SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-40747
authID Inc.
(Exact name of registrant as specified in its charter)
Delaware | 46-2069547 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1385 S. Colorado Blvd
Denver, CO 80222
(Address of principal executive offices) (zip code)
516-274-8700
(Registrant’s telephone number, including area code)
1325 S. Colorado Blvd
Denver, CO 80222
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock par value $0.0001 per share | AUID | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth Company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Class | Outstanding at | |
Common Stock, par value $0.0001 | ||
Documents incorporated by reference: | None |
TABLE OF CONTENTS
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs.
You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in this report, in Part I. Item 1A. Risk Factors also appear in our Annual Report on Form 10-K for the year ended December 31, 20212022 and our other filings with the Securities and Exchange Commission. Some examples of risk factors which may affect our business are as follows:
● | our lack of significant revenues, positive cash flow and history of losses, | |
● | market acceptance of our | |
● | our ability to attract and retain customers for existing and new products; | |
● | our ability to effectively maintain and update our technology and product and service portfolio; | |
● | our reliance on third party software and developers; | |
● | breaches of network or IT security and presentation attacks; | |
● | our ability to hire and retain key personnel and additional talent; | |
● | our ability to raise capital under acceptable terms; | |
● | our ability to maintain listing of our common stock on the Nasdaq Capital Market; | |
● | our ability to adequately protect our intellectual property, or the loss of some of our intellectual property rights through costly litigation or administrative proceedings; | |
● | our ability to operate in non-US markets; | |
● | the impact of the Covid-19 Pandemic; | |
● | the impact of the war in Ukraine; | |
● | stock price and market volatility and the risk of securities litigation; | |
● | legislation and government regulation; and | |
● | general economic conditions, inflation and access to capital. |
Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “authID” “authID.ai,” the “Company,” “we,” “our,” “us,” and similar terms refer to authID Inc., a Delaware corporation and its subsidiaries. The Company was formerly known as Ipsidy Inc.
On July 18, 2022, Ipsidy Inc. changed its corporate name to authID Inc.
The information which appears on our website www.authID.ai is not part of this report.
ii
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | March 31, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
ASSETS | ASSETS | |||||||||||||||
Current Assets: | ||||||||||||||||
Cash | $ | 7,105,967 | $ | 5,767,276 | $ | 1,587,982 | $ | 3,237,106 | ||||||||
Accounts receivable, net | 36,080 | 26,846 | 55,391 | 261,809 | ||||||||||||
Other current assets | 1,009,323 | 502,721 | 425,024 | 729,342 | ||||||||||||
Current assets held for sale | 81,412 | 629,752 | 64,671 | 118,459 | ||||||||||||
Total current assets | 8,232,782 | 6,926,595 | 2,133,068 | 4,346,716 | ||||||||||||
Property and Equipment, net | - | 25,399 | ||||||||||||||
Other Assets | 300,172 | 2,501 | - | 250,383 | ||||||||||||
Intangible Assets, net | 1,744,143 | 2,379,451 | 490,242 | 566,259 | ||||||||||||
Goodwill | 4,183,232 | 4,183,232 | 4,183,232 | 4,183,232 | ||||||||||||
Non-current assets held for sale | 28,857 | 312,831 | 23,685 | 27,595 | ||||||||||||
Total assets | $ | 14,489,186 | $ | 13,830,009 | $ | 6,830,227 | $ | 9,374,185 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 2,007,631 | $ | 1,778,092 | $ | 1,871,443 | $ | 1,154,072 | ||||||||
Convertible debt | 662,000 | 662,000 | ||||||||||||||
Deferred revenue | 96,933 | 199,007 | 73,869 | 81,318 | ||||||||||||
Current liabilities held for sale | 100,368 | 295,332 | 17,795 | 13,759 | ||||||||||||
Total current liabilities | 2,866,932 | 2,934,431 | 1,963,107 | 1,249,149 | ||||||||||||
Non-current Liabilities: | ||||||||||||||||
Convertible debt | 7,699,754 | - | ||||||||||||||
Credit facility, net | 458,800 | - | ||||||||||||||
Convertible debt, net | 7,983,896 | 7,841,500 | ||||||||||||||
Accrued severance liability | 325,000 | - | ||||||||||||||
Total liabilities | 10,566,686 | 2,934,431 | 10,730,803 | 9,090,649 | ||||||||||||
Commitments and Contingencies (Note 10) | ||||||||||||||||
Commitments and Contingencies (Note 12) | ||||||||||||||||
Stockholders’ Equity: | ||||||||||||||||
Common stock, $0.0001 par value, 250,000,000 and 1,000,000,000 shares authorized; 24,914,418 and 23,294,024 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 2,490 | 2,329 | ||||||||||||||
Stockholders’ (Deficit) Equity: | ||||||||||||||||
Common stock, $0.0001 par value, 250,000,000 shares authorized; | ||||||||||||||||
25,864,437 and 25,319,095 shares issued and outstanding as of March 31, 2023 and | ||||||||||||||||
December 31, 2022, respectively | 2,587 | 2,532 | ||||||||||||||
Additional paid in capital | 137,889,398 | 126,581,702 | 141,317,627 | 140,255,234 | ||||||||||||
Accumulated deficit | (134,108,443 | ) | (115,899,939 | ) | (145,352,653 | ) | (140,130,159 | ) | ||||||||
Accumulated comprehensive income | 139,055 | 211,486 | 131,863 | 155,929 | ||||||||||||
Total stockholders’ equity | 3,922,500 | 10,895,578 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 14,489,186 | $ | 13,830,009 | ||||||||||||
Total stockholders’ (deficit) equity | (3,900,576 | ) | 283,536 | |||||||||||||
Total liabilities and stockholders’ (deficit) equity | $ | 6,830,227 | $ | 9,374,185 |
See notes to condensed consolidated financial statements.
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues: | ||||||||||||||||
Verified software license | $ | 30,023 | $ | 12,281 | $ | 116,925 | $ | 45,302 | ||||||||
Legacy authentication services | - | 157,068 | 144,559 | 418,878 | ||||||||||||
Total revenues, net | 30,023 | 169,349 | 261,484 | 464,180 | ||||||||||||
Operating Expenses: | ||||||||||||||||
General and administrative | 3,914,580 | 4,467,040 | 11,583,798 | 8,526,671 | ||||||||||||
Research and development | 1,620,344 | 811,724 | 4,689,515 | 1,765,098 | ||||||||||||
Depreciation and amortization | 213,049 | 288,731 | 673,882 | 868,166 | ||||||||||||
Total operating expenses | 5,747,973 | 5,567,495 | 16,947,195 | 11,159,935 | ||||||||||||
Loss from continuing operations | (5,717,950 | ) | (5,398,146 | ) | (16,685,711 | ) | (10,695,755 | ) | ||||||||
Other Income (Expense): | ||||||||||||||||
Other income (expense), net | (42,148 | ) | 491,643 | (38,908 | ) | 971,799 | ||||||||||
Interest expense, net | (437,301 | ) | (29,577 | ) | (931,205 | ) | (580,928 | ) | ||||||||
Other income (expense), net | (479,449 | ) | 462,066 | (970,113 | ) | 390,871 | ||||||||||
Loss from continuing operations before income taxes | (6,197,399 | ) | (4,936,080 | ) | (17,655,824 | ) | (10,304,884 | ) | ||||||||
Income tax (expense) benefit | 7,052 | 2,393 | (1,048 | ) | (4,554 | ) | ||||||||||
Loss from continuing operations | (6,190,347 | ) | (4,933,687 | ) | (17,656,872 | ) | (10,309,438 | ) | ||||||||
Gain (Loss) from discontinued operations | 43,645 | (265,218 | ) | (363,385 | ) | (437,076 | ) | |||||||||
Loss from sale of a discontinued operation | (188,247 | ) | - | (188,247 | ) | - | ||||||||||
Total loss from discontinued operations | (144,602 | ) | (265,218 | ) | (551,632 | ) | (437,076 | ) | ||||||||
Net loss | $ | (6,334,949 | ) | $ | (5,198,905 | ) | $ | (18,208,504 | ) | $ | (10,746,514 | ) | ||||
Net Loss Per Share – Basic and Diluted | ||||||||||||||||
Continuing operations | $ | (0.25 | ) | $ | (0.22 | ) | $ | (0.73 | ) | $ | (0.50 | ) | ||||
Discontinued operations | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
Weighted Average Shares Outstanding – Basic and Diluted | 24,821,962 | 22,088,865 | 24,353,206 | 20,703,970 |
See notes to condensed consolidated financial statements.
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net loss | $ | (6,334,949 | ) | $ | (5,198,905 | ) | $ | (18,208,504 | ) | $ | (10,746,514 | ) | ||||
Foreign currency translation gain (loss) | (37,383 | ) | 18,966 | (72,431 | ) | 60,991 | ||||||||||
Comprehensive loss | $ | (6,372,332 | ) | $ | (5,179,939 | ) | $ | (18,280,935 | ) | $ | (10,685,523 | ) |
See notes to condensed consolidated financial statements.
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
Balances, December 31, 2021 | 23,294,024 | $ | 2,329 | $ | 126,581,702 | $ | (115,899,939 | ) | $ | 211,486 | $ | 10,895,578 | ||||||||||||
Stock-based compensation | - | - | 6,726,871 | - | - | 6,726,871 | ||||||||||||||||||
Sale of common stock for cash, net of offering costs | 1,063,514 | 106 | 3,146,834 | - | - | 3,146,940 | ||||||||||||||||||
Common stock issued with convertible debt | 28,496 | 3 | 91,754 | - | - | 91,757 | ||||||||||||||||||
Common stock issued for working capital facility | 100,000 | 10 | 302,990 | - | - | 303,000 | ||||||||||||||||||
Shares issued in lieu of interest | 191,714 | 18 | 473,794 | - | - | 473,812 | ||||||||||||||||||
Warrants for services with the issuance of convertible debt | - | - | 449,474 | - | - | 449,474 | ||||||||||||||||||
Cashless stock option exercise | 185,111 | 19 | (19 | ) | - | - | - | |||||||||||||||||
Cashless warrant exercise | 1,377 | - | - | - | - | - | ||||||||||||||||||
Warrant exercise for cash | 36,668 | 4 | 65,999 | - | - | 66,003 | ||||||||||||||||||
Convertible note converted to common stock | 13,514 | 1 | 49,999 | - | - | 50,000 | ||||||||||||||||||
Net loss | - | - | - | (18,208,504 | ) | - | (18,208,504 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | (72,431 | ) | (72,431 | ) | ||||||||||||||||
Balances, September 30, 2022 | 24,914,418 | $ | 2,490 | $ | 137,889,398 | $ | (134,108,443 | ) | $ | 139,055 | $ | 3,922,500 | ||||||||||||
Balances, June 30, 2022 | 24,789,418 | $ | 2,478 | $ | 135,322,838 | $ | (127,773,494 | ) | $ | 176,438 | $ | 7,728,260 | ||||||||||||
Shares issued in lieu of interest | 74,818 | 7 | 222,798 | - | - | 222,805 | ||||||||||||||||||
Warrant exercise for cash | 36,668 | 4 | 65,999 | - | - | 66,003 | ||||||||||||||||||
Convertible note converted to common stock | 13,514 | 1 | 49,999 | - | - | 50,000 | ||||||||||||||||||
Stock-based compensation | - | - | 2,227,764 | - | - | 2,227,764 | ||||||||||||||||||
Net loss | - | - | - | (6,334,949 | ) | - | (6,334,949 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | (37,383 | ) | (37,383 | ) | ||||||||||||||||
Balances, September 30, 2022 | 24,914,418 | $ | 2,490 | $ | 137,889,398 | $ | (134,108,443 | ) | $ | 139,055 | $ | 3,922,500 | ||||||||||||
Balances, December 31, 2020 | 19,642,401 | $ | 1,964 | $ | 102,651,304 | $ | (98,234,151 | ) | $ | 160,642 | $ | 4,579,759 | ||||||||||||
Sale of common stock for cash | 1,642,856 | 164 | 10,282,834 | 10,282,998 | ||||||||||||||||||||
Stock-based compensation | - | - | 4,795,069 | - | - | 4,795,069 | ||||||||||||||||||
Settlement of accrued expense with stock options | - | - | 349,376 | - | - | 349,376 | ||||||||||||||||||
Convertible note converted to common stock | 1,171,296 | 117 | 6,232,223 | - | - | 6,232,340 | ||||||||||||||||||
Stock option exercise for cash | 4,802 | 1 | 24,659 | - | - | 24,660 | ||||||||||||||||||
Warrant exercise for cash | 60,834 | 6 | 273,747 | - | - | 273,753 | ||||||||||||||||||
Cashless stock option exercise | 412,569 | 40 | (40 | ) | - | - | - | |||||||||||||||||
Cashless warrant exercise | 263,661 | 27 | (27 | ) | - | - | - | |||||||||||||||||
Net loss | - | - | - | (10,746,514 | ) | - | (10,746,514 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | 60,991 | 60,991 | ||||||||||||||||||
Balances, September 30, 2021 | 23,198,419 | $ | 2,319 | $ | 124,609,145 | $ | (108,980,665 | ) | $ | 221,633 | $ | 15,852,432 | ||||||||||||
Balances, June 30, 2021 | 21,363,027 | $ | 2,137 | $ | 111,493,973 | $ | (103,781,760 | ) | $ | 202,667 | $ | 7,917,017 | ||||||||||||
Sale of common stock for cash | 1,642,856 | 164 | 10,282,834 | - | - | 10,282,998 | ||||||||||||||||||
Stock-based compensation | - | - | 2,533,943 | - | - | 2,533,943 | ||||||||||||||||||
Stock option exercise for cash | 4,802 | 1 | 24,659 | - | - | 24,660 | ||||||||||||||||||
Warrant exercise for cash | 60,834 | 6 | 273,747 | - | - | 273,753 | ||||||||||||||||||
Cashless stock option exercise | 125,998 | 11 | (11 | ) | - | - | - | |||||||||||||||||
Cashless warrant exercise | 902 | - | - | - | - | - | ||||||||||||||||||
Net loss | - | - | - | (5,198,905 | ) | - | (5,198,905 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | 18,966 | 18,966 | ||||||||||||||||||
Balances, September 30, 2021 | 23,198,419 | $ | 2,319 | $ | 124,609,145 | $ | (108,980,665 | ) | $ | 221,633 | $ | 15,852,432 |
See notes to condensed consolidated financial statements.
