Business context and reporting period
The filing is Ipsidy Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The request identifies Authid Inc., but the filing itself names Ipsidy Inc. as the registrant. Ipsidy describes its business as an identity-as-a-service platform offering biometric identity, verification, authentication and transaction-processing solutions, alongside payment processing and related services.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2019: $552,761; 2018: $701,809 | 2019: $1,938,100; 2018: $3,066,925 |
| Gross profit and margin | 2019: $409,769 (74.1%); 2018: $460,901 (65.7%) | 2019: $1,429,384 (73.7%); 2018: $1,962,060 (64.0%) |
| Operating loss | 2019: $(2,247,748); 2018: $(1,925,334) | 2019: $(6,500,660); 2018: $(6,729,159) |
| Net loss | 2019: $(2,358,236); 2018: $(2,145,098) | 2019: $(6,796,766); 2018: $(7,371,073) |
| Adjusted EBITDA loss (non-GAAP) | 2019: $(1,770,844); 2018: $(1,263,209) | 2019: $(4,904,459); 2018: $(4,401,870) |
For the nine-month period, operating cash outflow was $5.03 million, investing cash outflow was $1.07 million, and financing cash inflow was $2.91 million. Cash fell by $3.20 million to $1.78 million. At September 30, current assets were $2.67 million and current liabilities $4.02 million; management reported a $1.3 million working-capital deficit. Total liabilities were $4.28 million, including $1.95 million of net notes payable. Approximately $2.0 million of note principal and accrued interest was due in April 2020. Accumulated deficit was $83.2 million.
Material changes versus the prior comparable period
- Nine-month revenue declined 36.8%, primarily because a 2018 sale of an automated fingerprint identification and identity-management system did not recur. Management cited revenue increases in Colombia and South Africa, while North American revenue fell from $1.72 million to $0.51 million.
- Gross margin improved, reflecting lower cost of sales, but quarterly operating loss widened and quarterly net loss increased. Nine-month net loss narrowed, while Adjusted EBITDA loss worsened by about $0.5 million.
- General and administrative expense fell by about $1.38 million year over year for the nine months, partly due to lower stock compensation and a $0.5 million 2018 kiosk valuation charge. Research and development expense rose about $0.43 million, and depreciation and amortization also increased.
- Cash decreased substantially from $4.97 million at December 31, 2018. The company raised approximately $3.1 million gross from a June 2019 private stock offering, issuing about 38.8 million shares; shares outstanding rose to 518.1 million from 479.0 million at year-end 2018.
Outlook, risks and unusual items
- Going concern: Management stated there is substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on financing, shareholder support, improved operating cash flows and new customers or business opportunities. The statements include no adjustments for a possible inability to continue as a going concern.
- Management said additional capital was needed in the fourth quarter of 2019 and that no formal financing commitments were in place. It estimated cash needs for the balance of 2019 and 2020 at approximately $10 million, including the note and accrued interest due in April 2020. Failure to obtain financing could materially adversely affect the company.
- Management expected revenue and cash flow to begin increasing sequentially in 2020 as customers are onboarded to existing and new products. It also reported fourth-quarter cost-reduction actions, including headcount and other expense reductions. These are expectations, not guaranteed results.
- Key disclosed risks include limited revenues and continuing losses, financing and liquidity needs, commercialization and market acceptance, reliance on third parties, foreign operations, cybersecurity or technology-service breaches, regulation, competition and intellectual-property protection.
- Related-party matters include approximately $180,000 of nine-month interest expense on a note owed to a trust whose trustee is a director, and rent paid to an entity principally owned by the CEO and his family. The company reported no legal proceedings expected to have a material adverse effect and no material change to previously disclosed risk factors.
- Adoption of the new lease standard resulted in recognition of operating lease right-of-use assets and liabilities; the filing reported $345,090 of operating lease liabilities at September 30, 2019. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Ipsidy Inc., notwithstanding the request’s Authid Inc. label.
- Assess the company’s ability to raise the stated capital requirement, meet the April 2020 note maturity and fund operations given cash of $1.78 million and negative operating cash flow.
- Track whether expected customer onboarding and sequential revenue growth in 2020 materialized, especially given the steep year-to-date revenue decline.
- Review dilution and potential overhang from the 518.1 million shares outstanding, 106.4 million options and 47.5 million warrants; options and warrants were excluded from diluted loss per share as antidilutive.
- Reconcile the statements’ nine-month revenue of $1,938,100 with the segment table, which contains a different total in its 2019/2018 presentation; the filing text does not provide a clear explanation for this discrepancy.