SEC Filing Summary: Information Analysis Incorporated (IAIC)
Business Context and Reporting Period
Company: Information Analysis Incorporated (IAI)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: IAI provides legacy software migration, modernization, and web-based solutions primarily to U.S. government agencies and commercial organizations. The company utilizes proprietary tools (ICONS) and partnerships (Micro Focus, Adobe) to convert legacy mainframe systems to modern platforms. As of December 31, 2008, the company employed 31 full-time and 4 part-time individuals.
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Total Revenue | $6,693,453 | $9,953,284 |
| Gross Profit | $1,676,379 | $2,291,518 |
| Gross Margin | 25.0% | 23.0% |
| Operating Loss | $(392,604) | $191,400 (Income) |
| Net Loss | $(371,390) | $184,335 (Income) |
| Cash and Cash Equivalents | $1,549,335 | $1,222,742 |
| Accounts Receivable (Net) | $1,121,709 | $1,560,030 |
| Total Stockholders' Equity | $1,552,203 | $1,918,893 |
| Debt Outstanding | $0 | $0 |
Liquidity: The company maintains a $1,000,000 revolving line of credit with TD Bank, N.A. No amounts were outstanding as of December 31, 2008. Allowable borrowings were limited to $932,000 based on eligible receivables.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by 32.8% ($3.3 million) compared to 2007. Professional services revenue dropped 29.7% to $5.0 million, and software sales fell 40.1% to $1.7 million. Management attributed this to expiring contracts, system phase-outs, and reduced government spending due to economic uncertainty.
- Profitability Shift: The company transitioned from a net income of $184,335 in 2007 to a net loss of $371,390 in 2008. Operating expenses decreased slightly in absolute dollars but increased as a percentage of revenue (30.9% in 2008 vs. 21.1% in 2007).
- Cash Flow Improvement: Despite the net loss, net cash provided by operating activities was positive at $338,981. This was driven by a $438,321 decrease in accounts receivable (improved collections) and a $208,739 increase in deferred revenue from maintenance contract renewals.
- Covenant Default: The company experienced an event of default on its line of credit due to a covenant requiring positive annual net income. Management believes it can renegotiate terms or secure a waiver given its strong cash position and lack of borrowings.
Outlook, Risks, and Management Commentary
Management Outlook: Management plans to be more aggressive in 2009 regarding business development and potential acquisitions. They intend to leverage existing federal government relationships (e.g., DHS, VA, USDA) to secure new contracts in legacy modernization and electronic forms. The company is also expanding into a new business intelligence practice via a partnership with LogiXML.
Key Risks:
- Government Dependency: 88% of 2008 revenue came from U.S. government contracts. Changes in government funding priorities or contracting rules pose a significant risk.
- Competition: The market is highly competitive with larger firms (IBM, Oracle, SAP) possessing greater resources and name recognition.
- Technology Obsolescence: Failure to keep pace with rapidly changing technology could negatively impact the business.
- Stock Liquidity: Common stock trades on the OTC Bulletin Board with historically low volume, potentially limiting shareholder ability to execute transactions.
Investor Verification Checklist
- Covenant Status: Verify the outcome of the renegotiation or waiver regarding the line of credit default caused by the 2008 net loss.
- Backlog Quality: Assess the funded portion of the $22.3 million backlog (only $2.3 million was funded as of year-end) and the likelihood of conversion to revenue.
- Customer Concentration: Review the dependency on the single federal agency that accounted for 29% of 2008 revenue.
- Stock Liquidity: Confirm current trading volume and bid-ask spreads on the OTC Bulletin Board given the low historical liquidity.
- Acquisition Strategy: Monitor progress on the stated intent to pursue acquisitions or new business intelligence opportunities in 2009.