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What changed in authID Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of authID Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+310 added−461 removedSource: 10-K (2024-03-20) vs 10-K (2023-03-30)

Top changes in authID Inc.'s 2023 10-K

310 paragraphs added · 461 removed · 160 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe Company offers the following Verified platform capabilities: ● BIOMETRIC IDENTITY VERIFICATION establishes the trusted identity of users based on a variety of ground truth sources, including chip-based electronic machine-readable travel documents (or eMRTDs), national IDs, driver’s licenses.
Biggest changeOur Platform Our Verified TM cloud-based platform was developed with internally developed software as well as acquired and licensed technology and provides the following core services: ● Biometric Identity Verification ● Biometric Identity Authentication ● Account / Access Recovery ● FIDO Passkey binding Biometric Identity Verification Biometric identity verification establishes the trusted identity of a user based on a variety of ground truth sources, including government-issued identity documents such as national IDs, driver’s licenses and passports or electronic machine-readable travel documents (or eMRTDs).
Due to the security applications and biometric technology associated with the Company’s products and platforms, the activities and operations of the Company are subject to license restrictions and other regulations, such as (without limitation) export controls and other security regulation by government agencies.
Governmental Regulations Due to the security applications and biometric technology associated with the Company’s products and platforms, the activities and operations of the Company are subject to license restrictions and other regulations, such as (without limitation) export controls and other security regulation by government agencies.
On May 4, 2022, the Board of Directors of authID (the “Board” or the “Board of Directors”) approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank payments services in Colombia and the Cards Plus cards manufacturing and printing business in South Africa (“Cards Plus business”).
Discontinued Operations On May 4, 2022, the Board of Directors of authID (the “Board” or the “Board of Directors”) approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank payments services in Colombia and the Cards Plus cards manufacturing and printing business in South Africa (“Cards Plus business”).
Data protection legislation in various countries in which the Company does business (including Colombia) may require it to register its databases with governmental authorities in those countries and to comply with additional disclosure and consent requirements with regard to the collection, storage and use of personal information of individuals resident in those countries.
Data protection legislation in various countries in which the Company does business may require it to register its databases with governmental authorities in those countries and to comply with additional disclosure and consent requirements with regard to the collection, storage and use of personal information of individuals resident in those countries.
As of December 31, 2022 and 2021, Cards Plus Pty Ltd., MultiPay S.A.S., and IDGS S.A.S assets are presented as assets held for sale on the Company’s Consolidated Balance Sheets and their operations presented as discontinued operations in the Consolidated Statements of Operations as they met the criteria for discontinued operations under applicable accounting guidance. 1 The Company was incorporated in the State of Delaware on September 21, 2011, and changed our name from Ipsidy Inc. to authID Inc. on July 18, 2022.
As of December 31, 2022, MultiPay S.A.S., and IDGS S.A.S assets are presented as assets held for sale on the Company’s Consolidated Balance Sheets and their operations together with those of Cards Plus Pty Ltd., presented as discontinued operations in the Consolidated Statements of Operations during the years ended December 31, 2023 and 2022, as they met the criteria for discontinued operations under applicable accounting guidance. 2 Corporate Information The Company was incorporated in the State of Delaware on September 21, 2011, and changed our name from Ipsidy Inc. to authID Inc. on July 18, 2022.
Identity Verification Impact Across Sectors Financial services, ecommerce, the sharing economy, and healthcare businesses are confronted by the challenges of identifying their customers, patients and benefits recipients with ease and certainty in the digital world. Organizations across all sectors need to control access to their data and technology systems by their employees.
Financial services, ecommerce, the sharing economy, and healthcare businesses, among other industry verticals, are confronted by the challenges of identifying their customers, patients and beneficiaries with ease and certainty in the digital world. Organizations across all sectors need to control access to their data and applications by their employees.
Expansion of the Company’s activities in payment processing may in due course require government licensing in different jurisdictions and may subject it to additional regulation and oversight.
Expansion of the Company’s activities in areas such as financial services may require government licensing in different jurisdictions and may subject it to additional regulation and oversight.
Specifically, several states have adopted or are considering adopting a Biometric Information Privacy Act, or BIPA modelled on the Illinois statute, which governs the collection, processing, storage and distribution of biometric information such as facial biometric templates and fingerprints.
Several US states have adopted or are considering adopting a Biometric Information Privacy Act, or BIPA modelled on the Illinois statute, which governs the collection, processing, storage and distribution of biometric information such as facial biometric templates and fingerprints. Several of these new statutes give individuals rights of action to sue violators, which have resulted in several class action lawsuits.
As of December 31, 2022, the Company had a total of approximately 25 employees who are located in the United States and Colombia as well as outsourced service providers. There are 21 employees in the United States who provide overall Company strategic, business and technological leadership.
These regulations could have a significant impact on our business. Human Capital As of December 31, 2023, the Company had a total of approximately 22 employees who are located in the United States and Colombia as well as outsourced service providers. There are 17 employees in the United States who provide overall Company strategic, business and technological leadership.
On August 29, 2022 the Company executed and completed the sale of the Cards Plus business.
On August 29, 2022 the Company executed and completed the sale of the Cards Plus business. On June 30, 2023, the Company completed the sale of its legacy payments software by MultiPay.
Select Acquisitions As we have done in the past, we intend to selectively pursue acquisitions that will help us achieve our strategic goals, enhance our technology capabilities and accelerate growth.
As we have done in the past, we intend to selectively pursue acquisitions that will help us achieve our strategic goals, enhance our technology capabilities and accelerate growth. We believe pursuing these types of acquisitions will increase our ability to work with existing customers, add new customers, enter new markets, develop new services and enhance our processing platform capabilities.
Using government issued identity documents, our Verified platform can automatically evaluate the authenticity of security features present on the document, and biometrically match the reference picture of the document with a live user’s selfie (a photograph that one has taken of oneself).
Our Verified TM platform detects presentation attack and spoofing threats, evaluates the authenticity of security fe atures present on a government-issued identity document, and biometrically matches the reference picture of the document with a live user’s selfie (a photograph that the user has taken of themselves).
Employees in the U.S. receive health benefits on a cost-sharing basis and employees in Colombia are provided the respective Government required benefits.
Employees in the U.S. receive health benefits on a cost-sharing basis and employees in Colombia are provided the respective Government required benefits. Subsidiaries Currently, the Company has four U.S. subsidiaries: Innovation in Motion Inc., Fin Holdings, Inc., ID Solutions Inc. and authID Gaming Inc. The Company has one subsidiary in Colombia: MultiPay S.A.S.
The information contained on, or that can be accessed through, our websites is not incorporated by reference into this prospectus and is intended for informational purposes only.
The information contained on, or that can be accessed through, our website is not incorporated by reference into this Form 10-K and you should not consider information on our website to be part of this Form 10-K.
Users can authenticate their identity through a mobile phone or portable device of their choosing (as opposed to dedicated hardware).
The authID Verified product allows users to confirm their identity with their facial biometric by simply taking a selfie on a mobile phone or device of their choosing (as opposed to dedicated hardware).
In a world of increasing fraud and security threats, Verified offers our customers confidence in the identities of customers, employees or third-party vendors. ● HUMAN FACTOR AUTHENTICATION™ OR HFA delivers trusted FIDO2 strong authentication for device-based passwordless login and transaction authentication that is tied to a trusted identity.
In a digital, online world of increasing fraud and security threats, Proof speeds up onboarding and offers our customers confidence in the identities of consumers, employees or third-party vendors.
Identity verification ensures that the person presenting the identity document is its legitimate owner and is physically present, thereby establishing trust that the enterprise is interacting with the true account owner. This product can eliminate the need for costly face-to-face, in-person ID checks and instead can provide a verified identity in seconds.
Usually occurring at account opening or onboarding, identity verification ensures that the enterprise knows that the person interacting with the enterprise is who they say they are, in real time. authID’s Proof TM identity verification product eliminates the need for costly and less accurate face-to-face, in-person ID checks and instead provides a verified identity in seconds.
Our Common Stock is traded on the Nasdaq Capital Market under the trading symbol “AUID”. Our corporate headquarters is located at 1385 S. Colorado Blvd, Denver, CO 80222 and our main phone number is (516) 274-8700. We maintain a website at www.authid.ai.
Our corporate headquarters is located at 1580 North Logan Street, Suite 660, Unit 51767, Denver, CO 80203 and our main phone number is (516) 274-8700. Our website address is www.authid.ai.
HFA establishes a digital chain of trust between biometrically verified individuals, their accounts, and their devices. HFA eliminates password vulnerabilities and stops phishing attacks to protect users and systems against account takeovers, sim swap attacks, and man-in-the-middle attacks.
This solution establishes a digital chain of trust between biometrically verified individuals, their accounts, and their devices, thus eliminating passwords and protecting users and systems against fraud attacks. Key Customer Benefits Our solution a llows our enterprise customers to: ● Verify and Authenticate users.
The solution includes a detailed audit trail created for each transaction, containing the digitally signed transaction details with proof of identity authentication and consent. 6 ● IDENTITY - PORTAL enables enterprises to get started with our identity products without any integration.
The solution includes a patented audit trail created for each transaction, containing the digitally signed transaction details, with proof of identity authentication and consent. 1 Account Access and Recovery authID’s Verified biometric identity authentication solution allows users to recover, via a facial biometric, account access that is lost or blocked due to expired credentials, lockouts, lost or stolen devices, or compromised accounts.
Item 1. Business Overview authID Inc. (together with its subsidiaries, the “Company”, “authID”, “we” or “our”) is a leading provider of secure, authentication solutions delivered by our easy to integrate Verified TM platform.
Item 1. Business Overview authID Inc. (together with its subsidiaries, the “Company”, “authID”, “we” or “our”) ensures cyber-savvy enterprises “Know Who’s Behind the Device” TM for every customer or employee login and transaction.
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Our Verified platform delivers Human Factor Authentication TM (“HFA”) that binds strong passwordless authentication with biometric identity, which offers our customers a streamlined path to zero trust architecture. Verified FIDO2 passwordless authentication is certified by the FIDO Alliance to be compliant and interoperable with FIDO specifications.
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Through its easy-to-integrate, patented, biometric identity platform, authID quickly and accurately verifies a user’s identity, eliminating any assumption of ‘who’ is behind a device and preventing cybercriminals from taking over accounts. authID combines digital onboarding, biometric passwordless authentication and account recovery, with a fast, accurate, user-friendly experience – delivering identity verification in 700ms.
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The explosive growth in online and mobile commerce, telemedicine, remote working and digital activities of all descriptions is self-evident to everyone who lived through the Covid 19 pandemic since 2020. Yet this has been coupled with a rampant rise in identity theft, phishing attacks, spear-phishing, password vulnerabilities, account takeovers and benefits fraud.
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Establishing a biometric root of trust for each user that is bound to their accounts, or provisioned devices, authID stops fraud at onboarding, eliminates password risks and costs, and provides the faster, frictionless, and more accurate user identity experience demanded by operators of today’s digital ecosystems.
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Cyberattacks that are the result of compromised credentials are significant impediments to the operations and growth of any business or organization, and dealing with the risks and consequences of these criminal activities has created significant friction in time, cost and lost opportunity. Consider all the outdated methods that organizations have implemented in order to prevent fraud.
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Biometric Identity Authentication Biometric identity authentication provides any organization with a secure, convenient solution to validate that an individual is the verified account owner for various purposes including passwordless login and performing specific transactions, or functions.
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The requests to receive and enter one-time passwords, that can be easily hijacked. The vulnerable security questions you get asked – whether on-line or when reaching out to a call center – what was your first pet’s name? who was your best friend in high school?
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Because the account owner’s root of trust is established in the cloud, recovery is independent of any device or hardware. In this way, account recovery is instant, portable, and does not require the presence of or access to a previously provisioned device in order to secure access from a different device.
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These steps all add up to friction, making it difficult for consumers to login, transact and execute daily tasks, with little added protection from fraud. Surely there is a better way to address these challenges. authID believes there is. authID provides secure, biometric, identity verification, and strong passwordless and biometric authentication for both consumer and workforce applications.
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FIDO Passkey Binding FIDO Passkey Binding enables enterprises and their users to bind biometrically verified user identities to FIDO2 passkeys, enabling strong authentication for device-based passwordless login and transaction authentication that is tied to a trusted identity.
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We maintain our globally accessible, cloud-based Verified platform for our enterprise customers to enable their users to easily verify and authenticate their identity through a mobile device or desktop, without requiring dedicated hardware, or authentication apps.
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Customers can use the authID platform not only to verify the identity of new users, but also to authenticate those users seamlessly on an ongoing basis to enable quick, secure logins and transaction authentications. ● Benefit from high-speed processing .
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We can help our customers establish a proven identity, creating a root of trust that ensures the highest level of assurance for our phishing resistant, passwordless login and step-up authentication products.
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Our solution returns a very low-latency response, key to enabling high-volume use cases (such as logins and high-value transactions) and providing a frictionless user experience. ● Precisely and accurately identify their consumers and employees, giving the enterprise complete confidence in who is accessing their digital assets . ● Provide a seamless user experience in terms of speed and self-guided flow, so that even users who are not tech-savvy are easily able to complete the identity verification and authentication processes. ● Support a wide variety of devices .
