Business context and reporting period
10-Q for the quarter and nine months ended September 30, 2017, filed November 13, 2017. The filing identifies the registrant as Ipsidy Inc. (formerly ID Global Solutions Corporation), a provider of biometric identity, identity-management and electronic transaction services; it does not identify the issuer as Authid Inc.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $608,000 | $596,000 | $1.752 million | $1.407 million |
| Operating loss | $(1.879) million | $(1.885) million | $(9.349) million | $(10.430) million |
| Net income (loss) | $(2.110) million | $(4.333) million | $(14.582) million | $2.527 million |
| Adjusted EBITDA loss (non-GAAP) | $(1.155) million | $(0.877) million | $(4.112) million | $(3.010) million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(4.892) million | $(3.063) million |
- At September 30, cash was $1.440 million; current assets were $2.770 million versus current liabilities of $1.988 million, or approximately $0.782 million of working capital. Total assets were $14.837 million.
- Total liabilities were $4.343 million. Notes payable had $3.0 million face principal, due in 2019, and a net carrying amount of $2.232 million; capital lease obligations totaled approximately $149,000.
- For nine months, gross margin was approximately 74% (revenue less cost of sales); reported revenue and cost figures imply a similar margin year over year. No income tax expense was recorded.
Material changes versus prior comparable periods
- Nine-month revenue rose about 25%, primarily reflecting Cards Plus and ID Solutions, acquired in February 2016. Q3 revenue increased only about 2%.
- Nine-month operating loss narrowed, but net results swung from 2016 income to a 2017 loss. 2016 included a $16.1 million noncash derivative-liability gain; 2017 included debt-conversion and settlement-related charges, including approximately $6.0 million loss on debt conversion/settlement, partly offset by a $2.8 million gain on extinguishment.
- January 2017 debt conversions exchanged approximately $6.3 million of debt and accrued interest for 84.8 million shares. The company also raised $3.0 million through a two-year 10% senior unsecured note and $4.0 million through an equity offering.
- Outstanding common shares increased to 364.3 million from 234.7 million at year-end 2016. Authorized common shares were increased to 1.0 billion. The company reported 47.5 million warrants and 104.5 million options outstanding at September 30.
- Cash increased from $689,000 at year-end, supported by financing, while operating cash use increased year over year. Inventory rose to $854,000, including approximately $707,000 of kiosks and components.
Outlook, risks, contingencies and unusual items
- Management said it expected to raise additional capital in Q4 2017 and anticipated further financing needs. It reported no formal financing commitments beyond disclosed amounts and warned financing may not be available on acceptable terms or at all.
- The filing states there is substantial doubt about the company’s ability to continue as a going concern. It cited a $63.5 million accumulated deficit, continuing losses, dependence on shareholder support, additional equity financing and growth in operating cash flows.
- A Colombian contract covering 740 cash-collection and fare-ticketing kiosks was described as worth approximately $30 million over ten years, but the parties were renegotiating its terms, including possible mutual termination; no definitive outcome was assured.
- Management attributed higher adjusted EBITDA losses to investment in staff and consulting resources. It described growth opportunities in identity management, security and electronic payments, but provided no quantified revenue or earnings guidance.
- Disclosure controls were deemed not effective, though improving. The filing cited inadequate segregation of duties and monitoring as material weaknesses and described remediation efforts, including added finance resources and continued use of consultants. Management reported no material change in internal control during the quarter.
- New commitments included approximately $335,000 in minimum commissions under a sales-agent agreement and at least $180,000 for the first year of a business-development and marketing agreement, plus a contingent $75,000 payment. The company reported no material pending legal proceedings.
Most important facts for investors to verify
- Confirm the correct issuer: the supplied filing is for Ipsidy Inc., not Authid Inc.
- Track subsequent financing, cash burn and whether management’s going-concern assessment changes.
- Verify the status and economics of the Colombian kiosk contract and whether it was renegotiated or terminated.
- Assess dilution from the expanded share authorization, outstanding options and warrants, and any reverse stock split authorized for board discretion.
- Monitor remediation of financial-reporting weaknesses and the timing and cost of the disclosed agency and consulting commitments.