Cautionary Statement Regarding Forward-Looking Statements
This Form 10-Q contains forward-looking statements regarding our business,
customer prospects, or other factors that may affect future earnings or
financial results that are subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. Such statements involve risks and
uncertainties which could cause actual results to vary materially from those
expressed in the forward-looking statements. Investors should read and
understand the risk factors detailed in our Annual Report on Form 10-K for the
fiscal year ended
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. This list highlights some of the risks which may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties, not presently known to us, which we currently deem immaterial, or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer. These risks include, among others, the following:
? Our business is subject to risks related to our pending acquisition ofKnowmadics, Inc. which is subject to shareholder approval as of the date of this filing. ? Our business is subject to risks related to our acquisition ofGray Matters, Inc. ? Recent, past and future acquisitions and investments could disrupt our business and harm our financial condition and operating results. ? Our business is subject to risks related to the COVID-19 pandemic and the conflict inUkraine . ? Our operating history and recent and proposed changes to our business model make it difficult to evaluate our current business and prospects and may increase the risk that we will not be successful. ? We have had operating losses in three of each of the last four years and may not achieve or maintain profitability in the future. ? If the cybersecurity, Internet of Things ("IoT"), enterprise resource planning ("ERP"), command and control ("C2"), or supply chain management ("SCM") markets are not receptive to our solutions, our sales will not grow as quickly as anticipated, or at all, and our business, results of operations and financial condition would be harmed. ? A portion of our revenue is expected to be generated by sales to government entities, which are subject to a number of challenges and risks. ? We face intense competition and could lose market share to our competitors, which could adversely affect our business, financial condition, and results of operations. ? We rely on our management team and other key employees and will need additional personnel to grow our business, and the loss of one or more key employees or our inability to hire, integrate, train and retain qualified personnel, including members for our board of directors, could harm our business. ? Our business is subject to risks related to the use of blockchain and distributed ledger technology. ? We are dependent on a few key customer contracts for a significant portion of our future revenue, and a significant reduction in services to one or more of these contracts would reduce our future revenue and harm our anticipated operating results. ? Our proprietary rights may be difficult to enforce or protect, which could enable others to copy or use aspects of our products or subscriptions without compensating us. ? Our use of open-source software in our products and subscriptions could negatively affect our ability to sell our products and subscriptions and subject us to possible litigation. ? We are dependent on information technology, and disruptions, failures or security breaches of our information technology infrastructure could have a material adverse effect on our operations. ? We depend on computing infrastructure operated byAmazon Web Services ("AWS"), Microsoft, and other third parties to support some of our solutions and customers, and any errors, disruption, performance problems, or failure in their or our operational infrastructure could adversely affect our business, financial condition, and results of operations. ? Failure to comply with governmental laws and regulations could harm our business. ? We are subject to risks associated with our strategic investments, and impairments in the value of our investments could negatively impact our financial results. 20
--------------------------------------------------------------------------------
? Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and subscriptions could reduce our ability to compete and could harm our business. ? The requirements of being a public company may strain our resources, divert management's attention, and affect our ability to attract and retain qualified board members. ? If we are not able to maintain and enhance our brand and our reputation as a provider of high-quality security solutions and services, our business and results of operations may be adversely affected.
In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "intends," "potential" and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail under the heading "Risk Factors" in Item 1A of our 2021 10-K. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update any forward-looking statements after the date of this report.
Our Business
Founded in 1979 as
The Company is an IT provider primarily for the benefit of federal government agencies. At present, we primarily apply our technology, services and experience to legacy software migration and modernization, developing web-based and mobile device solutions, including dynamic electronic forms development and conversion, data analytics, and we are in the process of acquiring talent and expertise in developing cybersecurity and cloud services practices. Our focus is on enterprise IT solutions primarily relating to system modernization, cloud-based solutions and cybersecurity protection.
Since the Company's inception, we have performed software development and
conversion projects for over 100 commercial and government customers including,
but not limited to, the
Modernization has been a core competency of the Company for over 20 years. We have modernized over 100 million lines of COBOL code for over 35 governmental and commercial customers. We maintain a pool of skilled COBOL programmers. This provides us with competitive advantage as the labor pool of such programmers is shrinking as aging software professionals retire. Our business has also historically relied upon the reselling of applications, primarily for forms development.
Through our acquisition in
In
21
--------------------------------------------------------------------------------
Through our acquisition of
We refer to the products and services offered by Tellenger and
Our Strategy
Our strategy is to grow our business organically as well as through acquisitions.
Through the acquisitions of Tellenger and Gray Matters in 2021, we began to
reposition our legacy professional services business by allocating resources
away from third-party product reselling and toward professional services, which
management viewed as higher margin, including within the SCM sector. In
assessing the Company's repositioning, management observed cybersecurity
practices as evolving toward a zero-trust approach, the integration of
blockchain as enhancing SCM, and the proliferation of Internet of Things ("IoT")
devices that were taking organizational networks to the edge. With respect to
its focus on IoT, on
To grow organically, we have hired and plan to continue to hire, business development personnel and intend to become more proactive in bidding as a prime contractor on government proposals and in expanding our outreach to larger prime contractors for subcontract and teaming opportunities.
Results of Operations
Three Months Ended
Revenue
Total revenue was
Gross Profit
Gross profit decreased by
22
--------------------------------------------------------------------------------
Selling, General and Administrative Expenses
SG&A expenses have increased significantly since the second half of 2021 when we
began to implement the transformative strategy described in the Our Strategy
section above and in the Annual Report. The following table shows the major
elements of SG&A expenses for the three months ended
2022 2021 Increase Legal and professional fees$ 624,763 $ 78,981 $ 545,782 Personnel costs 969,388 460,851 508,537 Intangibles amortization 349,893 - 349,893 Stock-based compensation 312,176 27,711 284,465 Governance and investor relations 161,687 33,932 127,755 IT and office expenses 143,019 48,305 94,714 Marketing expenses 49,041 5,155 43,886 All other 104,375 25,315 79,060$ 2,714,342 $ 680,250 $ 2,034,092 Acquisition Costs
We incurred expenses totaling
Income (Loss) from Operations
Loss from operations was
Liquidity and Capital Resources
As of
To meet our liquidity commitments and continue to execute our strategy for the
next twelve months and beyond, assuming we consummate the acquisition of
Knowmadics, we intend to use a combination of cash on hand, the ability of
Legacy IAI, Gray Matters and Knowmadics to generate cash from operations, and
approximately
To meet our liquidity commitments and continue to execute our strategy through the end of 2022 and beyond, if we do not consummate the acquisition of Knowmadics, we intend to use a combination of cash on hand, cash generated from the operations of Legacy IAI and Gray Matters, and we will reduce our operating expense cost structure to align with this scenario which will provide additional operating cash flow.
Based on our current cash position and operating plan, we anticipate that we will be able to meet our cash requirements for at least one year from the filing date of this Quarterly Report on Form 10-Q.
We have no off-balance-sheet arrangements that have or are likely to have a material current or future effect on our financial condition, or changes in financial condition, liquidity or capital resources or expenditures.
23
--------------------------------------------------------------------------------
© Edgar Online, source