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Our patented technology enables participants to consent to transactions using their biometric information with a digitally signed authentication response, embedding the underlying transaction data and each user’s identity attributes within every electronic transaction message processed through our platform. Digital transformation across all market segments requires trusted identity.
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Our cloud-based service is device agnostic and may be used to verify or authenticate users on any device with a camera, including shared devices, digital kiosks, etc. ● Integrate quickly and easily . We offer pre-integrated OIDC connections as well as integrations with several leading Identity and Access Management solutions. ● Offer broad identity document coverage.
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Our Verified platform offers innovative solutions that are flexible, fast and easy to integrate and offer seamless user experiences. authID’s products help advance digital transformation efforts without the fear of identity fraud, while delivering frictionless user experiences.
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We can verify identities using a wide spectrum of government-issued documents from around the world.
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We believe that it is also essential that electronic transactions have an audit trail, proving that the identity of the individual was duly authenticated.
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Global Market Opportunity The momentum towards a digital economy in recent years, accompanied by a massive growth in cyberattacks, fraud, and account takeovers are driving the demand for more streamlined and more secure identity verification and authentication. The World Economic Forum estimates digitally enabled platform business models will drive 70% of new economic value created over the next ten years.
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Our platform provides biometric and multi-factor identity software, which are intended to establish, authenticate and verify identity across a wide range of use cases and electronic transactions. authID’s products focus on the broad requirement for enabling frictionless commerce by allowing an entity to instantly “Recognise Your Customer” or employees.
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Yet vast amounts of data have been compromised, and ransomware attacks have cost businesses hundreds of millions in remediation costs, lost revenue and brand equity. MGM Resorts estimated that the cyber-attack reported in September 2023, cost them over $100 million alone.
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Organizations of all descriptions require cost-effective and secure means of growing their business while mitigating identity fraud. We aim to offer our enterprise customers products that can be integrated easily into each of their business and organizational operations, in order to facilitate their adoption and enhance the end user customer or employee experience.
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Passwords and device authentication alone no longer provide the security needed to fight today’s rampant cyber-attacks and account takeover schemes. According to Statista, approximately 480,000 incidents of cyberattacks were reported in the United States in 2022, nearly a 100% increase since 2016.
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Our management believes that some of the advantages of our Verified Platform approach are the ability to leverage the platform to support a variety of vertical markets and the adaptability of the platform to the requirements of new markets and new products. Verified is a cost-effective, secure, and configurable mobile solution.
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In the 2023 Verizon Data Breach Investigation Report, 83% of 4,000 data breaches studied involved external actors, while 74% of all breaches were attributed to some form of social engineering, stolen credentials, or human error. Verizon also found that Business Email Compromise (BEC) attacks now represent more than 50% of social engineering incidents, having almost doubled in recent years.
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Our target markets include banking, fintech, healthcare and other disrupters of traditional commerce, small and medium sized businesses, and system integrators working with government and Fortune 1000 enterprises. At its core, the Company’s offering, combining its proprietary and acquired biometric and artificial intelligence technologies (or AI), is intended to facilitate frictionless commerce, whether in the physical or digital world.
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Further it is predicted that Artificial Intelligence (AI) will almost certainly increase the volume and heighten the impact of cyberattacks over the next two years (NCSC Assessment, Jan 1, 2024).
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The Company intends to continue its investment in developing, patenting and acquiring the various elements necessary to enhance the platform, including our use of artificial intelligence in proprietary software, which are intended to allow us to achieve our goals. authID is dedicated to developing advanced methods of protecting consumer privacy and deploying ethical and socially responsible AI.
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Governments around the world are enacting new data privacy regulations and pushing for stronger authentication methods in commerce, which impose a “call to action” for many of these entities.
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We believe that a proactive commitment to ethical AI presents a strong business opportunity for authID and will enable us to bring more accurate products to market more quickly and with less risk to better serve our global user base.
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These factors have created a hyper-growth market for the identity verification and authentication industry as well as increased buyer demand for integrated identity platforms that can provide a range of identity solutions to address the full authentication lifecycle of the user journey.
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Our methods to achieve ethical AI include engaging the users of our products with informed consent, prioritizing the security of our user’s personal information, considering and avoiding potential bias in our algorithms, and monitoring of algorithm performance in our applications.
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The demand for Integrated Identity Platforms is estimated to reach a market size of $48 billion in 2023, increasing at a 24.6% CAGR to reach almost $116 billion by 2027 (Forbes Tech Council, June 6, 2023).
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Global Market Opportunity The drive towards digital transformation since 2020 and the COVID-19 pandemic as well as the rampant growth in fraud that exploits human vulnerability have contributed significantly to several market trends driving growth and demand for stronger, more secure identity verification and authentication solutions and services such as those authID provides.
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Growth Strategy We orient our bus iness strategy and invest for future growth by focusing on the following key priorities: ● Drive new customer growth .
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The accelerated pace of digital transformation at the enterprise level has been driven largely by the increased demands for online goods and sharing-economy services by consumers. The shift to working from home, and the remote IT challenges this lifestyle change presents is also driving opportunities for strong workforce identity and application access authentication.
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We intend to continue to build our customer base with a focus on key markets and verticals with the strongest need for high-assurance identity verification and authentication, including highly regulated sectors and organizations with high-risk transactions. This entails targeting less complex, less resource-intensive opportunities, as well as larger, higher revenue-generating brands.
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Today, even as more companies started return to work in the office, data show that millions of workers will continue to work remotely and hybrid, a long-term shift that will require enhanced security across many industry sectors. Unfortunately, the increase in remote work and digital, non-face-to-face commerce has also resulted in increased fraud, phishing scams and cyber security risks.
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We concentrate on enhancing, or complementing legacy platforms as a top-of-funnel, high-assurance provider where appropriate. ● Accelerate onboarding and usage within our customer base.
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These trends, as well as increased regulation mandates by governments, whether Federal, State, local or international, are key drivers of the need for improved processes to verify and authenticate identities. Digital Transformation Digital transformation, or the integration of digital technology into all areas of a business, is fundamentally changing how organizations operate and deliver value to customers.
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As we continue to acquire meaningful contracts, we intend to invest in bringing customers live on our platform quickly, ensuring that they realize the benefits of our platform and ramp up their usage, while speeding up time to revenue. ● Strategically develop our partner network.
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The global disruption of the last two years dramatically increased the need for organizations to be more agile to meet changing markets, evolving technology and consumer demands. According to IBM research, more than 60% of surveyed executives are using this period of change to rapidly advance their enterprise’s transformation (IBM Institute for Business Value “Digital Transformation Report” 2021).
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There are major cybersecurity and identity organizations with which we can partner to expand our customer reach quickly and efficiently. We are identifying and pursuing strategic reseller and similar partner opportunities to complement our direct sales team. ● Innovate and advance our platform.
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A McKinsey Global Survey of executives found that companies have accelerated the digitization of their customer and supply-chain interactions and of their internal operations by three to four years (McKinsey, October 2020). According to Statista, spending on digital transformation will grow from $1.8 trillion in 2022 to $3.4 trillion by 2026.
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We intend to continue to invest in research and development and hiring top technical talent to meet the identity proofing and authentication needs of our existing and prospective customers, as well as support new use cases, diversify our product offerings, and continually improve our key differentiators of speed, accuracy, and user experience. ● Select Acquisitions.
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Statista also forecasts that as much as 65% of the world’s gross domestic product will be digitalized by 2022 (Statista “Spending on digital transformation technologies and services worldwide from 2017 to 2026” Nov, 2022). Digital and mobile technologies have significantly changed people’s lives in a remarkably short time, including how we work, shop, socialize and bank.
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However, we have no commitments with respect to any such acquisitions at this time. 3 Sales and Marketing authID provides its Verifi ed platform based on a subscription and usage-based model, with fees per transaction, enrolled or active users.
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Escalating increases in mobile application downloads for digital goods and services by even the most reluctant consumers, dramatically altered service delivery across broad market segments, creating lasting effects that we believe are likely to stay.
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We sell our platform primarily through our direct sales team, which consists of inside sales and field sales professionals based in the United States.
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Enterprises that were able to, scrambled to reduce reliance on physical outlets and to drive customers to remote digital channels offering seamless and secure user experiences. Electronic services—from mobile banking to online grocery shopping to tele-medicine—have increased multifold since 2020.
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To power our efforts, we have built a team of subject matter experts in the identity space, and applied a regimented sales execution strategy, allowing us to win against competitors with comparable products but a sub-optimal approach to the market. In the last six months of 2023, our new leadership team significantly expanded our sales force and technical sales support.
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The Increase in Identity Fraud and Social Engineering Attacks The increased demand for online services, remote working and digital convenience, has created another challenge for organizations– the need to improve cybersecurity measures. We believe that criminals have never been more active in using stolen data or credential-stuffing attacks in attempts to infiltrate corporate networks.
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We also use a premier lead generation service and digital marketing in order to carefully target potential customers and provide qualified leads for our sales representatives to develop. We also work with channel partners, such as banking infrastructure or cybersecurity providers who provide our services to their customers through reseller arrangements and allow us to broaden our customer reach.
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Today, legacy methods of authenticating identity online including passwords and one-time pin codes, or knowledge-based questions no longer create a safe digital world. Nearly every day, we read about significant data breaches at large organizations including Twilio, Cisco, Intuit, and recently PayPal. All of them have one thing in common.
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Competition The market for our ser vice offerings is highly competitive and rapidly evolving.
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The hackers all used social engineering attacks that exploited human behavior and, in particular, vulnerable, legacy MFA technology. As quickly as Chief Technology and Information Officers, and Identity Access Management Architects supplement passwords with phishable, one-time passwords or clunky push MFA apps, hackers are finding new ways to exploit security’s ‘human’ element.
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We face competition from a broad range of providers with solutions across the identity management lifecycle, including: ● Vendors providing identity verification or proofing through both biometric and non-biometric solutions (such as data-based verification using identity proxies, such as DMV records and addresses), both on-premise and cloud-based. ● Vendors of passwordless identity authentication using device-based and cloud-based biometrics. ● Larger companies providing identity and access management platforms, adding identity authentication services to their offering at low/no cost. ● New entrants seeking to develop and market competing technologies.
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In the 2022 Verizon Data Breach Investigation Report, the human element was identified as the root cause of 82% of 4,000 data breaches studied.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome specific factors, in addition to the other risk factors identified above, that may have a significant effect on the price of our stock, many of which we cannot control, include but are not limited to: ● our announcements or our competitors’ announcements of technological innovations; ● quarterly variations in operating results; ● changes in our product pricing policies or those of our competitors; ● claims of infringement of intellectual property rights or other litigation; ● the public’s reaction to our press releases, our other public announcements and our filings with the SEC; ● changes in accounting standards, policies, guidance, interpretations or principles; 26 ● changes in our growth rate or our competitors’ growth rates; ● developments regarding our patents or proprietary rights or those of our competitors; ● our inability to raise additional capital as needed; ● changes in financial markets or general economic conditions; ● sales of stock by us or members of our management team or Board; and ● changes in stock market analyst recommendations or earnings estimates regarding our stock, other comparable companies or our industry generally We do not anticipate paying any cash dividends in the foreseeable future.
Biggest changeYou may not be able to resell your shares at or above the price you paid for them due to fluctuations in the market price of our stock caused by changes in our operating performance or prospects and other factors. 20 Some specific factors, in addition to the other risk factors identified above, that may have a significant effect on the price of our stock , many of which we cannot control, include but are not limited to: ● our announcements or our competitors’ announcements of technological innovations; ● actual or anticipated quarterly variations in operating results; ● variance in our financial performance from our own financial guidance, or from expectations of securities analysts; ● changes in our product pricing policies or those of our competitors; ● our involvement in claims of infringement of intellectual property rights or other litigation; ● the public’s reaction to our press releases, our other public announcements and our filings with the SEC; ● changes in accounting standards, policies, guidance, interpretations or principles; ● changes in our growth rate or our competitors’ growth rates; ● developments regarding our patents or proprietary rights or those of our competitors; ● our inability to raise additional capital as needed; ● changes in financial markets or general economic conditions, or in market valuations of other technology companies; ● short sales, hedging and other derivative transactions and short selling campaigns involving our capital stock; ● sales of stock by the Company, or members of our management team or Board or significant stockholders; and ● changes in stock market analyst recommendations or earnings estimates regarding our stock, other comparable companies or our industry generally.
As indicated, “We are exposed to risks in operating in foreign markets” above, the imposition of sanctions on particular countries, entities or individuals would prevent us from doing business with such countries, entities or individuals.
As indicated in, “We are exposed to risks in operating in foreign markets” above, the imposition of sanctions on particular countries, entities or individuals would prevent us from doing business with such countries, entities or individuals.
Our failure to meet the continued listing requirements of the Nasdaq Capital Market could result in a de-listing of our Common Stock. ● Sales of a substantial number of shares of our Common Stock in the public market by our existing stockholders could cause our share price to fall. ● We may be subject to securities litigation, which is expensive and could divert management attention. ● If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our Common Stock, our stock price and trading volume could decline. ● The market price of our common stock has been volatile and your investment in our stock could suffer a decline in value. ● We do not anticipate paying any cash dividends in the foreseeable future.
