10QSB 1 d10qsb.txt FORM 10-QSB 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, 2001 File No. 0-22405 -------------- ------- 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, Suite 400, Fairfax, VA 22030 ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (703) 383-3000 -------------- 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 May 1, 2001: Common Stock, par value $.01, 9,701,473 shares Transitional small business disclosure format. Yes No X ----------- ------------ INFORMATION ANALYSIS INCORPORATED FORM 10-QSB Index Page PART I. FINANCIAL INFORMATION Number Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 (Audited) 3 Consolidated Statements of Operations for the three months ended March 31, 2001 and March 31, 2000 4 Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and March 31, 2000 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, 2001 December 31, 2000 Unaudited Audited --------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 27,556 $ 42,881 Accounts receivable, net 1,218,973 1,073,941 Prepaid expenses 149,397 174,875 Other receivables 92,431 57,800 ------------ ------------ Total current assets 1,488,357 1,349,497 ------------ ------------ Fixed assets, net 68,188 96,139 Equipment under capital leases, net 5,508 6,717 Capitalized software, net 452,915 491,552 Other receivables 18,142 18,142 Other assets 58,275 58,275 ------------ ------------ Total assets $ 2,091,385 $ 2,020,322 ============ ============ LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Revolving line of credit 592,000 598,591 Accounts payable $ 1,607,933 1,517,897 Accrued payroll and related liabilities 219,263 211,866 Other accrued liabilities 198,734 208,976 ------------ ------------ Total current liabilities 2,617,930 2,537,330 Stockholders' equity: Common stock, par value $0.01, 30,000,000 shares authorized; 11,206,084 shares issued, 9,701,473 outstanding at March 31,2001 and December 31, 2000 112,061 112,061 Additional paid in capital 13,915,702 13,915,702 Retained earnings (13,699,995) (13,690,458) Less treasury stock; 1,504,611 shares at cost (854,313) (854,313) ------------ ------------ Total stockholders' equity (526,545) (517,008) ------------ ------------ Total liabilities and stockholders' equity $ 2,091,385 $ 2,020,322 ============ ============
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, --------- 2001 2000 Unaudited Unaudited --------- --------- Sales Professional fees $1,258,078 $ 1,221,805 Software sales 94,041 466,512 ---------- ----------- Total sales 1,352,119 1,688,317 ---------- ----------- Cost of sales Cost of professional fees 905,658 939,154 Cost of software sales 109,664 144,514 ---------- ----------- Total cost of sales 1,015,322 1,083,668 ---------- ----------- Gross profit 336,797 604,649 Selling, general and administrative expenses 333,767 560,544 ---------- ----------- Income from operations 3,030 44,105 Other expenses ,net (12,567) (2,203) ---------- ----------- (Loss) Income before provision for income taxes (9,537) 41,902 Provision for income taxes 0 0 ---------- ----------- Net (loss) income $ (9,537) $ 41,902 ========== =========== Earnings per common share: Basic $0.00 $0.00 Diluted $0.00 $0.00 Weighted average common shares outstanding: Basic 9,701,473 9,435,543 Diluted 9,701,473 10,149,573
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, --------- 2001 2000 Unaudited Unaudited --------- --------- Net (loss) income $ (9,537) $ 41,902 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 27,940 57,352 Amortization 1,209 3,691 Amortization of capitalized software 38,637 38,637 Gain on sale of fixed assets (9,353) -- Changes in operating assets and liabilities Accounts receivable (145,032) (810) Other receivables and prepaid expenses (9,153) 41,265 Accounts payable and accrued expenses 87,191 (494,752) --------- --------- Net cash used by operating activities $ (18,098) $(312,715) --------- --------- Cash flows from investing activities Increase in capitalized software -- (45,680) Proceeds from sale of fixed assets 9,364 -- --------- --------- Net cash provided (used) by investing activities 9,364 (45,680) --------- --------- Cash flows from financing activities Net (payments) borrowing under bank revolving line of credit (6,591) 159,100 Principal payments on capital leases -- (1,458) Net Proceeds from private placement -- 125,000 Proceeds from exercise of stock options and warrants -- 31,626 --------- --------- Net cash (used) provided by financing activities (6,591) 314,268 --------- --------- Net decrease in cash and cash equivalents (15,325) (44,127) Cash and cash equivalents at beginning of the period 42,881 133,468 --------- --------- Cash and cash equivalents at end of the period $ 27,556 $ 89,341 ========= ========= Supplemental cash flow Information Interest paid $ 12,640 $ 6,242
