Intellicheck Mobilisa, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparative period is Q1 2016. The filing identifies the registrant as Intellicheck Mobilisa, Inc. The company develops identity authentication and threat-identification products for retail, law enforcement, government, military, and commercial markets.
Financial performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $712,660 | $950,668 |
| Gross profit / gross margin | $603,224 / 84.6% | $787,626 / 82.8% |
| Operating expenses | $1,543,480 | $2,936,232 |
| Operating loss | $(940,256) | $(2,148,606) |
| Net loss / loss per share | $(936,757) / $(0.09) | $(2,143,491) / $(0.22) |
| Operating cash flow | $(816,963) | $(769,212) |
| Adjusted EBITDA (non-GAAP) | $(738,636) | $(1,743,783) |
Cash was $2.30 million at quarter-end, down from $3.09 million at December 31, 2016. Working capital was $1.74 million; total assets were $13.61 million and stockholders’ equity was $12.12 million. Total liabilities were $1.49 million. No borrowings were outstanding under the revolving credit facility at March 31; the company reported $2.0 million of availability then. The facility’s maximum borrowing amount was reduced to $1.0 million on April 17, 2017. The filing reports no long-term debt balance.
Changes versus Q1 2016
- Revenue fell 25%, primarily because of lower commercial and Defense ID sales. Identity Systems revenue was approximately $710,000 versus $948,000.
- Invoiced orders declined 55% to $510,000 from $1.134 million. Backlog was approximately $82,000 at March 31, 2017, versus $161,000 a year earlier and $133,000 at December 31, 2016.
- Gross margin improved to 84.6% from 82.8%, which management attributed to a higher SaaS revenue mix and fewer lower-margin equipment sales.
- Operating expenses fell 47%, principally due to lower stock-based compensation, legal and professional fees, and spending on specialized R&D consulting. Net loss narrowed substantially, while cash used in operations increased modestly.
Outlook, risks, and notable items
- Management expected available cash, operating receipts, and credit availability to cover working capital and capital expenditure needs for at least the next 12 months. It cautioned that weaker performance or higher expenses could require financing or expense reductions; additional financing is not assured.
- The filing identifies economic weakness and reduced consumer or business spending as risks, and notes that one customer accounted for approximately 16% of Q1 2017 revenue and 18% of quarter-end receivables.
- Goodwill was $8.10 million. No impairment was recorded in the quarter; management said it would monitor for impairment indicators. Deferred tax assets had a full valuation allowance.
- The company reported no material legal proceedings. It leases its Jericho office for approximately $26,000 monthly through March 2018.
- ASU 2016-09 adoption produced a $33,894 cumulative adjustment between additional paid-in capital and accumulated deficit, with no change to total equity. The company was evaluating the impact of revenue-recognition standard ASC 606 and expected to complete that evaluation by Q2 2017.
- The filing contains inconsistent prime-rate disclosures for the credit line: 4.00% in the debt note and 3.50% in MD&A. It also describes NOLs as approximately $7 million at December 31, 2016, while discussing a reduction to $2.2 million in Q1 2016; the presentation of the NOL amounts is unclear.
Most important facts to verify
- Order trends, backlog conversion, and the causes and duration of lower commercial and Defense ID sales.
- Cash burn and the assumptions behind management’s stated 12-month liquidity outlook, including the reduced credit-line capacity.
- The customer concentration and collection status of the receivable exposure.
- The correct credit-line interest rate and the company’s available tax NOL balance and limitations.
- Potential goodwill impairment indicators and the eventual impact of adopting ASC 606.