Intellicheck Mobilisa, Inc. — FY2015 Form 10-K
Reporting period: Year ended December 31, 2015. The filing also provides unaudited fourth-quarter results. The company develops identity verification, access-control and security products for commercial and government customers, including IDCheck and Defense ID. It sold its wireless enterprise assets in August 2015 to focus on identity systems.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $7.015 million | $6.613 million |
| Gross profit / margin | $4.008 million / 57% | $3.850 million / 58% |
| Operating loss | $5.480 million | $7.645 million |
| Net loss | $5.334 million | $7.644 million |
| Adjusted EBITDA (non-GAAP) | $(3.581) million | $(2.092) million |
| Cash used in operating activities | $4.436 million | $2.374 million |
| Cash and cash equivalents at year-end | $5.953 million | $2.966 million |
| Working capital at year-end | $5.659 million | $1.880 million |
Identity Systems revenue rose 18% to $6.646 million; Wireless R&D and other revenue fell 61% to $369,000. FY2015 diluted loss per share was $0.55, compared with $1.59 in FY2014. The prior-year results included a $4.207 million goodwill impairment; excluding that charge, operating performance weakened, with operating expenses excluding impairment rising 30% and Adjusted EBITDA deteriorating.
Fourth-quarter 2015 revenue was $1.537 million, gross profit $976,000, operating loss $1.556 million, net loss $1.550 million and loss per share $0.16. In Q4 2014, revenue was $1.106 million, gross profit $356,000, operating loss $5.962 million and net loss $5.961 million, including the goodwill impairment.
Cash increased by $2.987 million during 2015, principally reflecting $7.631 million in net proceeds from common-stock issuance, which offset operating and investing cash use. The company reported no borrowings on its revolving facility at year-end; stated unused availability was $1.738 million. The $2.0 million facility is secured by specified collateralized accounts and matures October 5, 2017. Total liabilities were $2.146 million; the filing reports no material funded debt outstanding at year-end.
Material changes and unusual items
- The January 2015 public offering of 4,857,143 shares generated approximately $7.845 million in net proceeds. Shares issued and outstanding increased from 4.935 million at year-end 2014 to 9.879 million at year-end 2015.
- The August 2015 wireless-asset sale had stated consideration of up to $350,000: $30,000 cash, a $200,000 promissory note and up to $120,000 in contingent consideration. The company recorded a gain of approximately $109,000; contingent proceeds are not assured.
- Research and development expense increased 42% to $2.595 million. General and administrative expense rose 33% to $5.444 million, including higher stock compensation, professional fees and amortization of a non-compete asset.
- Backlog was approximately $339,000 at year-end, down from $530,000. One commercial customer accounted for 31% of FY2015 revenue; the top ten customers accounted for approximately 59%, versus 44% in 2014.
- After year-end, former executives sold 979,114 shares back to the company for $1.12 per share; the repurchase closed March 4, 2016. A March 2016 ownership-change study found the company’s available net operating loss carryforwards were reduced from $47.4 million to $2.2 million.
- The company agreed to pay $100,000 to terminate its Port Townsend lease obligations and reduce its occupancy there. Its Jericho headquarters lease runs through March 2018.
Outlook, risks and contingencies
Management stated that cash resources, expected operating receipts and revolving-credit availability were expected to meet working-capital and capital-expenditure needs for at least 12 months. The company provided no quantified revenue or earnings guidance. It plans to pursue SaaS commercial and government identity applications, including healthcare, first-responder and online markets, and to develop a data-analytics platform. These are plans, not assured outcomes.
Key risks include continued operating losses and cash burn; long sales and implementation cycles; government budget and procurement uncertainty; reliance on government-provided ID reference data, law-enforcement databases and military operating approvals; customer concentration and a small backlog; intense competition; dependence on a limited number of hardware suppliers; product, cybersecurity and privacy risks; and potential future financing or dilution. The filing reports two patent-enforcement lawsuits in which the company is a plaintiff, while stating that no legal proceeding is expected to have a material adverse effect. Management reported effective disclosure controls and internal control over financial reporting. The independent auditor issued an unqualified opinion on the financial statements, but did not audit internal-control effectiveness.
Important facts for investors to verify
- Whether identity-system sales can grow enough to offset higher operating expenses and ongoing operating cash use.
- The sustainability and economics of the major commercial customer relationship, customer concentration and the conversion of the $339,000 backlog into revenue.
- Actual collections and contingent payments from the wireless-asset sale, and the availability and conditions of the secured credit facility.
- The effects of the 2016 share repurchase and ownership change on NOL utilization, liquidity and share count; also review outstanding options and potential dilution.
- Whether planned new markets and SaaS initiatives produce measurable sales, and whether access to government data, database agreements and military approvals continues.