Intellicheck Mobilisa, Inc. — Q2 2015 Form 10-Q
Business and period: The company provides identity-verification and access-control technology, wireless systems, and related services to government, military, and commercial customers. This report covers the quarter and six months ended June 30, 2015; financial statements are unaudited.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $2.292 million | $1.197 million | $3.279 million | $2.289 million |
| Gross profit | $1.041 million | $749,000 | $1.636 million | $1.479 million |
| Gross margin | 45.4% | 62.5% | 49.9% | 64.5% |
| Operating loss | $1.218 million | $1.101 million | $2.546 million | $2.011 million |
| Net loss | $1.214 million | $1.101 million | $2.516 million | $2.011 million |
| Adjusted EBITDA (non-GAAP) | $(809,000) | $(952,000) | $(1.707) million | $(1.662) million |
- Six-month operating cash use was $2.495 million, versus $1.643 million in the prior-year period. Investing cash use was $197,000; financing provided $7.629 million. Cash increased to $7.904 million from $2.966 million at year-end 2014.
- Working capital was $7.545 million; total assets were $21.444 million and stockholders’ equity was $18.534 million at June 30, 2015.
- No borrowings were outstanding on the $2 million revolving facility; reported unused availability was approximately $358,000. The facility matures October 15, 2015. A vehicle note had $23,304 outstanding, net of current portion.
- January’s public offering of 4,857,143 shares generated approximately $7.845 million after underwriting discounts and commissions; direct offering costs were approximately $214,000. Six-month weighted-average shares rose to 9.449 million from 4.667 million.
Changes, outlook, and risks
- Revenue rose 91% in Q2 and 43% for the six-month period, primarily from higher commercial identity sales; wireless revenue also grew with installation projects. Booked orders increased 28% year over year in Q2 to $2.91 million, while backlog was about $1.05 million, down from $1.26 million a year earlier.
- Gross margin fell because a particular equipment sale to a commercial customer carried lower margins. Operating expenses increased 22% in Q2 and 20% for the half year, including higher general and administrative and research and development costs; lower sales-team travel partly offset the increases. Management cited non-compete amortization, stock compensation, and specialized consulting work as cost drivers.
- Management stated that cash, anticipated operating cash, and line availability were expected to meet working-capital and capital-expenditure needs for at least 12 months from the filing date. No specific revenue or earnings guidance was provided. The company may seek additional capital, with no assurance of availability or acceptable terms.
- A second-quarter stock-price decline triggered goodwill testing. The reporting unit’s estimated fair value exceeded carrying value by approximately 21%, so no further impairment test step was required and no new impairment was recorded. The company had recorded a $4.207 million goodwill impairment in Q4 2014.
- One commercial identity customer represented approximately 45% of Q2 revenue, 33% of first-half revenue, and 55% of accounts receivable at quarter-end. The company also reported approximately $42.9 million in tax-loss carryforwards, subject to potential Section 382 limits; a full valuation allowance was recorded.
- Management reported no material legal proceedings. Disclosed commitments include payments under former executives’ separation/non-compete agreements and a related-party office lease for which the company is guarantor. Economic weakness and customer collections were identified as risks. Disclosure controls were judged effective, with no material change in internal controls reported.
Important facts for investors to verify
- Whether revenue growth converts into sustainable cash generation, given continued operating losses and cash burn.
- Whether margins recover after the lower-margin equipment sales and whether the reported backlog converts to revenue.
- The large customer’s future purchasing and payment patterns, considering its share of revenue and receivables.
- Renewal or replacement of the revolving facility before its October 2015 maturity, and actual borrowing availability under its receivables-based limits and covenant.
- Potential share dilution and the availability, terms, and need for any further equity financing.
- Assumptions underlying the goodwill valuation and the potential impact of stock-price or operating changes; also confirm any Section 382 limitation on tax-loss carryforwards.