Filing summary
Entity and period: The supplied filing is Information Analysis Incorporated’s (IAI) Form 10-Q for the quarter ended March 31, 2019, filed May 15, 2019. It does not identify Firefly Neuroscience, Inc.; confirm that this is the intended filing before relying on the figures.
Business context and financial results
IAI provides information-technology services and software, with a focus on government customers. In Q1 2019, 56.0% of revenue came from federal prime contracts and 44.0% from federal subcontracts; there was no commercial revenue. One subcontract generated 35.1% of revenue.
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $1.179 million | $1.394 million |
| Gross profit / margin | $322,839 / 27.4% | $550,421 / 39.5% |
| Operating loss | $193,559 | $35,947 |
| Net loss | $190,853 | $33,276 |
| Operating cash flow | $(160,756) | $(493,539) |
| Cash at period end | $1.803 million | $2.237 million |
At March 31, 2019, current assets were $2.766 million and current liabilities were $1.187 million. Total liabilities were $1.311 million, including $221,985 of operating lease liabilities. No bank line borrowings were outstanding; the company had a $1.0 million revolving credit line expiring May 31, 2020.
Changes and management commentary
- Revenue fell 15.5% year over year: professional-fee revenue declined 37.2% to $762,118, while software revenue rose 130.4% to $416,705.
- Management attributed weaker professional-fee revenue to completed or expired contracts, lower activity on continuing contracts, and the federal shutdown from December 22, 2018, to January 25, 2019. Recovery in revenue-producing activity was slower than expected.
- Gross margin contracted as professional-services activity fell and software sales carried low margins. Selling, general and administrative expense rose 3.2% to $485,452; commissions expense fell to $30,946.
- Cash declined by $160,756 during the quarter. Management said current cash and its operating plan should cover requirements for at least 12 months from the filing date, and expects quarterly operating losses until professional-fee revenue grows through additional contracts. No material capital-expenditure commitments or off-balance-sheet arrangements were reported.
Outlook, risks and other items
No quantitative revenue or earnings guidance is provided. Key disclosed risks include federal funding priorities and shutdowns, contract concentration, declining repeat opportunities for some electronic-forms customers, competition, technology change, contract cost and timing estimates, and dependence on subcontractors and third-party software suppliers. A single supplier accounted for 35.1% of Q1 2019 revenue. The company reported no legal proceedings and no material changes to its previously disclosed risk factors.
IAI adopted the new lease standard on January 1, 2019, recording a right-of-use asset and lease liability; management said adoption did not affect operating results or cash flows. The lease liability at quarter-end was $221,985.
Important facts to verify
- Confirm the filing’s issuer: the document is for Information Analysis Incorporated, not Firefly Neuroscience, Inc.
- Assess the sustainability and timing of federal contract activity following the shutdown, including the concentration in one subcontract and a major software supplier.
- Review the declining services revenue, lower gross margin, and management’s expectation of continued quarterly operating losses.
- Evaluate the 12-month liquidity assertion against cash usage, receivables collection, and availability and terms of the revolving credit line.
- Review the expiration risk on approximately $5.0 million of net operating loss carryforwards, stated to expire unused on December 31, 2019.