Filing summary
Issuer discrepancy: The supplied filing is Information Analysis Incorporated (IAI), not Firefly Neuroscience, Inc. Verify that this is the intended filing before relying on the figures below.
Business context and reporting period
IAI filed a Form 10-Q for the quarter ended June 30, 2018, covering the three and six months ended that date. It provides IT systems modernization, software, and professional services, with substantial exposure to U.S. federal government contracts. The financial statements are unaudited, except the December 31, 2017 balance sheet.
Financial performance and liquidity
| Metric | Q2 2018 | First half 2018 |
|---|---|---|
| Revenue | $3.708 million, down 8.6% year over year | $5.102 million, down 7.9% |
| Gross profit / margin | $555,354 / 15.0%, versus $637,340 / 15.7% | $1.106 million / 21.7%, versus $1.137 million / 20.5% |
| Operating income (loss) | $(8,867), versus $86,521 | $(44,814), versus $52,947 |
| Net income (loss) | $(5,882), versus $88,718 | $(39,158), versus $57,102 |
| Operating cash flow | $(637,882) for the first half, versus $72,782 provided in first-half 2017 |
At June 30, cash was $2.092 million, down from $2.732 million at year-end 2017. Current assets were $2.952 million and current liabilities $1.097 million; working capital was approximately $1.856 million. Total liabilities were $1.097 million, with no debt outstanding. A $1 million revolving credit line, expiring May 31, 2020, was undrawn. No interest or income taxes were paid in the first half.
Material changes and management commentary
- Q2 revenue fell in both professional fees (down 13.2%) and software (down 6.5%). First-half professional-fee revenue increased 1.1%, but software revenue fell 14.2%.
- Management attributed lower revenue mainly to contract completions or expirations, including a recurring multi-year software contract, and the non-recurring, variable nature of software sales.
- Software gross margin was thin: 1.2% in Q2 and 1.5% for the first half. Management cited pricing competition and lower referral fees. Higher SG&A—including non-billable labor, certification, bid and proposal costs, and stock compensation—also weighed on results.
- First-half operating cash outflow reflected working-capital movements, including lower accrued liabilities, contract liabilities, and commissions payable.
- Federal prime contracts accounted for 81.6% of Q2 revenue and 72.3% of first-half revenue. Two Q2 prime contracts contributed 49.3% and 16.4% of revenue. One software supplier accounted for 70.2% of Q2 revenue and 54.6% of first-half revenue.
Outlook, risks, and unusual items
Management said available cash and its operating plan should meet cash requirements for at least 12 months from the filing date. No material capital expenditure commitments or off-balance-sheet arrangements were reported. Adoption of ASC 606 on January 1, 2018 had no material financial-statement impact; comparative periods were not restated. The company reported no legal proceedings and no material changes to previously disclosed risk factors.
Highlighted risks include federal funding and contracting changes, contract cost or schedule estimation, competition, technology changes, subcontractor and supplier performance, and dependence on third-party software providers. The filing also disclosed net operating loss carryforwards of $15.0 million, including $7.8 million scheduled to expire on December 31, 2018 if unused.
Important facts for investors to verify
- Confirm the issuer: this filing identifies Information Analysis Incorporated, not Firefly Neuroscience, Inc.
- Assess the sustainability and concentration of federal contract revenue, major contracts, and the single software supplier relationship.
- Monitor software sales margins, contract expirations, and whether professional-services activity can offset software revenue volatility.
- Review operating cash use and working-capital trends, especially receivables and contract liabilities.
- Check the status and potential use of the expiring net operating loss carryforwards.