Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☑
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period
ended
September 30, 2018
or
☐
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period
from
to
Commission File Number:
000-22405
Information Analysis Incorporated
(Exact name of registrant as specified in its charter)
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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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11240 Waples Mill Road
Suite 201
Fairfax, Virginia 22030
(Address of principal executive offices, Zip Code)
(703) 383-3000
(Registrant’s telephone number, including area
code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☑No ☒
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files). Yes ☑No ☒
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated
filer
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☐ (Do not check if a smaller reporting
company)
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Smaller reporting company
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☑
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Emerging
growth company
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☐
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If
an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☒
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes ☒ No ☑
Indicate
the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable
date:
11,201,760 shares of common stock, par value $0.01 per share, as of
November 12, 2018.
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
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INFORMATION ANALYSIS INCORPORATED
FORM 10-Q
Table of Contents
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PART I. FINANCIAL
INFORMATION
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Page Number
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Item 1. Financial Statements
(unaudited except for the balance sheet as of December 31,
2017)
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3
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Balance Sheets as of September 30,
2018 and December 31, 2017
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3
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Statements of Operations for the three
months ended September 30, 2018 and 2017
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4
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Statements of Operations for the nine
months ended September 30, 2018 and 2017
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5
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Statements of Cash Flows for the nine
months ended September 30, 2018 and 2017
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6
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Notes to Financial
Statements
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7
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Item 2. Management's Discussion
and Analysis of Financial Condition and Results of
Operations
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15
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Item 4. Controls and
Procedures
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19
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PART II. OTHER
INFORMATION
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Item 1. Legal
Proceedings
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20
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Item 1A. Risk
Factors
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20
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Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
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20
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Item 3. Defaults Upon Senior
Securities
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20
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Item 4. Mine Safety
Disclosures
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20
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Item 5. Other
Information
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20
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Item 6. Exhibits
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20
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SIGNATURES
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21
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INFORMATION ANALYSIS INCORPORATED
BALANCE SHEETS
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ASSETS
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Current
assets
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Cash
and cash equivalents
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$2,053,691
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$2,731,510
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Accounts
receivable, net
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1,157,327
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610,182
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Prepaid
expenses and other current assets
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466,263
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368,626
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Contract
assets
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7,470
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5,532
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Notes
receivable
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-
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1,719
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Total
current assets
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3,684,751
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3,717,569
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Property
and equipment, net of accumulated depreciation
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and
amortization of $292,504 and $284,667
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7,371
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11,133
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Other
assets
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6,281
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6,281
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Total
assets
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$3,698,403
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$3,734,983
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current
liabilities
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Accounts
payable
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$431,773
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$47,658
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Commissions
payable
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587,810
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712,829
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Contract
liabilities
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453,595
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387,002
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Accrued
payroll and related liabilities
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255,478
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275,582
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Other
accrued liabilities
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63,034
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411,487
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Franchise
taxes payable
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-
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6,400
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Total
liabilities
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1,791,690
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1,840,958
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Stockholders'
equity
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Common
stock, $0.01 par value, 30,000,000 shares
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authorized,
12,844,376 shares issued, 11,201,760 shares
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outstanding
as of September 30, 2018, and December 31, 2017
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128,443
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128,443
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Additional
paid-in capital
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14,670,288
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14,646,406
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Accumulated
deficit
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(11,961,807)
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(11,950,613)
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Treasury
stock, 1,642,616 shares at cost
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at
September 30, 2018 and December 31, 2017
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(930,211)
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(930,211)
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Total
stockholders' equity
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1,906,713
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1,894,025
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Total
liabilities and stockholders' equity
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$3,698,403
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$3,734,983
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The accompanying notes are an integral part of the financial
statements
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
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INFORMATION ANALYSIS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
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For the three months ended
September 30,
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Revenues
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Professional
fees
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$1,111,358
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$1,385,257
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Software
sales
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1,307,319
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1,346,537
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Total
revenues
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2,418,677
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2,731,794
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Cost
of revenues
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Cost
of professional fees
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575,200
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776,404
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Cost
of software sales
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1,274,371
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1,319,499
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Total
cost of revenues
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1,849,571
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2,095,903
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Gross
profit
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569,106
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635,891
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Selling,
general and administrative expenses
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409,761
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386,929
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Commissions
expense
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134,255
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140,963
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Income
from operations
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25,090
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107,999
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Other
income
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2,874
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2,285
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Income
before provision for income taxes
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27,964
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110,284
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Provision
for income taxes
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-
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-
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Net
income
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$27,964
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$110,284
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Net
income per common share - basic
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$-
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$0.01
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Net
income per common share - diluted
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$-
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$0.01
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Weighted
average common shares outstanding
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Basic
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11,201,760
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11,201,760
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Diluted
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11,593,183
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11,510,711
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The accompanying notes are an integral part of the financial
statements
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
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INFORMATION ANALYSIS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
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For the nine months ended
September 30,
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Revenues
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Professional
fees
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$3,429,153
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$3,676,730
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Software
sales
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4,091,819
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4,592,828
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Total
revenues
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7,520,972
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8,269,558
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Cost
of revenues
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Cost
of professional fees
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1,828,542
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1,990,383
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Cost
of software sales
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4,017,549
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4,506,099
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Total
cost of revenues
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5,846,091
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6,496,482
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Gross
profit
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1,674,881
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1,773,076
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Selling,
general and administrative expenses
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1,319,790
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1,231,863
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Commissions
expense
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374,815
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380,267
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(Loss)
income from operations
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(19,724)
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160,946
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Other
income
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8,530
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6,440
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(Loss)
income before provision for income taxes
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(11,194)
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167,386
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Provision
for income taxes
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-
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-
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Net
(loss) income
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$(11,194)
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$167,386
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Net
(loss) income per common share - basic
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$-
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$0.01
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Net
(loss) income per common share - diluted
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$-
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$0.01
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Weighted
average common shares outstanding
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Basic
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11,201,760
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11,201,760
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Diluted
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11,201,760
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11,509,202
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The accompanying notes are an integral part of the financial
statements
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
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INFORMATION ANALYSIS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
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For the nine months ended
September 30,
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Cash
flows from operating activities:
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Net
(loss) income
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$(11,194)
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$167,386
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Adjustments
to reconcile net (loss) income to net cash
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(used
in) provided by operating activities:
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Depreciation
and amortization
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7,837
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13,670
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Stock
option compensation
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23,882
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6,618
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Changes
in operating assets and liabilities:
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Accounts
receivable and contract assets
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(549,083)
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(651,813)
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Prepaid
expenses and other current assets
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(97,637)
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170,033
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Accounts
payable
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384,115
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909,315
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Accrued
payroll and related liabilities and
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other
accrued liabilities
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(374,957)
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301,234
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Commissions
payable
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(125,019)
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(95,668)
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66,593
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(165,569)
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Net
cash (used in) provided by operating activities
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(675,463)
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655,206
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Cash
flows from investing activities
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Acquisition
of property and equipment
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(4,075)
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-
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Payments
received on notes receivable
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1,719
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2,641
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Increase
in notes receivable
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-
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(2,500)
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Net
cash (used in) provided by investing activities
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(2,356)
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141
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Net
(decrease) increase in cash and cash equivalents
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(677,819)
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655,347
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Cash
and cash equivalents, beginning of the period
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2,731,510
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1,895,372
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Cash
and cash equivalents, end of the period
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$2,053,691
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$2,550,719
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Supplemental
cash flow Information
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Interest
paid
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$-
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$-
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Income
taxes paid
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$-
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$-
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The accompanying notes are an integral part of the financial
statements
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
|
INFORMATION ANALYSIS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1.