Our failure to meet the continued listing requirements of the Nasdaq Capital Market could result in a de-listing of our Common Stock. ● Sales of a substantial number of shares of our Common Stock in the public market by our existing stockholders could cause our share price to fall. 7 ● We may be subject to securities litigation, which is expensive and could divert management attention. ● If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our Common Stock, our stock price and trading volume could decline. ● The market price of our common stock has been volatile and your investment in our stock could suffer a decline in value. ● We do not anticipate paying any cash dividends in the foreseeable future.
If we make poor budgetary decisions as a result of unreliable historical data, we could be less profitable or incur losses, which may result in a decline in our stock price. There can be no assurance that we will successfully commercialize our products that are currently in development or that our existing products will sustain market acceptance.
If we make poor budgetary decisions as a result of unreliable historical data, we could be less profitable or incur additional losses, which may result in a decline in our stock price. There can be no assurance that we will successfully commercialize our products that are currently in development or that our existing products will sustain market acceptance.
Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Item 1B. Unresolved Staff Comments None.
Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Item 1B. Unresolved Staff Comments None. 21
All or any of these risks separately, or in combination could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Interruptions, delays in service or defects in our systems could impair the delivery of our services and harm our business.
All or any of these risks separately, or in combination could have a material adverse effect on our business, financial condition, results of operations, and cash flows. 14 Interruptions, delays in service or defects in our systems could impair the delivery of our services and harm our business.
Each of these competitors has the potential to capture market share in our target markets which could have an adverse effect on our position in our industry and on our business and operating results. 22 Government regulation could negatively impact the business.
Each of these competitors has the potential to capture market share in our target markets, which could have an adverse effect on our position in our industry and on our business and operating results. Government regulation could negatively impact the business.
There can be no assurance we will achieve positive cash flows in the foreseeable future. 14 We need access to additional financing, which may not be available to us on acceptable terms, or at all.
There can be no assurance we will achieve positive cash flows in the foreseeable future. We need access to additional financing, which may not be available to us on acceptable terms, or at all.
For so long as the hostilities continue and perhaps even thereafter as the situation in Europe unfolds, we may see increased volatility in financial markets and a flight to safety by investors, which may impact our stock price and make it more difficult for the Company to raise additional capital at the time when it needs to do so, or for financing to be available upon acceptable terms.
For so long as the hostilities continue and perhaps even thereafter as the situation in Europe and the Middle East unfolds, we may see increased volatility in financial markets and a flight to safety by investors, which may impact our stock price and make it more difficult for the Company to raise additional capital at the time when it needs to do so, or for financing to be available upon acceptable terms.
We anticipate that we will continue to have negative cash flows from operating activities through March 31, 2024 as we expect to incur increased research and development, sales and marketing, and general and administrative expenses. Our business will require significant amounts of working capital to support our growth, particularly as we seek to introduce our new offered products.
We anticipate that we will continue to have negative cash flows from operating activities through March 31, 2025 as we expect to incur increased research and development, sales and marketing, and general and administrative expenses. Our business will require significant amounts of working capital to support our growth, particularly as we seek to introduce our new offered products.
Our means of protecting our intellectual property rights in the United States or any other country in which we operate may not be adequate to fully protect our intellectual property rights. 20 Third parties may assert that we are infringing their intellectual property rights; IP litigation could require us to incur substantial costs even when our efforts are successful.
Our means of protecting our intellectual property rights in the United States or any other country in which we operate may not be adequate to fully protect our intellectual property rights. 15 Third parties may assert that we are infringing their intellectual property rights; IP litigation could require us to incur substantial costs even when our efforts are successful.
We expect that we will continue to incur net losses in 2023. We may incur losses in the future for a number of reasons, including the other risks described in this report, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not be able to achieve or maintain profitability.
We expect that we will continue to incur net losses in 2024. We may incur losses in the future for a number of reasons, including the other risks described in this report, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not be able to achieve or maintain profitability.
There is no guarantee that we will be able to successfully implement our new products utilizing the acquired technology, products, and customer base. There is no assurance that our existing products or solutions will achieve market acceptance or that our new products or solutions will achieve market acceptance.
There is no guarantee that we will be able to successfully implement our new products utilizing the acquired and internally developed technology, products, and customer base. There is no assurance that our existing products or solutions will achieve market acceptance or that our new products or solutions will achieve market acceptance.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act. We are also subject to the corporate governance and other listing rules of the Nasdaq Stock Market.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act. We are also subject to the corporate governance and other listing rules of the Nasdaq Stock Market LLC (“Nasdaq”).
Our management is developing plans and executing certain programs to alleviate the negative trends and conditions described above, however there is no guarantee that such plans will be successfully implemented. Our ability to curtail our operating losses or generate a profit may be further impacted by the fact that our business plan is largely unproven.
Our management is developing plans and executing certain programs to alleviate the negative trends and conditions described above, however there is no guarantee that suc h plans will be successfully implemented. Our ability to curtail our operating losses or generate a profit may be further impacted by the fact that our business plan is largely unproven.
Competitive bidding presents a number of risks, including: ● the frequent need to compete against companies or teams of companies with more financial and marketing resources and more experience than we have in bidding on and performing major contracts; ● the substantial cost and managerial time and effort necessary to prepare bids and proposals for contracts that may not be awarded to us; ● the need to accurately estimate the resources and cost structure that will be required to service any fixed-price contract that we are awarded; and ● the expense and delay that may arise if our competitors protest or challenge new contract awards made to us pursuant to competitive bidding or subsequent contract modifications, and the risk that any of these protests or challenges could result in the resubmission of bids on modified specifications, or in termination, reduction or modification of the awarded contract.
Competi tive bidding, whether for contracts with governments or with private enterprises, presents a number of risks, including: ● the frequent need to compete against companies or teams of companies with more financial and marketing resources and more experience than we have in bidding on and performing major contracts; ● the substantial cost and managerial time and effort necessary to prepare bids and proposals for contracts that may not be awarded to us; ● the need to accurately estimate the resources and cost structure that will be required to service any fixed-price contract that we are awarded; and ● the expense and delay that may arise if our competitors protest or challenge new contract awards made to us pursuant to competitive bidding or subsequent contract modifications, and the risk that any of these protests or challenges could result in the resubmission of bids on modified specifications, or in termination, reduction or modification of the awarded contract.
There is no assurance that we will ever successfully commercialize our platform and related solutions that are under development or that we will experience market reception for our products in development or increased market reception for our existing products.
There is no assurance that we will ever successfully commercialize our platform and related solutions or that we will experience market reception for our products in development or increased market reception for our existing products.
The following factors could result in harm to our business, reputation, revenue, financial results, and prospects, among other impacts: ● We have a history of losses and we may not be able to achieve profitability going forward. ● We have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. ● Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance. ● There can be no assurance that we will successfully commercialize our products that are currently in development or that our existing products will sustain market acceptance. ● We depend upon key personnel and need additional personnel. ● The market for our products is characterized by changing technology, requirements, standards and products, and we may be adversely affected if we do not respond promptly and effectively to these changes. ● If our technology and solutions are not adopted and used by customer organizations, we will not be able to grow our business and our operations will be negatively affected. ● We have sought in the past and may seek in the future to enter into contracts with governments, as well as state and local governmental agencies and municipalities, which subjects us to certain risks associated with such types of contracts. ● We rely in part on third-party software to develop and provide our solutions. ● We have historically depended upon a small number of large system sales ranging from $50,000 to $1,500,000 and we may fail to achieve one or more large system sales in the future, or fail to successfully transition to new products generating recurring revenues. ● Our efforts to expand our international operations are subject to a number of risks, any of which could adversely reduce our future international sales and increase our losses . ● We are exposed to risks in operating in foreign markets, which may make operating in those markets difficult and thereby force us to curtail our business operations. ● Breaches of network or information technology security, presentation attacks, natural disasters or terrorist attacks could have an adverse effect on our business. ● The War in Ukraine may impact the business of the Company, the markets in which it operates and the financial markets, in which the Company needs to raise capital. ● Interruptions, delays in service or defects in our systems could impair the delivery of our services and harm our business. ● Third parties could obtain access to our proprietary information or could independently develop similar technologies. ● Third parties may assert that we are infringing their intellectual property rights; IP litigation could require us to incur substantial costs even when our efforts are successful. ● Our officers, directors and holders of 5% of outstanding shares together beneficially own a significant portion of our Common Stock and, as a result, can exercise control over stockholder and corporate actions. 13 ● We face competition.
The following factors could result in harm to our business, reputation, revenue, financial results, and prospects, among other impacts: ● We have a history of losses and we may not be able to achieve profitability going forward. ● We have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. ● Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance. ● There can be no assurance that we will successfully commercialize our products that are currently in development or that our existing products will sustain market acceptance. ● We depend upon key personnel and need additional personnel. ● Acquisitions present many risks that could have a material adverse effect on our business and results of operations. ● The market for our products is characterized by changing technology, requirements, standards and products, and we may be adversely affected if we do not respond promptly and effectively to these changes. ● If our technology and solutions are not adopted and used by customer organizations, we will not be able to grow our business and our operations will be negatively affected. ● We have in the past entered into and may seek in the future to enter into contracts with governments, as well as state and local governmental agencies and municipalities, which subjects us to certain risks associated with such types of contracts. ● We may have to seek business through a competitive bidding process. ● We rely in part on third-party software to develop and provide our solutions. ● We have historically depended upon a small number of large system sales ranging up to $1,500,000 and we may fail to achieve one or more large sales in the future, or fail to successfully transition to new products generating recurring revenues. ● Our efforts to expand our international operations are subject to a number of risks, any of which could adversely reduce our future international sales and increase our losses . ● We are exposed to risks in operating in foreign markets, which may make operating in those markets difficult and thereby force us to curtail our business operations. 6 ● Cyber-attacks, breaches of network or information technology security, presentation attacks, natural disasters, pandemics, or terrorist attacks could have an adverse effect on our business. ● The War in Ukraine and the Middle East may impact the business of the Company, the markets in which it operates and the financial markets, in which the Company needs to raise capital. ● Interruptions, delays in service or defects in our systems could impair the delivery of our services and harm our business. ● Third parties could obtain access to our proprietary information or could independently develop similar technologies. ● Third parties may assert that we are infringing their intellectual property rights; IP litigation could require us to incur substantial costs even when our efforts are successful. ● Our officers, directors and holders of 5% of outstanding shares together beneficially own a significant portion of our Common Stock and, as a result, can exercise control over stockholder and corporate actions. ● We face competition.
We have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. We have had negative cash flow from operating activities of approximately $12.8 million and approximately $8.8 million for the years ended December 31, 2022 and 2021, respectively.
We have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. We have had negative cash flow from operating activities of approximately $8.4 million and approximately $12.8 million for the years ended December 31, 2023 and 2022, respectively.
Our international operations could be subject to a number of risks, any of which could adversely affect our future international sales and operating results, including: ● trade restrictions; ● export duties and tariffs; ● export regulations or restrictions including sanctions; ● uncertain political, regulatory and economic developments; ● labor and social unrest; ● inability to protect our intellectual property rights; ● highly aggressive competitors; ● currency issues, including currency exchange risk; ● difficulties in staffing, managing and supporting foreign operations; ● longer payment cycles; ● increased collection risks; and ● impact of the Coronavirus or other pandemics; Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulty in collecting receivables, and a higher cost of doing business, any of which could adversely affect our business, results of operations or financial condition.
Our international operations could be subject to a number of risks, any of which could adversely affect our future international sales and operating results, including: ● trade restrictions; ● export duties and tariffs; ● export regulations or restrictions including sanctions; ● local Data Privacy and other regulations ● uncertain political, regulatory and economic developments; ● labor and social unrest; ● inability to protect our intellectual property rights; 12 ● highly aggressive competitors; ● currency issues, including currency exchange risk; ● difficulties in staffing, managing and supporting foreign operations; ● longer payment cycles; ● increased collection risks; and ● impact of the Coronavirus or other pandemics; ● impact of wars and terrorism Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulty in collecting receivables, and a higher cost of doing business, any of which could adversely affect ou r business, results of operations or financial condition.
We may experience difficulty in meeting these reporting requirements in a timely manner. 23 If we are unable to maintain key controls currently in place or that we implement in the future and pending such implementation, or if any difficulties are encountered in their implementation or improvement, (1) our management might not be able to certify, and our independent registered public accounting firm might not be able to report on, the adequacy of our internal control over financial reporting, which would cause us to fail to meet our reporting obligations, (2) misstatements in our financial statements may occur that may not be prevented or detected on a timely basis and (3) we may be deemed to have significant deficiencies or material weaknesses, any of which could adversely affect our business, financial condition and results of operations.
If we are unable to maintain key controls currently in place or that we implement in the future and pending such implementation, or if any difficulties are encountered in their implementation or improvement, (1) our management might not be able to certify, and our independent registered public accounting firm might not be able to report on, the adequacy of our internal control over financial reporting, which would cause us to fail to meet our reporting obligations, (2) misstatements in our financial statements may occur that may not be prevented or detected on a timely basis and (3) we may be deemed to have significant deficiencies or material weaknesses, any of which could adversely affect our business, financial condition and results of operations.
Item 1A. Risk Factors Summary of Risk Factors The following summarizes the principal factors that make an investment in our company speculative or risky, all of which are more fully described in the Risk Factors section below.
