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
September 30, 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, VA 22027
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number,
including area code) (703) 641-0955
Indicate by check mark whether the Registrant(1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
State the number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 1995:
Common Stock, par value $.01, 471,549 shares
Transitional small business disclosure format.
Yes No x .
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1995
ASSETS
Current assets
Cash and cash equivalents $ 29,596
Accounts receivable 4,111,107
Employee advances 48,242
Income tax receivables 48,557
Deferred income taxes 48,193
Other receivables and prepayments 182,559
-----------------
Total current assets 4,468,254
Fixed assets
At cost, net of accumulated depreciation 326,968
and amortization of $1,056,350
Equipment under capital leases
Net of accumulated amortization of $29,443 76,378
Investments 10,000
Other receivables 44,500
-----------------
Total assets $ 4,926,100
=================
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1995
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,540,899
Accrued payroll 442,726
Other accrued liabilities 36,302
Note payable - bank 704,000
Current maturities of long term debt 19,301
and capital lease obligations
Current portion of deferred rent 10,224
--------------
Total current liabilities 2,753,452
Long term debt and capital lease obligations 65,943
net of current portion
Deferred income taxes 9,500
Deferred rent 3,408
--------------
Total liabilities 2,832,303
--------------
Common stock, par value $0.01
1,000,000 shares authorized; 621,228
shares issued 6,212
Paid in capital in excess of par value 772,198
Retained earnings 2,097,325
Less treasury stock; 149,679 shares at cost (781,938)
--------------
Total stockholders' equity 2,093,797
--------------
Total liabilities and stockholders' equity $ 4,926,100
==============
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three months ended September 30,
1995 1994
--------------- ---------------
Sales
Professional fees $ 3,628,264 $ 4,143,281
Software sales 96,080 686,941
----------------- -----------------
Total sales 3,724,344 4,830,222
----------------- -----------------
Cost of sales
Cost of professional fees 2,932,978 3,226,940
Cost of software sales 81,208 574,029
--------------- ---------------
Total cost of sales 3,014,186 3,800,969
--------------- ---------------
Gross profit 710,158 1,029,253
Selling, general and administrative expenses 714,865 892,869
--------------- ---------------
Income from operations (4,707) 136,384
Other income and expenses
Interest income 2,688 4,601
Interest expense (29,415) (31,939)
--------------- ---------------
Income before (benefit) provision for (31,434) 109,046
income taxes
(Benefit) provision for income taxes (11,663) 40,981
--------------- ---------------
Net (loss) income (19,771) 68,065
Retained earnings:
Beginning of period 2,117,096 2,102,561
--------------- ---------------
End of period $ 2,097,325 $ 2,170,626
=============== ===============
Income per common and common
equivalent share
$(0.04) $0.14
Weighted average common and common
equivalent shares outstanding 481,800 494,551
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended September 30,
1995 1994
---- ----
Sales
Professional fees $ 12,016,630 $ 11,876,978
Software sales 210,911 870,204
---------- ----------
Total sales 12,227,541 12,747,182
---------- ----------
Cost of sales
Cost of professional fees 9,526,293 9,196,993
Cost of software sales 183,762 755,591
--------- ---------
Total cost of sales 9,710,055 9,952,584
--------- ---------
Gross profit 2,517,486 2,794,598
Selling, general and administrative expenses 2,314,621 2,602,888
--------- ---------
Income from operations 202,865 191,710
Other income and expenses
Interest income 6,037 12,583
Interest expense (100,055) (72,340)
-------- -------
Income before provision for 108,847 131,953
income taxes
Provision for income taxes 41,643 50,143
--------- ---------
Net income 67,204 81,810
Retained earnings:
Beginning of period 2,030,121 2,088,816
--------- ---------
End of period $ 2,097,325 $ 2,170,626
========== ==========
Income per common and common
equivalent share
$0.14 $0.16
Weighted average common and common
equivalent shares outstanding 483,467 499,733
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended September 30,
1995 1994
------------------ ----------------
Cash flows from operating activities
Cash received from customers $ 12,016,657 $ 12,015,622
Cash paid to suppliers and employees (11,099,471) (12,352,600)
Interest received 6,037 12,583
Interest paid (100,055) (72,340)
Income taxes paid (net) 0 (42,790)
------------------ -------------------
Net cash provided (used) by operating activities 823,168 (439,525)
------------------ -------------------
Cash flows from investing activities
Loans and advances 5,537 11,663
Acquisition of furniture and equipment (71,941) (76,748)
Proceeds from sale of equipment 0 8,500
------------------ -------------------
Net cash (used) in investing activities (66,404) (56,585)
------------------ -------------------
Cash flows from financing activities
Net borrowing under bank revolving line of credit (688,000) 597,000
Principal payments on debt and capital leases (12,866) (19,001)
(Repurchase) of common stock (61,788) (69,250)
Proceeds from exercise of incentive stock options 275 121
---------------- ----------------
Net cash provided (used) by financing activities (762,379) 508,870
------------------ -------------------
Net (decrease) in cash and cash equivalents (5,615) 12,760
Cash and cash equivalents at beginning of the period 35,211 24,046
------------------ -------------------
Cash and cash equivalents at end of the period $ 29,596 $ 36,806
================== ===================
Reconciliation of net income to cash provided by operating activities
Net income $ 67,204 $ 81,810
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 130,856 115,730
Loss on sale of fixed assets and investments 0 8,470
Changes in operating assets and liabilities
Accounts receivable (210,884) (731,561)
Other receivables and prepayments 72,640 (112,533)
Accounts payable and accrued expenses 729,377 198,875
Deferred rent (7,668) (7,668)
Income tax liability 41,643 7,352
------------------ -------------------
Net cash provided (used) by operating activities $ 823,168 $ (439,525)
================== ===================
INFORMATION ANALYSIS INCORPORATED
Notes to Financial Statements
The interim financial statements are furnished without audit; however, they
reflect all adjustments which are, in the opinion of management, necessary for
the fair statement of the financial position and results of operations for the
nine months ended September 30, 1995 and 1994. 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, 1994.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Results of Operations
The Company's revenues in the third quarter of 1995 from its computer and
software related services and sales segment increased by $408,972
or by 12.5%, to $3,668,548, from $3,259,576 for the third quarter of 1994.
