Information Analysis Anticipates a Loss for Its Third
Quarter
PR Newswire - September 25, 1998 09:47
FAIRFAX, Va., Sept. 25 /PRNewswire/ -- Information Analysis Inc. (Nasdaq: IAIC) today said
that based on information recently made available, the company anticipates an operating loss for its
third fiscal quarter ending September 30, 1998 of approximately $2 million. The company is also
evaluating whether to accelerate the amortization of certain software products.
The company cited the following factors for its operating loss:
* IAI has been informed by its principal sales partner that no additional sales of IAI's software are
expected to be completed between now and the end of the quarter. Software revenues accounted for
$2.4 million of IAI's revenue in 1998's second quarter, with the preponderance of that software sold
in the final days of the quarter.
* An IAI strategic partner requested to be released from a product purchase obligation made on
behalf of one of its customers. While the request was unrelated to product performance and IAI was
not contractually obligated to rescind the software sale, IAI elected to do so. The net effect of the
decision was to decrease product revenues in the quarter by approximately $725,000.
* Several professional services contracts for Year 2000 code remediation booked and priced earlier
in 1998, and that are expected to be completed in the next few weeks, will be done so unprofitably.
These contracts were priced before the company had adequate experience with the code involved.
Completion of these contracts has delayed the start of newer, more profitable projects.
As a result of the preceding factors, IAI believes it will report an operating loss in the third quarter of
approximately $2 million.
"It is evident to us that the market for Year 2000 compliance is in services rather than in the sales of
tools to organizations for in-house remediation," said Sandy Rosenberg, Chairman and CEO of IAI.
"We are equipped to provide those services and are re-focusing our efforts in that area. It is also
evident that the first-round market for remediation has peaked, and that the current demand is for
Independent Verification and Validation (IV&V) and testing. We are fortunate to have already
adapted our PC products for IV&V, and to have established a leading-edge IV&V product and
testing services. We are aggressively marketing those capabilities both directly and with our
established partners, and believe we will see results in the fourth quarter.
"Despite the disappointment in the current quarter, we retain our confidence about the longer term,"
Mr. Rosenberg said. "Our backlog of professional services business is approximately $8 million and
rising. Moreover, IAI has the tools and people to assist organizations with code conversion, system
migration, and modernization. Such projects represent the future of the company."
The company said it has already implemented or is currently evaluating a series of steps to restore
operating profitability in the fourth quarter, including the following:
* Streamlining practices and performance in the company's Fairfax Solutions Factory to improve
throughput and gross margins.
* Reducing overhead and other operational expenses.
* Re-orienting IAI's sales strategy to rely principally upon internally generated professional services
sales, focusing on more profitable IV&V, testing, code conversion, and migration work; while
selectively increasing pricing for code remediation.
* Re-evaluating current and future product development.
* Continuing to market Year 2000 remediation and IV&V products directly to end-user customers
and, as appropriate, through channel partners.
IAI said it is evaluating an acceleration of the amortization of certain capitalized software based on the
future economic value of those products. The company does not expect to make a decision regarding
the future of these software products until after September 30 and has made no decision in which
quarter a charge, if any, would be made.
The company also said it has retained Legg Mason Wood Walker, Inc. to serve as its financial
advisor to evaluate strategic options for the company.
About Information Analysis
Information Analysis Incorporated (www.infoa.com), headquartered in Fairfax, Virginia, is a
world-class provider of products and services for automated transition engineering of computer
systems. IAI provides highly automated software and platform conversion, modernization and
migration. Through its UNICAST/2000 product family, IAI provides clients the ability to achieve
Year 2000 compliance in-house or off-site at IAI's or other certified solution factories.
Additional information for investors
This release may contain forward-looking statements regarding the Company's business, customer
prospects, or other factors that may affect future earnings or financial results. Such statements involve
risks and uncertainties which could cause actual results to vary materially from those expressed in the
forward-looking statements. Investors should read and understand the risk factors detailed in the
Company's 10-KSB for the fiscal year ended December 31, 1997 and in other filings with the
Securities and Exchange Commission. |