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS
(Unaudited)
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (18,208,504 | ) | $ | (10,746,514 | ) | ||
Adjustments to reconcile net loss with cash flows from operations: | ||||||||
Loss from sale of discontinued operation | 188,247 | - | ||||||
Depreciation and amortization expense | 674,836 | 860,313 | ||||||
Stock-based compensation | 6,726,871 | 4,795,069 | ||||||
Shares issued in lieu of interest | 473,812 | - | ||||||
Amortization of debt discounts and issuance costs | 403,244 | 554,020 | ||||||
Forgiveness of notes payable | - | (971,522 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (9,234 | ) | (520,027 | ) | ||||
Net investment in direct financing lease | - | 61,044 | ||||||
Other assets | (161,884 | ) | (606,360 | ) | ||||
Accounts payable and accrued expenses | 235,050 | 565,011 | ||||||
Deferred revenue | (102,074 | ) | 179,512 | |||||
Other liabilities | - | (47,809 | ) | |||||
Discontinued operations | 226,586 | 355,391 | ||||||
Net cash flows from operating activities | (9,553,050 | ) | (5,521,872 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Proceeds from sale of discontinued operations, net of selling costs | 146,728 | - | ||||||
Cash disposed of from the sale of a discontinued operation | (299,505 | ) | - | |||||
Purchase of property and equipment | (7,981 | ) | - | |||||
Purchase of property and equipment – discontinued operations | (16,159 | ) | (79,703 | ) | ||||
Purchase of intangible assets | (6,311 | ) | (23,702 | ) | ||||
Net cash flows from investing activities | (183,228 | ) | (103,405 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from sale of common stock, net of offering costs | 3,146,940 | 10,282,998 | ||||||
Proceeds from issuance of convertible note payable, net of issuance costs | 7,992,841 | - | ||||||
Proceeds from exercise of warrants | 66,003 | 273,753 | ||||||
Proceeds from exercise of stock options | - | 24,660 | ||||||
Proceeds from paycheck protection program | - | 485,762 | ||||||
Cash paid for working capital facility | (300,000 | ) | - | |||||
Payments on notes payable – discontinued operations | (1,579 | ) | (4,400 | ) | ||||
Principal payments on capital lease obligation – discontinued operations | (10,582 | ) | (28,981 | ) | ||||
Net cash flows from financing activities | 10,893,623 | 11,033,792 | ||||||
Effect of Foreign Currencies | (78,019 | ) | 59,607 | |||||
Net Change in Cash | 1,079,326 | 5,468,122 | ||||||
Cash, Beginning of the Period | 5,767,276 | 3,506,171 | ||||||
Cash, Beginning of the Period – Discontinued Operations | 270,707 | 259,106 | ||||||
Cash, End of the Period – Discontinued Operations | (11,342 | ) | (174,247 | ) | ||||
Cash, End of the Period | $ | 7,105,967 | $ | 9,059,152 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Cash paid for interest – discontinued operations | $ | - | $ | 8,779 | ||||
Cash paid for income taxes | $ | 861 | $ | 2,193 | ||||
Cash paid for income taxes – discontinued operations | $ | 9,068 | $ | 4,493 | ||||
Schedule of Non-cash Investing and Financing Activities: | ||||||||
Cashless option and warrant exercises | $ | 19 | $ | 67 | ||||
Common stock issued with convertible notes | $ | 91,757 | $ | - | ||||
Common stock for working capital facility | $ | 303,000 | $ | - | ||||
Warrants for services with the issuance of convertible debt | $ | 449,474 | $ | - | ||||
Reclass from other assets to intangible assets | $ | - | $ | 8,270 | ||||
Settlement of accounts payable with issuance of common stock | $ | - | $ | 349,376 | ||||
Conversion of convertible note payable and accrued interest to common stock | $ | 50,406 | $ | 6,232,340 |
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Revenues: | ||||||||
Verified software license | $ | 35,778 | $ | 35,493 | ||||
Legacy authentication services | 2,078 | 129,559 | ||||||
Total revenues, net | 37,856 | 165,052 | ||||||
Operating Expenses: | ||||||||
General and administrative | 3,276,191 | 3,643,909 | ||||||
Research and development | 1,105,814 | 1,373,502 | ||||||
Depreciation and amortization | 76,017 | 215,476 | ||||||
Total operating expenses | 4,458,022 | 5,232,887 | ||||||
Loss from continuing operations | (4,420,166 | ) | (5,067,835 | ) | ||||
Other (Expense) Income | ||||||||
Interest expense including debts issuance costs amortization | (800,073 | ) | (32,857 | ) | ||||
Other income | - | 1,456 | ||||||
Other expense, net | (800,073 | ) | (31,401 | ) | ||||
Loss from continuing operations before income taxes | (5,220,239 | ) | (5,099,236 | ) | ||||
Income tax expense | - | (4,972 | ) | |||||
Loss from continuing operations | (5,220,239 | ) | (5,104,208 | ) | ||||
Loss from discontinued operations | (2,255 | ) | (196,520 | ) | ||||
Net loss | $ | (5,222,494 | ) | $ | (5,300,728 | ) | ||
Net Loss Per Share - Basic and Diluted | ||||||||
Continuing operations | $ | (0.21 | ) | $ | (0.22 | ) | ||
Discontinued operations | $ | (0.00 | ) | $ | (0.01 | ) | ||
Weighted Average Shares Outstanding - Basic and Diluted | 25,325,154 | 23,563,852 |
See notes to condensed consolidated financial statements.
authID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Net loss | $ | (5,222,494 | ) | $ | (5,300,728 | ) | ||
Foreign currency translation (loss) gain | (24,066 | ) | 32,740 | |||||
Comprehensive loss | $ | (5,246,560 | ) | $ | (5,267,988 | ) |
See notes to condensed consolidated financial statements.
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(Unaudited)
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
Balances, December 31, 2021 | 23,294,024 | $ | 2,329 | $ | 126,581,702 | $ | (115,899,939 | ) | $ | 211,486 | $ | 10,895,578 | ||||||||||||
Sale of common stock for cash, net of offering costs | 1,063,514 | 106 | 3,146,834 | - | - | 3,146,940 | ||||||||||||||||||
Stock-based compensation | - | - | 1,866,989 | - | - | 1,866,989 | ||||||||||||||||||
Common stock issued with convertible debt | 28,496 | 3 | 91,754 | - | - | 91,757 | ||||||||||||||||||
Common stock issued for working capital facility | 100,000 | 10 | 302,990 | - | - | 303,000 | ||||||||||||||||||
Warrants for services with the issuance of convertible debt | - | - | 449,474 | - | - | 449,474 | ||||||||||||||||||
Cashless stock option exercise | 185,111 | 19 | (19 | ) | - | - | - | |||||||||||||||||
Cashless warrant exercise | 1,377 | - | - | - | - | - | ||||||||||||||||||
Net loss | - | - | - | (5,300,728 | ) | - | (5,300,728 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | 32,740 | 32,740 | ||||||||||||||||||
Balances, March 31, 2022 | 24,672,522 | $ | 2,467 | $ | 132,439,724 | $ | (121,200,667 | ) | $ | 244,226 | $ | 11,485,750 | ||||||||||||
Balances, December 31, 2022 | 25,319,095 | $ | 2,532 | $ | 140,255,234 | $ | (140,130,159 | ) | $ | 155,929 | $ | 283,536 | ||||||||||||
Stock-based compensation | - | - | 840,021 | - | - | 840,021 | ||||||||||||||||||
Shares issued in lieu of interest | 545,342 | 55 | 222,372 | - | - | 222,427 | ||||||||||||||||||
Net loss | - | - | - | (5,222,494 | ) | - | (5,222,494 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | (24,066 | ) | (24,066 | ) | ||||||||||||||||
Balances, March 31, 2023 | 25,864,437 | $ | 2,587 | $ | 141,317,627 | $ | (145,352,653 | ) | $ | 131,863 | $ | (3,900,576 | ) |
See notes to condensed consolidated financial statements.
authID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (5,222,494 | ) | $ | (5,300,728 | ) | ||
Adjustments to reconcile net loss with cash flows from operations: | ||||||||
Depreciation and amortization expense | 76,017 | 215,476 | ||||||
Stock-based compensation expense | 840,021 | 1,866,989 | ||||||
Shares issued in lieu of interest expense | 222,427 | - | ||||||
Other non-cash interest expense | 8,250 | - | ||||||
Amortization of debt discounts and issuance costs | 567,287 | 12,657 | ||||||
Non-cash recruiting fees | 492,000 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 206,419 | (27,076 | ) | |||||
Other current and long-term assets | 106,600 | 152,128 | ||||||
Inventory | - | (34,104 | ) | |||||
Accounts payable and accrued expenses | 155,371 | (373,372 | ) | |||||
Deferred revenue | (7,449 | ) | 160,537 | |||||
Other accrued liabilities | 325,000 | - | ||||||
Discontinued operations | 60,494 | 225,769 | ||||||
Net cash flows from operating activities | (2,170,057 | ) | (3,101,724 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of intangible assets - discontinued operations | - | (450 | ) | |||||
Net cash flows from investing activities | - | (450 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Credit facility drawdown, net of issuance costs | 543,760 | - | ||||||
Proceeds from sale of common stock, net of offering costs | - | 3,146,940 | ||||||
Proceeds from issuance of convertible note payable, net of issuance costs | - | 7,992,841 | ||||||
Cash paid for working capital facility | - | (300,000 | ) | |||||
Payments on notes payable - discontinued operations | - | (1,579 | ) | |||||
Principal payments on capital lease obligation - discontinued operations | - | (10,562 | ) | |||||
Net cash flows from financing activities | 543,760 | 10,827,640 | ||||||
Effect of Foreign Currencies | (22,505 | ) | 32,323 | |||||
Net Change in Cash | (1,648,802 | ) | 7,757,789 | |||||
Cash, Beginning of the Period | 3,237,106 | 5,767,276 | ||||||
Add: Cash, Beginning of the Period- Discontinued Operations | 2,703 | 270,707 | ||||||
Less: Cash, End of the Period - Discontinued Operations | (3,025 | ) | (337,660 | ) | ||||
Cash, End of the Period | $ | 1,587,982 | $ | 13,458,112 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Cash paid for interest | $ | - | $ | 7,188 | ||||
Cash paid for interest - discontinued operations | $ | - | $ | 4,388 | ||||
Cash paid for income taxes | $ | - | $ | 11,739 | ||||
Cash paid for income taxes - discontinued operations | $ | 1,294 | $ | 1,149 | ||||
Schedule of Non-cash Investing and Financing Activities: | ||||||||
Cashless option and warrant exercises | $ | - | $ | 19 | ||||
Common stock issued with convertible notes | $ | - | $ | 91,757 | ||||
Common stock for working capital facility | $ | - | $ | 303,000 | ||||
Warrants for services with the issuance of convertible debt | $ | - | $ | 449,474 |
See notes to condensed consolidated financial statements.
authID INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q, include all adjustments (consisting only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022. The results of operations for the three and nine months ended September 30, 2022March 31, 2023 are not necessarily indicative of the results to be expected for future periods or the full year.
Effective July 18, 2022, the Company changed its name to authID Inc.
The condensed consolidated financial statements include the accounts of authID Inc. and its wholly-owned subsidiaries MultiPay S.A.S., IDGS S.A.S., ID Solutions, Inc., FIN Holdings Inc., Ipsidy Enterprises Limited and Cards Plus Pty Ltd. and authID Gaming Inc. (collectively the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
On May 4, 2022, the Board of Directors of authID Inc. approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payments services in Colombia and the Cards Plus cards manufacturing and printing business in South Africa (“Cards Plus business”). On August 29, 2022 the Company executed and completed the sale of the Cards Plus business. As of September 30, 2022 and December 31, 2021, Cards Plus Pty Ltd., MultiPay S.A.S., and IDGS S.A.S assets are presented as assets held for sale on the Company’s Condensed Consolidated Balance Sheets and their operations presented as discontinued operations in the Condensed Consolidated Statements of Operations as they met the criteria for discontinued operations under applicable accounting guidance. See Discontinued Operations Note 9 for details.
Going Concern
As of September 30, 2022,March 31, 2023, the Company had an accumulated deficit of approximately $134$145 million. For the three and nine months ended September 30, 2022March 31, 2023, the Company earned revenue from continuing operations of approximately $0.03$0.04 million, and $0.3used approximately $2.2 million respectivelyto fund its operations, and incurred losses from operationsa net loss of approximately $4.1 million and $11.4 million respectively, excluding the stock-based compensation expenses of $2.2 million and $6.7 million, respectively.$5.3 million.
These unaudited condensed consolidated financial statements have been prepared onThe continuation of the Company as a going concern basis, which impliesis dependent upon financial support from the Company’s stockholders and noteholders, the ability of the Company willto obtain additional debt or equity financing to continue operations, the Company’s ability to meet its obligationsgenerate sufficient cash flows from operations, successfully locating and continue its operationsnegotiating with other business entities for the next fiscal year.potential acquisition, and acquiring new clients to generate revenues and cash flows.
In March 2022, theThe Company has secured additional financing of $3.6 million which management believes will provide adequateprovides funding for its current operations as it continues to invest in its product, people, and technology. The Company may need additional capitalprojects that the investments will lead to revenue expansion thereby reducing liquidity needs. However, in the future but currently believes it has sufficient fundsorder to operatefurther implement its business through December 31, 2023. See Notes 5, 6plan and 8.satisfy its working capital requirements, the Company will need to raise additional capital. There is no guarantee that the Company will be able to raise additional equity or debt financing at acceptable terms, if at all.
There is no assurance that the Company will ever be profitable. These unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. As there can be no assurance that the Company will be able to achieve positive cash flows (become cash flow profitable) and raise sufficient capital to maintain operations, there is substantial doubt about the Company’s ability to continue as a going concern.
Reclassification
Certain prior year expenses have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the previously reported results of operations.loss from continuing operations and management does not believe that this reclassification is material to the consolidated financial statements taken as a whole. Specifically, we reclassified certain expenses from general and administrative expenses to research and development expenses.
Net Loss per Common Share
The Company computes net loss per share in accordance with FASB ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible notes and stock warrants, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, warrants and conversion of convertible notes. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. The following potentially dilutive securities were excluded from the calculation of diluted loss per share for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 because their effect was antidilutive:
Security | 2022 | 2021 | 2023 | 2022 | ||||||||||||
Convertible notes payable | 2,590,547 | 117,529 | 2,466,297 | 2,598,741 | ||||||||||||
Warrants | 1,267,688 | 1,413,611 | 1,229,226 | 1,544,633 | ||||||||||||
Stock options | 9,895,187 | 9,322,153 | 7,945,664 | 9,151,167 | ||||||||||||
13,753,422 | 10,853,293 | 11,641,187 | 13,294,541 |
Revenue Recognition
Starting in the quarter ended June 30, 2022, the Company separately reports Verified software license revenue from Legacy authentication services revenue. Prior periods revenues are recast accordingly for comparison purposes.
Verified Software License – The Company recognizes revenue based on the identified performance obligations over the performance period for fixed consideration and/or forand /or variable fees generated that are earned on a usage fee earnedbased over time based on monthly user or transaction or user volumes and/or on a monthly flat fee rate. We allocate the selling price in a contract which has multiple performance obligations based on the contract selling price that we believe represents a fair market price for the service rendered based on estimated standalone selling price.
The Company had a contract liabilityliabilities of approximately $97,000$74,000 and $199,000$81,000 as of September 30, 2022March 31, 2023, and December 31, 2021,2022 respectively for certain revenue that will be earned in future periods. Of the $97,000 ofAll deferred revenue contract liabilityliabilities as of September 30, 2022, the majorityMarch 31, 2023 will be earned duringover the balance of 2022. The majoritycourse of the deferred revenue contract liability as of December 31, 2021 related to legacy services and was recognized in the quarter ended March 31, 2022. All contracts are reviewed for their respective performance obligations and related revenue and expense recognition implications. Certain of the revenues are derived from Verified software licenses that could include multiple performance obligations. A performance obligation is defined as a promise to provide a “distinct” good or service to a customer. The Company has determined that one possible treatment under U.S. GAAP is that these services will represent a stand-ready series of distinct daily services that are substantially the same, with the same pattern of transfer to the customer. Further, the Company has determined that the performance obligation to provide account access and facilitate transactions should meet the criteria for the “as invoiced” practical expedient, in that the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date. As a result, the Company anticipates it may recognize revenue in the amount to which the Company has a right to invoice, based on completed performance at the relevant date. Additionally, the contracts could include implementation services, or support on an “as needed” basis and the Company will review each contract and determine whether such performance obligations are separate and distinct and apply the new standard accordingly to the revenue and expense derived from or related to each such service.year 2023.
