Ipsidy Inc. — Q1 2019 Form 10-Q
Entity note: The supplied filing is for Ipsidy Inc., not Authid Inc. It covers the three months ended March 31, 2019; financial statements are unaudited. Ipsidy operates an identity-as-a-service business focused on biometric identity verification and authentication, alongside payment processing and card products.
Financial results
| Metric | Q1 2019 | Q1 2018 | Change / context |
|---|---|---|---|
| Revenue | $740,378 | $525,789 | Up about 41%; growth across all reported regions |
| Gross profit | $563,915 | $405,541 | Gross margin about 76.2%, versus 77.1% |
| Operating loss | $(2,168,374) | $(2,509,195) | Loss narrowed about 14% |
| Net loss | $(2,262,739) | $(2,752,925) | Loss narrowed about 18% |
| Adjusted EBITDA loss (non-GAAP) | $(1,592,207) | $(1,660,307) | Loss narrowed about $68,000 |
| Operating cash flow | $(1,744,690) | $(1,831,447) | Cash use remained substantial |
Products and services revenue was $723,941 and lease income was $16,437. Cost of sales rose to $176,463 from $120,248, principally with higher Cards Plus revenue. General and administrative expense fell to $2,567,135 from $2,798,699, primarily due to lower stock-based compensation. Depreciation and amortization increased to $160,788 from $110,676. Net loss per share was reported as $(0.00), versus $(0.01); weighted-average shares rose to 478,950,996 from 404,254,263.
Balance sheet, liquidity and debt
- Cash was $2,920,895 at March 31, down $2,051,436 from year-end 2018. The company reported working capital of approximately $2.2 million; current assets were $4,348,603 and current liabilities $2,151,582.
- Total assets were $17,143,509; total liabilities were $4,375,545; stockholders’ equity was $12,767,964.
- Notes payable, net, totaled $1,897,599, including a $2 million senior unsecured note due April 30, 2020 before discounts and a small vehicle loan. Finance lease obligations totaled $108,126. Operating lease liabilities were $477,958.
- Cash used in investing activities was $330,182, including $315,282 invested in other assets; financing cash outflow was $7,381. Cash paid for interest was $3,392.
Changes, outlook and risks
- Management attributed revenue growth to new products and election services. Identity management revenue increased to $615,050 from $446,701; payment processing revenue increased to $125,328 from $79,088.
- Management expected Q2 2019 revenue to be below Q2 2018 because election-service revenue had been delivered and earned in the prior-year quarter. It said it was pursuing revenue from implementation of new platform services.
- The company intended to raise capital in Q2 2019 but reported no formal financing commitments or arrangements. It cautioned that financing might 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. Continued operations depend on shareholder support, additional equity financing, adequate operating cash flows, new clients and other business opportunities. The company had an accumulated deficit of approximately $78.7 million and gave no assurance it would become profitable or secure sufficient funding.
- Management reported the Q1 Adjusted EBITDA loss narrowed by about $0.1 million, reflecting higher revenue offset by increased investment in salaries and technology. Adjusted EBITDA is non-GAAP and should not be considered a substitute for GAAP results or cash flow.
- Effective January 1, 2019, adoption of the lease standard resulted in recognition of approximately $514,000 in operating lease right-of-use assets and liabilities. Lease expense for the quarter was approximately $127,000.
- Related-party items included approximately $59,000 of interest expense on the senior note owed to a trust whose trustee is a director, and monthly rent of $7,425 for office space from an entity principally owned by the CEO and his family.
- Ordinary-course legal proceedings were disclosed, with management stating it did not expect a material adverse effect. The filing reported no material change to previously disclosed risk factors and stated disclosure controls were effective.
Important facts for investors to verify
- Available cash, quarterly operating cash burn and the timing, amount and terms of any planned financing.
- Progress in converting new platform services, customer activity and election-related business into recurring revenue and cash receipts.
- The maturity, repayment or refinancing plan for the $2 million senior note due in April 2020.
- The basis for management’s going-concern assessment and whether financing or operating cash flows can support the business.
- Potential dilution: at quarter-end, 106,253,339 stock options and 46,201,477 warrants were outstanding; these were excluded from diluted loss per share as antidilutive.
- Balance-sheet and equity details: the balance sheet reports equity of $12,767,964, while the stockholders’ equity statement’s ending total appears as $12,769,964; confirm the intended figure in the filed statements.