Intellicheck Mobilisa, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed March 27, 2015. The filing also reports unaudited quarterly results, including Q4, but is an annual report rather than a standalone Q4 filing.
Business context
The company develops identity-verification and access-control products, including ID-Check and Defense ID, and provides wireless communications design and installation services. Its customers include commercial, financial, retail, hospitality, military, and government organizations. Revenue comes from product sales, software licensing and subscriptions, royalties, maintenance, and wireless and development services.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $6.613 million | $7.299 million |
| Gross profit / margin | $3.850 million / 58% | $4.526 million / 62% |
| Operating loss | $7.645 million | $2.424 million |
| Net loss | $7.644 million | $2.424 million |
| Adjusted EBITDA (non-GAAP) | $(2.092) million | $(1.324) million |
| Cash used in operating activities | $2.374 million | $1.451 million |
- Revenue fell 9%. Identity Systems revenue was nearly flat at $5.650 million; Wireless R&D revenue declined 41% to $963,000, which management attributed to fewer installation projects.
- Operating expenses before goodwill impairment increased 5% to $7.288 million. The company recorded a $4.207 million goodwill impairment in Q4, driven primarily by lower market multiples and share price. Intangible assets were not impaired.
- Q4 2014 revenue was $1.106 million, compared with $1.366 million in Q4 2013. Q4 2014 operating loss was $5.962 million and net loss was $5.961 million; the impairment was a major contributor.
- At year-end, cash was $2.966 million, working capital $1.880 million, total assets $15.814 million, total liabilities $2.666 million, and stockholders’ equity $13.148 million. The company had an accumulated deficit of $93.300 million.
- Cash increased by $2.742 million during 2014, principally because $5.247 million was raised from common-stock issuance, despite operating cash outflow. Investing cash outflow was $131,000.
- No borrowings were outstanding on the $2 million asset-secured revolving facility at year-end; reported unused availability was approximately $696,000. The company violated its tangible-net-worth covenant at December 31, 2014, and the bank subsequently cured the violation.
Material changes and unusual items
- Goodwill fell from $12.309 million to $8.102 million after the $4.207 million Q4 impairment charge.
- Common shares issued and outstanding increased to 4.935 million at year-end from 3.487 million a year earlier. A one-for-eight reverse stock split took effect in August 2014; share and per-share data were retroactively adjusted.
- The company reported an intangible-amortization error that understated expense in Q1–Q3 by $336,219. Management deemed it immaterial and recorded the adjustment in Q4.
- The prior CEO and a senior vice president retired in September 2014. Their separation agreements included $587,500 in payments over 15 months and were recorded as a non-compete intangible asset and liability.
- In January 2015, the company completed a public offering of 4,857,143 shares at $1.75 per share, receiving approximately $7.845 million net proceeds. Management expected available resources, including this offering, operating cash, and credit availability, to cover working capital and capital spending for at least 12 months.
Outlook, risks, and other disclosures
- No specific revenue or earnings guidance was provided. Management’s stated liquidity outlook depends partly on anticipated operating cash and access to the revolving facility; the company also said additional capital might be needed and could dilute shareholders.
- Key risks include continued losses and cash burn, uncertain market adoption and long sales cycles, dependence on government and commercial customer budgets, customer concentration (top ten customers represented approximately 44% of 2014 revenue), reliance on third-party hardware suppliers and government data access, cybersecurity and product-performance risks, and potential restrictions on electronic ID-data capture.
- Backlog was approximately $530,000 at year-end, versus $381,000 in 2013; it may be modified, cancelled, or otherwise fail to convert to revenue.
- There were no legal or regulatory proceedings expected to have a material adverse effect, and the company disclosed no off-balance-sheet financing arrangements. The auditor issued an unqualified opinion on the consolidated financial statements. Management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Whether the January 2015 equity proceeds and subsequent cash use support management’s stated 12-month liquidity outlook.
- How the company will address the recurring operating cash outflow and whether revenue and gross margins stabilize or improve.
- The status of the bank covenant after its cure, current borrowing availability, and the facility’s October 2015 maturity.
- Conversion and timing of the $530,000 backlog, customer concentration, and receivables exposure.
- The filing gives inconsistent net-proceeds figures for the April 2014 offering: $1.852 million in MD&A versus approximately $2.094 million in the financial-statement notes; verify the correct amount.