-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SaqJ1rOT+BjwlrfgdmSg3FOUPynho0OUlDzbFDbGbiZI+NjtrxvIFY9Ptzz11fbi 7kmddjHo2ZwKIc14VIqFng== 0000950169-97-000396.txt : 19970508 0000950169-97-000396.hdr.sgml : 19970508 ACCESSION NUMBER: 0000950169-97-000396 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970507 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION ANALYSIS INC CENTRAL INDEX KEY: 0000803578 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 541167364 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-09390 FILM NUMBER: 97597212 BUSINESS ADDRESS: STREET 1: 2222 GALLOWS RD STE 300 CITY: DUNN LORING STATE: VA ZIP: 22027 BUSINESS PHONE: 7036410955 MAIL ADDRESS: STREET 1: 2222 GALLOWS ROAD STREET 2: SUITE 300 CITY: DUNN LORING STATE: VA ZIP: 22027 10QSB 1 INFORMATION ANALYSIS INC. 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, 1997 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.) 11240 WAPLES MILL ROAD, #400 FAIRFAX, VA 22030 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (703) 383-3000 2222 GALLOWS ROAD, #300 DUNN LORING, VA 22027 (Former Address of principal executive offices) (Zip Code) 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 March 31, 1997: Common Stock, par value $.01, 1,887,557 shares Transitional small business disclosure format. Yes No x --------- --------- PART I ITEM 1. 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 three months ended March 31, 1997 and 1996. 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, 1996. INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, 1997 ASSETS Current assets Cash and cash equivalents $ 4,534,664 Accounts receivable 1,545,638 Employee advances 33,875 Income taxes receivable 314,534 Deferred income taxes 98,662 Prepaid expenses 102,798 Other receivables 154,177 ------------ Total current assets 6,784,348 Fixed assets At cost, net of accumulated depreciation and amortization of $1,247,976 441,885 Equipment under capital leases Net of accumulated amortization of $61,344 44,477 Capitalized software 670,386 Investments 10,000 Goodwill 56,028 Other receivables 226,694 Other assets 24,980 ------------ Total assets $ 8,258,798 ============ INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, 1997 LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 481,400 Accrued payroll 340,691 Other accrued liabilities 136,552 Current portion of long-term debt 120,300 Current maturities of capital lease obligations 18,229 ------------ Total current liabilities 1,097,172 Long-term debt 90,380 Capital lease obligations, net of current portion 37,414 Deferred income taxes 27,020 ------------ Total liabilities 1,251,986 ------------ Common stock, par value $0.01 10,000,000 shares authorized; 2,389,094 shares issued 23,891 Paid in capital in excess of par value 6,225,803 Retained earnings 1,611,431 Less treasury stock; 501,537 shares at cost (854,313) ------------ Total stockholders' equity 7,006,812 ------------ Total liabilities and stockholders' equity $ 8,258,798 ============ INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31 ------------------------------------------ 1997 1996 ------------------ --------------- Cash flows from operating activities Cash received from customers $ 1,371,689 $ 3,925,478 Cash paid to suppliers and employees (1,527,065) (3,258,374) Interest received 869 601 Interest paid (5,943) (8,103) ------------------ ------------------ Net cash (used) provided by operating activities (160,450) 659,602 ------------------ ------------------ Cash flows from investing activities Loans and advances 448 (12,450) Acquisition of furniture and equipment (245,564) (6,295) Increase in capitalized software (483,422) -- ------------------ ------------------ Net cash used in investing activities (728,538) (18,745) ------------------ ------------------ Cash flows from financing activities Net borrowing (payments) under bank revolving line of credit -- (550,000) Principal payments on debt and capital leases (3,920) (4,467) (Repurchase) of common stock -- (20,750) Proceeds from private placement 5,000,000 -- Proceeds from exercise of incentive stock options 103,686 -- ------------------ ------------------ Net cash provided (used) by financing activities 5,099,766 (575,217) ------------------ ------------------ Net increase in cash and cash equivalents 4,210,778 65,640 Cash and cash equivalents at end of the period 323,886 57,016 ------------------ ------------------ Cash and cash equivalents at end of the period $ 4,534,664 $ 122,656 ================== ================== Reconciliation of net income to cash provided by operating activities Net (loss) income $ (184,383) $ 100,665 Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 64,802 39,155 Changes in operating assets and liabilities Accounts receivable (190,354) (154,046) Other receivables and prepaid expenses 40,265 5,912 Accounts payable and accrued expenses 223,052 613,548 Deferred rent (852) (2,556) Income tax receivable liability (112,980) 56,924 ------------------ ------------------ Net cash (used) provided by operating activities $ (160,450) $ 659,602 ================== ==================
