þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2015
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Virginia
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54-1167364
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | þ |
(Do not check if a smaller reporting company) |
PART I
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|||
Item 1.
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Business
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4
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Item 1A.
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Risk Factors
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9
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Item 1B.
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Unresolved Staff Comments
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12
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Item 2.
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Properties
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12
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Item 3.
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Legal Proceedings
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12
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Item 4.
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Mine Safety Disclosures
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12
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PART II
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|||
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
13
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Item 6.
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Selected Financial Data
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14
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Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
14
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Item 7a.
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Quantitative and Qualitative Disclosures about Market Risk
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18
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Item 8.
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Financial Statements and Supplementary Data
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18
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Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosures |
35
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Item 9A.
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Controls and Procedures
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35
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Item 9B.
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Other Information
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35
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PART III
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|||
Item 10.
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Directors, Executive Officers and Corporate Governance
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36
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Item 11.
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Executive Compensation
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36
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
36
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
36
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Item 14.
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Principal Accounting Fees and Services
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36
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules
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37
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SIGNATURES
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38 | ||
EXHIBIT INDEX
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39 |
●
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changes in the way the U.S. federal government contracts with businesses and changes in its budgetary priorities;
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●
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terms specific to U.S. federal government contracts;
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●
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our failure to keep pace with a changing technological environment;
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●
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intense competition from other companies;
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●
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inaccuracy in our estimates of the cost of services and the timeline for completion of contracts;
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●
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non-performance by our subcontractors and suppliers;
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●
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our failure to adequately integrate businesses we may acquire;
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●
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changes in the economic health of our non U.S. federal government customers; and
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●
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fluctuations in our results of operations and its impact on our stock price.
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●
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terminate our existing contracts;
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●
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reduce potential future income from our existing contracts;
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●
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modify some of the terms and conditions in our existing contracts;
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●
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suspend or permanently prohibit us from doing business with the federal government or with any specific government agency;
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●
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impose fines and penalties;
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●
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subject the award of some contracts to protest or challenge by competitors, which may require the contracting federal agency or department to suspend our performance pending the outcome of the protest or challenge and which may also require the government to solicit new proposals for the contract or result in the termination, reduction or modification of the awarded contract;
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●
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suspend work under existing multiple year contracts and related task orders if the necessary funds are not appropriated by Congress;
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●
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decline to exercise an option to extend an existing multiple year contract; and
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●
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claim rights in technologies and systems invented, developed or produced by us.
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Fiscal Year Ended December 31, 2015
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Fiscal Year Ended December 31, 2014
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|||||||||||||||||||||||||||||||
Quarter Ended:
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Quarter Ended:
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|||||||||||||||||||||||||||||||
3/31/15
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6/30/15
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9/30/15
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12/31/15
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3/31/14
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6/30/14
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9/30/14
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12/31/14
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|||||||||||||||||||||||||
High
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$ | 0.21 | $ | 0.25 | $ | 0.18 | $ | 0.17 | $ | 0.29 | $ | 0.40 | $ | 0.29 | $ | 0.23 | ||||||||||||||||
Low
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$ | 0.17 | $ | 0.18 | $ | 0.16 | $ | 0.13 | $ | 0.17 | $ | 0.17 | $ | 0.17 | $ | 0.15 |
Plan Category
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Number of securities to be issued upon exercise of outstanding options, warrants, and rights
(a)
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Weighted-average exercise price of outstanding options, warrants, and rights
(b)
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Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
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|||||||||
Equity compensation plans approved by security holders1,2
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1,193,000 | $ | 0.24 | 775,000 | ||||||||
Equity compensation plans not approved by security holders
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- | - | - | |||||||||
Total
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1,193,000 | $ | 0.24 | 775,000 |
Years Ended
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||||||||
December 31,
2015
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December 31,
2014
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|||||||
Professional fees
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75.0 | % | 64.1 | % | ||||
Software sales
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25.0 | % | 35.9 | % | ||||
Total revenues
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100.0 | % | 100.0 | % | ||||
Cost of professional fees
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41.0 | % | 37.6 | % | ||||
Cost of software sales
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20.8 | % | 21.1 | % | ||||
Total cost of revenues
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61.8 | % | 58.7 | % | ||||
Gross profit
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38.2 | % | 41.3 | % | ||||
Operating expenses
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||||||||
Selling, general and administrative
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(28.1 | %) | (29.2 | %) | ||||
Commissions expense
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(9.0 | %) | (12.8 | %) | ||||
Income (loss) from operations
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1.1 | % | (0.7 | %) | ||||
Other income
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0.2 | % | 0.2 | % | ||||
Income (loss) before income taxes
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1.3 | % | (0.5 | %) | ||||
Provision for income taxes
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(0.0 | %) | (0.0 | %) | ||||
Net income (loss)