Item 1A. Risk Factors Summary of Risk Factors The following summarizes the principal factors that make an investment in our company speculative or r isky, all of which are more fully described in the Risk Factors section below.
In the future: ● we may not be successful in developing and marketing new products or product features that respond to technological change or evolving industry standards; ● we may experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products and features; or ● our new products and product features may not adequately meet the requirements of the marketplace and achieve market acceptance.
In the future: ● we may not be successful in developing and marketing new products or product features that respond to new AI driven cyberattacks, technological change or evolving industry standards; ● we may experience difficulties that could delay or prevent the successful development, or acquisition, introduction and marketing of these new products and features; or 9 ● our new products and product features may not adequately meet the requirements of the marketplace and achieve market acceptance.
While we regularly review our security policies, protocols, controls and systems to determine their effectiveness for detection and prevention of such attacks, and to make improvements and fix any known vulnerabilities where necessary, new means and methods for such attacks are constantly being developed by bad actors and we may not become aware of such new attacks or vulnerabilities prior to being subject to such an attack.
While we regularly review our security policies, protocols, controls and systems to determine their effectiveness for detection and prevention of such attacks, and to make improvements and fix any known vulnerabilities where necessary, new means and methods for such attacks are constantly being developed by bad actors, facilitated by the easy access to generative AI and we may not become aware of such new attacks or vulnerabilities prior to being subject to such an attack.
Our future success will depend on our ability to enhance our existing products and to develop and introduce, on a timely and cost-effective basis, new products and product features that keep pace with technological developments and emerging industry standards and address the increasingly sophisticated needs of our customers.
Our future success will depend on our ability to enhance our existing products and to develop, or acquire and introduce, on a timely and cost-effective basis, new products and product features that counter these new threats, keep pace with technological developments and emerging industry standards and address the increasingly sophisticated needs of our customers.
If we fail to satisfy the continued listing requirements of the Nasdaq Capital Market, such as the corporate governance requirements or the minimum stockholder’s equity requirement, the Nasdaq Capital Market may take steps to de-list our Common Stock.
If we fail to satisfy the continued listing requirements of the Nasdaq Capital Market, such as the minimum bid price requirement, or the minimum stockholder’s equity requirement, the Nasdaq Capital Market may take steps to de-list our Common Stock.
We could be exposed to fines and penalties in the event of breach any applicable sanctions legislation or orders. In addition, we might be required to suspend or terminate existing contracts in order to comply with such sanctions legislation or orders, which would adversely impact our future revenues and cash flows. 18 Additionally, we are subject to the U.S.
We could be exposed to fines and penalties in the event of breach any applicable sanctions legislation or orders. In addition, we might be required to suspend or terminate existing contracts in order to comply with such sanctions legislation or orders, which would adversely impact our future revenues and cash flows.
Most contracts with governments or with state or local agencies or municipalities, or Governmental Contracts, are awarded through a competitive bidding process, and some of the business that we expect to seek in the future will likely be subject to a competitive bidding process.
Most contracts with governments or with state or local agencies or municipalities, or Governmental Contracts, are awarded through a competitive bidding process, and some of the business that we expect to seek in the future will likely be subject to a competitive bidding process (See “We may have to seek business through a competitive bidding process” below) .
Our officers and directors and the holders of at least 5% of the outstanding shares of the Company currently beneficially own approximately 18.6% of our outstanding Common Stock, and 32.2% on a fully diluted basis assuming the exercise of both vested and unvested options and warrants.
Our officers and directors and the holders of at least 5% of the outstanding shares of the Company currently beneficially own approximately 19.6% of our outstanding Common Stock, and 24.4% on a fully diluted basis assuming the exercise of both vested and unvested options and warrants.
If we are unable to respond promptly and effectively to changing technologies and market requirements, we will be unable to compete effectively in the future.
If we are unable to respond promptly and effectively to new cybersecurity threats and attacks, changing technologies and market requirements, we will be unable to compete effectively in the future.
Sales of a substantial number of shares of our Common Stock in the public market, or the perception that these sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities.
Sales of a substantial number of shares of our Common Stock in the public market, or the perception that these sales might occur, including sales by our executive officers, directors and significant stockholders could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities.
We are an “emerging growth company,” as defined in the JOBS Act, and we expect to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company” (1) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (2) we will be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (3) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (4) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved. 24 In addition, we are eligible to delay the adoption of new or revised accounting standards applicable to public companies until those standards apply to private companies, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.
We are an “emerging growth company,” as defined in the JOBS Act, and we expect to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company” (1) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (2) we will be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (3) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (4) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.
Foreign Corrupt Practices Act, or the FCPA, and other laws in the United States and elsewhere that prohibit improper payments or offers of payments to foreign governments and their officials and political parties for the purpose of obtaining or retaining business. We have operations in and deal with governments and officials in foreign countries.
Foreign Corrupt Practices Act, or the FCPA, and other laws in the United States and elsewhere that prohibit improper payments or offers of payments to United States’, or foreign governments and their officials and political parties for the purpose of obtaining or retaining business.
However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, contractors or customers may engage in conduct for which we might be held responsible.
We have implemented safeguards to discourage these practices by our employees, consultants and customers. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, contractors or customers may engage in conduct for which we might be held responsible.
We have a history of losses and we may not be able to achieve profitability going forward. We have an accumulated deficit of approximately $140.1 million as of December 31, 2022 and incurred an operating loss of approximately $24.2 million for the year ended December 31, 2022. We have had net losses in most of our quarters since our inception.
We have a history of losses and we may not be able to achieve profitability going forward. We have an accumulated deficit of approximately $159.5 million as of December 31, 2023 and incurred an operating loss of approximately $19.4 million for the year ended December 31, 2023. We have had net losses in most of our quarters since our inception.
We have never declared or paid cash dividends, and we do not anticipate paying cash dividends in the foreseeable future. Therefore, investors should not rely on an investment in our Common Stock as a source for any future dividend income. Our board of directors has complete discretion as to whether to distribute dividends.
We do not anticipate paying any cash dividends in the foreseeable future. We have never declared or paid cash dividends, and we do not anticipate paying cash dividends in the foreseeable future. Therefore, investors should not rely on an investment in our Common Stock as a source for any future dividend income.
The market price of our common stock has been volatile and your investment in our stock could suffer a decline in value. The market price of our common stock has experienced significant price and volume fluctuations. For example, during the three year period ended December 31, 2022, the closing price of our common stock ranged from $0.573 to $14.33.
The market price of our common stock has been volatile and your investment in our stock could suffer a decline in value. The market price of our common stock has experienced significant price and volume fluctuations. For example, during the three year period ended December 31, 2023, the closing price of our common stock ranged from $2.40 to $141.44.
Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees, contractors or customers that could be in violation of various laws, including the FCPA, even though these parties are not always subject to our control. We have implemented safeguards to discourage these practices by our employees, consultants and customers.
Our activities in the United States and elsewhere create the risk of unauthorized payments or offers of payments by one of our employees, contractors or customers that could be in violation of various laws, including the FCPA, even though these parties are not always subject to our control.
We may be subject to attempts to breach the security of our networks and IT infrastructure through cyber-attack, presentation attacks to biometric data capture systems, malware, computer viruses and other means of unauthorized access.
We may be subject to attempts to breach the security of our networks and IT infrastructure through cyber-attack, presentation attacks to biometric data capture systems, including deep fakes and other threats developed by use of AI driven technologies, malware, computer viruses and other means of unauthorized access.
Further, our quarterly results are difficult to predict because we cannot predict in which quarter, if any, large system sales will occur in a given year, nor when (if at all), or at what rate the ramp in sales of new products will occur.
Accordingly, our quarterly results are difficult to predict because we cannot predict in which quarter, if any, substantial sales (whether measured in commitment volumes, or number of contracts) will occur in a given year, nor when (if at all), or at what rate the ramp in sales of new products will occur.
Furthermore, governmental programs can experience delays or cancellation of funding and suspension of appropriations has occurred, for example the partial United States government shutdown in 2018/19, which can be unpredictable; this may make it difficult to forecast our revenues on a quarter-by-quarter basis. We rely in part on third-party software to develop and provide our solutions.
Furthermore, governmental programs can experience delays or cancellation of funding and suspension of appropriations has occurred, for example the partial United States government shutdown in 2018/19, which can be unpredictable; this may make it difficult to forecast our revenues on a quarter-by-quarter basis. We may have to seek business through a competitive bidding process.
The Company has taken steps to diversify its sub-contractor base, which may in the short term give rise to additional costs and delays in delivering software and product upgrades. 19 The uncertainty impacting and potential interruption in energy and other supply chains resulting from military hostilities in Europe and the response of the United States and other countries to it by means of trade and economic sanctions, or other actions, may give rise to increases in costs of goods and services generally and may impact the market for our products as prospective customers reconsider additional capital expenditure, or other investment plans until the situation becomes clearer.
The uncertainty impacting and potential interruption in energy and other supply chains resulting from military hostilities in Europe and the Middle East and the response of the United States and other countries to it by means of trade and economic sanctions, or other actions, may give rise to increases in costs of goods and services generally and may impact the market for our products as prospective customers reconsider additional capital expenditure, or other investment plans until the situation becomes clearer.
On the other hand the threat of increased cyber-attacks from Russia and other countries may prompt enterprises to adopt additional security measures such as those offered by the Company.
On the other hand, the threat of increased cyber-attacks from multiple threat actors, including state-sponsored organizations may prompt enterprises to adopt additional security measures such as those offered by the Company.
If we are unable to win particular contracts that are awarded through the competitive bidding process, we may not be able to operate in the market for the products and services that are provided under those contracts for a number of years.
If we are unable to win particular contracts that are awarded through the competitive bidding process, we will incur expenses associated with such competitive bidding and may not be able to operate in the market for the products and services that are provided under those contracts for a number of years. 11 We rely in part on third-party software to develop and provide our solutions.
As with any company with limited resources, there can be no guarantee that we will be able to attract such individuals or that the presence of such individuals will necessarily translate into profitability for our company.
Additionally, the success of our operations will largely depend upon our ability to successfully attract and maintain competent and qualified key management personnel. As with any company with limited resources, there can be no guarantee that we will be able to attract such individuals or that the presence of such individuals will necessarily translate into profitability for our company.
Cyber-attacks or other breaches of network or information technology (IT) security, natural disasters, terrorist acts or acts of war may cause equipment failures or disrupt our systems and operations.
Cyber-attacks, breaches of network or information technology security, presentation attacks, natural disasters, pandemics or terrorist attacks could have an adverse effect on our business. Cyber-attacks or other breaches of network or information technology (IT) security, natural disasters, pandemics such as Covid-19, terrorist acts or acts of war may cause equipment failures or disrupt our systems and operations.
Further, there can be no guarantee that we will not lose business to our existing or potential new competitors. We depend upon key personnel and need additional personnel. On March 9, 2023, our CEO Tom Thimot gave notice of his resignation to the Board of Directors and his successor Rhon Daguro was appointed March 23, 2023.
Further, there can be no guarantee that we will not lose business to our existing or potential new competitors. 8 We depend upon key personnel and need additional personnel. On March 23, 2023, Rhon Daguro was appointed as our Chief Executive Officer. Our success depends on the continued services of Mr.
We have historically depended upon a small number of large system sales ranging from $50,000 to $1,500,000 and we may fail to achieve one or more large system sales in the future, or fail to successfully transition to new products generating recurring revenues.
We have historically depended upon a small number of large system sales ranging up to $1,500,000 and we may fail to successfully transition to new products generating recurring revenues. Historically, we have derived a substantial portion of our revenues from a small number of sales of large, relatively expensive systems, typically ranging in price up to $1,500,000.
The Company also works with outsourced engineers and developers and third-party providers in other parts of the world, including the United States, Europe, India, and South America.
The Company works with third party sub-contractors for outsourced services, including software engineering and development, some of whom are based in Eastern Europe. The Company also works with outsourced engineers and developers and third-party providers in other parts of the world, including the United States, Europe, India, and Latin America.
Maintaining compliance with these rules and regulations, particularly after we cease to be an emerging growth company, will increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly and may also place increased strain on our personnel, systems and resources.
Maintaining compliance with these rules and regulations, particularly after we cease to be an emerging growth company, will increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly and may also place increased strain on our personnel, systems and resources. 17 The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and at the time we cease to be an emerging growth company and a smaller reporting company, we will be required to provide attestation that we maintain effective disclosure controls and procedures by our registered public accounting firm.
If our solutions or our products and services do not gain wide market acceptance, our business and our financial results will suffer. 16 We have sought in the past and may seek in the future to enter into contracts with governments, as well as state and local governmental agencies and municipalities, which subjects us to certain risks associated with such types of contracts.
We have in the past entered into and may seek in the future to enter into contracts with governments, as well as state and local governmental agencies and municipalities, which subjects us to certain risks associated with such types of contracts.
Our products and services may not adequately address market requirements and may not gain wide market acceptance.
Our products and services may not adequately address market requirements and may not gain wide market acceptance. If our solutions or our products and services do not gain wide market acceptance, our business and our financial results will suffer.
In the event of a de-listing, we would take actions to restore our compliance with the Nasdaq Capital Market’s listing requirements, but we can provide no assurance that any action taken by us would result in our Common Stock becoming listed again, or that any such action would stabilize the market price or improve the liquidity of our Common Stock.
