Business context and reporting period
The supplied filing is Ipsidy Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019—not a filing identified as Authid Inc. Ipsidy describes its business as biometric identity verification and authentication, identity management, and payment processing.
Financial results and liquidity
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 |
|---|---|---|
| Revenue | $645,000 | $1.385 million |
| Gross profit / margin | $456,000 / 70.7% | $1.020 million / 73.6% |
| Operating loss | $2.085 million | $4.253 million |
| Net loss | $2.176 million | $4.439 million |
| Adjusted EBITDA loss (non-GAAP) | $1.545 million | $3.137 million |
For the six months, operating cash outflow was $2.671 million; investing outflow was $955,000, and financing inflow was $2.817 million, principally from the stock offering. Cash declined from $4.972 million at year-end 2018 to $4.184 million at June 30, 2019. Current assets were $5.174 million and current liabilities $4.220 million, leaving working capital of approximately $953,000.
Total liabilities were $4.513 million. Notes payable were $1.924 million net of discounts and costs; approximately $2.005 million of principal was scheduled to mature from July 2019 through June 2020, including the $2.0 million senior note due in April 2020. The company reported $13.827 million of stockholders’ equity.
Changes versus the prior comparable period
- Second-quarter revenue fell 65% from $1.839 million in 2018; first-half revenue fell 41% from $2.365 million. Management attributed the decline mainly to a large AFIS and identity-management system sale in 2018 that did not recur.
- First-half gross margin increased to 73.6% from 63.5%; gross profit fell to $1.020 million from $1.501 million as revenue declined.
- First-half operating loss narrowed to $4.253 million from $4.804 million and net loss to $4.439 million from $5.226 million. General and administrative costs decreased, while depreciation and amortization increased.
- Operating cash use was nearly unchanged year over year ($2.671 million versus $2.681 million). Cash at period-end was $4.184 million versus $1.313 million a year earlier.
Outlook, risks, contingencies, and unusual items
- Going concern: Management states there is substantial doubt about the company’s ability to continue as a going concern. It cites accumulated deficit of $80.9 million, losses, reliance on further financing and shareholder support, and the need to generate operating cash flows. The statements contain no adjustments for a possible failure to continue as a going concern.
- Outlook and funding: Management expected revenue to increase sequentially as customers were onboarded to existing and new platform offerings. It estimated cash needs of approximately $10 million for the balance of 2019 and 2020, including the note and accrued interest due in April 2020. It intended to raise additional capital in 2019 but reported no formal financing commitments and no assurance of funding.
- Equity financing and dilution: In June, accredited investors purchased approximately 38.764 million shares for approximately $3.1 million. The company reported $2.832 million in net cash proceeds after offering costs and issued 1.252 million warrants at $0.088 per share. At June 30, 518.1 million common shares were outstanding; 106.6 million options and 47.5 million warrants were also outstanding.
- Related parties: A director-affiliated trust held the $2.0 million senior note; approximately $119,000 of related interest expense was recorded in the quarter. The company also rents its Long Beach office from an entity principally owned by its CEO and family.
- Other matters: Operating lease accounting adoption added approximately $514,000 of right-of-use assets and liabilities at January 1, 2019. Management said ordinary-course legal proceedings were not expected to materially affect results. The company reported disclosure controls as effective and no material change in risk factors from its 2018 Form 10-K.
Important facts for investors to verify
- Confirm the filing’s issuer: the provided 10-Q is for Ipsidy Inc.; the request metadata names Authid Inc.
- Review the going-concern disclosure, cash runway, planned financing, and ability to meet the approximately $2.0 million note maturity in April 2020.
- Assess whether revenue growth from new customer onboarding can offset recurring operating losses, and distinguish the 2018 one-time system sale from ongoing revenue.
- Check the potential dilution from outstanding options and warrants, as well as the terms and net proceeds of the June 2019 offering.
- Review related-party arrangements and the detailed financial statements for any additional debt, lease, or contingent obligations.