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1.3 | % | (0.5 | %) |
Report of Independent Registered Public Accounting Firm | 19 |
Balance Sheets as of December 31, 2015 and 2014 | 20 |
Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2015 and 2014 | 21 |
Statements of Changes in Stockholders' Equity for the years ended December 31, 2015 and 2014 | 22 |
Statements of Cash Flows for the years ended December 31, 2015 and 2014 | 23 |
Notes to Financial Statements | 24 |
December 31,
2015
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December 31,
2014
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|||||||
ASSETS
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||||||||
Current assets
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||||||||
Cash and cash equivalents
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$ | 2,167,928 | $ | 2,450,006 | ||||
Accounts receivable, net
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1,298,029 | 970,621 | ||||||
Prepaid expenses and other current assets
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603,340 | 759,982 | ||||||
Notes receivable, current
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- | 3,896 | ||||||
Total current assets
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4,069,297 | 4,184,505 | ||||||
Property and equipment, net of accumulated depreciation and amortization of $379,044 and $349,178
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42,039 | 53,675 | ||||||
Notes receivable, long-term
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- | 5,102 | ||||||
Other assets
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6,281 | 6,281 | ||||||
Total assets
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$ | 4,117,617 | $ | 4,249,563 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
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||||||||
Current liabilities
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||||||||
Accounts payable
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$ | 64,599 | $ | 32,327 | ||||
Commissions payable
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959,052 | 1,017,047 | ||||||
Deferred revenue
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581,102 | 737,994 | ||||||
Accrued payroll and related liabilities
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261,202 | 255,703 | ||||||
Other accrued liabilities
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74,472 | 116,097 | ||||||
Total liabilities
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1,940,427 | 2,159,168 | ||||||
Commitments and contingencies
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||||||||
Stockholders’ equity
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||||||||
Common stock, $0.01 par value, 30,000,000 shares authorized, 12,844,376 shares issued, 11,201,760 shares outstanding as of December 31, 2015 and 2014, respectively
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128,443 | 128,443 | ||||||
Additional paid-in capital
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14,622,352 | 14,613,887 | ||||||
Accumulated deficit
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(11,643,394 | ) | (11,721,724 | ) | ||||
Treasury stock, 1,642,616 shares at cost at December 31, 2015 and 2014
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(930,211 | ) | (930,211 | ) | ||||
Total stockholders’ equity
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2,177,190 | 2,090,395 | ||||||
Total liabilities and stockholders’ equity
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$ | 4,117,617 | $ | 4,249,563 |
For the years ended December 31,
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||||||||
2015
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2014
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|||||||
Revenues
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||||||||
Professional fees
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$ | 4,658,338 | $ | 3,706,692 | ||||
Software sales
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1,556,247 | 2,076,775 | ||||||
Total revenues
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6,214,585 | 5,783,467 | ||||||
Cost of revenues
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||||||||
Cost of professional fees
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2,546,912 | 2,177,673 | ||||||
Cost of software sales
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1,295,120 | 1,218,249 | ||||||
Total cost of revenues
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3,842,032 | 3,395,922 | ||||||
Gross profit
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2,372,553 | 2,387,545 | ||||||
Selling, general and administrative expenses
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1,748,330 | 1,687,449 | ||||||
Commissions expense
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556,099 | 739,929 | ||||||
Income (loss) from operations
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68,124 | (39,833 | ) | |||||
Other income
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10,206 | 10,046 | ||||||
Income (loss) before provision for income taxes
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78,330 | (29,787 | ) | |||||
Provision for income taxes
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- | - | ||||||
Net income (loss)
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$ | 78,330 | $ | (29,787 | ) | |||
Comprehensive income (loss)
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$ | 78,330 | $ | (29,787 | ) | |||
Net income (loss) per common share – basic
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$ | 0.01 | $ | (0.00 | ) | |||
Net income (loss) per common share – diluted
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$ | 0.01 | $ | (0.00 | ) | |||
Weighted average common shares outstanding
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||||||||
Basic
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11,201,760 | 11,201,760 | ||||||
Diluted
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11,310,387 | 11,201,760 |
Shares of
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||||||||||||||||||||||||
Common
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Additional
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|||||||||||||||||||||||
Stock
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Common
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Paid-in
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Accumulated
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Treasury
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||||||||||||||||||||
Issued
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Stock
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Capital
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Deficit
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Stock
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Total
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|||||||||||||||||||
Balances, December 31, 2013
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12,844,376 | $ | 128,443 | $ | 14,599,696 | $ | (11,691,937 | ) | $ | (930,211 | ) | $ | 2,105,991 | |||||||||||
Net loss
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- | - | - | (29,787 | ) | - | (29,787 | ) | ||||||||||||||||
Stock option compensation
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- | - | 14,191 | - | - | 14,191 | ||||||||||||||||||
Balances, December 31, 2014
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12,844,376 | 128,443 | 14,613,887 | (11,721,724 | ) | (930,211 | ) | 2,090,395 | ||||||||||||||||
Net income
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- | - | - | 78,330 | - | 78,330 | ||||||||||||||||||
Stock option compensation
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- | - | 8,465 | - | - | 8,465 | ||||||||||||||||||
Balances, December 31, 2015
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12,844,376 | $ | 128,443 | $ | 14,622,352 | $ | (11,643,394 | ) | $ | (930,211 | ) | $ | 2,177,190 |
For the years ended December 31,
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||||||||
2015
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2014
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
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$ | 78,330 | $ | (29,787 | ) | |||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
||||||||
Depreciation and amortization
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29,866 | 31,376 | ||||||
Stock option compensation
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8,465 | 14,191 | ||||||
Bad debt expense
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107 | 4,376 | ||||||
Forgiveness of note receivable
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7,863 | - | ||||||
Changes in operating assets and liabilities
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||||||||
Accounts receivable
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(327,515 | ) | 462,757 | |||||
Prepaid expenses and other current assets
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156,642 | (224,990 | ) | |||||
Accounts payable, accrued payroll and related liabilities, and
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(3,854 | ) | (489,828 | ) | ||||
other accrued liabilities
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||||||||
Commissions payable
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(57,995 | ) | 114,075 | |||||
Deferred revenue
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(156,892 | ) | 234,512 | |||||
Net cash (used in) provided by operating activities
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(264,983 | ) | 116,682 | |||||
Cash flows from investing activities:
|
||||||||
Acquisition of property and equipment
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(18,230 | ) | (32,164 | ) | ||||
Payments received on notes receivable – employees
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1,135 | 5,961 | ||||||
Net cash used in investing activities
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(17,095 | ) | (26,203 | ) | ||||
Net (decrease) increase in cash and cash equivalents
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(282,078 | ) | 90,479 | |||||
Cash and cash equivalents, beginning of the year
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2,450,006 | 2,359,527 | ||||||
Cash and cash equivalents, end of the year
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$ | 2,167,928 | $ | 2,450,006 | ||||
Supplemental cash flow information
|
||||||||
Interest paid
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$ | - | $ | - | ||||
Income taxes paid
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$ | - | $ | - |
2015
|
2014
|
|||||||
Billed-federal government
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$ | 754,540 | $ | 758,818 | ||||
Billed-commercial and other
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180,474 | 212,324 | ||||||
Total billed
|
935,014 | 971,142 | ||||||
Unbilled
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363,015 | 357 | ||||||
