authID (AUID) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company's unaudited financial statements for the period ended June 30, 2022, reflect increased assets from financing activities, substantial net losses, discontinued non-core businesses, and new financing expected to fund operations through 2023 Condensed Consolidated Balance Sheets As of June 30, 2022, total assets increased to $18.4 million due to cash from financing, while total liabilities grew to $10.6 million from new convertible debt, leading to a decrease in stockholders' equity to $7.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $9,978 | $5,767 | | Total current assets | $11,795 | $6,927 | | Total assets | $18,362 | $13,830 | | Liabilities & Equity | | | | Total current liabilities | $3,026 | $2,934 | | Convertible debt (Non-current) | $7,607 | $0 | | Total liabilities | $10,633 | $2,934 | | Total stockholders' equity | $7,728 | $10,896 | Condensed Consolidated Statements of Operations For the six months ended June 30, 2022, total revenues decreased to $231 thousand while operating expenses more than doubled to $11.2 million, resulting in a net loss of $11.9 million, nearly double the prior year Statement of Operations Summary (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Total Revenues, net | $231 | $295 | | Total Operating Expenses | $11,199 | $5,592 | | Loss from Continuing Operations | $(11,467) | $(5,376) | | Net Loss | $(11,874) | $(5,548) | | Net Loss Per Share (Basic & Diluted) | $(0.50) | $(0.28) | - For the second quarter of 2022, Verified software license revenue grew to $51,409 from $18,499 in Q2 2021, while Legacy authentication services revenue fell sharply to $15,000 from $128,272[15] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash used in operating activities increased to $6.5 million, offset by $10.8 million from financing activities, resulting in a net cash increase of $4.3 million and an ending cash balance of $10.0 million Cash Flow Summary (Six Months Ended June 30, in dollars) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash flows from operating activities | $(6,482,702) | $(2,377,324) | | Net cash flows from investing activities | $(30,443) | $(89,154) | | Net cash flows from financing activities | $10,827,620 | $463,644 | | Net change in cash | $4,280,649 | $(1,959,863) | | Cash, end of the period | $9,978,252 | $1,569,363 | - Financing activities in 2022 included approximately $3.1 million from the sale of common stock and $8.0 million from the issuance of convertible notes[24] Notes to Unaudited Condensed Consolidated Financial Statements The notes detail significant corporate events and accounting policies, including the company's name change, resolution of going concern issues via new financing, and the decision to exit non-core businesses - The company changed its name from Ipsidy Inc. to authID Inc. effective July 18, 2022[28] - On May 4, 2022, the Board approved a plan to exit the non-core MultiPay (Colombia) and Cards Plus (South Africa) businesses, now presented as assets held for sale and discontinued operations[29][72] - Despite an accumulated deficit of $127.8 million, management believes March 2022 financing provides sufficient funds to operate through December 31, 2023, addressing previous going concern issues[30][31] - In March 2022, the company sold approximately $9.2 million in Senior Secured Convertible Notes due March 2025 with a 9.75% interest rate[54] - In March 2022, the company raised approximately $3.3 million in gross proceeds by selling 1,063,514 shares of common stock to PIPE investors[64] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus on its 'Verified' biometric identity platform, increased operating expenses leading to higher net losses, and significant March 2022 financing expected to fund operations through 2023 - The company's mission is to eliminate passwords and become the preferred global platform for biometric identity authentication through its 'Verified' IDaaS platform[99] - General and administrative expenses for the six months ended June 30, 2022, increased by $4.9 million year-over-year, driven by higher stock compensation, personnel, marketing, and professional fees[116] - Research and development expenses increased by $0.8 million for the six-month period year-over-year due to increased staffing and third-party resources for key product initiatives[117] - The company secured significant funding in March 2022, including ~$8 million net from convertible notes, ~$3.3 million gross from a PIPE, and a $10 million unsecured credit facility, expected to fund operations through December 31, 2023[126][127][128] Reconciliation of Loss from Continuing Operations to Adjusted EBITDA (Non-GAAP, in dollars) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Loss from continuing operations | $(11,466,525) | $(5,375,751) | | Stock compensation | $4,499,107 | $2,261,126 | | Depreciation and amortization | $460,833 | $579,435 | | Adjusted EBITDA continuing operations | $(5,857,821) | $(2,457,048) | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide disclosures regarding market risk - As a smaller reporting company, authID Inc. is not required to include disclosure under this item[137] Controls and Procedures The company's disclosure controls and procedures were deemed effective as of June 30, 2022, with no material changes to internal control over financial reporting during the period - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures are effective[138] - No material changes in internal control over financial reporting occurred during the six months ended June 30, 2022[139] PART II - OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings but does not anticipate any material adverse effect on its financial condition or operations - The company states it has no reason to believe that the outcome of any ordinary course legal proceedings will have a material adverse effect on its financial condition or results of operations[140] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - There has been no material change in the company's risk factors from those previously discussed in the Annual Report on Form 10-K for the year ended December 31, 2021[141] Unregistered Sales of Equity Securities and Use of Proceeds In March 2022, the company conducted unregistered sales of equity securities, including $9.2 million in convertible notes and $3.3 million from a PIPE, with proceeds used for working capital - On March 21, 2022, the company sold Senior Secured Convertible Notes with an aggregate principal of approximately $9.2 million and a conversion price of $3.70 per share[142] - On March 18 and 21, 2022, the company sold 1,063,514 shares of common stock in a PIPE transaction, raising gross proceeds of approximately $3.3 million[143] - The securities were sold under exemptions from registration requirements provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D[145] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[145] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable to our operations[145] Other Information This section details key management and board changes, including the appointment of Joseph Trelin to the Board and Hang Pham as the new CFO following Stuart Stoller's retirement - On April 18, 2022, Joseph Trelin was appointed to the Board of Directors as a designee of investor Stephen J. Garchik, who provided a $10.0 million credit facility[146][147] - Stuart Stoller, CFO, retired effective June 17, 2022[148] - Hang Pham was appointed as the new Chief Financial Officer, effective June 20, 2022, with an annual salary of $275,000, a signing bonus, and a potential performance bonus of 40% of base salary[149] Exhibits This section lists all exhibits filed with the quarterly report, including corporate governance documents, financing agreements, and officer certifications - The report includes a list of exhibits filed, such as corporate governance documents, financing agreements, and certifications required by the Sarbanes-Oxley Act[151]