consolidated Statements of Operations 21
for the Years Ended
December 31, 1995 and 1994
(iv) Consolidated Statements of Cash Flows for the Years 22
Ended December 31, 1995 and 1994
(v) Consolidated Statements of Changes in Stockholders' Equity 23
for the Years Ended December 31, 1995 and 1994
(vi) Notes to Consolidated Financial Statements 24-35
</TABLE>
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Item 8. Disagreements of Accounting and Financial Disclosure
None.
PART III
Item 9. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company are:
Name Position with the Company
Sandor Rosenberg Chairman of the Board, President
and Secretary
Richard S. DeRose Executive Vice President
George T. DeBakey Director
John D. Sanders Director
James D. Wester Director
Bonnie K. Wachtel Director
Brian R. Moore Treasurer
Directors serve until the next annual meeting of shareholders or until
successors have been elected and qualified. Officers serve at the discretion of
the Board of Directors.
Sandor Rosenberg, 49, has been President and Chairman of the Board
since 1979. Mr. Rosenberg holds a B.S. degree in Aerospace Engineering from
Rensselear Polytechnic Institute, and has done graduate studies in Operations
Research at George Washington University.
Richard S. DeRose, 57, has been Executive Vice President since 1991.
From 1979 to 1991 he served as the President and CEO for DHD, Inc. Mr. DeRose
holds a B.S. degree in Science from the U.S. Naval Academy and an M.S. degree in
Computer Systems Management from the U.S. Naval Post Graduate School, Monterey.
Mr. DeRose has been involved in computer sales and operations for the past 20
years.
George T. DeBakey, 46, has been a director since 1989 and Secretary
since 1990. Mr. DeBakey is an international business and education consultant.
From 1987 to 1989, Mr. DeBakey was Executive Director of the Information
Technology Association of America. In addition, he served as Deputy Assistant
Secretary at the Department of Commerce from 1985 to 1987 responsible for the
high technology industries for trade policy and trade promotion. He has a B.S.
from Drake University, his Master's of International Management from American
Graduate School of International Management, and his M.B.A. from Southern
Methodist University.
John D. Sanders, 57, has been a Director since 1983. Since 1968, he
has been a vice president of Wachtel & Co., Inc., investment bankers and since
1986 served as Chairman and CEO of TechNews, Inc., publisher of the Washington
Technology newspaper. Mr. Sanders
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obtained a B.E.E. degree from the University of Louisville and M.S. and Ph.D.
degrees in Electrical Engineering from Carnegie-Mellon University. He is a
member of the board of directors of: Daedalus Enterprises, Inc., an electronics
equipment manufacturer; Industrial Training Corporation, a manufacturer of
video-based training programs; and Tork, Inc., an electrical equipment
manufacturer.
James D. Wester, 57, has been a Director since 1985. He has been a
computer services marketing consultant for more than 15 years. Since 1984, he
has been president of Results, Inc. Mr. Wester obtained a B.M.E. degree from
Auburn University and an M.B.A. from George Washington University.
Bonnie K. Wachtel, 40, has been a Director since 1992. Since 1984, she
has served as vice president and general counsel of Wachtel & Co., Inc.,
investment bankers in Washington, D.C. Ms. Wachtel holds B.A. and M.B.A.
degrees from the University of Chicago and a J.D. from the University of
Virginia. She is a director of Integral Systems, Inc., a provider of computer
systems and software for the satellite communications market; SSE Telecom, Inc.,
a satellite equipment manufacturer; and VSE Corporation,a provider of technical
services to the federal government.
Brian R. Moore, 40, was appointed Treasurer in November 1993. He joined
IAI in June 1993 as Corporate Controller. Previously, Mr. Moore served as a
Division Controller for PRC, Inc. He has a B.S. degree from Virginia Tech and is
a Certified Public Accountant. He also serves as the Treasurer of AHISI.
There are no family relationships between any directors or executive
officers of IAI.
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Item 10. Executive Compensation
The following table sets forth the compensation paid over the last
three fiscal years to the Company's chief executive officer and other
individuals serving as executive officers as of December 31, 1995.
