Ipsidy Inc. (10-Q) — Quarter Ended March 31, 2018
Entity note: The supplied filing is for Ipsidy Inc., not Authid Inc. Ipsidy described itself as a provider of biometric identity verification, identity management, and electronic transaction processing services. The unaudited statements cover the first quarter of 2018, compared with the first quarter of 2017 where shown.
Financial Performance and Position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $525,789 | $584,689; down about 10% |
| Operating loss | $2,509,195 | $4,954,256 loss |
| Net loss | $2,752,925; $0.01 per share | $9,669,092; $0.03 per share |
| Adjusted EBITDA loss (non-GAAP) | $1,660,307 | $1,550,561 |
| Operating cash flow | $(1,830,616) | $(1,204,101) |
| Cash at period end | $2,412,363 | $4,946,012 at March 31, 2017 |
| Working capital | About $1.8 million | — |
| Debt and lease obligations | $3.0 million note principal; $2,519,785 notes payable net of discounts and issuance costs; $136,378 present value of capital lease payments | — |
Cost of sales was $120,248. The resulting gross profit was approximately $405,541, or about 77% of revenue, calculated from reported figures; the filing does not present a consolidated gross-margin measure. Total assets were $15.96 million and total liabilities were $5.01 million at March 31, 2018. The accumulated deficit was approximately $69.2 million.
Changes and Operating Developments
- Revenue declined mainly because Cards Plus had timing-related declines in identity-solution products and one-time sales. Cost of sales fell to $120,248, which management attributed to improved manufacturing efficiency and lower revenue.
- General and administrative expense fell about $2.45 million, principally because of lower stock-based compensation. Operating loss improved year over year, but adjusted EBITDA loss widened by about $110,000 as the company invested in salaries and technology infrastructure.
- Q1 2017 results included substantial nonrecurring debt-related gains and charges, including a $2.80 million gain on extinguishment of notes and a $5.98 million loss on debt settlement. These items make the year-over-year net-loss comparison less indicative of underlying operations.
- Cash declined by about $2.0 million during Q1 2018. Operating cash use increased from Q1 2017, and the company reported no Q1 2018 proceeds from financing.
- In 2018 Ipsidy introduced a transaction platform and products, but reported no revenue from the new platforms in Q1 because services had not yet commenced. It reported approximately $539,000 of deferred revenue at March 31, 2018.
Outlook, Risks, and Other Matters
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Continued operations depend on shareholder support, additional equity financing, sufficient operating cash flow, and new customers or business opportunities. The filing gives no assurance that funding or profitability will be achieved.
- Management expected incremental revenue and cash in Q2 2018 from delivery of software and equipment for a governmental election project. The filing provides no quantified revenue or cash guidance.
- The company expected to need additional capital later in 2018 and had no formal financing commitment or arrangement. Failure to obtain financing could materially adversely affect the company.
- The company had signed a contract to provide an automated fingerprint identification system to the Zimbabwe Electoral Commission; integration and project execution remained in progress. Management also described a pilot of its Ipsidy Access solution.
- On April 30, 2018, after quarter-end, the company and the holder of its $3 million senior unsecured note agreed to extend maturity to April 30, 2020 in exchange for 1.5 million common shares. The note bears 10% interest and is related to a director.
- Management said disclosure controls were effective and reported steps to improve financial reporting and governance processes. It reported no material change in risk factors from its 2017 Form 10-K and no legal proceedings expected to have a material adverse effect.
- Subsequent May 3 executive bonus letters tied potential cash awards to performance targets, product/project milestones, and, for payment, either raising $15 million after the letter date or achieving positive adjusted EBITDA for a qualifying quarter after 2018.
Important Facts for Investors to Verify
- Confirm the issuer identity: the source filing names Ipsidy Inc., whereas the request metadata names Authid Inc.
- Assess available liquidity, the pace of cash consumption, and whether the company can secure financing on acceptable terms; going-concern doubt is explicit.
- Track whether the Zimbabwe election project and other anticipated Q2 deliveries convert into recognized revenue and cash, and whether new-platform services commence as expected.
- Review the April 2018 note extension terms, related-party relationship, accrued interest, and the effect of the 1.5 million-share fee.
- Consider potential dilution: 405.7 million common shares were outstanding at April 30, 2018, and the filing lists 107.96 million options and 45.96 million warrants outstanding at March 31, 2018.
- Compare GAAP results with adjusted EBITDA and examine the underlying noncash compensation, working-capital movements, and unusual debt items.