Intellicheck Mobilisa, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; filed August 6, 2013. The company develops and markets identity verification, access-control and security systems, and wireless network solutions for government, military and commercial customers.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Revenue | $1.721 million | $3.441 million | $3.353 million | $6.151 million |
| Gross profit | $960,000 | $2.230 million | $1.855 million | $4.188 million |
| Gross margin | 55.8% | 64.8% | 55.3% | 68.1% |
| Operating income (loss) | $(919,000) | $61,000 | $(1.840) million | $76,000 |
| Net income (loss) | $(919,000) | $61,000 | $(1.840) million | $76,000 |
| Adjusted EBITDA (non-GAAP) | $(635,000) | $355,000 | $(1.281) million | $669,000 |
- Cash and liquidity: Cash was $595,000 at June 30, down from $1.686 million at December 31, 2012. Working capital was negative approximately $645,000. Total assets were $19.138 million and stockholders’ equity was $15.932 million.
- Cash flows, first half: Operating activities used $1.121 million, investing activities used $40,000, and financing activities provided $70,000. Cash declined $1.091 million. The MD&A reports operating cash use of $1.134 million and financing cash provided of $83,000, differing from the cash-flow statement.
- Debt and credit: No borrowings were outstanding on the $2 million secured revolving facility; reported unused availability was approximately $933,000. The facility was due to mature August 15, 2013. No other debt balance is reported.
- Other: Accounts receivable increased to $1.377 million from $870,000; current liabilities rose to $2.818 million from $2.255 million. The company reported a $41.9 million tax-loss carryforward, subject to possible Section 382 limitations, and a full valuation allowance against net deferred tax assets.
Changes versus prior comparable periods
- Revenue declined 50% year over year in Q2 and 45.5% for the first half. Identity Systems and Wireless revenue both fell; management attributed the decline primarily to large hardware sales in Q2 2012 and higher 2012 buoy work relative to 2013 wireless installations.
- Gross margin contracted by 9.0 percentage points in Q2 and 12.8 points for the first half. Management cited a higher share of lower-margin wireless equipment and installation work.
- The company shifted from modest net income in 2012 to losses in both 2013 periods. Operating expenses declined 13.4% in Q2 and 10.2% for the first half, with lower selling costs partly offset by higher Q2 R&D expense.
- Q2 booked orders were $2.2 million, up 133% from Q1 2013 but down 27% from Q2 2012. Backlog was approximately $1.1 million, up 45% sequentially and 21% year over year.
Outlook, risks and notable items
- Management expected available cash, operating receipts and the current or anticipated renewed credit facility to cover working capital and capital expenditure needs for at least 12 months. It also said it was implementing cost reductions and monitoring for further cuts.
- The company said it might seek additional capital for contingencies or growth; there is no assurance financing would be available on acceptable terms. A shelf registration statement was being renewed.
- Customer concentration remained relevant: one customer represented approximately 21% of Q2 revenue, 11% of first-half revenue and 27% of receivables at June 30. This was lower than the four customers collectively accounting for 80% of Q2 2012 revenue.
- The $2 million credit facility was secured by company assets and scheduled to expire shortly after quarter-end; management expected renewal. The filing does not confirm that renewal was completed.
- Goodwill was $12.309 million. Management reported no impairment indication at June 30; its December 2012 impairment analysis placed reporting-unit fair value at 102% of carrying value. The filing also notes uncertainty around realization and potential limitation of tax-loss carryforwards.
- The company disclosed $251,500 of accrued board fees for the first two quarters and CEO salary for Q2, and a related-party office lease guaranteed by the company. It reported no material legal proceedings. Management concluded disclosure controls were effective and reported no material second-quarter change in internal controls.
Important facts for investors to verify
- Whether the revolving credit facility was renewed after its August 15, 2013 maturity, and the resulting availability and terms.
- The explanation for differences between the cash-flow statement and MD&A cash-flow figures, and between primary-statement net losses and the Adjusted EBITDA reconciliation’s net-loss starting figures.
- Subsequent revenue, bookings and backlog trends, including whether sales recover from the unusually strong 2012 comparison period.
- Receivables collection, cash burn, cost reductions and the company’s ability to fund operations without additional capital.
- Any Section 382 limitation on the $41.9 million of tax-loss carryforwards and any change in goodwill impairment indicators.