Filing identity and period
The supplied filing is Information Analysis Incorporated’s (IAI) Form 10-Q for the quarter ended September 30, 2015—not a filing identified as Firefly Neuroscience, Inc. Investors should verify that this is the intended filing. IAI provides IT modernization, software development, maintenance, and consulting services, primarily to government and commercial customers.
Financial results and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $1.459 million | $1.357 million | $4.245 million | $3.561 million |
| Gross profit / margin | $444,257 / 30.5% | $604,152 / 44.5% | $1.365 million / 32.1% | $1.376 million / 38.6% |
| Operating income (loss) | $(100,327) | $25,553 | $(285,902) | $(238,561) |
| Net income (loss) | $(97,742) | $27,988 | $(278,222) | $(230,830) |
| Net cash used in operations | Not stated for quarter | Not stated for quarter | $(65,088) | $(277,164) |
Q3 professional-fee revenue rose 28.9% to $1.217 million, while software revenue fell 41.5% to $241,655. For the nine-month period, professional-fee revenue increased 27.7%; software revenue declined 4.0%. The nine-month net loss per share was $0.02 in both years.
At September 30, 2015, cash and cash equivalents were $2.375 million, total current assets were $3.670 million, and current liabilities were $1.898 million; working capital was approximately $1.772 million. Total assets were $3.718 million and stockholders’ equity was $1.820 million. The company reported no non-current liabilities and no borrowings under its $1 million revolving credit line, which expires May 31, 2016. Cash declined $74,680 from year-end 2014.
Changes, outlook, and risks
- Revenue growth did not translate into improved earnings: Q3 shifted from a profit to a loss, and the nine-month loss widened. Gross margin contracted, with management citing high-cost subcontractor labor on a contract and lower-margin software sales mix.
- Management attributed professional-services growth to federal contracts and subcontracts. Lower software revenue reflected expired maintenance contracts and reduced third-party referral fees. Management noted software sales and related margins fluctuate with product mix.
- Management said current cash and its operating plan should cover cash requirements for the next 12 months. The filing provides no earnings or revenue forecast and reports no material capital-expenditure commitments or off-balance-sheet arrangements.
- Revenue concentration is significant: in Q3, U.S. government prime contracts accounted for 66.6% of revenue and government subcontracts for another 21.2%. Two prime contracts represented 24.8% and 20.7% of revenue; one subcontracting company represented 12.6%, and one commercial customer 11.2%.
- Management identified federal funding and contracting changes, competition, technology shifts, contract cost and timing estimates, subcontractor performance, and customer concentration-related business volatility among risks. It reported no material changes to the risk factors in the 2014 Form 10-K, no legal proceedings, and effective disclosure controls.
- The company was assessing adoption of the new revenue-recognition standard, expected to apply for annual periods beginning after December 15, 2017. The filing reports a $7,863 forgiveness of a note receivable as a noncash operating cash-flow adjustment.
Important facts to verify
- Confirm the intended issuer: the filing names Information Analysis Incorporated, not Firefly Neuroscience, Inc.
- Assess the sustainability and profitability of new federal work, including the impact of subcontractor labor costs and contract concentration.
- Review the decline in software revenue and margins, deferred revenue, and maintenance-contract renewals.
- Check cash-flow and working-capital trends, the revolving credit line’s renewal or expiration, and management’s 12-month liquidity outlook.