<TABLE>
<CAPTION>
Summary Compensation Table
====================================================================================================================================
Name and Other Number of
Principal Annual Stock
Position Year Salary Bonus Compensation1/ Options
Granted
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sandor Rosenberg 1995 $100,007 $25,900 $ 487 -
President 1994 $ 99,910 $30,000 $ 162 -
1993 $ 94,992 - $ 325 -
- ------------------------------------------------------------------------------------------------------------------------------------
James Hagedorn2/ 1995 $125,814 $20,900 $2,682 -
Vice President 1994 $100,006 $42,457 $1,605 -
(IAI) 1993 $100,156 $18,916 $ 44 -
- ------------------------------------------------------------------------------------------------------------------------------------
Richard DeRose 1995 $109,730 $30,900 $3,415 -
Vice President 1994 $ 99,622 $30,000 $3,268 -
(IAI) 1993 $ 80,000 $60,000 $4,985 10,000
====================================================================================================================================
</TABLE>
1/ Includes employer matching contributions to Section 401(k) plan and the
cost of life insurance coverage over $50,000. No officer received any
personal benefits or perquisites greater than 10% of their
compensation.
2/ Mr. Hagedorn's employment terminated on December 31, 1995.
In September, 1983, IAI adopted for the benefit of its employees a
stock option plan which expired in 1993. As of December 31, 1995, options for
37,828 shares were outstanding ranging in exercise prices of $3.00 to $7.50 per
share. No options were granted in 1995 and no executive officers exercised any
options in 1995.
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Item 11. Security Ownership of Certain Beneficial Owners and Management
Set forth below is information concerning ownership of IAI's Common
Stock as of December 31, 1995.
<TABLE>
<CAPTION>
==================================================================================================================
Name and Position of Percentage
Certain Beneficial of
Owners and Management Shares of Common Stock Ownership
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sandor Rosenberg, Chairman of the 245,000 48.4%
Board and President
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Richard DeRose, Vice President, DHD 15,000(1) 3.0%
- ------------------------------------------------------------------------------------------------------------------
James Hagedorn(2) 5,000 1.0%
- ------------------------------------------------------------------------------------------------------------------
George T. DeBakey, Director 1,000(3) 0.2%
- ------------------------------------------------------------------------------------------------------------------
John D. Sanders, Director 10,500(4) 2.1%
- ------------------------------------------------------------------------------------------------------------------
James D. Wester, Director 12,500(5) 2.5%
- ------------------------------------------------------------------------------------------------------------------
Bonnie K. Wachtel, Director 5,000(6) 1.0%
- ------------------------------------------------------------------------------------------------------------------
Total Directors and Executive 294,000 58.2%
Officers as a Group (6 persons)
==================================================================================================================
</TABLE>
(1) Includes 15,000 stock options granted to Mr. DeRose, 5,000 of which
are exercisable at $5.00 per share and expire, subject to continuing
employment, on June 23, 2002, and 10,000 of which are exercisable at
$4.50 per share and expire, subject to continuing employment, on
January 4, 2003.
(2) Mr. Hagedorn's employment terminated on December 31, 1995. Includes
5,000 options which are exercised at $5.00 per share and will have
expired unless exercised within three months from termination of
employment.
(3) Includes a warrant issued June 1, 1989, exercisable for 1,000 shares at
a price of $7.50 per share. This warrant expires June 30, 1999.
(4) Includes a warrant issued November 20, 1991, exercisable for 3,000
shares at a price of $5.50 per share. This warrant expires November 20,
1996.
(5) Includes a warrant issued on February 24, 1993, exercisable for 12,000
shares at $5.00 per share and which expires on February 24, 2004.
(6) Includes a warrant issued November 20, 1991, exercisable for 2,500
shares at a price of $5.50 per share. This warrant expires November 20,
1996. The shares reflected for Ms. Wachtel exclude 9,500 shares which
Wachtel & Co., Inc., a registered broker-dealer of which Ms. Wachtel is
an affiliate, held in connection with its market making activities.
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Item 12. Certain Relationships and Related Transactions
During 1995, IAI repurchased from its President, Sandor Rosenberg, on
nine separate occasions an aggregate of 17,200 shares of its common stock at an
average price of $4.31 per share, for a total purchase price of $72,663.
During 1994, IAI repurchased from its President, Sandor Rosenberg, on
three separate occasions an aggregate of 20,500 shares of its common stock at an
average price of $4.75 per share, for a total purchase price of $88,375.
The Exhibits set forth below are filed as part of this report:
Exhibit No. Description
(3) Articles of Incorporation and Bylaws*
*Incorporated by reference from the Company's Registration Statement on Form
S-18 dated November 20, 1986.
