SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission
June 30, 1997 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.)
11240 Waples Mill Road, #400
Fairfax, VA 22030
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number,
including area code) (703) 383-3000
2222 Gallows Road, #300
Dunn Loring, VA 22027
(Former Address of principal executive offices) (Zip Code)
Indicate by check mark whether the Registrant(1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ___________
State the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1997:
Common Stock, par value $.01, 5,839,371 shares
Transitional small business disclosure format.
Yes __________ No x
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim financial statements are furnished without audit; however, they
reflect all adjustments which are, in the opinion of management, necessary for
the fair statement of the financial position and results of operations for the
six months ended June 30, 1997 and 1996. 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, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation.
Results of Operations
The revenues of Information Analysis Incorporated (the "Company") which were
generated in the second quarter of 1997 decreased by $1,259,298, or by 41.3%, to
$1,787,946 from $3,047,244 for the second quarter of 1996. This reduction was
primarily due to a decrease in revenue from the Company's contract with the U.S.
Customs Service ("USCS") which generated $82,986 of revenue in the second
quarter of 1997, compared with $1,981,024 during the second quarter of 1996.
Except for modest extensions of certain tasks performed in a subcontractor
capacity to USCS, the Company's principal contract with USCS terminated on
September 30, 1996. In the second quarter of 1997, the Company incurred a
$67,835 net loss. This represented a $21,831 reduction in comparison to the
second quarter of 1996 in which the Company incurred a net loss of $46,004.
In the second quarter of 1997, the Company's gross profit percentage improved to
25.1%, compared to 21.3% during the second quarter of 1996. The reduction in
services for the USCS substantially contributed to this improvement since the
profit margins on USCS services were generally less in comparison to the margins
achieved from other operations of the Company. Selling, general, and
administrative expenses as a percentage of revenue increased to 33.4% during the
second quarter of 1997, from 23.5% in the second quarter of 1996. This increase
is due to the Company's lower revenue base along with the expenses incurred in
transitioning the Company from primarily a professional services organization to
a product oriented enterprise.
The Company's gross profit percentage increased by 3.1% from 19.5% during the
first six months of 1996 to 22.6% during the first six months of 1997. Again,
this was primarily the result of the reduction in services provided to the USCS
from which lower profit margins were being achieved. Selling, general and
administrative expenses as a percentage of revenue increased to 35.8% during the
first six months of 1997, compared to 18.2% during the first six months of 1996.
Again, this increase was due to the Company's lower revenue base and the
additional transition expenses the Company incurred in repositioning its
business to a product orientation. Interest expense decreased slightly by $1,561
<PAGE>
during the first six months of 1997, as compared to the first six months of
1996. Interest income increased to $47,018 in the first six months of 1997, from
$2,785 for the first six months of 1996. This increase was a result of raising
$5 Million in funds from a private placement in the first quarter 1997. Net
income declined to a $252,218 loss during the first six months of 1997, as
compared to a net income of $54,661 during the first six months of 1996.
During the second quarter of 1997, the Company continued to devote substantial
resources towards the business surrounding UNICAST, the Company's Year 2000
remediation tool. UNICAST is an acronym for Universal Computer Aided Software
Translator. As a single product, the Company's software had originally been
named CAST, but in recognition of the capabilities of its growing number of
component products, UNICAST was considered a more appropriate name. These
efforts included integrating UNICAST with other Year 2000 products, expanding
technical support capability and increasing sales, marketing and licensing
efforts. In this quarter, 31 additional employees were hired to support the
UNICAST business. The Company also capitalized $1,205,861 of development
expenses in the second quarter for certain UNICAST enhancements.
Liquidity and Capital Resources
In the second quarter of 1997, the Company financed its operations from current
collections and through proceeds obtained in the first quarter from a $5,000,000
private placement. As of June 30, 1997 the outstanding balance on the company's
line of credit was $0. Cash and cash equivalents at June 30, 1997 were
$3,618,491, compared to $93,765 at June 30, 1996.
