authID (AUID) - 2024 Q3 - Quarterly Report

FORM 10-Q Information This section details the company's quarterly report filing status for the period ended September 30, 2024, identifies authID Inc. as a Delaware corporation, and confirms its non-accelerated filer status, along with common shares outstanding - Filing Type: Quarterly Report on Form 10-Q for the period ended September 30, 2024[1] - Registrant: authID Inc., a Delaware corporation[1] - Filer Status: Non-accelerated filer[5] - Common Stock Outstanding: 10,920,909 shares as of November 5, 2024[6] Cautionary Statement Regarding Forward-Looking Information This section warns that forward-looking statements in the report are subject to known and unknown risks, which may cause actual results to differ materially - The report includes forward-looking statements related to future events or the company's future financial performance, involving known and unknown risks, uncertainties, and other factors[7] - Key risk factors encompass lack of significant revenues, market acceptance, ability to raise capital, geopolitical impacts, and stock price volatility[8] - The company disclaims any obligation to publicly release revisions to forward-looking statements or report unanticipated events, except as required by Federal securities laws[9] Other Pertinent Information This section clarifies that terms like 'authID' refer to authID Inc. and its subsidiaries, and information on the company's website is not part of this report - The terms 'authID,' 'Company,' 'we,' 'our,' 'us,' and similar terms refer to authID Inc., a Delaware corporation, and its subsidiaries[10] - Information on the company's website (www.authID.ai) is not part of this report[10] PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, with explanatory notes Condensed Consolidated Balance Sheets Total assets increased from $15.41 million to $17.47 million by September 30, 2024, driven by cash and additional paid-in capital, while liabilities decreased and equity rose | Metric | Sep 30, 2024 (Unaudited) | Dec 31, 2023 | Change ($) | Change (%) | | :-------------------------- | :----------------------- | :--------------------- | :--------- | :--------- | | Cash | $11,718,392 | $10,177,099 | $1,541,293 | 15.14% | | Total current assets | $13,073,091 | $10,901,680 | $2,171,411 | 19.92% | | Total assets | $17,469,696 | $15,411,913 | $2,057,783 | 13.35% | | Total current liabilities | $1,875,509 | $1,664,743 | $210,766 | 12.66% | | Total liabilities | $1,875,509 | $2,214,167 | $(338,658) | -15.30% | | Total stockholders' equity | $15,594,187 | $13,197,746 | $2,396,441 | 18.16% | Condensed Consolidated Statements of Operations Revenue significantly increased for both three and nine-month periods ending September 30, 2024, leading to a reduced net loss despite higher research and development costs | Metric (USD) | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :----------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Revenues, net| 248,920 | 43,389 | 205,531 | 473.68% | | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :----------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Revenues, net| 686,736 | 118,387 | 568,349 | 480.09% | | Metric (USD) | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :----------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Net loss | (3,364,801) | (3,717,618) | 352,817 | -9.49% | | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :----------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Net loss | (9,683,619) | (16,180,056) | 6,496,437 | -40.15% | | Metric (USD) | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | YoY Change ($) | | :----------- | :-------------------------- | :-------------------------- | :------------- | | Continuing operations | (0.31) | (0.47) | 0.16 | | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | YoY Change ($) | | :----------- | :-------------------------- | :-------------------------- | :------------- | | Continuing operations | (0.97) | (3.05) | 2.08 | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss improved to $3.36 million for the three months and significantly decreased to $9.69 million for the nine months ended September 30, 2024, reflecting a reduced net loss | Metric (USD) | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Comprehensive loss | (3,363,834) | (3,705,026) | 341,192 | -9.21% | | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Comprehensive loss | (9,689,168) | (16,323,601) | 6,634,433 | -40.64% | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $15.59 million by September 30, 2024, primarily due to $10.04 million from common stock sales and stock-based compensation, partially offset by net loss | Metric (USD) | Sep 30, 2024 | Dec 31, 2023 | Change ($) | Change (%) | | :----------------------- | :----------- | :----------- | :--------- | :--------- | | Total stockholders' equity | 15,594,187 | 13,197,746 | 2,396,441 | 18.16% | - Key changes for the nine months ended September 30, 2024, include $10,041,399 from the sale of common stock for cash (net of offering costs), $2,044,210 in stock-based compensation, and a net loss of $(9,683,619)[17] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $8.48 million, while financing activities provided $10.04 million, resulting in a $1.54 million net cash increase and a $11.72 million cash balance by September 30, 2024 | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :------------------------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Net cash flows from operating activities | (8,477,368) | (6,224,162) | (2,253,206) | 36.20% | | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :------------------------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Proceeds from sale of common stock, net of offering costs | 10,041,399 | 6,321,492 | 3,719,907 | 58.84% | | Net cash flows from financing activities | 10,041,399 | 6,865,251 | 3,176,148 | 46.26% | | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Net Change in Cash | 1,541,293 | 571,204 | 970,089 | 169.83% | - Cash balance at the end of the period (September 30, 2024) was $11,718,392[19] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering presentation basis, going concern, revenue recognition, and specifics on assets, liabilities, equity, and related party transactions NOTE 1 – BASIS OF PRESENTATION This note outlines accounting principles, consolidation entities, and the company's going concern status due to accumulated deficits and losses, detailing policies for net loss per share, revenue recognition, and deferred contract costs - The unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q and U.S. GAAP[20] - As of September 30, 2024, the Company had an accumulated deficit of approximately $169.2 million and incurred a net loss of approximately $9.7 million for the nine months ended September 30, 2024[22] - The continuation of the Company as a going concern is dependent upon financial support, additional financing, and generating sufficient cash flows, with substantial doubt about its ability to continue as a going concern[23][24] - In June 2024, the Company raised approximately $10.0 million after expenses from existing and new stockholders through the sale of Common Stock[23] - Revenue is recognized based on identified performance obligations over the performance period for fixed and/or variable fees, typically earned over time based on monthly users, transaction volumes, or a monthly flat fee rate[29] - Deferred revenue contract liabilities were approximately $329,000 as of September 30, 2024, compared to $132,000 as of December 31, 2023[32] - For the nine months ended September 30, 2024, two customers represented 64% of revenue; as of September 30, 2024, three customers accounted for 71% of accounts receivable[33] - Remaining Performance Obligation (RPO) was $3.83 million as of September 30, 2024, with approximately 27% expected to be recognized as revenue over the twelve months ending September 30, 2025[34] | Metric | Value (USD) | | :----------------------------------- | :---------- | | Carrying Value at December 31, 2023 | $157,300 | | Additions | 32,572 | | Reversals | (71,500) | | Amortization | (16,205) | | Carrying Value at September 30, 2024 | $102,167 | NOTE 2 – OTHER CURRENT ASSETS Other current assets increased to $686,382 by September 30, 2024, from $476,004 at December 31, 2023, mainly due to higher prepaid insurance and third-party services | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------------- | :----------------- | :---------------- | | Prepaid insurance | $225,604 | $184,492 | | Prepaid third-party and related party services | $460,778 | $291,512 | | Total other current assets | $686,382 | $476,004 | NOTE 3 – INTANGIBLE ASSETS, NET (OTHER THAN GOODWILL) Intangible assets, net, decreased to $213,373 by September 30, 2024, from $327,001 at December 31, 2023, due to $17,582 in patent additions and $131,210 in amortization expense | Metric | September 30, 2024 | December 31, 2023 | | :----------------------------------- | :----------------- | :---------------- | | Carrying Value at Period End | $213,373 | $327,001 | | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------- | :-------------------------- | :-------------------------- | | Amortization expense | $131,000 | $212,000 | | Year | Expected Amortization (USD) | | :------------------- | :-------------------------- | | 2024 (Remainder) | $43,847 | | 2025 | $71,089 | | 2026 | $20,986 | | 2027 | $18,219 | | 2028 | $18,219 | | Thereafter | $41,013 | | Total | $213,373 | NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses decreased to $984,397 by September 30, 2024, from $1,408,965 at December 31, 2023, mainly due to reduced accrued payroll, partially offset by increased trade payables | Metric | September 30, 2024 | December 31, 2023 | | :-------------------------------------- | :----------------- | :---------------- | | Trade payables | $347,762 | $235,606 | | Accrued payroll and related obligations | $202,730 | $707,317 | | Insurance Premium Liability | $163,696 | $104,226 | | Other accrued expenses | $270,209 | $361,816 | | Total | $984,397 | $1,408,965 | NOTE 5 – RELATED PARTY TRANSACTIONS This note details related party transactions, including Board changes, director option grants, a services agreement with The Pipeline Group, the CEO's brother's employment, and a director's common stock purchase - Mr. Joe Trelin resigned as Chairman and Director on February 15, 2024, with 6,511 unvested options accelerated[43] - Mr. Kunal Mehta was appointed as a Director on March 25, 2024, and granted options to purchase 13,282 shares at $7.78 per share[44] - On August 13, 2024, 15,627 options each were granted to Messrs. Michael Koehneman, Michael Thompson, Ken Jisser, Kunal Mehta, and Ms. Jacqueline White at an exercise price of $8.67 per share[45] - The Company renewed a