Business context and reporting period
Registrant: Information Analysis Incorporated (IAI), not Firefly Neuroscience, Inc. The supplied filing is IAI’s unaudited Form 10-Q for the quarter ended March 31, 2020; the company provides IT modernization and professional services and resells third-party software, primarily to government customers.
Financial results and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $2.062 million | $1.179 million; up 74.9% |
| Professional-fee revenue | $844,403 | $762,118; up 10.8% |
| Software revenue | $1.217 million | $416,705; up 192.1% |
| Gross profit and margin | $278,827; 13.5% | $322,839; 27.4% |
| Operating loss | $127,607 | $193,559 |
| Net loss / loss per share | $126,339 / $0.01 | $190,853 / $0.02 |
| Operating cash flow | $(288,396) | $(160,756) |
| Cash and cash equivalents | $751,046 at March 31, 2020 | $1,039,442 at December 31, 2019 |
| Current assets / current liabilities | $1.637 million / $722,997 | $2.208 million / $1.166 million at December 31, 2019 |
| Borrowings | No balance outstanding on $1 million revolving line | Line expires May 31, 2020 |
IAI had total liabilities of $741,360, including $124,560 of operating lease liabilities, and stockholders’ equity of $1.036 million at quarter-end. No interest or income taxes were paid in the quarter.
Material changes and management commentary
- Revenue growth was driven mainly by software sales, which are described as variable and often non-recurring. The increase in software revenue did not translate into higher gross profit: software gross margin was 1.2% versus 1.8% a year earlier, while professional-services gross margin fell to 31.4% from 41.4%.
- Management attributed weaker professional-services margin partly to keeping staff available for a delayed contract while they were not fully billable. SG&A fell 29.8% to $340,813; commissions increased to $65,621 from $30,946.
- Operating cash outflow reflected the net loss and a $191,879 reduction in accounts payable. Cash declined by $288,396 during the quarter.
- Management said a material subcontract delayed by protests was confirmed after the protest was withdrawn, but COVID-19 effects further delayed its start. The company expected services to begin late in Q2 or early in Q3 2020.
- IAI reported temporary and permanent expense-reduction measures and said it expected to meet cash requirements for at least one year from the filing date, based on its cash position and operating plan.
Outlook, risks, and unusual items
- On April 20, 2020, after quarter-end, IAI received a $450,000 Paycheck Protection Program loan at 1% interest, with a two-year term and payments deferred for six months. Proceeds were designated for payroll and benefits. Forgiveness of some or all of the loan was uncertain.
- COVID-19 could delay or cancel government procurements, interrupt contract work, delay customer payments, and impede business development. The company stated the overall effect on its business and financial results was uncertain.
- The bank had waived a December 31, 2019 minimum-tangible-net-worth covenant violation. IAI was seeking renewal of its credit line before expiration; failure to renew would remove access to that working-capital facility.
- Revenue and receivables were concentrated: two contracts generated 34.3% and 22.0% of Q1 revenue, and one subcontract represented 49.7% of receivables. A single software supplier accounted for 59.0% of revenue.
- Management expected continued quarterly operating losses until professional-fee revenue increases through delayed and new contracts. No numerical revenue or earnings guidance was provided.
Key facts for investors to verify
- Confirm the issuer identity: the supplied 10-Q is for Information Analysis Incorporated, not Firefly Neuroscience, Inc.
- Check whether the delayed subcontract commenced as projected and whether it generated billable professional-services revenue.
- Verify renewal or replacement of the $1 million credit line and any revised covenants or borrowing terms.
- Track cash burn, expense reductions, collections from the concentrated subcontract receivable, and the company’s ability to sustain operations.
- Confirm the PPP loan’s repayment and forgiveness outcome and assess the effect of software-sales concentration and low software margins.