The Company renewed its line of credit for $1,500,000 on July 21, 1997. This
line of credit expires June 25, 1998 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 - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on Monday, June 30, 1997. At the
meeting, Sandor Rosenberg, James D. Wester, John D. Sanders, Bonnie K. Wachtel,
Brendan J. Dawson, and Charles A May, Jr., were elected as directors to serve
until the next annual meeting. Of the total votes cast for directors, 3,631,011
votes were cast in favor of Mr. Rosenberg, 3,631,461 votes were cast in favor of
all the other directors, 950 votes were cast against Mr. Rosenberg and 500 votes
were cast against all other directors.
In addition, the shareholders voted 2,739,026 in favor of
and 350,411 against (with 500 votes abstaining and 542,024 unvoted) the proposal
to increase by 325,000 the number of options comprising the Company's stock
option plan, thereby increasing from 2,250,000 to 2,575,000 the number of
options available under the plan.
The shareholders also voted in favor of increasing by
5,000,000 shares the authorized shares of the Company's Common Stock or from
10,000,000 shares to 15,000,000 shares. 3,625,058 votes were cast in favor of
this proposal, 6,403 votes were cast against it, and 500 votes abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed for the quarter for which this report is
filed
(b) See the Index to Exhibits attached hereto.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Information Analysis Incorporated
(Registrant)
Date: July 31, 1997 By: /s/ Sandor Rosenberg
------------- --------------------
Sandor Rosenberg,
Chief Executive Officer
By: /s/ Richard S. DeRose
---------------------
Richard S. DeRose, Executive Vice
President and Treasurer
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
ASSETS
Current Assets
Cash and cash equivalents $3,618,491
Accounts receivable 1,614,859
Employee advances 23,017
Income taxes receivable 356,063
Deferred income taxes 98,662
Prepaid expenses 192,469
Other receivables 94,736
----------
Total current assets 5,998,297
Fixed Assets
At cost, net of accumulated depreciation
and amortization of $1,304,878 559,535
Equipment under capital leases
Net of accumulated amortization of $67,172 61,001
Capitalized software 1,876,247
Investments 10,000
Goodwill 41,502
Other receivables 226,694
Other Assets 24,980
----------
Total assets $8,798,256
==========
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 977,493
Accrued payroll 364,426
Other accrued liabilities 107,664
Current portion of long-term debt 120,300
Current maturities of capital 98,662
lease obligations 18,229
----------
Total current liabilities 1,588,112
Long-term debt 90,380
Capital lease obligations, net of
current portion 30,031
Deferred income taxes 27,020
----------
Total liabilities 1,735,543
----------
Common stock, par value $0.01
15,000,000 shares authorized: 7,343,982
shares issued; 5,839,371 outstanding 73,440
Paid in capital in excess of par value 6,299,989
Retained earnings 1,543,597
Less treasury stock; 1,504,611 shares at cost (854,313)
----------
Total stockholders' equity $7,062,713
----------
Total liabilities and stockholders' equity $8,798,256
==========
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30,
---------------------------------
1997 1996
--------- ----------
Cash flows from operating activities
Cash received from customers $ 3,090,414 $ 8,000,987
Cash paid to suppliers and employees (2,923,575) (7,291,638)
Interest received 47,018 2,785
Interest paid (12,422) (13,983)
----------- ------------
Net cash provided by operating
activities 201,435 698,151
----------- ------------
Cash flows from investing activities
Loans and advances 11,306 (9,097)
Acquisition of furniture and equipment (444,967) (31,074)
Increase in capitalized software (1,689,283 0
------------ -----------
Net cash used in investing activities (2,122,944) (40,171)
------------ -----------
Cash flows from financing activities
Net borrowing (payments) under bank
revolving line of credit 0 (500,000)
Principal payments on debt and capital
leases (11,303) (9,875)
(Repurchase) of common stock 0 (36,750)
