AuthID (Ipsidy Inc.) — Q1 2022 Form 10-Q
Business and period: Ipsidy Inc., doing business as authID.ai, reported unaudited results for the three months ended March 31, 2022. Its core focus is biometric identity verification software delivered through an identity-as-a-service platform; it also operated payment-processing and card-manufacturing businesses during the quarter. The Board approved plans in May 2022 to exit those non-core activities.
Financial results and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $607,362 | $588,999; up about 3% |
| Gross profit / gross margin | $423,276 / about 69.7% | $372,855 / about 63.3% |
| Operating loss | $5.27 million | $2.19 million |
| Net loss | $5.30 million; $0.22 per share | $2.49 million; $0.13 per share |
| Adjusted EBITDA loss (non-GAAP) | $2.86 million | $1.25 million |
| Operating cash flow | $(3.10) million | $(1.68) million |
Revenue growth reflected additional identity-services customers, partly offset by weaker revenue in Cards Plus and Colombia. Cost of sales declined, supporting a higher gross margin. General and administrative expense rose about $2.8 million, principally from higher stock compensation, compensation, marketing, and professional fees; research and development expense increased about $0.2 million. Q1 stock-based compensation was $1.87 million, including about $0.80 million for market-condition awards. The company also recorded a $144,000 impairment charge related to Cards Plus intangible assets and included $150,000 severance cost in its Adjusted EBITDA reconciliation.
Liquidity and debt: Cash was $13.80 million at March 31, versus $6.04 million at year-end; working capital was approximately $12.0 million. Financing activities generated $10.83 million, including approximately $8.0 million net proceeds from convertible notes and $3.15 million from common-stock sales, partially offset by fees and repayments. The company reported $8.13 million of convertible debt net of discounts and issuance costs on the balance sheet; the notes’ aggregate face principal was approximately $9.84 million, including $9.18 million due in 2025 and a $662,000 related-party note due in December 2022. The new senior secured notes bear 9.75% interest and convert at $3.70 per share. A separate $10 million standby facility bears 15% interest when drawn; it was undrawn at quarter-end and is subject to conditions, including a cash-availability test.
Cash used in operations increased year over year to $3.10 million. Management said the financing provided sufficient funds to operate through December 31, 2023, while acknowledging that additional capital may be needed. The filing also notes an accumulated deficit of $121.2 million and prior auditor emphasis-of-matter language concerning liquidity.
Material developments, outlook, and risks
- Portfolio shift: On May 4, 2022, the Board approved an orderly exit from the MultiPay correspondent-bank and payment-services business in Colombia and the Cards Plus card-manufacturing business in South Africa. Management estimated additional Colombian exit cash costs would not exceed $250,000; costs were not recorded in Q1. A possible Cards Plus sale had no agreed terms or guaranteed proceeds. These operations were not classified as discontinued operations at March 31.
- Growth and spending: Management described increased investment in people, technology, product development, and marketing. It provided no numerical revenue or earnings guidance.
- Key risks: The company cited its limited revenue and history of losses, customer adoption and retention, ability to raise capital, Nasdaq listing, technology and personnel needs, privacy and intellectual-property matters, COVID-19, the war in Ukraine, regulation, inflation, and general economic conditions. Disruption to outsourced engineering resources in Eastern Europe could cause delays or added costs.
- Other items: A lender/shareholder’s designee joined the Board in April 2022 under the standby-facility agreement. The CFO planned to retire in June 2022, with a successor identified. Management reported disclosure controls were effective and no material change in internal control during the quarter. It said ordinary-course legal matters were not expected to materially affect results.
Investor verification priorities
- Track cash burn against management’s stated funding runway through December 2023, and confirm whether the standby facility is drawn and on what terms.
- Review the senior secured convertible notes’ conversion, maturity, security, and interest-payment provisions, including potential dilution.
- Assess whether identity-services revenue growth can scale enough to offset operating costs and ongoing losses.
- Monitor the Colombia and South Africa exits, including actual costs, asset-sale proceeds, and any further impairment or discontinued-operations accounting.
- Evaluate the scale of equity compensation and potential dilution: 9.15 million options and 1.54 million warrants were outstanding at quarter-end; diluted EPS excluded potential shares as anti-dilutive.