Allowance for doubtful accounts
|
- | (878 | ) | |||||
Accounts receivable, net
|
$ | 1,298,029 | $ | 970,621 |
● | Level 1—Quoted prices in active markets for identical assets or liabilities; | |
● | Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and | |
● | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Level 1
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Level 2
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Level 3
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||||||||||
December 31, 2015
|
||||||||||||
Money market funds
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$ | 1,912,188 | $ | - | $ | - | ||||||
Total
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$ | 1,912,188 | $ | - | $ | - | ||||||
December 31, 2014
|
||||||||||||
Money market funds
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$ | 1,766,121 | $ | - | $ | - | ||||||
Total
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$ | 1,766,121 | $ | - | $ | - |
2015
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2014
|
|||||||
Furniture and equipment
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$ | 110,042 | $ | 110,042 | ||||
Computer equipment and software
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304,656 | 292,811 | ||||||
Leasehold Improvements
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6,385 | - | ||||||
Subtotal
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421,083 | 402,853 | ||||||
Less: accumulated depreciation and amortization
|
(379,044 | ) | (349,178 | ) | ||||
Total
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$ | 42,039 | $ | 53,675 |
Year ending December 31,:
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2016
|
$ | 105,300 | ||
2017
|
44,414 | ||||
Total minimum rent payments
|
$ | 149,714 |
2015
|
2014
|
|||||||
Deferred tax assets:
|
||||||||
Net operating loss carryforward
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$ | 5,453,200 | $ | 5,468,700 | ||||
Accrued commissions
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324,600 | 347,600 | ||||||
Fixed assets
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48,200 | 48,100 | ||||||
Accrued vacation
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35,900 | 31,900 | ||||||
Allowance for doubtful accounts
|
- | 300 | ||||||
AMT tax credit carryforward
|
6,600 | 600 | ||||||
Other
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8,000 | 8,800 | ||||||
Subtotal
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5,876,500 | 5,906,000 | ||||||
Valuation allowance
|
(5,876,500 | ) | (5,906,000 | ) | ||||
Total
|
$ | - | $ | - |
December 31,
|
||||||||
2015
|
2014
|
|||||||
Income (loss) before taxes
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$ | 78,330 | $ | (29,787 | ) | |||
Income tax expense (benefit) on above amount at federal statutory rate
|
$ | 26,600 | $ | (10,100 | ) | |||
State income tax expense (benefit), net of federal expense (benefit)
|
3,100 | (1,200 | ) | |||||
Permanent differences
|
6,600 | 8,500 | ||||||
Other
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(6,800 | ) | 3,700 | |||||
Change in valuation allowance
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(29,500 | ) | (900 | ) | ||||
Provision for income taxes
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$ | - | $ | - |
December 31,
|
||||||||
Current income taxes
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2015
|
2014
|
||||||
Federal
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$ | 13,800 | $ | - | ||||
State
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1,600 | - | ||||||
Alternative minimum tax
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- | - | ||||||
Benefit from utilization of net operating losses
|
(15,400 | ) | - | |||||
- | - | |||||||
Deferred taxes
|
- | - | ||||||
$ | - | $ | - |
2015
|
2014
|
||
Risk free interest rate
|
1.61% - 1.97%
|
1.52% - 1.78%
|
|
Dividend yield
|
0%
|
0%
|
|
Expected term
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5-10 years
|
5 years
|
|
Expected volatility
|
41.2 – 54.2%
|
40.7 – 47.3%
|
Options outstanding
|
||||||||
Number of shares
|
Weighted average exercise price per share
|
|||||||
Balance at December 31, 2013
|
1,187,000 | $ | 0.26 | |||||
Options granted
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80,000 | 0.16 | ||||||
Options expired or forfeited
|
(3,000 | ) | 0.11 | |||||
Balance at December 31, 2014
|
1,264,000 | 0.26 | ||||||
Options granted
|
20,000 | 0.20 | ||||||
Options expired or forfeited
|
(91,000 | ) | 0.42 | |||||
Balance at December 31, 2015
|
1,193,000 | $ | 0.24 |
Options outstanding
|
Options exercisable
|
|||||||||||||||||||||||||||||
Total shares
|
Weighted average exercise price
|
Weighted average remaining contractual life in years
|
Aggregate intrinsic value
|
Total shares
|
Weighted average exercise price
|
Weighted average remaining contractual life in years
|
Aggregate intrinsic value
|
|||||||||||||||||||||||
1,193,000 | $ | 0.24 | 4.97 | $ | 920 | 1,143,500 | $ | 0.25 | 4.80 | $ | 920 |
Nonvested
|
||||||||
Number of shares
|
Weighted average grant date fair value
|
|||||||
Balance at December 31, 2014
|
209,500 | $ | 0.07 | |||||
Granted
|
20,000 | 0.11 | ||||||
Vested
|
(179,000 | ) | 0.08 | |||||
Expired before Vesting
|
(1,000 | ) | 0.10 | |||||
Balance at December 31, 2015
|
49,500 | $ | 0.07 |
Net Income | Per Share | |||||||||||
(Loss) | Shares | Amount | ||||||||||
Basic net income per common share for the year ended December 31, 2015: | ||||||||||||
Income available to common stockholders | $ | 78,330 | 11,201,760 | $ | 0.01 | |||||||
Effect of dilutive stock options | - | 108,627 | - | |||||||||
Diluted net income per common share for the year ended December 31, 2015: | $ | 78,330 | 11,310,387 | $ | 0.01 | |||||||
Basic net loss per common share for the year ended December 31, 2014: | ||||||||||||
Income available to common stockholders | $ | ( 29,787 | ) | 11,201,760 | $ | ( 0.00 | ) | |||||
Effect of dilutive stock options | - | - | - | |||||||||
Diluted net loss per common share for the year ended December 31, 2014: | $ | ( 29,787 | ) | 11,201,760 | $ | (0.00 | ) |
2015
|
2014
|
|||||||
Deferred costs of software sales
|
$ | 563,036 | $ | 733,636 | ||||
Prepaid rent
|
8,624 | 8,373 | ||||||
Prepaid insurance
|
13,633 | 1,528 | ||||||
Other
|
18,047 | 16,445 | ||||||
Total
|
$ | 603,340 | $ | 759,982 |
(a)
|
(1) Financial Statements
|
(as presented in Item 8 of this Annual Report)
|
Page |
Report of Independent Registered Public Accounting Firm | 19 |
Balance Sheets as of December 31, 2015 and 2014 | 20 |
Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2015 and 2014 | 21 |
Statements of Changes in Stockholders' Equity for the years ended December 31, 2015 and 2014 | 22 |
Statements of Cash Flows for the years ended December 31, 2015 and 2014 | 23 |
Notes to Financial Statements | 24 |
INFORMATION ANALYSIS INCORPORATED
|
|||
(Registrant) | |||
|
By:
|
/s/ Sandor Rosenberg | |
Sandor Rosenberg, President | |||
March 29, 2016 | |||
Signature
|
Title
|
Date
|
||
/s/ Sandor Rosenberg
|
Chairman of the Board, Chief Executive Officer and President
|
March 29, 2016
|
||
Sandor Rosenberg
|
||||
/s/ Charles A. May, Jr.
|
Director
|
March 29, 2016
|
||
Charles A. May
|
||||
/s/ William Pickle
|
Director
|
March 29, 2016
|
||
William Pickle
|
||||
/s/ Bonnie K. Wachtel |
Director
|
March 29, 2016 | ||
Bonnie K. Wachtel | ||||
/s/ James D. Wester |
Director
|
March 29, 2016 | ||
James D. Wester | ||||
/s/ Richard S. DeRose | Chief Financial Officer, Secretary and Treasurer | March 29, 2016 | ||
Richard S. DeRose | ||||
/s/ Matthew T. Sands | Controller | March 29, 2016 | ||
Matthew T. Sands |
Exhibit No.
|
Description
|
Location
|
||
3.1
|
Amended and Restated Articles of Incorporation effective March 18, 1997
|
Incorporated by reference from the Registrant’s Form 10-KSB/A for the fiscal year ending December 31, 1996 and filed on July 3, 1997
|
||
3.2
|
Articles of Amendment to the Articles of Incorporation
|
Incorporated by reference from the Registrant’s Form 10-KSB/A for the fiscal year ending December 31, 1997 and filed on March 30, 1998
|
||
3.3
|
Amended By-Laws of the Company
|
Incorporated by reference from the Registrant’s Form S-18 dated November 20, 1986
(Commission File No. 33-9390).
|
||
4.1
|
Copy of Stock Certificate
|
Incorporated by reference from the Registrant’s Form 10-KSB/A for the fiscal year ending December 31, 1997 and filed on March 30, 1998
|
||
10.1
|
Office Lease for 18,280 square feet at 11240 Waples Mill Road, Fairfax, Virginia 22030.
|
Incorporated by reference from the Registrant’s Form 10-KSB/A for the fiscal year ending December 31, 1996 and filed on July 3, 1997
|
||
10.2
|
Company’s 401(k) Profit Sharing Plan through Aetna Life Insurance and Annuity Company (now ING).
|
Incorporated by reference from the Registrant’s Form 10-KSB/A for the fiscal year ending December 31, 1996 and filed on July 3, 1997
|
||
10.3
|
1996 Stock Option Plan
|
Incorporated by reference from the Registrant’s Form S-8 filed on June 25, 1996
|
||
10.4
|
Second Modification of Lease, dated February 10, 2004, to 4,434 square feet at 11240 Waples Mill Road, Fairfax, Virginia 22030
|
Incorporated by reference from the Registrant’s Form 10-KSB for the period ended December 31, 2003, and filed on March 30, 2004
|
||
10.5
|
Termination and/or change in control arrangement for Richard S. DeRose dated June 18, 1997
|
Incorporated by reference from the Registrant’s Form 10-KSB for the year ended December 31, 2004, and filed on March 30, 2005
|
||
10.6
|
Line of Credit Agreement with TD Bank, N.A. (formerly Commerce Bank, N.A.)
|
Incorporated by reference from the Registrant’s Form 10-KSB for the year ended December 31, 2005, and filed on March 31, 2006
|
||
10.7
|
Information Analysis Incorporated 2006 Stock Incentive Plan
|
Incorporated by reference from the Registrant’s definitive proxy statement on Schedule 14A filed on April 19, 2006
|
||
10.8
|
Modification Agreement regarding Line of Credit Agreement with TD Bank, N.A., successor to Commerce Bank, N.A., dated July 18, 2008.
|
Incorporated by reference from the Registrant’s Form 10-K for the period ended December 31, 2008, and filed on March 31, 2009
|
||
10.9
|
Modification Agreement regarding Line of Credit Agreement with TD Bank, N.A., successor to Commerce Bank, N.A., dated December 29, 2009.
|
Incorporated by reference from the Registrant’s Form 10-K for the period ended December 31, 2009, and filed on March 31, 2010
|
Exhibit No.
|
Description
|
Location
|
||
10.10
|
Modification Agreement regarding Line of Credit Agreement with TD Bank, N.A., successor to Commerce Bank, N.A., dated November 30, 2012.
|
Incorporated by reference from the Registrant’s Form 10-K for the period ended December 31, 2012, and filed on March 29, 2013
|
||
10.11
|
Fifth Modification of Lease, dated February 6, 2013, to extend term of lease four years.
|
Incorporated by reference from the Registrant’s Form 10-K for the period ended December 31, 2012, and filed on March 29, 2013
|
||
10.12
|
Modification Agreement regarding Line of Credit Agreement with TD Bank, N.A., successor to Commerce Bank, N.A., dated November 26, 2013.
