Business context and reporting period
The supplied filing is Ipsidy Inc. (formerly ID Global Solutions Corporation), not Authid Inc. It is a Form 10-K for the fiscal year ended December 31, 2016, filed July 12, 2017; figures below are annual, not fourth-quarter-only. Ipsidy provides biometric identity management and electronic payment processing services. Its 2016 results include the acquired ID Solutions and Cards Plus businesses and a full year of Colombian operations.
Key financial results
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $1.93 million | $0.74 million |
| Gross profit and margin | $1.44 million; 74.5% | Not clearly comparable: reported cost of sales was zero |
| Operating loss | $13.57 million | $8.90 million |
| Net loss | $9.85 million | $36.68 million |
| Cash used in operating activities | $3.79 million | $2.46 million |
| Cash at year-end | $0.69 million | $0.35 million |
Revenue increased about $1.2 million, primarily reflecting acquisitions and kiosk leasing. General and administrative expense rose to $14.24 million from $9.00 million, largely due to higher staffing, stock-based compensation and consulting costs. Stock-based compensation was $8.65 million. A $7.35 million derivative-liability valuation gain reduced the 2016 net loss; 2015 included a $26.65 million derivative-liability loss. The derivative liability was valued using Level 3 inputs.
At December 31, 2016, current assets were $1.19 million and current liabilities $10.83 million, implying a working-capital deficit of about $9.65 million and a current ratio of approximately 0.11. Total liabilities were $25.80 million, total assets $12.55 million, and stockholders’ deficit $13.25 million. Balance-sheet carrying amounts for notes payable and convertible notes were approximately $3.16 million and $2.50 million, respectively; reported contractual long-term debt obligations were $6.07 million. Derivative liabilities totaled $18.06 million, split between current and long-term classifications.
Material changes, outlook and risks
- The company acquired FIN Holdings, including ID Solutions and Cards Plus, in February 2016 for $9 million in stock. The acquisition added revenue but also goodwill and intangible assets.
- Management said the company needed an estimated $7–8 million in 2017 for operations and development, plus $10–12 million to meet the Bogota kiosk contract requirements. It anticipated positive operating cash flow in late 2018 or early 2019, conditional on market acceptance; this was not assured.
- A ten-year Colombian contract contemplated 740 unattended kiosks and approximately $30 million of payments, excluding VAT. The company had not secured the required $6 million performance bond or equipment financing, and the parties were renegotiating scope and delivery. Sixty kiosks had been ordered or were in delivery at the filing date.
- Subsequent to year-end, approximately $6.33 million of debt and accrued interest converted into about 84.82 million shares. The company also obtained a $3 million, 10% note due in 2019 and agreed to sell $4 million of shares; about $3.57 million of that subscription proceeds had been received by the filing date. Management said additional financing would still be needed.
- The auditor highlighted substantial doubt about the company’s ability to continue as a going concern. The filing also reports ineffective disclosure controls and material weaknesses in financial reporting controls, including limited segregation of duties and inadequate subsidiary oversight.
- Other significant risks include continued operating losses and cash burn, financing availability and shareholder dilution, dependence on successful product integration and commercialization, competition, international operations, and execution and financing of the kiosk contract. The filing reports a roughly $226,000 product-testing asset write-off and no material pending legal proceedings.
Investor facts to verify
- Whether financing and liquidity were sufficient to fund operations and contractual commitments after the reported subsequent financings.
- The final terms, financing, performance bond, delivery obligations and expected economics of the Bogota kiosk contract.
- Progress toward revenue growth, product commercialization and management’s conditional cash-flow target.
- Remediation of reported control weaknesses and the company’s subsequent SEC filing timeliness.
- Potential dilution from debt conversions, warrants and options; the filing reported 234.7 million common shares outstanding at year-end and extensive additional equity-linked instruments.