Proceeds from private placement 5,000,000 0
Goodwill associated with purchase of
a business 0 (99,606)
Stock issued in purchase of a business 0 25,000
Proceeds from exercise of incentive
stock options 227,417 0
----------- -----------
Net cash provided (used) by
financing activities 5,216,114 (621,231)
----------- -----------
Net increase in cash and cash equivalents 3,294,605 36,749
Cash and cash equivalents at beginning
of the period 323,886 57,016
----------- ----------
Cash and cash equivalents at end of the
period $ 3,618,491 $ 93,765
=========== ============
Reconciliation of net income to cash provided by operating activities
Net (loss) income $(252,218) $ 54,661
Adjustments to reconcile net (loss) income
to net cash provided by operating activities
Depreciation and amortization 144,562 77,610
Changes in operating assets and liabilities
Accounts receivable (259,575) 874,219
Other receivables and prepaid expenses 10,035 (483,406)
Accounts payable and accrued expenses 713,992 151,820
Deferred rent (852) (5,112)
Income tax receivable liability (154,509) 28,359
----------- -----------
Net cash provided by operating activities $ 201,435 $ 698,151
=========== ===========
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended June 30,
-----------------------------------
1997 1996
----------- -----------
Sales
Professional fees $ 1,669,134 $ 2,946,788
Software sales 128,812 100,456
----------- -----------
Total sales 1,787,946 3,047,244
----------- -----------
Cost of sales
Cost of professional fees 1,218,601 2,321,967
Cost of software sales 121,281 80,490
---------- -----------
Total cost of sales 1,339,882 2,402,457
------------ -----------
Gross profit 448,064 644,787
Selling, general and administrative expenses 597,098 715,660
------------ ----------
Loss from operations (149,034) (70,873)
Other income and expenses
Interest income 46,149 2,184
Interest expense (6,479) (5,880)
---------- ---------
Loss before provision for income taxes (109,364) (74,569)
Benefit for income taxes (41,529) (28,565)
------------ -----------
Net loss $ (67,835) $ (46,004)
=========== ===========
Net income per common and common
equivalent share ($0.01) ($0.10)
Weighted average common and common
equivalent shares outstanding 6,245,159 461,353
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended June 30,
---------------------------------
1997 1996
---- ----
Sales
Professional fees $ 3,157,404 $ 6,999,875
Software sales 192,585 128,893
------------ -------------
Total sales 3,349,989 7,126,768
------------ -------------
Cost of sales
Cost of professional fees 2,419,108 5,633,024
Cost of software sales 172,144 102,088
------------ -------------
Total cost of sales 2,591,252 5,735,112
------------ -------------
Gross profit 758,737 1,391,656
Selling, general and administrative
expenses 1,200,060 1,297,438
------------ ------------
(Loss) income from operations (441,323) 94,218
Other income and (expenses)
Interest income 47,018 2,785
Interest expense (12,422) (13,983)
------------- ------------
(Loss) income before provision for (406,727) 83,020
income taxes
(Benefit) expenses for income taxes (154,509) 28,359
------------- ------------
Net (loss) income $ (252,218) $ 54,661
============= ============
(Loss) income per common and
common equivalent share ($0.04) $0.12
Weighted average common and common
equivalent shares outstanding 6,177,715 464,499
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS 10-QSB AS FOR THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,618,491
<SECURITIES> 0
<RECEIVABLES> 1,614,859
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,998,297
<PP&E> 1,992,586
<DEPRECIATION> 1,372,050
<TOTAL-ASSETS> 8,798,256
<CURRENT-LIABILITIES> 1,588,112
<BONDS> 0
0
0
<COMMON> 73,440
<OTHER-SE> 6,989,273
<TOTAL-LIABILITY-AND-EQUITY> 8,798,256
<SALES> 3,349,989
<TOTAL-REVENUES> 3,397,007
<CGS> 2,591,252
<TOTAL-COSTS> 3,791,312
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,422
<INCOME-PRETAX> (406,727)
<INCOME-TAX> (154,509)
<INCOME-CONTINUING> (252,218)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252,218)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
