Business context and reporting period
This is Information Analysis Incorporated’s unaudited Form 10-Q for the quarter ended September 30, 2013, filed November 14, 2013. The company provides IT modernization, software, and consulting services, with significant federal-government business. The request metadata names Firefly Neuroscience, Inc., but the filing itself identifies Information Analysis Incorporated; verify the issuer identity before relying on this summary.
Financial results and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $3.218 million | $1.736 million | $5.653 million | $5.684 million |
| Gross profit / margin | $756 thousand / 23.5% | $570 thousand / 32.8% | $1.672 million / 29.6% | $1.819 million / 32.0% |
| Operating income (loss) | $106 thousand | $42 thousand | $(86) thousand | $68 thousand |
| Net income (loss) | $108 thousand | $43 thousand | $(80) thousand | $72 thousand |
| Operating cash flow | Not separately presented for the quarter | $(301) thousand | $1.043 million |
At September 30, cash was $2.273 million, accounts receivable $2.817 million, current assets $5.737 million, and current liabilities $3.734 million. The company reported no non-current liabilities and no borrowings on its $1 million revolving credit line; the line was due to expire December 1, 2013. The filing says the line’s availability was subject to accounts receivable. No interest or income taxes were paid in the nine-month period.
Material changes versus comparable periods
- Q3 revenue rose 85.4%, driven by software sales up 491.0% to $2.201 million; professional-fee revenue fell 25.4% to $1.017 million.
- Despite higher Q3 gross profit dollars, gross margin declined to 23.5%, as software sales carried an 11.3% gross margin versus 49.8% for professional fees.
- For the first nine months, revenue was nearly flat, down 0.5%. Professional-fee revenue fell 20.4%, while software revenue rose 42.6%. Gross margin declined to 29.6%, and the company moved from prior-year net income to a net loss.
- Operating cash flow turned negative, chiefly reflecting a $2.079 million increase in accounts receivable and a $448 thousand increase in prepaid and other current assets. Accounts payable and accrued expenses increased $1.826 million, partly offsetting working-capital use.
Outlook, commentary, risks, and contingencies
Management stated that current cash and its operating plan should cover cash requirements for the next twelve months and beyond. It reported no material capital-expenditure commitments or off-balance-sheet arrangements. No specific revenue or earnings guidance was provided.
Management attributed weaker professional-services revenue to contract expirations, completion or phase changes, funding reductions, and customer-directed work variability; new contracts had not kept pace with expirations over the nine-month period. It cited larger software orders and government auction-style bidding as drivers of software growth, while warning that software sales and margins fluctuate with product mix. Two government customers represented 66.1% of Q3 revenue; three customers represented 59.0% of nine-month revenue.
Key disclosed risks include changes in federal funding and contracting, competition, technology changes, contract cost and timing estimates, supplier and subcontractor performance, dependence on key personnel and third-party software providers, and customer concentration. Federal agency contracts may be subject to periodic funding. The company said DCAA audit risk was minimal because it had not entered into cost-plus-fixed-fee contracts since 1997. No legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the issuer: the supplied metadata says Firefly Neuroscience, Inc., while the filing cover and financial statements name Information Analysis Incorporated.
- Check renewal, funding, and replacement prospects for expiring or reduced professional-services contracts and the concentrated government customer base.
- Assess whether Q3’s large software orders recur and whether their relatively low margins support sustained profitability.
- Review collections on the sharply higher accounts receivable and the timing of related supplier payments and deferred maintenance revenue.
- Verify renewal or replacement of the $1 million credit facility, which was scheduled to expire December 1, 2013.