Information Analysis Inc has posted results for a third-quarter which suffered from a shortfall in expected year 2000-related revenue. The Fairfax, Virginia services firm reported a net loss of $2.9m on revenues up 53.1% at $2.6m, up from a loss of $652,000 in the year-ago quarter. For the nine-month period, net losses were $2.5m on revenues up 147% at $12.8m, up from losses of $1.1m last year. Sales of the company’s Unicast/2000 product failed to meet expectations, with software revenue only amounting to $138,000 – after accounting for $2.1m in the first quarter, and $2.5m in the second quarter. Also, several services contracts for Year 2000 code remediation booked and priced earlier in 1998 were done so unprofitably. The company says the contracts were priced before it had adequate experience with the code involved and said that the completion of the contracts delayed the start of newer, more profitable projects. Overall, Y2K revenue amounted to about $1.6m for the quarter, when IAI was expecting roughly $4.0m. The company now feels the remediation market is past its peak and that everyone was wrong about the willingness of firms to pay for remediation work. It says it will cut back on its pursuit of such contracts, and will only pursue them as a first step in developing relationships that lead to other business – and only if they can be carried out profitably. Going forward, the company insists that migration and modernization of legacy systems is the future of its business and that its sales strategy has been appropriately re-focused for this purpose. Another problem in the recently-completed quarter was that one of its partners requested to be released from a product purchase obligation made on behalf of one of its customers. IAI granted the request, it says, in order to keep the relationship strong, even though it wasn’t obliged to do so, and lost $725,000 in product revenue as a result. On the bright side, IAI says that it has a backlog of more than $10m and a customer list 43-strong, with a healthy mix of government and commercial deals. Overall, it expects a sustainable, recurring revenue base of services of $4m to $5m per quarter. Product sales won’t actively be pursued under the new strategy, and any product sales that are made will come on top of that amount, although no guidance was given about how much to expect. The loss for the quarter also reflects certain unspecified one-time costs for employee severance and related charges. The company cut 40 positions that it describes as non revenue-producing. The company expects to return to profitability in the fourth quarter. Although it didn’t admit to be shopping itself around, IAI has retained Legg Mason Wood Walker Inc to serve as its financial advisor to evaluate strategic options for the company. Although its cash pile is currently less than $300,000, a private placement isn’t on the horizon, the company says.