Summary
of Significant Accounting Policies
Organization and Business
Founded
in 1979, Information Analysis Incorporated (the
“Company”, “we”), to which we sometimes
refer as IAI, is in the business of developing and maintaining
information technology (IT) systems, modernizing client information
systems, and performing professional services to government and
commercial organizations. We presently concentrate our technology,
services and experience to developing web-based and mobile device
solutions (including electronic forms conversions), data analytics,
cyber security applications, and legacy software migration and
modernization for various agencies of the federal government. We
provide software and services to government and commercial
customers throughout the United States, with a concentration in the
Washington, D.C. metropolitan area.
Unaudited Interim Financial Statements
The
accompanying unaudited financial statements have been prepared in
conformity with U.S. generally accepted accounting principles
(“GAAP”) for interim financial information and with the
instructions for Form 10-Q and Article 8-03 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP
have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission
(“SEC”). In the opinion of management, the unaudited
financial statements include all adjustments necessary (which are
of a normal and recurring nature) for the fair and not misleading
presentation of the results of the interim periods presented. These
unaudited financial statements should be read in conjunction with
our audited financial statements for the year ended December 31,
2017 included in the Annual Report on Form 10-K filed by the
Company with the SEC on April 2, 2018 (the “Annual
Report”). The accompanying December 31, 2017 balance sheet
was derived from our audited financial statements included in the
Annual Report. The results of operations for any interim periods
are not necessarily indicative of the results of operations for any
other interim period or for a full fiscal year.
There
have been no changes in the Company’s significant accounting
policies as of September 30, 2018 as compared to the significant
accounting policies disclosed in Note 1, "Summary of Significant
Accounting Policies" in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2017, that was filed with
the SEC on April 2, 2018, except as described in Note 2
herein.
Use of Estimates and Assumptions
The
preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect
certain 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 revenue and expenses during
the reporting period. Actual results can, and in many cases will,
differ from those estimates.
Income Taxes
As of
September 30, 2018, there have been no material changes to the
Company’s uncertain tax position disclosures as provided in
Note 7 of the Annual Report. Through the filing of its 2017 federal
income tax return, the Company has net operating loss carryforwards
in the amount of $14,959,541, of which $7,750,305 will expire, if
unused, on December 31, 2018.
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
|
ASC 606 Impact to Previously Reported Results
On
January 1, 2018, we adopted the FASB-issued ASU No. 2014-09,
“Revenue from Contracts with
Customers (Topic 606)” (“ASC 606”) by
applying the modified retrospective transition method to all of our
contracts. Comparative information has not been restated and
continues to be reported under the accounting standards in effect
for the periods presented. Based on the results of our evaluation,
the adoption of ASC 606 did not have a material impact on our
revenue recognition policies. In addition, the adoption of ASC 606
did not have a material impact on our financial statements for the
nine months ended September 30, 2018 and 2017. Additionally, the
cumulative effect to the opening balance sheet on January 1, 2018,
from the adoption of ASC 606 was not material.
Reclassification of Financial Statement Line Items
Certain
financial statement line items presented in prior periods have been
reclassified for consistency between the periods presented.
Contract assets in the form of unbilled receivables have been
disaggregated from accounts receivable, net, and deferred revenue
has been reclassified as contract liabilities.
Revenue
from Contracts with Customers
Revenue
is recognized when all of the following steps have been taken and
criteria met for each contract:
●
Identification of the
contract, or contracts, with a customer - A contract with a customer exists when
(i) we enter into an enforceable contract with a customer that
defines each party’s rights regarding the goods or services
to be transferred and identifies the payment terms related to these
goods or services, (ii) the contract has commercial substance and
the parties are committed to perform and, (iii) we determine that
collection of substantially all consideration to which we will be
entitled in exchange for goods or services that will be transferred
is probable based on the customer’s intent and ability to pay
the promised consideration.
●
Identification of the
performance obligations in the contract - Performance obligations promised in a
contract are identified based on the goods or services that will be
transferred to the customer that are both capable of being
distinct, whereby the customer can benefit from the goods or
service either on its own or together with other resources that are
readily available from third parties or from us, and are distinct
in the context of the contract, whereby the transfer of the goods
or services is separately identifiable from other promises in the
contract. To the extent a contract includes multiple promised goods
or services, we apply judgment to determine whether promised goods
or services are capable of being distinct and distinct in the
context of the contract. If these criteria are not met the promised
goods or services are accounted for as a combined performance
obligation.
