Firefly Neuroscience, Inc.(AIFF) - 2018 Q4 - Annual Report

PART I Business Information Analysis Incorporated (IAI) specializes in IT systems development, modernization, and professional services for U.S. federal government agencies - IAI's primary business involves IT systems development, modernization, and professional services for government and commercial organizations, focusing on web/mobile solutions, data analytics, and legacy software migration[14] - The company distinguishes itself through expertise in complex web applications connected to legacy back-end systems, leveraging a strategic partnership with Adobe Systems for electronic forms solutions[15][17][25] - IAI's strategy includes capitalizing on its digital technology expertise, focusing on federal government clients, and forming alliances with larger IT consulting firms to pursue opportunities[24][26][35] Backlog as of December 31, 2018 | Category | Amount (USD) | | :--- | :--- | | Total Estimated Backlog | $13.2 million | | Funded Backlog | $2.9 million | - The company faces intense competition from hundreds of firms, many of which are larger, more established, and have greater financial resources[42][43] - As of December 31, 2018, the company employed 21 full-time and 3 part-time individuals, supplemented by 8 individuals through subcontractor relationships[47] Risk Factors The company faces significant risks from its heavy reliance on the U.S. federal government and intense market competition - A significant risk is the company's dependence on the U.S. federal government, making it vulnerable to changes in funding priorities, budget shutdowns, and unfavorable contract terms that allow termination for convenience[52][53][54] - Over half of the company's revenue is concentrated among a small number of contracts, making the loss of any key contract a material risk to revenue and operations[56] - The business is exposed to market risks such as the failure to adapt to a rapidly changing technological environment and intense competition from companies with greater resources[57][58] - Operational risks include the potential for inaccurate cost and timeline estimates on contracts, which could adversely affect profitability, and non-performance by subcontractors[59][60] - The company's future success is significantly dependent on the continued services of its key managerial and technical personnel[62] Properties The company's principal office is located in Fairfax, Virginia, under a lease expiring on June 30, 2021 - The company leases 4,434 square feet of office space at 11240 Waples Mill Road, Fairfax, VA 22030, with the lease expiring on June 30, 2021[70] Legal Proceedings Information Analysis Incorporated is not a party to any pending or threatened legal proceedings - There are no pending or, to the company's knowledge, threatened legal proceedings[71] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[72] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the OTC Bulletin Board with low volume and no plans for future dividends - The company's common stock trades on the Over-the-Counter Bulletin Board under the symbol IAIC. The market is limited with historically low trading volume[74][75] Quarterly Common Stock Price Range (2017-2018) | Quarter Ended | 2018 High | 2018 Low | 2017 High | 2017 Low | | :--- | :--- | :--- | :--- | :--- | | March 31 | $0.50 | $0.36 | $0.26 | $0.14 | | June 30 | $0.47 | $0.27 | $0.35 | $0.17 | | September 30 | $0.36 | $0.21 | $0.30 | $0.19 | | December 31 | $0.27 | $0.14 | $0.42 | $0.19 | - As of December 31, 2018, there were 104 holders of record of the company's common stock[76] - The company has never paid cash dividends and anticipates retaining all future earnings to develop the business[77] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2018, the company incurred a net loss of $51,000 due to decreased revenue and increased expenses Results of Operations Total revenue decreased by 16.0% to $8.93 million in 2018, resulting in a net loss of $51,000 Financial Performance Comparison (2018 vs. 2017) | Metric | 2018 | 2017 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $8.93M | $10.64M | ($1.71M) | (16.0%) | | Gross Profit | $2.14M | $2.42M | ($0.27M) | (11.3%) | | (Loss) Income from Operations | ($62K) | $238K | ($300K) | (126.2%) | | Net (Loss) Income | ($51K) | $246K | ($297K) | (120.7%) | - The $1.71 million revenue decrease was driven by a $612,000 drop in professional services fees and a $1.10 million decline in software sales[88] - Overall gross profit as a percentage of revenue increased to 24.0% in 2018 from 22.7% in 2017, primarily due to a better gross profit percentage on software sales (2.9% in 2018 vs 2.4% in 2017)[89] - Selling, general and administrative expenses increased by $72,000, mainly due to higher non-billable labor costs, stock compensation costs, and costs related to bids and proposals[90] Liquidity and Capital Resources Cash and cash equivalents decreased by $768,000 in 2018, ending at $1.96 million - Net cash used in operating and investing activities was $768,000 in 2018, leading to a year-end cash and cash equivalents balance of $1.96 million, down from $2.73 million at the start of the year[97] - The company has a $1,000,000 revolving line of credit that expires on May 31, 2020, with no amounts outstanding as of December 31, 2018[98] - Management anticipates that the current cash position and operating plan will be sufficient to meet cash requirements for more than twelve months from the filing date[99] Critical Accounting Policies and Estimates Revenue recognition is a critical accounting policy, with ASC 606 adoption having no material impact - Revenue recognition is considered a critical accounting policy, requiring subjective judgments and estimates that can significantly impact financial results[104] - The company adopted ASC 606 (Revenue from Contracts with Customers) on January 1, 2018, with no material impact on its revenue recognition policies or financial statements[105][127] Financial Statements and Supplementary Data This section presents the company's audited financial statements for 2018 and 2017, along with explanatory notes Financial Statements Total assets decreased to $3.02 million in 2018, with a net loss of $51,034 and negative operating cash flow Balance Sheet Summary (as of Dec 31) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total Current Assets | $3,010,328 | $3,717,569 | | Total Assets | $3,023,756 | $3,734,983 | | Total Liabilities | $1,151,165 | $1,840,958 | | Total Stockholders' Equity | $1,872,591 | $1,894,025 | Statement of Operations Summary (for year ended Dec 31) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total Revenues | $8,933,775 | $10,640,603 | | Gross Profit | $2,142,838 | $2,415,429 | | (Loss) Income from Operations | ($62,345) | $237,774 | | Net (Loss) Income | ($51,034) | $246,462 | | Diluted (Loss) Earnings Per Share | $0.00 | $0.02 | Notes to Financial Statements Notes detail significant customer concentration, net operating loss carryforwards, and stock incentive plans - In 2018, prime contracts with U.S. government agencies represented 68.8% of revenue, and subcontracts under federal procurements represented 26.5%[140] - Sales of third-party software and maintenance from one major supplier accounted for 50.0% of total revenue in 2018 and 52.7% in 2017[142] - The company has net operating loss carryforwards of approximately $7.4 million, which expire between 2019 and 2036, with a full valuation allowance recorded against related deferred tax assets[178] Stock Option Status (as of Dec 31, 2018) | Category | Shares | Weighted Avg. Exercise Price | | :--- | :--- | :--- | | Outstanding | 1,376,500 | $0.23 | | Exercisable | 1,228,000 | $0.21 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosures No changes or disagreements with independent registered accountants have occurred in the last two fiscal years - There have been no changes in or disagreements with the company's independent registered accountants during the last two years[194] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management concluded that as of the end of the period, the company's disclosure controls and procedures were effective[195] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018[198] - No changes in internal control over financial reporting occurred during the fourth quarter of 2018 that have materially affected, or are reasonably likely to affect, these controls[196] Other Information There is no other information to be reported in this section - None[201] PART III Directors, Executive Officers, Corporate Governance, Compensation, and Related Matters Information for these items is incorporated by reference from the company's 2019 Annual Meeting Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's Definitive Proxy Statement for the 2019 Annual Meeting of Stockholders[203][204][205] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements and provides an index of all exhibits filed with the Form 10-K - This section provides a list of the financial statements included in the report and an index of all exhibits filed concurrently[206][214]