Business context and reporting period
The supplied filing is Ipsidy Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2020; it does not identify Authid Inc. as the registrant. Ipsidy describes its business as mobile biometric identity verification, authentication and transaction processing, with identity-management and payment-processing activities across North America, South America and Africa.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $321,119 | $644,961 | $1,114,908 | $1,385,339 |
| Gross profit | $259,321 | $455,700 | $697,387 | $1,019,615 |
| Gross margin | 80.8% | 70.7% | 62.6% | 73.6% |
| Operating loss | $(2,806,621) | $(2,084,538) | $(5,479,229) | $(4,252,912) |
| Net loss | $(3,462,448) | $(2,175,791) | $(7,298,869) | $(4,438,530) |
| Adjusted EBITDA loss (non-GAAP) | $(1,433,754) | $(1,545,289) | $(2,740,101) | $(3,137,496) |
At June 30, 2020, cash was $814,950; current assets were $2.55 million and current liabilities $3.15 million, a working-capital deficit of about $603,000 (current ratio approximately 0.81). Total liabilities were $9.33 million. Notes payable were $496,027, and convertible debt, net of discounts and issuance costs, was $5.56 million; the convertible notes’ stated principal total was $6.355 million, principally due in 2022. Six-month operating cash use was $1.95 million, investing cash use $114,000 and financing cash provided $2.36 million.
Material changes versus prior period
- Revenue declined 50% in Q2 and 20% for the first half year over year. Management attributed the decline principally to the pandemic’s effect on Cards Plus in South Africa; that operation was closed in April and restricted in May and June.
- First-half operating and net losses widened. Higher depreciation and amortization, a $1.036 million goodwill impairment, higher interest expense and other charges contributed. The impairment related to Cards Plus after revised revenue assumptions reduced projected value.
- First-half Adjusted EBITDA loss improved by about $397,000, which management attributed to lower salary and technology spending. The measure is non-GAAP and should be considered alongside GAAP results.
- Cash increased from $567,081 at year-end to $814,950. Financing included $1.51 million of 2020 convertible-note proceeds, a $485,760 Paycheck Protection Program loan, stock sales and warrant exercises. A $965,033 stock subscription receivable outstanding at quarter-end was collected after June 30.
- Total stockholders’ equity fell to $3.49 million from $8.28 million at year-end, reflecting the first-half loss. Shares outstanding rose to 546.7 million from 518.1 million; substantial options and warrants also remain outstanding.
Outlook, commentary and risks
Management said it expects incremental revenue and cash from software deliveries to new customers in the second half of 2020 and beyond, but gave no revenue or earnings guidance. It estimated that $4.5–$6.0 million of additional financing would be needed to fund operations through June 30, 2021 under its current business plan, and cautioned that financing may not be available on acceptable terms.
The filing states there is substantial doubt about Ipsidy’s ability to continue as a going concern. Continued operations depend on financing, shareholder support, cash generation and winning customers; the company gave no assurance it can secure funding or become profitable. COVID-19 delayed customer and partner decisions, although management reported increased inquiries. The company recorded $985,000 of expense on extinguishment of a note and a $367,000 warrant-exercise inducement charge during the first half.
The February 2020 notes bear 15% interest, are secured, and have conversion and repayment-premium provisions; specified maturity, default or bankruptcy events can trigger repayment at 150% of principal. The PPP loan bears 1% interest and may be forgiven subject to SBA approval and requirements; unforgiven amounts are repayable. Management disclosed ordinary-course legal proceedings but did not expect them to materially affect results. It reported disclosure controls effective and continued remediation of a previously identified internal-control deficiency related to impairment procedures.
Management changed during the quarter: Phillip Kumnick became CEO and Philip Broenniman became President and COO; former CEO Philip Beck remained board chair and received a $350,000 severance arrangement. The filing also describes financing, warrant exercises, and other transactions involving directors or related parties.
Most important facts to verify
- Confirm the intended issuer: the provided filing is for Ipsidy Inc., not Authid Inc.
- Assess whether Ipsidy can obtain the stated $4.5–$6.0 million funding need and sustain operations given its going-concern warning, cash burn and working-capital deficit.
- Review the secured convertible-note terms, maturity and premium provisions, related-party involvement, and the status of PPP loan forgiveness.
- Track revenue recovery, particularly Cards Plus and the effect of COVID-19, against management’s expectation of new software-customer revenue.
- Evaluate dilution from 159.7 million outstanding options, 29.1 million warrants and convertible debt, alongside the reported 546.7 million common shares outstanding at June 30.