●
Determination of the
transaction price -
The transaction price is determined based on the consideration to
which we will be entitled in exchange for transferring goods or
services to the customer adjusted for estimated variable
consideration, if any. We typically estimate the transaction price
impact of discounts offered to the customers for early payments on
receivables or rebates based on sales target achievements.
Constraints are applied when estimating variable considerations
based on historical experience where applicable.
●
Allocation of the
transaction price to the performance obligations in the
contract - If the
contract contains a single performance obligation, the entire
transaction price is allocated to the single performance
obligation. Contracts that contain multiple performance obligations
require an allocation of the transaction price to each performance
obligation based on a relative standalone selling price basis.
Determination of the standalone selling price requires judgement.
We determine standalone selling price taking into account available
information such as historical selling prices of the performance
obligation, geographic location, overall strategic pricing
objective, market conditions and internally approved pricing
guidelines related to the performance obligations.
●
Recognition of revenue
when, or as, we satisfy performance obligations - We satisfy performance obligations
either over time or at a point in time as discussed in further
detail below. Revenue is recognized at or over the time the related
performance obligation is satisfied by transferring a promised good
or service to a customer.
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
|
Nature of products and services
We
generate revenue from the sales of information technology
professional services, sales of third-party software licenses and
implementation and training services, sales of third-party support
and maintenance contracts based on those software products, and
incentive payments received from third-party software suppliers for
facilitating sales directly between that supplier and a customer
introduced by us. We sell through our direct relationships with end
customers and under subcontractor arrangements. We account for our
performance obligations in accordance with ASC 606, and all related
interpretations.
Professional
services are offered through several arrangements – through
time and materials arrangements, fixed-price-per-unit arrangements,
fixed-price arrangements, or combinations of these arrangements
within individual contracts. Revenue under time and materials
arrangements is recognized over time in the period the hours are
worked or the expenses are incurred, as control of the benefits of
the work is deemed to have passed to the customer as the work is
performed. Revenue under fixed-price-per-unit arrangements is
recognized at a point in time when delivery of units have occurred
and units are accepted by the customer or are reasonably expected
to be accepted. Generally, revenue under fixed-price arrangements
and mixed arrangements is recognized either over time or at a point
in time based on the allocation of transaction pricing to each
identified performance obligation as control of each is transferred
to the customer. For fixed-price arrangements for which we are paid
a fixed fee to make ourselves available to support a customer, with
no predetermined deliverables to which transaction prices can be
estimated or allocated, revenue is recognized ratably over
time.
Third-party
software licenses are classified as enterprise server-based
software licenses or desktop software licenses, and desktop
licenses are further classified by the type of customer and whether
the licenses are bulk licenses or individual licenses. Our
obligations as the seller for each class differ based on our
reseller agreements and whether our customers are government or
non-government customers. Revenue from enterprise server-based
sales to either government or non-government customers is usually
recognized in full at a point in time based on when the customer
gains use of the full benefit of the licenses, after the licenses
are implemented. If the transaction prices of the performance
obligations related to implementation and customer support for the
individual contract is material, these obligations are recognized
separately over time, as performed. Revenue for desktop software
licenses for government customers is usually recognized in full at
a point in time, based on when the customer’s administrative
contact gains training in and beneficial use of the administrative
portal. If the transaction prices of the performance obligations
related to implementing the government administrator’s use of
the administrative portal and administrator support for the
individual contract are material (rare), these obligations are
recognized separately over time, as performed. Revenue for bulk
desktop software licenses for non-government customers is usually
recognized in full at a point in time, based on when the
customer’s administrative contact gains training in and
beneficial use of the administrative portal. For desktop software
licenses sold on an individual license basis to non-government
customers, where we have no obligation to the customer after the
third-party makes delivery of the licenses, we have determined we
are acting as an agent, and we recognize revenue upon delivery of
the licenses only for the net of the selling price and our contract
costs.
Third-party support
and maintenance contracts for enterprise server-based software
include a performance obligation under our reseller agreements for
us to be the first line of support (direct support) and second line
of support (intermediary between customer and manufacturer) to the
customer. Because of the support performance obligations, and
because the amount of support is not estimable, we recognize
revenue ratably over time as we make ourselves available to provide
the support.
Incentive payments
are received under reseller agreements with software manufacturers
and suppliers where we introduce and court a customer, but the sale
occurs directly between the customer and the supplier or between
the customer and the manufacturer. Since the transfer of control of
the licenses cannot be measured from outside of these transactions,
revenue is recognized when payment from the manufacturer or
supplier is received.
