Firefly Neuroscience, Inc.(AIFF) - 2020 Q4 - Annual Report

PART I Business Information Analysis Incorporated specializes in developing and maintaining IT systems, modernizing legacy systems, and providing professional IT services to government and commercial clients - IAI's core business is modernizing IT systems for government and commercial entities, with a focus on legacy migration, web/mobile solutions, and data analytics[14] - The company is strategically expanding its service offerings to include high-growth areas such as cybersecurity, cloud services, artificial intelligence, and robotics process automation[14][26] - IAI utilizes strategic alliances with technology leaders like Micro Focus (for legacy COBOL modernization) and Adobe (for web content management and forms) to enhance its service delivery[23][24][25] Contract Backlog as of December 31, 2020 | Category | Amount (USD) | | :--- | :--- | | Total Estimated Backlog (next 3 years) | ~$31.5 million | | Funded Backlog | $6.0 million | - As of December 31, 2020, the company employed 33 full-time and 4 part-time individuals, supplemented by 6 subcontractors[40] Risk Factors The company faces significant risks primarily related to its heavy reliance on U.S. federal government contracts, which are subject to funding changes, budget shutdowns, and unfavorable contract terms - A primary risk is the company's dependence on the U.S. federal government as its largest customer, making it vulnerable to changes in government funding priorities, budget shutdowns, and contract terminations[44][45][47][48] - The business is susceptible to technological obsolescence and must continually invest in new areas like cybersecurity, cloud services, and AI, with no guarantee of success or timely recovery of investments[52][53][54] - IAI faces intense competition from larger companies with greater resources, and its profitability can be adversely affected by inaccurate cost estimations for contracts[55][56] - The company's success is highly dependent on retaining key managerial and technical personnel in a competitive market[59][60][61] - The global COVID-19 pandemic presents risks related to workforce availability, customer operations, and delays in securing new business[68][69] Properties The company's principal office is located at 11240 Waples Mill Road, Fairfax, VA 22030, where it leases 4,434 square feet, with the current lease expiring on June 30, 2021 - IAI leases 4,434 square feet for its offices in Fairfax, VA, under a lease expiring June 30, 2021[76] Legal Proceedings As of the report date, Information Analysis Incorporated is not a party to any pending legal proceedings, and management is not aware of any contemplated or threatened legal actions against the company - There are no pending legal proceedings involving the company[77] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[78] 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 OTCQB market under the symbol IAIC, with 105 holders of record as of December 31, 2020, and no history or anticipation of cash dividends - The company's common stock began trading on the OTCQB market on January 15, 2021, under the symbol IAIC[80] Common Stock Price Range (High/Low Bid) | Quarter | 2020 | 2019 | | :--- | :--- | :--- | | Q1 | $0.25 / $0.09 | $0.26 / $0.20 | | Q2 | $0.24 / $0.10 | $0.23 / $0.18 | | Q3 | $0.87 / $0.13 | $0.20 / $0.17 | | Q4 | $1.63 / $0.59 | $0.17 / $0.08 | - IAI has never paid cash dividends and plans to retain future earnings for business development[83] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, IAI returned to profitability, driven by a 70% increase in professional fees revenue, primarily from modernization services, resulting in a net income of $413,000 and improved liquidity - The key factor for the 2020 return to profitability was a 70% increase in professional fees revenue, largely from modernization services, after a major subcontract commenced following protest delays[87] Financial Performance Comparison (2020 vs. 2019) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $13.9M | $10.2M | +36.8% | | Professional Fees Revenue | $5.5M | $3.2M | +70.4% | | Software Sales Revenue | $8.4M | $6.9M | +21.0% | | Gross Profit | $2.2M | $1.4M | +57.8% | | Gross Margin | 15.9% | 13.8% | +2.1pp | | Net Income (Loss) | $413,000 | ($717,000) | +$1.1M | - Selling, General and Administrative (SG&A) expenses decreased by $371,000 to $1.5 million in 2020, primarily due to lower non-billable labor costs compared to 2019 when staff was carried in anticipation of a delayed project[99] - The company's liquidity improved significantly, with cash and cash equivalents increasing by $819,000 to $1.9 million at year-end, bolstered by operations and a $450,000 PPP loan[91][105] - IAI maintains a $1 million revolving line of credit, which was undrawn as of December 31, 2020, and the company was in compliance with all covenants[106] Financial Statements and Supplementary Data This section presents the company's audited financial statements for the fiscal years ended December 31, 2020 and 2019, including the independent auditor's report and detailed financial statements Key Balance Sheet Data (As of Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,858,160 | $1,039,442 | | Total Current Assets | $3,443,161 | $2,208,317 | | Total Assets | $3,773,701 | $2,374,041 | | Total Current Liabilities | $1,803,327 | $1,166,070 | | Total Liabilities | $2,160,318 | $1,211,665 | | Total Stockholders' Equity | $1,613,383 | $1,162,376 | Key Income Statement Data (Year Ended Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenues | $13,903,071 | $10,164,981 | | Gross Profit | $2,209,333 | $1,399,979 | | Income (Loss) from