|
Incorporated by reference from the Registrant’s Form 10-K for the period ended December 31, 2013, and filed on March 31, 2014
|
||
10.13
|
Eighth Amendment to Loan Agreement regarding Line of Credit Agreement with TD Bank, N.A., successor to Commerce Bank, N.A., dated April 21, 2015.
|
Incorporated by reference from the Registrant’s Form 10-Q for the period ended March 31, 2015, and filed on May 15, 2015
|
||
Consent of Independent Registered Public Accounting Firm, CohnReznick LLP
|
Filed with this Form 10-K
|
|||
Rule 13a-14(a) / 15a-14(a) Certification by Chief Executive Officer
|
Filed with this Form 10-K
|
|||
Rule 13a-14(a) / 15a-14(a) Certification by Chief Financial Officer
|
Filed with this Form 10-K
|
|||
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Filed with this Form 10-K
|
|||
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Filed with this Form 10-K
|
Date: March 29, 2016
|
By:
|
/s/ Sandor Rosenberg | |
Sandor Rosenberg | |||
Chairman of the Board, Chief Executive Officer and President | |||
Date: March 29, 2016
|
By:
|
/s/ Richard S. DeRose | |
Richard S. DeRose | |||
Executive Vice President, Treasurer, Chief Financial Officer | |||
Date: March 29, 2016
|
By:
|
/s/ Sandor Rosenberg | |
Sandor Rosenberg | |||
Chairman of the Board, Chief Executive Officer and President | |||
Date: March 29, 2016
|
By:
|
/s/ Richard S. DeRose | |
Richard S. DeRose | |||
Executive Vice President, Treasurer, Chief Financial Officer | |||
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Mar. 16, 2016 |
Jun. 30, 2015 |
|
Document And Entity Information | |||
Entity Registrant Name | INFORMATION ANALYSIS INC | ||
Entity Central Index Key | 0000803578 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 1,322,844 | ||
Entity Common Stock, Shares Outstanding | 11,201,760 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2015 |
BALANCE SHEETS (Parenthetical) - $ / shares |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Stockholders Equity | ||
Common Stock shares par value | $ 0.01 | $ 0.01 |
Common Stock shares Authorized | 30,000,000 | 30,000,000 |
Common Stock shares Issued | 12,844,376 | 12,844,376 |
Common Stock shares Outstanding | 11,201,760 | 11,201,760 |
Treasury Stock | 1,642,616 | 1,642,616 |
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Revenues | ||
Professional fees | $ 4,658,338 | $ 3,706,692 |
Software sales | 1,556,247 | 2,076,775 |
Total revenues | 6,214,585 | 5,783,467 |
Cost of revenues | ||
Cost of professional fees | 2,546,912 | 2,177,673 |
Cost of software sales | 1,295,120 | 1,218,249 |
Total cost of revenues | 3,842,032 | 3,395,922 |
Gross profit | 2,372,553 | 2,387,545 |
Selling, general and administrative expenses | 1,748,330 | 1,687,449 |
Commissions expense | 556,099 | 739,929 |
Income (loss) from operations | 68,124 | (39,833) |
Other income | 10,206 | 10,046 |
Income (loss) before provision for income taxes | 78,330 | (29,787) |
Provision for income taxes | 0 | 0 |
Net income (loss) | 78,330 | (29,787) |
Comprehensive income (loss) | $ 78,330 | $ (29,787) |
Net (loss) income per common share – basic | $ .01 | $ 0.00 |
Net (loss) income per common share – diluted | $ .01 | $ 0.00 |
Weighted average common shares outstanding | ||
Basic | 11,201,760 | 11,201,760 |
Diluted | 11,310,387 | 11,201,760 |
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - USD ($) |
Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Treasury Stock |
Total |
---|---|---|---|---|---|
Beginning Balance, Amount at Dec. 31, 2013 | $ 128,443 | $ 14,559,696 | $ (11,691,937) | $ (930,211) | $ 2,105,991 |
Beginning Balance, Shares at Dec. 31, 2013 | 12,844,376 | ||||
Stock option compensation | 14,191 | 14,191 | |||
Net Income | $ (29,787) | (29,787) | |||
Ending Balance, Amount at Dec. 31, 2014 | $ 128,443 | 14,613,887 | (11,721,724) | $ (930,211) | 2,090,395 |
Ending Balance, Shares at Dec. 31, 2014 | 12,844,376 | ||||
Stock option compensation | 8,465 | 8,465 | |||
Net Income | 78,330 | 78,330 | |||
Ending Balance, Amount at Dec. 31, 2015 | $ 128,443 | $ 14,622,352 | $ (11,643,394) | $ (930,211) | $ 2,177,190 |
Ending Balance, Shares at Dec. 31, 2015 | 12,844,376 |
1. Summary of Significant Accounting Policies |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Summary Of Significant Accounting Policies | |
Summary of Significant Accounting Policies | Operations
Information Analysis Incorporated (the Company) was incorporated under the corporate laws of the Commonwealth of Virginia in 1979 to develop and market computer applications software systems, programming services, and related software products and automation systems. The Company provides services to customers throughout the United States, with a concentration in the Washington, D.C. metropolitan area.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Revenue Recognition
The Company earns revenue from both professional services and sales of software and related support. The Company recognizes revenue when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred, and collectability of the contract price is considered probable and can be reasonably estimated. Revenue from professional services is earned under time and materials and fixed-price contracts. For sales of third-party software products, revenue is recognized upon product delivery, with any maintenance related revenues recognized ratably over the maintenance period.
Revenue on time and materials contracts is recognized based on direct labor hours expended at contract billing rates and adding other billable direct costs.
For fixed-price contracts that are based on unit pricing, the Company recognizes revenue for the number of units delivered in any given reporting period.
For fixed-price contracts in which the Company is paid a specific amount to be available to provide a particular service for a stated period of time, revenue is recognized ratably over the service period. The Company applies this method of revenue recognition to renewals of maintenance contracts on third-party software sales and to separable maintenance elements of sales of third-party software that include fixed terms of maintenance, such as Adobe and Micro Focus software, for which the Company is responsible for first line support to the customer and for serving as a liaison between the customer and the third-party maintenance provider for issues the Company is unable to resolve.
The Company reports revenue on both gross and net bases on a transaction by transaction analysis using authoritative guidance issued by the Financial Accounting Standards Board (the FASB). The Company considers the following factors to determine the gross versus net presentation: if the Company (i) acts as principal in the transaction; (ii) takes title to the products; (iii) has risks and rewards of ownership, such as the risk of loss for collection, delivery or return; and (iv) acts as an agent or broker (including performing services, in substance, as an agent or broker) with compensation on a commission or fee basis. Generally, sales of third-party software products such as Adobe and Micro Focus products are reported on a gross basis with the Company acting as the principal in these arrangements. This determination is based on the following: 1) the Company has inventory risk as suppliers are not obligated to accept returns, 2) the Company has reasonable latitude, within economic constraints, in establishing price, 3) the Company, in its marketing efforts, frequently aids the customer in determining product specifications, 4) the Company has physical loss and inventory risk as title transfers at the shipping point, 5) the Company bears full credit risk, and 6) the amount the Company earns in the transaction is neither a fixed dollar amount nor a fixed percentage. Generally, revenue derived for facilitating a sales transaction of Adobe products in which a customer introduced by the Company makes a purchase directly from the Companys supplier or another designated reseller is recognized net when the commission payment is received since the Company is merely acting as an agent in these arrangements. Since the Company is not a direct party in the sales transaction, payment by the supplier is the Companys confirmation that the sale occurred.
For software and software-related multiple element arrangements, the Company must: (1) determine whether and when each element has been delivered; (2) determine whether undelivered products or services are essential to the functionality of the delivered products and services; (3) determine the fair value of each undelivered element using vendor-specific objective evidence ("VSOE"), and (4) allocate the total price among the various elements. Changes in assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue that the Company reports in a particular period.
The Company determines VSOE for each element based on historical stand-alone sales to third parties or from the stated renewal rate for the elements contained in the initial arrangement. The Company has established VSOE for its third-party software maintenance and support services.