In the event of a de-listing, we would take actions to restore our compliance with the Nasdaq Capital Market’s listing requirements, but we can provide no assurance that any action taken by us would result in our Common Stock becoming listed again, or that any such action would stabilize the market price or improve the liquidity of our Common Stock. 19 Specifically, o n January 25, 2023, the Company received a notice letter from the Listing Qualifications staff of the Nasdaq that it was not in compliance with the Nasdaq Listing Rule 5550(a)(2) that the Company maintain a bid price for the Company’s common stock above $1.00 per share (“Bid Price Requirement”).
Because of the uncertainties related to our lack of historical operations, we may be hindered in our ability to anticipate and timely adapt to increases or decreases in revenues or expenses.
As we look to further expand our existing products it is difficult, if not impossible, to forecast our future results based upon our historical data. Because of the uncertainties related to our lack of historical operations, we may be hindered in our ability to anticipate and timely adapt to increases or decreases in revenues or expenses.
Section 27 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the Delaware Forum Provision. 18 Section 27 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
Our success depends on the continued services of our new CEO and of certain other members of the current management team. Our executive team is incentivized by stock compensation grants that align the interests of investors with the executive team and certain executives have employment retention agreements.
Daguro and of certain other members of the current management team. Our executive team is incentivized by stock compensation grants that align the interests of investors with the executive team and certain executives have employment retention agreements. The loss of key management, engineering employees or third- party contractors could have a material and adverse effect on our business operations.
War in Ukraine may impact the business of the Company, the markets in which it operates and the financial markets, in which the Company needs to raise capital. The war in Ukraine may impact the Company and its operations in a number of different ways, which are yet to be fully assessed and are therefore uncertain.
War in Ukraine and the Middle East may impact the business of the Company, the markets in which it operates and the financial markets, in which the Company needs to raise capital.
If we cannot access additional financing when we need it and on acceptable terms, our business, prospects, financial condition, operating results and ability to continue as a going concern will be adversely affected. Our growth-oriented business plan to offer products to our customers will require continued capital investment. Our research and development activities will also require continued investment.
If we cannot access additional financing when we need it and on acceptable terms, our business, prospects, financial condition, operating results and ability to continue as a going concern will be adversely affected. As a result of these factors, there is substantial doubt about the Company’s ability to continue as a going concern.
This intense competitive environment may require us to make changes in our products, pricing, licensing, services, distribution, or marketing to develop a market position.
As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time that we can. This intense competitive environment may require us to make changes in our products, pricing, licensing, services, distribution, or marketing to develop a market position.
To date, we have not been subject to cyber-attacks or other cyber incidents that we are aware of which, individually or in the aggregate, resulted in a material impact to our operations or financial condition.
To date, we have not been subject to cyber-attacks or other cyber incidents that we are aware of which, individually or in the aggregate, resulted in a material impact to our operations or financial condition. 13 For us to further penetrate the marketplace, the marketplace must be confident that we provide effective security protection for governmental and other secured identification documents and other personally identifiable information or protected personal information, or PII.
The market for our verified products is characterized by evolving technologies, changing industry standards, changing political and regulatory environments, frequent new product introductions and rapid changes in customer requirements. The introduction of products embodying new technologies and the emergence of new industry standards and practices can render existing products obsolete and unmarketable.
The market for our products is characterized by changing technology, requirements, standards and products, and we may be adversely affected if we do not respond promptly and effectively to these changes. The market for our verified products is characterized by evolving technologies, changing industry standards, changing political and regulatory environments, frequent new product introductions and rapid changes in customer requirements.
Any failure by our management to effectively anticipate, implement, and manage personnel required to sustain our growth would have a material adverse effect on our business, financial condition, and results of operations. 15 The market for our products is characterized by changing technology, requirements, standards and products, and we may be adversely affected if we do not respond promptly and effectively to these changes.
Our inability to attract and retain key personnel may materially and adversely affect our business operations. Any failure by our management to effectively anticipate, implement, and manage personnel required to sustain our growth would have a material adverse effect on our business, financial condition, and results of operations.
Violations of the FCPA or similar laws may result in severe criminal or civil sanctions and we may be subject to other liabilities, which could adversely affect our business, financial condition and results of operations. Breaches of network or information technology security, presentation attacks, natural disasters or terrorist attacks could have an adverse effect on our business.
Violations of the FCPA or similar laws may result in severe criminal or civil sanctions and we may be subject to other liabilities, which could adversely affect our business, financial condition and results of operations. Governments may be in a position to obtain greater rights with respect to our intellectual property than we would grant to other entities.
Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance . We have been an emerging growth company since beginning operations. As an emerging growth company, we may take advantage of reduced reporting requirements that are otherwise applicable to public companies.
Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance . We have a limited operating history and have generated limited revenue.
In some future quarters, our operating results may be below the expectations of securities analysts and investors, in which case the market price of our Common Stock may decrease significantly. 17 Our efforts to expand our international operations are subject to a number of risks, any of which could adversely reduce our future international sales and increase our losses .
As a result, we believe that quarter-to-quarter comparisons of our sales are not a good indication of our future performance. In some future quarters, our sales may be below the expectations of securities analysts and investors, in which case the market price of our Common Stock may decrease significantly.
Most of our revenues historically to date are attributable to sales and business operations in jurisdictions other than the United States, although we are now focusing our efforts in generating more United States based revenues.
Our efforts to expand our international operations are subject to a number of risks, any of which could adversely reduce our future international sales and increase our losses . Most of our revenues historically to date are attributable to sales and business operations in jurisdictions other than the United States.
We are trying to reduce such dependence by developing a range of products and solutions, which are in a lower price range and intended to generate recurring revenue from a large number of customers.
We have changed the product set of the business to eliminate system sales and have developed a new range of software as a service (SaaS) based products and solutions, which are in a lower price range and intended to generate recurring revenue from a large number of customers.
The widespread adoption of such legislation could result in restrictions on our current or proposed business activities, or we may incur increased costs to comply with such regulations. In addition, a new privacy law took effect in California at the beginning of 2020, and in Maine in July 2020, and other states, such as New York are considering additional legislation.
The widespread adoption of such legislation could result in restrictions on our current or proposed business activities, or we may incur increased costs to comply with such regulations. We are required to comply with stringent, complex, and evolving laws, rules, regulations, and standards in many jurisdictions, as well as contractual obligations, relating to cybersecurity and data privacy.
The resources available to our competitors to develop new products and introduce them into the marketplace exceed the resources currently available to us. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time that we can.
The resources available to our competitors to develop new products and introduce them into the marketplace exceed the resources currently available to us.
Cancellation of any one of our major Governmental Contracts could have a material adverse effect on our financial condition. Governments may be in a position to obtain greater rights with respect to our intellectual property than we would grant to other entities.
Cancellation of any one of our major Governmental Contracts could have a material adverse effect on our financial condition. 10 Additionally, we are subject to the U.S.
Some of our competitors have greater financial or other resources, longer operating histories and greater name recognition than we do and one or more of these competitors could use their greater resources and/or name recognition to gain market share at our expense or could make it very difficult for us to establish market share. authID offers its Verified™ Identity Authentication platform allowing the Company to on-board customers who wish to deploy our services and solutions in order to eliminate passwords and know with biometric certainty the user who is engaging with their systems. authID’s solutions include the ability to verify the identity of a user, via remote identity verification, then enable device and transaction authentication using both device and cloud biometrics and, all digitally signed by the user’s identity.
Some of our competitors have greater financial or other resources, longer operating histories and greater name recognition than we do and one or more of these competitors could use their greater resources and/or name recognition to gain market share at our expense or could make it very difficult for us to establish market share.
On January 25, 2023, the Company received notice from The Nasdaq Stock Market that the closing bid price for the Company’s common stock had been below $1.00 per share for the previous 30 consecutive business days, and that the Company is therefore not in compliance with the minimum bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2).
On April 4, 2023, the Company received a notice letter from the Listing Qualifications staff of Nasdaq indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(b)(1) (“Rule 5550(b)(1)”) as the Company’s stockholders’ equity was below $2.5 million, which is the minimum stockholders’ equity required for compliance with Rule 5550(b)(1).
Removed
We raised approximately $22.5 million and $11.1 million in 2022 and 2021, respectively, through equity and debt financing at varying terms.
Added
Our growth-oriented business plan to offer products to our customers will require continued capital investment. Our research and development activities will also require continued investment. We raised approximately $15.4 million and $9.6 million net proceeds after expenses in 2023 and 2022, respectively, through equity and debt financing at varying terms.
Removed
On February 14, 2023, the Board of Directors of authID resolved to implement a revised budget for 2023 in order to reduce expenses and cash requirements and as part of such revised budget decided to re-balance staffing levels to better align with the evolving needs of the Company (the “Labor Reduction Plan”).
Added
Acquisitions present many risks that could have a material adverse effect on our business and results of operations. In the past we have closed acquisitions of various companies. We may also pursue select acquisitions in the future.
Removed
Under the Labor Reduction Plan the Company intends that up to 20 of the Company’s 31 employees and contractors be terminated, of which 21 are United States based employees. 12 employees and 6 contractors have been given notice of their termination and the remainder may be terminated over the next several months.
Added
The success of our future growth strategy will depend on our ability to integrate our existing operations, together with any future acquisition of which none are planned at this date. Integrating the operations of our existing business with any future acquisitions, including anticipated cost savings and additional revenue opportunities, involves a number of challenges.
Removed
The Company has also given termination notice to certain vendors and contractors that provide services to the Company. As a result, the Company’s revised budget is expected to reduce the Company’s monthly net cash used in operating activities, which reduces the expenses and cash requirements for the continued operation of the business.
Added
The failure to meet these integration challenges could seriously harm our results of operations and the market price of our shares may decline as a result.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed1 unchanged
Biggest changeWhile any litigation contains an element of uncertainty, we have no reason to believe that the outcome of such proceedings will have a material adverse effect on the financial condition or results of operations of the Company. Item 4. Mine Safety Disclosures Not applicable. 27 PART II
Biggest changeWhile any litigation contains an element of uncertainty, we have no reason to believe that the outcome of such proceedings will have a material adverse effect on the financial condition or results of operations of the Company. Item 4. Mine Safety Disclosures Not applicable. 24 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

15 edited+25 added−5 removed14 unchanged
Biggest changeMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The high and low per share closing sales prices of the Company’s stock on the OTCQB (ticker symbol: IDTY & IDTYD) through August 23, 2021 and thereafter on the Nasdaq Market (ticker symbol AUID) for each quarter for the years ended December 31, 2022 and 2021 were as follows: Quarter Ended High Low March 31, 2021 $ 9.15 $ 4.38 June 30, 2021 $ 12.50 $ 6.90 September 30, 2021 $ 13.34 $ 6.81 December 31, 2021 $ 17.34 $ 11.50 March 31, 2022 $ 14.33 $ 2.83 June 30, 2022 $ 4.55 $ 1.50 September 30, 2022 $ 3.37 $ 1.89 December 31, 2022 $ 2.99 $ 0.57 28 Holders of our Common Stock As of March 24 , 2023, there were approximately 180 stockholders of record of our common stock.
Biggest changeMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The high and low per share closing sales prices of the Company’s stock on the Nasdaq Market (ticker symbol AUID) for each quarter for the years ended December 31, 2023 and 2022 were as follows: Quarter Ended High Low March 31, 2022 $ 114.64 $ 22.64 June 30, 2022 $ 36.40 $ 12.00 September 30, 2022 $ 26.96 $ 15.12 December 31, 2022 $ 23.92 $ 4.58 March 31, 2023 $ 5.84 $ 2.40 June 30, 2023 $ 7.12 $ 2.80 September 30, 2023 $ 10.96 $ 6.43 December 31, 2023 $ 9.94 $ 5.78 Holders of our Common Stock As of March 15, 2024, there were approximately 147 stockholders of record of our common stock.
The Company has no other equity incentive plans in effect as of December 31, 2022. On September 28, 2017, the shareholders of the Company approved the 2017 Incentive Stock Plan (“2017 Incentive Plan”). On December 29, 2021 the shareholders of the Company approved the 2021 Equity Incentive Plan (“2021 Plan”).
The Company has no other equity incentive plans in effect as of December 31, 2023. 25 On September 28, 2017, the shareholders of the Company approved the 2017 Incentive Stock Plan (“2017 Incentive Plan”). On December 29, 2021 the shareholders of the Company approved the 2021 Equity Incentive Plan (“2021 Plan”).
The Convertible Notes were sold with an aggregate cash origination fee of approximately $200,000, and we issued a total of approximately 28,500 shares of our common stock to the Note Investors as an additional origination fee.
The Convertible Notes were sold with an aggregate cash origination fee of approximately $200,000, and we issued a total of approximately 3,563 shares of our common stock to the Note Investors as an additional origination fee.
The gross proceeds of the sale of the Convertible Notes and the PIPE were used to pay the expenses of those offerings and to provide working capital for the Company. During the year ended December 31, 2022, the Company issued approximately 339,702 shares of common stock pursuant to exercises of common stock warrants and options.
The gross proceeds of the sale of the Convertible Notes and the PIPE were used to pay the expenses of those offerings and to provide working capital for the Company. Miscellaneous During the year ended December 31, 2022, the Company issued approximately 42,463 shares of common stock pursuant to exercises of common stock warrants and options.