As of March 31, 2023, and December 31, 2022, the Company did not have any deferred contract costs or fees payable.
Legacy Authentication Services – The Company’s Legacy authentication services comprisedCompany historically has sold certain legacy software licenses to customers and revenue is recognized when delivery occurs, and all other revenue recognition criteria have been met. During both quarters ended March 31, 2023 and 2022, the Company provided annual software maintenance support services relating to previously licensed software on a stand readystand-ready basis. These fees were billed in advance and recognized ratably over the requisite service period as revenue. The contract terminated on April 1, 2022.
Furthermore,Recent Accounting Pronouncement - In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which replaces the current incurred loss impairment methodology for most financial assets with the current expected credit loss, or CECL, methodology. The series of new guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The Company will capitalizeadopted the incremental costs of acquiring and fulfilling a contract with a customer if the Company expects to recover those costs. These incremental costs were immaterial in both three-month and nine-month periods and the Company recognizes these costs as incurred as they typically relate to a period of less than one year as allowed by the practical expedient and the amounts in the period were immaterial.
Contract cost assets will be amortized using the straight-line method over the expected period of benefit beginning at the time revenue begins to be realized. The amortization of contract fulfillment cost assets associated with facilitating transactions will be recorded as cost of services in the Company’s Consolidated Statements of Operations. The amortization of contract acquisition cost assets associated with sales commissions that qualify for capitalization will be recorded as general and administrative expense in the Company’s Consolidated Statements of Operations.
As of September 30, 2022 and December 31, 2021, the Companynew standard effective January 1, 2023, which did not have any deferred contract costs or fees payable.a material impact to the financial statements.
NOTE 2 – OTHER CURRENT ASSETS AND OTHER ASSETS
Other current assets consisted of the following at September 30, 2022March 31, 2023 (unaudited) and December 31, 2021:2022:
September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Prepaid Insurance | $ | 378,014 | $ | 126,042 | $ | 100,186 | $ | 244,215 | ||||||||
Unamortized working capital facility fees | 199,156 | - | ||||||||||||||
Prepaid Third Party Services | 281,587 | 215,326 | 174,838 | 135,405 | ||||||||||||
Unamortized credit facility fees | - | 199,156 | ||||||||||||||
Other | 150,566 | 161,353 | 150,000 | 150,566 | ||||||||||||
$ | 1,009,323 | $ | 502,721 | $ | 425,024 | $ | 729,342 |
Other assets consisted of the following at September 30, 2022March 31, 2023 (unaudited) and December 31, 2021:2022:
September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Unamortized working capital facility fees | $ | 298,734 | $ | - | $ | - | $ | 248,945 | ||||||||
Other | 1,438 | 2,501 | - | 1,438 | ||||||||||||
$ | 300,172 | $ | 2,501 | $ | - | $ | 250,383 |
NOTE 3 – INTANGIBLE ASSETS, NET (OTHER THAN GOODWILL)
The Company’s intangible assets primarily consist of acquired and developed software that is being amortized over their estimated useful lives as indicated below. The following is a summary of activity related to intangible assets for the ninethree months ended September 30, 2022March 31, 2023 (unaudited):
Acquired and Developed Software | Patents | Total | ||||||||||
Useful Lives | 5 Years | 10 years | ||||||||||
Carrying Value at December 31, 2021 | $ | 2,238,881 | $ | 140,570 | $ | 2,379,451 | ||||||
Additions | - | 6,311 | 6,311 | |||||||||
Amortization | (629,511 | ) | (12,108 | ) | (641,619 | ) | ||||||
Carrying Value at September 30, 2022 | $ | 1,609,370 | $ | 134,773 | $ | 1,744,143 |
Acquired and Developed Software | Patents | Total | ||||||||||
Useful Lives | 5 Years | 10 years | ||||||||||
Carrying Value at December 31, 2022 | $ | 435,595 | $ | 130,664 | $ | 566,259 | ||||||
Amortization | (71,904 | ) | (4,113 | ) | (76,017 | ) | ||||||
Carrying Value at March 31, 2023 | $ | 363,691 | $ | 126,551 | $ | 490,242 |
The following is a summary of intangible assets as of September 30, 2022March 31, 2023 (unaudited):
Acquired and Developed Software | Patents | Total | Acquired and Developed Software | Patents | Total | |||||||||||||||||||
Cost | $ | 4,476,271 | $ | 164,614 | $ | 4,640,885 | $ | 4,476,271 | $ | 164,614 | $ | 4,640,885 | ||||||||||||
Accumulated amortization | (2,866,901 | ) | (29,841 | ) | (2,896,742 | ) | (4,112,580 | ) | (38,063 | ) | (4,150,643 | ) | ||||||||||||
Carrying Value at September 30, 2022 | $ | 1,609,370 | $ | 134,773 | $ | 1,744,143 | ||||||||||||||||||
Carrying Value at March 31, 2023 | $ | 363,691 | $ | 126,551 | $ | 490,242 |
Amortization expense totaled approximately $642,000$76,000 and $894,000$215,000 for the ninethree months ended September 30,March 31, 2023, and 2022, and 2021, respectively.
Future expected amortization of intangible assets is as follows:
Fiscal Year Ending December 31, | ||||||||
Remainder of 2022 | $ | 213,928 | ||||||
2023 | 804,722 | |||||||
2023 (Remainder of the Year) | $ | 177,063 | ||||||
2024 | 580,408 | 168,094 | ||||||
2025 | 63,792 | 63,791 | ||||||
2026 | 16,456 | 16,456 | ||||||
2027 | 16,456 | 16,456 | ||||||
Thereafter | 48,381 | 48,382 | ||||||
$ | 1,744,143 | $ | 490,242 |
There is no impairment indicator identified for impairment of the Company’s intangible assets and goodwill as of September 30, 2022.
March 31, 2023.
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of September 30, 2022March 31, 2023 (unaudited) and December 31, 2021:2022:
September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Trade payables | $ | 586,902 | $ | 548,087 | $ | 666,691 | $ | 623,130 | ||||||||
Accrued interest | 83,203 | 33,533 | ||||||||||||||
Accrued payroll and related obligations | 627,881 | 783,144 | ||||||||||||||
Accrued severance | 325,000 | 145,837 | ||||||||||||||
Other accrued expenses | 709,645 | 413,328 | 879,752 | 385,105 | ||||||||||||
Total | $ | 2,007,631 | $ | 1,778,092 | $ | 1,871,443 | $ | 1,154,072 |
On February 14, 2023, the Company’s Board of Directors resolved to implement a revised budget for 2023 in order to reduce expenses and cash requirements and as part of such revised budget decided to re-balance staffing levels to better align with the evolving needs of the Company (the “Labor Reduction Plan”). Under the Labor Reduction Plan, 12 employees and 6 contractors have left the Company. The Company has also given termination notice to certain vendors and contractors that provide services to the Company. For the quarter ended March 31, 2023, the Company incurred approximately $0.8 million of severance expenses of which $0.2 million was paid; $0.3 million was included in the Accounts payable and accrued expenses and the remaining $0.3 million was accrued for in Other liabilities as a long term liability on the unaudited Condensed Consolidated Balance Sheets.
NOTE 5 – WORKING CAPITALCREDIT FACILTIY
On March 21, 2022, the Company entered into a Credit Facility Agreement (the “Original Facility Agreement”) with Stephen J. Garchik (“Garchik”), who is a current shareholder and noteholder of the Company, pursuant to which the shareholderGarchik agreed to provide to the Company a $10.0 million unsecured standby line of credit facility that will rank behind the Convertible Notes (see Note 6) and maycould be drawn down in several tranches, subject to certain conditions described in the Original Facility Agreement (the “Credit Facility”).Agreement. Pursuant to the CreditOriginal Facility Agreement, the Company agreed to paypaid Garchik a facility commitment feeFacility Commitment Fee of 100,000 shares of our common stock upon the effective date of the Credit Facility.Original Facility Agreement.
Outstanding borrowings underOn March 8, 2023, the Company entered into an Amended and Restated Facility Agreement (“A&R Facility Agreement”) with Garchik, pursuant to which the Company and Garchik amended and restated the Original Facility Agreement in its entirety, to replace the credit facility contemplated by the Original Facility Agreement with (i) an initial credit facility to the Company in an amount of $900,000 and (ii) the parties to use their reasonable best efforts after the Initial Funding to negotiate the terms of a subsequent credit facility in the aggregate amount of $2,700,000 (the “Subsequent Funding”).
On March 9, 2023, pursuant to the A&R Facility Agreement, the Company entered into a promissory note (the “Initial Promissory Note”) in favor of Garchik, pursuant to which Garchik loaned the amount of $900,000 (the “Principal Amount”) to the Company.
The Company wrote-off approximately $410,000 of the issuance costs related to the Original Credit Facility will accrue interest at 15% per annum. Drawdownsand capitalized $426,000 issuance costs related to the A&R Facility Agreement. As of March 31, 2023, the unamortized deferred issuance cost is approximately $449,000 which has been recorded as a reduction in the carrying value of the Credit Facility, net on the unaudited Condensed Consolidated Balance Sheets. The deferred issuance costs balance will be amortized from March 9, 2023 to March 31, 2025.
Initial Promissory Note
Interest accrues on the Principal Amount until paid in tranchesfull at a per annum rate equal to 15%, computed on the basis of not less than $500,000 up to the maximum amount of the Credit Facility, subject to the satisfaction of customary certificationsa 360-day year and a certification from the Company that it has no more than $5 million of cash available to it as of the date of the drawdown request. The Credit Facility contains customary representations and warranties and defined events of default. The Company will be permitted to prepay borrowings under the Credit Facility at any time, without penalty,twelve 30-day months, payable in partarrears or in full. Uponkind on March 31, June 30, September 30 and December 31 of each year commencing March 31, 2023 or the first business day following each such date if any such date falls on a day which is not a business day, in cash. The Principal Amount shall mature on March 31, 2025.
While the Initial Promissory Note is unsecured, in the event of either (I) the conversion or redemption of all amounts outstanding under the Convertible Notes (as defined in Note 6 below) and the release of all securityliens over the Company’s assets granted by and through the Transaction Documents (as defined in the Convertible Notes) or (II) receipt of the consent of the requisite holders of the Convertible Notes, in each case, the Company will, provideas collateral security for the due and punctual payment and performance of all obligations under the Initial Promissory Note, pledge and assign to Garchik a lienfirst-priority, continuing security interest in substantially all of the assets of the Company, subject to exclusions consistent with those contained in the Transaction Documents. The Company has agreed to use its reasonable best efforts to deliver to Garchik an amendment to the Securities Purchase Agreement, dated as of March 21, 2022, pursuant to which the Convertible Notes were purchased, permitting the grant of that collateral security to Garchik. Upon the grant of that collateral security, interest will accrue on the Company’s intellectual property assetsoutstanding Principal Amount under the Initial Promissory Note at a per annum rate equal to secure12% paid in kind, capitalized and added to the Credit Facility.balance of the loan on a quarterly basis, calculated on a 360-day year basis, on the outstanding aggregate balance.
There were no borrowings under the Credit Facility as of September 30, 2022. The unamortized deferred debt expense is approximately $498,000 of which $199,000 is included in other current assets and the balance in other assets.
The Initial Promissory Note includes customary Events of Default, including, among other things, failing to make payment of any of the Principal Amount or interest due and such failure continues for not less than 5 business days without being cured. Upon an Event of Default, Garchik can declare all outstanding amounts under the Initial Promissory Note due, along with any accrued interest.
A&R Facility Agreement
Under the A&R Facility Agreement, Garchik agreed to provide initial funding of the Principal Amount to the Company upon receipt of a fully executed Initial Promissory Note and an executed Release Agreement relating to the Original Facility Agreement. The Company and Garchik agreed to use reasonable best efforts to negotiate the terms of the Subsequent Funding and negotiations continue, but the A&R Facility Agreement will terminate if definitive documentation for the Subsequent Funding is not entered into before July 1, 2023, for any reason other than breach of a party’s obligations.
The Subsequent Funding would be a $2,700,000 secured note facility with a 12% per annum interest rate, paid in kind, capitalized and added to the balance of the loan on a quarterly basis, calculated on a 360-day year basis, on the outstanding aggregate balance of the Subsequent Facility. The Subsequent Facility will mature twenty-four (24) months after effectiveness. Garchik will be granted a fully perfected, non-avoidable, first-priority security interest and lien on all assets of the Company. The Subsequent Facility would be the senior obligation of the Company and will rank senior in right to payment of the obligations under the existing Convertible Notes and the liens granted in connection with the Subsequent Facility shall rank pari passu with the liens granted to holders of the Convertible Notes. Pursuant to the A&R Facility Agreement, the Company will use reasonable best efforts to obtain the consent of two-thirds of the holders of Convertible Notes.
Guaranty
In connection with the Company and Garchik entering into the Initial Promissory Note, each of the principal United States based subsidiaries of the Company agreed to, for the benefit and security of Garchik, guarantee the payment and performance all of the Company’s obligations under the Initial Promissory Note and the Guaranty.
Release Agreement
In connection with the A&R Facility Agreement, on March 9, 2023, the Company and Garchik entered into the Release Agreement, pursuant to which the Company and Garchik mutually agreed to release any and all rights to make a claim against the other and any existing claims against the other arising out of or relating to the Original Facility Agreement.
The following is a summary of the Credit facility balance, net as of March 31, 2023 (unaudited):
Credit facility initial drawdown due March 31, 2025 | $ | 900,000 | ||
add: Accrued interest | 8,250 | |||
less: Unamortized debt issuance costs | (449,450 | ) | ||
$ | 458,800 |
NOTE 6 – CONVERTIBLE NOTES PAYABLE
On March 21, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with certain accredited investors, including certain directors of the Company or their affiliates (the “Note Investors”), and, pursuant to the SPA, sold to the Note Investors Senior Secured Convertible Notes (the “Convertible Notes”) with an aggregate initial principal amount of approximately $9.2 million and a conversion price of $3.70. The Convertible Notes were sold with an aggregate cash origination fee of approximately $200,000, and we issued a total of approximately 28,500 shares of our common stock to the Note Investors as an additional origination fee. The Convertible Notes will accrue interest at the rate of 9.75% per annum, which will be payable in cash or, for some or all of the first five interest payments, in shares of our common stock at the Company’s option, on the last day of each calendar quarter before the maturity date and on the maturity date. The maturity date of the Convertible Notes is March 31, 2025.
During the quarter ended September 30, 2022, a holder of a Convertible Note converted the full principal amount of $50,000 and accrued interest of $406 into 13,649 shares of our common stock.
