<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>d10qsb.txt
<DESCRIPTION>FORM 10-QSB
<TEXT>
<PAGE>
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, 2002 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 August 1, 2002:
Common Stock, par value $0.01, 10,283,515 shares
Transitional small business disclosure format.
Yes No x .
------- -------
<PAGE>
INFORMATION ANALYSIS INCORPORATED
FORM 10-QSB
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
June 30, 2002 and December 31, 2001 (Audited) 3
Consolidated Statements of Operations
for the three months ended June 30, 2002
and June 30, 2001 4
Consolidated Statements of Operations
for the six months ended June 30, 2002
and June 30, 2001 5
Consolidated Statements of Cash Flows
for the six months ended June 30, 2002
and June 30, 2001 6
Notes to Unaudited Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-
OXLEY ACT OF 2002 11
INDEX TO EXHIBITS 12
2
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2002 December 31, 2001
Unaudited Audited
------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,049 $ 102,640
Accounts receivable, net 1,372,935 1,526,372
Prepaid expenses 63,991 22,255
Note receivable 75,000 75,000
Other receivables 54,226 22,203
------------ ------------
Total current assets 1,601,201 1,748,470
Fixed assets, net 37,078 34,654
Capitalized software, net 208,617 292,065
Other receivables 11,865 31,865
Other assets 58,275 58,275
------------ ------------
Total assets $ 1,917,036 $ 2,165,329
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 543,000 $ 596,000
Accounts payable 883,482 1,024,717
Accrued payroll and related liabilities 271,004 294,489
Other accrued liabilities 54,662 175,158
Deferred revenue 73,963 157,882
------------ ------------
Total current liabilities 1,826,111 2,248,246
Long-term liabilities:
Notes payable 125,001 125,001
------------ ------------
Total liabilities 1,951,112 2,373,247
------------ ------------
Stockholders' equity:
Common stock, par value $0.01, 30,000,000 shares authorized;
11,788,126 shares issued, 10,283,515 outstanding
at June 30,2002 and December 31, 2001 117,881 117,881
Additional paid in capital 14,122,019 14,122,019
Retained earnings (13,419,663) (13,593,505)
Less treasury stock; 1,504,611 shares at cost (854,313) (854,313)
------------ ------------
Total stockholders' equity (34,076) (207,918)
------------ ------------
Total liabilities and stockholders' equity $ 1,917,036 $ 2,165,329
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
3
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
--------------------------
June 30,
-------
2002 2001
Unaudited Unaudited
----------- -----------
<S> <C> <C>
Sales
Professional fees $ 1,518,093 $ 986,666
Software sales 134,524 158,672
----------- -----------
Total sales 1,652,617 1,145,338
Cost of sales
Cost of professional fees 1,032,428 750,082
Cost of software sales 96,705 193,653
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Total cost of sales 1,129,133 943,735
----------- -----------
Gross profit 523,484 201,603
Selling, general and administrative expenses 477,707 356,134
----------- -----------
Income (loss) from operations 45,777 (154,531)
Other income (expenses), net 2,100 (11,039)
----------- -----------
Income (loss) before provision for income taxes 47,877 (165,570)
Provision for income taxes -- --
----------- -----------
Net income (loss) before extraordinary item 47,877 (165,570)
Extraordinary gain - settlement of debt with equity -- 120,595
----------- -----------
Net income (loss) 47,877 (44,975)
=========== ===========
Earnings per common share:
Basic:
Net Income (loss) before extraordinary Item $ 0.00 $ (0.02)
Extraordinary gain - settlement of debt with equity 0.00 0.01
----------- -----------
Net income (loss) $ 0.00 $ (0.01)
=========== ===========
Diluted:
Net Income (loss) before extraordinary Item $ 0.00 $ (0.02)
Extraordinary gain - settlement of debt with equity 0.00 0.01
----------- -----------
Net income (loss) $ 0.00 $ (0.01)
=========== ===========
Weighted average common shares outstanding:
Basic 10,283,515 9,801,522
Diluted 10,962,425 9,801,522
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
4
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the six months ended
----------------------------
June 30,
-------
2002 2001
Unaudited Unaudited
------------ ------------
<S> <C> <C>
Sales
Professional fees $ 3,357,474 $ 2,244,744
Software sales 255,706 252,713
------------ ------------
Total sales 3,613,180 2,497,457
Cost of sales
Cost of professional fees 2,273,372 1,655,740
Cost of software sales 212,313 303,317
------------ ------------
Total cost of sales 2,485,685 1,959,057
------------ ------------
Gross profit 1,127,495 538,400
Selling, general and administrative expenses 948,890 689,901
------------ ------------
Income (loss) from operations 178,605 (151,501)
Other expenses, net (4,763) (23,606)
------------ ------------
Income (loss) before provision for income taxes 173,842 (175,107)
