Ipsidy Inc. Form 10-K Summary
Entity note: The supplied filing is for Ipsidy Inc. (formerly ID Global Solutions Corporation), not Authid Inc. It covers the fiscal year ended December 31, 2017, with 2016 comparisons; it is an annual report, not a standalone fourth-quarter report.
Business context and reporting period
Ipsidy provides biometric identification, identity management, authentication, and electronic transaction-processing services. Its operations include identity management products and payment processing, with revenue generated in North America, South America, and Africa. The company was developing an integrated identity transaction platform; several mobile wallet and authentication offerings remained in pilot or testing stages. In December 2017, it won a tender to provide fingerprint de-duplication software to Zimbabwe’s Electoral Commission.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $2.304 million | $1.930 million |
| Gross profit and margin | $1.714 million; 74.4% | $1.438 million; 74.5% |
| Operating loss | $12.009 million | $13.567 million |
| Net loss | $17.482 million | $9.851 million |
| Adjusted EBITDA loss (non-GAAP) | $5.671 million | $4.272 million |
| Cash used in operating activities | $6.541 million | $3.807 million |
| Cash at year-end | $4.414 million | $0.689 million |
At December 31, 2017, current assets were $5.343 million and current liabilities were $1.597 million, yielding working capital of approximately $3.746 million. Total assets were $17.029 million and total liabilities were $4.088 million. The company reported $3.0 million principal on a senior unsecured note due in January 2019 (carrying value, net of discounts and issuance costs, was $2.376 million), plus $0.143 million of capital lease obligations. The senior note bears 10% interest. The filing describes other borrowing rates of 10%–15%.
Material changes versus 2016
- Revenue rose about 19%, mainly reflecting higher Cards Plus sales and a full year of Colombian operations. 2017 revenue was $1.391 million from Africa, $0.518 million from North America, and $0.394 million from South America.
- Operating loss narrowed by $1.558 million, as operating expenses excluding cost of sales declined, partly offset by higher staffing and consulting costs. Gross margin was broadly unchanged.
- Net loss increased by $7.630 million despite the lower operating loss. Results included debt-conversion, settlement, warrant-modification, and derivative-related items; 2016 included a $7.345 million derivative gain. The company recorded $5.650 million of stock-based compensation in 2017.
- Operating cash use increased by $2.734 million. Investing activities used $0.908 million in 2017, principally for software and platform development.
- Common shares outstanding increased from 234.7 million to 403.3 million. In January 2017, approximately $6.331 million of debt and accrued interest converted into 84.8 million shares.
Outlook, risks, contingencies, and unusual items
Management expected to raise approximately $10 million to fund its plan through December 31, 2019, while noting that financing may not be available on acceptable terms or at all. The company reported an accumulated deficit of $66.4 million and negative operating cash flow, and management and the auditor stated that substantial doubt exists about the company’s ability to continue as a going concern. The audited financial statements nevertheless received an unqualified opinion and were prepared on a going-concern basis.
Key risks include continued losses and cash burn, dependence on additional financing, uncertainty about commercial adoption of products still in development or pilot, competition from larger providers, international and foreign-currency exposure, customer and geographic concentration, cybersecurity and data-protection risks, and potential regulation of biometric and payment-processing activities. The company also disclosed that its disclosure controls and procedures were not effective at year-end because of internal-control weaknesses, including limited staffing and inadequate segregation of duties.
Unusual financial items included the conversion of debt into equity, changes to warrant anti-dilution provisions, and settlement of debt. The company reported a $5.979 million loss on debt settlement and a $2.802 million gain on extinguishment of notes, among other related items; these significantly affected the relationship between operating loss and net loss. The company also recorded a $353,000 inventory valuation allowance for kiosks. No material adverse outcome from ordinary-course legal proceedings was expected, and the Recaudo Bogotá kiosk contract was terminated by mutual release without financial consideration.
Important facts for investors to verify
- Funding runway, actual financing needs, and progress toward the stated $10 million funding requirement.
- Whether pilots, platform development, and the Zimbabwe tender convert into material recurring revenue and cash receipts.
- Debt terms and repayment capacity for the $3 million note due in January 2019.
- Potential dilution from outstanding options and warrants; the filing reports 103.2 million options and 48.2 million warrants outstanding at year-end.
- Remediation of ineffective disclosure controls and internal-control weaknesses, and any subsequent auditor or management updates.
- Customer and regional concentration, collectability of receivables, and the recoverability of software, intangible assets, goodwill, and kiosk inventory.