Intellicheck Mobilisa, Inc. — Q1 2012 Form 10-Q
Business context and period: The company develops identity verification, access-control and wireless security technologies for government, military and commercial markets. This unaudited report covers the three months ended March 31, 2012, compared with Q1 2011; balance-sheet figures are compared with December 31, 2011.
Key financial results
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Revenue | $2.711 million | $2.856 million; down 5% |
| Gross profit / margin | $1.958 million / approximately 72% | $1.736 million / approximately 61% |
| Operating expenses | $1.943 million | $2.441 million; down 20% |
| Operating income (loss) | $15,079 | $(705,264) |
| Net income (loss) | $15,079 | $(707,749) |
| Adjusted EBITDA (non-GAAP) | $313,981 | $(356,314) |
| Cash from operating activities | $1.063 million | $241,094 |
Basic and diluted earnings per share were reported as $0.00, versus a $0.03 loss per share in Q1 2011. No income-tax provision was recorded; the company reported approximately $38.4 million of tax-loss carryforwards and a full valuation allowance against net deferred tax assets.
Liquidity, debt and balance sheet
- At March 31, cash and cash equivalents were $2.428 million, up from $1.394 million at year-end. Working capital was approximately $2.180 million; total assets were $22.702 million and stockholders’ equity was $19.794 million.
- Operating cash flow was supported in part by a $1.062 million decrease in accounts receivable; deferred revenue declined by $306,000. Investing cash outflow was $28,591, primarily for property and equipment. There was no financing cash flow.
- No borrowings were outstanding under the Silicon Valley Bank revolving facility. The facility has a $2 million maximum, is secured by substantially all company assets, and had $892,000 of unused availability at quarter-end. It matures August 17, 2013.
- Management said available cash, expected operating cash flow and revolver availability should cover working-capital and capital-expenditure needs for at least 12 months. The company may seek additional capital, but there is no assurance it can obtain financing on acceptable terms.
Material changes and management commentary
- Identity Systems revenue rose 29% to approximately $1.931 million, primarily due to an approximately $375,000 enterprise license sale to an international banking firm. Wireless revenue fell 42% to approximately $780,000, reflecting a buoy deployment in Q1 2011 that did not recur.
- The license sale had no corresponding cost of revenue and contributed to the higher gross margin. Management also attributed the improved operating result to lower costs following a 2011 cost-reduction initiative targeting $2 million in annual savings; it said the company was on track to meet that objective.
- Booked orders were $651,000, down from $1.271 million. Quarter-end backlog was approximately $1.6 million, versus $1.5 million a year earlier and $2.7 million at December 31, 2011.
- A March 2012 amendment to an existing R&D contract increased billings by $65,390 for work dating back to September 2011. The company recognized the prior-period-related revenue in the quarter and said the contract change did not represent an accounting error.
- Three customers generated approximately 63% of Q1 revenue and represented 51% of quarter-end receivables, compared with two customers generating 58% of revenue and 35% of receivables in Q1 2011.
- The former CFO resigned effective April 1, 2012, after quarter-end and entered a nine-month consulting agreement. The filing describes possible change-of-control protections during that consulting period.
Risks, contingencies and other disclosures
- Management cited economic weakness and reduced business or consumer spending as risks; the filing also points to other risk factors in the 2011 Form 10-K.
- The company had not completed its analysis of whether an ownership change could limit use of its tax-loss carryforwards under Section 382. The carryforwards expire from 2018 through 2031, according to the MD&A; the note gives a different terminal year, so the filing is not consistent on the expiration range.
- The company reported no legal or regulatory proceedings expected to have a material adverse effect and no material impairment charges in either comparative quarter. It disclosed a related-party office lease, guaranteed by the company, and cash held at one financial institution.
- Disclosure controls were concluded to be effective as of March 31, 2012; no material change in internal control over financial reporting was reported for the quarter. The interim results are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Whether the Q1 enterprise license revenue is recurring and how customer concentration evolves.
- Whether the lower order bookings and decline in backlog affect subsequent revenue, particularly in Wireless.
- Cash conversion and receivables collection, given the large operating cash-flow contribution from receivables and the concentration of receivables among three customers.
- Progress toward the targeted $2 million annual cost reduction and sustainability of the improved gross margin.
- Actual borrowing-base availability under the secured revolver and any future financing needs.
- Section 382 limits on tax-loss carryforwards, and the conflicting expiration-year disclosures in the filing.