|
Information Analysis Incorporated
|
Form
10-Q Third Quarter 2018
|
Disaggregation of Revenue from Contracts with
Customers
|
Contract
|
Three months ended 9/30/2018
|
Three months ended 9/30/2017
|
|
Type
|
|
|
|
|
|
|
|
|
|
|
|
Professional
Services
|
$1,111,358
|
45.9%
|
$1,385,257
|
50.7%
|
|
|
|
|
|
|
|
Third-Party
Software
|
1,153,091
|
47.7%
|
531,505
|
19.4%
|
|
|
|
|
|
|
|
Support
& Maintenance
|
146,532
|
6.1%
|
807,535
|
29.6%
|
|
|
|
|
|
|
|
Incentive
Payments
|
7,696
|
0.3%
|
7,497
|
0.3%
|
|
|
|
|
|
|
|
Total
Revenue
|
$2,418,677
|
|
$2,731,794
|
|
|
Contract
|
Nine months ended 9/30/2018
|
Nine months ended 9/30/2017
|
|
Type
|
|
|
|
|
|
|
|
|
|
|
|
Professional
Services
|
$3,429,153
|
45.6%
|
$3,676,730
|
44.5%
|
|
|
|
|
|
|
|
Third-Party
Software
|
3,636,225
|
48.3%
|
2,645,082
|
32.0%
|
|
|
|
|
|
|
|
Support
& Maintenance
|
440,544
|
5.9%
|
1,928,134
|
23.3%
|
|
|
|
|
|
|
|
Incentive
Payments
|
15,050
|
0.2%
|
19,612
|
0.2%
|
|
|
|
|
|
|
|
Total
Revenue
|
$7,520,972
|
|
$8,269,558
|
|
|
Revenue
|
Three months ended 9/30/2018
|
Three months ended 9/30/2017
|
|
Recognition Type
|
|
|
|
|
|
|
|
|
|
|
|
Time
& Materials
|
$694,524
|
28.7%
|
$913,432
|
33.4%
|
|
|
|
|
|
|
|
Fixed-Price
Ratably over Time
|
541,057
|
22.4%
|
561,337
|
20.5%
|
|
|
|
|
|
|
|
Fixed-Price
per Unit
|
1,122,960
|
46.4%
|
1,127,107
|
41.3%
|
|
|
|
|
|
|
|
Mixed
|
52,440
|
2.2%
|
122,421
|
4.5%
|
|
|
|
|
|
|
|
Incentive
Payments
|
7,696
|
0.3%
|
7,497
|
0.3%
|
|
|
|
|
|
|
|
Total
Revenue
|
$2,418,677
|
|
$2,731,794
|
|
|
Revenue
|
Nine months ended 9/30/2018
|
Nine months ended 9/30/2017
|
|
Recognition Type
|
|
|
|
|
|
|
|
|
|
|
|
Time
& Materials
|
$2,223,949
|
29.6%
|
$2,374,280
|
28.7%
|
|
|
|
|
|
|
|
Fixed-Price
Ratably over Time
|
2,098,920
|
27.9%
|
1,733,911
|
21.0%
|
|
|
|
|
|
|
|
Fixed-Price
per Unit
|
3,009,290
|
40.0%
|
3,867,576
|
46.8%
|
|
|
|
|
|
|
|
Mixed
|
173,763
|
2.3%
|
274,179
|
3.3%
|
|
|
|
|
|
|
|
Incentive
Payments
|
15,050
|
0.2%
|
19,612
|
0.2%
|
|
|
|
|
|
|
|
Total
Revenue
|
$7,520,972
|
|
$8,269,558
|
|
|
Information Analysis Incorporated
|
Form
10-Q Third Quarter 2018
|
Contract Balances
Accounts Receivable
Trade
accounts receivable are recorded at the billable amount where we
have the unconditional right to bill, net of allowances for
doubtful accounts. The allowance for doubtful accounts is based on
our assessment of the collectability of accounts. Management
regularly reviews the adequacy of the allowance for doubtful
accounts by considering the age of each outstanding invoice, each
customer's expected ability to pay and collection history, when
applicable, to determine whether a specific allowance is
appropriate. Accounts receivable deemed uncollectible are charged
against the allowance for doubtful accounts when
identified.
Contract Assets
Contract assets
consist of assets typically resulting when revenue recognized
exceeds the amount billed or billable to the customer due to
allocation of transaction price. Contract assets balances were
$7,470 and $5,532 as of September 30, 2018, and December 31, 2017,
respectively. The increase in contract assets from December 31,
2017, to September 30, 2018, is due primarily to one contract for
which the invoice is a fixed monthly amount but for which the
quantity of performance obligations satisfied varies each
month.
Contract Liabilities
Contract
liabilities, to which we formerly referred as deferred revenue,
consist of amounts that have been invoiced and for which the
Company has the right to bill, but that have not been recognized as
revenue because the related goods or services have not been
transferred. Contract liabilities balances were $453,595 and
$387,002 at September 30, 2018, and December 31, 2017,
respectively. The increase in contract liabilities from December
31, 2017, to September 30, 2018, is due primarily to the
differences in the timing of the cycles of recognition of revenue
from third-party support and maintenance contracts for enterprise
server-based software sales.
Costs to Obtain or Fulfill a Contract
When
applicable, we recognize an asset related to the costs incurred to
obtain a contract only if we expect to recover those costs and we
would not have incurred those costs if the contract had not been
obtained. We recognize an asset from the costs incurred to fulfill
a contract if the costs (i) are specifically identifiable to a
contract, (ii) enhance resources that will be used in satisfying
performance obligations in future and (iii) are expected to be
recovered. There were $4,640 and $3,480 of such assets at September
30, 2018 and December 31, 2017, respectively.
Financing Components
In
instances where the timing of revenue recognition differs from the
timing of invoicing, we have determined our contracts do not
include a significant financing component. The primary purpose of
our invoicing terms is to provide customers with simplified and
predictable ways of purchasing our products and services, not to
receive financing from our customers or to provide customers with
financing. Examples include invoicing at the beginning of a
software support and maintenance term with revenue recognized
ratably over the contract period.
Deferred Costs of Revenue
Deferred costs of
revenue consist of the costs of third-party support and maintenance
contracts for enterprise server-based software. These costs are
reported under the prepaid expenses caption on our balance sheet.
We recognize these direct costs ratably over time as we make
ourselves available to provide our performance obligation for
software support, commensurate with our recognition of revenue.
Deferred costs of revenue balances included in prepaid expenses
were $404,243 and $300,558 at September 30, 2018, and December 31,
2017, respectively.
|
Information Analysis Incorporated
|
Form
10-Q Third Quarter 2018
|
3.
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
February 2016, the FASB issued ASU 2016-02, “Leases: Topic 842,” and
followed it up with ASU 2018-10, “Codification Improvements to Topic 842,
Leases” and ASU 2018-11, “Leases (Topic 842: Targeted
Improvements” (collectively “Topic 842”)),
which provided updated guidance on lease accounting. Topic 842 is
effective for annual reporting periods beginning after December 15,
2018, including interim periods within that annual period, with
early adoption permitted. The Company does not expect the adoption
of this new standard will have a material impact on its financial
statements. When adopted, the Company’s operating lease for
office space will be presented as a right-of-use asset and as an
offsetting liability for the present value of the contractual cash
flows. The Company does not currently have any other material lease
obligations.
In June
2018, the FASB issued ASU 2018-07, “Compensation – Stock
Compensation” (“ASU 2018-07”), which
provided updated guidance on nonemployee share-based payment
awards. ASU 2018-07 is effective for annual reporting periods
beginning after December 15, 2018, including interim periods within
that annual period, with early adoption permitted. The Company does
not expect the adoption of this new standard will have a material
impact on its financial statements.