Provision for income taxes -- --
------------ ------------
Net income (loss) before extraordinary item 173,842 (175,107)
Extraordinary gain - settlement of debt with equity -- 120,595
------------ ------------
Net income (loss) 173,842 (54,512)
============ ============
Earnings per common share:
Basic:
Net Income (loss) before extraordinary Item $ 0.02 $ (0.02)
Extraordinary gain - settlement of debt with equity 0.00 0.01
------------ ------------
Net income (loss) $ 0.02 $ (0.01)
============ ============
Diluted:
Net Income (loss) before extraordinary Item $ 0.02 $ (0.02)
Extraordinary gain - settlement of debt with equity 0.00 0.01
------------ ------------
Net income (loss) $ 0.02 $ (0.01)
============ ============
Weighted average common shares outstanding:
Basic 10,283,515 9,751,774
Diluted 11,078,683 9,751,774
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
5
<PAGE>
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
June 30,
--------
2002 2001
Unaudited Unaudited
--------- ---------
<S> <C> <C>
Net (loss) income $ 173,842 $ (54,512)
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary gain -- (120,595)
Depreciation 21,457 46,578
Amortization of capitalized software 83,448 116,039
Gain on sale of fixed assets (3,710) (9,353)
Changes in operating assets and liabilities
Accounts receivable 153,437 7,096
Other receivables and prepaid expenses (53,759) 133,769
Accounts payable and accrued expenses (285,216) (21,420)
Deferred revenue (83,919) --
--------- ---------
Net cash provided by operating activities 5,580 97,602
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Cash flows from investing activities
Purchases of fixed assets (23,881) --
Proceeds from sale of fixed assets 3,710 9,364
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Net cash (used) provided by investing activities (20,171) 9,364
--------- ---------
Cash flows from financing activities
Net borrowing (payments) under bank revolving line of credit (53,000) (88,591)
--------- ---------
Net cash used by financing activities (53,000) (88,591)
--------- ---------
Net (decrease) increase in cash and cash equivalents (67,591) 18,375
Cash and cash equivalents at beginning of the period 102,640 42,881
--------- ---------
Cash and cash equivalents at end of the period $ 35,049 $ 61,256
========= =========
Supplemental cash flow Information
Interest paid $ 26,256 $ 23,988
========= =========
Non-cash financing activity:
Issuance of common stock to settle debt $ -- $ 130,565
========= =========
Non-cash operating activity:
Reduction of accounts payable through issuance of equity $ -- $ 251,160
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
6
<PAGE>
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
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.
7
<PAGE>
Net Income (Loss) 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.
<TABLE>
<CAPTION>
Income Before
Extraordinary Extraordinary Net Per Share
Item Item Income Shares Amount
---------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Basic net income per common share for the
three months ended June 30, 2002:
Income available to common stockholders $ 47,877 -- $ 47,877 10,283,515 $ 0.00
Effect of dilutive stock options 70,219 --
Effect of dilutive warrants 108,691 --
Effect of dilutive convertible notes 3,750 -- 3,750 500,000 --
Diluted net income per common share for
the three months ended June 30, 2002: $ 51,627 -- $ 51,627 10,962,425 $ 0.00
Basic net loss per common share for the
three months ended June 30, 2001:
Income available to common stockholders $ (165,570) 120,595 $ (44,975) 9,801,522 $ (0.01)
Effect of dilutive stock options and warrants -- --
Diluted net loss per common share for
the three months ended June 30, 2001: $ (165,570) 120,595 $ (44,975) 9,801,522 $ (0.01)
Basic net income per common share for the
six months ended June 30, 2002:
Income available to common stockholders $ 173,842 -- $ 173,842 10,283,515 $ 0.02
Effect of dilutive stock options 174,235 --
Effect of dilutive warrants 120,933 --
Effect of dilutive convertible notes 7,500 -- 7,500 500,000 --
Diluted net income per common share for
the six months ended June 30, 2002: $ 181,342 -- $ 181,342 11,078,683 $ 0.02
Basic net loss per common share for the
six months ended June 30, 2001:
Income available to common stockholders $ (175,107) 120,595 $ (54,512) 9,751,774 $ (0.01)
Effect of dilutive stock options and warrants -- --
Diluted net loss per common share for
the six months ended June 30, 2001: $ (175,107) 120,595 $ (54,512) 9,751,774 $ (0.01)
</TABLE>
8
<PAGE>
Three Months Ended June 30, 2002 Versus Three Months Ended June 30, 2001
Revenue
IAI's revenues in the second quarter of fiscal 2002 were $1,652,617,
compared to $1,145,338 in the second quarter of fiscal 2001, an increase of
44.3%. Professional services revenue was $1,518,093 versus $986,666, an increase
of 53.9%, and product revenue was $134,524 versus $158,672, a decrease of 15.3%.
