Ipsidy Inc. (issuer named in filing) — Q2 2018 Form 10-Q
Entity note: Request metadata identifies Authid Inc., but the filing itself is for Ipsidy Inc. and its subsidiaries. The filing reports the quarter and six months ended June 30, 2018; financial statements are unaudited.
Business context and reporting period
Ipsidy provides biometric identification, identity management, and electronic transaction-processing services. It is developing a transaction platform for identity verification and access, and also operates payment-processing, card, and kiosk-related businesses. The Zimbabwe Electoral Commission (ZEC) fingerprint-identification contract accounted for the majority of revenue in both the quarter and first half.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $1.839 million | $0.559 million | $2.365 million | $1.144 million |
| Gross profit / margin | $1.096 million / 59.6% | $0.404 million / 72.3% | $1.501 million / 63.5% | $0.840 million / 73.4% |
| Operating loss | $2.295 million | $2.510 million | $4.804 million | $7.464 million |
| Net loss | $2.473 million | $2.803 million | $5.226 million | $12.472 million |
| Adjusted EBITDA loss (non-GAAP) | $1.556 million | $1.400 million | $3.287 million | $2.951 million |
- At June 30, cash was $1.313 million, down from $4.414 million at December 31, 2017. First-half operating cash use was $2.680 million; investing cash use was $0.405 million.
- Current assets were $2.793 million and current liabilities $2.631 million, with approximately $0.2 million of working capital reported by management.
- Total liabilities were $5.431 million, including $2.699 million of notes payable, net, and $0.130 million of capital-lease obligations. The $3.0 million senior unsecured note bears 10% interest; its maturity was extended to April 30, 2020.
- Accumulated deficit was $71.6 million. Common shares outstanding were 412.345 million at June 30 and July 31, 2018.
Material changes versus prior comparable periods
- Revenue increased substantially, chiefly from delivery of the ZEC AFIS system and services. Management said it did not expect the second-quarter ZEC revenue and cash levels to recur in Q3 2018.
- First-half net loss narrowed by $7.246 million, largely because 2017 included substantial debt-settlement and derivative-related charges. In contrast, Adjusted EBITDA loss widened by about $0.336 million, reflecting higher investment in staff and technology and a kiosk valuation reserve, partly offset by ZEC revenue.
- Cash used in operations fell from $3.899 million to $2.680 million year over year, with ZEC-related cash flow contributing to the improvement.
- General and administrative expense fell by $1.945 million for the first half, principally due to lower stock compensation, but rose by approximately $0.507 million in Q2 as the company expanded technology and sales teams and recorded kiosk-related valuation reserves.
- The company recorded a $0.348 million inventory reserve, including a write-down of kiosks to estimated net realizable value of zero.
Outlook, risks, contingencies, and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, funding needs, and dependence on financing, operating cash generation, and new clients. There is no assurance it will become profitable or obtain sufficient funding.
- Subsequent financing: On August 6, 2018, the company reported subscription agreements for approximately $9.6 million in exchange for approximately 63.9 million shares at $0.15 per share; the MD&A elsewhere refers to approximately $9.1 million. The filing does not clearly reconcile the difference or establish that all subscriptions had closed. The Stern Trust, whose trustee is a company director, agreed to invest $1 million. The company also gave notice of a planned $1.0 million principal prepayment plus approximately $158,000 accrued interest on the Trust’s note.
- Management described new product launches and a production rollout of Ipsidy Access using its IDLok authentication service. No revenue from the newly introduced transaction platform and products had been recognized through June 30 because services had not commenced. The filing provides no quantified revenue or earnings guidance.
- Potential dilution is significant: 105.95 million options and 43.73 million warrants were outstanding at June 30, in addition to the proposed August share issuance. The options and warrants were excluded from diluted loss per share as antidilutive.
- The company reported no legal proceedings expected to have a material adverse effect, no material change to previously disclosed risk factors, and no material off-balance-sheet arrangements. Management said disclosure controls were effective and described improvements to financial-reporting controls.
Important facts for investors to verify
- Confirm the issuer identity: the supplied metadata says Authid Inc., while this filing names Ipsidy Inc.
- Verify the amount, closing status, and proceeds received from the August equity financing; reconcile the $9.6 million and $9.1 million disclosures and assess resulting dilution.
- Assess cash runway and funding requirements in light of the going-concern warning, first-half operating cash use, and management’s expectation that Q2 ZEC revenue would not repeat in Q3.
- Review customer and contract concentration, especially the contribution and completion status of the ZEC contract and the timing of revenue from new products.
- Evaluate kiosk and inventory valuation assumptions, debt repayment terms, and the related-party nature of the Stern Trust financing and investment.