Business context and reporting period
The filing is a Form 10-Q for the quarter ended September 30, 2011. The registrant named in the filing is Information Analysis Incorporated (IAI), a Virginia-based provider of IT modernization, software, and consulting services, with significant exposure to U.S. government and Washington, D.C.-area customers. This conflicts with the request metadata naming Firefly Neuroscience, Inc.; verify the filing’s identity before relying on it.
Financial performance
| Metric | Three months ended Sep. 30, 2011 | Three months ended Sep. 30, 2010 | Nine months ended Sep. 30, 2011 | Nine months ended Sep. 30, 2010 |
|---|---|---|---|---|
| Revenue | $1.663 million | $1.952 million | $4.707 million | $5.655 million |
| Gross profit / margin | $682,444 / 41.0% | $635,909 / 32.6% | $1.800 million / 38.2% | $2.002 million / 35.4% |
| Operating income | $61,240 | $39,787 | $95,320 | $217,275 |
| Net income | $63,133 | $42,383 | $101,320 | $224,595 |
| Basic and diluted EPS | $0.01 | $0.00 | $0.01 | $0.02 |
For the first nine months, operating cash flow was negative $18,314, capital expenditures were $7,617, and cash declined $21,124 to $1.947 million. At September 30, current assets were $4.455 million and current liabilities were $2.509 million; the current ratio was 1.78, down from 2.23 at year-end 2010. No debt was reported. The company had no borrowings on its $1 million revolving credit line, which was due to expire December 1, 2011. No interest was paid in the nine-month period.
Material changes versus prior periods
- Third-quarter revenue declined 14.8% year over year: professional services increased 2.8%, while software product and maintenance revenue fell 49.4%.
- Nine-month revenue declined 16.8%; professional services fell 8.7% and software product and maintenance fell 35.1%.
- Nine-month net income decreased to $101,320 from $224,595, reflecting lower revenue and higher SG&A. In contrast, third-quarter net income rose to $63,133 from $42,383.
- Nine-month gross margin improved to 38.2% from 35.4%, despite lower gross profit, largely as software gross margin percentage increased with product mix.
- Accounts receivable increased to $1.745 million from $772,000 at December 31, 2010; accounts payable rose to $781,000 from $77,000. Bad debt expense was $52,376 versus $13,257 in the prior-year nine-month period, and the allowance for doubtful accounts increased to $99,863 from $22,152.
Outlook, commentary, and risks
Management stated that cash and its operating plan should allow the company to meet requirements for the next 12 months and beyond. No specific earnings or revenue guidance was provided. Management attributed the nine-month revenue decline mainly to the expiration or near completion of larger contracts and weak software sales; it cited new and retained contracts with better aggregate margins as contributors to improved third-quarter profitability.
Three customers represented 35.1%, 18.3%, and 11.4% of revenue, respectively, in the first nine months of 2011. Key disclosed risks include changes in U.S. government funding or contracting practices, contract cost and schedule estimates, competition, technology changes, subcontractor and supplier performance, dependence on key personnel and third-party software suppliers, and customer concentration. Government contracts may be subject to DCAA audit; management considered material adjustment risk minimal given the company’s contract history. Management reported no material subsequent events, no material changes to previously disclosed risk factors, and effective disclosure controls; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the registrant identity: the supplied metadata says Firefly Neuroscience, Inc., but the filing identifies Information Analysis Incorporated.
- Check collection of the sharply higher receivables and the adequacy of the doubtful-account allowance, particularly given increased bad debt expense.
- Verify renewal or replacement of the revolving credit facility, which was scheduled to expire December 1, 2011.
- Assess the outlook for the large customer relationships and for recovering software product and maintenance sales.
- Review the terms and funding status of major government contracts and the potential effects of customer concentration.