Gross Margins
Gross margin was $523,484, or 31.7% of sales, in the second quarter of
fiscal 2002 versus $201,603, or 17.6% of sales, in the second quarter of fiscal
2001. Of the $523,484 in 2002, $485,665 was attributable to services and $37,819
was attributable to software sales. Gross margin, as a percentage of sales, was
32.0% for professional services and 28.1% for software sales for 2002. In the
second quarter of 2001, the Company reported gross margins of approximately
24.0% for professional services and (22.0%) 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 second 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 second
quarter of 2002, versus no ICONS sales for the same period of 2001.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $477,707, or
28.9% of revenues, in the second quarter of 2002 versus $356,134, or 31.1% of
revenues, in the second quarter of 2001, an increase in expenses of 34.1%. 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
$45,777 in the second quarter of 2002 compared to operating loss before other
expenses of $154,531 in the second quarter of 2001. There was a net income of
$47,877 for the second quarter of 2002 versus a net loss before extraordinary
gain of $165,570 for the same period in 2001. In general, the operating profit
and net income increases are a result of increased professional service sales
and improved sales margins during 2002.
9
<PAGE>
Six Months Ended June 30, 2002 Versus Six Months Ended June 30, 2001
Revenue
IAI's revenues in the first six months of fiscal 2002 were $3,613,180,
compared to $2,497,457 in the first six months of fiscal 2001, an increase of
44.7%. Professional services revenues were $3,357,474 versus $2,244,744, an
increase of 49.6%, and product revenues were $255,706 versus $252,713, an
increase of 1.2%.
Gross Margins
Gross margins were $1,127,495, or 31.2% of sales, in the first six
months of fiscal 2002 versus $538,400, or 21.6% of sales, in the first six
months of fiscal 2001. Of the $1,127,495 in 2002, $1,084,102 was attributable to
professional services and $43,393 was due to software sales. Gross margins as a
percentage of sales were 32.3% for professional services and 17.0% for software
sales for 2002, versus 26.2% for professional services and (20.0)% for software
sales in 2001. The increase in professional services gross margin is a result of
better margins on some of the Company's newer projects for 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
2002, versus no ICONS sales for the same period of 2001.
Selling, General & Administrative
SG&A was $948,890, or 26.3% of revenues, in the first half of 2002
versus $689,901, or 27.6% of revenues, in the first half of 2001, an increase in
expenses of 37.5%. The increase is largely attributable to the additional
services needed to support the increase in sales of professional services.
Profit
The Company reported a net operating profit of $173,842 in the first
half of 2002 compared to an operating loss before an extraordinary item of
$175,107 in the first half of 2001. In general, the operating profit and net
income increases are a result of increased professional service sales and
improved sales margins during 2002.
Liquidity and Capital Resources
Through the first six months of 2002, the Company financed its
operations from current collections and through its bank line of credit. Cash
and cash equivalents at June 30, 2002 were $35,049 compared to $61,256 at June
30, 2001. As of June 30, 2002 the Company had an outstanding balance on its line
of credit of $543,000.
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 September
24, 2002. The Company is in negotiations with various organizations to obtain
new financing.
The Company believes that if revenue continues at current levels and
the current line of credit is maintained, 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,
10
<PAGE>
are insufficient to provide the additional working capital that is necessary to
repay approximately $400,000 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 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
---------------------------------
(Registrant)
Date: August 12, 2002 By: /S/ Sandor Rosenberg
--------------- ---------------------
Sandor Rosenberg, Chairman of the
Board and President
By: /S/ Richard S. DeRose
---------------------
Richard S. DeRose, Executive Vice
President, Treasurer, and Chief
Financial Officer
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the
undersigned certifies that this periodic report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that the information contained in this periodic report fairly presents, in
all material respects, the financial condition and results of operations of
Information Analysis Incorporated.
Date: August 12, 2002 By: /S/ Sandor Rosenberg
--------------- ---------------------
Sandor Rosenberg, Chairman of the
Board and President
By: /S/ Richard S. DeRose
----------------------
Richard S. DeRose, Executive Vice
President, Treasurer, and Chief
Financial Officer
11
</TEXT>
</DOCUMENT>