The accompanying notes are an integral part of the consolidated financial statements 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, 2000 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. Internet and intranet technology offer a different approach at collecting and processing large volumes of user transactions and 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, 2000 and in other filings with the Securities and Exchange Commission. 6 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 ------ ------ ------ Basic net income 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 -- -- Diluted net income per common share for the three months ended March 31, 2001: $(9,537) 9,701,473 $ 0.00 Basic net income per common share for the three months ended March 31, 2000: Income available to common stockholders $41,902 9,435,543 $ 0.00 Effect of dilutive stock options 714,030 -- Diluted net income per common share for the three months ended March 31, 2000: $41,902 10,149,573 $ 0.00 7 Three Months Ended March 31, 2001 Versus Three Months Ended March 31, 2000 Revenue IAI's revenues in the first quarter of fiscal 2001 were $1,352,119, compared to $1,688,317 in the first quarter of fiscal 2000, a decrease of 19.9%. Professional services revenue was $1,258,078 versus $1,221,805, an increase of 3.0%, and product revenue was $94,041 versus $466,512 a decrease of 79.8%. The decrease in software sales were mainly attributable to no sales of the Company's ICONS software tool for the first quarter of 2001, versus the first quarter of 2000. ICONS is a software toolset that is used in connection with conversions and migrations from mainframe legacy systems. Gross Margins Gross margin was $336,797, or 24.9% of sales, in the first quarter of fiscal 2001 versus $604,649, or 35.8% of sales, in the first quarter of fiscal 2000. Of the $336,797 in 2001, $352,420 was attributable to services and ($15,623) was attributable to software sales. Gross margin as a percentage of sales was 28.0% for professional services and (16.6%) for software sales for 2001. In the first quarter of 2000, the Company reported gross margins of approximately 23.1% for services and 69.0% 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 2001 that were not present during the same period for 2000. The decrease in software sales gross margin was mainly attributable to no sales of the Company's ICONS software tool for the first quarter of 2001, versus the first quarter of 2000. Selling, General and Administrative Selling, general and administrative expenses (SG&A) were $333,767, or 24.7% of revenues, in the first quarter of 2001 versus $560,544, or 33.2% of revenues, in the first quarter of 2000, a decrease in expenses of 40.5%. The decrease is attributable to the Company's continued commitment to align SG&A costs to the level of its professional services and software business. Profits The Company generated an operating profit before other expenses of $3,030 in the first quarter of 2001 compared to $44,105 in the first quarter of 2000. There was a net income loss of $9,537 for 2001 versus net income of $41,902 in 2000. In general, the operating profit and net income decrease is a result of lower software sales during the first quarter of 2001. Liquidity and Capital Resources The Company financed its operations from current collections, and through its bank line of credit. Cash and cash equivalents at March 31, 2001 were $27,556, compared to $42,881 at December 31, 2000. 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 $850,000 to May 29, 2001. The Company is in negotiations with various organizations to obtain new financing. 8 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 currently 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 one million dollars of past due payables. The Company is in the process of negotiating with past due creditors to obtain concessions on their claims. The Company may require additional cash resources during 2001 to support its operations and to satisfy its debts. Accordingly, the Company may from time to time consider additional equity offerings. 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) 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 --------------------------------- (Registrant) Date: May 11, 2001 By: /S/ Sandor Rosenberg ------------ ------------------------------------------- Sandor Rosenberg, Chairman of the Board and President By: /S/ Richard S. DeRose ------------------------------------------- Richard S. DeRose, Executive Vice President and Treasurer 9 INDEX TO EXHIBITS
Exhibit Description Location No. 10.1 Modification of Office Lease at 11240 Waples Filed with this Form 10-QSB Mill Road, Fairfax, Virginia 22030.
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