Intellicheck Mobilisa, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing is for Intellicheck Mobilisa, Inc. (NYSE MKT: IDN), a provider of identity verification and access-control systems and wireless security products and services. It reports annual results and unaudited quarterly data, including fourth-quarter results.
Financial performance and condition
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $7.299 million | $8.803 million |
| Gross profit / margin | $4.526 million / 62% | $5.801 million / 66% |
| Operating loss | $2.424 million | $2.261 million |
| Net loss | $2.424 million | $2.260 million |
| Net loss per diluted share | $0.09 | $0.08 |
| Adjusted EBITDA (non-GAAP) | $(1.324) million | $(1.114) million |
| Cash used in operating activities | $1.451 million | Cash provided: $0.346 million |
Revenue by segment: Identity Systems revenue fell 25% to $5.665 million; Wireless revenue increased 30% to $1.634 million. The 2013 gross margin decline was attributed mainly to relatively low-margin rural Washington wireless installations with high equipment costs. Operating expenses declined 14% to $6.950 million, including lower selling, general and administrative, and R&D expenses.
Liquidity and balance sheet: At year-end, cash was $224,386, working capital was negative $720,000, total assets were $17.902 million, total liabilities were $2.546 million, and stockholders’ equity was $15.356 million. The company had no borrowings outstanding on its asset-secured revolving credit facility; reported unused availability was approximately $594,000. The facility had a maximum commitment of $2 million, subject to borrowing-base limits, and matured October 15, 2014. Operating lease commitments totaled approximately $1.799 million.
Cash flow: Cash declined by $1.461 million during 2013. Operating cash use, inventory reduction, and a decrease in deferred revenue were among the reported cash-flow factors; the cash-flow contribution from accounts receivable shifted from $2.192 million provided in 2012 to $172,000 used in 2013. Investing cash use was $81,000, while financing provided $70,000.
Material changes and fourth-quarter results
- Annual revenue declined 17%, with lower commercial identity sales, Defense ID sales, subscription and warranty revenue, and reduced Navy R&D work. Wireless installation revenue partly offset those declines.
- Booked orders decreased to $5.9 million from $7.0 million. Year-end backlog fell to approximately $381,000 from $1.2 million; about $159,000 was estimated to be realized within twelve months.
- Unaudited fourth-quarter revenue was $1.366 million versus $528,000 in Q4 2012; gross profit was $889,000 versus $46,000. The Q4 operating loss was $601,000 versus $1.956 million, and net loss was $600,000 versus $1.955 million.
- Goodwill was $12.309 million at year-end. The company reported no goodwill or other intangible-asset impairment in either 2013 or 2012 after performing impairment testing.
Outlook, risks and notable items
- Management said available cash, proceeds from the subsequent stock offering, expected operating cash, and credit-line availability were expected to meet working-capital and capital needs for at least the next 12 months. No quantified revenue or earnings guidance was provided.
- On January 14, 2014, the company completed an offering of 8.947 million shares at $0.45 per share, generating approximately $4.026 million gross and $3.644 million net proceeds. The underwriter also received warrants for 389,000 shares at $0.56, exercisable after one year. Outstanding shares after the offering were 36,844,467.
- Management cited long sales and implementation cycles, uncertain government budgets and contract awards, backlog subject to modification or termination, customer concentration, supplier dependence, competition, and risks to access to government identification data and databases. Government R&D contracts represented 0% of 2013 revenue, compared with 14.3% in 2012; the filing anticipated possible such revenue in 2014.
- One customer accounted for approximately 17% of 2013 revenue. The company reported an accumulated deficit of $85.656 million and warned that additional losses could continue.
- The company reported no material legal proceeding. It also disclosed a related-party office lease and a guarantee exposure of approximately $178,000 related to the lessor’s property debt. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end.
Investor verification priorities
- Confirm post-offering cash, current liquidity, credit-line availability and repayment or renewal arrangements for the facility that matured in October 2014.
- Track whether the reduced backlog and booked orders convert into revenue, and whether margins improve after the low-margin wireless installation work.
- Assess the sustainability of revenue given customer concentration, the decline in Identity Systems sales, and the lack of government R&D revenue in 2013.
- Review assumptions supporting the $12.309 million goodwill balance and the company’s ability to avoid future impairment.
- Evaluate potential dilution from the 2014 share offering and underwriter warrants, and the related-party lease and guarantee exposure.