In the three and nine months ended September 30,March 31, 2023 and 2022, the Company issued 74,683545,342 and 191,5790 shares of common stock for approximately $223,000 and $474,000,$0, respectively of interest related to the Convertible Notes.
In connection with the issuance of the Convertible Notes, the Company issued 142,690 common stock warrants to the broker and its representatives with an estimated grant date fair value of approximately $449,000 which has been recorded as a reduction in the carrying value of the Convertible Notes.
The Company also has a note outstanding to the Stern Trust in the amount of $662,000 that earns interest at 10% per annum, which at the election of the Stern Trust can be paid in shares of common stock at a conversion price of $6.00 (the “Stern Note”). Theodore Stern, the former Trustee of the Stern Trust was formerly a director of the Company. The maturity date of the Stern Note was previously February 29, 2022 and the Stern Trust and the Company have mutually agreed to extend the due date to December 31, 2022. The Stern Trust shall have the right at is sole option to extend the maturity date for a further six months after December 31, 2022, by service of written notice upon the Borrower at any time on or before December 31, 2022.
The following is a summary of the convertible notes payable outstanding as of September 30, 2022March 31, 2023 (unaudited):
10.0% convertible note due December 31, 2022 | $ | 662,000 | ||
9.75% convertible notes due March 31, 2025 | 9,126,224 | |||
less: | ||||
Unamortized debt discount expense | (226,337 | ) | ||
Unamortized debt issuance expense | (1,200,133 | ) | ||
$ | 8,361,754 |
Future maturities of convertible notes payable as of September 30, 2022:
2022 | $ | 662,000 | ||
2025 | 9,126,224 | |||
$ | 9,788,224 |
9.75% convertible notes due March 31, 2025 | $ | 9,125,205 | ||
less: | ||||
Unamortized debt discount expense | (180,865 | ) | ||
Unamortized debt issuance expense | (960,444 | ) | ||
$ | 7,983,896 |
NOTE 7 – RELATED PARTY TRANSACTIONS
Convertible Notes Payable
During the nine monthsquarter ended September 30,March 31, 2022, two Directors, an affiliate of one of such Directors and one Executive Officer invested in $1.2 million of the Convertible Notes issued. See Note 6. In connection with the payment of interest on the Convertible Notes, 20,761 shares were issued to two Directors and an affiliate of one of the Directors. The Executive Officer resigned in June 2022 and the two directors resigned during the quarter ended March 31, 2023.
One Convertible Note holder, Mr. Ken Jisser, joined our Board of Directors on March 9, 2023. Mr. Jisser is the Founder and Chief Executive Officer of The Pipeline Group, Inc., a technology-enabled services company that assists the Company with pipeline generation.
Issuance of Common Stock
Two DirectorsOne Director and onetwo Executive OfficerOfficers invested $0.2 million in the common stock offering induring the nine monthsquarter ended September 30,March 31, 2022. See Note 8.The Director and Officers resigned during the quarter ended March 31, 2023.
Executive OfficersCredit Facility
On April 25,March 21, 2022 Stuart Stoller indicated his intention to resign as Chief Financial Officerthe Company entered into the Original Facility Agreement with an accredited investor Mr. Stephen Garchik, who is both a current shareholder of the Company and a Note Investor, pursuant to which the accredited investor agreed to provide a $10.0 million unsecured standby line of credit facility that will rank behind the Convertible Notes and may be drawn down in connection with his planned retirement. The resignation and retirement had anseveral tranches, subject to certain conditions described in the Original Facility Agreement. Pursuant to the Original Facility Agreement, the Company agreed to pay the Garchik the Facility Commitment Fee of 100,000 shares of our common stock upon the effective date of June 17,the Original Facility Agreement. Upon request by Mr. Garchik and until the full amount due under the Original Facility Agreement is repaid in full, the Company will provide for the nomination of one designee specified in writing by Garchik for appointment to our board of directors and for subsequent election to our board of directors and to recommend such nominee for election to our board of directors. On April 18, 2022, at which time Annie PhamJoseph Trelin, as Garchik’s designee under the Original Facility Agreement, was appointed Chief Financial Officer in his place. In connection with his retirement, the Boardas a member of Director’s approved the vesting of approximately 122,222 stock options which were unvested as of June 17, 2022. Additionally, the Board of Directors approvedof the Company. By virtue of such right of nomination Mr. Garchik considers himself a consulting arrangement“director by deputization”.
As described in the Credit Facility footnote, Note 5, the Original Facility Agreement was amended and restated effective March 6, 2023 pursuant to which amendment the amount of the facility was reduced to $3.6 million, an initial advance of $900,000 was made and subsequent advances under the A&R Facility Agreement are subject to various conditions including the granting of a security interest over substantially all the Company’s assets. Under the A&R Facility Agreement Garchik had a one-time right for the nomination of four designees specified in writing by Garchik for appointment to our board of directors. On March 9, 2023 Rhoniel Daguro, Ken Jisser, Michael Thompson and Thomas Szoke as Garchik’s designees under the A&R Facility Agreement, were appointed as members of the Board of Directors of the Company.
Executive Officer
Effective March 23, 2023, Mr. Stoller to provide transitional services.Thomas Thimot resigned as the Company’s Chief Executive Officer.
On April 25, 2022, Ms. PhamMarch 23, 2023, the Company and Rhoniel A. Daguro, a director of the Company, entered an Offer Letter pursuant to which Ms. PhamMr. Daguro agreed to serve as Chief FinancialExecutive Officer commencing June 20, 2022. Ms. Pham receivesof the Company in consideration of an initial annual salary of $275,000. The Company agreed$400,000. Mr. Daguro will be eligible for an annual target bonus of up to provide$375,000 based on performance milestones. For the period ending March 31, 2024, a bonus amount of 40%$75,000 shall be payable upon the Company achieving increments of the base salary (pro rated for 2022) based on achievement$1,000,000 in total contract value of performance milestones, calculated and payableall customer agreements less claw backs (“Bookings”) up to an aggregate of $5,000,000 in accordance with the corporate milestones approved by the Board for the year 2022.Bookings. For subsequent fiscal years, the bonus shall be subject to performance targets to be mutually agreed withMr. Daguro and the Compensation Committee of the Board. In addition, Ms. Pham receivedBoard will mutually agree as to the performance targets to earn for the annual bonus. The Company provided Mr. Daguro with an initial grant of options (“Initial Grant”) to purchase 2,455,000 shares of common stock at the exercise price of 0.397 per share for a signingperiod of ten years vesting subject to achievement of performance and service conditions. The exercise price of the Initial Grant is the closing price of the common stock on the Nasdaq Stock Market on the third trading day after the announcement of all pending material non-public information which was determined to be April 10, 2023. Upon the Company being able to grant additional options under a stock incentive plan, it will make an additional grant of options to Mr. Daguro to acquire 1,115,000 shares of common stock for a period of ten years vesting subject to achievement of performance and service conditions (the “Additional Grant”). The exercise price of the options shall be equal to the closing price of the common stock on the Nasdaq Stock Market on the date of such Additional Grant. If and to the extent that the exercise price under the Additional Grant is higher than the exercise price under the Initial Grant, the Company shall determine the incremental cost of the Additional Grant by deducting the exercise price of the Initial Grant from the exercise price of the Additional Grant and multiplying the difference by 1,115,000 (the “Difference”). The Difference shall be payable by the Company to Mr. Daguro as a bonus payable upon exercise of options comprised in the amountAdditional Grant, by way of $25,000, which is fully refundableoffset against the exercise price of such options to the Company if Ms. Pham leaves her employment voluntarily or is terminated for cause prior to the first anniversaryextent of the commencementtotal exercise price of employment. Upon commencing employment, Ms. Pham was grantedthe options being exercised at that time. To the extent that the entire Difference cannot be applied to any particular exercise, the balance shall be carried forward and applied to future exercises of the Additional Grant. In lieu of agreeing to pay the bonus, the Company may in its sole discretion elect to grant Mr. Daguro an option to acquireadditional 350,000 shares of common stock as part of the Additional Grant (for a total of 1,465,000 shares of common stock under the Additional Grant).
Board of Directors
Messrs. Thimot, Phillip L. Kumnick, Philip R. Broenniman, Michael A. Gorriz and Ms. Neepa Patel tendered their resignations from the Board of Directors of the Company on March 9, 2023. The Board of Directors appointed Joseph Trelin to the Company’s Compensation and Audit Committees. On March 9, 2023, the Board of Directors appointed Rhon Daguro, Ken Jisser, Michael Thompson and Thomas Szoke as additional directors of the Company and reduced the size of the Board of Directors from 8 directors to 7 directors. The Company granted Messrs. Jisser, Thompson and Szoke 100,000 options each at anthe exercise price of $2.41$0.33 per share.
On March 16, 2023, the Company appointed Joe Trelin as the Chairman of the Board, Michael Koehneman as Chairman of the Governance Committee and an exercise period of ten years subjectappointed Michael Thompson to certain performance vesting requirementsthe Company’s Compensation and Governance Committees.
NOTE 8 – STOCKHOLDER’S EQUITY
Common Stock
During the nine monthsquarter ended September 30,March 31, 2023, the Company issued 545,342 shares of common stock for approximately $223,000 of interest accrued under the Convertible Notes. See Note 6 for details.
During the quarter ended March 31, 2022, shares of common stock were issued as a result of the following transactions:
● | On March 18 and March 21, 2022, the Company entered into Subscription Agreements (the “Subscription Agreements”) with an accredited investor and certain members of authID’s management team (the “PIPE Investors”), and, pursuant to the Subscription Agreements, sold to the PIPE Investors a total of 1,063,514 shares of our common stock at prices of $3.03 per share for an outside investor and $3.70 per share for the management investors (the “PIPE”). The aggregate gross proceeds from the PIPE are approximately $3.3 million. |
● | The Company issued a total of | |
|
During the nine months ended September 30, 2021, shares of common stock were issued as a result of the following transactions:
● |
Certain warrant and stock option holders exercised their respective warrants and stock options by means of the cashless exercise feature and were issued approximately |
Warrants
The following is a summary of the Company’sThere was no warrant activity for the ninethree months ended September 30, 2022:March 31, 2023. As of March 31, 2023, there are warrants to acquire 1,229,226 shares for a weighted average exercise price of $4.62 per share with weighted average remaining life of 2.7 years.
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Life | ||||||||||
Outstanding at December 31, 2021 | 1,403,610 | $ | 4.61 | 3.0 years | ||||||||
Granted | 142,690 | $ | 3.70 | 5.0 years | ||||||||
Exercised/cancelled | (278,612 | ) | $ | 4.13 | 0.1 years | |||||||
Outstanding at September 30, 2022 | 1,267,688 | $ | 4.61 | 3.1 years |
Stock Options
TheDuring the quarter ended March 31, 2023, the Company determinedgranted 3 new directors, Messrs. Jisser, Thompson and Szoke 100,000 options each at the grant date fair valueexercise price of options granted for the nine months ended September 30, 2022, using the Black Scholes Method and the following assumptions:$0.33 per share.
Activity related to stock options for the nine months ended September 30, 2022, is summarized as follows:
Number of Shares | Weighted Average Exercise Price | Weighted Average Contractual Term (Yrs.) | Aggregate Intrinsic Value | |||||||||||||
Outstanding as of December 31, 2021 | 8,910,994 | $ | 4.50 | 7.5 | $ | 67,488,214 | ||||||||||
Granted | 1,351,337 | $ | 2.37 | 10.0 | - | |||||||||||
Exercised | (281,031 | ) | $ | 3.28 | 8.8 | - | ||||||||||
Forfeited/cancelled | (86,113 | ) | $ | 6.63 | 7.9 | - | ||||||||||
Outstanding as of September 30, 2022 | 9,895,187 | $ | 6.07 | 6.5 | $ | 2,516,245 | ||||||||||
Exercisable as of September 30, 2022 | 5,274,760 | $ | 5.65 | 4.4 | $ | 2,250,119 |
The following table summarizes stock option information as of September 30, 2022:March 31, 2023:
Contractual Life | ||||||||||||||||||||||||
Exercise Price | Exercise Price | Outstanding | Contractual Life (Yrs.) | Exercisable | Outstanding | (Yrs.) | Exercisable | |||||||||||||||||
$.03 - $4.00 | $.03 - $4.00 | 4,636,149 | 5.5 | 3,095,020 | 4,568,757 | 5.1 | 3,360,376 | |||||||||||||||||
$4.01- $7.00 | $4.01- $7.00 | 151,667 | 3.8 | 151,667 | 151,667 | 3.1 | 151,667 | |||||||||||||||||
$7.01 - $10.00 | $7.01 - $10.00 | 3,416,135 | 8.6 | 808,907 | 1,782,262 | 6.6 | 951,705 | |||||||||||||||||
$10.01 - $15.97 | $10.01 - $15.97 | 1,691,236 | 5.2 | 1,219,166 | 1,442,978 | 3.4 | 1,289,641 | |||||||||||||||||
9,895,187 | 6.5 | 5,274,760 | 7,945,664 | 3.9 | 5,753,389 |
During the ninethree months ended September 30, 2022,March 31, 2023, the Company recognized approximately $6,727,000$0.8 million of stock option based compensation expense of which approximately $2,214,000 relates to market condition-based awards of directors and officers.expense. As of September 30, 2022,March 31, 2023, there was approximately $11,835,000$6.6 million of unrecognized compensation costs related to stock options outstanding that will be expensed through 2026.
NOTE 9 – DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
The Board of Directors of authID considers it in the best interests of the Company to focus its business activities on providing biometric authentication products and services by means of our proprietary Verified platform. Accordingly, on May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payments services in Colombia and the Cards Plus cards manufacturing and printing business in South Africa.
Cards Plus business in South Africa
The financial statements of Cards Plus are classified as a discontinued operation and an asset held for sale, as all required classification criteria under appropriate accounting standards were met as of June 30, 2022.
On August 29, 2022, the Company completed the sale of Cards Plus for a price of $300,000 of which $150,000 was received and the remaining balance of $150,000 recorded in other current asset is expected to be received within one year, less $3,272 in costs to sell, (net), and recognized a loss of $188,247 from the transaction. The following table summarizes the assets and liabilities of the Cards Plus sale and the consideration received (unaudited):
Amount | ||||
Carrying value of net assets sold: | ||||
Cash | $ | 299,505 | ||
Accounts receivable | 61,879 | |||
Inventory | 231,955 | |||
Other current assets | 1,490 | |||
Total current assets | 594,829 | |||
Property and equipment | 21,127 | |||
Total assets | 615,956 | |||
Accounts payable | 76,094 | |||
Accrued expenses | 43,728 | |||
Deferred revenue | 11,159 | |||
Total current liabilities | 130,981 | |||
Net assets sold | $ | 484,975 | ||
Sale Consideration on disposition of net assets: | ||||
Proceeds | $ | 300,000 | ||
Legal fee | (5,511 | ) | ||
Write off net payable with CP | 2,239 | |||
Net Consideration | 296,728 | |||
Net loss on sale of a discontinued operation | $ | (188,247 | ) |
MultiPay business in Colombia
The Company is exiting the MultiPay business in Colombia in an orderly fashion, honoring our obligations to employees, customers and under applicable laws and regulations. We maintain our customer support and operations team in Bogota, which performs essential functions to support the global operations of our Verified product.