INFORMATION ANALYSIS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, --------------------------------------------- 1997 1996 -------------- -------------- Sales Professional fees $ 1,498,270 $ 4,053,087 Software sales 63,773 26,437 ---------------- ---------------- Total sales 1,562,043 4,079,524 ---------------- ---------------- Cost of sales Cost of professional fees 1,200,507 3,311,057 Cost of software sales 50,863 21,598 ---------------- ---------------- Total cost of sales 1,251,370 3,332,655 ---------------- ---------------- Gross profit 310,673 746,869 Selling, general and administrative expenses 602,962 581,778 ---------------- ---------------- (Loss) income from operations (292,289) 165,091 Other income and (expenses) Interest income 869 601 Interest expense (5,943) (8,103) ---------------- ---------------- (Loss) income before provision for income (297,363) 157,589 taxes (Benefit) expenses for income taxes (112,980) 56,924 ---------------- ---------------- Net (loss) income $ (184,383) $ 100,665 ================ ================ (Loss) income per common and common equivalent share (0.09) $0.22 Weighted average common and common equivalent shares outstanding 2,036,757 465,978
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION. Results of Operations - --------------------- The revenues of Information Analysis Incorporated (the "Company") which were generated in the first quarter of 1997 decreased by $2,517,481, or by 61.7%, to $1,562,043 from $4,079,524 for the first quarter of 1996. This reduction was primarily due to a decrease in revenue from the Company's contract with the U.S. Customs Service ("USCS") which generated $121,117 of revenue in the first quarter of 1997, compared with $3,171,109 during the first quarter of 1996. Except for certain modest extensions of certain tasks, the contract with USCS terminated on September 30, 1996. In the first quarter of 1997, the Company incurred a $(184,383) net loss. This represented a $285,048 reversal in comparison to the first quarter of 1996 in which the Company generated net income of $100,665. In the first quarter of 1997, the Company's gross profit percentage increased to 19.9%, compared to 18.3% during the first quarter of 1996. This increase is attributable to the phase out of the Company's health care division, Allied Health and Information Systems, Inc., through which lower profit margins were being realized in comparison to other operations of the Company. Selling, general, and administrative expenses as a percentage of revenue increased to 38.6% during the first quarter of 1997, from 14.2% in the first quarter of 1996. This increase is due to the Company's lower revenue base. During the first quarter of 1997, the Company continued to devote substantial resources towards the business surrounding CAST, the Company's Year 2000 remediation tool. These efforts included integrating CAST with other Year 2000 products, expanding technical support capability and increasing sales, marketing and licensing efforts. In this quarter, 21 additional employees were hired for CAST. The Company also capitalized $483,422 of development expenses for certain CAST enhancements. In the quarter-ended March 31, 1997, the Company announced its first license agreement for CAST. This license is with Computer Associates International, Inc. ("CA"). As a result of this license, CA has added CAST to its suite of tools which are geared to assessing, managing, remediating and testing Year 2000 efforts. In anticipation of, and following, this license agreement, the Company concentrated efforts to enable CAST to address Year 2000 remediation of three CA products in particular, CA-ADS, CA-Ideal and CA-Easytrieve in conjunction with CA 2000 solution products. The Company anticipates further CAST enhancement efforts through 1997 to expand CAST's functionality to include additional computer languages. In addition, the Company for the remainder of the year will be continuing other activities pertaining to CAST, including increasing technical support and continuing sales, marketing and licensing efforts. Liquidity and Capital Resources - ------------------------------- In the first quarter of 1997, the Company financed its operations from current collections and through proceeds obtained in a $5,000,000 private placement. As of March 31, 1997 the outstanding balance on the