The Company filed a Registration Statement on Form S-8 on November 12, 2021, with respect to the 2017 Incentive Plan and all outstanding Awards set forth in the above table. The Company filed a further Registration Statement on Form S-8 on February 1, 2022, with respect to the 2021 Plan.
The Company filed a Registration Statement on Form S-8 on November 12, 2021, with respect to the 2017 Incentive Plan and all outstanding Awards set forth in the above table.
Pursuant to the Credit Facility, the Company agreed to pay the Lender the Facility Commitment Fee of 100,000 shares of our common stock upon the effective date of the Facility Agreement.
Pursuant to the Credit Facility, the Company agreed to pay the Lender the Facility Commitment Fee of 12,500 shares of our common stock upon the effective date of the Facility Agreement.
On March 18 and March 21, 2022, the Company entered into Subscription Agreements (the “Subscription Agreements”) with an accredited investor and certain members of authID’s management team (the “PIPE Investors”), and, pursuant to the Subscription Agreements, sold to the PIPE Investors a total of 1,063,514 shares of our common stock at prices of $3.03 per share for an outside investor and $3.70 per share for the management investors (the “PIPE”).
On March 18 and March 21, 2022, the Company entered into Subscription Agreements (the “Subscription Agreements”) with an accredited investor and certain members of authID’s management team (the “PIPE Investors”), and, pursuant to the Subscription Agreements, sold to the PIPE Investors a total of 132,940 shares of our common stock at prices of $24.24 per share for an outside investor and $29.60 per share for the management investors (the “PIPE”).
The 2017 Incentive Plan authorized Awards over 4,833,333 shares of common stock and the 2021 Plan authorizes Awards over 1,250,000 shares as well as (a) the balance of the shares which were not allocated to awards under the 2017 Incentive Plan and (b) any shares which are forfeited or cancelled under awards that lapse or expire under the prior plans.
The 2021 Plan initially authorized Awards over 156,250 shares as well as (a) the balance of the shares which were not allocated to awards under the 2017 Incentive Plan and (b) any shares which are forfeited or cancelled under awards that lapse or expire under the prior plans.
The issuance of the above securities is exempt from the registration requirements under Rule 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506 as promulgated under Regulation D. 30
The issuance of the above securities is exempt from the registration requirements under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder. Item 6. Reserved. 28
(These figures exclude approximately 50,000 options exercised following the filing of the Company’s Registration Statement on Form S-8 on November 12, 2021) On March 21, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with certain accredited investors, including certain directors of the Company or their affiliates (the “Note Investors”), and, pursuant to the SPA, sold to the Note Investors Senior Secured Convertible Notes (the “Convertible Notes”) with an aggregate initial principal amount of approximately $9.2 million and a conversion price of $3.70 per share.
March 2022 Private Placement On March 21, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with certain accredited investors, including certain directors of the Company or their affiliates (the “Note Investors”), and, pursuant to the SPA, sold to the Note Investors Senior Secured Convertible Notes (the “Convertible Notes”) with an aggregate initial principal amount of approximately $9.2 million and a conversion price of $29.60 per share.
Each of the plans are not considered qualified deferred compensation plan under Section 401(a) of the Internal Revenue Code and are not subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). 29 The terms of Awards granted under the Plans shall be contained in an agreement between the participant and the Company and such terms shall be determined by the Compensation Committee consistent with the provisions of the applicable Plan.
Each of the plans are not considered qualified deferred compensation plan under Section 401(a) of the Internal Revenue Code and are not subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2022 Number of securities remaining available Number of Weighted issuance securities average under equity to be issued exercise compensation upon price of plans exercise of outstanding (excluding) outstanding options, securities options, awards awards reflected in Plan and rights and rights first column) Equity compensation plans approved by security holders - 2017 Incentive Stock Plan 3,776,420 4.79 - Equity compensation plans approved by security holders - 2021 Equity Incentive Plan 1,966,527 2.50 75,898 Equity compensation plans not approved by security holders 4,589,577 8.07 - The Company has adopted the authID Inc. 2017 Incentive Stock Plan and the 2021 Equity Incentive Plan.
Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2023 Plan Number of Securities to be issued upon exercise of outstanding options, awards and rights Weighted average exercise price of outstanding options, awards and rights Number of securities remaining available for issuance under equity compensation plans (excluding) securities reflected in first column) Equity compensation plans approved by security holders - 2017 Incentive Stock Plan 434,539 36.33 - Equity compensation plans approved by security holders - 2021 Equity Incentive Plan 863,701 7.14 17,003 Equity compensation plans not approved by security holders 498,501 42.69 185,000 The Company has adopted the authID Inc. 2017 Incentive Stock Plan and the 2021 Equity Incentive Plan.
At the Annual Meeting of Stockholders held on March 22, 2021, the stockholders approved and ratified an increase of 2,500,000 shares allocated to the 2017 Incentive Plan and at the Annual Meeting of Stockholders held on December 29, 2021, the stockholders approved the adoption of and allocation of 1,250,000 shares to the 2021 Plan.
The 2017 Incentive Plan initially authorized Awards over 604,167 shares of common stock and at the Annual Meeting of Stockholders held on March 22, 2021, the stockholders approved and ratified an increase of 312,500 shares allocated to the 2017 Incentive Plan. No further awards may be made under the 2017 Incentive Plan.
In the event of any stock split of our outstanding common stock, the board of directors in its discretion may elect to maintain the stated number of shares reserved under the Plan without giving effect to such stock split.
In the event of any stock split of our outstanding common stock, the board of directors may adjust (a) the number of shares (i) reserved under the Plan and available for awards, (ii) covered by outstanding awards, (b) the exercise prices related to outstanding awards and (c) the appropriate Fair Market value and other price determinations for any awards in order to give effect to such stock split.
The Company also issued 479,845 shares of common stock in lieu of interest payments for the Convertible Notes and 13,514 shares of common stock upon conversion of Convertible Note. All the offers and sales of securities listed above were made to accredited investors.
On March 21, 2022, the Company issued 17,837 common stock warrants in connection with Subscription Agreements and Convertible Notes referenced above with a term of five years and exercise price of $29,60 per share. All the offers and sales of securities listed above were made to accredited investors.
Removed
No further awards may be made under the 2017 Incentive Plan. All plans are administered by the Compensation Committee.
Added
The Company has also authorized the grant of options to purchase up to 185,000 shares common stock by way of inducement grants to new employees under Nasdaq Rule 5635(c) (“Inducement Grants”).
Removed
Unregistered Sales of Equity Securities The Company and the Stern Trust entered an Amended and Restated Promissory Note (the “Restated Stern Note”) providing that the $2,000,000 principal of the Stern Note will be due and payable on the same terms (bearing interest at 15% per annum) and on the same maturity date as the 2020 Notes.
Added
At the Annual Meeting of Stockholders held on June 26, 2023, the stockholders approved and ratified an increase of 362,500 shares to the 2021 Plan. All plans are administered by the Compensation Committee.
Removed
The principal balance of the Stern Note and accrued interest in the amount of $503,525 was converted into shares of common stock on June 24, 2021. The interest due under the Stern Note as of January 31, 2020 in the amount of $662,000 was capitalized and earned interest at 10% per annum.
Added
The terms of Awards granted under the Plans shall be contained in an agreement between the participant and the Company and such terms shall be determined by the Compensation Committee consistent with the provisions of the applicable Plan.
Removed
The Stern Note for the remaining balance of $662,000 was extended through December 31, 2022 on the same terms and conditions. The Stern Note’s full balance of principal and interest was paid in cash in December 2022.
Added
On December 21, 2023, the Compensation Committee approved the grant of options to purchase up to 185,000 shares common stock by way of Inducement Grants to new employees, that the Company expected to hire commencing January 2024.
Removed
During the year ended December 31, 2021, the Company issued approximately 706,575 shares of common stock pursuant to cashless exercises of common stock purchase warrants and options, 75,636 shares of common stock pursuant to exercises of common stock purchase warrants and options for cash and 32,950 shares of common stock pursuant to the conversion of convertible notes, other than the Notes converted as of June 30, 2021.
Added
The grants are to be Non-ISO’s and the terms of the Inducement Grants shall be contained in an agreement between the participant and the Company and such terms shall be consistent with the Awards issued under the 2021 Plan.
Added
The Company filed a further Registration Statement on Form S-8 on February 1, 2022, with respect to the 2021 Plan. 26 Unregistered Sales of Equity Securities Securities Purchase Agreement Between May 23 and June 7, 2023, the Company entered into a securities purchase agreement with accredited investors (the “Purchase Agreement”), pursuant to which the Company agreed to issue and sell, in a public offering an aggregate of 1,113,828 shares (the “Registered Shares”) of the Company’s common stock and in a concurrent private placement 1,121,482 shares (the “PIPE Shares”) of Common Stock (the “Offering”) at a price between $3.664 and $5.632 per share (or $4.00 if the purchaser is a director of the Company).
Added
The purchasers under the Purchase Agreement included Stephen J. Garchik (“Garchik”) and four directors of the Company, including the Chief Executive Officer and Chairman of the Board of Directors.
Added
Garchik, who is a Holder (as defined below), the collateral agent for the Convertible Notes and a shareholder of the Company, entered into that certain Amended and Restated Facility Agreement, dated March 8, 2023 (the “A&R Facility Agreement”), with the Company and pursuant to the A&R Facility Agreement, loaned $900,000 to the Company on March 9, 2023, pursuant to a promissory note in favor of Garchik (the “Initial Promissory Note”).
Added
In the Offering, the Company and Garchik agreed that the Company would offset the purchase price of certain shares that Garchik agreed to purchase pursuant to the Purchase Agreement against the Company’s obligations under, and the cancellation of, the A&R Facility Agreement and the Initial Promissory Note and the related obligations of the Company’s subsidiaries ID Solutions, Inc., FIN Holdings, Inc. and Innovation in Motion, Inc.
Added
(the “Guarantors”) under the guaranty that that the Guarantors had entered into as a condition to Garchik lending under the Initial Promissory Note. Accordingly, Garchik agreed that upon the closing of the Offering, the A&R Facility Agreement, the Initial Promissory Note and the Guaranty terminated.
Added
Exchange Agreement Between May 23 and June 7, 2023, the Company entered into an exchange agreement with certain holders (“Holders”) of the March 2022 Senior Secured Convertible Notes (the “Convertible Notes”) of the Company (the “Exchange Agreement”), pursuant to which the Company issued 2,382,700 shares (the “Exchange Shares”) of common stock to the Holders in exchange for the Holders’ Convertible Notes principal balance and accrued interest (the “Note Exchange”) at a price between $3.776 and $5.80 per share or $4.12 if the Holder is a director, officer or insider of the Company.
Added
Engagement Agreements On April 20, 2023, the Company entered into an engagement agreement (the “Engagement Agreement”) with Madison Global Partners, LLC (“Madison”), pursuant to which Madison agreed to serve as non-exclusive exclusive placement agent for the issuance and sale of the Registered Shares and the PIPE Shares.
Added
The Company paid Madison an aggregate cash fee equal to 7.0% of the gross proceeds received by the Company from the sale of the securities in the Offering, $80,000 cash retainer fee and issued stock purchase warrants (the “Madison Warrants”) to purchase up to 156,712 shares of common stock of the Company at an exercise price of $3.664 per share, which equal to 7.0% of the aggregate number of Shares placed in the Offering.
Added
Pursuant to the Engagement Agreement, the Company reimbursed Madison $60,000 for fees and expenses of legal counsel and other out-of-pocket expenses. The Engagement Agreement has indemnity and other customary provisions for transactions of this nature.
Added
On May 12, 2023, in connection with certain recruitment services, the Company issued 187,500 common stock warrants to Madison III, LLC, an affiliate of Madison with a term of 5 years and an exercise price of $3.164 per share.
Added
On November 3, 2023, the Company entered into a further engagement agreement (the “November Engagement Agreement”) with Madison, pursuant to which Madison agreed to serve as non-exclusive exclusive placement agent for the issuance and sale in a public offering of an aggregate of 1,574,990 shares (the “November Registered Shares”).
Added
The Company paid Madison an aggregate cash fee equal to 7.0% of the gross proceeds received by the Company from the sale of the November Registered Shares, $80,000 cash retainer fee and issued stock purchase warrants (the “November Madison Warrants”) to purchase up to 110,249 shares of common stock of the Company with a term of 5 years at an exercise price of $6.00 per share, which equal to 7.0% of the aggregate number of Shares placed in the Offering.
Added
Pursuant to the November Engagement Agreement, the Company reimbursed Madison $60,000 for fees and expenses of legal counsel and other out-of-pocket expenses. The November Engagement Agreement has indemnity and other customary provisions for transactions of this nature. 27 Director & Executive Officer Stock Option Grants On June 28, 2023, the Company made a grant of options to each of Messrs.
Added
Koehneman and Trelin and to Ms. White to acquire 15,625 shares of common stock and to each of Messrs. Jisser and Thompson to acquire 3,125 shares of common stock. Each such option is at the exercise price of $5.48 per share, exercisable for a period of ten years, vesting over a period of twelve months.