4.
Stock-Based
Compensation
The
Company has two shareholder–approved stock-based compensation
plans. The 2006 Stock Incentive Plan was adopted in 2006
(“2006 Plan”) and had options granted under it through
April 12, 2016. On June 1, 2016, the shareholders ratified the IAI
2016 Stock Incentive Plan (“2016 Plan”), which had been
approved by the Board of Directors on April 4, 2016.
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 nine months to two years. The fair values of option
awards granted in the three months and nine months ended September
30, 2018 and 2017, were estimated using the Black-Sholes option
pricing model under the following assumptions:
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2018
|
|
September 30, 2017
|
|
September 30, 2018
|
|
September 30, 2017
|
|
Risk-free
interest rate
|
2.75%
|
|
1.87%
|
|
2.65%
- 2.92%
|
|
1.87%
|
|
Dividend
yield
|
0%
|
|
0%
|
|
0%
|
|
0%
|
|
Expected
term
|
|
|
5
years
|
|
5
years
|
|
5
years
|
|
Expected
volatility
|
53.4%
|
|
44.6%
|
|
49.0%-53.4%
|
|
44.6%
|
2016 Stock Incentive Plan
The
2016 Plan became effective June 1, 2016, and expires April 4, 2026.
The 2016 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 2016 Plan
is 1,000,000. Options under the 2016 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 minimum exercise price of each option is the quoted
market price of the Company’s stock on the date of grant. At
September 30, 2018, there were unexpired options for 385,000 shares
issued under the 2016 Plan, of which 217,000 were
exercisable.
|
Information Analysis Incorporated
|
Form
10-Q Third Quarter 2018
|
2006 Stock Incentive Plan
The
2006 Plan became effective May 18, 2006, and expired April 12,
2016. The 2006 Plan provides for the granting of equity awards to
key employees, including officers and directors. Options under the
2006 Plan were generally granted at-the-money or above, expire no
later than ten years from the date of grant or within three months
of when employment ceases, whichever comes first, and vest over
periods determined by the Board of Directors. The number of shares
subject to options available for issuance under the 2006 Plan could
not exceed 1,950,000. There were 1,003,500 unexpired options
remaining from the 2006 Plan at September 30, 2018, of which
1,003,500 were exercisable.
The
status of the options issued under the foregoing option plans as of
September 30, 2018, and changes during the nine months ended
September 30, 2018, were as follows:
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
remaining
|
|
Incentive Options
|
|
|
contractual term
|
|
Outstanding
at January 1, 2018
|
1,288,000
|
$0.21
|
|
|
Options
granted
|
163,000
|
0.45
|
|
|
Options
exercised
|
-
|
-
|
|
|
Options
expired
|
(62,500)
|
0.31
|
|
|
Options
forfeited
|
-
|
-
|
|
|
Outstanding
at September 30, 2018
|
1,388,500
|
$0.23
|
5
years
|
|
Exercisable
at September 30, 2018
|
1,220,500
|
$0.21
|
4
years, 6 months
|
There
were 3,000 options granted during the three months ended September
30, 2018, of which none were granted to non-employees, and 163,000
options granted during the nine months ended September 30, 2018, of
which 5,000 options were granted to non-employees. There were
217,000 options granted during both the three months and nine
months ended September 30, 2017, of which none were granted to
non-employees. The weighted-average grant date fair values of
options granted during the three months and nine months ended
September 30, 2018, were $0.12 and $0.20, respectively, and the
weighted-average grant date fair value of options granted during
both the three months and nine months ended September 30, 2017, was
$0.10. There were no options exercised during the nine months ended
September 30, 2018 and 2017. As of September 30, 2018, there was
$15,981 of total unrecognized compensation cost related to
non-vested share-based compensation arrangements granted under the
stock incentive plans; that cost is expected to be recognized over
a weighted-average period of five months.
Total
compensation expense related to these plans was $8,226 and $6,908
for the three months ended September 30, 2018 and 2017,
respectively, of which $426 and $0 related to options awarded to
non-employees, respectively. Total compensation expense related to
these plans was $23,882 and $7,230 for the nine months ended
September 30, 2018 and 2017, respectively, of which $644 and $0
related to options awarded to non-employees, respectively.
Compensation expense relating to prior periods in the amount of
$612 was reversed in the nine months ended September 30, 2017, from
options that were forfeited prior to vesting.
Nonvested option
awards as of September 30, 2018 and changes during the nine months
ended September 30, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at January 1, 2018
|
232,000
|
$0.10
|
|
Granted
|
163,000
|
0.20
|
|
Vested
|
(227,000)
|
0.10
|
|
Forfeited
|
-
|
-
|
|
Nonvested
at September 30, 2018
|
168,000
|
$0.20
|
|
Information Analysis Incorporated
|
Form
10-Q Third Quarter 2018
|
5.
Revolving
Line of Credit
The
Company has a revolving line of credit with a bank providing for
demand or short-term borrowings of up to $1,000,000. The line
expires on May 31, 2020. As of September 30, 2018, no amounts were
outstanding under this line of credit. The Company did not borrow
against this line of credit in the last twelve months.
6.
Earnings
(Loss) Per Share
Basic
earnings (loss) per share excludes dilution and is computed by
dividing loss available to common shareholders by the
weighted-average number of shares outstanding for the period.
Diluted (loss) 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 antidilutive effect of
511,118 shares from stock options were excluded from diluted shares
for the nine months ended September 30, 2018.