services agreement with The Pipeline Group, Inc. (TPG), where director Ken Jisser is CEO, for an additional year at $70,000 per month; total expense incurred for the nine months ended September 30, 2024, was approximately $752,000[46] - Dale Daguro, brother of CEO Rhon Daguro, is employed as VP Sales and earned approximately $201,000 in base salary and sales commission for the nine months ended September 30, 2024[47] - Michael Thompson, a Director, purchased 12,254 shares of common stock for $100,000 on June 27, 2024, as part of a Registered Direct Offering[48] NOTE 6 – STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, including the issuance of common stock through a registered direct offering in June 2024, generating $10.0 million net proceeds. It also covers warrant and stock option activity, including new grants to directors and employees, and the acceleration of vesting for a departing director - On June 27, 2024, the Company issued 1,464,965 shares of common stock for cash gross proceeds of approximately $11.0 million (or approximately $10.0 million, net of offering costs) in a Registered Direct Offering[49] | Metric | Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Life | | :-------------------------- | :--------------- | :------------------------------ | :------------------------------ | | Outstanding, Dec 31, 2023 | 598,267 | $11.89 | 3.9 Years | | Granted | 102,547 | $7.50 | 4.8 Years | | Exercised/Cancelled | (3,368) | $21.12 | - | | Outstanding, Sep 30, 2024 | 697,446 | $11.20 | 3.6 Years | - During the nine months ended September 30, 2024, the Company granted directors a total of 91,417 options (exercise prices $7.78 to $8.67 per share) and 220,000 options to certain new employees (exercise prices $7.99 to $9.61 per share)[57] - Approximately $2.1 million of stock option-based compensation expense was recognized for the nine months ended September 30, 2024, with approximately $2.6 million of unrecognized costs remaining[60] - The 2024 Equity Incentive Plan was approved by stockholders on June 26, 2024, allocating 395,000 shares, with 447,523 shares available for issuance as of September 30, 2024[61] - The Company also issued 140,000 options and agreed to grant 100,000 options to newly hired employees as inducement grants under Nasdaq Listing Rule 5635(c)(4), which are not included in the 2024 Plan totals[62] NOTE 7 – COMMITMENTS AND CONTINGENCIES The company is involved in ordinary course legal proceedings but does not anticipate a material adverse effect on its financial condition or results of operations from their outcomes - The Company is a party to various legal or administrative proceedings arising in the ordinary course of business, but does not believe the outcome will have a material adverse effect on its financial condition or results of operations[63] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and operations, covering biometric identity business, market trends, going concern issues, GAAP net loss to Adjusted EBITDA reconciliation, and revenue and expense trends Overview authID Inc. offers a patented biometric identity platform for rapid, frictionless user verification and authentication, preventing cybercrime through digital onboarding, passwordless authentication, and account recovery in 700ms - authID ensures cyber-savvy enterprises 'Know Who's Behind the Device' for every customer or employee login and transaction[67] - The company's patented, biometric identity platform verifies user identity, prevents cybercrime, and offers identity verification in 700ms[67] Our Platform authID's Verified cloud platform provides Biometric Identity Verification (Proof), Biometric Identity Authentication (Verified), Account/Access Recovery, and FIDO Passkey binding for trusted identities, secure passwordless logins, and instant account recovery - The Verified cloud-based platform provides Biometric Identity Verification (Proof), Biometric Identity Authentication (Verified), Account/Access Recovery, and FIDO Passkey binding[68][70][71][72] - Biometric Identity Verification (Proof) establishes trusted identity using government-issued documents and live user selfies, detecting presentation attacks and spoofing threats[68] - Biometric Identity Authentication (Verified) offers secure, convenient passwordless login and transaction validation via facial biometrics, creating a patented audit trail[70] - Account Access and Recovery allows users to recover lost or blocked account access instantly via facial biometric, independent of any specific device[71] - FIDO Passkey Binding enables enterprises to bind biometrically verified user identities to FIDO2 passkeys for strong, device-based passwordless authentication[72] Key Customer Benefits authID's solution provides enterprise customers with seamless user verification and authentication, high-speed processing, precise identification, a frictionless experience, broad device and document support, and easy integration - Customers can verify and authenticate users seamlessly for quick, secure logins and transaction authentications[73] - Benefits include high-speed processing with very low-latency responses, precise and accurate identification, a seamless self-guided user experience, device-agnostic support, quick and easy integration (OIDC, IAM solutions), and broad identity document coverage globally[74][75] Key Trends Financial results are influenced by rising identity theft, fraud, and account