Business context and reporting period
Filing identity: The supplied filing is Ipsidy Inc.’s Form 10-K for the fiscal year ended December 31, 2018, filed March 8, 2019—not a quarterly report for 2018 Q4. The request metadata names Authid Inc.; that does not match the registrant identified in the filing.
Ipsidy operated an identity-as-a-service and payment-processing business, offering biometric identity verification, authentication and access solutions, fingerprint identification systems, card products, and payment services. The company reported operations in North America, South America and Africa. Its 2018 revenue increase was principally attributed to delivery of an automated fingerprint identification system and services for Zimbabwe’s Electoral Commission (ZEC).
Key financial metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $3.829 million | $2.304 million |
| Gross profit and margin | $2.572 million; 67.2% | $1.714 million; 74.4% |
| Operating loss | $(9.323) million | $(12.009) million |
| Net loss | $(10.028) million | $(17.482) million |
| Adjusted EBITDA loss (non-GAAP) | $(6.005) million | $(5.671) million |
| Cash used in operating activities | $(5.950) million | $(6.541) million |
At December 31, 2018, cash was $4.972 million; current assets were $5.767 million and current liabilities $1.614 million, yielding working capital of approximately $4.153 million. Total liabilities were $3.553 million. Notes payable had $2.0 million principal outstanding ($1.854 million carrying value, net of discounts), due in 2020; the note bears 10% annual interest. The company reported a $76.4 million accumulated deficit and disclosed substantial doubt about its ability to continue as a going concern.
Material changes versus the prior year
- Revenue rose approximately 66%, to $3.829 million, largely from the ZEC contract. North American revenue increased to $1.942 million from $0.518 million; South American revenue was $0.476 million versus $0.394 million, and African revenue was $1.411 million versus $1.391 million.
- Cost of sales increased to $1.257 million from $0.589 million. Gross margin declined to 67.2% from 74.4%, despite management’s statement that production efficiency improved following equipment installation at CardsPlus.
- Operating loss narrowed by about $2.686 million. General and administrative expense fell, principally due to lower stock-based compensation, partly offset by higher staffing and consulting costs.
- Net loss improved substantially, but the comparison is affected by 2017 debt, derivative and warrant-related charges. Adjusted EBITDA loss, a non-GAAP measure, widened by about $0.334 million.
- Cash from financing was $7.925 million, mainly reflecting the 2018 stock offering. The company issued about 64.1 million shares for approximately $9.611 million gross proceeds; common shares outstanding rose to 478.951 million from 403.312 million.
Outlook, risks and unusual items
- Management expected continued operating cash outflows and losses in 2019 and estimated it would need to raise approximately $5 million to $7.5 million to fund its business plan through year-end 2019. It cautioned that financing might not be available on acceptable terms, or at all. No specific revenue or profitability guidance was provided.
- The auditor highlighted substantial doubt about the company’s ability to continue as a going concern. Management’s plans depend on additional financing, improved operating cash generation and acquiring customers; success is not assured.
- The new identity transaction platform generated approximately $5,000 of revenue in 2018. Commercial adoption and transition to recurring revenue remain unproven; management cited a history of reliance on a small number of large system sales.
- Customer and geographic concentration are material: ZEC contributed 37% of consolidated revenue in 2018; CardsPlus contributed another 37%, and Colombian operations 12%. The filing also reports 14% from one U.S. customer, so the precise customer/geography relationships merit review.
- The company recorded an approximately $707,000 inventory valuation allowance for kiosks held for sale, up from approximately $353,000, and wrote off about $149,000 of assets. Stock-based compensation was approximately $2.430 million.
- Risks include ongoing financing needs and dilution, competition, product commercialization and technology risks, cybersecurity and service interruptions, international and currency exposure, biometric-data and payment regulation, and thin trading in OTC-listed shares. The filing reports no material legal proceeding expected to adversely affect results.
- Management concluded disclosure controls were effective, while the text also refers to identified material weaknesses; the specific weaknesses are not clear in the supplied filing text. The auditor did not express an opinion on internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer and period: the filing is for Ipsidy Inc. and FY 2018, despite the request metadata naming Authid Inc. and 2018 Q4.
- Review the full audited statements and notes for the going-concern assessment, debt terms, cash needs and subsequent financing activity.
- Assess the repeatability and timing of ZEC-related revenue, customer concentration, and whether new platform offerings generate meaningful recurring revenue.
- Reconcile the filing’s customer-concentration disclosures and clarify the referenced internal-control material weaknesses.
- Evaluate dilution from the 2018 share issuance and outstanding options and warrants; compare potential share issuance with the 478.951 million shares outstanding at year-end.