(10) Material Contracts: Page(s)
(i) Lease of 15,812 square feet of office space at 2222 Gallows
Road, Dunn Loring, Virginia, from John Hancock Mutual Life
Insurance Company***
(ii) Lease of 5,696 square feet of office space at 2222 Gallows
Road, Dunn Loring, Virginia, from John Hancock Mutual Life
Insurance Company ****
(iii) Adoption Agreement and Plan for the Information Analysis
Incorporated 401(k) Profit Sharing Plan+
(iv) Employee Stock Option Agreement+
(v) Non-incentive Stock Option Warrant Agreement++
(vi) Loan Agreement between Information Analysis Incorporated
and First Virginia Bank++
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(vii) Line of Credit Agreement with First Virginia Bank 36-39
(viii) Agreement with DHD Systems, Inc.**
(ix) Employment Agreements with George Davis and Richard
DeRose**
(x) Agreement with SDA, Inc.**
(xi) Agreement with Weysoft, Inc. ****
Pages
(11) Computation of Earnings Per Share for the years ended 40
December 31, 1995 and 1994
* Incorporated by reference from the Company's Annual 10K Report dated March 30,
1989.
** Incorporated by reference from the Company's Annual 10K Report dated March
30, 1992.
*** Incorporated by reference from the Company's Annual 10K Report dated March
30, 1993.
**** Incorporated by reference from the Company's Annual 10K Report dated March
30, 1994.
+Incorporated by reference from the Company's Registration Statement on Form S-8
dated December 20, 1988.
++Incorporated by reference from the Company's Registration Statement on Form
S-18 dated November 20, 1986.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d), of the Securities 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
By:
Sandor Rosenberg, President
March 31, 1996
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
Chairman of the Board March 31, 1996
Sandor Rosenberg and President
Director March 31, 1996
George T. DeBakey
Director March 31, 1996
John D. Sanders
Director March 31, 1996
Bonnie K. Wachtel
Director March 31, 1996
James D. Wester
Treasurer March 31, 1996
Brian R. Moore
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INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Information Analysis, Incorporated
We have audited the accompanying consolidated balance sheet of Information
Analysis Incorporated and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the two years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Information Analysis Incorporated and subsidiaries as of December 31, 1995, and
the consolidated results of operations and cash flows for each of the two years
then ended in conformity with generally accepted accounting principles.
Rubino & McGeehin, Chartered
Bethesda, Maryland
February 29, 1996
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INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
Current assets
Cash and cash equivalents $ 57,016
Accounts receivable 3,251,643
Employee advances 24,624
Income taxes receivable 20,695
Deferred income taxes 95,887
Prepaid expenses 109,283
Other receivables 102,186
-----------------
Total current assets 3,661,334
Fixed assets
At cost, net of accumulated depreciation
and amortization of $1,077,150 273,208
Equipment under capital leases
Net of accumulated amortization of $34,889 70,932
Investments 10,000
Other receivables 157,660
-----------------
Total assets $ 4,173,134
=================
The accompanying notes are an integral part of the consolidated financial
statements
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<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,267,926
Accrued payroll 303,353
Other accrued liabilities 11,799
Note payable - bank 550,000
Current maturities of capital 18,229
lease obligations
Deferred rent 11,076
--------------
Total current liabilities 2,162,383
Capital lease obligations, net of 58,895
current portion
Deferred income taxes 19,000
--------------
Total liabilities 2,240,278
--------------
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 1,955,488
Less treasury stock; 154,179 shares at cost (801,063)
--------------
Total stockholders' equity 1,932,856
--------------
Total liabilities and stockholders' equity $ 4,173,134
==============
The accompanying notes are an integral part of the consolidated financial
statements
20
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Sales
Professional fees $ 15,436,643 $ 15,783,360
Software sales 260,253 906,174
---------------- ----------------
Total sales 15,696,896 16,689,534
---------------- ----------------
Cost of sales
Cost of professional fees 12,511,118 12,361,424
Cost of software sales 224,477 788,432
-------------- --------------
Total cost of sales 12,735,595 13,149,856
-------------- --------------
Gross profit 2,961,301 3,539,678
Selling, general and administrative expenses 2,958,722 3,533,422
-------------- --------------
Income from operations 2,579 6,256
Other income and expenses
Interest income 7,554 15,343
Interest expense (110,748) (106,623)
-------------- --------------
Income (loss) before provision for income (100,615) (85,024)
taxes
Provision (benefit) for income taxes (25,982) (26,329)
-------------- --------------
Net loss $ (74,633) $ (58,695)
============== ==============
Net loss per common and common
equivalent share $(0.15) $(0.12)
Weighted average common and common
equivalent shares outstanding 478,561 497,180
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
21
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994
------------------ ---------------
<S> <C> <C>
Cash flows from operating activities
Cash received from customers $ 16,345,476 $ 16,799,821
Cash paid to suppliers and employees (15,309,026) (16,772,529)
Interest received 7,554 15,343
Interest paid (110,748) (106,623)
Income taxes paid (net) 57,293 (79,990)
------------------ ------------------