takeover concerns, growth in the sharing economy, and electronic payments, while negative global economic trends could impact spending on identity verification services - Financial results are impacted by growing concerns over identity theft, fraud, and account takeover, including AI-assisted fraud, due to accelerating digital transformation[77] - Other influencing trends include the growth in the sharing economy and the increase in electronic payments and alternative money transfer solutions driven by consumer demands for safe, convenient, and frictionless transactions[77] - Negative trends in the global economy, political and economic uncertainty, and stock market volatility may negatively impact spending on identity verification, management, and security methods[78] - The company plans to grow its business by increasing existing customer usage, adding new customers through direct sales and channel partners, and expanding into new markets and innovation[79] Going Concern Substantial doubt about the company's ability to continue as a going concern persists, with an accumulated deficit of $169.2 million and a $9.6 million net loss, necessitating further financial support and capital raises despite a recent $10.0 million offering - As of September 30, 2024, the Company had an accumulated deficit of approximately $169.2 million and incurred a net loss of approximately $9.6 million for the nine months ended September 30, 2024[83] - The continuation of the Company as a going concern is dependent upon financial support from stockholders, ability to obtain additional debt or equity financing, generating sufficient cash flows, and acquiring new clients[83] - In June 2024, the Company raised approximately $10.0 million after expenses through the sale of Common Stock[83] - There is substantial doubt about the Company's ability to continue as a going concern due to the lack of assurance of achieving positive cash flows and raising sufficient capital[84] Adjusted EBITDA (Non-GAAP) This section presents Adjusted EBITDA as a non-GAAP financial measure, reconciled from GAAP net loss, used by management to assess operating performance and provide investors with additional information, despite its inherent limitations - Adjusted EBITDA is a non-GAAP financial measure used by management to assess operating performance and provides additional information with respect to the performance of fundamental business activities[85] - Adjusted EBITDA has limitations as an analytical tool, as it does not reflect cash expenditures, capital expenditures, working capital needs, or cash requirements for asset replacements[85] | Metric (USD) | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Loss from continuing operations | (3,364,801) | (3,715,703) | (9,683,619) | (16,397,649) | | Addback: Interest expense, net | 12,712 | 13,138 | 36,219 | 1,095,320 | | Addback: Other income | (161,308) | (29,511) | (344,185) | (30,671) | | Addback: Loss on debt extinguishment | - | - | - | 380,741 | | Addback: Conversion expense | - | - | - | 7,476,000 | | Addback: Severance cost | - | 49,390 | 14,251 | 878,348 | | Addback: Depreciation and amortization | 43,798 | 60,416 | 131,210 | 212,450 | | Addback: Non-cash recruiting fees | - | - | - | 438,000 | | Addback: Taxes | - | - | - | 3,255 | | Addback: Stock compensation | 595,536 | 1,519,952 | 2,044,210 | (22,949) | | Adjusted EBITDA continuing operations | (2,874,063) | (2,102,318) | (7,801,914) | (5,967,155) | Revenues, net Net revenues significantly increased to $249,000 and $687,000 for the three and nine months ended September 30, 2024, respectively, primarily due to new customer contracts from late 2023 | Metric (USD) | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :----------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Revenues, net| 249,000 | 43,000 | 206,000 | 479.07% | | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | YoY Change ($) | YoY Change (%) | | :----------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Revenues, net| 687,000 | 118,000 | 569,000 | 482.20% | - The increase in revenues was principally due to the recognition of revenue from new customer contracts signed in the second half of 2023[89] General and administrative expenses General and administrative expenses decreased by approximately $0.9 million for the three months due to lower stock-based compensation, but increased by $0.5 million for the nine months, reflecting a non-recurring $2.5 million reversal in Q1 2023 and 2023 restructuring savings - General and administrative expense decreased by approximately $0.9 million for the three months ended September 30, 2024, compared to the prior year, driven by lower stock-based compensation expense[90] - For the nine months ended September 30, 2024, general and administrative expense increased by $0.5 million, reflecting a one-time $2.5 million reversal of stock-based compensation in Q1 2023 that was not repeated in 2024, partially offset by reduced employee-related expense from the 2023 restructuring[90] Research and development expenses Research and development expenses increased by $0.9 million for three months and $2.7 million for nine months ended September 30, 2024, due to re-investment in personnel post-2023 restructuring and the absence of a Q1 2023 stock-based compensation reversal - Research and development expenses increased by approximately $0.9 million for the three months and $2.7 million for