Filing summary
Registrant and period: Information Analysis Incorporated (IAI), Form 10-Q for the quarter ended June 30, 2019, filed August 14, 2019. The supplied company metadata says Firefly Neuroscience, Inc.; that does not match the registrant named in this filing.
Business context
IAI provides IT modernization, software, and professional services, primarily to U.S. government agencies and contractors. Results are exposed to the timing and mix of software transactions and services contracts, as well as federal procurement and funding conditions.
Financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $3.704 million | $3.708 million | $4.883 million | $5.102 million |
| Gross profit (margin) | $357 thousand (9.6%) | $555 thousand (15.0%) | $680 thousand (13.9%) | $1.106 million (21.7%) |
| Operating loss | $212 thousand | $9 thousand | $405 thousand | $45 thousand |
| Net loss | $209 thousand | $6 thousand | $399 thousand | $39 thousand |
| Operating cash flow | Not presented separately by quarter | $(423) thousand | $(638) thousand |
Q2 professional-fee revenue declined 31.0% to $762 thousand, while software revenue increased 13.0% to $2.943 million. For the first half, professional fees fell 34.3% to $1.524 million and software revenue rose 20.6% to $3.359 million. Software gross margin remained low at about 1.0% in Q2 and 1.1% for the first half; professional-services gross margins were 42.9% and 42.1%, respectively.
At June 30, cash was $1.536 million, down from $1.964 million at year-end; total assets were $2.490 million and stockholders’ equity was $1.479 million. The company had no bank borrowings under its $1.0 million revolving credit line, which expires May 31, 2020. Operating lease liabilities totaled $199 thousand. Six-month net cash decrease was $428 thousand. No interest or income taxes were paid.
Changes and notable items
- Q2 revenue was essentially flat year over year, but gross profit fell 35.8% and net loss widened substantially.
- First-half revenue declined 4.3%; gross profit fell 38.5% and net loss increased to $399 thousand from $39 thousand.
- Management attributed weaker professional-services revenue and gross profit primarily to completed or expired contracts and changing activity on continuing contracts. Higher non-billable labor and related benefits raised SG&A; hiring ahead of a protested subcontract award also contributed.
- Software sales increased, but fluctuate with product mix and order timing. Sales and maintenance contracts tied to one major supplier represented 68.6% of first-half revenue, versus 54.6% in the prior-year period.
- IAI adopted the new lease accounting standard in 2019, recording a right-of-use asset and lease liability; management said adoption did not affect operations or cash flows.
Outlook, risks, and contingencies
Management said existing cash and its operating plan should meet cash requirements for 12 months from the filing date, but also expected quarterly operating losses to continue until professional-fee revenue increases. No formal revenue or earnings guidance was provided. Key risks include federal budget changes or shutdowns, contract concentration, declining repeat electronic-forms opportunities, competition, technology changes, subcontractor or supplier performance, and estimates of contract costs and timing. In Q2, two prime-contract software sales accounted for 52.1% and 18.4% of revenue; one federal subcontract accounted for another 11.7%. A subcontract award was under protest. The company reported no legal proceedings, no material changes to its prior-year risk factors, and no material capital commitments or off-balance-sheet arrangements.
Investor facts to verify
- Confirm the intended issuer: this filing is for Information Analysis Incorporated, not Firefly Neuroscience, Inc.
- Assess whether professional-services revenue can recover and whether the expected operating losses will pressure cash beyond management’s stated 12-month horizon.
- Review contract and customer concentration, the protested subcontract award, and the reliance on one major software supplier.
- Check the sustainability and margins of software revenue, given its transaction timing variability and very low gross margin.
- Monitor cash conversion and working-capital movements, including falling contract liabilities and the collection of concentrated receivables.