Added
On June 28, 2023, the Company made an additional grant of options to Mr. Szoke to acquire 50,000 shares of common stock at the exercise price of $5.48 per share, exercisable for a period of ten years, vesting subject to achievement of performance and service conditions. On June 28, 2023, the Company made an additional grant of options to Mr.
Added
Daguro to acquire 183,125 shares of common stock at an exercise price of $5.48 per share, exercisable for a period of ten years, vesting subject to achievement of performance and service conditions. On August 15, 2023, the Company made a grant of options to Mr.
Added
Sellitto to acquire 50,000 shares of common stock at an exercise price of $8.87 per share, exercisable for a period of ten years, vesting subject to achievement of performance and service conditions. On December 21, 2023, the Company granted Mr. Szoke and Mr.
Added
Sellitto options to acquire 5,000 and 7,000 shares of common stock, respectively, at an exercise price of $9.25 per share, exercisable for a period of ten years, vesting over twelve months.
Added
Other Stock Option Grants During the year ended December 31, 2023, the Company also granted a total of 100,000 options to certain new employees at exercise prices ranging from $6.13 per share to $9.85 per share.
Added
The Company also issued 59,981 shares of common stock in lieu of interest payments for the Convertible Notes. During the year ended December 31, 2022, a holder of a Convertible Note converted the full principal amount of $50,000 and accrued interest of $406 into 1,690 and 17 shares of our common stock, respectively.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

51 edited+55 added−79 removed24 unchanged
Biggest changeDepreciation and amortization expense During the year ended December 31, 2022, depreciation and amortization decreased by approximately $408,000 compared to the year ended December 31, 2021, as the Company reduced the value of certain legacy business assets.
Biggest changeResearch and development expenses During the year ended December 31, 2023, research and development expenses decreased by approximately $3.5 million compared to the year ended December 31, 2022, principally due to lower stock-based compensation expenses as well as the Company’s cost saving measures resulting in lower headcount costs and lower third-party vendor costs. 36 Depreciation and amortization expense During the year ended December 31, 2023, depreciation and amortization decreased by approximately $0.5 million compared to the year ended December 31, 2022, as the Company reduced the value of certain legacy business assets in 2022.
Our results are also impacted by the changes in levels of spending on identity verification, management and security methods, and thus, negative trends in the global economy and other factors which negatively impact such spending may negatively impact the growth our revenue from those products.
Our results are also impacted by the changes in levels of spending on identity verification, management and security methods, and thus, negative trends in the global economy and other factors which negatively impact such spending may negatively impact the growth in our revenue from those products.
Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only as a supplement to our U.S. GAAP results.
Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only as a supplement to our U.S.
For so long as the hostilities continue and perhaps even thereafter as the situation in Europe unfolds, we may see increased volatility in financial markets and a flight to safety by investors, which may impact our stock price and make it more difficult for the Company to raise additional capital at the time when it needs to do so, or for financing to be available upon acceptable terms.
For so long as the hostilities continue and perhaps even thereafter as the situation in Europe and the Middle East unfolds, we may see increased volatility in financial markets and a flight to safety by investors, which may impact our stock price and make it more difficult for the Company to raise additional capital at the time when it needs to do so, or for financing to be available upon acceptable terms.
While the Company believes its estimates and assumptions are reasonable, variations from those estimates could produce materially different results. During the year ended December 31, 2022 and 2021, the Company’s projection and assessment did not indicate that an impairment charge was required as its fair value was in excess of carrying value.
While the Company believes its estimates and assumptions are reasonable, variations from those estimates could produce materially different results. During the year ended December 31, 2023 and 2022, the Company’s projection and assessment did not indicate that an impairment charge was required as its fair value was in excess of carrying value.
For both employee and non-employee awards, the fair value of each stock option award is estimated on the date of grant using the Black-Scholes and Monte-Carlo valuation models as appropriate that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate.
For both employee and non-employee awards, the fair market value of each stock option award is estimated on the date of grant using the Black-Scholes and/or Monte-Carlo valuation models as appropriate that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate.
In 2023, the Company will continue to be opportunistic as well as judicious in raising additional funds to support its operations and investments as it creates a sustainable organization. There is no guarantee that such financing will be available if available on acceptable terms. Our growth-oriented business plan to offer products to our customers will require continued capital investment.
In 2024, the Company will continue to be opportunistic and judicious in raising additional funds to support its operations and investments as it creates a sustainable organization. There is no guarantee that such financing will be available if available on acceptable terms. Our growth-oriented business plan to offer products to our customers will require continued capital investment.
The continuing war in Ukraine, inflationary pressures, rising energy prices and increases in interest rates have impacted the United States and other major economies and have created uncertainty regarding a possible recession. As a result, many businesses, especially in the technology sector have made significant cut-backs in expenditure, including reductions in force and investment freezes.
The continuing wars in Ukraine and the Middle East, inflationary pressures, rising energy prices and increases in interest rates have impacted the United States and other major economies and have created uncertainty regarding a possible recession. As a result, many businesses, especially in the technology sector have made significant cut-backs in expenditure, including reductions in force and investment freezes.
Discontinued operations The Board of Directors of authID considers it in the best interests of the Company to focus its business activities on providing biometric identity verification products and services by means of our proprietary Verified platform.
Discontinued operations The Board of Directors of authID considers it in the best interests of the Company to focus its business activities on providing biometric authentication products and services by means of our proprietary Verified platform.
Accordingly, on May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payment services in Columbia and the Cards Plus cards manufacturing and printing business in South Africa.
Accordingly, on May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payments services in Colombia and the Cards Plus cards manufacturing and printing business in South Africa.
Results of Operations and Financial Condition for the Year Ended December 31, 2022 as Compared to the Year Ended December 31, 2021 – Continuing Operations Revenues, net During the year ended December 31, 2022, the Company revenues from Verified software license were approximately $157,000 compared to approximately $65,000 for the year ended December 31, 2021.
Results of Operations and Financial Condition for the Year Ended December 31, 2023 as Compared to the Year Ended December 31, 2022 – Continuing Operations Revenues, net During the year ended December 31, 2023, the Company revenues from Verified software license were approximately $186,000 compared to approximately $157,000 for the year ended December 31, 2022.
The Company has not been able to achieve positive cash flows from operations and raised additional financing in 2022 and 2021 from the sale of equity and convertible notes. As of December 31, 2022, the Company has a series of Senior Secured Convertible Notes outstanding for approximately $9.1 million due in March 2025.
The Company has not been able to achieve positive cash flows from operations and raised additional financing in 2023 and 2022 from the sale of equity and convertible notes. As of December 31, 2023, the Company has a series of Senior Secured Convertible Notes outstanding for approximately $0.25 million due in March 2025.
Verified software license revenue increased as we acquired new customers. During the year ended December 31, 2022, Legacy authentication services revenues were $371,000 compared to $549,000 for the year ended December 31, 2021.
Verified software license revenue increased as we acquired new customers. During the year ended December 31, 2023, Legacy authentication services revenues were approximately $4,000 compared to approximately $371,000 for the year ended December 31, 2022.
As there can be no assurance that the Company will be able to achieve positive cash flows (become cash flow profitable) and raise sufficient capital to maintain operations, there is substantial doubt about the Company’s ability to continue as a going concern.
As there can be no assurance that the Company will be able to achieve positive cash flows (become cash flow profitable) and raise sufficient capital to maintain operations, there is substantial doubt about the Company’s ability to continue as a going concern. Subsequent Events On February 15, 2024, Mr.
These trends include growing concerns over identity theft and fraud, in part resulting from the impact of the Coronavirus pandemic on the acceleration of digital transformation, for example online shopping and remote working; the growth in the sharing economy; and the increase in electronic payments and alternative money transfer solutions provided by both bank and non-bank entities.
These trends include: ● growing concerns over identity theft, fraud and account takeover, resulting from the acceleration of digital transformation, for example online shopping and remote working and the growth in AI assisted fraud; ● the growth in the sharing economy; and ● the increase in electronic payments and alternative money transfer solutions provided by both bank and non-bank entities.
As discussed in the Subsequent Events below, the Company has secured additional financing which provides funding for its current operations as it continues to invest in its product, people, and technology. The Company projects that the investments will lead to revenue expansion thereby reducing liquidity needs.
As discussed in “Liquidity and Capital Resources” below, the Company secured additional financing during 2023 which provides funding for its current operations as it continues to invest in its product, people, and technology. The Company projects that the investments will lead to revenue expansion thereby reducing liquidity needs.
Cards Plus business in South Africa On August 29, 2022, the Company completed the sale of Cards Plus business for a price of $300,000, less $3,272 in costs to sell, and recognized a loss of $188,247 from the transaction.
Cards Plus business in South Africa On August 29, 2022, the Company completed the sale of Cards Plus for a price of $300,000 of which $150,000 was received and the remaining balance of $150,000 was recorded in other current asset, less $3,272 in costs to sell, and recognized a loss of $188,247 from the transaction.
Other items included the following: ● Severance cost of $0.2 million in 2022 and $0.3 million in 2021 ● Impairment loss of $1.1 million in 2022 and $0.8 million in 2021 ● Gain on extinguishment of debt of $0 in 2022 and $1.0 million in 2021 Management believes that Adjusted EBITDA, when viewed with our results under U.S.
Other items included the following: ● Conversion expense of $7.5 million in 2023 and $0 in 2022 ● Severance cost of $0.9 million in 2023 and $0.2 million in 2022 ● Impairment loss of $0 in 2023 and $1.1 million in 2022 ● Loss on debt extinguishment of $0.4 million in 2023 and $0 in 2022 Management believes that Adjusted EBITDA, when viewed with our results under U.S.
The Company has taken steps to diversify its sub-contractor base, which may in the short term give rise to additional costs and delays in delivering software and product upgrades. 37 The uncertainty impacting and potential interruption in energy and other supply chains resulting from military hostilities in Europe and the response of the United States and other countries to it by means of trade and economic sanctions, or other actions, may give rise to increases in costs of goods and services generally and may impact the market for our products as prospective customers reconsider additional capital expenditure, or other investment plans until the situation becomes clearer.
The uncertainty impacting and potential interruption in energy and other supply chains resulting from military hostilities in Europe and the Middle East and the response of the United States and other countries to it by means of trade and economic sanctions, or other actions, may give rise to increases in costs of goods and services generally and may impact the market for our products as prospective customers reconsider additional capital expenditure, or other investment plans until the situation becomes clearer.
On the other hand, the threat of increased cyber-attacks from Russia or other countries may prompt enterprises to adopt additional security measures such as those offered by the Company.
On the other hand, the threat of increased cyber-attacks from multiple threat actors, including state-sponsored organizations may prompt enterprises to adopt additional security measures such as those offered by the Company.
The aggregate gross proceeds from the PIPE are approximately $3.3 million. ● On March 21, 2022, the Company entered into a Facility Agreement with a current shareholder and noteholder of the Company, pursuant to which the shareholder agreed to provide the Company a $10.0 million unsecured standby letter of credit facility.
The aggregate gross proceeds from the PIPE are approximately $3.3 million. ● The Company issued a total of 3,562 shares of our common stock to the Note Investors as an additional origination fee. ● On March 21, 2022, the Company entered into a Facility Agreement with a current shareholder and noteholder of the Company, pursuant to which the shareholder agreed to provide the Company a $10.0 million unsecured standby letter of credit facility.
We plan to grow our business by increasing the use of our services by our existing customers, by adding new customers through our direct salesforce, channel partners and by expanding into new markets and innovation. If we are successful in these efforts, we would expect our revenue to continue to grow.
We plan to grow our business by increasing the use of our services by our existing customers, by adding new customers through our direct salesforce, channel partners and by expanding into new markets and innovation.
GAAP net income (loss) adjusted to exclude (1) interest expense, (2) interest income, (3) provision for income taxes, (4) depreciation and amortization, (5) stock-based compensation expense (stock options) and (6) certain other items management believes affect the comparability of operating results.
A reconciliation of this non-GAAP measure is included below. Adjusted EBITDA is a non-GAAP financial measure that represents U.S. GAAP net income (loss) adjusted to exclude (1) interest expense, (2) interest income, (3) provision for income taxes, (4) depreciation and amortization, (5) stock-based compensation expense (stock options) and (6) certain other items management believes affect the comparability of operating results.
On May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payments services in Colombia and the Cards Plus cards manufacturing and printing business in South Africa. On August 29, 2022 the Company completed the sale of Cards Plus business. See Discontinued Operations.
Discontinued Operations On May 4, 2022, the Board of Directors of authID (the “Board” or the “Board of Directors”) approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank payments services in Colombia and the Cards Plus cards manufacturing and printing business in South Africa (“Cards Plus business”).
As used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” except where the context otherwise requires, the term “we,” “us,” “our,” “authID” or “the Company,” refers to the business of authID Inc. Overview authID Inc. is a leading provider of secure, authentication solutions delivered by our easy to integrate Verified platform.
As used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” except where the context otherwise requires, the term “we,” “us,” “our,” “authID” or “the Company,” refers to the business of authID Inc. Overview authID Inc.
There is no guarantee that our current business plan will not change, and as a result of such change, we will need additional capital to implement such business plan.
There is no guarantee that our current business plan will not change, and because of such change, we will need additional capital to implement such business plan. Further, assuming we achieve our expected growth plan, of which there is no guarantee, we will need additional capital to implement growth beyond our current business plan.