Net cash provided (used) by operating activities 990,549 (143,978)
------------------ ------------------
Cash flows from investing activities
Loans and advances 29,155 16,991
Acquisition of furniture and equipment (79,983) (144,931)
Proceeds from sale of equipment 25,687 10,300
------------------ ------------------
Net cash used in investing activities (25,141) (117,640)
------------------ ------------------
Cash flows from financing activities
Net borrowing under bank revolving line of credit (842,000) 337,000
Principal payments on debt and capital leases (20,986) 24,037
(Repurchase) of common stock (80,913) (88,375)
Proceeds from exercise of incentive stock options 296 121
------------------ ------------------
Net cash (used) provided by financing activities (943,603) 272,783
------------------ ------------------
Net increase in cash and cash equivalents 21,805 11,165
Cash and cash equivalents at beginning of the period 35,211 24,046
------------------ ------------------
Cash and cash equivalents at end of the period $ 57,016 $ 35,211
================== ==================
Reconciliation of net loss to cash provided by operating activities
Net loss $ (74,633) $ (58,695)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 173,530 159,556
Loss on sale of fixed assets and investments (1,113) 9,412
Changes in operating assets and liabilities
Accounts receivable 648,580 110,287
Other receivables and prepaid expenses (69,430) (96,046)
Accounts payable and accrued expenses 292,528 (151,949)
Deferred rent (10,224) (10,224)
Income tax liability 31,311 (106,319)
------------------ ------------------
Net cash provided (used) by operating activities $ 990,549 $ (143,978)
================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
22
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Shares of
Common Additional
Stock Common Paid in Retained Treasury
Outstanding Stock Capital Earnings Stock Total
--------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 621,151 6,212 771,802 2,088,816 (631,775) 2,235,055
Exercise of stock options 27 121 121
Purchase of treasury stock (88,375) (88,375)
Net income (58,695) (58,695)
--------- ------- ------- ------------ ---------- -------------
Balances, December 31, 1994 621,178 6,212 771,923 2,030,121 (720,150) 2,088,106
Exercise of stock options 54 296 296
Purchase of treasury stock (80,913) (80,913)
Net loss (74,633) (74,633)
--------- ------- ------- ------------ ---------- --------------
Balances, December 31, 1995 621,232 6,212 772,219 1,955,488 (801,063) 1,932,856
========= =========== ======= ============ ========== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
23
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
Information Analysis Incorporated (the Company) was incorporated under the
corporate laws of the Commonwealth of Virginia in 1979 to develop and market
computer applications software systems, programming services, and related
software products and automation systems.
Principles of Consolidation
The consolidated financial statements include the accounts of the company and
its wholly owned subsidiaries - DHD Systems, Inc. (DHD) and Allied Health &
Information Systems, Inc. (AHISI). Upon consolidation, all material intercompany
accounts, transactions and profits are eliminated. Both subsidiaries commenced
operations in 1991.
Investments in companies less than 20% owned are reported at cost less
allowances for permanent decline in value. Income is recognized when dividends
are declared. No dividends were declared in 1994 or 1995.
Revenue Recognition
Revenue from cost-plus-fixed-fee contracts is recognized on the basis of direct
costs plus indirect costs incurred and an allocable portion of the fixed fee.
Revenue from fixed-price contracts is recognized on the percentage-of-completion
method, with costs and estimated profits recorded as work is performed.
Revenue from time and material contracts is recognized based on fixed hourly
rates for direct hours expended. The fixed hourly rate includes direct labor,
indirect expenses and profit. Material or other specified direct costs are
recorded at actual cost.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance. Provisions of estimated losses on
uncompleted contracts are made in the period in which losses are determined.
Changes in job performance, job conditions, and estimated profitability,
including final contract settlements, may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from these estimates.
24
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with maturities of sixty days or less at time of
purchase to be cash equivalents. Deposits are maintained with a federally
insured bank. Balances at times may exceed insured limits.
Fixed Assets
Fixed assets are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized over the term of the lease or the estimated life of the improvement,
whichever is shorter. Maintenance and minor repairs are charged to operations as
incurred. Gains and losses on dispositions are recorded in current operations.
Deferred Rent
Rental expense on operating leases are charged to operations over the life of
the lease using the straight-line method. Differences between the amounts
charged and the amounts paid are recorded as deferred rent.
Earnings Per Share
Earnings per common equivalent share are based on the weighted average number of
common shares and common share equivalents outstanding during this year. When
dilutive, stock options are included as share equivalents using the treasury
stock method.
Under that method, earnings per share data are computed as if the options and
warrants were exercised at the beginning of the period (or at the time of
issuance, if later) and as if the funds obtained thereby were used to purchase
common stock at the average market price during the period.
