AuthID (Ipsidy Inc.) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; financial statements are unaudited. The registrant named in the filing is Ipsidy Inc., which uses the authID.ai brand. The company completed a 1-for-30 reverse stock split on June 14, 2021 and changed its ticker to AUID.
Financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $577,781 | $321,119 | $1,166,780 | $1,114,908 |
| Gross profit (revenue less cost of sales) | $420,876 | $259,321 | $793,731 | $697,387 |
| Gross margin | 72.9% | 80.8% | 68.0% | 62.6% |
| Operating loss | $(3,290,587) | $(2,806,621) | $(5,477,497) | $(5,479,229) |
| Net loss | $(3,057,610) | $(3,462,448) | $(5,547,609) | $(7,298,869) |
| Adjusted EBITDA loss (non-GAAP) | $(1,352,723) | $(1,433,754) | $(2,592,225) | $(2,740,101) |
For the six months, operating cash outflow was $2.38 million, investing cash outflow was $89,154, and financing cash inflow was $463,644. Cash fell by $1.96 million to $1.81 million. The filing reports a working-capital deficit of approximately $0.4 million at June 30, 2021.
At June 30, total liabilities were $3.75 million, including $662,000 of current convertible debt, approximately $490,000 of notes payable (primarily a second PPP loan), and $30,763 of finance lease obligations. Stockholders’ equity was $7.92 million. Accounts payable and accrued expenses were $2.10 million; deferred revenue was $461,083.
Changes versus prior period
- Q2 revenue increased approximately 80% year over year, principally because Cards Plus activity improved from the COVID-affected prior-year quarter. Six-month revenue rose about 5%; management said Ipsidy revenue increased slightly and MultiPay revenue was relatively flat.
- Six-month gross margin improved to 68.0% from 62.6%, as Cards Plus sold products at higher margins. Q2 gross margin declined year over year, reflecting higher cost of sales alongside increased Cards Plus revenue.
- Six-month net loss narrowed by $1.75 million, while operating loss was nearly unchanged. The comparison includes prior-year impairment and debt-extinguishment charges; 2021 included a $485,760 gain from forgiveness of the first PPP loan.
- General and administrative expense increased by approximately $1.1 million for the half year, largely from higher non-cash stock compensation. Stock-based compensation totaled $2.26 million for the six months.
- Approximately $6.1 million of convertible indebtedness was converted into about 1.14 million shares during the first half. The company reported 21,363,027 shares outstanding at June 30 and 21,391,257 at July 31.
Outlook, risks and notable items
- Going concern: The company reported an accumulated deficit of approximately $103.8 million and substantial doubt about its ability to continue as a going concern. Continuation depends on additional financing, shareholder support, operating cash generation, and acquiring customers or other business opportunities.
- Funding plans: Management estimated it would need approximately $9–12 million to implement and grow operations through December 31, 2022, support expected revenue growth, and repay convertible debt not converted to equity. A proposed underwritten offering described in a July 16, 2021 S-1 amendment contemplated approximately 1.8 million shares at an assumed $11.03 per share, or about $20 million before expenses. Completion and proposed Nasdaq Capital Market listing were not assured.
- Debt and PPP: The first approximately $486,000 PPP loan was forgiven in May 2021. The second, approximately $486,000 loan remained outstanding; forgiveness was subject to approval and compliance, and any unforgiven amount must be repaid. Remaining convertible debt of $662,000 was due in February 2022. The Stern Trust also had approximately $0.7 million of unconverted interest outstanding.
- Operating risks: Management said COVID-19 restrictions affected Cards Plus in South Africa and delayed partner decisions and customer negotiations. Other disclosed risks include limited revenue and operating history, losses, financing needs, commercialization and customer adoption, reliance on third parties, international operations, cybersecurity, regulation, competition, and intellectual property protection.
- Leadership and dilution: CEO and president/technology leadership changed in June. New and former executives and directors received substantial stock-option awards. At June 30, approximately 9.17 million options and 1.41 million warrants were outstanding; option compensation costs of approximately $16.53 million remained unrecognized and were expected to be expensed through 2025.
- Contingencies and controls: The company said ordinary-course legal proceedings were not expected to have a material adverse effect, reported no material change to its previously disclosed risk factors, and concluded disclosure controls were effective at June 30, 2021.
Investor facts to verify
- Whether the proposed equity offering closed, its final size and terms, and whether the company’s shares were admitted to Nasdaq.
- Whether the company raised enough capital to meet its stated $9–12 million funding need and address the going-concern risk.
- Whether the second PPP loan was forgiven or requires repayment, and the status and terms of remaining debt and the Stern Trust interest.
- Whether revenue growth and gross-margin performance persisted, particularly given the company’s low revenue relative to operating expenses and the disclosed customer contract liabilities.
- The potential dilution from outstanding options and warrants, including the effect of awards and share counts after the reverse split.