As of September 30, 2022,March 31, 2023, all impacted employees had left the Company. The Company also paid to each employee their severance packages under MultiPay’s retention plan and obligations under the appropriate statutes.
As of September 30, 2022, MultiPay is working with aleasing out its software to its one major customer and working to implement a transition plan to provide an essential service for certain bill pay services which will likely result infinalize the sale of the Company’s proprietary software as well as the assumptions of certain expenses.
to this same customer. The Company expectstransaction is expected to incur costs associated with the proposed exit of the MultiPay business which include approximately $203,000 for payment to employees and consultants including statutory obligations and certain contingent retention bonuses of which $113,000 was already paid during the quarter ended Septembercomplete by June 30, 2022 and the remaining balance of $90,000 is in accrual; and approximately $41,000 for accelerated amortization (non-cash) for certain technology licenses.
MultiPay has accelerated the depreciation of certain assets with the effective date of the announcement to reflect the estimated remaining useful life.2023.
The operations of Cards Plus and MultiPay for the three and nine months ended September 30,March 31, 2023 and 2022 and September 30, 2021 on a consolidated basis are below (unaudited):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
Discontinued Operations | 2023 | 2022 | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Discontinued Operations Total Revenues, net | $ | 446,643 | $ | 359,000 | $ | 1,468,199 | $ | 1,230,949 | $ | 14,095 | $ | 442,310 | ||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Cost of sales | 145,205 | 121,184 | 665,269 | 492,412 | - | 183,524 | ||||||||||||||||||
General and administrative | 276,866 | 472,336 | 1,003,003 | 1,107,961 | 12,268 | 285,383 | ||||||||||||||||||
Impairment loss | - | - | 143,698 | - | - | 143,703 | ||||||||||||||||||
Depreciation and amortization | (6,749 | ) | 30,286 | 33,025 | 75,270 | 3,909 | 28,202 | |||||||||||||||||
Total operating expenses | 415,322 | 623,806 | 1,844,995 | 1,675,643 | 16,177 | 640,812 | ||||||||||||||||||
Income (Loss) from operations | 31,321 | (264,806 | ) | (376,796 | ) | (444,694 | ) | |||||||||||||||||
Loss from operations | (2,082 | ) | (198,502 | ) | ||||||||||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
Other income | 12,792 | 1,851 | 20,821 | 15,113 | 224 | 3,695 | ||||||||||||||||||
Interest expense, net | - | (1,144 | ) | (364 | ) | (3,781 | ) | - | (364 | ) | ||||||||||||||
Other income, net | 12,792 | 707 | 20,457 | 11,332 | 224 | 3,331 | ||||||||||||||||||
Income (Loss) before income taxes | 44,113 | (264,099 | ) | (356,339 | ) | (433,362 | ) | |||||||||||||||||
Loss before income taxes | (1,858 | ) | (195,171 | ) | ||||||||||||||||||||
Income tax expense | (468 | ) | (1,119 | ) | (7,046 | ) | (3,714 | ) | (397 | ) | (1,349 | ) | ||||||||||||
Income (Loss) from discontinued operations | 43,645 | (265,218 | ) | (363,385 | ) | (437,076 | ) | |||||||||||||||||
Loss from sale of discontinued operations | (188,247 | ) | - | (188,247 | ) | - | ||||||||||||||||||
Total loss from discontinued operations | $ | (144,602 | ) | $ | (265,218 | ) | $ | (551,632 | ) | $ | (437,076 | ) | ||||||||||||
Loss from discontinued operations | $ | (2,255 | ) | $ | (196,520 | ) |
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Cards Plus | ||||||||
Total Revenues, net | $ | - | $ | 373,158 | ||||
Operating Expenses: | ||||||||
Cost of sales | - | 183,524 | ||||||
General and administrative | - | 155,310 | ||||||
Impairment loss | - | 143,703 | ||||||
Depreciation and amortization | - | 21,230 | ||||||
Total operating expenses | - | 503,767 | ||||||
Loss from operations | - | (130,609 | ) | |||||
Other Income (Expense): | ||||||||
Other income (expense), net | - | 3,348 | ||||||
Interest expense, net | - | (364 | ) | |||||
Other income, net | - | 2,984 | ||||||
Loss before income taxes | - | (127,625 | ) | |||||
Income tax expense | - | 4,681 | ||||||
Loss from discontinued operations | $ | - | $ | (122,944 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Cards Plus | ||||||||||||||||
Total Revenues, net | $ | 380,372 | $ | 276,335 | $ | 1,263,672 | $ | 955,770 | ||||||||
Operating Expenses: | ||||||||||||||||
Cost of sales | 145,205 | 121,184 | 665,269 | 492,412 | ||||||||||||
General and administrative | 21,539 | 156,341 | 412,243 | 443,318 | ||||||||||||
Impairment loss | - | - | 143,698 | - | ||||||||||||
Depreciation and amortization | (1,482 | ) | 23,160 | 24,415 | 58,393 | |||||||||||
Total operating expenses | 165,262 | 300,685 | 1,245,625 | 994,123 | ||||||||||||
Income (loss) from operations | 215,110 | (24,350 | ) | 18,047 | (38,353 | ) | ||||||||||
Other Income (Expense): | ||||||||||||||||
Other income | 2,103 | 1,848 | 8,919 | 5,299 | ||||||||||||
Interest expense, net | - | (1,144 | ) | (364 | ) | (3,781 | ) | |||||||||
Other income, net | 2,103 | 704 | 8,555 | 1,518 | ||||||||||||
Income (Loss) before income taxes | 217,213 | (23,646 | ) | 26,602 | (36,835 | ) | ||||||||||
Income tax expense | - | - | (4,681 | ) | - | |||||||||||
Income (Loss) from discontinued operations | 217,213 | (23,646 | ) | 21,921 | (36,835 | ) | ||||||||||
Loss from sale of discontinued operations | (188,247 | ) | - | (188,247 | ) | - | ||||||||||
Total income (loss) from discontinued operations | $ | 28,966 | $ | (23,646 | ) | $ | (166,326 | ) | $ | (36,835 | ) |
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
MultiPay | ||||||||
Total Revenues, net | $ | 14,095 | $ | 69,152 | ||||
Operating Expenses: | ||||||||
General and administrative | 12,268 | 130,073 | ||||||
Depreciation and amortization | 3,909 | 6,972 | ||||||
Total operating expenses | 16,177 | 137,045 | ||||||
Loss from operations | (2,082 | ) | (67,893 | ) | ||||
Other Income: | ||||||||
Other income | 224 | 347 | ||||||
Other income | 224 | 347 | ||||||
Loss before income taxes | (1,858 | ) | (67,546 | ) | ||||
Income tax expense | (397 | ) | (6,030 | ) | ||||
Loss from discontinued operations | $ | (2,255 | ) | $ | (73,576 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
MultiPay | ||||||||||||||||
Total Revenues, net | $ | 66,271 | $ | 82,665 | $ | 204,527 | $ | 275,179 | ||||||||
Operating Expenses: | ||||||||||||||||
General and administrative | 255,327 | 315,995 | 590,760 | 664,643 | ||||||||||||
Depreciation and amortization | (5,267 | ) | 7,126 | 8,610 | 16,877 | |||||||||||
Total operating expenses | 250,060 | 323,121 | 599,370 | 681,520 | ||||||||||||
Loss from operations | (183,789 | ) | (240,456 | ) | (394,843 | ) | (406,341 | ) | ||||||||
Other Income: | ||||||||||||||||
Other income | 10,689 | 3 | 11,902 | 9,814 | ||||||||||||
Other income | 10,689 | 3 | 11,902 | 9,814 | ||||||||||||
Loss before income taxes | (173,100 | ) | (240,453 | ) | (382,941 | ) | (396,527 | ) | ||||||||
Income tax expense | (468 | ) | (1,119 | ) | (2,365 | ) | (3,714 | ) | ||||||||
Loss from discontinued operations | $ | (173,568 | ) | $ | (241,572 | ) | $ | (385,306 | ) | $ | (400,241 | ) |
As a result of meeting the discontinued operations/assets held for sale criteria for Cards Plus and the MultiPay operations, the assets and liabilities have been reclassified as assets held for sale as of the respective balance sheet date as follows:
September 30, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
Discontinued Operations Current Assets: | ||||||||
Cash | $ | 11,342 | $ | 270,707 | ||||
Accounts receivable, net | 70,070 | 110,977 | ||||||
Inventory | - | 153,149 | ||||||
Other current assets | - | 94,919 | ||||||
Current assets held for sale | 81,412 | 629,752 | ||||||
Noncurrent Assets: | ||||||||
Property and equipment, net | 28,857 | 93,132 | ||||||
Intangible assets | - | 153,004 | ||||||
Other assets | - | 66,695 | ||||||
Noncurrent assets held for sale | 28,857 | 312,831 | ||||||
Total assets held for sale | $ | 110,269 | $ | 942,583 | ||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 100,368 | $ | 235,348 | ||||
Deferred revenue | - | 47,823 | ||||||
Notes payable obligation, current portion | - | 1,579 | ||||||
Capital lease obligation, current portion | - | 10,582 | ||||||
Total liabilities held for sale | $ | 100,368 | $ | 295,332 |
September 30, 2022 | December 31, 2021 | March 31, 2023 (unaudited) | December 31, 2022 | |||||||||||||
(unaudited) | ||||||||||||||||
Cards Plus Current Assets: | ||||||||||||||||
Discontinued Operations Current Assets: | ||||||||||||||||
Cash | $ | - | $ | 182,518 | $ | 3,025 | $ | 2,703 | ||||||||
Accounts receivable, net | - | 88,235 | 61,646 | 105,194 | ||||||||||||
Inventory | - | 153,149 | ||||||||||||||
Other current assets | - | 52,678 | - | 10,562 | ||||||||||||
Current assets held for sale | - | 476,580 | 64,671 | 118,459 | ||||||||||||
Noncurrent Assets: | ||||||||||||||||
Property and equipment, net | - | 24,619 | 23,685 | 27,595 | ||||||||||||
Intangible assets | - | 153,004 | ||||||||||||||
Noncurrent assets held for sale | - | 177,623 | 23,685 | 27,595 | ||||||||||||
Total assets held for sale | $ | - | $ | 654,203 | $ | 88,356 | $ | 146,054 | ||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | - | $ | 122,725 | $ | 17,795 | $ | 13,759 | ||||||||
Deferred revenue | - | 47,823 | ||||||||||||||
Notes payable obligation, current portion | - | 1,579 | ||||||||||||||
Capital lease obligation, current portion | - | 10,582 | ||||||||||||||
Total liabilities held for sale | $ | - | $ | 182,709 | $ | 17,795 | $ | 13,759 |
September 30, 2022 | December 31 2021 | |||||||
(unaudited) | ||||||||
MultiPay Current Assets: | ||||||||
Cash | $ | 11,342 | $ | 88,189 | ||||
Accounts receivable, net | 70,070 | 22,742 | ||||||
Other current assets | - | 42,241 | ||||||
Current assets held for sale | 81,412 | 153,172 | ||||||
Noncurrent Assets: | ||||||||
Property and equipment, net | 28,857 | 68,513 | ||||||
Other assets | - | 66,695 | ||||||
Noncurrent assets held for sale | 28,857 | 135,208 | ||||||
Total assets held for sale | $ | 110,269 | $ | 288,380 | ||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | 100,368 | 112,623 | ||||||
Total liabilities held for sale | $ | 100,368 | $ | 112,623 |
As a result of meeting the discontinued operations/assets held for sale criteria for Cards Plus and the MultiPay operations, the cash flow activity related to discontinued operations is presented separately on the statement of cash flows as summarized below (unaudited):
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net loss | $ | (363,385 | ) | $ | (437,076 | ) | ||||||||||
Adjustments to reconcile net loss with cash flows from operations: | ||||||||||||||||
Net income loss | $ | (2,255 | ) | $ | (196,520 | ) | ||||||||||
Adjustments to reconcile net income loss with cash flows from operations: | ||||||||||||||||
Depreciation and amortization expense | 42,364 | 83,122 | 3,909 | 28,202 | ||||||||||||
Impairment of intangible assets | 143,701 | - | - | 143,703 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (14,288 | ) | 427,034 | 41,987 | (27,464 | ) | ||||||||||
Net investment in direct financing lease | - | (7,257 | ) | |||||||||||||
Net investment in direct financing lease Leases | - | 28,271 | ||||||||||||||
Other current assets | 186,370 | 81,418 | 10,562 | (351 | ) | |||||||||||
Inventory | (78,806 | ) | 47,480 | - | (227,669 | ) | ||||||||||
Accounts payable and accrued expenses | (16,092 | ) | (228,912 | ) | 4,036 | 285,949 | ||||||||||
Deferred revenue | (36,663 | ) | (47,494 | ) | - | (4,872 | ) | |||||||||
Adjustments relating to discontinued operations | 226,586 | 355,391 | 60,494 | 225,769 | ||||||||||||
Net Cash flows from discontinued operations | $ | (136,799 | ) | $ | (81,685 | ) | ||||||||||
Net cash flows from discontinued operations | $ | 58,239 | $ | 29,249 |
Notes to Financial Statements – Discontinued Operations
Inventories
Inventory of plastic/ID cards, digital printing material, which are held by Cards Plus Pty Ltd., are at the lower of cost (using the average method) or market. The Plastic/ID cards and digital printing material are used to provide plastic loyalty ID and other types of cards.
Inventories as of December 31, 2021, consist of cards inventory. As of December 31, 2021, the Company recorded an inventory valuation allowance of approximately $20,000 to reflect net realizable value of the cards inventory. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.
Inventories decreased to zero as the Company completed the sale of Cards Plus business on August 29, 2022.
Revenue Recognition
Cards Plus – The Company recognizesrecognized revenue for the design and production of cards at the point in time when products are shipped, or services have been performed due to the short-term nature of the contracts. Additionally, the cards produced by the Company have no alternative use and the Company has an enforceable right to payment for work performed should the contract be cancelled. As of December 31, 2021, Cards Plus had approximately $48,000 of contract liability from payments received in advance that will be earned in future periods. Contract liability decreased to zero as the Company completed the sale of Cards Plus business on August 29, 2022.
MultiPay recognizes revenue for variable fees generated for payment processing solutions that are earned on a usage fee over time based on monthly transaction volumes or on a monthly flat fee rate. Additionally, MultiPay also sells certain equipment from time to time for which revenue is recognized upon delivery to the customer.
Revenue related to direct financing leases is outside the scope of Topic 606 and is recognized over the term of the lease using the effective interest method.
Lease Obligation
Cards Plus entered into a lease in March 2017 for the rental of its printer for its secured plastic and credential card products business under an arrangement that is classified as a finance lease. The leased equipment was amortized on a straight-line basis over its lease term including the last payment (61 payments) and ownership transferred to the Company. The lease was fully paid off.
Impairment loss
During the three and nine months ended September 30, 2022, Cards Plus recorded an impairment loss of zero and approximately $143,000, respectively associated with its intangible assets.
Leases
In October 2021, MultiPay entered into a one-year lease for approximately $2,900 per month in Bogota, Colombia. MultiPay terminated the lease as of September 30, 2022.
