authID Inc. (AUID) — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited. authID provides biometric identity verification and authentication through its Verified platform; the company is focusing on this business while exiting non-core operations.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Continuing-operations revenue | $37,856 | $165,052; down about 77% |
| Operating expenses | $4.46 million | $5.23 million |
| Loss from continuing operations | $5.22 million | $5.10 million |
| Net loss | $5.22 million | $5.30 million |
| Adjusted EBITDA, non-GAAP | Loss of $2.20 million | Loss of $2.84 million |
| Cash used in operating activities | $2.17 million | $3.10 million |
- Verified software license revenue was $35,778; legacy authentication services revenue was $2,078. The company attributed the decline primarily to a large customer discontinuing a legacy product effective April 1, 2022.
- Gross profit and gross margin are not separately reported for continuing operations in the filing.
- Cash was $1.59 million at March 31, down from $3.24 million at December 31, 2022. Management reported approximately $0 million of working capital; the balance sheet lists current assets of $2.13 million and current liabilities of $1.96 million.
- Total liabilities were $10.73 million, including convertible debt reported net at $7.98 million and a credit facility reported net at $458,800. Convertible notes have a stated 9.75% rate and mature March 31, 2025; the $900,000 initial facility note carries 15% interest and matures March 31, 2025.
- Stockholders’ equity moved from $283,536 at December 31, 2022 to a deficit of $3.90 million at March 31, 2023. Accumulated deficit was $145.35 million.
Changes, outlook, and risks
- Lower general and administrative and research and development costs reflected a cost-reduction plan. Twelve employees and six contractors left; the company also gave notice to certain vendors and contractors. Q1 severance expense was approximately $0.8 million, of which $0.2 million was paid.
- Interest and debt-issuance-cost expense rose to $800,073 from $32,857, reflecting the convertible notes and costs associated with amending the credit facility. The filing also reports $492,000 of non-cash recruiting fees.
- The company secured a $900,000 initial advance from shareholder Stephen Garchik. Negotiations for a further $2.7 million facility were ongoing; the proposed financing was conditional and not a completed funding commitment in this filing. Management said additional capital would be needed to implement its business plan.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing limited cash, operating losses, low revenue, and dependence on financing and future cash generation. It stated that $3.6 million of additional financing had been secured or was being pursued under the facility arrangements; availability of further capital is not assured.
- No formal revenue or earnings guidance is provided. Management expects investment in products, people, and technology to support revenue expansion, but gives no quantified forecast.
- After quarter-end, Nasdaq notified the company that it was below the $2.5 million stockholders’ equity requirement and also below the $1.00 minimum bid-price requirement. The company intended to submit a compliance plan; continued listing was not assured.
- The company completed the sale of Cards Plus in 2022 and was winding down MultiPay in Colombia; a software sale to its major customer was expected by June 30, 2023. These businesses are reported as discontinued operations.
- CEO Thomas Thimot resigned in March and Rhoniel Daguro became CEO. The filing also describes significant board changes and post-quarter executive hiring and equity awards. Key risks include financing access, customer adoption, competition, cybersecurity, regulation, and disruption involving outsourced developers in Eastern Europe.
- Management reported disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter. It reported no material off-balance-sheet arrangements or legal proceedings expected to materially affect results.
Important facts for investors to verify
- Whether the proposed additional $2.7 million financing was documented and funded, and what its final interest, collateral, and priority terms are.
- Current cash, monthly cash burn, and the company’s ability to obtain sufficient financing to address the going-concern uncertainty.
- Progress toward Nasdaq equity and bid-price compliance and the status of any delisting risk.
- Whether revenue from Verified customers is growing enough to offset the loss of legacy revenue and support the stated investment plans.
- The timing and proceeds from the planned MultiPay software transaction, plus potential dilution from outstanding convertible notes, options, and executive awards.