Income Taxes
Deferred income tax assets and liabilities are recognized for the estimated
future tax effects of the differences between the financial statement and tax
bases of assets and liabilities given the provisions of enacted tax laws. The
provision for income taxes consists of the amount payable for the year and the
change in the deferred tax liability or asset.
25
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Standards
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
which establishes fair value-based accounting and reporting standards for all
transactions in which a company acquires goods or services by issuing equity
securities. As such, Statement 123 covers stock-based compensation plans
including all arrangements under which employees receive shares of stock.
Statement 123 encourages, but does not require, employers to adopt its
prescribed fair value-based method of accounting to recognize compensation
expense for employee stock compensation plans. Employers must comply with the
disclosure requirements set forth in the statement. Statement 123 is effective
for fiscal years beginning after December 15, 1995. The Company expects to adopt
only the reporting standards of Statement 123. The Company accounts for its
employee stock compensation plan under Accounting Principles Board Opinion No.
25, "Accounting for Stock issued to Employees."
2. INDUSTRY SEGMENT AND CREDIT CONCENTRATION
During 1995 and 1994, the Company's operations included two reportable segments:
computer applications and healthcare. The computer applications segment include
those operations involved in developing and marketing computer application
software systems and providing programming services. The Company and its
subsidiary DHD, operate in this segment. Approximately 82% of this segment's
revenue in 1995, and 76% in 1994, came from contracts and subcontracts with
departments and agencies of the federal government. Subsequent to December 31,
1995, the Company was informed that it was unsuccessful in obtaining the renewal
of a contract with the United States Customs Service. Approximately 65% of this
segment's revenue in 1995 and 51% in 1994, came from the contract with the
United States Customs Service.
The healthcare segment, operated by AHISI, is involved in providing the services
of certified physician assistants, nurses and medical doctors to healthcare
facilities operated by third parties in conjunction with state and local
governments, the District of Columbia, and the federal government. The Company
is in the process of winding down the activities of this business segment. The
Company anticipates that no future revenue will be generated from this business
segment after 1996.
26
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INDUSTRY SEGMENT AND CREDIT CONCENTRATION (CONTINUED)
Summarized financial information by business segment for 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Net Sales
Computer Applications $14,012,017 11,118,172
Healthcare 1,684,879 5,571,362
Income (loss) from operations (pre-tax)
Computer Applications 333,198 334,651
Healthcare (330,619) (328,395)
Identifiable assets
Computer Applications 3,361,013 2,736,398
Healthcare 494,616 1,626,086
Capital Expenditures
Computer Applications 79,354 99,205
Healthcare 629 45,726
Depreciation and Amortization
Computer Applications 155,289 142,604
Healthcare 18,241 16,952
</TABLE>
Operating income by business segment excludes interest income, interest expense
and miscellaneous income and expense items that could not be identified with
either segment. Other than those acquired by AHISI, all furniture, equipment,
and capital leases and their related depreciation and amortization are
considered the assets and expenses, respectively, of the computer application
segment. In addition, accounts receivable are considered identifiable assets of
the respective segment. Cash and cash equivalents, and the remaining other
assets are considered corporate assets. There were no significant intersegment
sales or transfers during 1995 and 1994.
27
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RECEIVABLES
Accounts receivable at December 31, 1995 consisted of the following:
Billed - Federal government $1,812,702
Billed - prime contractors 699,992
Billed - commercial 523,383
-----------
Total billed $3,036,077
-----------
Unbilled - Federal government $11,388
Unbilled - prime contractors 60,438
Unbilled - commercial 143,740
-----------
Total unbilled $215,566
-----------
Total accounts receivable $3,251,643
-----------
Unbilled receivables are for unbilled services provided through the balance
sheet date which are expected to be billed and collected within one year.
Included in the unbilled accounts receivable at December 31, 1995 is
approximately $185,000 related to a claim with a former customer. The Company is
currently in litigation against this customer and is seeking recovery of
$185,000 plus additional damages. The Company anticipates that this litigation
will not be resolved within the next year.
Additionally, at December 31, 1995, the Company is due approximately $500,000
from a former customer. An agreement between the parties calls for extended
payments. Accordingly, a portion of the receivable is included as a non current
other receivable.
28
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FIXED ASSETS
A summary of fixed assets and equipment under capital leases at December 31,
1995 is as follows:
Furniture and Equipment $1,378,500
Leasehold Improvements 40,666
Motor Vehicles 37,013
------------
1,456,179
Accumulated depreciation and
amortization (1,112,039)
------------
Total $344,140
------------
5. NOTE PAYABLE
At December 31, 1995, the Company had a revolving line of credit with a bank
providing for demand or short-term borrowings of up to $2,000,000. This line
expires on May 30, 1996. Drawings against this line are based on varying
percentages of the Company's accounts receivable balances depending on the
source of the receivables and their age. On December 31, 1995, the outstanding
balance on this loan was $550,000. The bank's prime rate on that date was 8.75%.
