Intellicheck Mobilisa, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. The company develops identity-verification and access-control systems and wireless technology for government, military, and commercial customers.
Financial results and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $3.595 million | $3.567 million | $9.616 million | $9.245 million |
| Gross profit / margin | $2.320 million / 64.5% | $2.241 million / 62.8% | $6.204 million / 64.5% | $5.991 million / 64.8% |
| Operating income (loss) | $310,000 | $(500,000) | $(268,000) | $(1.907) million |
| Net income (loss) | $306,000 | $(509,000) | $(277,000) | $(1.931) million |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $45,000 | $(1.548) million |
- Q3 basic and diluted earnings per share were $0.01, versus a loss of $0.02 per share in Q3 2010. Nine-month loss per share was $0.01, versus $0.07.
- At September 30, cash was $1.515 million; working capital was $1.640 million; total assets were $23.685 million; and stockholders’ equity was $19.747 million.
- Total liabilities were $3.937 million. The acquisition notes were fully repaid in August 2011, leaving no notes payable outstanding. A new revolving facility has a $2.0 million maximum, but availability was $1.047 million at quarter-end; no amount was drawn.
- Nine-month cash increased $26,000 to $1.515 million. Investing used $46,000 and financing provided $27,000, including $227,000 from option exercises and $200,000 of note repayment.
Changes versus comparable periods
- Quarterly revenue rose 1%. Identity Systems revenue increased 25% to $3.421 million, while Wireless R&D revenue fell 79% to $174,000. Management attributed the identity growth to increased Fugitive Finder and Defense ID sales to military bases and higher commercial ID-Check sales.
- Nine-month revenue increased 4%: Identity Systems rose 10% to $7.458 million, while Wireless R&D declined 13% to $2.158 million.
- Operating expenses fell 27% in Q3 and 18% in the first nine months, reflecting cost reductions initiated in Q1, including personnel and consultant reductions, as well as lower legal fees. Management estimated the expense reductions at approximately $2 million on an annualized basis.
- Q3 returned to operating and net income; the nine-month net loss narrowed substantially. Nine-month gross margin edged down from 64.8% to 64.5%.
- Q3 booked orders were $6.2 million, versus $3.9 million a year earlier. Backlog was approximately $3.3 million, down from $4.8 million at September 30, 2010.
Outlook, risks, and notable items
- No specific revenue or earnings guidance was provided. Management expected available cash, operating cash flows, and revolver availability to meet working-capital and capital-expenditure needs for at least 12 months. The company also retained the option to seek additional capital; access and terms are not assured.
- Management linked the Wireless R&D revenue decline to the FAN/buoy contract’s prior funding expiring June 30, with new funding awarded in mid-September. Customer concentration remains material: two customers accounted for approximately 28% of Q3 revenue and 31% of nine-month revenue, and 32% of receivables at quarter-end.
- The company reported approximately $38.9 million of federal and New York state net operating loss carryforwards, but has a full valuation allowance and had not completed its assessment of potential Section 382 limits following an ownership change.
- In the first nine months, certain performance-based option forfeitures resulted in negative stock-based compensation expense of $108,546. Goodwill was $12.309 million and unchanged; net intangible assets declined to $5.782 million after $712,000 of amortization.
- The Eid Passport lawsuit was settled and dismissed with prejudice, with no payment by either party. No other proceeding was identified as expected to have a material adverse effect. A related-party lease with a company owned by two directors continues through 2017; the company also guarantees the leased property.
- Management identified economic conditions and potential weakness in business and consumer spending as risks. Disclosure controls were concluded effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the new FAN/buoy funding supports continued Wireless R&D revenue and how the contract timing affects results.
- Whether backlog converts to revenue, given its decline year over year, and whether the Q3 order increase is sustained.
- Receivable collection and customer concentration, including the extent to which the $1.047 million revolver availability changes with eligible receivables.
- Whether operating cost reductions persist without impairing sales, product development, or execution.
- Potential Section 382 restrictions on tax loss carryforwards and the carrying value of goodwill and intangible assets.
- Terms and ongoing costs of the related-party lease and the status of the property guarantee.