Intellicheck Mobilisa, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. The company develops identity verification, access-control and wireless technology for government, military and commercial customers.
Financial results and liquidity
| Metric | Three months ended June 30, 2014 | Six months ended June 30, 2014 |
|---|---|---|
| Revenue | $1.197 million, down 30% from $1.721 million | $2.289 million, down 32% from $3.353 million |
| Gross profit / margin | $749,229 / 62.5% (prior-year margin 55.8%) | $1.479 million / 64.5% (prior-year margin 55.3%) |
| Operating expenses | $1.851 million, down 1.5% | $3.490 million, down 5.5% |
| Operating loss | $1.101 million | $2.011 million |
| Net loss / loss per share | $1.101 million / $0.03 | $2.011 million / $0.05 |
| Adjusted EBITDA (non-GAAP) | $(952,000) | $(1.662) million |
For the first half, operating cash use was $1.643 million, versus $1.121 million in 2013; investing cash use was $63,000. Financing provided $5.247 million, primarily from two public stock offerings. Cash rose to $3.766 million from $224,000 at year-end 2013.
At June 30, current assets were $4.633 million and current liabilities $1.826 million, yielding working capital of approximately $2.806 million. Total assets were $20.826 million, liabilities $2.229 million and stockholders’ equity $18.597 million. No borrowings were outstanding on the secured $2 million revolving credit facility; reported unused availability was approximately $359,000. There was no other debt balance reported.
Material changes and drivers
- Revenue fell chiefly because the company had no enterprise license sales and lower Identity Systems subscriptions, as well as fewer wireless installation projects. First-half Identity Systems revenue declined 22%; Wireless revenue declined 72%.
- Gross margin improved as revenue shifted toward higher-margin Identity Systems and away from Wireless. Selling expense rose with additional sales staff and travel; lower G&A and R&D expenses partly offset the increase.
- Quarterly booked orders increased 4% to $2.3 million. Backlog was approximately $1.3 million at June 30, 2014, versus $1.1 million a year earlier and $381,000 at December 31, 2013.
- The company issued 11.564 million shares in two public offerings during the first half, generating approximately $5.738 million in proceeds before expenses. Shares outstanding increased from 27.897 million at year-end to 39.461 million at June 30. The offerings also included underwriter warrants.
Outlook, risks and other matters
- Management said available cash, expected operating cash and credit-facility availability should cover anticipated working-capital and capital-expenditure needs for at least 12 months. The facility matured October 15, 2014; renewal was being pursued but had not been finalized as of the filing.
- Management may seek additional capital for expansion, marketing, product development or acquisitions; the filing cautions that financing may not be available on acceptable terms.
- The company reported approximately $43.6 million of federal and New York NOL carryforwards, but recorded a full valuation allowance and had not completed its analysis of potential Section 382 limitations.
- Goodwill was $12.309 million. Management reported no interim impairment trigger and planned its annual impairment test for the fourth quarter. No definite-lived intangible-asset impairment was identified for the period.
- Customer concentration was notable: three customers represented approximately 38% of Q2 revenue, and those customers represented 25% of receivables at June 30. One customer accounted for 14% of first-half revenue.
- The filing reported no material legal proceedings. It disclosed a related-party office lease involving entities owned by two directors who are members of management, and $160,000 accrued for board fees for the first two quarters.
- Management identified economic weakness and reduced business or consumer spending as risks. Disclosure controls were assessed as effective, with no material change in internal controls reported during Q2.
Important facts for investors to verify
- Whether the revolving credit facility was renewed before its October 15, 2014 maturity, and what availability and covenants applied.
- Whether revenue, booked orders and backlog converted into sustained growth, particularly for Identity Systems and enterprise licenses.
- Cash burn and the company’s need or ability to raise further capital, including the impact of share and warrant dilution.
- Customer concentration, receivable collection and the status of the Section 382 review of NOLs.
- Key assumptions supporting the goodwill valuation and the disclosed related-party lease and accrued board fees.