The lender has a first priority security interest in the Company's receivables
and a direct assignment of its major U.S. Government contracts. The line of
credit, among other covenants, requires the Company to comply with certain
financial ratios.
29
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
Capital Leases
The future minimum payments under capital leases for equipment and the present
value of the minimum lease payments are as follows:
Year ending December 31
1996 $ 24,318
1997 24,318
1998 27,367
1999 15,132
----------
Total minimum lease payments 91,135
Less amount representing interest ( 14,011)
----------
Total obligation representing principal 77,124
Less current portions of capital lease obligations ( 18,229)
----------
Long-term portion of capital lease obligations $ 58,895
----------
Operating Leases
Rent expense was $263,031, and $329,864 for the years ended December 31, 1995,
and 1994 respectively.
The future minimum rental payments to be made under noncancelable operating
leases, principally for facilities, are as follows:
Year ending December 31
1996 $321,412
1997 45,865
--------
Total minimum rent payments $367,277
--------
The above minimum lease payments reflect the base rent under the lease
agreements. However, these base rents shall be adjusted each year to reflect
increases in the consumer price index and the Company's proportionate share of
real estate tax increases on the leased property.
The leases are secured by irrevocable letters of credit for $26,982. As of
December 31, 1995 none of the letters of credit have been used.
30
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGINCIES (CONTINUED)
Operating Leases (continued)
In September 1993, the Company leased additional space at its corporate
headquarters to provide for the growth of its subsidiary, Allied Health. In
conjunction with these negotiations, a $51,112 leasehold improvement allowance
on the main facility lease was converted into a rent credit. This rent credit is
spread over the life of the lease and accounted for as deferred rent.
Royalties
In October 1993, the Company purchased ownership rights to a software product
called Migrator. Included in the purchase price is an obligation for royalty
payments of 10% on all Migrator license fees generated during the four year
period following the sale. As of December 31, 1995, no Migrator license fees
have been generated. During 1995, $63,191 in research and development costs were
incurred in the development of the Migrator product. As of December 31, 1995,
all Migrator research and development costs have been expensed.
Government Contracts
Company sales to departments or agencies of the United States Government are
subject to audit by the Defense Contract Audit Agency (DCAA). Audits by DCAA
have not been performed for any years. Management is of the opinion that
disallowances, if any, by DCAA for unaudited years will not result in any
material adjustments to the financial statements.
31
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The provision for income taxes consists of the following:
December 31
------------------------
1995 1994
------- -------
Current Expense
Federal $9,996 $48,628
State 2,216 10,772
-------- --------
12,212 59,400
-------- --------
Deferred Benefit
Federal (31,268) (70,182)
State (6,926) (15,547)
-------- --------
(38,194) (85,729)
-------- --------
Provision (benefit) for income taxes $(25,982) $(26,329)
-------- --------
The items that give rise to the deferred tax benefit shown above are as follows:
December 31
----------------------------
1995 1994
------- -------
Net IRC Section 481 (a) adjustment $ 0 $(122,589)
Depreciation 9,500 0
Vacation expense 13,106 ( 550)
Bad debt expense (60,800) 37,410
-------- ---------
Tax effects of temporary differences $(38,194) $ (85,729)
-------- ---------
Prior to 1991, the Company reported its income for tax purposes on the cash
basis. In 1991, the Company converted to the accrual method for tax reporting
purposes. As a result, per IRC Section 481 (a), the Company is required to
include with its current period taxable income, one fourth of the previously
untaxed accrual income net of certain adjustments over a four year period ending
with 1994.
32
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The tax effect of significant temporary differences representing deferred tax
assets and liabilities at December 31, 1995 are as follows:
Depreciation $ 35,087
Bad debt expense 60,800
---------
Deferred tax asset $ 95,887
---------
Depreciation - deferred tax liability $ 19,000
---------
The provision for income taxes is at an effective rate different from the
federal statutory rate due to principally to the following reasons:
December 31
------------------------------
1995 1994
--------- --------
Income (loss) before taxes $(100,615) $(85,024)
--------- --------
Income taxes (benefit) on above amount
at federal statutory rate (34,209) (28,908)
State income taxes net of federal benefit (4,648) (3,928)
Effect of graduated tax brackets, change
in estimates, and other 12,875 6,507
--------- --------
Provision (benefit) for income taxes $(25,982) $(26,329)
--------- --------
33
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS
The Company has an employee stock incentive plan which reserved 100,000 shares
of common stock to be sold to certain employees. At December 31, 1995, options
to purchase stock under this plan were outstanding to employees as follows:
Number of shares Exercise price per share
32 $3.00
200 4.00
20,200 4.50
17,000 5.00
396 5.50
These options are exercisable immediately.