The
following is a reconciliation of the amounts used in calculating
basic and diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per common share for the
|
|
|
|
|
three
months ended September 30, 2018:
|
|
|
|
|
Income
available to common shareholders
|
$27,964
|
11,201,760
|
$-
|
|
Effect
of dilutive stock options
|
-
|
391,423
|
-
|
|
Diluted
net income per common share for the
|
|
|
|
|
three
months ended September 30, 2018
|
$27,964
|
11,593,183
|
$-
|
|
|
|
|
|
|
Basic
net income per common share for the
|
|
|
|
|
three
months ended September 30, 2017:
|
|
|
|
|
Income
available to common shareholders
|
$110,284
|
11,201,760
|
$0.01
|
|
Effect
of dilutive stock options
|
-
|
308,951
|
-
|
|
Diluted
net income per common share for the
|
|
|
|
|
three
months ended September 30, 2017
|
$110,284
|
11,510,711
|
$0.01
|
|
|
|
|
|
|
Basic
net loss per common share for the
|
|
|
|
|
nine
months ended September 30, 2018:
|
|
|
|
|
Loss
available to common shareholders
|
$(11,194)
|
11,201,760
|
$-
|
|
Effect
of dilutive stock options
|
-
|
-
|
-
|
|
Diluted
net loss per common share for the
|
|
|
|
|
nine
months ended September 30, 2018
|
$(11,194)
|
11,201,760
|
$-
|
|
|
|
|
|
|
Basic
net income per common share for the
|
|
|
|
|
nine
months ended September 30, 2017:
|
|
|
|
|
Income
available to common shareholders
|
$167,386
|
11,201,760
|
$0.01
|
|
Effect
of dilutive stock options
|
-
|
307,442
|
-
|
|
Diluted
net income per common share for the
|
|
|
|
|
nine
months ended September 30, 2017
|
$167,386
|
11,509,202
|
$0.01
|
|
Information Analysis Incorporated
|
Form
10-Q Third Quarter 2018
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cautionary
Statement Regarding Forward-Looking Statements
This
Form 10-Q contains forward-looking statements regarding our
business, customer prospects, or other factors that may affect
future earnings or financial results that are subject to the safe
harbor created by the Private Securities Litigation Reform Act of
1995. Such statements involve risks and uncertainties which could
cause actual results to vary materially from those expressed in the
forward-looking statements. Investors should read and understand
the risk factors detailed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2017 (“2017 10-K”) and
in other filings with the Securities and Exchange
Commission.
We
operate in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. This list highlights
some of the risks which may affect future operating results. These
are the risks and uncertainties we believe are most important for
you to consider. Additional risks and uncertainties, not presently
known to us, which we currently deem immaterial or which are
similar to those faced by other companies in our industry or
business in general, may also impair our business operations. If
any of the following risks or uncertainties actually occurs, our
business, financial condition and operating results would likely
suffer. These risks include, among others, the
following:
●
changes in the
funding priorities of the U.S. federal government;
●
changes in the way
the U.S. federal government contracts with businesses;
●
terms specific to
U.S. federal government contracts;
●
our failure to keep
pace with a changing technological environment;
●
intense competition
from other companies;
●
inaccuracy in our
estimates of the cost of services and the timeline for completion
of contracts;
●
non-performance by
our subcontractors and suppliers;
●
our dependence on
third-party software and software maintenance
suppliers;
●
fluctuations in our
results of operations and the resulting impact on our stock
price;
●
the limited public
market for our common stock; and
●
our forward-looking
statements and projections may prove to be inaccurate.
In some
cases, you can identify forward-looking statements by terms such as
“may,” “will,” “should,”
“could,” “would,” “expect,”
“plans,” “anticipates,”
“believes,” “estimates,”
“projects,” “predicts,”
“intends,” “potential” and similar
expressions intended to identify forward-looking statements. These
statements reflect our current views with respect to future events
and are based on assumptions and subject to risks and
uncertainties. Given these uncertainties, you should not place
undue reliance on these forward-looking statements. We discuss many
of these risks in greater detail under the heading “Risk
Factors” in Item 1A of our 2017 10-K. Also, these
forward-looking statements represent our estimates and assumptions
only as of the date of this report. Except as required by law, we
assume no obligation to update any forward-looking statements after
the date of this report.
Our Business
Founded
in 1979, IAI is in the business of modernizing client information
systems, developing and maintaining information technology systems
and programs, developing Section 508-compliant electronic forms and
smart forms, and performing consulting services to government and
commercial organizations. We have performed software modernization
and electronic forms conversion projects for over 100 commercial
and government customers, including, but not limited to, Computer
Sciences Corporation, IBM, Computer Associates, Sprint, Citibank,
U.S. Department of Homeland Security, U.S. Treasury Department,
U.S. Department of Agriculture, U.S. Department of Education, U.S.
Department of Energy, U.S. Army, U.S. Air Force, U.S. Department of
Veterans Affairs, and the Federal Deposit Insurance Corporation,
and the U.S. Small Business Administration. Today, we primarily
apply our technology, services and experience to legacy software
migration and modernization for commercial companies and government
agencies, and to developing web-based solutions for agencies of the
U.S. federal government. IAI
also provides services through its GSA IT Schedule 70 contracts
(47QTCA18D0080) and maintains Reseller and/or Solution Partner
relationships with firms such as Adobe Systems, Micro Focus, and
Heirloom Computing (additional information on IAI may be viewed at
its website located at www.infoa.com).
|
Information Analysis Incorporated
|
Form
10-Q Third Quarter 2018
|
IAI
has earned an ISO 9001:2015 Management System certificate for the
provisioning and management of certain services and product
delivery to its customers. Many government agencies are now
requiring this certification as a basis for participating in
designated contract solicitations. ISO 9001:2015 is a process-based
certification recognizing organizations that can link business
objectives with operating effectiveness and institutionalize
continual improvement in its operations. In order to achieve and
maintain certification, IAI is required to demonstrate through
external audit our ability to consistently provide products and
services that meet customer and applicable statutory and regulatory
requirements set forth in the referenced ISO 9001:2015 standard.
Companies that achieve such certification have demonstrated
effective implementation of documentation and records management,
top management’s commitment to their customers, establishment
of clear policy, good planning and implementation, good resource
management, efficient process control, as well as measurement and
analysis.
