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, 2002 File No. 0-22405
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INFORMATION ANALYSIS INCORPORATED
(Exact name of Registrant as specified in its charter)
Virginia 54-1167364
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11240 Waples Mill Road, Suite 400, Fairfax, VA 22030
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number,
including area code) (703) 383-3000
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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
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State the number of shares outstanding of each of the issuer's classes of
common stock, as of May 8, 2002:
Common Stock, par value $.01, 10,283,515 shares
Transitional small business disclosure format.
Yes No X
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INFORMATION ANALYSIS INCORPORATED
FORM 10-QSB
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 2002 and December 31, 2001 (Audited) 3
Consolidated Statements of Operations
for the three months ended
March 31, 2002 and March 31, 2001 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 2002 and
March 31, 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II. OTHER INFORMATION
Item 2. Changes in Securities 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
INDEX TO EXHIBITS 10
2
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2002 December 31, 2001
Unaudited Audited
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ASSETS
Current assets:
Cash and cash equivalents $ 181,160 $ 102,640
Accounts receivable, net 1,591,396 1,526,372
Prepaid expenses 70,521 22,255
Note receivable 75,000 75,000
Other receivables 27,607 22,203
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Total current assets 1,945,684 1,748,470
Fixed assets, net 42,654 34,654
Capitalized software, net 250,341 292,065
Other receivables 31,865 31,865
Other assets 58,275 58,275
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Total assets $ 2,328,819 $ 2,165,329
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 800,000 $ 596,000
Accounts payable 997,161 1,024,717
Accrued payroll and related liabilities 292,713 294,489
Other accrued liabilities 56,223 175,158
Deferred revenue 139,674 157,882
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Total current liabilities 2,285,771 2,248,246
Long-term liabilities:
Notes payable 125,001 125,001
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Total liabilities 2,410,772 2,373,247
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Stockholders' equity:
Common stock, par value $0.01, 30,000,000 shares authorized;
11,788,126 shares issued, 10,283,515 outstanding
at March 31,2002 and December 31, 2001 117,881 117,881
Additional paid in capital 14,122,019 14,122,019
Retained earnings (13,467,540) (13,593,505)
Less treasury stock; 1,504,611 shares at cost (854,313) (854,313)
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Total stockholders' equity (81,953) (207,918)
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Total liabilities and stockholders' equity $ 2,328,819 $ 2,165,329
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The accompanying notes are an integral part of the consolidated
financial statements
3
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended
March 31,
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2002 2001
Unaudited Unaudited
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Sales
Professional fees $ 1,839,381 $ 1,258,078
Software sales 121,182 94,041
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Total sales 1,960,563 1,352,119
Cost of sales
Cost of professional fees 1,240,944 905,658
Cost of software sales 115,608 109,664
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Total cost of sales 1,356,552 1,015,322
Gross profit 604,011 336,797
Selling, general and administrative expenses 471,183 333,767
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Income from operations 132,828 3,030
Other expenses, net (6,863) (12,567)
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Income (loss) before provision for income taxes 125,965 (9,537)
Provision for income taxes 0 0
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Net income (loss) $ 125,965 $ (9,537)
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Earnings per common share:
Basic $ 0.01 $ 0.00
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Diluted $ 0.01 $ 0.00
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Weighted average common shares outstanding:
Basic 10,283,515 9,701,473
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Diluted 11,107,596 9,701,473
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The accompanying notes are an integral part of the consolidated
financial statements
4
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
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2002 2001
Unaudited Unaudited
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Net (loss) income $ 125,965 $ (9,537)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 9,692 27,939
Amortization 1,209 1,209
Amortization of capitalized software 41,724 38,637
Gain on sale of fixed assets (1,125) (9,353)
Changes in operating assets and liabilities
Accounts receivable (65,024) (145,032)
Other receivables and prepaid expenses (53,670) (9,153)
Accounts payable and accrued expenses (148,267) 87,192
Deferred revenue (18,208) --
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Net cash used by operating activities (107,704) (18,098)
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Cash flows from investing activities
Purchases of fixed assets (18,901) --
Proceeds from sale of fixed assets 1,125 9,364
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Net cash (used) provided by investing activities (17,776) 9,364
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Cash flows from financing activities
Net borrowing (payments) under bank revolving line of credit 204,000 (6,591)
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Net cash provided (used) by financing activities 204,000 (6,591)
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Net increase (decrease) in cash and cash equivalents 78,520 (15,325)
Cash and cash equivalents at beginning of the period 102,640 42,881
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Cash and cash equivalents at end of the period $ 181,160 $ 27,556
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Supplemental cash flow Information
Interest paid $ 11,458 $ 12,640
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The accompanying notes are an integral part of the consolidated
financial statements
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PART I
Item 1. Financial Statements.
INFORMATION ANALYSIS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying consolidated financial statements have been prepared
by Information Analysis Incorporated ("IAI" or the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. Financial
information included herein is unaudited; however, in the opinion of management,
all adjustments (which include normal recurring adjustments) considered
necessary for a fair presentation have been made. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States
have been omitted pursuant to such rules and regulations, but the Company
believes that the disclosures made are adequate to make the information
presented not misleading. For more complete financial information, these
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 2001 included in
the Company's annual report on Form 10-KSB. Results for interim periods are not
necessarily indicative of the results for any other interim period or for the
full fiscal year.