Software sales for the third quarter of 1995 declined by $590,881 when compared
to software sales in the third quarter of 1994. However, the Company realized a
$999,853 increase in computer related consulting and professional fees over the
consulting and professional fees generated during the same quarter in 1994. The
reduction in software sales revenue was due to one order for approximately
$600,000 which was obtained in the third quarter of 1994. Apart from this one
order, software sales were basically equal for the 1994 and 1995 third quarter.
Even though revenues increased, profit margins decreased from 23.0% in the third
quarter of 1994 to 19.3% in the third quarter of 1995. Selling, general and
administrative expenses, as a percentage of revenue, was basically constant for
the third quarter of 1995 compared to the corresponding quarter of 1994, being
18.3% this year compared to 18.1% last year. Primarily as a result of the
reduction in profit margins, the Company's third quarter 1995 profits from its
computer and software business segment decreased to $38,846 from $158,308 in the
third quarter of 1994, or a reduction of $119,462.
The Company's revenue generated from the health care segment of its business
through Allied Health and Information Systems, Inc. ("AHISI") declined in the
third quarter of 1995 to $55,796 from $1,570,646 during the corresponding
quarter of 1994. This reduction in revenue resulted from the Company's
implementation of its objective to wind-down the health care segment of its
business. In this regard, effective as of July 1, 1995, AHISI terminated its
contract with the District of Columbia Department of Corrections. This alone
caused a reduction in third quarter revenue of $983,386, which was the revenue
generated in the third quarter of 1994 from AHISI's contract with the District
of Columbia Department of Corrections. As of October 1, 1995, AHISI's funded
backlog was reduced to $121,940 under one contract it maintains with the United
States Department of Justice. Once this contract expires, the Company will
generate no further revenue through AHISI. AHISI's third quarter 1995 loss was
$43,553 compared to a $21,924 loss realized during the corresponding quarter of
1994.
On a consolidated basis, as a result of winding-down its health care services
business, the Company's overall 1995 third quarter revenues declined by
$1,105,878, or by 22.9%, to $3,734,344 from $4,830,222 in the third quarter of
1994. Consolidated gross profit margins also declined to 19.1% in the third
quarter of 1995 compared to 21.3% in the third quarter of 1994. Selling, general
and administrative expenses as a percentage of revenue increased by less than 1%
in the third quarter of 1995, to 19.2% from 18.5% in the corresponding quarter
of 1994. This substantiates that the Company was able to reduce its overall
general and administrative expenses in response to its declining revenues. After
considering the effect of interest and taxes, the Company sustained a
consolidated third quarter loss of $19,771 in 1995 compared to a $68,065 profit
which was generated in the third quarter of 1994.
Year to date consolidated revenues for the nine months ended September 30, 1995
decreased $519,641 over the corresponding nine months of 1994, or a 4.1%
decrease. Again, this decrease was attributable to winding-down AHISI's
business. The Company's consolidated gross profit margin also declined for the
nine months ended September 30, 1995 to 20.6% from 21.9% during the first nine
months of 1994. Conversely, improvement was realized in selling, general and
administrative expenses as a percentage of revenue which was reduced to 18.9%
for the nine months ended September 30, 1995 compared to 20.4% for the first
nine months of 1994. After interest income and expense, net income decreased to
$67,204 for the first nine months of 1995 compared to net income of $81,810 for
the first nine months of 1994.
Liquidity and Capital Resources
In the third quarter of 1995, as with the third quarter of 1994, the Company
financed its operations from current collections and through advances on its
line of credit with its bank. As of September 30, 1995, the outstanding balance
on its line of credit was, $704,000 as compared to $1,652,000 as of September
30, 1994, a decrease of $948,000. The divesting of AHISI has reduced the
Company's working capital requirements allowing it to significantly reduce its
borrowings on the line of credit. Cash and cash equivalents at September 30,
1995 were $29,596, compared to $36,806 at September 30, 1994.
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.
PART II - FINANCIAL INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed by the registrant during the quarter ended
September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Information Analysis Incorporated
(Registrant)
Date: November 15, 1995 By:______________________
Sandor Rosenberg
Chairman of the Board
and President
Date: November 15, 1995 By:______________________
Brian R. Moore
Treasurer