Transactions involving the plan were as follows:
December 31
----------------------------
1995 1994
------- -------
Outstanding at beginning of year 43,443 72,158
Granted 0 0
Exercised (54) (27)
Canceled (5,561) (28,688)
------- -------
37,828 43,443
------- -------
The Board of Directors has granted warrants to directors and employees. As of
December 31, 1995, warrants to acquire 19,000 shares of common stock had been
granted to such persons and were outstanding. The purchase price for shares
issued upon exercise of these warrants range from $3.00 to $7.50 per share.
These warrants are exercisable immediately. In addition, warrants to purchase
10,000 of common stock at $5.50 per share were issued to the underwriters as
part of the cost of the issuance of stock in November 1986. These warrants
expired in 1991 and were replaced by warrants to purchase 10,000 shares of
common stock at $5.50 per share.
34
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RETIREMENT PLANS
The Company adopted a Cash or Deferred Arrangement Agreement (CODA) which
satisfies the requirements of section 401(k) of the Internal Revenue Code, on
January 1, 1988. This defined contribution retirement plan covers substantially
all employees. Each participant can elect to have up to 6% of their salary
reduced and contributed to the plan. The Company is required to make a matching
contribution of 25% of this salary reduction. The Company can also make
additional contributions at its discretion. Amounts expensed under the plan for
the years ended December 31, 1995 and 1994 were $44,549 and $47,994
respectively.
The Company does not provide post employment benefits and, as a result,
Statement of Financial Accounting Standards No. 106 does not have any impact on
these financial statements.
10. LITIGATION
At December 31, 1995, the Company is involved in litigation with a former inmate
at a correctional facility where the Company has provided medical services. The
case is a malpractice claim against the Company as well as other related
parties. The plaintive seeks $850,000 to $1,300,000. The Company has insurance
to cover claims of up to $1 million per occurrence, and there are other
defendants who will likely contribute to either a settlement or a judgment, if
any. In the opinion of management, there will be no material adverse effect on
the Company's financial statements. No amounts have been accrued in the
financial statements related to this matter.
35
<PAGE>
Commercial Division
6400 Arlington Boulevard
Falls Church, Virginia 22042
June 5, 1995
Mr. Sandor Rosenberg, Chairman
Information Analysis, Inc.
2222 Gallows Road
Suite 300
Dunn Loring, Virginia 22027
Dear Sandy:
It is my pleasure to inform you that First Virginia Bank has renewed the
following credit arrangements for Information Analysis, Inc.
BORROWER: Information Analysis, Inc.
AMOUNT: Two million and 00/100 dollars ($2,000,000.00).
CREDIT FACILITY: Line of credit, secured.
ADVANCES: Borrowings under this line are available as follows:
(Bullet) Up to 90% of less than ninety (90) day,
billed invoices under Prime, U.S.
Government contracts; plus
(Bullet) Up to 75% of less than ninety (90) day
commercial receivables, U.S. Government
subcontracts, and D.C. Government
contracts, not to exceed $1 million.
Borrowings are available by telephone from
authorized officers or employees of the borrower
under a "Master Note" arrangement.
Borrowings under the line are not available for
any "real estate" related transaction, without
the prior written consent of the Bank.
36
<PAGE>
Commitment Letter
Information Analysis, Inc.
June 5, 1995
Page 2
SECURITY:
(Bullet) A first priority, security interest in all
company receivables, now acquired and
hereafter arising, filed under Virginia
Uniform Commercial Code; and
(Bullet) Direct assignment of major U.S. and D.C.
Government contracts under the Federal
Assignment of Claims Act, where applicable.
INTEREST RATE &
ADMINISTRATIVE EXPENSE
OPTIONS: Please choose one of the following:
( ) First Virginia Bank's prime rate plus 1/2%,
which today is 9.50% plus an administrative fee
of $2,500, which covers periodic reviews of
contracts, financial statements, and other
reports of Borrower;
OR
( ) First Virginia Bank's prime rate plus 1/4%,
which today is 9.25%, plus an administrative
fee of $5,000, which covers periodic reviews of
contracts, financial statements, and other
reports of Borrower;
OR
(x) First Virginia Bank's prime rate which today is
9.00%, plus an administrative fee of $7,500,
which covers periodic reviews of contracts,
financial statements and other reports of
Borrower.
