authID Inc. (Nasdaq: AUID) — FY2023 Form 10-K
Business context and reporting period. This annual filing covers the year ended December 31, 2023; it does not provide a standalone fourth-quarter financial summary. authID sells a cloud-based biometric identity platform for identity verification, authentication, account recovery and passkey binding. In 2023 it completed the sale of its legacy MultiPay software business; Cards Plus and MultiPay results are presented as discontinued operations. A 1-for-8 reverse stock split took effect in July 2023, and share data were adjusted retrospectively.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Continuing-operations revenue | $190,289 | $527,415 |
| Operating expenses | $10.94 million | $22.80 million |
| Operating loss from continuing operations | $10.75 million | $22.27 million |
| Net loss | $19.40 million | $24.23 million |
| Operating cash used | $8.37 million | $12.79 million |
| Adjusted EBITDA loss, continuing operations (non-GAAP) | $8.71 million | $11.40 million |
- Verified software-license revenue increased to $186,171 from $156,646. Legacy authentication-services revenue fell to $4,118 from $370,769, principally due to customer product decommissioning and a one-time prior-year order.
- Gross margin is not separately reported in the supplied financial statements; margin comparisons are therefore unclear. Revenue was very small relative to operating expenses.
- Cash at year-end was $10.18 million, versus $3.24 million. Current assets were $10.90 million and current liabilities $1.66 million, for working capital of approximately $9.24 million.
- Financing activities provided $15.38 million in 2023, mainly from stock offerings and a facility draw. The company raised approximately $15.4 million net through financing during the year.
- Year-end convertible debt had a $245,000 face amount and $224,424 carrying value, due March 2025. Total liabilities were $2.21 million; stockholders’ equity was $13.20 million, compared with $0.28 million at the end of 2022.
Material changes versus FY2022
- Revenue declined about 64%, as the steep drop in legacy authentication services outweighed growth in Verified software-license revenue.
- Operating expenses fell about 52%; general and administrative costs declined approximately $6.8 million and research and development costs approximately $3.5 million, reflecting lower stock compensation, headcount and vendor costs.
- Net loss narrowed by approximately $4.8 million. The 2023 result included a $7.48 million non-cash conversion expense and a $381,000 loss on debt extinguishment, associated with exchanging debt for equity. The exchange reduced convertible debt substantially.
- Cash used in operations improved by approximately $4.4 million. Cash increased primarily because of equity financing, while shares outstanding rose from 3.18 million to 9.45 million.
- Discontinued operations contributed a $218,000 gain in 2023, including a gain on the MultiPay software sale; 2022 discontinued operations recorded a $555,000 loss.
Outlook, risks and unusual items
- Going concern: Management and the auditor cite substantial doubt about the company’s ability to continue as a going concern, given recurring losses, negative operating cash flow and dependence on additional financing. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- Management expects negative operating cash flows through March 31, 2025 and says additional financing will be needed, with funding expected to be required in the fourth quarter of 2024. Financing availability and terms are not assured. Management expects investment in products, people and technology to support revenue growth, but provides no quantified revenue or profitability guidance.
- Remaining performance obligations were reported at $4.03 million, including $3.89 million in other non-cancelable contracted amounts, expected to be recognized over three years. Many related customer contracts had not yet implemented the software; timing and ultimate revenue are uncertain.
- Adjusted EBITDA is non-GAAP and excludes significant items, including the debt-conversion expense. It should not be viewed as a substitute for GAAP results or as cash available to fund the business.
- Key risks include the ability to win customers and convert contracts into usage and revenue; intense competition; cybersecurity and service interruption; biometric privacy and regulatory requirements; dependence on outside financing; possible Nasdaq listing compliance issues; and potential dilution from equity issuance and awards.
- Two customers accounted for 58% of FY2023 continuing-operations revenue, and three customers represented 78% of year-end receivables. Approximately $9.9 million of U.S. cash exceeded FDIC-insured limits.
- Related-party matters include a sales-services agreement with a director’s company, The Pipeline Group, at $98,000 per month for the remaining initial term, and equity financing purchases by directors and a significant shareholder. A former CEO’s $325,000 severance is deferred until the earlier of April 1, 2025 or a change of control.
- A material weakness identified in 2023 concerning accounting for the convertible-note exchange was reported as remediated. Management concluded internal control over financial reporting was effective at year-end; the auditor did not audit or opine on internal-control effectiveness.
- After year-end, the board chairman resigned, leaving three independent directors on a six-member board; the company was seeking another independent director.
Important facts for investors to verify
- Whether the $4.03 million of remaining performance obligations converts into implemented, recurring revenue, and on what schedule.
- Available cash, actual cash burn and the timing, amount and terms of the additional financing management says it expects to need in Q4 2024.
- Customer concentration, collections and the status of customer implementations, including the concentration in receivables.
- The final accounting and share dilution from debt exchanges, equity offerings, warrants and outstanding options.
- Progress on Nasdaq governance requirements after the chairman’s resignation, and continued remediation and monitoring of financial-reporting controls.