Filing summary
Entity and period: The supplied filing is a Form 10-Q for the quarter ended March 31, 2016. It identifies the registrant as Ipsidy Inc., formerly ID Global Solutions Corporation—not Authid Inc. The filing is signed March 31, 2017, and reports that the company changed its name to Ipsidy in 2017.
Financial results and condition
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $320,746 | $0 |
| Gross profit / margin | $202,636 / approximately 63% | Not applicable |
| Operating loss | $(4,322,401) | $(708,107) |
| Derivative-liability gain | $12,941,663 | $0 |
| Net income (loss) | $7,692,510 | $(709,862), restated |
| Operating cash flow | $(558,584) | $(338,150), restated |
- Revenue in Q1 2016 included approximately $197,000 from Cards Plus, $76,000 from ID Solutions, and $48,000 from Colombian operations. The 2015 quarter had no revenue.
- The reported net income was primarily driven by the noncash derivative-liability gain; the company still recorded a substantial operating loss. The derivative liability fell from $25.4 million at year-end 2015 to $12.3 million at March 31, 2016, largely reflecting a lower stock price.
- Cash was $310,033, down from $349,873 at December 31, 2015. Current assets of $1.27 million compared with current liabilities of $15.67 million, implying a working-capital deficit of approximately $14.4 million and a current ratio of about 0.08.
- Current liabilities included $12.25 million of derivative liabilities, $1.10 million of notes payable, and $666,486 of convertible notes payable, all reported net of discounts where applicable. Total stockholders’ deficit was $3.44 million; accumulated deficit was $31.38 million.
Material changes and unusual items
- On February 8, 2016, the company acquired FIN Holdings and subsidiaries in a related-party transaction, issuing 22.5 million shares valued at $9 million. The acquisition added customer relationships and intellectual property and resulted in $6.57 million of goodwill. Q1 results include FIN only from the acquisition date; its included revenue was approximately $273,000 and net loss approximately $71,000.
- General and administrative expense was $4.39 million, including approximately $3.21 million of stock-based compensation. Management cited added staffing and executive compensation; depreciation and amortization also increased following acquisitions. Interest expense was $926,752, versus $1,755 in the restated prior-year quarter.
- Financing activity included $100,000 of new notes in Q1. The company also issued stock for services, debt issuance costs, and the FIN acquisition. Weighted-average basic shares rose to 201.8 million from 163.7 million.
Outlook, risks, and contingencies
- Going concern: Management said continued operations depend on shareholder support, additional financing, sufficient operating cash flows, and growth in clients or acquisitions. It stated there was no assurance the company would become profitable and that available cash was insufficient to support development.
- Subsequent financing: After quarter-end, the company disclosed additional financings, including a $1.55 million secured convertible-debenture financing in April 2016, later 2016 equity and debt raises, a $3 million senior unsecured note in January 2017, and a March 2017 equity subscription agreement for $4 million. The company reported receiving $3.17 million of the March proceeds as of March 22, 2017, with $830,000 expected by April 30. It said further financing would likely be required.
- Contract with execution conditions: A December 2016 contract for 740 Colombian fare-collection kiosks contemplated approximately $30 million of payments over ten years, excluding VAT. The subsidiary still needed equipment financing and a $6 million performance bond, neither of which had been secured as of the filing’s disclosure.
- Controls and other risks: Management concluded disclosure controls were not effective, citing inadequate segregation of duties, reliance on outside consultants and attorneys, and no formal audit committee. Remediation steps were described as underway. The filing reported no material pending or threatened legal proceedings and no material change to previously disclosed risk factors.
- The filing provides no specific operating or earnings guidance. It highlights risks from limited revenue, continuing losses, financing needs, commercialization and market acceptance, competition, regulation, and dependence on third parties.
Important facts to verify
- Confirm the filing’s issuer: this source names Ipsidy Inc. and does not identify Authid Inc.
- Verify the derivative-liability valuation and the extent to which reported net income reflects a noncash accounting gain rather than operating performance.
- Assess cash runway, debt maturities and terms, subsequent financing proceeds, dilution, and the company’s need for additional capital.
- Confirm whether the Colombian kiosk contract’s required performance bond and equipment financing were obtained and whether the contract generated the expected revenue.
- Review the related-party FIN acquisition, the purchase-price allocation and goodwill, and progress in remediating the disclosed control weaknesses.