Cards Plus leased space for its operations in South Africa. The facility was rented on a month-to-month basis with monthly rent of approximately $8,000 through August 29, 2022 as the Company completed the sale of Cards Plus business.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company is a party to various legal or administrative proceedings arising in the ordinary course of our business. While any litigation contains an element of uncertainty, we have no reason to believe the outcome of such proceedings will have a material adverse effect on the financial condition or results of operations of the Company.
Leases
The Company rented office space in Long Beach, New York at a monthly cost of $2,500.$2,500 in 2022. The agreement was month to month and could be terminated on 30 days notice. The lease agreement was terminated onin July 31, 2022. The agreement was between the Company and Bridgeworks LLC, an entity principally owned by Mr. Beck, athe Company’s former CEO and Board Member along withDirector and his family.
In July 2022, the Company signed a new lease agreement for one year and moved its headquarters to Denver, Colorado. The office monthly lease cost approximatesis approximately $1,500 per month.
ForRent expense included in general and administrative expense on the nineConsolidated Statements of Operations for the three months ended September 30,March 31, 2023 and 2022 lease expense was approximately $55,000 inclusive of short-term leases of which $25,000 was for continuing operations$5,000 and $30,000 was for discontinued operations.$21,000, respectively.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
authID Inc. is a leading provider of secure, authentication solutions delivered by our easy to integrate Verified platform. Our Verified platform that delivers Human Factor AuthenticationTM, binds strong passwordless authentication with biometric identity, which offers our customers a streamlined path to zero trust architecture. Verified FIDO2 passwordless authentication is certified by the FIDO Alliance to be compliant and interoperable with FIDO specifications.
The explosive growth in online and mobile commerce, telemedicine, remote working and digital activities of all descriptions is self-evident to everyone who lived through the Covid 19 pandemic since 2020. Identity theft, phishing attacks, spear-phishing, password vulnerabilities, account takeovers, benefits fraud - it seems like these words have entered our daily lexicon overnight. These are significant impediments to the operations and growth of any business or organization, and dealing with the risks and consequences of these criminal activities has created significant friction in both time, cost and lost opportunity. Consider all the outdated methods that organizations have implemented in order to prevent fraud. The requests to receive and enter one-time passwords, that can be easily hijacked. The vulnerable security questions you get asked – whether on-line or when reaching out to a call center – what was your first pet’s name? who was your best friend in high school? These steps all add up to friction, making it difficult for consumers to login, transact and execute daily tasks, with little added protection from fraud. Surely there is a better way to address these challenges? authID.aiauthID believes there is.
authID provides secure, facial biometric, identity verification, and strong customer authentication. We maintain a global, cloud-based Verified platform for our enterprise customers or employees to enable their users or employees to easily verify and authenticate their identity through a mobile device or desktop (with camera) of their choosing (without requiring dedicated hardware, or authentication apps). We can help our customers establish a proven identity, creating a root of trust that ensures the highest level of assurance for our passwordless login and step-up verification products. Our system enables participants to consent to transactions using their biometric information with a digitally signed authentication response, embedding the underlying transaction data and each user’s identity attributes within every electronic transaction message processed through our platform.
Digital transformation across all market segments requires trusted identity. Our identity platform offers innovative solutions that are flexible, fast and easy to integrate and offer seamless user experiences. authID’s products help advance digital transformation efforts without the fear of identity fraud, while delivering frictionless user experiences. We believe that it is also essential that electronic transactions have an audit trail, proving that the identity of the individual was duly authenticated. Our platform provides biometric and multi-factor identity software, which are intended to establish, authenticate and verify identity across a wide range of use cases and electronic transactions.
authID’s products focus on the broad requirement for enabling frictionless commerce by allowing an entity to instantly “Recognise their Customer”, their Employee or their Member. Organizations of all descriptions require cost-effective and secure means of growing their business while mitigating identity fraud. We aim to offer our enterprise customers products that can be integrated easily into each of their business and organizational operations, in order to facilitate their adoption and enhance the end user customer experience.
Our management believes that some of the advantages of our Verified Platform approach are the ability to leverage the platform to support a variety of vertical markets and the adaptability of the platform to the requirements of new markets and new products requiring cost-effective, secure, and configurable mobile solutions. Our target markets include cybersecurity, workforce, banking, fintech and other disrupters of traditional commerce, small and medium sized businesses, and system integrators working with government and Fortune 1000 enterprises. At its core, the Company’s offering, combining its proprietary and acquired biometric and artificial intelligence technologies (or AI), is intended to facilitate frictionless commerce, whether in the physical or digital world. The Company intends to increase its investment in developing, patenting and acquiring the various elements necessary to enhance the platform, which are intended to allow us to achieve our goals. One of the principal intended areas of investment is to enhance and expand our use of artificial intelligence in proprietary software, that we believe will increase our value to enterprise customers and stockholders alike.
authID is dedicated to developing advanced methods of protecting consumer privacy and deploying ethical and socially responsible AI. authID is developing a culture that proactively encourages and rewards our employees for considering the ethical implications of our products. We believe that a proactive commitment to ethical AI presents a strong business opportunity for authID and will enable us to bring more accurate products to market more quickly and with less risk to better serve our global user base. Our methods to achieve ethical AI include engaging the users of our products with informed consent, prioritizing the security of our user’s personal information, considering and avoiding potential bias in our algorithms, and monitoring of algorithm performance in our applications.
The Company also owned an entity in South Africa, Cards Plus and owns an entity in Colombia, MultiPay. On May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payments services in Colombia and the CardCards Plus cards manufacturing and printing business in South Africa. On August 29, 2022 the Company completed the sale of Cards Plus business. See Discontinued Operations.
The Company was incorporated in the State of Delaware on September 21, 2011 and changed our name to authID Inc. on July 18, 2022. In order to better align the branding of our Company with our future focus and goals on June 14, 2021 we changed our business name to “authID.ai”.
Our Common Stock is traded on the Nasdaq Capital Market under the trading symbol “AUID”. Our corporate headquarters have been relocated to 1385 S. Colorado Blvd., Building A Suite 322, Denver, CO 80222 and our main phone number remains as is (516) 274-8700. We maintain a website at www.authID.ai. The information contained on, or that can be accessed through, our websites is not incorporated by reference into this prospectus and is intended for informational purposes only.
Going Concern
The Company’s unaudited condensed consolidated financial statements included in this Quarterly Report have been prepared in accordance with United States GAAP assuming the Company will continue on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next year following the issuance date of these financial statements.
As of March 31, 2023, the Company had an accumulated deficit of approximately $145 million. For the three months ended March 31, 2023, the Company earned revenue of approximately $0.04 million, used approximately $2.2 million to fund its operations, and incurred a net loss from continuing operations of approximately $5.3 million. The continuation of the Company as a going concern is dependent upon financial support from the Company’s stockholders and noteholders, the ability of the Company to obtain additional debt or equity financing to continue operations, the Company’s ability to generate sufficient cash flows from operations, successfully locating and negotiating with other business entities for potential acquisition and /or acquiring new clients to generate revenues and cash flows.
There is no assurance that the Company will ever be profitable. These unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. As there can be no assurance that the Company will be able to achieve positive cash flows (become cash flow profitable) and raise sufficient capital to maintain operations, there is substantial doubt about the Company’s ability to continue as a going concern.
Adjusted EBITDA
This discussion includes information about Adjusted EBITDA that is not prepared in accordance with GAAP. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. A reconciliation of this non-GAAP measure is included below.
Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income (loss) adjusted to exclude (1) interest expense and debt discount and debt issuance costs amortization expense, (2) interest income, (3) provision for income taxes, (4) depreciation and amortization, (5) stock-based compensation expense (stock options and restricted stock) and (6) certain other items management believes affect the comparability of operating results.
Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period results. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management, and it will be a focus as we invest in and grow the business.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:
● | Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; | |
● | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; | |
● | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; | |
● | Adjusted EBITDA does not include the impact of certain charges or gains resulting from matters we consider not to be indicative of our ongoing operations. |
Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as a supplement to our GAAP results.
Reconciliation of Loss from Continuing Operations to Adjusted EBITDA Continuing Operations:Operations.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Loss from continuing operations | $ | (6,190,347 | ) | $ | (4,933,687 | ) | $ | (17,656,872 | ) | $ | (10,309,438 | ) | ||||
Addback: | ||||||||||||||||
Interest expense | 437,301 | 29,577 | 931,205 | 580,928 | ||||||||||||
Other expense (income) | 42,148 | (491,643 | ) | 38,908 | (971,799 | ) | ||||||||||
Severance cost | - | - | 150,000 | - | ||||||||||||
Depreciation and amortization | 213,049 | 288,731 | 673,882 | 868,166 | ||||||||||||
Taxes | (7,052 | ) | (2,393 | ) | 1,048 | 4,554 | ||||||||||
Stock compensation | 2,227,764 | 2,533,943 | 6,726,871 | 4,795,069 | ||||||||||||
Adjusted EBITDA continuing operations (Non-GAAP) | $ | (3,277,137 | ) | $ | (2,575,472 | ) | $ | (9,134,958 | ) | $ | (5,032,520 | ) |
Adjusted EBITDA loss for the three and nine months ended September 30, 2022, increased by approximately $0.7 million and $4.1 million, respectively as the Company continues its investment in people, technology and marketing.
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Loss from continuing operations | $ | (5,220,239 | ) | $ | (5,104,208 | ) | ||
Addback: | ||||||||
Interest expense, debt discount and debt issuance costs amortization expense | 800,073 | 32,857 | ||||||
Other expense (income) | - | (1,456 | ) | |||||
Severance expenses | 811,041 | 150,000 | ||||||
Depreciation and amortization | 76,017 | 215,476 | ||||||
Taxes | - | 4,972 | ||||||
Non-cash recruiting fees | 492,000 | - | ||||||
Stock compensation | 840,021 | 1,866,989 | ||||||
Adjusted EBITDA continuing operations (Non-GAAP) | $ | (2,201,087 | ) | $ | (2,835,370 | ) |
Three and Nine Months Ended September 30,March 31, 2023 and 2022 and September 30, 2021 – Continuing Operations
Revenues, net
During the three and nine months ended September 30, 2022,March 31, 2023, the CompanyCompany’s revenues from Verified software license were approximately $30,000 and $117,000, respectively,$38,000 compared to approximately $12,000 and $45,000$165,000 in the three and nine months ended September 30, 2021,March 31, 2022, respectively. Verified software licenseThis decrease represented a significant drop in revenue increased as we acquired new customers.
Legacyfrom legacy authentication services revenues were zero and $145,000, respectively, during the three and nine months ended September 30, 2022 compared to $157,000 and $419,000 for the three and nine months ended September 30, 2021, respectively. Revenue from Legacy authentication services dropped significantly due to the loss of a large customer that decommissioned a legacy product offering as of April 1, 2022.
General and administrative expenses
During the three months ended September 30, 2022March 31, 2023 general and administrative expenses decreased by approximately $0.6$0.4 million compared to the three months ended September 30, 2021. DuringMarch 31, 2022 as we executed on the nine months ended September 30, 2022, general and administrative expenses increasedrestructuring plan to reduce our operating costs, partially offset by approximately $3.1 million mostly due to the higher non-cash stock-based charges, higher compensation, marketing, and professional fee costs as the Company makes investmentincrease in people and marketing its product offering.
severance expenses.
Research and development expenses
During the three and nine months periods ended September 30, 2022March 31, 2023 compared to September 30, 2021,March 31, 2022, research and development expenses increaseddecreased by approximately $0.8$0.3 million and $2.9 million, respectively, as the Company increased staffing and third party resources as it continuesexecuted on the restructuring plan to enhancereduce its Verified product.operating costs.
Depreciation and amortization expense
During the three and nine months ended September 30, 2022March 31, 2023 compared to September 30, 2021,March 31, 2022, depreciation and amortization expense was approximately $0.1 and $0.2 million, respectively, less as the Company reducedimpaired the value of certain legacy business asset values.its intangible assets in 2022.
Interest and debt issuance costs amortization expense
Interest and debt issuance costs amortization expense increased during the three and nine-monththree-month periods ended September 30, 2022March 31, 2023 compared to September 30, 2021March 31, 2022 by $408,000 and $350,000, respectively,approximately $0.7 million as the Company issued $9.2 million Convertible Notes in March 2022.2022 and the Company wrote off debt issuance costs of $0.4 million related to the Credit Facility as it was amended and restated in March 2023.
Three Months Ended March 31, 2023 and 2022 – Discontinued operations
The Board of Directors of authID considers it in the best interests of the Company to focus its business activities on providing biometric identity verification products and services by means of our proprietary Verified platform. Accordingly, on May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payment services in ColombiaColumbia and the Cards Plus cards manufacturing and printing business in South Africa.
Cards Plus business in South Africa
On August 29, 2022, the Company completed the sale of Cards Plus business for a price of $300,000, less $3,272 in costs to sell, (net), and recognized a loss of $188,247 from the transaction. Of the $300,000 gross proceeds, $150,000 was paid on closing and the remaining $150,000 is expected to be paid in a year, which is currently recorded in other current assets as of September 30, 2022.March 31, 2023.
MultiPay business in Colombia
The Company is exiting the MultiPay business in Colombia in an orderly fashion, honoring our obligations to employees, customers and under applicable laws and regulations. We plan to maintain our customer support and operations team in Bogota, which performs essential functions to support the global operations of our Verified product.
As of September 30, 2022 allAll impacted employees had left the Company and the Company also paid each employee their compensation entitlements and severance packages under the MultiPay retention plan and obligations under the appropriate statutes.
As of September 30, 2022, theThe Company is working with a major customer to implement a transition plan to provide an essential service for certain bill pay services which will probably result in the leasing and sale of certain MultiPay’s proprietary software as well as the assumptionsoftware. The transaction is expected to complete by the Customer of certain expenses.
In the three and nine months ended SeptemberJune 30, 2022, Cards Plus revenue was approximately $380,000 and $1,264,000, respectively. MultiPay revenue in those periods was approximately $66,000 and $205,0000, respectively. Cards Plus had income of approximately $29,000 during the two months ended August 29, 2022 (the closing date of the sale of Cards Plus business) and losses of approximately $166,000 during the eight months ended August 29, 2022, respectively. MultiPay had losses of approximately $174,0000 and $385,0000, respectively, during the three and nine months ended September 30, 2022.2023.
The financial statements of Cards Plus and MultiPay have been classified as discontinued operations as of June 30, 2022, as all required classification criteria under appropriate accounting guidance were met.
Liquidity and Capital Resources
The Company has approximately $7.1$1.6 million of cash on hand and approximately $5.4$0 million of working capital as of September 30, 2022, as the fund raise in March 2022 provided cash of approximately $11.4 million.
The Company also has available a $10.0 million unsecured working capital facility which has no borrowings outstanding as of September 30, 2022.31, 2023.
Cash used in operating activities was approximately $9.9$2.2 million and $5.5$3.1 million in the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively.
Cash provided by financing activities in the three and nine months ended September 30,March 31, 2023 consisted of $0.5 million initial drawdown net of debt issuance costs on the Company’s amended and restated credit facility. Cash provided by financing activities in the three months ended March 31, 2022 was as follows:
Additionally, the Company entered into a Credit Facility with an accredited investor, who is both a current shareholder of the Company and a Note Investor, pursuant to which the accredited investor agreed to provide a $10.0 million unsecured standby line of credit facility that will rank behind the Convertible Notes and may be drawn down in several tranches, subject to certain conditions described in the Credit Facility. Pursuant to the Credit Facility, the Company paid the lender a facility commitment fee of 100,000 shares of our common stock, upon the effective datenet of the Credit Facility Agreement.offering costs.