In the three months ended September 30, 2018, our
prime contracts with U.S. government agencies generated 71.3% of
our revenue, subcontracts under federal procurements generated
24.7% of our revenue, and 4.0% of our revenue came from
commercial contracts. The terms of these contracts and subcontracts
vary from single transactions to five years. Within this group of
prime contracts with U.S. government agencies, one software sale
generated 15.5% of our revenue and one other contract generated
13.6% of our revenue. One subcontract generated 20.4% of our
revenue.
In the
three months ended September 30, 2017, our prime contracts with
U.S. government agencies generated 67.4% of our revenue,
subcontracts under federal procurements generated 27.7% of our
revenue, and 4.9% of our revenue came from commercial contracts.
The terms of these contracts and subcontracts varied from single
transactions to five years. Within this group of prime contracts
with U.S. government agencies, one software sale generated 23.9% of
our revenue and one other contract generated 12.0% of our revenue.
One subcontract generated 22.0% of our revenue.
In the nine months ended September 30, 2018, our
prime contracts with U.S. government agencies generated 72.0% of
our revenue, subcontracts under federal procurements generated
24.3% of our revenue, and 3.7% of our revenue came from
commercial contracts. The terms of these contracts and subcontracts
vary from single transactions to five years. Within this group of
prime contracts with U.S. government agencies, one software sale
generated 24.3% of our revenue and one other contract generated
13.1% of our revenue. One subcontract generated 20.2% of our
revenue.
In the
nine months ended September 30, 2017, our prime contracts with U.S.
government agencies generated 72.2% of our revenue, subcontracts
under federal procurements generated 22.1% of our revenue, and 5.7%
of our revenue came from commercial contracts. The terms of these
contracts and subcontracts varied from single transactions to five
years. Within this group of prime contracts with U.S. government
agencies, two software sales contracts generated 20.4% and 10.2% of
our revenue, respectively, and one professional fees contract
generated 12.0% of our revenue. One subcontract generated 16.6% of
our revenue.
At
September 30, 2018, balances related to one subcontract under a
federal procurement represented 42.5% of our outstanding accounts
receivable, and balances related to two prime contracts represented
11.9% and 10.6% of our outstanding accounts receivable,
respectively.
At
September 30, 2017, balances related to that same subcontract under
a federal procurement represented 22.8% of our outstanding accounts
receivable, and balances related to two prime contracts represented
33.3% and 12.2% of our outstanding accounts receivable,
respectively.
We sold
third-party software and maintenance contracts under agreements
with one major supplier. These sales accounted for 51.1% of total
revenue in the third quarter of 2018 and 49.3% of revenue in the
third quarter of 2017, and 53.5% of total revenue in the first nine
months of 2018 and 55.5% of revenue in the first nine months of
2017.
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
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Three
Months Ended September 30, 2018 versus Three Months Ended September
30, 2017
Revenue
Our
revenues in the third quarter of 2018 were $2,418,677 compared to
$2,731,794 in the corresponding quarter in 2017, a decrease of
$313,117, or (11.5%). Professional fee revenue was $1,111,358 in
the third quarter of 2018 versus $1,385,257 in the corresponding
quarter in 2017, a decrease of $273,899, or (19.8%), and software
revenue was $1,307,319 in the third quarter of 2018 versus
$1,346,537 in the third quarter of 2017, a decrease of $39,218, or
(2.9%). Revenue from professional fees decreased due primarily to
the completion or expirations of certain contracts since the third
quarter of 2017, as well as variations in the levels of activity on
several other continuing contracts. The decrease in our software
revenue in 2018 versus the same period in 2017 is due to the
non-recurring nature of many of our software sales transactions.
Software sales and associated margins are subject to considerable
fluctuation from period to period, based on the product mix sold
and referral fees earned.
Gross Profit
Gross
profit was $569,106, or 23.5% of revenue in the third quarter of
2018 versus $635,891, or 23.3% of revenue in the third quarter of
2017. For the quarter ended September 30, 2018, $536,158 of the
gross profit was attributable to professional fees at a gross
profit percentage of 48.2%, and $32,948 of the gross profit was
attributable to software sales at a gross profit percentage of
2.5%. In the same quarter in 2017, we reported gross profit for
professional fees of $608,853, or 44.0%, of professional fee
revenue, and gross profit of $27,038, or 2.0% of software sales.
Gross profit from professional fees decreased primarily due to the
completion or expirations of certain contracts, and fluctuations in
activity on continuing contracts, since the third quarter of 2017.
Gross profit on software sales increased due to fluctuations in the
mix of products sold. Software product sales and associated margins
are subject to considerable fluctuation from period to period,
based on the product mix sold and referral fees
earned.
Selling, General and Administrative Expenses
Selling, general
and administrative expenses, exclusive of sales commissions, were
$409,761, or 16.9% of revenues, in the third quarter of 2018 versus
$386,929, or 14.2% of revenues, in the third quarter of 2017. These
expenses increased $22,832, or 5.9%, from the third quarter of
2017. These increases are from increases in the costs of
non-billable labor and the fringe benefits associated with that
labor.
Commissions expense
was $134,255, or 5.6% of revenues, in the third quarter of 2018
versus $140,963, or 5.2% of revenues, in the third quarter of 2017.
Commissions are driven by varying factors and are earned at varying
rates for each salesperson.
Net income
Net
income for the three months ended September 30, 2018, was $27,964,
or 1.2% of revenue, versus net income of $110,284, or 4.0% of
revenue, for the same period in 2017.
Nine
months Ended September 30, 2018 versus Nine months Ended September
30, 2017
Revenue
Our
revenues in the first nine months of 2018 were $7,520,972 compared
to $8,269,558 in the corresponding quarter in 2017, a decrease of
$748,586, or (9.1%). Professional fee revenue was $3,429,153 in the
first nine months of 2018 versus $3,676,730 in the corresponding
period in 2017, a decrease of $247,577, or (6.7%), and software
revenue was $4,091,819 in the first nine months of 2018 versus
$4,592,828 in the first nine months of 2017, a decrease of
$501,009, or (10.9%). Revenue from professional fees decreased due
primarily to the completion or expirations of certain contracts
since the third quarter of 2017, as well as variations in the
levels of activity on several other continuing contracts. The
decrease in our software revenue in 2018 versus the same period in
2017 is due to the non-recurring nature of many of our software
sales transactions. Software sales and associated margins are
subject to considerable fluctuation from period to period, based on
the product mix sold and referral fees earned.
