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, 2000 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 April 14, 2000:
Common Stock, par value $.01, 9,581,473 shares
Transitional small business disclosure format.
Yes No X
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INFORMATION ANALYSIS INCORPORATED
FORM 10-QSB
Index
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 2000 3
Condensed Consolidated Statements of Operations
for the three months ended
March 31, 2000 and March 31 1999 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and
March 31, 1999 5
Notes to Unaudited Condensed 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 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 8
INDEX TO EXHIBITS 9
2
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As Of
March 31, 2000
Unaudited
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ASSETS
Current assets:
Cash and cash equivalents $ 89,341
Accounts receivable, net 1,903,054
Employee advances 7,451
Prepaid expenses 134,510
Other receivables 50,298
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Total current assets 2,184,654
Fixed assets, net 219,952
Equipment under capital leases, net 10,344
Capitalized software, net 470,696
Other receivables 28,992
Other assets 58,275
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Total assets $ 2,972,913
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,265,904
Accrued payroll and related liabilities 318,108
Other accrued liabilities 417,189
Revolving line of credit 660,600
Current maturities of capital lease obligations 5,478
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Total current liabilities 2,667,279
Long-term debt --
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Total liabilities 2,667,279
Common stock, par value $0.01, 15,000,000 shares authorized;
11,086,084 shares issued, 9,581,473 outstanding
at March 31,2000 110,861
Additional paid in capital 13,916,902
Retained earnings (12,867,816)
Less treasury stock; 1,504,611 shares at cost (854,313)
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Total stockholders' equity 305,634
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Total liabilities and stockholders' equity $ 2,972,913
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See accompanying notes
3
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended
March 31,
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2000 1999
Unaudited Unaudited
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Sales
Professional fees $ 1,221,805 $3,515,958
Software sales 466,512 319,706
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Total sales 1,688,317 3,835,664
Cost of sales
Cost of professional fees 939,154 2,095,509
Cost of software sales 144,514 375,711
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Total cost of sales 1,083,668 2,471,220
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Gross profit 604,649 1,364,444
Selling, general and administrative expenses 560,544 1,186,837
Research & Development 0 72,935
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Income from operations 44,105 104,672
Other (expense) income (2,203) (34,489)
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Income before provision for income taxes 41,902 70,183
Provision for income taxes 0 0
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Net income $ 41,902 $ 70,183
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Earnings per common share
Basic $0.00 $0.01
Diluted $0.00 $0.01
Weighted average common shares outstanding
Basic 9,435,543 6,894,529
Diluted 10,149,573 8,029,979
See accompanying notes
4
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended
March 31,
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2000 1999
Unaudited Unaudited
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Net income $ 41,902 $ 70,183
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 57,352 84,816
Amortization 3,691 5,265
Amortization of capitalized software 38,637 274,174
Loss on sale of fixed assets 0 8,286
Changes in operating assets and liabilities
Accounts receivable (810) 510,428
Other receivables and prepaid expenses 41,265 (77,054)
Accounts payable and accrued expenses (494,752) (981,610)
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Net cash used by operating activities $(312,715) $(105,512)
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Cash flows from investing activities
Increase in capitalized software (45,680) 0
Proceeds from sale of fixed assets 0 11,805
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Net cash (used) provided in investing activities (45,680) 11,805
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Cash flows from financing activities
Net borrowing under bank revolving line of credit 159,100 37,000
Principal payments on capital leases (1,458) (2,186)
Net Proceeds from private placement 125,000 0
Proceeds from exercise of stock options and warrants 31,626 19,774
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Net cash provided by financing activities 314,268 54,588
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Net decrease in cash and cash equivalents (44,127) (39,119)
Cash and cash equivalents at beginning of the period 133,468 176,399
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Cash and cash equivalents at end of the period $ 89,341 $ 137,280
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Supplemental cash flow Information
Interest paid $ 6,242 $ 38,562
See accompanying notes
5
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 generally accepted accounting principles 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, 1999 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.
Overview
Prior to mid 1999, the Company was primarily dedicated to solving Year
2000 problems by providing software and services. Since the latter part of 1999
the Company's main focus has been modernizing client information systems and
developing Web-based solutions. IAI primarily applies its technology, services
and experience to legacy software migration and modernization. The arrival of
the Internet and Intranet technology has offered a different approach at
collecting and processing large volumes of user transactions, processes which
were the forte of older legacy systems. The Company has been using its expertise
in legacy systems to develop solutions that allow these legacy systems to
interface with the Web.
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, 1999 and in other filings with the Securities and Exchange
Commission.
6
Three Months Ended March 31, 2000 Versus Three Months Ended March 31, 1999
Revenue
IAI's revenues in the first quarter of fiscal 2000 were $1.7 million,
compared to $3.8 million in the first quarter of fiscal 1999, a decrease of 56%.
Professional services revenue was $1.2 million versus $3.5 million, a decrease
of 65.2%, and product revenue was $0.5 million versus $0.3 million an increase
of 45.9%. The decrease in professional services revenue is primarily
attributable to the discontinuation of Year 2000 sales for the first quarter of
fiscal 2000 versus Year 2000 sales recorded over the same period in 1999. In the
first quarter 1999 Year 2000 sales accounted for $2.1 million in professional
services revenue. The increase in product sales was mainly attributable to the
sales of ICON"S a software toolset capable of conversions and migrations from
mainframe legacy systems.
Gross Margins
Gross margin was $0.6 million, or 35.8% of sales, in the first quarter
of fiscal 2000 versus $1.4 million, or 35.6% of sales, in the first quarter of
fiscal 1999. Of the $0.6 million in 2000, $0.3 million was attributable to
services and $0.3 million was attributable to software sales. Gross margin as a
percentage of sales was 23.1% for professional services and 69.0% for software
sales. In the first quarter of 1999, the Company reported gross margin of
approximately 40.4% for services and (17.5%) for software sales.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $0.6 million,
or 33.2% of revenues, in the first quarter of 2000 versus $1.2 million, or 30.9%
of revenues, in the first quarter of 1999, a decrease in expenses of 52.8%. The
decrease is attributable to the Company's elimination of its marketing and
support expenses associated with Year 2000 services and product.
Profits
The Company generated an operating profit of $44,000 in the first
quarter of 2000 compared to $105,000 in the first quarter of 1999. In general,
the profit reflected a slight improvement in the overall percentage for gross
margin sales of 0.2%. Because of a net operating loss carryforward, the Company
did not accrue for income taxes in the first quarter of 2000.
Liquidity and Capital Resources
The Company financed its operations from current collections, the
proceeds from the sales of private equity and through its bank line of credit.
Cash and cash equivalents at March 31, 2000 were $89,341, compared to $137,280
at March 31, 1999.
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 $1,000,000 to May 31,
2000. The Company is in negotiations with various organizations to obtain a new
line of credit.
If revenue continues at curent 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.
7
Any material reduction in revenue could have a material adverse effect on the
Company's operational capabilities. The Company cannot be certain that there
will not be a need for additional cash resources at some point in fiscal 2000.
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
In the first quarter of 2000, the Company completed the second phase of
its December 1999, private placement which raised an additional $125,000 in
exchange for 250,000 shares of common stock and 125,000 five-year warrants,
exercisable at $1.00 per share. The shares and warrants were sold to accredited
investors in reliance upon Rule 505 of Regulation D under the Securities Act of
1933 as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) See the Index to Exhibits attached hereto.
(b) 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 12, 2000 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
8
INDEX TO EXHIBITS
Exhibit Description Location
No.
27.1 Financial Data Schedule Filed with this Form 10-QSB
9