company's line of credit was $0. Cash and cash equivalents at March 31, 1997 were $4,534,664, compared to $122,656 at March 31, 1996. The Company's line of credit of $1,500,000 expires June 19, 1997 at which time it is subject to renewal. The line of credit coupled with funds generated from operations and proceeds from the private placement is sufficient to meet the Company's operating cash requirements. The Company has no material commitments for capital expenditures. PART II - OTHER INFORMATION ITEM 2. CHANGE IN SECURITIES. (a) In the first quarter of 1997, the Company split its stock on a three for one basis, thereby increasing its authorized common stock from 1,000,000 shares to 3,000,000 shares. At a special meeting of the shareholders of the Company which was held on February 4, 1997, the Company's shareholders voted to amend and restate the Company's articles of incorporation so as to (i) increase the authorized shares to 10,000,000, (ii) limit officer and director liability to the extent permitted under Virginia law and (iii) provide that all actions which would otherwise require the approval of holders of more than two-thirds of all shares will now only require the approval of the holders of more than one-half of all shares. Also, the Company, through a stock dividend of two shares for each share held, declared an additional three for one stock split effective April 21, 1997. (c) Between February 27, 1997 and March 5, 1997, the Company sold 857,142 shares of its Common Stock at a price of $5.833 per share. (The number of shares and price per share have been adjusted to reflect the three for one stock split accomplished by a stock dividend of two shares of Common Stock for each outstanding share of Common Stock held by each record holder on April 7, 1997 and payable on April 21, 1997.) The shares were sold only to accredited investors within the meaning of Regulation D promulgated under the Securities Act of 1933, as amended. The shares were sold to several institutional investors along with individuals. The Company relied on Rules 505 and 506 of Regulation D in claiming exemption from registration. All purchasers were required to certify to their assets, net worth or income to substantiate their qualification to purchase shares in this offering. For this offering, the Company used the services of Newby & Company of Rockville, Maryland ("Newby") and First Colonial Securities Group, Inc. of Boca Raton, Florida ("FCSG") to assist in the placement of shares. Commissions were paid in the form of ten year warrants equal to ten percent of the shares placed through each company. The warrants are exercisable at $6.4167 per share. Of the total warrants, Newby received 51,429 and FCGS received 34,284. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On February 4, 1997, the Company held a special meeting of its shareholders. At the meeting the shareholders voted to amend the Company's articles of incorporation to (i) increase the authorized common stock to 10,000,000 shares, (ii) limit officer and director liability to the extent permitted under Virginia law and (iii) provide that all actions which would otherwise require the approval of holders of more than two-thirds of all shares will now only require the approval of holders of more than one-half of all shares. At the time of the meeting, 502,999 shares were issued and outstanding of which 380,775 voted in favor of the amendment and 4,150 voted against it. 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 6, 1997 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 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION 3.1 Amended and Restated Articles of Incorporation of the Company incorporated by referenced from Exhibit No. 3.1 to the Company's Form 10-KSB for the fiscal year ending December 31, 1996 as filed with the Securities and Exchange Commission ("SEC") on April 14, 1997. 3.2 Amended By-Laws of the Company incorporated by reference from the Company's Form S-18 filed with the SEC on November 20, 1986. 4.1 Registration Rights Agreement dated February 27, 1997 between the Company and certain purchasers of its Common Stock incorporated by reference from Exhibit 10.11 to the Company's Form 10-KSB for the fiscal year ending December 31, 1996 as filed with the SEC on April 14, 1997. 27.1 Financial Data Schedule EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S 10-QSB AS FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 3-MOS DEC-31-1997 MAR-31-1997 4,534,664 0 1,545,638 0 0 6,784,348 1,795,682 1,309,320 8,258,798 1,097,172 0 0 0 23,891 6,982,921 8,258,798 1,562,043 1,562,912 1,251,370 1,854,332 0 0 5,943 (297,363) (112,980) (184,383) 0 0 0 (184,383) (0.09) (0.09)
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