Business context and reporting period
This is Information Analysis Incorporated’s unaudited Form 10-Q for the quarter and six months ended June 30, 2014. The company provides IT modernization, software migration, systems development and consulting services, primarily to government and commercial customers. The filing identifies the registrant as Information Analysis Incorporated, not Firefly Neuroscience, Inc.; verify the filing-company match.
Key financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $1.024 million | $1.118 million | $2.204 million | $2.435 million |
| Gross profit / margin | $317,169 / 31.0% | $403,386 / 36.1% | $771,446 / 35.0% | $916,450 / 37.6% |
| Operating loss | $163,896 | $138,451 | $264,114 | $191,973 |
| Net loss | $161,299 | $136,519 | $258,818 | $188,660 |
| Basic and diluted loss per share | $0.01 | $0.01 | $0.02 | $0.02 |
For the six months, operating cash use was $418,247, investing cash use was $14,947, and cash declined $433,194 to $1.926 million. At June 30, current assets were $3.255 million and current liabilities were $1.467 million; stockholders’ equity was $1.856 million. The company reported no non-current liabilities and no borrowings on its $1 million revolving credit line, which was due to expire December 1, 2014. No interest or income taxes were paid during the six-month period.
Material changes versus prior comparable periods
- Q2 revenue decreased 8.4%; professional-fee revenue fell 12.2%, partly offset by a 7.4% increase in software sales and maintenance.
- Six-month revenue declined 9.5%, as professional services fell 20.0% while software product and maintenance revenue rose 51.9%.
- Gross margin contracted in both comparison periods. Management attributed professional-services weakness to contract expirations or phase changes, funding reductions, and a less favorable billing mix. Q2 software gross margin fell to 3.3% from 12.4%, with management citing lower-margin auction bids and product mix.
- Net loss widened by $24,780 in Q2 and by $70,158 for the first six months. Lower SG&A and commission expense did not offset the decline in gross profit.
- Cash fell from $2.360 million at year-end. Receivables decreased $551,413, primarily from collections on large software orders; accounts payable and accrued expenses also declined substantially.
Outlook, risks and other items
Management stated that cash and the operating plan should meet cash requirements for the next twelve months and beyond. No material capital-expenditure commitments or off-balance-sheet arrangements were reported. The filing provides no numerical earnings or revenue guidance.
Four customers represented 69.5% of Q2 revenue, including two federal agencies, a government-services subcontracting customer and one commercial customer. The company highlighted risks related to federal funding and contracting, contract execution and cost estimates, competition, technology changes, key personnel, subcontractors and suppliers, and third-party software providers. Management reported no material change in previously disclosed risk factors, no legal proceedings, and effective disclosure controls as of June 30, 2014. The company was assessing the impact and adoption method for the new revenue-recognition standard, effective for it beginning January 1, 2017; it did not expect the share-based payment guidance to have a material effect.
Important facts for investors to verify
- Confirm that this Information Analysis Incorporated filing is the intended filing, given the request metadata naming Firefly Neuroscience, Inc.
- Assess the durability and profitability of the software-sales increase, particularly the sharply lower Q2 software gross margin.
- Review the status, funding and renewal prospects of major contracts and the company’s concentrated customer relationships.
- Check renewal or replacement of the revolving credit facility before its stated December 1, 2014 expiration.
- Monitor operating cash use and whether management’s liquidity outlook remains supported by collections and contract funding.