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation and Cautionary
Statement Regarding Forward-Looking Statements
This Form 10-QSB contains forward-looking statements regarding the
Company's business, customer prospects, or other factors that may affect future
earnings or financial results that are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. Such statements involve risks
and uncertainties which could cause actual results to vary materially from those
expressed in the forward-looking statements. Investors should read and
understand the risk factors detailed in the Company's 10-KSB for the fiscal year
ended December 31, 2001 and in other filings with the Securities and Exchange
Commission.
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Net Income Per Share
Earnings per share are presented in accordance with SFAS No. 128, "Earnings Per
Share." This statement requires dual presentation of basic and diluted earnings
per share on the face of the income statement. Basic earnings per share excludes
dilution and is computed by dividing income available to common shareholders by
the weighted-average number of shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock, except for periods when the Company reports a net loss
because the inclusion of such items would be antidilutive.
The following is a reconciliation of the amounts used in calculating basic and
diluted net income per common share.
Per Share
Income Shares Amount
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Basic net income per common share for the
three months ended March 31, 2002:
Income available to common stockholders $ 125,965 10,283,515 $ 0.01
Effect of dilutive stock options 202,403 --
Effect of dilutive warrants 121,678 --
Effect of dilutive convertible notes 3,750 500,000 --
Diluted net income per common share for
the three months ended March 31, 2002: $ 129,715 11,107,596 $ 0.01
Basic net (loss) per common share for the
three months ended March 31, 2001:
Income available to common stockholders $ (9,537) 9,701,473 $ 0.00
Effect of dilutive stock options and warrrants -- --
Diluted net (loss) per common share for
the three months ended March 31, 2001: $ (9,537) 9,701,473 $ 0.00
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Three Months Ended March 31, 2002 Versus Three Months Ended March 31, 2001
Revenue
IAI's revenues in the first quarter of fiscal 2002 were $1,960,563,
compared to $1,352,119 in the first quarter of fiscal 2001, an increase of
45.0%. Professional services revenue was $1,839,381 versus $1,258,078, an
increase of 46.2%, and product revenue was $121,182 versus $94,041, an increase
of 28.9%. The increase in software sales was mainly attributable to new sales of
the Company's ICONS software tool for the first quarter of 2002, versus no ICONS
sales for the first quarter of 2001. ICONS is a software toolset that is used in
connection with conversions and migrations from mainframe legacy systems.
Gross Margins
Gross margin was $604,011, or 30.8% of sales, in the first quarter of
fiscal 2002 versus $336,797, or 24.9% of sales, in the first quarter of fiscal
2001. Of the $604,011 in 2002, $598,437 was attributable to services and $5,574
was attributable to software sales. Gross margin, as a percentage of sales, was
32.5% for professional services and 4.6% for software sales for 2002. In the
first quarter of 2001, the Company reported gross margins of approximately 28.0%
for services and (16.6%) for software sales. The increase in professional
services gross margin is a result of better margins on some of the Company's
newer projects for the first quarter of 2002 that were not present during the
same period for 2001. The increase in software sales gross margin was mainly
attributable to sales of the Company's ICONS software tool for the first quarter
of 2002, versus no sales of the same for the first quarter of 2001.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $471,183, or
24.0% of revenues, in the first quarter of 2002 versus $333,767, or 24.7% of
revenues, in the first quarter of 2001, an increase in expenses of 41.2%. The
increase is largely attributable to the additional services needed to support
the increase in sales of professional services.
Profits
The Company generated an operating profit before other expenses of
$132,828 in the first quarter of 2002 compared to $3,030 in the first quarter of
2001. There was a net income of $125,965 for 2002 versus a net loss of $9,537 in
2001. In general, the operating profit and net income increases are a result of
increased professional service sales and sales margins during the first quarter
of 2002.
Liquidity and Capital Resources
Through the first three months of 2002, the Company financed its
operations from current collections and through its bank line of credit. Cash
and cash equivalents at March 31, 2002 were $181,160 compared to $27,556 at
March 31, 2001. As of March 31, 2002 the Company had an outstanding balance on
its line of credit of $800,000.
The Company is in default with its line of credit with First Virginia
Bank as a result of the Company's failure to meet certain financial tests.
However, a forbearance agreement between the Company and First Virginia Bank is
in effect which effectively extends the line of credit of $800,000 to May 21,
2002. The Company is in negotiations with the bank to extend the forbearance
agreement. The bank has consistently approved the Company's requests to
8
continue the forbearance, and it is anticipated that that the agreement will be
extended for at least one hundred twenty days.
If revenue continues at current levels the Company believes that it
will derive sufficient cash flow to continue to pay all essential expenses which
are required to operate the business. Any material reduction in revenue could
have a material adverse effect on the Company's operational capabilities.
Current operations, however, are insufficient to provide the additional working
capital that is necessary to repay approximately $500,000 of past due payables.
The Company cannot be certain that there will not be a need for additional cash
resources at some point in fiscal 2002. Accordingly, the Company may from time
to time consider additional equity offerings to finance business expansion. The
Company is uncertain that it will be able to raise additional capital.
The Company has no material commitments for capital expenditures.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
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.
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
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(Registrant)
Date: May 9, 2002 By: /s/ Sandor Rosenberg
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Sandor Rosenberg, Chairman of the
Board and President
By: /s/ Richard S. DeRose
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Richard S. DeRose, Executive Vice
President and Treasurer
9