The Companys contracts with agencies of the U.S. federal government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract, ratably throughout the contract as the services are provided, or subject to funds made available incrementally by legislators. In evaluating the probability of funding for purposes of assessing collectability of the contract price, the Company considers its previous experiences with its customers, communications with its customers regarding funding status, and the Companys knowledge of available funding for the contract or program. If funding is not assessed as probable, revenue recognition is deferred until realization is deemed probable.
Payments received in advance of services performed are recorded and reported as deferred revenue. Services performed prior to invoicing customers are recorded as unbilled accounts receivable and are presented on the Companys balance sheets in the aggregate with accounts receivable.
Segment Reporting
The Company has concluded that it operates in one business segment, providing products and services to modernize client information systems.
Government Contracts
The Company believes there is minimal risk of an audit by the Defense Contract Audit Agency resulting in a material misstatement of previously reported financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of ninety days or less at the time of purchase to be cash equivalents. Deposits are maintained with a federally insured bank. Balances at times exceed federally insured limits, but management does not consider this to be a significant concentration of credit risk.
Accounts Receivable
Accounts receivable consist of trade accounts receivable and do not bear interest. The Company typically does not require collateral from its customers. The allowance for doubtful accounts is the Companys best estimate of the amount of probable credit losses in the Companys existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. Accounts with receivable balances past due over 90 days are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company has recorded an allowance for doubtful accounts of $0 and $878 at December 31, 2015 and 2014, respectively.
The Company forgave a note receivable from a non-officer employee during 2015 in the amount of $7,863.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Furniture and fixtures are depreciated over the lesser of the useful life or five years, off-the-shelf software is depreciated over the lesser of three years or the term of the license, custom software is depreciated over the least of five years, the useful life, or the term of the license, and computer equipment is depreciated over three years. Leasehold improvements are amortized over the estimated term of the lease or the estimated life of the improvement, whichever is shorter. Maintenance and minor repairs are charged to operations as incurred. Gains and losses on dispositions are recorded in operations.
Stock-Based Compensation
At December 31, 2015, the Company had the stock-based compensation plans described in Note 9 below. Total compensation expense related to these plans was $8,465 and $14,191 for the years ended December 31, 2015 and 2014, respectively. The Company estimates the fair value of options granted using a Black-Scholes valuation model to establish the expense. When stock-based compensation is awarded to employees, the expense is recognized ratably over the vesting period. When stock-based compensation is awarded to non-employees, the expense is recognized over the period of performance.
Income Taxes
Deferred tax assets and liabilities are computed based on the difference between the financial statement and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. In addition, a valuation allowance is required to be recognized if it is believed more likely than not that a deferred tax asset will not be fully realized. Authoritative guidance prescribes a recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those positions to be recognized in the financial statements. The Company continually reviews tax laws, regulations and related guidance in order to properly record any uncertain tax liabilities.
Earnings Per Share
The Companys earnings per share calculations are based upon the weighted average number of shares of common stock outstanding. The dilutive effect of stock options, warrants and other equity instruments are included for purposes of calculating diluted earnings per share, except for periods when the Company reports a net loss, in which case the inclusion of such equity instruments would be antidilutive. 108,627 shares representing the dilutive effect of stock options were included in diluted earnings per share for the year ended December 31, 2015. 200,745 shares representing the dilutive effect of stock options were not included from diluted earnings per share for the year ended December 31, 2014, due to the net loss reported for the period.
Concentration of Credit Risk
During the year ended December 31, 2015, prime contracts with U.S. government agencies represented 62.5% of the Companys revenue, an additional 23.5% of revenue came from U.S. government agencies through subcontracts, 13.8% of revenue came from commercial contracts, and 0.2% of revenue came from state and local government contracts. Two individual prime contracts with U.S. government agencies represented 19.9% and 17.7% of 2015 revenue, respectively. One company with which the Company subcontracts for providing services and products to U.S. government agencies represented 12.5% of 2015 revenue when all subcontracts under the company are aggregated. One commercial customer represented 10.3% of 2015 revenue.
During the year ended December 31, 2014, prime contracts with U.S. government agencies represented 47.7% of the Companys revenue, an additional 24.4% of revenue came from U.S. government agencies through subcontracts, 25.3% of revenue came from commercial contracts, and 2.6% of revenue came from state and local government contracts. One prime contract with a U.S. government agency represented 17.1% of 2014 revenue. One company with which the Company subcontracts for providing services and products to U.S. government agencies represented 10.2% of 2014 revenue when all subcontracts under the company are aggregated. Two commercial customers represented 13.2% and 11.0% of 2014 revenue, respectively.
The Company sold third party software and maintenance contracts under agreements with two major suppliers. These sales accounted for 25.0% of total revenue in 2015 and 35.9% of revenue in 2014.
At December 31, 2015, the Companys accounts receivable included receivables from two U.S. government agencies that represented 27.8% and 18.7% of the Companys outstanding accounts receivable, respectively, receivables from two companies under which the Company subcontracts for services to U.S. government agencies that represented 11.7% and 10.6% of the Companys outstanding accounts receivable, respectively.
At December 31, 2014, the Companys accounts receivable included receivables from one U.S. government agency that represented 29.0% of the Companys outstanding accounts receivable, receivables from one company under which the Company subcontracts for services to a U.S. government agency that represented 14.4% of the Companys outstanding accounts receivable, and receivables from one commercial customer that represented 21.8% of the Companys outstanding accounts receivable.
Related Party Transactions
During the years ended December 31, 2015 and 2014, the Company paid a business development consultant, who is the brother of the Chairman of the Board, Chief Executive Officer, and President of the Company, $52,105 and $53,593, respectively, in cash compensation.
The Companys Director of Human Resources is the spouse of the Senior Vice President and Chief Operating Officer of the Company. During the years ended December 31, 2015 and 2014, she earned $124,647 and $112,950, respectively, as an employee of the Company.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB, or other standard setting bodies that the Company adopts as of the specified effective date.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." This new standard will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount it expects to receive for those goods and services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates and changes in those estimates. The ASU will be effective for the Company beginning January 1, 2017, and allows for both retrospective and modified-retrospective methods of adoption. The Company is in the process of determining the method of adoption it will elect and is currently assessing the impact of this ASU on its financial statements and footnote disclosures.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17 simplifies the balance sheet classification of deferred taxes and requires that all deferred taxes be presented as noncurrent. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The adoption of this update is not expected to have a material effect on the Companys financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of this ASUon its financial statements and footnote disclosures.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (ASU 2016-08). The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The effective date for ASU 2016-08 is the same as the effective date for ASU 2014-09, Revenue from Contracts with Customers. The Company is currently evaluating the impact of this ASU on its financial statements and footnote disclosures. |
2. Receivables |
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2. Receivables | Accounts receivable at December 31, 2015 and 2014, consist of the following:
Billed receivables from the federal government include amounts due from both prime contracts and subcontracts where the federal government is the end customer. Unbilled receivables are for services provided through the balance sheet date that are expected to be billed and collected within one year. |
3. Fair Value Measurements |
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Fair Value Measurements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3. Fair Value Measurements | The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
The following table represents the fair value hierarchy for our financial assets (cash equivalents) measured at fair value on a recurring basis as of December 31, 2015 and 2014:
Money market funds are highly liquid investments. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.
The carrying amount of financial instruments such as accounts receivable, accounts payable, and accrued liabilities approximate the related fair value due to the short-term maturities of these instruments. |
4. Fixed Assets |
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Fixed Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4. Fixed Assets | A summary of fixed assets and equipment at December 31, 2015 and 2014, consist of the following:
Depreciation and amortization expense for the years ended December 31, 2015 and 2014, was $29,866 and $31,376, respectively. |
5. Revolving Line of Credit |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Revolving Line Of Credit | |
5. Revolving Line of Credit | On December 20, 2005, the Company entered into a revolving line of credit agreement with TD Bank providing for demand or short-term borrowings up to $1,000,000. The credit agreement includes an interest rate indexed to 3.00% above the British Bankers Association London Interbank Offered Rate (BBA LIBOR). The line of credit will next expire on May 31, 2016. The draws against the line are limited by varying percentages of the Companys eligible accounts receivable. The draw limit at December 31, 2015 was $783,944. The bank is granted a security interest in all company assets if there are borrowings under the line of credit. Interest on outstanding balances is payable monthly. The effective rate at December 31, 2015 was 3.40%. At December 31, 2014, the effective rate was 3.16%.
