Business Context and Reporting Period
Company: Information Systems Associates, Inc. (ISA), a Florida corporation operating as a smaller reporting company.
Reporting Period: Fiscal year ended December 31, 2010.
Business Overview: ISA provides asset management software solutions and consulting services for corporate real estate and IT network infrastructure. The company operates primarily as a Value Added Reseller (VAR) for third-party software (e.g., Aperture VISTA, VisionFM, RACKWISE DCM) and offers its proprietary data collection software, OSPI®. Revenue is derived from software sales, implementation, training, and maintenance services.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Revenue | $1,070,704 | $780,244 |
| Gross Profit | $1,039,307 | $742,677 |
| Gross Margin | 97.07% | 95.19% |
| Operating Expenses | $1,790,546 | $1,751,433 |
| Net Loss | $(808,773) | $(1,009,195) |
| Cash and Cash Equivalents | $70,326 | $21,047 |
| Working Capital | $166,518 | $140,729 |
| Total Assets | $299,712 | $488,892 |
| Current Liabilities | $113,510 | $113,316 |
| Debt (Line of Credit) | $36,141 | $20,055 |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased by $290,460 (37.2%) compared to 2009, driven primarily by increased sales of professional services, maintenance contracts, and time-and-materials arrangements.
- Loss Reduction: Net loss decreased by $200,422 (19.9%) year-over-year, despite operating expenses remaining relatively flat. This improvement was aided by revenue growth and a reduction in the loss before taxes.
- Asset Base Contraction: Total assets decreased by approximately $189,000. This was primarily due to the full amortization/write-off of capitalized software development costs for OSPI® Version 2 and the sale of an investment in Rubicon Software Group, plc.
- Liquidity Improvement: Cash on hand increased from $21,047 to $70,326, funded by equity issuances and borrowings against a line of credit.
- Customer Concentration: One major customer accounted for 87% of 2010 revenue ($932,913) and 95% of accounts receivable, up from 81% of revenue in 2009.
Outlook, Risks, and Management Commentary
- Going Concern: The independent auditor has raised substantial doubt about the company's ability to continue as a going concern due to significant accumulated losses ($2.6 million) and dependence on future financing. Management estimates approximately $600,000 is required to sustain operations through 2011.
- Capital Strategy: The company relies on equity issuances and a personal line of credit guaranteed by the CEO to fund operations. There are no committed credit facilities other than the existing line of credit.
- Strategic Initiatives: Management plans to expand the customer base through a joint venture with Visual Network Design, Inc., and by hiring new sales and marketing staff. The company is also developing a product roadmap for OSPI®.
- Risk Factors:
- Customer Concentration: Heavy reliance on a single customer creates significant revenue risk.
- Liquidity: Inability to raise additional capital could force a reduction in operations.
- Stock Liquidity: Common stock is traded on the OTC Bulletin Board and is subject to "penny stock" regulations, which may limit trading activity and resale ability.
- Control: The CEO owns approximately 29% of the outstanding shares and controls the Board of Directors.
- Legal Proceedings: The company is defending a lawsuit filed by Phuture World, Inc., regarding a terminated software development contract. Management believes the outcome will not have a material adverse effect.
Investor Verification Checklist
- Capital Sufficiency: Verify if the company has secured the estimated $600,000 needed to fund operations for 2011.
- Customer Diversification: Assess the stability of the single major customer representing 87% of revenue and the risk of contract non-renewal.
- Stock Issuance Dilution: Review recent and planned equity issuances (including the 3.05 million shares issued in Jan 2011) and their impact on shareholder dilution.
- Debt Guarantees: Confirm the status of the CEO's personal guarantee on the $36,141 line of credit and any potential recourse.
- Going Concern Status: Monitor subsequent filings for updates on the auditor's "substantial doubt" qualification regarding the company's viability.