the nine months ended September 30, 2024, compared to the prior year periods[91] - The increase was comprised of re-investment in employees and contractors following the 2023 restructuring, as well as $0.8 million from a one-time reversal of stock-based compensation in Q1 2023 that was not repeated in 2024[91] Depreciation and amortization expense Depreciation and amortization expense decreased by approximately $0.02 million for three months and $0.08 million for nine months ended September 30, 2024, due to a reduction in legacy business asset values - Depreciation and amortization expense was approximately $0.02 million less for the three months and $0.08 million less for the nine months ended September 30, 2024, compared to the prior year periods[92] - The reduction was due to the Company reducing the value of certain legacy business asset values[92] Interest expense Interest expense remained flat for the three months but increased by $1.1 million for the nine months ended September 30, 2024, primarily due to the exchange of Convertible Notes for common stock in May 2023 - Interest expense remained flat for the three months ended September 30, 2024, compared to the prior year[93] - Interest expense increased by $1.1 million for the nine months ended September 30, 2024, compared to the prior year, principally due to the exchange of Convertible Notes for common stock in May 2023[93] Three and Nine Months Ended September 30, 2024 and September 30, 2023 – Discontinued Operations This section reports on the discontinued MultiPay business in Colombia, including the $216,000 gain from software sale in June 2023 and the dissolution of the MultiPay entity as of August 2, 2024 - The Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payments services in Colombia, on May 4, 2022[94] - In June 2023, MultiPay finalized the sale of the Company's proprietary software for approximately $96,000, recognizing a gain of approximately $216,000[95] - The MultiPay entity was dissolved as of August 2, 2024, but an authID customer support and operations team remains in Bogota to support global operations[96] Liquidity and Capital Resources As of September 30, 2024, the company held $11.7 million in cash and $11.2 million in working capital, with $8.5 million cash used in operations and $10.0 million provided by financing, anticipating further capital needs in 2025 - As of September 30, 2024, the Company had approximately $11.7 million of cash on hand and approximately $11.2 million of working capital[97] | Metric (USD) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------- | :-------------------------- | :-------------------------- | | Cash used in operating activities | $(8,477,368) | $(6,224,162) | - Cash provided by financing activities in the nine months ended September 30, 2024, consisted of approximately $10.0 million in proceeds from the sale of common stock, net of offering costs[98] - The Company will need to raise additional funds in 2025 to support its operations and investments, with no guarantee that such financing will be available or on acceptable terms[100] Ukraine and the Middle East (Impact) Ongoing conflicts in Ukraine and the Middle East create uncertainties, potentially disrupting outsourced services, increasing costs, affecting market demand, and causing financial market volatility, making capital raising more challenging - The wars in Ukraine and the Middle East may disrupt the company's ability to work with certain third-party sub-contractors for outsourced services, including software engineering and development, some of whom are based in Eastern Europe[102] - The uncertainty may lead to increases in costs of goods and services, impact the market for products as prospective customers reconsider capital expenditure, and cause increased volatility in financial markets, making it more difficult to raise additional capital[104][105] - The threat of increased cyber-attacks from multiple threat actors may prompt enterprises to adopt additional security measures, potentially benefiting the Company[104] Off-Balance Sheet Arrangements The company has no material off-balance sheet arrangements likely to significantly affect its financial condition, results of operations, or liquidity, currently or in the future - The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[106] Recent Accounting Policies This section refers to Note 1 of the unaudited financial statements for a discussion of recent material accounting policies crucial for understanding financial results and conditions - Recent material accounting policies critical to understanding the financial results and conditions are discussed in Note 1 of the unaudited financial statements[107] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, authID Inc. is not required to provide quantitative and qualitative disclosures about market risk in this report - As a smaller reporting company, authID Inc. is not required to include disclosure under this item[108] Item 4. Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes in internal control over financial reporting during the nine-month period Evaluation of Disclosure Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2024 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2024[109] Changes in Internal Control over Financial Reporting There were no material changes in the company's internal control over financial reporting during the nine months ended September 30, 2024 - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the nine months ended September 30, 2024[110] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal or administrative proceedings but does not anticipate any material adverse effect on its financial condition or results of operations - The Company is a party to various legal or administrative proceedings arising in the ordinary course of business, but has no reason to believe the outcome will have a material adverse effect on its financial condition or results of operations[112] Item 1A. Risk Factors This section refers to the Annual Report on Form 10-K for a comprehensive discussion of risk factors, confirming no material changes from those previously disclosed - Risk factors describing major risks to the business can be found under Item 1A, 'Risk Factors', in the Annual Report on Form 10-K for the year ended December 31, 2023[113] - There has been no material change in risk factors from those previously discussed in the Annual Report on Form 10-K[113] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered equity sales, including 220,000 stock options to new employees, 13,282 to a new director, 15,627 to other non-employee directors, and 5,724 shares from cashless option exercises, all exempt from registration - During the nine months ended September 30, 2024, the Company granted a total of 220,000 options to certain new employees at exercise prices ranging from $6.29 to $9.61 per share[114] - Mr. Mehta, a director, was granted an option to purchase 13,282 shares of common stock at an exercise price of $7.78 per share, with 12,500 shares vesting annually over three years and 782 shares vesting monthly over three months[115] - Each non-employee director received an option grant of 15,627 shares on August 13, 2024, at an exercise price of $8.67[116] - The Company issued 5,724 shares of common stock in connection with the cashless exercise of stock options by employees[116] - The issuance of these securities is exempt from registration requirements under Rule 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506 as promulgated under Regulation D[117] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[117] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable to the company's operations[118] Item 5. Other Information This section details the new compensation policy for non-employee directors, including cash and equity, and the appointment of Mr. Erick Soto as Chief Product Officer, outlining his compensation and retention agreement Compensation for Non-employee Directors In August 2024, the Board adopted a new policy for non-employee directors, setting total annual compensation at $125,000 (cash and equity), including $8,000 annual cash (or $10,000 for committee chairs) and $117,000 in equity via monthly vesting stock options - In August 2024, the Board adopted a new policy for non-employee director compensation, setting total annual compensation at $125,000, payable in cash and equity[119] - Annual cash compensation is $8,000 ($10,000 for committee chairs), payable quarterly in arrear[119] - Annual equity compensation of $117,000 is provided via an option grant to purchase common stock, vesting monthly over a 12-month period, with a 10-year term and an exercise price equal to the closing price on the grant date[121] - In accordance with this policy, each non-employee director received an option grant of 15,627 shares on August 13, 2024, at an exercise price of $8.67[122] Appointment of Mr. Soto Mr. Erick Soto was appointed Chief Product Officer on September 23, 2024, with an annual salary of $325,000, a 20% bonus potential, 100,000 stock options, and an executive retention agreement providing 12 months' base salary and accelerated equity vesting upon specific termination events - Mr. Erick Soto was hired as Chief Product Officer on September 23, 2024, with an initial annual salary of $325,000[123] - Mr. Soto is eligible for an annual bonus of up to 20% of his annual base salary and received a grant of options to purchase 100,000 shares of common stock, vesting monthly over 36 months[123] - His Executive Retention Agreement provides for an amount equal to 12 months of his base salary and accelerated vesting on his equity awards upon termination due to a change of control or an involuntary termination[124] Item 6. Exhibits This section lists all exhibits filed with Form 10-Q, including corporate documents, securities forms, agreements, and certifications, with references to prior SEC filings - The exhibits include corporate documents (e.g., Amended & Restated Certificate of Incorporation, Bylaws), forms of securities (e.g., Stock Option, Convertible Note), various agreements (e.g., Director Agreement, Indemnification Agreement, Securities Purchase Agreement, Engagement Agreement, Executive Retention Agreement), and certifications (CEO, CFO)[126][128] - Many exhibits are incorporated by reference to previous Form 8-K, 10-Q, or 10-K Current Reports and Registration Statements filed with the Securities Exchange Commission[129][131] SIGNATURES The report is duly signed on behalf of authID Inc. by Rhoniel A. Daguro, CEO, and Ed Sellitto, CFO, on November 7, 2024 - The report is signed by Rhoniel A. Daguro, Chief Executive Officer (Principal Executive Officer), and Ed Sellitto, Chief Financial Officer (Principal Financial and Accounting Officer)[134] - The report was dated November 7, 2024[134]