Business context and reporting period
The supplied filing is Ipsidy Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018; it identifies the registrant as Ipsidy Inc., formerly ID Global Solutions Corporation. The request metadata names Authid Inc., so the issuer identity should be verified. Ipsidy described its business as biometric identity management, identity verification, and electronic transaction processing, with identity management and payment processing reportable segments.
Financial results and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue, 2018 | $0.702 million | $3.067 million |
| Revenue, 2017 | $0.608 million | $1.752 million |
| Gross profit / margin, 2018 | $0.461 million / 65.7% | $1.962 million / 64.0% |
| Gross profit / margin, 2017 | $0.463 million / 76.2% | $1.303 million / 74.4% |
| Operating loss, 2018 | $(1.925) million | $(6.729) million |
| Net loss, 2018 | $(2.145) million | $(7.371) million |
| Adjusted EBITDA loss (non-GAAP), 2018 | $(1.115) million | $(4.402) million |
Q3 revenue increased about 15% year over year, while nine-month revenue increased about 75%, principally reflecting the Zimbabwe Electoral Commission (ZEC) fingerprint-identification contract. Q3 gross profit was nearly flat despite higher revenue, and gross margin declined. Nine-month net loss improved from $14.582 million in 2017, when results included substantial debt-settlement and derivative-related charges. Nine-month Adjusted EBITDA loss worsened from $4.105 million in 2017.
At September 30, 2018, cash was $7.414 million, working capital was reported as $6.3 million, and total assets were $20.199 million. Current liabilities were $1.777 million and total liabilities $3.696 million. Notes payable had $2.0 million principal outstanding ($1.826 million net of discounts and issuance costs); capital lease obligations totaled about $123,000. Nine-month operating cash use was $4.099 million, investing cash use $0.798 million, and financing cash provided $7.932 million. Cash increased $3.001 million from year-end 2017.
Material changes versus the prior comparable period
- Nine-month revenue rose by $1.315 million, driven principally by the ZEC contract; management said that contract represented the majority of nine-month revenue and had been substantially executed.
- Nine-month operating expenses fell by about $1.298 million, including lower stock-based compensation, but cost of sales increased with ZEC delivery and the company recorded an inventory reserve for kiosks.
- In August, the company raised approximately $9.611 million by selling about 64.1 million shares at $0.15 each. Outstanding shares rose to 476.4 million from 403.3 million at December 31, 2017. Offering-related broker fees and warrants reduced the net proceeds.
- The company repaid $1.0 million of its Stern Trust note in August and extended the remaining note’s maturity to April 30, 2020, for 1.5 million shares. The Stern Trust is associated with a company director.
- About $680,000 of software development costs was placed into service and reclassified to intangible assets, where it is amortized over five years.
Outlook, commentary, risks and unusual items
Management said it was launching new product offerings and developing an integrated transaction platform, but the filing reported no revenue from the new platform products during the periods presented because services had not commenced. Management expected that additional financing could be required and disclosed no assurance that financing would be available on acceptable terms or at all. The filing provides no specific revenue, earnings, or cash-flow guidance.
The company disclosed substantial doubt about its ability to continue as a going concern, citing its accumulated deficit of approximately $73.8 million, continuing operating losses, dependence on additional financing and shareholder support, and need to generate sufficient operating cash flow. It stated that the financial statements include no adjustments that might be required if it could not continue as a going concern.
Management attributed higher nine-month Adjusted EBITDA loss to investment in staff and technology and a kiosk valuation reserve, partly offset by ZEC revenue. Kiosks were fully reserved to an estimated net realizable value of zero. Other key risks cited include commercialization and customer adoption, financing needs, dependence on third parties, competition, regulation, intellectual-property protection, and limited trading-market liquidity. The company said there had been no material change in previously disclosed risk factors. It reported no material off-balance-sheet arrangements and did not expect ordinary-course legal proceedings to materially affect its financial condition or results. Management concluded disclosure controls were effective at quarter-end.
Important facts for investors to verify
- Confirm issuer identity: the supplied filing is for Ipsidy Inc., whereas the request metadata says Authid Inc.
- Assess the sustainability and concentration of revenue, particularly the extent to which results depended on the substantially executed ZEC contract.
- Review cash burn, financing requirements, and the going-concern disclosure against subsequent funding and operating developments.
- Evaluate dilution from the August share issuance and the substantial outstanding options and warrants; the filing lists 105.95 million options and 46.20 million warrants.
- Check the Stern Trust note terms, related-party involvement, and the effect of the maturity extension and principal repayment.
- Verify whether new platform products have launched and begun generating recurring revenue, since none was recognized in this reporting period.