Operations | $411,848 | ($727,787) | | Net Income (Loss) | $413,379 | ($717,246) | | Diluted EPS | $0.03 | ($0.06) | Key Cash Flow Data (Year Ended Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $423,265 | ($917,146) | | Net cash used in investing activities | ($64,547) | ($8,368) | | Net cash from financing activities | $460,000 | $1,000 | | Net increase (decrease) in cash | $818,718 | ($924,514) | - The independent auditor's report identifies the gross versus net recognition of sales of third-party software as a critical audit matter, involving significant management and auditor judgment[124][127][128] Changes in and Disagreements With Accountants on Accounting and Financial Disclosures During the two fiscal years ending December 31, 2020, the company had no changes in its independent registered accountants and no disagreements with them on any accounting or financial disclosure matters - There were no disagreements with the company's independent registered accountants during the last two years[226] Controls and Procedures Management concluded that the company's disclosure controls and procedures, as well as its internal control over financial reporting, were effective as of December 31, 2020, with no material changes during the fourth quarter - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective[227] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2020[230] Other Information There is no other information to report for this period - None[233] PART III Directors, Executive Officers and Corporate Governance This section provides biographical information for the company's six directors and two executive officers, including the CEO & President and CFO, and details the audit committee's composition and financial expert designation - The Board of Directors consists of six members: Jack L. Johnson, Jr., Mark T. Krial (Chairman), Charles A. May, Jr., William H. Pickle, Stanley A. Reese, and Bonnie K. Wachtel[235] - The executive officers are Stanley A. Reese (CEO and President) and Matthew T. Sands (CFO)[255] - The company has a standing audit committee with two members, and the Board has determined that Bonnie K. Wachtel qualifies as the 'audit committee financial expert'[262] Executive Compensation Executive compensation for 2020 included base salary, discretionary bonuses, and option awards, with severance agreements in place for certain executives and an annual fee for non-employee directors 2020 Summary Compensation Table | Name and Principal Position (2020) | Salary ($) | Bonus ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Sandor Rosenberg (CEO) | 142,000 | -- | -- | 174,654 | | Stanley A. Reese (COO) | 161,875 | 10,000 | 37,000 | 230,852 | | Matthew T. Sands (Acting CFO) | 141,500 | 5,000 | 37,000 | 190,851 | - Stanley A. Reese and Matthew T. Sands have severance agreements providing for three months' base salary upon termination without cause, with Mr. Reese's agreement also providing for six months' salary in a change-of-control event[267][268] - Non-employee directors were paid an annual fee of $2,000 for their service in 2020[270] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 25, 2021, five beneficial owners held over 5% of common stock, with Joseph P. Daly holding the largest share at 14.8%, while all directors and executive officers collectively owned 9.1% Security Ownership of >5% Beneficial Owners (as of March 25, 2021) | Name of Beneficial Owner | Percent of Class | | :--- | :--- | | Joseph P. Daly | 14.8% | | Palm Management (US) LLC | 9.3% | | Traditions LP | 8.9% | | Alan Gelband | 8.3% | | Estate of Barry T. Brooks | 6.5% | - All directors and executive officers as a group beneficially owned 1,108,800 shares, representing 9.1% of the class, including 840,000 shares issuable from stock options[276] - As of March 15, 2021, under the company's equity compensation plans, there were 1,395,000 outstanding options with a weighted-average exercise price of $0.34, and 369,000 securities remaining available for future issuance[273] Certain Relationships and Related Transactions, and Director Independence The company reported no related party transactions for the year ended December 31, 2020, and the Board determined that five of its members qualify as independent under NASDAQ Stock Market definitions - No related party transactions subject to reporting occurred during the fiscal year ended December 31, 2020[278][279] - The Board has determined that five directors are independent: Mark T. Krial, Jack L. Johnson, Jr., Charles A. May, Jr., William H. Pickle, and Bonnie K. Wachtel[280] Principal Accounting Fees and Services This section details the fees paid to CohnReznick LLP for audit and tax services in 2020 and 2019, totaling $99,777 and $96,916 respectively, with all services pre-approved by the Audit Committee Fees Paid to CohnReznick LLP | Fee Category | 2020 Fees ($) | 2019 Fees ($) | | :--- | :--- | :--- | | Audit Fees | 95,145 | 92,284 | | Tax Fees | 4,632 | 4,632 | | All Other Fees | -- | -- | | Total Fees | 99,777 | 96,916 | - All audit and non-audit services provided by CohnReznick LLP in 2020 and 2019 were pre-approved by the Audit Committee[282] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements included in Item 8 and provides an index of all exhibits filed as part of this Annual Report on Form 10-K, including corporate governance documents and material contracts - This item provides a list of the financial statements presented in Item 8 and an index of all exhibits filed with the Form 10-K[284][285] - Filed exhibits include key corporate documents, the 2016 Stock Incentive Plan, the line of credit agreement, and certifications required by the Sarbanes-Oxley Act[285][286]