Intellicheck Mobilisa, Inc. — Q1 2013 Form 10-Q
Business and period: The company develops identity-verification, access-control, and wireless technology for government, military, and commercial markets. This unaudited report covers the three months ended March 31, 2013, compared with Q1 2012; balance-sheet changes are compared with December 31, 2012.
Financial performance
| Metric | Q1 2013 | Q1 2012 or comparison |
|---|---|---|
| Revenue | $1.633 million | $2.711 million; down 40% |
| Gross profit / margin | $895,000 / 54.8% | $1.958 million / 72.0% |
| Operating expenses | $1.816 million | $1.943 million; down 7% |
| Operating result | Loss of $921,000 | Income of $15,000 |
| Net result / diluted EPS | Loss of $921,028 / $(0.03) | Income of $15,079 / $0.00 |
| Adjusted EBITDA (non-GAAP) | Loss of $646,000 | Income of $314,000 |
| Operating cash flow | Use of $603,000 | Provided $1.063 million |
Identity Systems revenue fell 30% to $1.360 million, primarily due to lower equipment and enterprise-license sales. Wireless revenue fell 65% to $273,000, largely following expiration of a large Navy contract in Q3 2012. Management attributed lower gross margin to low-margin wireless revenue and fewer high-margin enterprise-license sales. Selling expense declined with three fewer full-time employees; general and administrative expense rose, principally due to personnel allocation changes and higher legal costs; R&D expense fell after the Navy project ended.
Financial position and liquidity
- Cash was $1.077 million at March 31, down $609,000 from year-end. Current assets were $2.022 million and current liabilities $1.982 million, leaving working capital of approximately $40,000.
- Total assets were $19.220 million, including $12.309 million of goodwill and $4.405 million of net intangible assets. Stockholders’ equity was $16.762 million.
- Total liabilities were $2.457 million, primarily current liabilities and deferred revenue. No borrowings were outstanding on the $2 million Silicon Valley Bank revolver; reported unused availability was approximately $367,000. The facility matures August 17, 2013, is secured by company assets, and borrowing availability is subject to receivables-based limitations.
- Investing cash outflow was $6,000; financing cash flow was zero. Deferred revenue totaled $1.532 million, current and long-term combined.
Changes, outlook, and risks
- Bookings increased 42.5% year over year to $928,000, but backlog declined to approximately $732,000 from $1.6 million a year earlier and $1.2 million at December 31, 2012.
- Management said available cash, expected operating cash flow, and revolver availability should meet working-capital and capital-expenditure needs for at least 12 months. It was also exploring cost reductions and other liquidity measures and reserved the option to seek additional capital; there is no assurance funding would be available on acceptable terms.
- Goodwill fair value was estimated at 102% of carrying value in the company’s 2012 year-end quantitative analysis. Management said the subsequent stock-price decline appeared temporary and reported no impairment indicator as of this filing. No impairment charge was recorded in Q1.
- One customer represented approximately 16% of Q1 revenue and 21% of quarter-end receivables. The company held $40.7 million of federal and New York NOLs, potentially subject to Section 382 ownership-change limits; the review was incomplete, and a full valuation allowance was recorded against net deferred tax assets.
- The filing reports no legal proceeding expected to have a material adverse effect. It discloses a related-party office lease, with quarterly rent of $22,075, and a guarantee of the leased property. Management reported effective disclosure controls and no material Q1 change in internal control over financial reporting.
Important facts for investors to verify
- Whether the company can stabilize revenue and margins after the Navy contract ended, and convert bookings into shipped sales and services.
- Whether backlog and customer concentration create meaningful revenue or collections volatility.
- Cash burn, borrowing availability under the revolver, and liquidity following its August 2013 maturity.
- Goodwill impairment sensitivity and the outcome of the Section 382 review of NOL limitations.
- The sustainability of management’s 12-month liquidity assessment and whether additional financing or cost cuts become necessary.