The Company mayThere is no guarantee that our current business plan will not change, and as a result of such change, we will need additional capital in the future but becauseto implement such business plan. Further, assuming we achieve our expected growth plan, of the above financing activities,which there is no guarantee, we believe we have sufficient fundswill need additional capital to operateimplement growth beyond our current business through December 31, 2023.plan.
Covid 19
Covid-19 emerged globally in December 2019, and it has been declared a pandemic. Covid-19 is still impacting customers, business, results and financial condition throughout the world. The Company’s day-to-day operations have been impacted differently depending on geographic location and services that are being performed. The Company cannot predict the potential impact of any future pandemics.
Recently we have seen our business opportunities develop more slowly as business partners and potential customers include Covid-19 considerations and working remotely can cause a delay in decision making and finalization of negotiations and agreements.
Ukraine
The ongoing war in Ukraine may impact the Company and its operations in a number of different ways, which are yet to be fully assessed and are therefore causing uncertainty. The Company works with third party sub-contractors for outsourced services, including software engineering and development, some of whom are based in Eastern Europe, including Russia and Ukraine. The Company also works with outsourced engineers and developers and third-party providers in other parts of the world, including the United States, India,Latvia and South America. While the continuing impact of this conflict and the response of the United States and other countries to it by means of trade and economic sanctions, or other actions is still unknown, any disruption of our ability to work with such contractors caused by this conflict could require the Company to seek alternative sub-contractors at short notice, which may give rise to additional costs and delays in delivering software and product upgrades.
The uncertainty impacting and potential interruption in energy and other supply chains resulting from military hostilities in Europe and the response of the United States and other countries to it by means of trade and economic sanctions, or other actions, may give rise to increases in costs of goods and services generally and may impact the market for our products as prospective customers reconsider additional capital expenditure, or other investment plans until the situation becomes clearer. On the other hand, the threat of increased cyber-attacks from Russia or other countries may prompt enterprises to adopt additional security measures such as those offered by the Company.
For so long as the hostilities continue and perhaps even thereafter as the situation in Europe unfolds, we may see increased volatility in financial markets which may make it more difficult for the Company to raise additional capital at the time when it needs to do so, or for financing to be available on acceptable terms. All or any of these risks separately, or in combination, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.
Recent Accounting Policies
The recent material accounting policies that may be the most critical to understanding of the financial results and conditions are discussed in Note 1 of the unaudited financial statements.
In August 2021 the FASB issued a new standard (ASU 2021-06) to reduce the complexity of accounting for convertible debt and other equity-linked instruments. For certain convertible debt instruments with a cash conversion feature, the changes are a trade-off between simplifications in the accounting model (no separation of an “equity” component to impute a market interest rate, and simpler analysis of embedded equity features) and a potentially adverse impact to diluted EPS by requiring the use of the if-converted method. The new standard will also impact other financial instruments commonly issued by both public and private companies. For example, the separation model for beneficial conversion features is eliminated simplifying the analysis for issuers of convertible debt and convertible preferred stock. Also, certain specific requirements to achieve equity classification and/ or qualify for the derivative scope exception for contracts indexed to an entity’s own equity are removed, enabling more freestanding instruments and embedded features to avoid mark-to-market accounting. The new standard is effective for companies that are SEC filers (except for Smaller Reporting Companies) for fiscal years beginning after December 15, 2021 and interim periods within that year, and two years later for other companies. Companies can early adopt the standard at the start of a fiscal year beginning after December 15, 2021. The standard can either be adopted on a modified retrospective or a full retrospective basis. The Company is currently reviewing the newly issued standard and does not believe it will materially impact the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to include disclosure under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30,2022,March 31, 2023, the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the report that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the ninethree months ended September 30, 2022March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is a party to various legal or administrative proceedings arising in the ordinary course of business. While any litigation contains an element of uncertainty, we have no reason to believe the outcome of such proceedings will have a material adverse effect on the financial condition or results of operations of the Company.
ITEM 1A. RISK FACTORS
Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2021.2022, some of which are summarized at the beginning of this Quarterly Report. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K. We operate in a business environment that is sensitive to political, economic and regulatory uncertainty, including with respect to cybersecurity and infrastructure investment, all of which may also be compounded by any future global impact from the COVID-19 pandemic, the continuing war in Ukraine and inflationary pressures, rising energy prices and increases in interest rates (see “Covid 19” and “Ukraine” above).
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 21, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with certain accredited investors, including certain directors of the Company or their affiliates (the “Note Investors”), and, pursuant to the SPA, sold to the Note Investors Senior Secured Convertible Notes (the “Convertible Notes”) with an aggregate initial principal amount of approximately $9.2 million and a conversion price of $3.70 per share. The Convertible Notes were sold with an aggregate cash origination fee of approximately $200,000, and we issued a total of approximately 28,500 shares of our common stock to the Note Investors as an additional origination fee. The Convertible Notes will accrue interest at the rate of 9.75% per annum, which will be payable in cash or, for some or all of the first five interest payments, in shares of our common stock at the Company’s option, on the last day of each calendar quarter before the maturity date and on the maturity date. The maturity date of the Convertible Notes is March 31, 2025.None.
On March 18 and March 21, 2022, the Company entered into Subscription Agreements (the “Subscription Agreements”) with an accredited investor and certain members of authID’s management team (the “PIPE Investors”), and, pursuant to the Subscription Agreements, sold to the PIPE Investors a total of 1,063,514 shares of our common stock at prices of $3.03 per share for an outside investor and $3.70 per share for the management investors (the “PIPE”). The aggregate gross proceeds from the PIPE are approximately $3.3 million.
Additionally, the Company entered into a Credit Facility with an accredited investor, who is both a current shareholder of the Company and a Note Investor, pursuant to which the accredited investor agreed to provide a $10.0 million unsecured standby line of credit facility that will rank behind the Convertible Notes and may be drawn down in several tranches, subject to certain conditions described in the Credit Facility. Pursuant to the Credit Facility, the Company agreed to pay the Lender a facility commitment fee of 100,000 shares of our common stock upon the effective date of the Facility Agreement.
The gross proceeds of the sale of the Convertible Notes and the PIPE were used to pay the expenses of those offerings and to provide working capital for the Company.
The shares issued and issuable in connection with the Convertible Notes, the PIPE and the Credit Facility were subsequently registered under a resale registration statement on Form S-3.
During the nine month period ended September 30, 2022, the Company issued approximately 223,156 shares of common stock pursuant to exercises of common stock warrants and options.
The securities described herein were offered and sold pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended afforded by Section 4(a)(2) thereof and/or Rule 506 of Regulation D promulgated thereunder, for the sale of securities not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our operations.
ITEM 5. OTHER INFORMATION
On March 21, 2022, the Company entered into a Credit Facility with Stephen J. Garchik, who is both a current shareholder of the Company and holds Senior Secured Convertible Notes (“Garchik”), pursuant to which Garchik agreed to provide to the Company a $10.0 million unsecured standby line of credit facility that will rank behind the Senior Secured Convertible Notes and may be drawn down in several tranches, subject to certain conditions described in the Facility Agreement. Upon request by Garchik and until the full amount due under the Credit Facility is repaid in full, the Company will provide for the nomination of one designee specified in writing by Garchik for appointment to our board of directors and for subsequent election to our board of directors and to recommend such nominee for election to our board of directors. The Company will be entitled to reject any nominee upon reasonable grounds, or the nominee may not be elected by the stockholders, in which case Garchik may nominate another person to be a director.Annual Meeting
On April 18, 2022, Joseph Trelin, as Garchik’s designee underThe 2023 Annual Meeting of Stockholders for the Credit Facility, was appointed as a memberCompany is tentatively scheduled to be held on June 26, 2023, which date is subject to change and is more than 30 days from the one year anniversary of the Board of Directors of the Company. Except as set forth above, there is no understanding or arrangement between Mr. Trelin and any other person pursuant todate on which Mr. Trelin was selected as a director of the Company. Mr. Trelin does not have any family relationship with any director, executive officer or person nominated or chosen by us to become a director or an executive officer. Mr. Trelin has not had direct or indirect material interest in any transaction or proposed transaction in which the Company was or is a proposed participant exceeding $120,000.
On April 18, 2022, Mr. Trelin entered into a letter agreement with the Company pursuant to which he was appointed as a director of the Company in consideration of (i) an initial equity award having a Black Scholes value on the date of grant of $270,000, subject to annual vesting of one-third of the common shares over three years on the date of each Annual Meeting commencing with the 2022 Annual Meeting of Stockholders took place. The proxy rules promulgated by the Securities and (b) commencing followingExchange Commission under the Securities Exchange Act of 1934 require the Company to inform stockholders of such change in date in addition to the new deadline for stockholder proposals in the Company’s earliest possible Quarterly Report on Form 10-Q, or, if impracticable, by any means reasonably calculated to inform stockholders. Accordingly, as previously reported on Form 8-K Current Report filed with the Securities and Exchange Commission on April 21, 2023, the Company has notified our stockholders that stockholder proposals for its 2023 Annual Meeting assuming Mr. Trelin is re-electedmust be submitted to office, an annual equity award having a Black Scholes value on the date of grant of $90,000, subject to vesting over twelve months.
On April 25, 2022, Stuart Stoller indicated his intention to resign as Chief Financial Officer of the Company in connectionno later than May 3, 2023 (which the Company determined to be a reasonable time before it expects to file its preliminary proxy with his planned retirement. The resignationthe Securities and retirement were effective as of June 17, 2022 at which time Annie Pham was appointed Chief Financial Officer in his place.Exchange Commission and begin to print and distribute its proxy materials prior to the Annual Meeting).
Engagement of Thomas R. Szoke
On April 25, 2022, Ms. Pham12, 2023, the Company and Thomas R. Szoke, a director of the Company, entered an Offer Letter pursuant to which Ms. PhamMr. Szoke agreed to serve as Chief FinancialTechnology Officer with a planned employment date commencing June 20, 2022 or such other date as may be agreed. Ms. Pham will receiveof the Company in consideration of an initial annual salary of $275,000. The Company agreed$250,000. Mr. Szoke received an initial signing bonus of $20,833 and will be eligible for an annual target bonus of up to provide$200,000 based on performance milestones. For the period ending March 31, 2024, a bonus amount of 40%$40,000 shall be payable upon the Company achieving increments of the base salary (pro rated for 2022) based on achievement$1,000,000 in total contract value of performance milestones, calculated and payableall customer agreements less claw backs (“Bookings”) up to an aggregate of $5,000,000 in accordance with the corporate milestones approved by the Board for the year 2022.Bookings. For subsequent fiscal years, the bonus shall be subject to performance targets to be mutually agreed withMr. Szoke and the Compensation Committee of the Board. In addition, Ms. Pham received a signing bonus in the amount of $25,000, which is fully refundableBoard will mutually agree as to the performance targets to earn for the annual bonus.
The vesting criteria of Mr. Szoke’s Stock Options to acquire 100,000 shares of common stock previously granted to Mr. Szoke on March 14, 2023 (the “Original Grant”) were amended pursuant to an Amended and Restated Stock Non-Statutory Option Agreement providing for vesting subject to achievement of performance and service conditions. All other terms of the Original Grant were not changed. Upon the Company if Ms. Pham leaves her employment voluntarily or is terminatedbeing able to grant additional options under a stock incentive plan, it will make an additional grant of options to Mr. Szoke to acquire 400,000 shares of common stock for cause priora period of ten years vesting subject to achievement of performance and service conditions (the “Additional Grant”). The exercise price of the options shall be equal to the first anniversaryclosing price of the commencementcommon stock on the Nasdaq Stock Market on the date of employment. such Additional Grant.
The employment of Ms. PhamMr. Szoke is at will and may be terminated at any time, with or without formal cause. The Company also entered an Executive Retention Agreement with Ms. Pham,Mr. Szoke, pursuant to which the Company agreed to provide specified severance and bonus amounts and to accelerate the vesting on herhis equity awards upon termination upon a change of control or an involuntary termination, as each term is defined in the agreements.agreement. In the event of a termination upon a change of control or an involuntary termination, Ms. PhamMr. Szoke is entitled to receive an amount equal to 100% of herhis base salary, and the targetactual bonus then in effectearned but unpaid for the executive officer forprevious year and any bonus that was earned but unpaid prior to the year in which such termination occurs. At the electiondate. Further, upon termination upon a change of the executive officer,control or an involuntary termination, the Company will also continue to providereimburse Mr. Szoke for the cost of continuation of health related employee insurance coverage for Mr. Szoke and his eligible dependents pursuant to COBRA until the earlier of 12 months following the termination date, the date Mr. Szoke and his dependents are eligible for health coverage from a new employer or the date Mr. Szoke and his eligible dependents are no longer eligible for COBRA.
Nasdaq Notice
On April 4, 2023, the Company received a notice letter from the Listing Qualifications staff of The NASDAQ Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(b)(1) (“Rule 5550(b)(1)”) as the Company’s stockholders’ equity of $283,536, as reported on the Company’s Annual Report on Form 10-K for the period ended December 31, 2022, was below $2.5 million, which is the minimum stockholders’ equity required for compliance with Rule 5550(b)(1). Further, as of April 3, 2023, the Company did not meet the alternative compliance standards relating to the market value of listed securities, or net income from continuing operations. The Company is also not currently in compliance with the Nasdaq continued listing requirement that the Company maintain a bid price for the Company’s common stock of above $1.00 per share (the “Bid Price Requirement”).
The notice does not result in the immediate delisting of the Company’s common stock from the Nasdaq Capital Market. The Company is currently evaluating options to regain compliance and intends to timely submit a plan to regain compliance with Nasdaq’s minimum stockholders’ equity requirement.
There can be no assurance that the Company will be able to regain compliance with Nasdaq’s minimum stockholders’ equity requirement or maintain compliance with the other listing requirements. Nasdaq has provided the Company with 45-calendar days, or until May 19, 2023, to submit a plan to regain compliance. If Nasdaq accepts the Company’s plan, Nasdaq may grant an extension of up to twelve months, at180 calendar days from the date of the notice, or until October 1, 2023, for the Company to demonstrate compliance with Rule 5550(b)(1). If Nasdaq does not accept the Company’s expense.plan, or if Nasdaq does not grant an extension until, and the Company does not regain compliance by, October 1, 2023, or if the Company fails to satisfy another Nasdaq requirement for continued listing such as the Bid Price Requirement, Nasdaq could provide notice that the Company’s securities will become subject to delisting. In such event, Nasdaq rules permit the Company to request a hearing before an independent Hearings Panel, which has the authority to grant the Company an additional extension of time of up to 180 calendar days to regain compliance.