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
|
Gross Profit
Gross
profit was $1,674,881, or 22.3% of revenue in the first nine months
of 2018 versus $1,773,076, or 21.4% of revenue in the first nine
months of 2017. For the nine months ended September 30, 2018,
$1,600,611 of the gross profit was attributable to professional
fees at a gross profit percentage of 46.7%, and $74,270 of the
gross profit was attributable to software sales at a gross profit
percentage of 1.8%. In the same period in 2017, we reported gross
profit for professional fees of $1,686,347, or 45.9%, of
professional fee revenue, and gross profit of $86,729, or 1.9% of
software sales. Gross profit from professional fees decreased
primarily due to the completion or expirations of certain contracts
since the third quarter of 2017. Gross profit on software sales
decreased due to the non-recurring nature of many of our software
sales transactions and to decreases in referral fees earned.
Software product sales and associated margins are subject to
considerable fluctuation from period to period, based on the
product mix sold and referral fees earned.
Selling, General and Administrative Expenses
Selling, general
and administrative expenses, exclusive of sales commissions, were
$1,319,790, or 17.5% of revenues, in the first nine months of 2018
versus $1,231,863, or 14.9% of revenues, in the first nine months
of 2017. These expenses increased $87,927, or 7.1%, from the first
nine months of 2017. These increases are from increases in
non-billable labor and the fringe benefits associated with that
labor, costs of issuing incentive stock options to certain key
employees, the cost of maintaining our ISO 9001 certification,
costs associated with bids and proposals, and severance payments
for former employees.
Commissions expense
was $374,815, or 5.0% of revenues, in the first nine months of 2018
versus $380,267, or 4.6% of revenues, in the first nine months of
2017. Commissions are driven by varying factors and are earned at
varying rates for each salesperson.
Net (loss) income
Net
loss for the nine months ended September 30, 2018, was ($11,194),
or (0.1%) of revenue, versus net income of $167,386, or 2.0% of
revenue, for the same period in 2017.
Liquidity
and Capital Resources
Our
cash and cash equivalents balance, when combined with our cash flow
from operations during the first nine months of 2018, were
sufficient to provide financing for our operations. Our net cash
used in the combination of our operating and investing activities
in the first nine months of 2018 was $677,819. This net cash, when
subtracted from a beginning balance of $2,731,510, yielded cash and
cash equivalents of $2,053,691 as of September 30, 2018. Accounts
receivable and contract assets increased $549,083. Prepaid expenses
and other current assets increased $97,637 due primarily to
unrecognized expenses related to maintenance contracts on software
sales, which are recognized over the terms of the maintenance
contracts. Commissions payable decreased $125,019 due to payouts of
existing commissions payable balances occurring faster than new
commissions were earned.
We have
a revolving line of credit with a bank providing for demand or
short-term borrowings of up to $1,000,000. The line expires on May
31, 2020. As of September 30, 2018, no amounts were outstanding
under this line of credit. We did not borrow against this line of
credit in the last twelve months.
Given
our current cash position and operating plan, we anticipate that we
will be able to meet our cash requirements for at least twelve
months from the date of filing of this Form 10-Q.
We
presently lease our corporate offices on a contractual basis with
certain timeframe commitments and obligations. We believe that our
existing offices will be sufficient to meet our foreseeable
facility requirement. Should we need additional space to
accommodate increased activities, management believes we can secure
such additional space on reasonable terms.
We have
no material commitments for capital expenditures.
We have
no off-balance sheet arrangements.
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
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Item
4.
Controls
and Procedures
Disclosure Controls and Procedures
Our
management, under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, and people
performing similar functions, has evaluated the effectiveness of
the design and operation of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act), as of September 30, 2018 (the “Evaluation Date”).
Based upon this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of the Evaluation Date,
our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we
file or submit under the Exchange Act (i) is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and
(ii) is accumulated and communicated to management, including our
Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There
were no changes in the Company’s internal control over
financial reporting during the quarter ended September 30, 2018,
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
Inherent Limitations on Effectiveness of Controls
Because
of the inherent limitations in all control systems, no control
system can provide absolute assurance that all control issues and
instances of fraud, if any, within a company have been detected.
These inherent limitations include the realities that judgments in
decision making can be faulty and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of a person, by collusion of
two or more people or by management override of the control. The
design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Because of the
inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be
detected. Notwithstanding these limitations, we believe that our
disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives.
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
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PART II - OTHER INFORMATION
Item
1.
Legal
Proceedings
None.
“Item
1A. Risk Factors” of our annual report on Form 10-K for
the year ended December 31, 2017 includes a discussion of our risk
factors. There have been no material changes from the risk factors
described in our annual report on Form 10-K for the year ended
December 31, 2017.
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds
None.
Item
3.
Defaults
Upon Senior Securities
None.
Item
4.
Mine
Safety Disclosures
Not
applicable.
Item
5.
Other
Information
None.
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10.16
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Eighth
Amendment to Loan Agreement regarding Line of Credit Agreement with
TD Bank, N.A., successor to Commerce Bank, N.A., dated May 28,
2017
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Certification
of Chief Executive Officer Pursuant to Rules 13a-14(a) and
15d-14(a) of the Securities Exchange Act of 1934
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Certification
of Chief Financial Officer Pursuant to Rules 13a-14(a) and
15d-14(a) of the Securities Exchange Act of 1934
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Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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Information Analysis Incorporated
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Form
10-Q Third Quarter 2018
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SIGNATURES
In
accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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Information Analysis Incorporated
(Registrant)
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Date: November 14,
2018
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By:
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/s/ Sandor
Rosenberg
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Sandor Rosenberg,
Chairman of the
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Board, Chief
Executive Officer,
and
President
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Date: November 14,
2018
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By:
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/s/ Richard S.
DeRose
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Richard S. DeRose,
Executive Vice
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President,
Treasurer, and Chief Financial
Officer
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