Intellicheck Mobilisa, Inc. — Q1 2014 Form 10-Q
Business and period: The company develops identity-verification, access-control and security systems, along with wireless products and services. This unaudited report covers the three months ended March 31, 2014; comparisons are with the three months ended March 31, 2013 unless otherwise stated.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change or context |
|---|---|---|---|
| Revenue | $1.092 million | $1.633 million | Down 33% |
| Gross profit | $729,402 | $894,549 | Gross margin 66.8%, versus 54.8% |
| Operating expenses | $1.639 million | $1.816 million | Down 9.7% |
| Operating loss | $909,828 | $921,043 | |
| Net loss | $909,684 | $921,028 | Loss per share was $0.03 in both periods |
| Adjusted EBITDA | $(709,916) | $(645,943) | Non-GAAP measure; more negative year over year |
| Cash used in operations | $1.031 million | $602,917 | Higher use, attributed mainly to lower accounts payable |
Revenue mix and orders: Identity Systems revenue was approximately $1.074 million, down 21%, primarily because there were no enterprise license sales and DID subscriptions were lower. Wireless revenue was $18,000, down 93%, with no wireless installation projects underway. Booked orders increased 18% to $1.095 million, while non-cancelable backlog declined to approximately $358,000 from $782,000 a year earlier and $381,000 at December 31, 2013.
Financial position and liquidity
- At March 31, 2014, cash and cash equivalents were $2.671 million, working capital was approximately $2.000 million, total assets were $20.111 million and stockholders’ equity was $17.938 million.
- Cash increased by $2.446 million during the quarter, primarily because of $3.489 million in net proceeds from a January public stock offering. Investing activities used $11,149.
- The company had no borrowings outstanding under its secured revolving credit facility at quarter-end. The facility had a $2 million maximum, approximately $516,618 of unused availability, and principal was due at maturity on October 15, 2014. The company reported covenant compliance.
- There was no other reported debt balance. Total liabilities were $2.174 million, including current and long-term deferred revenue and deferred rent.
- Common shares outstanding rose from 27,897,467 at December 31, 2013 to 36,844,467 at March 31, 2014. The January offering sold 8,947,000 shares at $0.45 per share; the underwriter also received a warrant for 389,000 shares at $0.56.
Outlook, risks and notable items
- Management expected available cash, anticipated operating cash flows and credit-facility availability to cover working-capital and capital-expenditure needs for at least 12 months. It reserved the option to seek further financing and cautioned that additional funds might not be available on acceptable terms.
- On April 10, 2014, after quarter-end, the company completed another offering of 2,617,000 shares at $0.80 per share, with approximately $2.094 million in net proceeds before expenses. The underwriter received a warrant for 130,850 shares at $1.00 and a 45-day over-allotment option for up to 392,550 shares.
- Management cited lower revenue, particularly the absence of wireless installation work and enterprise license sales, while attributing improved gross margin to the greater share of higher-margin Identity Systems revenue. Operating expense reductions reflected fewer employees in general and administrative and research and development functions.
- One customer represented approximately 17% of Q1 2014 revenue and 21% of quarter-end accounts receivable. The company also held cash at one financial institution.
- The company reported approximately $41.9 million in federal and New York state net operating loss carryforwards, expiring from 2018 through 2030. Their use may be limited by ownership changes under Section 382; the review was not complete. A full valuation allowance was recorded against deferred tax assets.
- Goodwill was $12.309 million. Management reported no Q1 indicator of impairment and planned its annual impairment test for the fourth quarter. No material adverse legal proceedings were reported.
- Management identified economic weakness and reduced business or consumer spending as risks; it referred investors to the 2013 Form 10-K for other risks. Disclosure controls were judged effective, with no material Q1 change in internal control over financial reporting.
Important facts for investors to verify
- Whether booked orders convert to revenue and whether backlog recovers, given the sharp year-over-year revenue decline and lower backlog.
- The company’s ongoing operating cash use and progress toward reducing losses, especially after the equity financings.
- Available credit-facility borrowing capacity and the facility’s October 2014 maturity, including covenant requirements.
- The dilution and terms associated with the January and April offerings, warrants and any over-allotment shares.
- Customer concentration, potential Section 382 limits on tax-loss carryforwards, and future goodwill impairment assessments.