Business Context and Reporting Period
Company: Information Systems Associates, Inc. (Note: Metadata listed "DUOS TECHNOLOGIES GROUP, INC." but the filing text identifies the issuer as Information Systems Associates, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: The Company provides asset management solutions, including software system design for Computer Aided Facilities Management (CAFM) and data center management. It operates primarily as a Value Added Reseller (VAR) for third-party software (e.g., Avocent, Visual Network Design) and offers proprietary software ("On Site Physical Inventory" or OSPI). The Company also provides consulting, implementation, and training services.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2009 |
|---|---|---|---|
| Revenue | $305,933 | $797,573 | $606,865 |
| Gross Profit | $295,235 | $772,435 | $571,195 |
| Gross Margin | 96.5% | 96.8% | 94.1% |
| Net Loss | $(143,215) | $(580,070) | $(656,592) |
| Operating Expenses | $407,256 | $1,305,188 | $1,228,614 |
| Cash and Equivalents (Sep 30, 2010) | $57,811 | ||
| Total Assets (Sep 30, 2010) | $511,568 | ||
| Total Liabilities (Sep 30, 2010) | $222,664 | ||
| Working Capital (Sep 30, 2010) | $241,303 |
Debt Obligations (as of Sep 30, 2010):
- Line of Credit: $37,863 (Prime + 3%, personally guaranteed by President)
- Insurance Note: $5,505
- Shareholder Note: $25,000
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 31.4% for the nine months ended September 30, 2010, compared to the same period in 2009. This was driven by increased professional services, maintenance contracts, and time-and-materials arrangements from two new customers.
- Operating Expenses: Operating expenses increased to $1,305,188 (9 months 2010) from $1,228,614 (9 months 2009). The increase was primarily due to Administrative and General expenses rising to $456,628, driven by an $85,868 increase in Travel and Entertainment and a $121,760 increase in Software Amortization.
- Net Loss Improvement: The net loss narrowed to $(580,070) for the nine months ended September 30, 2010, compared to $(656,592) in the prior year period.
- Investment Loss: The Company recorded a loss on the sale of a security (Rubicon Software Group shares) of $47,347 for the nine months ended September 30, 2010. No such loss was recorded in the comparable 2009 period.
- Accounts Receivable: Accounts receivable increased significantly from $34,809 (Dec 31, 2009) to $198,568 (Sep 30, 2010), contributing to a cash outflow of $163,759 in operating activities.
Guidance, Outlook, Risks, and Unusual Items
- Liquidity and Capital Needs: Management states that current operations require additional capital to sustain through the end of 2010. There is no assurance that additional capital will be available on favorable terms. Failure to raise capital could result in lower revenues and market share.
- Customer Concentration Risk: One major customer accounted for 91% of revenue ($727,751) for the nine months ended September 30, 2010. Two major customers accounted for 93% of revenue in the same period in 2009. These customers also represented 72% of accounts receivable as of September 30, 2010.
- Legal Proceedings: The Company is involved in a lawsuit filed by Phuture World, Inc. regarding a software development contract. The Company is contesting the claim and has filed counterclaims. Management believes the outcome will not have a material adverse effect.
- Unusual Items: A significant portion of operating expenses ($314,624 for the nine months ended Sep 30, 2010) was offset by non-cash issuance of stock for services. The Company also recorded a $47,347 loss on the sale of its investment in Rubicon Software Group.
- Outlook: The Company plans to expand marketing efforts and product offerings, which may require additional capital. Demand is dependent on market acceptance and general economic conditions.
Key Facts for Investor Verification
- Customer Dependency: Verify the stability of the single major customer representing 91% of recent revenue and 72% of receivables.
- Cash Burn Rate: Confirm the Company's ability to secure additional financing to sustain operations through the end of 2010, given the net loss and cash usage in operations.
- Revenue Quality: Assess the collectability of the $198,568 in accounts receivable, particularly given the high concentration with one client.
- Non-Cash Expenses: Review the valuation and vesting terms of the significant stock issuances used to pay for consulting services ($314,624 value in the nine-month period).
- Legal Exposure: Monitor the status of the Phuture World, Inc. litigation and potential counterclaim outcomes.