Authid Inc. quarterly report, Q3 FY2015

Business context and reporting period

This is the Form 10-Q for the quarter and nine months ended September 30, 2015. The filing identifies the registrant as ID Global Solutions Corporation, formerly IIM Global Corporation—not Authid Inc. Investors should verify the issuer identity and whether this is the intended filing.

The company was developing biometric identification and payment products and acquired Multipay S.A. in April 2015 and IDGS LATAM S.A.S. in August 2015. Management said it had not completed development of a marketable product.

Key financial metrics

At September 30, cash was $576,897, current assets were $1,211,341, and current liabilities were $28,129,087, implying a working-capital deficit of approximately $26.9 million. Total assets were $3,345,449; stockholders’ deficit was $24,783,638. Current liabilities included a $26,514,647 derivative liability, $262,158 of convertible notes payable net of discount, $150,000 of related-party convertible notes, and a $151,902 promissory note. The filing gives no separate gross-profit figure, so a gross margin is not clear.

Changes versus prior comparable period

Revenue was reported as zero in the 2014 comparative periods. Nine-month net loss increased from $451,141 in 2014 to $32.7 million in 2015. The reported 2015 loss was driven largely by noncash and financing-related items: $20,979,041 derivative expense, $4,849,740 stock-option compensation, $4,538,040 debenture financing costs, and $421,524 amortization of debt discount. Operating expenses also rose, including general and administrative expense of $1,817,906 versus $350,511 for the nine months.

Cash rose from $159,296 at December 31, 2014 to $576,897 at September 30, 2015, primarily reflecting financing proceeds; the company raised $2,040,000 from convertible debt issuance during the nine months. Common shares outstanding increased to 178,301,473 at September 30, 2015 from 163,538,289 at year-end 2014.

Outlook, risks, contingencies, and unusual items

• Going concern: The company reported an accumulated deficit of $35,077,467 and stated that substantial doubt existed about its ability to continue as a going concern. It needs additional financing and has no formal financing commitments; management warned that available cash may not support development and operations.
• Product development: Management refocused development on a next-generation HDR platform, estimating about six additional months and approximately $200,000 to productize it. No assurance was given that the product will be completed or commercialized.
• Convertible securities and dilution: Certain notes and warrants have reset or anti-dilution provisions. These features were classified as derivative liabilities and valued using a pricing model; the liability was $26.5 million at quarter-end, with $21.0 million of fair-value expense recognized in the nine months. The valuation uses assumptions including 325% volatility.
• Further financing after quarter-end: A September 25–October 7, 2015 offering raised $1,125,000 through secured 12% promissory notes and warrants for 7.5 million shares. The notes are secured by the company’s interest in IDGS LATAM. A separate $100,000 related-party note was disclosed. A related-party note converted into 5,204,167 shares on October 7.
• Acquisition obligations: The Multipay purchase included up to 1,498,483 additional shares tied to payment of approximately $340,000 of specified liabilities by Multipay’s former shareholders. The company recorded corresponding contingent asset and liability amounts.
• Controls and legal matters: Management concluded disclosure controls were not effective, citing inadequate segregation of duties, reliance on outside consultants and counsel, and no formal audit committee. The company reported no material pending or threatened legal proceedings.

Important facts for investors to verify

1. Confirm that ID Global Solutions Corporation, rather than Authid Inc., is the intended issuer and filing.
2. Reconcile revenue disclosures: the statements report $86,358 for nine months and $75,312 for the quarter, while MD&A gives other figures, including $84,627 since Multipay’s acquisition and $95,673 year to date.
3. Review the $26.5 million derivative liability, the assumptions used in its valuation, and the potential effects of note and warrant conversion or reset terms.
4. Assess liquidity, debt maturities and security interests, including post-quarter financing, against the stated going-concern uncertainty.
5. Confirm the status and funding needs of the HDR product plan, Multipay’s revenue contribution, and the contingent acquisition-share obligation.
6. Consider the disclosed ineffective controls and potential dilution from outstanding options, warrants, convertible debt, and subsequent share conversions.