The bank has a first priority security interest in the Companys receivables and a direct assignment of its U.S. federal government contracts. Under the line of credit agreement, the Company is bound by certain covenants, including maintaining a minimum tangible net worth and producing a number of periodic financial reports for the benefit of the bank. As of December 31, 2015, the Company was in compliance with the minimum tangible net worth covenant. There was no outstanding balance on the line of credit at December 31, 2015 or 2014. |
6. Commitments and Contingencies |
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Dec. 31, 2015 | |||||||||||||||||||
Commitments And Contingencies | |||||||||||||||||||
6. Commitments and Contingencies | Operating Leases
The Company leases facilities under long-term operating lease agreements through May 2017. Rent expense was $100,914 and $99,994 for the years ended December 31, 2015 and 2014, respectively.
The future minimum rental payments to be made under long-term operating leases are as follows:
The above minimum lease payments reflect the base rent under the lease agreements. However, these base rents can be adjusted each year to reflect the Companys proportionate share of increases in the buildings operating costs and the Companys proportionate share of real estate tax increases on the leased property. |
7. Income Taxes |
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7. Income Taxes | The tax effects of significant temporary differences representing deferred tax assets at December 31, 2015 and 2014, are as follows:
The provision for income taxes is at an effective rate different from the federal statutory rate due principally to the following:
Income tax expense for the years ended December 31, 2015 and 2014 consists of the following:
The Company has recorded a valuation allowance to the full extent of its currently available net deferred tax assets which the Company determined to be not more-likely-than-not realizable. The Company has net operating loss carryforwards of approximately $14.4 million, which expire, if unused, between the years 2017 and 2029.
The Company may have been deemed to have experienced changes in ownership which may impose limitations on its ability to utilize net operating loss carryforwards under Section 382 of the Internal Revenue Code. However, as the deferred tax asset is fully offset by a valuation allowance, the Company has not yet conducted a Section 382 study to determine the extent of any such limitations.
The Company has analyzed its income tax positions using the criteria required by U.S. GAAP and concluded that as of December 31, 2015 and 2014, it has no material uncertain tax positions and no interest or penalties have been accrued. The Company has elected to recognize any estimated penalties and interest on its income tax liabilities as a component of its provision for income taxes.
The income tax returns of the Company for 2012, 2013, and 2014 are subject to examination by income taxing authorities, generally for three years after each was filed. |
8. Retirement Plans |
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Retirement Plans | |
8. Retirement Plans | The Company has a Cash or Deferred Arrangement Agreement (CODA), which satisfies the requirements of Section 401(k) of the Internal Revenue Code. This defined contribution retirement plan covers substantially all employees. Participants can elect to have up to the maximum percentage allowable of their salaries reduced and contributed to the plan. The Company may make matching contributions equal to a discretionary percentage of the participants elective deferrals. In 2015 and in 2014, the Company matched 25% of the first 6% of the participants elective deferrals. The balance of funds forfeited by former employees from unvested employer matching contribution accounts may be used to offset current and future employer matching contributions. The Company may also make additional contributions to all eligible employees at its discretion. The Company did not make additional contributions during 2015 or 2014. Expenses for matching contributions for the years ended December 31, 2015 and 2014 were $27,685 and $15,634, respectively. |
9. Stock Options and Warrants |
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9. Stock Options and Warrants | The Company granted stock options to certain employees under two plans. The 1996 Stock Option Plan was adopted in 1996 (1996 Plan) and had options granted under it through May 29, 2006. In 2006, the Board of Directors approved and the shareholders ratified the 2006 Stock Incentive Plan (2006 Plan).
The Company recognizes compensation costs only for those shares expected to vest on a straight-line basis over the requisite service period of the awards. Generally such options vest over periods of six months to two years. The fair values of option awards granted in 2015 and 2014 were estimated using the Black-Sholes option pricing model under the following assumptions:
2006 Stock Incentive Plan
The 2006 Plan became effective May 18, 2006, and expires April 12, 2016. The 2006 Plan provides for the granting of equity awards to key employees, including officers and directors. The maximum number of shares for which equity awards may be granted under the 2006 Plan is 1,950,000. Options under the 2006 Plan expire no later than ten years from the date of grant or when employment ceases, whichever comes first, and vest over periods determined by the Board of Directors. The exercise price of each option equals the quoted market price of the Companys stock on the date of grant.
1996 Stock Option Plan
The 1996 Plan provided for the granting of options to purchase shares of our common stock to key employees, including officers and directors. The maximum number of shares for which options could be granted under the 1996 Plan was 3,075,000. Options expire no later than ten years from the date of grant or when employment ceases, whichever comes first, and vest over periods determined by the Board of Directors. There were 23,000 and 113,000 unexpired exercisable options remaining from the 1996 Plan at December 31, 2015 and 2014, respectively.
The status of the options issued under the foregoing option plans as of December 31, 2015, and changes during the years ended December 31, 2015 and 2014, were as follows:
The following table summarizes information about options at December 31, 2015:
Nonvested stock awards as of December 31, 2015 and changes during the year ended December 31, 2015, were as follows:
As of December 31, 2015 and 2014, unrecognized compensation cost associated with non-vested share based employee and non-employee compensation totaled $6,594 and $7,672, respectively, which is expected to be recognized over a weighted average period of 5 months and 7 months, respectively. |
10. Earnings Per Share |
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Earnings Per Share | 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 loss per common share.
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11. Financial Statement Captions |
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11. Financial Statement Captions | The following table summarizes the Companys prepaid expenses and other current assets as of December 31, 2015 and 2014:
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1. Summary of Significant Accounting Policies (Policies) |
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Summary Of Significant Accounting Policies Policies | |
Operations | Information Analysis Incorporated (the Company) was incorporated under the corporate laws of the Commonwealth of Virginia in 1979 to develop and market computer applications software systems, programming services, and related software products and automation systems. The Company provides services to customers throughout the United States, with a concentration in the Washington, D.C. metropolitan area. |
Use of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. |
Revenue Recognition | The Company earns revenue from both professional services and sales of software and related support. The Company recognizes revenue when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred, and collectability of the contract price is considered probable and can be reasonably estimated. Revenue from professional services is earned under time and materials and fixed-price contracts. For sales of third-party software products, revenue is recognized upon product delivery, with any maintenance related revenues recognized ratably over the maintenance period.
Revenue on time and materials contracts is recognized based on direct labor hours expended at contract billing rates and adding other billable direct costs.
For fixed-price contracts that are based on unit pricing, the Company recognizes revenue for the number of units delivered in any given reporting period.
For fixed-price contracts in which the Company is paid a specific amount to be available to provide a particular service for a stated period of time, revenue is recognized ratably over the service period. The Company applies this method of revenue recognition to renewals of maintenance contracts on third-party software sales and to separable maintenance elements of sales of third-party software that include fixed terms of maintenance, such as Adobe and Micro Focus software, for which the Company is responsible for first line support to the customer and for serving as a liaison between the customer and the third-party maintenance provider for issues the Company is unable to resolve.
