authID Inc. (AUID) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company, formerly Ipsidy Inc., changed its name to authID Inc. on July 18, 2022. It provides biometric identity verification and authentication software through a cloud-based Identity-as-a-Service platform.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Continuing-operations revenue | $66,409 | $146,771 | $231,461 | $294,831 |
| Continuing-operations loss | $6,366,520 | $3,008,218 | $11,466,525 | $5,375,751 |
| Net loss, including discontinued operations | $6,572,827 | $3,057,610 | $11,873,555 | $5,547,609 |
| Operating cash used | Not stated quarterly | $6,482,702 | $2,377,324 | |
| Adjusted EBITDA loss, continuing operations (non-GAAP) | $3,023,376 | $1,299,642 | $5,857,821 | $2,457,048 |
- Q2 Verified software license revenue was $51,409, up from $18,499; legacy authentication revenue fell to $15,000 from $128,272. For the first half, the respective amounts were $86,902 and $144,559, versus $33,021 and $261,810 in 2021. Management attributed the legacy decline mainly to a large customer discontinuing an older product on April 1, 2022.
- General and administrative expense was $4.81 million in Q2 and $9.28 million for the first half; research and development was $916,000 and $1.45 million, respectively. The increases reflected investment in personnel, technology, marketing and product development. Stock-based compensation totaled $4.50 million for the first half.
- Cash was $9.98 million at June 30, up from $5.77 million at year-end; management reported working capital of approximately $8.8 million. Operating cash use increased year over year. Financing activities provided $10.83 million in the first half, including approximately $8.0 million net proceeds from convertible notes and $3.15 million net proceeds from stock sales.
- Reported liabilities were $10.63 million, including convertible debt with a carrying value of $8.27 million. The notes had $9.84 million aggregate principal: $662,000 at 10% due December 2022 and approximately $9.18 million at 9.75% due March 2025. The new notes are senior secured and convertible at $3.70 per share.
- A separate $10 million unsecured standby credit facility, bearing 15% interest on amounts drawn and subject to conditions, had no borrowings at quarter-end. It ranks behind the senior secured notes.
- Common shares outstanding increased from 23.29 million at year-end to 24.79 million at June 30; 24,789,418 shares were outstanding July 31. Potential dilution also includes options, warrants and convertible notes.
Changes, outlook and risks
- Revenue from continuing operations declined about 55% in Q2 and 21% for the first half. Continuing-operations losses more than doubled in both comparisons, reflecting higher operating costs and, in Q2, increased interest expense following the March note financing. First-half Adjusted EBITDA loss also increased; this is a company-defined non-GAAP measure.
- On May 4, the board approved exiting the non-core Cards Plus card-manufacturing business in South Africa and MultiPay payments business in Colombia to focus on biometric identity products. The businesses were classified as discontinued operations and held for sale. Together they generated $579,000 revenue and a $206,000 loss in Q2; first-half revenue was $1.02 million and loss was $407,000. Cards Plus was being discussed for sale at an estimated $300,000 less selling costs; the filing does not report a completed sale.
- Management said March financing provides sufficient funds and credit facilities to operate through December 31, 2023, while acknowledging possible future capital needs. The filing gives no revenue, earnings or other operating guidance.
- The company reported an accumulated deficit of approximately $127.8 million and continuing-operations losses. Prior auditor reports included an emphasis-of-matter paragraph concerning liquidity. Continued funding, revenue growth and execution of the product strategy remain important uncertainties.
- Other disclosed risks include slow customer and partner decisions, COVID-19 effects, possible disruption to outsourced development work related to the Ukraine war, inflation, access to capital, market acceptance, competition for talent, regulation, Nasdaq listing and intellectual-property protection. Management said litigation in the ordinary course was not expected to materially affect results and reported disclosure controls effective at June 30.
- Unusual items include $4.50 million of first-half stock compensation, impairment and exit-related charges in discontinued operations, and the March financing transactions. Management identified no impairment indicator for continuing-operations goodwill or intangible assets at June 30.
Investor verification priorities
- Track growth in Verified software licensing and customer adoption, and whether it offsets the loss of legacy-service revenue.
- Reconcile continuing-operations cash use and the stated runway through December 2023; review the conditions and availability of the $10 million credit facility.
- Review note terms, interest burden, collateral and conversion dilution, as well as related-party participation in financing.
- Confirm the timing, proceeds, liabilities and wind-down costs of the Cards Plus and MultiPay exits; assess how discontinued operations affect comparisons.
- Monitor operating expenses, stock-based compensation and the conversion of product investment into recurring revenue.