SEC Form 10-Q Summary
Registrant and period: The filing identifies the company as Information Systems Associates, Inc., not DUOS Technologies Group, Inc. It covers the unaudited quarter and six months ended June 30, 2011. The company provides mobile data center management systems and related software, consulting, implementation, training, maintenance, and support services.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2011 | Three Months Ended June 30, 2010 | Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 |
|---|---|---|---|---|
| Revenue | $74,621 | $234,986 | $201,875 | $491,640 |
| Gross profit | $64,737 | $220,546 | $174,961 | $477,200 |
| Gross margin | 86.8% | 93.9% | 86.7% | 97.1% |
| Operating loss | $(244,495) | $(215,543) | $(521,059) | $(423,003) |
| Net loss | $(246,970) | $(233,970) | $(525,127) | $(443,591) |
| Net loss per share | $(0.01) | $(0.01) | $(0.02) | $(0.02) |
| Operating cash flow | Not separately provided | Not separately provided | $(318,133) | $(77,836) |
- Six-month revenue declined approximately 59% year over year, primarily because consulting and related travel revenue decreased by approximately $251,000 and OSPI software revenue decreased by approximately $67,000.
- Six-month operating expenses declined to $696,020 from $900,203, but the expense reduction did not offset the revenue decline. Salaries and employee benefits increased by approximately $150,000 following additions to management and sales personnel.
- Cash and cash equivalents were $7,862 at June 30, 2011, compared with $70,326 at December 31, 2010. The company reported a net working capital deficit of $70,508.
- Current liabilities were $197,721 versus current assets of $127,213. Debt included a $39,621 line-of-credit balance, a $25,000 related-party note, and $4,974 of insurance financing.
- Total assets were $173,796 and stockholders’ equity was negative $23,925 at June 30, 2011, compared with positive equity of $186,202 at year-end 2010.
- Investing cash outflows were $29,581, including $19,350 for software development and $10,231 for property and equipment. Financing provided $285,250, including $255,000 from stock issuance and $25,000 from a related-party borrowing.
Material Changes From the Prior Comparable Period
- Revenue fell sharply in both the quarter and year-to-date period, while net losses increased to $246,970 for the quarter and $525,127 for the six months.
- Six-month operating cash use increased to $318,133 from $77,836, despite lower operating expenses.
- Gross margin decreased to 86.7% from 97.1%, reflecting the changed revenue mix and lower software-related revenue.
- The company issued substantial equity during the period. Shares outstanding increased to 27,416,084 at June 30, 2011 from 22,266,084 at December 31, 2010; 28,166,084 shares were outstanding as of August 14, 2011.
- Management began development of an enhanced OSPI version, identified as OSPI version 3, and started building a sales network after hiring a new chief operating officer.
Outlook, Risks, Contingencies, and Unusual Items
- The filing contains no formal revenue or earnings guidance. Management stated that current operations required additional capital to continue through 2011 and identified financing needs of up to $500,000 for software enhancements and market rollout.
- The financial statements include a going-concern disclosure. Continued operations depend on implementing the business plan and raising additional capital; the filing states that no adjustments were made for the possibility that the company may be unable to continue as a going concern.
- After quarter-end, the company received $25,000 for 250,000 common shares and $250,000 through convertible notes with an aggregate principal amount of $275,000. The notes bear 10% interest, are convertible at $0.10 per share, and include warrants. The filing contains an inconsistency regarding warrant coverage: the subsequent-events note states 2,500,000 warrants, while the going-concern note refers to 3,000,000 warrants.
- Two customers accounted for 50.2% and 16.9% of six-month revenue. They represented 33% and 66% of accounts receivable at June 30, 2011, indicating substantial customer concentration.
- The company is defending litigation brought by Phuture World, Inc. involving a terminated software development contract and alleged damages exceeding $15,000. Management believes the matter will not materially affect financial condition, cash flows, or results of operations.
- Fifteen million stock options remained outstanding and exercisable at a $3.00 exercise price. They were excluded from diluted loss per share because they were anti-dilutive.
- Management reported that disclosure controls and procedures were effective and that no material changes occurred in internal control over financial reporting.
Investor Verification Items
- Verify that the filing belongs to the intended issuer: the document names Information Systems Associates, Inc., while the request identifies DUOS Technologies Group, Inc.
- Reconcile the inconsistent filing dates and signature dates, including the stated August 14, 2011 share count and signature dates shown as August 12, 2010.
- Confirm the exact number and terms of warrants issued in the July 2011 convertible financing.
- Assess the company’s ability to fund operations given $7,862 of quarter-end cash, negative working capital, recurring losses, and stated financing requirements.
- Review customer concentration, collectability of accounts receivable, and dependence on a small number of customers.
- Evaluate dilution from stock issued for services, future financing, convertible notes, warrants, and the 15 million outstanding options.
- Review the status and potential exposure of the Phuture World litigation.