The Company reports revenue on both gross and net bases on a transaction by transaction analysis using authoritative guidance issued by the Financial Accounting Standards Board (the FASB). The Company considers the following factors to determine the gross versus net presentation: if the Company (i) acts as principal in the transaction; (ii) takes title to the products; (iii) has risks and rewards of ownership, such as the risk of loss for collection, delivery or return; and (iv) acts as an agent or broker (including performing services, in substance, as an agent or broker) with compensation on a commission or fee basis. Generally, sales of third-party software products such as Adobe and Micro Focus products are reported on a gross basis with the Company acting as the principal in these arrangements. This determination is based on the following: 1) the Company has inventory risk as suppliers are not obligated to accept returns, 2) the Company has reasonable latitude, within economic constraints, in establishing price, 3) the Company, in its marketing efforts, frequently aids the customer in determining product specifications, 4) the Company has physical loss and inventory risk as title transfers at the shipping point, 5) the Company bears full credit risk, and 6) the amount the Company earns in the transaction is neither a fixed dollar amount nor a fixed percentage. Generally, revenue derived for facilitating a sales transaction of Adobe products in which a customer introduced by the Company makes a purchase directly from the Companys supplier or another designated reseller is recognized net when the commission payment is received since the Company is merely acting as an agent in these arrangements. Since the Company is not a direct party in the sales transaction, payment by the supplier is the Companys confirmation that the sale occurred.
For software and software-related multiple element arrangements, the Company must: (1) determine whether and when each element has been delivered; (2) determine whether undelivered products or services are essential to the functionality of the delivered products and services; (3) determine the fair value of each undelivered element using vendor-specific objective evidence ("VSOE"), and (4) allocate the total price among the various elements. Changes in assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue that the Company reports in a particular period.
The Company determines VSOE for each element based on historical stand-alone sales to third parties or from the stated renewal rate for the elements contained in the initial arrangement. The Company has established VSOE for its third-party software maintenance and support services.
The Companys contracts with agencies of the U.S. federal government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract, ratably throughout the contract as the services are provided, or subject to funds made available incrementally by legislators. In evaluating the probability of funding for purposes of assessing collectability of the contract price, the Company considers its previous experiences with its customers, communications with its customers regarding funding status, and the Companys knowledge of available funding for the contract or program. If funding is not assessed as probable, revenue recognition is deferred until realization is deemed probable.
Payments received in advance of services performed are recorded and reported as deferred revenue. Services performed prior to invoicing customers are recorded as unbilled accounts receivable and are presented on the Companys balance sheets in the aggregate with accounts receivable. |
Segment Reporting | The Company has concluded that it operates in one business segment, providing products and services to modernize client information systems. |
Government Contracts | The Company believes there is minimal risk of an audit by the Defense Contract Audit Agency resulting in a material misstatement of previously reported financial statements. |
Cash and Cash Equivalents | The Company considers all highly liquid investments with maturities of ninety days or less at the time of purchase to be cash equivalents. Deposits are maintained with a federally insured bank. Balances at times exceed federally insured limits, but management does not consider this to be a significant concentration of credit risk. |
Accounts Receivable | Accounts receivable consist of trade accounts receivable and do not bear interest. The Company typically does not require collateral from its customers. The allowance for doubtful accounts is the Companys best estimate of the amount of probable credit losses in the Companys existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. Accounts with receivable balances past due over 90 days are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company has recorded an allowance for doubtful accounts of $0 and $878 at December 31, 2015 and 2014, respectively. |
Notes Receivable | The Company forgave a note receivable from a non-officer employee during 2015 in the amount of $7,863. |
Property and Equipment | Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Furniture and fixtures are depreciated over the lesser of the useful life or five years, off-the-shelf software is depreciated over the lesser of three years or the term of the license, custom software is depreciated over the least of five years, the useful life, or the term of the license, and computer equipment is depreciated over three years. Leasehold improvements are amortized over the estimated term of the lease or the estimated life of the improvement, whichever is shorter. Maintenance and minor repairs are charged to operations as incurred. Gains and losses on dispositions are recorded in operations. |
Stock based compensation | At December 31, 2015, the Company had the stock-based compensation plans described in Note 9 below. Total compensation expense related to these plans was $8,465 and $14,191 for the years ended December 31, 2015 and 2014, respectively. The Company estimates the fair value of options granted using a Black-Scholes valuation model to establish the expense. When stock-based compensation is awarded to employees, the expense is recognized ratably over the vesting period. When stock-based compensation is awarded to non-employees, the expense is recognized over the period of performance. |
Income Taxes | Deferred tax assets and liabilities are computed based on the difference between the financial statement and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. In addition, a valuation allowance is required to be recognized if it is believed more likely than not that a deferred tax asset will not be fully realized. Authoritative guidance prescribes a recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those positions to be recognized in the financial statements. The Company continually reviews tax laws, regulations and related guidance in order to properly record any uncertain tax liabilities. |
Earnings Per Share | The Companys earnings per share calculations are based upon the weighted average number of shares of common stock outstanding. The dilutive effect of stock options, warrants and other equity instruments are included for purposes of calculating diluted earnings per share, except for periods when the Company reports a net loss, in which case the inclusion of such equity instruments would be antidilutive. 108,627 shares representing the dilutive effect of stock options were included in diluted earnings per share for the year ended December 31, 2015. 200,745 shares representing the dilutive effect of stock options were not included from diluted earnings per share for the year ended December 31, 2014, due to the net loss reported for the period. |
Concentration of Credit Risk | During the year ended December 31, 2015, prime contracts with U.S. government agencies represented 62.5% of the Companys revenue, an additional 23.5% of revenue came from U.S. government agencies through subcontracts, 13.8% of revenue came from commercial contracts, and 0.2% of revenue came from state and local government contracts. Two individual prime contracts with U.S. government agencies represented 19.9% and 17.7% of 2015 revenue, respectively. One company with which the Company subcontracts for providing services and products to U.S. government agencies represented 12.5% of 2015 revenue when all subcontracts under the company are aggregated. One commercial customer represented 10.3% of 2015 revenue.
During the year ended December 31, 2014, prime contracts with U.S. government agencies represented 47.7% of the Companys revenue, an additional 24.4% of revenue came from U.S. government agencies through subcontracts, 25.3% of revenue came from commercial contracts, and 2.6% of revenue came from state and local government contracts. One prime contract with a U.S. government agency represented 17.1% of 2014 revenue. One company with which the Company subcontracts for providing services and products to U.S. government agencies represented 10.2% of 2014 revenue when all subcontracts under the company are aggregated. Two commercial customers represented 13.2% and 11.0% of 2014 revenue, respectively.
The Company sold third party software and maintenance contracts under agreements with two major suppliers. These sales accounted for 25.0% of total revenue in 2015 and 35.9% of revenue in 2014.
At December 31, 2015, the Companys accounts receivable included receivables from two U.S. government agencies that represented 27.8% and 18.7% of the Companys outstanding accounts receivable, respectively, receivables from two companies under which the Company subcontracts for services to U.S. government agencies that represented 11.7% and 10.6% of the Companys outstanding accounts receivable, respectively.
At December 31, 2014, the Companys accounts receivable included receivables from one U.S. government agency that represented 29.0% of the Companys outstanding accounts receivable, receivables from one company under which the Company subcontracts for services to a U.S. government agency that represented 14.4% of the Companys outstanding accounts receivable, and receivables from one commercial customer that represented 21.8% of the Companys outstanding accounts receivable. |
Related Party Transactions | During the years ended December 31, 2015 and 2014, the Company paid a business development consultant, who is the brother of the Chairman of the Board, Chief Executive Officer, and President of the Company, $52,105 and $53,593, respectively, in cash compensation.
