Intellicheck Mobilisa, Inc. — FY 2012 Form 10-K
Reporting period: Year ended December 31, 2012. The filing also reports fourth-quarter results; the company’s fiscal year is not presented as a separate “2012 Q4” filing. The company develops identity verification and access-control systems and wireless security and communications technology for commercial and government customers.
Key financial results
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $8.80 million | $12.48 million |
| Gross profit / margin | $5.80 million / 66% | $8.14 million / 65% |
| Operating expenses | $8.06 million | $8.43 million |
| Operating loss | $2.26 million | $282,000 |
| Net loss | $2.26 million; $0.08 per share | $291,000; $0.01 per share |
| Adjusted EBITDA (non-GAAP) | $(1.11) million | $875,000 |
| Operating cash flow | $346,000 | $(72,000) |
Cash and cash equivalents were $1.69 million at year-end, working capital was $744,000, total liabilities were $2.78 million, and stockholders’ equity was $17.68 million. No borrowings were outstanding under the revolving credit facility; reported unused availability was approximately $549,000. The $2 million facility was secured by substantially all assets and matured August 17, 2013. Management expected available cash, operating cash flow, and facility availability to meet working-capital and capital needs for at least 12 months.
Changes and notable results
- Revenue fell 29% year over year. Identity Systems revenue declined 22% to $7.54 million, and Wireless R&D revenue declined 56% to $1.26 million.
- Identity Systems declines included $1.05 million less in TWIC and HID readers and $1.03 million less in identity scanners and software. Wireless R&D revenue was lower following completion of a major contract and a fourth-quarter $671,000 revenue reversal.
- The company said new information from the U.S. Navy created uncertainty about collecting a $671,000 receivable. It considers the amount valid and is pursuing collection, but reduced fourth-quarter revenue for the uncertainty.
- Fourth-quarter 2012 revenue was $528,000, versus $2.87 million in fourth-quarter 2011; fourth-quarter net loss was $1.96 million, versus $14,000 in fourth-quarter 2011.
- Operating cash flow improved principally because accounts receivable declined, including receivables related to the completed Wireless R&D contract. Cash increased by $292,000 during the year.
- Research and development expense decreased 14% to $2.24 million. Selling expense decreased, while general and administrative expense increased 7% to $4.21 million.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management cited long sales cycles, uncertain timing of opportunities, and government and commercial purchasing uncertainty.
- Year-end backlog was reported as approximately $1.2 million in the results discussion, expected to be realized over the following 12 months. Elsewhere in the filing, backlog was stated as approximately $1.30 million; the filing text does not provide a clear reconciliation of these figures.
- Customer concentration is significant: AT&T, a U.S. Navy Wireless R&D contract, and Hawaii State TWIC sales represented approximately 15%, 14%, and 11% of 2012 revenue, respectively. Government R&D contracts generated 14.3% of revenue, down from 22.9% in 2011.
- Key risks include possible loss or reduction of government contracts and funding, collection uncertainty, dependence on access to government ID reference data and law-enforcement databases, renewal of military operating approvals, privacy and cybersecurity risks, long sales cycles, and reliance on a limited supplier base.
- Goodwill was $12.31 million, about 60% of total assets. Management reported no impairment, but its 2012 initial valuation indicated fair value at 102% of carrying value; it also noted the stock was thinly traded and considered its price artificially deflated.
- The company reported a $40.1 million tax-loss carryforward, subject to expiration and potential ownership-change limitations, and a full valuation allowance against net deferred tax assets.
- A related-party office lease with an entity owned by two directors who are members of management generated approximately $92,000 of 2012 rent. The company guaranteed the lessor’s property loans, with maximum stated exposure of approximately $347,000.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor gave an unqualified opinion on the financial statements but did not audit or express an opinion on internal control effectiveness.
- In November 2012, the board removed Steve Williams as CEO and reappointed Nelson Ludlow as CEO and president; Michael Malone became board chair.
Important facts for investors to verify
- Whether and when the disputed $671,000 Navy receivable was collected, and whether any further revenue or receivable adjustments followed.
- The correct year-end backlog figure and the amount ultimately converted into revenue and cash.
- Facility renewal, repayment, or replacement following its August 2013 maturity, and the company’s subsequent liquidity and cash burn.
- Whether revenue concentration, government funding exposure, or key customer contracts changed after year-end.
- The assumptions supporting goodwill recoverability, particularly given the narrow 102% valuation cushion and thinly traded shares.