Intellicheck Mobilisa, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. The company develops identity-verification and access-control systems and wireless technology for government, military, and commercial markets.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $3.165 million | $3.003 million | $6.021 million | $5.678 million |
| Gross profit | $2.148 million | $2.001 million | $3.884 million | $3.750 million |
| Gross margin | 67.9% | 66.6% | 64.5% | 66.0% |
| Operating expenses | $2.021 million | $2.595 million | $4.462 million | $5.157 million |
| Operating income (loss) | $127,319 | $(594,173) | $(577,945) | $(1.407) million |
| Net income (loss) | $124,832 | $(601,650) | $(582,917) | $(1.422) million |
| Adjusted EBITDA (non-GAAP) | $337,490 | $(197,003) | $(18,824) | $(611,412) |
Q2 basic and diluted earnings per share were reported as $0.00; first-half loss per share was $(0.02), versus $(0.05) a year earlier. First-half operating cash use was $13,087, compared with $743,023 in 2010; investing cash use was $33,137 and financing provided $32,200. Cash declined by $14,024 to $1.475 million.
At June 30, cash was $1.475 million, working capital was $872,000, total assets were $22.883 million, and stockholders’ equity was $19.227 million. Current notes payable were $198,333, with no long-term notes shown; the remaining $200,000 gross note payment was due August 31, 2011. Goodwill was $12.309 million and net intangible assets were $6.019 million.
Changes and operating drivers
- Quarterly revenue rose 5%; Identity Systems revenue increased 19% to $2.535 million, while Wireless R&D revenue fell 28% to $630,000 as current FAN/buoy contract funding expired.
- First-half revenue rose 6%. Identity Systems revenue was nearly flat, while Wireless R&D increased 19% to $1.984 million.
- Quarterly gross margin improved with product mix, but first-half margin declined because of higher equipment purchases on the Wireless R&D contract.
- Operating expenses fell 22% in Q2 and 13% for the first half. Management cited cost reductions begun in Q1, including personnel and consultant reductions, lower former-principal consulting fees, and lower legal costs.
- Q2 included a $103,327 reversal of previously recorded compensation for forfeited performance-based options; reported Q2 stock-based compensation expense was negative $72,868. This benefited reported expenses and is important context for the return to quarterly profitability.
Liquidity, outlook, and risks
Management expected available cash and cash equivalents, together with anticipated operating cash, to cover working-capital and capital-expenditure needs for at least the next 12 months. The company retained the option to seek additional capital through an effective shelf registration of up to $25 million, subject to SEC limits, but gave no specific earnings or revenue guidance. Management was awaiting the bid outcome for continuation of the Navy R&D contract and cautioned that there was no guarantee of an award.
- Booked orders were $2.2 million in Q2, versus $2.0 million a year earlier; reported backlog was approximately $0.8 million, down from $4.9 million, largely reflecting prior-year remaining Wireless R&D contract funding.
- Two customers accounted for approximately 42% of Q2 revenue and 45% of first-half revenue, and 44% of accounts receivable at June 30, creating customer and collection concentration risk.
- The company reported approximately $39 million of tax-loss carryforwards, but a full valuation allowance was recorded; potential limitations under Section 382 remained under review.
- The company reported no legal or regulatory proceedings expected to have a material adverse effect. The Eid Passport litigation had been settled without payment by either party; the company agreed to assure availability of previously licensed parsing software.
- A related-party office lease is guaranteed by the company; the property is owned by two director-managers. Management also cited general economic and spending conditions as risks.
Investor verification points
- Check whether the Navy contract was renewed and how the funding lapse affected Wireless R&D revenue, backlog, and cash generation.
- Assess whether the $0.8 million backlog and concentrated customer base support future revenue and timely receivable collection.
- Separate recurring operating performance from the Q2 option-forfeiture compensation reversal and other cost reductions.
- Confirm payment of the $200,000 note due August 31, 2011, and monitor liquidity after that payment.
- Review the recoverability of goodwill and intangible assets, and the outcome of the Section 382 analysis of tax-loss carryforwards.