authID Inc. (Nasdaq: AUID) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing reports full-year results; it does not provide a separate fourth-quarter financial summary. The company focuses on its Verified biometric identity verification and passwordless authentication platform. It rebranded from Ipsidy to authID in July 2022 and classified its Cards Plus and MultiPay businesses as discontinued operations.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Continuing-operations revenue | $527,415 | $613,516 |
| Operating loss from continuing operations | $22.3 million | $17.1 million |
| Loss from continuing operations | $23.7 million | $16.7 million |
| Net loss, including discontinued operations | $24.2 million | $17.7 million |
| Adjusted EBITDA loss, continuing operations (non-GAAP) | $11.4 million | $8.1 million |
| Net cash used in operating activities | $12.8 million | $8.8 million |
| Cash at year-end | $3.2 million | $5.8 million |
- Verified software license revenue rose to $157,000 from $65,000; legacy authentication services revenue declined to $371,000 from $549,000, primarily after a large customer discontinued a legacy product.
- Revenue fell about 14% overall. General and administrative expense increased about $1.8 million and research and development expense increased about $3.4 million. Management attributed increased spending to investment in personnel, technology, sales and marketing.
- Stock-based compensation was $8.9 million, a significant non-cash expense. The company also recorded $1.1 million of impairment losses on intangible assets.
- Year-end current assets were $4.35 million and current liabilities were $1.25 million, or reported working capital of approximately $3.1 million. Total assets were $9.37 million and total liabilities were $9.09 million.
- Convertible notes had approximately $9.13 million of principal outstanding at year-end, bearing 9.75% interest and maturing March 31, 2025. Their balance-sheet carrying value, net of discounts and issuance costs, was $7.84 million. The company paid off a separate $662,000 note in 2022.
Material changes and unusual items
- The company completed the sale of Cards Plus in August 2022 for $300,000, recognizing a $188,247 loss; $150,000 of the price remained receivable at year-end. It also began an orderly exit from MultiPay. Combined discontinued operations and sale loss contributed $555,000 to 2022 net loss.
- The company raised approximately $10.2 million net from financing activities in 2022, principally through convertible notes and a common-stock offering. It issued 479,845 shares in lieu of approximately $696,000 of convertible-note interest.
- At year-end, cash was $3.2 million and the company had an accumulated deficit of $140.1 million. The independent auditor highlighted substantial doubt about the company’s ability to continue as a going concern; the financial statements contain no adjustments for a possible failure to continue operations.
- After year-end, a revised 2023 budget and labor-reduction plan targeted termination of up to 20 of 31 employees and contractors; notices had been given to 12 employees and six contractors. Estimated one-time termination costs were $0.5 million to $1.1 million.
- In March 2023, shareholder Stephen Garchik funded a $900,000 unsecured note bearing 15% cash interest and due March 31, 2025. A further $2.7 million facility was under negotiation, not yet definitive; proposed terms included 12% payment-in-kind interest and security over company assets. The financing was accompanied by significant board changes and appointment of Rhoniel Daguro as CEO.
Outlook, risks and contingencies
- Management provided no specific revenue or earnings guidance. It expects continued operating cash outflows and says additional financing will be needed to execute its plan and meet working-capital needs. Management’s growth thesis relies on broader adoption of biometric verification and passwordless authentication, customer acquisition and channel partnerships.
- Principal risks include recurring losses, limited revenue and operating history, uncertain product adoption and commercialization, competition, dependence on financing, and potential dilution. The company also disclosed customer concentration: two legacy customers generated about 70% of 2022 continuing revenue, and one customer represented 86% of year-end accounts receivable.
- Other risks include privacy and biometric-data regulation, cybersecurity and service interruptions, reliance on third-party software and cloud providers, international operations and contractor exposure to the war in Ukraine, and Nasdaq listing compliance. Nasdaq had notified the company that its share price was below the $1 minimum; the filing also stated the company did not meet a separate continued-listing standard at filing.
- The company reported effective disclosure controls and management assessed internal control over financial reporting as effective at December 31, 2022. The auditor did not audit internal controls. No material legal proceeding was identified in the filing.
Important facts for investors to verify
- Whether the company can secure additional financing on workable terms, including final documentation and conditions for the proposed $2.7 million facility, and how the financing affects collateral priority and existing noteholders.
- Cash runway after the $900,000 advance, the labor reductions and associated termination payments; reconcile management’s stated financing needs with actual cash use.
- Whether Verified revenue and customer adoption grow enough to offset legacy customer losses and the company’s high operating cost base.
- Customer concentration, receivable collection, and progress in exiting MultiPay and completing collection of the Cards Plus sale balance.
- Nasdaq bid-price and other listing-standard compliance, as well as potential dilution from convertible notes, warrants and outstanding equity awards.