Firefly Neuroscience, Inc.(AIFF) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, and internal controls for the reporting period Financial Statements The unaudited financial statements for Q1 2020 reflect increased revenues, a reduced net loss, and a decrease in total assets, with a subsequent PPP loan receipt Balance Sheets As of March 31, 2020, total assets and liabilities decreased, primarily due to reduced cash and accounts payable, leading to a slight decline in stockholders' equity Balance Sheet Summary (as of March 31, 2020 vs. December 31, 2019) | Account | March 31, 2020 (Unaudited) (USD) | December 31, 2019 (USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $751,046 | $1,039,442 | | Total current assets | $1,637,435 | $2,208,317 | | Total assets | $1,777,847 | $2,374,041 | | Total current liabilities | $722,997 | $1,166,070 | | Total liabilities | $741,360 | $1,211,665 | | Total stockholders' equity | $1,036,487 | $1,162,376 | Statements of Operations and Comprehensive Loss Total revenues significantly increased in Q1 2020, primarily from software sales, while gross profit declined, yet the net loss narrowed due to reduced SG&A expenses Statements of Operations (For the three months ended March 31) | Metric | 2020 (USD) | 2019 (USD) | | :--- | :--- | :--- | | Total revenues | $2,061,756 | $1,178,823 | | Gross profit | $278,827 | $322,839 | | Loss from operations | ($127,607) | ($193,559) | | Net loss | ($126,339) | ($190,853) | | Net loss per share (basic & diluted) | ($0.01) | ($0.02) | Statements of Cash Flows Net cash used in operating activities increased in Q1 2020, primarily due to decreased accounts payable, resulting in a lower cash and cash equivalents balance Cash Flow Summary (For the three months ended March 31) | Metric | 2020 (USD) | 2019 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | ($288,396) | ($160,756) | | Net decrease in cash and cash equivalents | ($288,396) | ($160,756) | | Cash and cash equivalents, end of the period | $751,046 | $1,803,200 | Notes to Financial Statements The notes provide details on accounting policies, revenue disaggregation, lease obligations, stock incentive plans, and the subsequent receipt of a $450,000 PPP loan - The company's business involves modernizing information systems for government and commercial organizations, with a focus on legacy system migration, e-Forms, and custom software development, with customers primarily U.S. federal and state government agencies[16] Disaggregation of Revenue (Q1 2020 vs Q1 2019) | Contract Type | Q1 2020 Amount (USD) | Q1 2020 Percentage | Q1 2019 Amount (USD) | Q1 2019 Percentage | | :--- | :--- | :--- | :--- | :--- | | Services Time & Materials | $590,570 | 28.7% | $596,751 | 50.6% | | Third-Party Software | $1,004,305 | 48.7% | $267,292 | 22.7% | | Software Support & Maintenance | $212,568 | 10.3% | $149,289 | 12.7% | | Total Revenue | $2,061,756 | | $1,178,823 | | - Subsequent to the quarter end, the company received a $450,000 Paycheck Protection Program (PPP) loan on April 20, 2020, due to uncertainties from the COVID-19 pandemic, with a 1% interest rate and a two-year term, and potential for forgiveness[52] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a significant Q1 2020 revenue increase driven by software sales, a decline in gross margin, improved net loss, and strategic actions to manage liquidity and address concentration risks - The company's business strategy is to aggressively pursue markets for legacy system modernization, which has become more critical due to the COVID-19 pandemic's stress on existing systems in government, banking, and healthcare[60][61] - The company faces significant customer and supplier concentration risk, with prime contracts with U.S. government agencies generating 73.2% of revenue in Q1 2020, one subcontract accounting for 22.0%, and sales related to one major software supplier accounting for 59.0% of total revenue[63][65] - The company's $1M revolving line of credit expires on May 31, 2020, and management is working with the lender to renew it, as failure to do so would impede working capital borrowing if needed[72] - Management anticipates that current cash, combined with cost reduction measures and the recent PPP loan, will be sufficient to meet cash requirements for at least one year from the filing date[76] Results of Operations Q1 2020 revenues significantly increased due to software sales, but gross profit declined, while reduced SG&A expenses contributed to a narrower net loss Revenue Comparison (Q1 2020 vs Q1 2019) | Revenue Type | Q1 2020 (USD) | Q1 2019 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Professional Fee Revenue | $844,403 | $762,118 | +10.8% | | Software Revenue | $1,217,353 | $416,705 | +192.1% | | Total Revenue | $2,061,756 | $1,178,823 | +74.9% | Gross Profit Comparison (Q1 2020 vs Q1 2019) | Metric | Q1 2020 (USD) | Q1 2019 (USD) | | :--- | :--- | :--- | | Gross Profit | $278,827 | $322,839 | | Gross Profit Margin | 13.5% | 27.4% | - Selling, general and administrative (SG&A) expenses decreased by $144,639, or 29.8%, in Q1 2020 compared to Q1 2019, primarily due to lower overhead, administrative labor costs, and reduced legal and accounting fees[68] Liquidity and Capital Resources The company's cash decreased in Q1 2020, but liquidity was bolstered by a $450,000 PPP loan and ongoing efforts to renew its $1 million line of credit - Cash and cash equivalents stood at $751,000 at March 31, 2020, down from $1.04 million at the start of the quarter[71] - A material subcontract, delayed by a protest, is now expected to begin providing services late in Q2 or early Q3 2020, though the coronavirus pandemic is causing indirect delays[73] - The company applied for and received a $450,000 Paycheck Protection Program (PPP) loan on April 20, 2020, to support payroll and benefits amid liquidity constraints and COVID-19 uncertainty[75] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2020, the Chief Executive Officer and Acting Principal Financial Officer concluded that the company's disclosure controls and procedures are effective[80] - There were no changes in the company's internal control over financial reporting during the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls[81] PART II. OTHER INFORMATION This section provides disclosures on legal proceedings, risk factors, and other miscellaneous items not covered in the financial information Legal Proceedings The company reported no material legal proceedings during the reporting period - None[84] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2019 - There have been no material changes from the risk factors described in the annual report on Form 10-K for the year ended December 31, 2019[85] Other Items (2, 3, 4, 5, 6) The company reported no unregistered equity sales, no defaults on senior securities, no other material disclosures, and included a list of exhibits - Item 2: No unregistered sales of equity securities[86] - Item 3: No defaults upon senior securities[87] - Item 6: A list of exhibits filed with the report is provided, including certifications and XBRL data files[89][93]