Engagement of Rhoniel A. Daguro
On March 23, 2023, the Company and Rhoniel A. Daguro, a director of the Company, entered an Offer Letter pursuant to which Mr. Daguro agreed to serve as Chief Executive Officer of the Company in consideration of an initial annual salary of $400,000. Mr. Daguro will be eligible for an annual target bonus of up to $375,000 based on performance milestones. For the period ending March 31, 2024, a bonus amount of $75,000 shall be payable upon the Company achieving increments of $1,000,000 in total contract value of all customer agreements less claw backs (“Bookings”) up to an aggregate of $5,000,000 in Bookings. For subsequent years, Mr. Daguro and the Compensation Committee of the Board will mutually agree as to the performance targets to earn for the annual bonus.
On April 10, 2023 the Company provided Mr. Daguro with an initial grant of options (“Initial Grant”) to purchase 2,455,000 shares of common stock for a period of ten years vesting subject to achievement of performance and service conditions, at an exercise price of $0.397. Upon commencing employment, Ms. Pham was grantedthe Company being able to grant additional options under a stock incentive plan, it will make an optionadditional grant of options to Mr. Daguro to acquire 1,115,000 shares of common stock for a period of ten years vesting subject to achievement of performance and service conditions (the “Additional Grant”). The exercise price of the options shall be equal to the closing price of the common stock on the Nasdaq Stock Market on the date of such Additional Grant. If and to the extent that the exercise price under the Additional Grant is higher than the exercise price under the Initial Grant, the Company shall determine the incremental cost of the Additional Grant by deducting the exercise price of the Initial Grant from the exercise price of the Additional Grant and multiplying the difference by 1,115,000 (the “Difference”). The Difference shall be payable by the Company to Mr. Daguro as a bonus payable upon exercise of options comprised in the Additional Grant, by way of offset against the exercise price of such options to the extent of the total exercise price of the options being exercised at that time. To the extent that the entire Difference cannot be applied to any particular exercise, the balance shall be carried forward and applied to future exercises of the Additional Grant. In lieu of agreeing to pay the bonus, the Company may in its sole discretion elect to grant Mr. Daguro an additional 350,000 shares of common stock as part of the Additional Grant (for a total of 1,465,000 shares of common stock under the Additional Grant).
The employment of Mr. Daguro is at will and may be terminated at any time, with or without formal cause. The Company also entered an exercise priceExecutive Retention Agreement with Mr. Daguro, pursuant to which the Company agreed to provide specified severance and bonus amounts and to accelerate the vesting on his equity awards upon termination upon a change of $2.41control or an involuntary termination, as each term is defined in the agreement. In the event of a termination upon a change of control or an involuntary termination, Mr. Daguro is entitled to receive an amount equal to 100% of his base salary, the actual bonus earned but unpaid for the previous year and any bonus that was earned but unpaid prior to the termination date. Further, upon termination upon a change of control or an exercise periodinvoluntary termination, the Company will reimburse Mr. Daguro for the cost of ten years subjectcontinuation of health coverage for Mr. Daguro and his eligible dependents pursuant to certain performance vesting requirements.COBRA until the earlier of 12 months following the termination date, the date Mr. Daguro and his dependents are eligible for health coverage from a new employer or the date Mr. Daguro and his eligible dependents are no longer eligible for COBRA.
Separation – Thomas Thimot
On July 18,March 23, 2023, the Company and Thomas Thimot entered into a Confidential Separation Agreement and General Release for the purposes of separation of Mr. Thimot from the Company as Chief Executive Officer and an employee by mutual consent and settling, compromising and resolving all claims between them. Mr. Thimot’s resignation was effective March 23, 2023. In addition to the Company paying all accrued but unpaid salary and providing reimbursement for all outstanding expenses, the Company has agreed to pay Mr. Thimot $325,000 which shall be deferred until the earlier of April 1, 2025 and a change of control of the Company and is subordinated to the initial advance in the amount of $900,000 made pursuant to the Amended & Restated Facility Agreement entered into as of March 8, 2023 between the Company and Stephen Garchik, as well as to all present and future secured indebtedness of the Company under the Senior Convertible Notes issued by the Company as of March 21, 2022 and pursuant to such Facility Agreement. Mr. Thimot will also be eligible for certain health benefits. The exercise period with respect to Mr. Thimot’s stock option to acquire 262,500 shares of common stock at an exercise price of $7.20 per share was extended through March 23, 2027. All unvested grants or other equity awards lapsed and are no longer exercisable as of the separation date.
Garchik Facility Agreement
On March 21, 2022, the Company entered into a Facility Agreement with Stephen J. Garchik, who was and is a shareholder of the Company changed its corporate name to authID Inc.(“Garchik”), pursuant to which Garchik agreed to provide to the Company a Certificate$10.0 million unsecured standby line of Amendmentcredit facility that could be drawn down in several tranches, subject to its Amended and Restated Certificatecertain conditions described in the Facility Agreement (the “Original Facility Agreement”). Pursuant to the Original Facility Agreement, the Company paid Garchik a facility commitment fee of Incorporation filed with100,000 shares of our common stock (the “Facility Commitment Fee”) upon the Delaware Secretary of State on July 13, 2022 with an effective date of July 18, 2022. The Company also amended and restated its bylaws on July 18, 2022 to reflect the name change.Original Facility Agreement.
On September 21, 2022,March 8, 2023, the Company entered into an Amended and Restated Facility Agreement with Garchik, pursuant to which the Company and Garchik amended and restated the Original Facility Agreement in its entirety (the “A&R Facility Agreement”), to replace the credit facility contemplated by the Original Facility Agreement with (i) an initial credit facility to the Company in an amount of $900,000 (the “Initial Funding”) and (ii) the parties to use their reasonable best efforts after the Initial Funding to negotiate the terms of a subsequent credit facility in the aggregate amount of $2,700,000 (the “Subsequent Funding”).
On March 9, 2023, pursuant to the authorizationA&R Facility Agreement, the Company entered into a promissory note in favor of Garchik (the “Initial Promissory Note”), pursuant to which Garchik loaned $900,000 (the “Principal Amount”) to the Company. At the same time, as a condition to Garchik providing the Principal Amount, certain of the Company’s subsidiaries, ID Solutions, Inc., FIN Holdings, Inc. and approval provided byInnovation in Motion, Inc. (the “Guarantors”) entered into a guaranty of the stockholdersInitial Promissory Note with Garchik (the “Guaranty”).
A&R Facility Agreement
Under the A&R Facility Agreement, Garchik agreed to provide the Initial Funding to the Company upon receipt of a fully executed Initial Promissory Note and an executed Release Agreement relating to the Original Facility Agreement (the “Release Agreement”). The Company and Garchik have agreed to use reasonable best efforts to negotiate the terms of the Subsequent Funding, and the A&R Facility Agreement will terminate if definitive documentation for the Subsequent Funding is not entered into before July 1, 2023, for any reason other than breach of a party’s obligations.
While the terms of the Subsequent Funding are subject to due diligence and final documentation, a summary of selected terms of the proposed financing is attached to the A&R Facility Agreement as Exhibit B thereto. The Subsequent Funding would be a $2,700,000 secured note facility with a 12% per annum interest rate, paid in kind, capitalized and added to the balance of the loan on a quarterly basis, calculated on a 360-day year basis, on the outstanding aggregate balance of the Subsequent Facility. The Subsequent Facility will mature twenty-four (24) months after effectiveness. Garchik will be granted a fully perfected, non-avoidable, first-priority security interest and lien on all assets of the Company. The Subsequent Facility would be the senior obligation of the Company atand will rank senior in right to payment of the Annual Meeting held on September 20, 2022,obligations under the existing Senior Secured Convertible Notes entered into between the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporationcertain noteholders on March 21, 2022 (the “Convertible Notes”) and the liens granted in connection with the SecretarySubsequent Facility shall rank pari passu with the liens granted to holders of Statethe Convertible Notes. Pursuant to this, the Company will use reasonable best efforts to obtain the consent of Delaware to decrease its authorized sharestwo-thirds of common stock, $0.0001 par value per share, from 1,000,000,000 shares to 250,000,000 shares.the holders of Convertible Notes.
In satisfaction of a condition precedent to the Initial Funding under the A&R Facility Agreement, Thomas L. Thimot, Phillip L. Kumnick, Philip R. Broenniman, Michael A. Gorriz and Neepa Patel, comprising all directors of the Company’s board of directors (the “Board of Directors”) other than Joseph Trelin, Michael L. Koehneman and Jacqueline L. White (the “Remaining Directors”), delivered to the Company executed resignation letters in escrow (the “Board Resignation Letters”) that became effective as of the Initial Funding. Also in satisfaction of a condition precedent to the Initial Funding under the A&R Facility Agreement, on March 9, 2023, the Board of Directors appointed Joseph Trelin to the Company’s Compensation and Audit Committees, effective as of the Initial Funding.
The A&R Facility Agreement also provided Garchik with the right to nominate four (4) designees (not counting any Remaining Directors) (the “New Designees”) to be considered for election to the Board of Directors (the “Nomination Right”). In satisfaction of a condition precedent to the Initial Funding under the A&R Facility Agreement, the Board of Directors appointed four (4) New Designees to the Board, effective as of the Initial Funding.
Initial Promissory Note
Interest accrues on the Principal Amount until paid in full at a per annum rate equal to 15%, computed on the basis of a 360-day year and twelve 30-day months, payable in arrears on March 31, June 30, September 30 and December 31 of each year commencing March 31, 2023 or the first business day following each such date if any such date falls on a day which is not a business day, in cash. The Principal Amount shall mature on March 31, 2025.
The Company made standard (i) affirmative covenants to Garchik, including, but not limited to, in regard to its existence, payment obligations, business activities, financial information and use of proceeds and (ii) negative covenants to Garchik, including, but not limited to, in regard to the rank of indebtedness, incurrence of indebtedness, maintenance of insurance and properties, transactions with affiliates and disposition of assets.
While the Initial Promissory Note is unsecured, in the event of either (I) the conversion of the Convertible Notes of all amounts outstanding thereunder and the release of all liens over the Company’s assets granted by and through the Transaction Documents (as defined in the Convertible Notes) or (II) receipt of the consent of the requisite holders of the Convertible Notes, in each case, the Company will, as collateral security for the due and punctual payment and performance of all obligations under the Initial Promissory Note, pledge and assign to Garchik a first-priority, continuing security interest in substantially all of the assets of the Company, subject to exclusions consistent with those contained in the Transaction Documents. The Company has agreed to use its reasonable best efforts to deliver to Garchik an amendment to the Securities Purchase Agreement, dated as of March 21, 2022 (the “SPA”), pursuant to which the Convertible Notes were purchased, permitting the grant of that collateral security to Garchik. Upon the grant of that collateral security, interest will accrue on the outstanding Principal Amount under the Initial Promissory Note at a per annum rate equal to 12%.
The Initial Promissory Note includes customary Events of Default, including, among other things, (i) failing to make payment of any of the Principal Amount or interest due and such failure continues for not less than 5 business days without being cured; (ii) any representation or warranty in the Initial Promissory note being untrue in any material respect and such failure continuing for a period of not less than 5 business days without being cured; or (iii) the Initial Promissory Note shall for any reason cease to be, or shall be asserted by the Company or any affiliate thereof not to be, a legal, valid and binding obligation of the Company. Upon an Event of Default, Garchik can declare all outstanding amounts under the Initial Promissory Note due, along with any accrued interest.
Guaranty
In connection with the Company and Garchik entering into the Initial Promissory Note, each Guarantor of the Company agreed to, for the benefit and security of Garchik, guarantee the payment and performance all of the Company’s obligations under the Initial Promissory Note and the Guaranty.
Release Agreement
In connection with the A&R Facility Agreement, on March 9, 2023, the Company and Garchik entered into the Release Agreement, pursuant to which the Company and Garchik mutually agreed to release any and all rights to make a claim against the other and any existing claims against the other arising out of or relating to the Original Facility Agreement.
Board of Directors
On March 6, 2023, Mr. Thimot tendered his resignation as Chief Executive Officer to the Company, which became effective upon the appointment of his successor on March 23, 2023. Before the A&R Facility Agreement was entered into, Mr. Thimot, Phillip L. Kumnick, Philip R. Broenniman, Michael A. Gorriz and Neepa Patel (the “Retiring Directors”) tendered their resignations from the Board of Directors of the Company which became effective upon the Initial Funding. The Company thanks the Retiring Directors for their dedicated service to the Company.
On March 9, 2023, the Board of Directors appointed Joseph Trelin to the Company’s Compensation and Audit Committees.
Pursuant to the Nomination Right under the A&R Facility Agreement, Mr. Garchik nominated Mr. Daguro, Ken Jisser, Michael Thompson and Thomas Szoke for appointment to the Board of Directors. On March 9, 2023, the Board of Directors appointed Messrs. Daguro, Jisser, Thompson and Szoke as additional directors of the Company (the “Additional Directors”) and reduced the size of the Board of Directors from 8 directors to 7 directors, with effect from the resignations of the Retiring Directors. Under the terms of the A&R Facility Agreement, the Nomination Right expired upon the appointment of the four (4) Additional Directors to the Board of Directors.
2023 Budget – Labor Reduction Plan
On February 14, 2023, the Company’s Board of Directors resolved to implement a revised budget for 2023 in order to reduce expenses and cash requirements and as part of such revised budget decided to re-balance staffing levels to better align with the evolving needs of the Company (the “Labor Reduction Plan”). Under the Labor Reduction Plan, 12 employees and 6 contractors have left the Company. The Company has also given termination notice to certain vendors and contractors that provide services to the Company.
Cecil N. Smith III
On February 15, 2023 Cecil N. Smith III ceased to be an employee, and the President and Chief Technology Officer of the Company pursuant to the Labor Reduction Plan. The Company had entered into an Executive Retention Agreement with Mr. Smith dated as of June 14, 2021, which provides for certain benefits upon termination of Mr. Smith’s employment and Mr. Smith subsequently signed a release of all prior claims in consideration of the payments to be made by the Company under the Executive Retention Agreement.
ITEM 6. EXHIBITS
* | Filed herewith |
(1) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 23, 2021. |
(2) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on January 22, 2021. |
(3) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on June 15, 2021. |
Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 16, 2019. | |
Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 18, 2020. | |
Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on May 13, 2020. | |
Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on May 6, 2021. | |
Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 6, 2017. | |
Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on May 4, 2018. |
Incorporated by reference to the Form 10-K Annual Report filed with the Securities Exchange Commission on July 12, 2017. | |
Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 1, 2017. | |
Incorporated by reference to the Form S-1/A Amendment No. 1 to the S-1 Registration Statement filed with the Securities Exchange Commission on July 16, 2021. | |
(13) | Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on November 8, 2021. |
Incorporated by reference to the Form S-8 Registration Statement filed with the Securities Exchange Commission on February 1, 2022. | |
Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 21, 2022. | |
Incorporated by reference to the Form 10-K Annual Report filed with the Securities Exchange Commission on March 22, 2022. | |
Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on April | |
Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on April 27, 2022. | |
(19) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on July 19, 2022. |
(20) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September 21, 2022. |
(21) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 10, 2023. |
(22) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 28, 2023. |
(23) | Incorporated by reference to the Form 10-K Annual Report filed with the Securities Exchange Commission on March 30, 2023. |
(24) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on April |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
authID Inc. | ||
By: | /s/ | |
Rhoniel A. Daguro, Chief Executive Officer and | ||
Principal Executive Officer | ||
By: | /s/ Hang Thi Bich Pham | |
Chief Financial Officer, | ||
Principal Financial and Accounting Officer | ||
Dated: |
30