The Companys Director of Human Resources is the spouse of the Senior Vice President and Chief Operating Officer of the Company. During the years ended December 31, 2015 and 2014, she earned $124,647 and $112,950, respectively, as an employee of the Company. |
Recent Accounting Pronouncements |
From time to time, new accounting pronouncements are issued by the FASB, or other standard setting bodies that the Company adopts as of the specified effective date.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." This new standard will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount it expects to receive for those goods and services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates and changes in those estimates. The ASU will be effective for the Company beginning January 1, 2017, and allows for both retrospective and modified-retrospective methods of adoption. The Company is in the process of determining the method of adoption it will elect and is currently assessing the impact of this ASU on its financial statements and footnote disclosures.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17 simplifies the balance sheet classification of deferred taxes and requires that all deferred taxes be presented as noncurrent. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The adoption of this update is not expected to have a material effect on the Companys financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of this ASUon its financial statements and footnote disclosures.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (ASU 2016-08). The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The effective date for ASU 2016-08 is the same as the effective date for ASU 2014-09, Revenue from Contracts with Customers. The Company is currently evaluating the impact of this ASU on its financial statements and footnote disclosures. |
2. Receivables (Tables) |
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3. Fair Value Measurements (Tables) |
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4. Fixed Assets (Tables) |
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7. Income Taxes (Tables) |
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9. Stock Options and Warrants (Tables) |
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options And Warrants Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair values of option awards granted |
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Options issued under foregoing option plans |
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Summary information about options |
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Nonvested stock awards |
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10. Earnings Per Share (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Earning per Share |
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11. Financial Statement Captions (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Statement Captions Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial statement captions |
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1. Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Summary Of Significant Accounting Policies Details Narrative | ||
Allowance for doubtful accounts | $ 0 | $ 878 |
Note receivable from employee | 7,863 | |
Total compensation expense for stock options | $ 8,465 | $ 14,191 |
2. Receivables (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Allowance for doubtful accounts | $ 0 | $ 878 |
Accounts receivable, net | 1,298,029 | 970,621 |
Billed-federal government | ||
Accounts receivable gross | 754,540 | 758,818 |
Billed-commercial and other | ||
Accounts receivable gross | 180,474 | 212,324 |
Total billed | ||
Accounts receivable gross | 935,014 | 971,142 |
Unbilled | ||
Accounts receivable gross | $ 363,015 | $ 357 |
3. Fair Value Measurements (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Fair Value, Inputs, Level 1 [Member] | ||
Money market accounts | $ 1,912,188 | $ 1,766,121 |
Total | $ 1,912,188 | 1,766,121 |
Fair Value, Inputs, Level 2 [Member] | ||
Money market accounts | 0 | |
Total | 0 | |
Fair Value, Inputs, Level 3 [Member] | ||
Money market accounts | 0 | |
Total | $ 0 |
4. Fixed Assets (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Fixed Assets Details | ||
Furniture and equipment | $ 110,042 | $ 110,042 |
Computer equipment and software | 304,656 | 292,811 |
Leasehold Improvement | 6,385 | 0 |
Subtotal | 421,083 | 402,853 |
Less: accumulated depreciation and amortization | (379,044) | (349,178) |
Total | $ 42,039 | $ 53,675 |
6. Commitments and Contingencies (Details) |
Dec. 31, 2015
USD ($)
|
---|---|
Year ending December 31, 2014 | |
2016 | $ 105,300 |
2017 | 44,414 |
Total minimum rent payments | $ 149,714 |
6. Commitments and Contingencies (Details narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Commitments And Contingencies Details Narrative | ||
Rent expense | $ 100,914 | $ 99,994 |
7. Income Taxes (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Deferred tax assets: | ||
Net operating loss carryforward | $ 5,453,200 | $ 5,468,700 |
Accrued commissions | 324,600 | 379,500 |
Fixed assets | 48,200 | 48,100 |
Accrued Vacation | 35,900 | 31,900 |
Allowance for doubtful accounts | 0 | 300 |
AMT tax credit carryforward | 6,600 | 600 |
Other | 8,000 | 8,800 |
Subtotal | 5,876,500 | 5,906,000 |
Valuation allowance | (5,876,500) | (5,906,000) |
Total | $ 0 | $ 0 |
7. Income Taxes (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Taxes Details 1 | ||
Loss before taxes | $ 78,330 | $ (29,787) |
Income tax benefit on above amount at federal statutory rate | 26,600 | (10,100) |
State income tax (benefit) expense, net of federal (benefit) expense | 3,100 | (1,200) |
Permanent differences | 6,600 | 8,500 |
Other | (6,800) | 3,700 |
Change in valuation allowance | (29,500) | (900) |
Provision for income taxes | $ 0 | $ 0 |
7. Income Taxes (Details 2) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Taxes Details 2 | ||
Federal | $ 13,800 | $ 0 |
State | 1,600 | 0 |
Alternative minimum tax | 0 | 0 |
Benefit from utilization of net operating losses | (15,400) | 0 |
Current income taxes Gross | 0 | 0 |
Deferred taxes | $ 0 | 0 |
Current income taxes Net | $ 0 |
7. Income Taxes (Details Narrative) |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
| |
Income Taxes Details Narrative | |
Net operating loss carryforwards | $ 14,400,000 |
Period of expiration | 2017 to 2029 |
9. Stock Options (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Dividend yield | 0.00% | 0.00% |
Expected term | 5 years | |
Minimum [Member] | ||
Risk free interest rate | 1.61% | 1.52% |
Expected term | 5 years | |
Expected volatility | 41.20% | 40.70% |
Maximum [Member] | ||
Risk free interest rate | 1.97% | 1.78% |
Expected term | 10 years | |
Expected volatility | 54.20% | 47.30% |
9. Stock Options (Details 1) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Number of Shares | ||
Options Outstanding, Ending | 1,193,000 | |
Stock Options | ||
Number of Shares | ||
Options Outstanding, Beginning | 1,264,000 | 1,187,000 |
Options Granted | 20,000 | 80,000 |
Options expired or forfeited | (91,000) | (3,000) |
Options Outstanding, Ending | 1,193,000 | 1,264,000 |
Weighted Average Exercise Price | ||
Options Outstanding, Beginning | $ 0.26 | $ 0.26 |
Options Granted | 0.20 | 0.16 |
Options expired or forfeited | 0.42 | 0.11 |
Options Outstanding, Ending | $ 0.24 | $ 0.26 |
9. Stock Options (Details2) |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
$ / shares
shares
| |
Options outstanding | |
Options outstanding | shares | 1,193,000 |
Weighted Average Price per share | $ / shares | $ .24 |
Weighted average remaing contractual life in years | 4 years 11 months 6 days |
Aggregate intrinsic value | $ | $ 920 |
Options exercisable | |
Options Exercisable | shares | 1,143,500 |
Weighted Average price per share | $ / shares | $ .25 |
weighted average remaing contractual life in years | 4 years 9 months 18 days |
aggregate intrinsic value | $ | $ 920 |
9. Stock Options (Details3) |
12 Months Ended |
---|---|
Dec. 31, 2015
$ / shares
shares
| |
Number of Shares | |
Nonvested Stock Awards Beginning Balance | shares | 209,500 |
Granted | shares | 20,000 |
Vested | shares | (179,000) |
Expired before Vesting | shares | (1,000) |
Nonvested Stock Awards Ending Balance | shares | 49,500 |
Weighted Average Grant Date Fair Value | |
Nonvested Stock Awards Beginning Balance | $ / shares | $ .07 |
Granted | $ / shares | .11 |
Vested | $ / shares | .08 |
Expired before Vesting | $ / shares | .10 |
Nonvested Stock Awards Ending Balance | $ / shares | $ .07 |
10. Earnings Per Share (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Earnings Per Share Details | ||
Income available to common stockholders | $ 78,330 | $ (29,787) |
Diluted net loss per common share | $ 78,330 | $ (29,787) |
Shares, basic | 11,201,760 | 11,201,760 |
Effect of dilutive stock options, Shares | 108,627 | 0 |
Shares, diluted | 11,310,387 | 11,201,760 |
Earnings per share, Basic | $ .01 | $ 0.00 |
Earnings per share, Diluted | $ .01 | $ 0.00 |
11. Financial Statement Captions (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Financial Statement Captions Tables | ||
Deferred costs of software sales | $ 563,036 | $ 733,636 |
Prepaid rent | 8,624 | 8,373 |
Prepaid insurance | 13,633 | 1,528 |
Other | 18,047 | 16,445 |
Total | $ 603,340 | $ 759,982 |
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