The administrative fee covers costs to the Bank such
as the review of contracts; perfecting the Bank's
security interest under the Federal Assignment of
Claims Act and the Virginia Uniform Commercial Code;
and the review of periodic reports and financial
statements. The administrative fee is earned upon
commitment acceptance and will be charged to
Borrower's operating account.
37
<PAGE>
Commitment Letter
Information Analysis, Inc.
June 5, 1995
Page 3
The term prime rate shall mean the rate established
from time to time by the Bank as a reference for
fixing the lending rate of commercial loans.
These interest rates are considered variable and
and may fluctuate periodically with general money
market conditions.
LETTER AGREEMENT: This $2 million secured, lined of credit continues
to be subject to a certain Letter Agreement and
Amendment dated September 3, 1992 and June 30, 1993
respectively and is noted here for reference
purposes.
DEPOSITS: We appreciate the deposit relationship that
Information Analysis and you personally have
maintained with First Virginia Bank over time. We
would expect the Company to continue making the Bank
its primary depository, while this line of credit is
in effect.
BANK COLLATERAL
AUDITS: At any reasonable time and from time to time during
normal business hours, permit the Bank or any agent
or representative thereof, to examine and make
copies and abstracts from the records and books of
account of, and visit the properties of, the
Borrower and any Subsidiary, and to discuss the
affairs, finances, and accounts of the Borrower
and any Subsidiary with any of their respective
officers and directors and the Borrower's
independent accountants. Expenses associated with
the above will be the responsibility of the
Borrower.
FINANCIAL REPORTING
REQUIREMENTS: The following financial statements and reports are
requested for our periodic and confidential review:
(Bullet) A listing and aging of Company receivables
(along with a Borrowing Base certification)
and payables are due twenty (20) days after
the end of each month.
(Bullet) Quarterly, Company prepared financial
statements are due forty-five (45) days
after the end of each fiscal quarter,
including year-end, but subject to CPA
adjustments.
38
<PAGE>
Commitment Letter
Information Analysis, Inc.
June 5, 1995
Page 4
(Bullet) CPA prepared, audited year-end financial
statements along with the accompanying
Management Letter are due one hundred
twenty (120) days after the end of each
fiscal year.
(Bullet) Such other financial data and reports as
the Bank may require from time to time.
MATURITY: This secured, line of credit expires May 30, 1996,
at which time the line will be considered for
renewal by the Bank.
MISCELLANEOUS: Any credit extension granted now or in the future
are conditioned upon Information Analysis, Inc.
maintaining a financial condition satisfactory to
First Virginia Bank.
The provisions of this commitment letter will remain
in full force and effect until this line of credit
is paid in full.
If the general terms and conditions renewing this $2.0 million secured line are
acceptable to you, please so indicate by signing and returning the original of
this commitment letter to my attention by June 27, 1995, after which time this
renewal may expire at the Bank's option.
Sandy, we are please to renew the $2 million credit line for Information
Analysis and hope that it meets the Company's short-term credit needs. Should
you have any questions in connection with this renewal, please call me.
Sincerely,
Joseph J. Calabrese, III
Vice President
Telephone 703/241-3180
cc: Mr. Brian Moore, Treasurer &
Director-Finance & Administration
AGREED to and ACCEPTED this 7th day of June, 1995.
INFORMATION ANALYSIS, INC.
By: __________________________
Sandor Rosenberg, Chairman
39
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Primary earnings per share
Earnings
Net loss $ (74,633) $ (58,695)
- -------------------------------------------------------------------------------------------------------
Shares
Weighted average number of 477,303 495,922
common shares outstanding
Excess shares issuable from assumed 8 8
exercise of stock options
Excess shares issuable from assumed 1,250 1,250
exercise of stock warrants
- -------------------------------------------------------------------------------------------------------
Average shares as adjusted 478,561 497,180
- -------------------------------------------------------------------------------------------------------
Primary earnings per share $ (0.15) $ (0.12)
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 57,016
<SECURITIES> 0
<RECEIVABLES> 3,251,643
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,661,334
<PP&E> 1,350,358
<DEPRECIATION> 1,077,150
<TOTAL-ASSETS> 4,173,134
<CURRENT-LIABILITIES> 2,162,383
<BONDS> 0
<COMMON> 6,212
0
0
<OTHER-SE> 1,926,644
<TOTAL-LIABILITY-AND-EQUITY> 4,173,134
<SALES> 15,696,896
<TOTAL-REVENUES> 15,704,450
<CGS> 12,735,595
<TOTAL-COSTS> 15,694,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,748
<INCOME-PRETAX> (100,615)
<INCOME-TAX> (25,982)
<INCOME-CONTINUING> (74,633)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,633)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