Additionally, the contracts could include implementation services, or support on an “as needed” basis and we will review each contract and determine whether such performance obligations are separate and distinct and apply the standard accordingly to the revenue and expense derived from or related to each such service. 34 Legacy Authentication Services – The Company historically has sold certain legacy software licenses to customers and revenue is recognized when delivery occurs, and all other revenue recognition criteria have been met.
Additionally, the contracts could include implementation services, or support on an “as needed” basis and we will review each contract and determine whether such performance obligations are separate and distinct and apply the standard accordingly to the revenue and expense derived from or related to each such service.
The Company also works with outsourced engineers and developers and third-party providers in other parts of the world, including the United States, Europe, India and South America.
The Company works with third party sub-contractors for outsourced services, including software engineering and development, some of whom are based in Eastern Europe. The Company also works with outsourced engineers and developers and third-party providers in other parts of the world, including the United States, Europe, India, and Latin America.
As of December 31, 2022, the Company had an accumulated deficit of approximately $140.1 million. For the year ended December 31, 2022, the Company earned revenue of approximately $0.53 million, used $12.8 million to fund its operations, and incurred a net loss from continuing operations of approximately $23.7 million.
For the year ended December 31, 2023, the Company earned revenue of approximately $0.19 million, used $8.4 million to fund its operations, and incurred a net loss from continuing operations of approximately $19.6 million.
Expected volatilities are based on historical volatility of peer companies and other factors estimated over the expected term of the stock options. For employee awards, the expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term.
Expected volatilities are based on historical volatility of the Company’s stock and other factors estimated over the expected term of the stock options. For employee awards, the expected term of options granted is derived based on exercise history.
Macro-Economic Conditions The global economy has been undergoing a period of political and economic uncertainty and stock markets are experiencing high levels of volatility, and it is difficult to predict how long this uncertainty and volatility will continue.
All or any of these risks separately, or in combination could have a material adverse effect on our business, financial condition, results of operations, and cash flows. 37 Macro-Economic Conditions The global economy has been undergoing a period of political and economic uncertainty and stock markets are experiencing high levels of volatility, and it is difficult to predict how long this uncertainty and volatility will continue.
However, in order to further implement its business plan and satisfy its working capital requirements, the Company will need to raise additional capital. There is no guarantee that the Company will be able to raise additional equity or debt financing at acceptable terms, if at all.
There is no guarantee that the Company will be able to raise additional equity or debt financing at acceptable terms, if at all. We expect that we will need additional funding in the 4 th quarter of 2024.
Going Concern The Company’s consolidated financial statements included in this Annual Report have been prepared in accordance with United States GAAP assuming the Company will continue on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next year following the issuance date of these financial statements.
GAAP assuming the Company will continue on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next year following the issuance date of these financial statements. As of December 31, 2023, the Company had an accumulated deficit of approximately $159.5 million.
Payments due by period Less than More than Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years Convertible Notes Payable $ 9,125,202 $ - $ 9,125,202 $ - $ - Operating Lease 10,593 10,593 - - $ - $ 9,135,795 $ 10,593 $ 9,125,202 $ - $ - 39
Payments due by period Less than More than Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years Convertible Notes Payable $ 245,000 $ - $ 245,000 $ - $ - Long Term Severance 325,000 - 325,000 - $ - $ 570,000 $ - $ 570,000 $ - $ -
Equity Financing See Note 9 of the Consolidated Financial Statements for additional information associated with equity financing in 2022 and 2021. 2022 Common Stock Transactions ● On March 18 and March 21, 2022, the Company entered into Subscription Agreements (the “Subscription Agreements”) with an accredited investor and certain members of authID’s management team (the “PIPE Investors”), and, pursuant to the Subscription Agreements, sold to the PIPE Investors a total of 1,063,514 shares of our common stock at prices of $3.03 per share for an outside investor and $3.70 per share for the management investors (the “PIPE”).
Garchik and three directors of the Company, including the Chief Executive Officer and Chairman of the Board of Directors. ● The Company issued 111,516 shares of common stock for approximately $388,000 of interest accrued under the Convertible Notes and Credit Facility. 2022 Common Stock Transactions ● On March 18 and March 21, 2022, the Company entered into Subscription Agreements (the “Subscription Agreements”) with an accredited investor and certain members of authID’s management team (the “PIPE Investors”), and, pursuant to the Subscription Agreements, sold to the PIPE Investors a total of 132,940 shares of our common stock at prices of $24.24 per share for an outside investor and $29.60 per share for the management investors (the “PIPE”).
Further, assuming we achieve our expected growth plan, of which there is no guarantee, we will need additional capital to implement growth beyond our current business plan. 38 Description of Indebtedness As described in Item 1A, (Risk Factors) the Company has a history of losses and may not be able to achieve profitability in the near term.
As a result of these factors, there is substantial doubt about the Company’s ability to continue as a going concern. Description of Indebtedness As described in Item 1A, (Risk Factors) the Company has a history of losses and may not be able to achieve profitability in the near term.
Reconciliation of Net Loss From Continuing Operations to Adjusted EBITDA Continuing Operations For the Year Ended December 31, 2022 2021 Loss from continuing operations $ (23,675,310 ) $ (16,711,493 ) Addback: Interest expense 1,359,954 586,850 Other expense (income) 37,221 (651 ) Gain on extinguishment of debt - (971,522 ) Severance cost 150,000 305,000 Depreciation and amortization 749,900 1,157,773 Impairment losses 1,101,867 831,075 Taxes 7,670 10,746 Stock compensation 8,870,168 6,702,797 Adjusted EBITDA continuing operations (Non-GAAP) $ (11,398,530 ) $ (8,089,425 ) The increase in Adjusted EBITDA Loss From Continuing Operations in 2022 compared to 2021 is principally due to the investment in people, technology and marketing associated with the rebranding of the Company and the improvement of its core products.
GAAP results. 35 Reconciliation of Net Loss From Continuing Operations to Adjusted EBITDA Continuing Operations For the Year Ended December 31, 2023 2022 Loss from continuing operations $ (19,617,969 ) $ (23,675,310 ) Addback: Interest expense 1,108,458 1,359,954 Other expense (income) (98,230 ) 37,221 Conversion expense 7,476,000 - Loss on debt extinguishment 380,741 - Severance cost 855,279 150,000 Depreciation and amortization 255,858 749,900 Non-Cash recruiting fees 438,000 - Impairment losses - 1,101,867 Taxes 2,864 7,670 Stock compensation 487,398 8,870,168 Adjusted EBITDA continuing operations (Non-GAAP) $ (8,711,601 ) $ (11,398,530 ) The decrease in Adjusted EBITDA Loss From Continuing Operations in 2023 compared to 2022 is principally due to cost saving measures taken in 2023 resulting in lower headcount costs and lower third-party vendors costs.
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. Adjusted EBITDA. This discussion includes information about Adjusted EBITDA that is not prepared in accordance with U.S. GAAP. Adjusted EBITDA is not based on any standardized methodology prescribed by U.S.
The Company accounts for forfeitures of employee awards as they occur. 34 Adjusted EBITDA This discussion includes information about Adjusted EBITDA that is not prepared in accordance with U.S. GAAP. Adjusted EBITDA is not based on any standardized methodology prescribed by U.S. GAAP and is not necessarily comparable to similar measures presented by other companies.
The summary of the A&R Facility Agreement, the Initial Promissory Note, the Guaranty, the Release Agreement is qualified in its entirety by reference to the forms of such agreements, which are filed as exhibits to this Annual Report and are incorporated by reference herein. Pursuant to the Nomination Right under the A&R Facility Agreement, Mr.
The summary of the agreement entered with TPG is qualified in its entirety by reference to the forms of such agreements, which were filed as exhibits to the Company’s Current Report and are incorporated by reference herein (See “Exhibits”). The Company has entered into various investment, credit and funding agreements with Mr.
Furthermore, working remotely can cause a delay in decision making and finalization of negotiations and agreements. Liquidity and Capital Resources As of December 31, 2022, current assets were $4.3 million and current liabilities outstanding amounted to $1.2 million which resulted in net working capital of $ 3.1 million.
Liquidity and Capital Resources As of December 31, 2023, current assets were $10.9 million and current liabilities outstanding amounted to $1.7 million which resulted in net working capital of $9.2 million. Net cash used by operating activities was $8.4 million for the year ended December 31, 2023 compared to $12.8 million in 2022.
Net cash used in investing activities in 2022 and 2021 was approximately $183,000 and $117,000 as the Company invested in software development expenditures which were capitalized. Net cash provided by financing activities for 2022 was approximately $10.2 million, which consisted primarily of the net proceeds from the sale of convertible notes and of common stock in March 2022.
Net cash generated/(used) in investing activities in 2023 and 2022 was approximately $75,000 and ($182,000) as the Company received proceeds from the sale of its discontinued businesses. Net cash provided by financing activities for 2023 was approximately $15.4 million, compared to $10.2 million in 2022.
Garchik nominated Rhon Daguro, Ken Jisser, Michael Thompson and Thomas Szoke for appointment to the Board of Directors. On March 9, 2023, the Board of Directors appointed Messrs.
On March 9, 2023 Rhoniel Daguro, Ken Jisser, Michael Thompson and Thomas Szoke as Garchik’s designees under the A&R Facility Agreement, were appointed as members of the Board of Directors of the Company. On May 25, 2023, the Company and Mr.
Net cash used by operating activities was $12.8 million for the year ended December 31, 2022 compared to $8.8 million in 2021. Cash used in operations for 2022 and 2021 was the primarily result of funding the business operations as the Company invested in people, product and marketing as we are developing and expanding the business.
Cash used in operations for 2023 and 2022 was primarily the result of funding the business operations as the Company invested in people and product. However, the Company’s cost savings measures reduced the year over year levels.
Interest expense Interest expense increased during the year ended December 31, 2022 compared to the year ended December 31, 2021 by $773,000 as the Company issued $9.1 million Convertible Notes in March 2022.
Interest expense Interest expense during the year ended December 31, 2023 compared to the year ended December 31, 2022 decreased by $0.3 million, principally due to the exchange of Convertible Notes for common stock in May 2023.
MultiPay business in Colombia The Company is exiting the MultiPay business in Colombia in an orderly fashion, honoring our obligations to employees, customers and under applicable laws and regulations. We plan to maintain our customer support and operations team in Bogota, which performs essential functions to support the global operations of our Verified product.
MultiPay business in Colombia The Company exited the MultiPay business in Colombia but still maintains an authID customer support and operations team in Bogota, which performs essential functions to support the global operations of our Verified product. In June 2023, MultiPay finalized the sale of the Company’s proprietary software to its major customer for approximately $96,000.
The financial statements of Cards Plus and MultiPay have been classified as discontinued operations as of December 31, 2022, as all required classification criteria under appropriate accounting guidance were met. Ukraine The war in Ukraine may impact the Company and its operations in a number of different ways, which are yet to be fully assessed and are therefore uncertain.
Ukraine & Middle East The war in Ukraine and the Middle East may impact the Company and its operations in a number of different ways, which are yet to be fully assessed and are therefore uncertain. The Company’s principal concern is for the safety of the personnel who support from those regions.
Additional Information The foregoing is only a summary of the material terms of the A&R Facility Agreement, the Initial Promissory Note, the Guaranty, the Release Agreement and the other transaction documents, and does not purport to be a complete description of the rights and obligations of the parties thereunder.
In consideration of the services, the Company will pay TPG $98,000 per month during the remainder of the initial one-year term ending in June 2024. The foregoing is only a summary of the material terms of the agreements entered with TPG and does not purport to be a complete description of the rights and obligations of the parties thereunder.
Revenue from Legacy authentication services dropped significantly due to the loss of a large customer that decommissioned a legacy product offering as of April 1, 2022. 36 General and administrative expenses During the year ended December 31, 2022, general and administrative expenses increased by approximately $1.8 million compared to the year ended December 31, 2021.
Revenue from Legacy authentication services dropped significantly due to one large customer, that decommissioned a legacy product offering in 2022 and another large customer that had a one-off order in 2022.
Off-Balance Sheet Arrangements We have no off-balance sheet financing arrangements. Contractual Obligations As of December 31, 2022, the Company had the following contractual obligations.
See Note 9 for details. ● Certain warrant, stock option and convertible note holders exercised their respective warrants and stock options and conversion right and were issued approximately 44,152 shares of our common stock. 39 Off-Balance Sheet Arrangements We have no off-balance sheet financing arrangements. Contractual Obligations As of December 31, 2023, the Company had the following contractual obligations.
Garchik, who was and is a shareholder of the Company, pursuant to which Garchik agreed to provide to the Company a $10.0 million unsecured standby line of credit facility that could be drawn down in several tranches, subject to certain conditions described in the Original Facility Agreement.
On March 21, 2022 the Company entered into the Original Facility Agreement with Mr. Garchik, pursuant to which Mr. Garchik agreed to provide a $10.0 million unsecured standby line of credit facility. On April 18, 2022, Joseph Trelin, as Garchik’s designee under the Original Facility Agreement, was appointed as a member of the Board of Directors of the Company.
The A&R Facility Agreement also provided Garchik with the right to nominate four (4) New Designees (not counting any Remaining Directors) to be considered for election to the Board of Directors.
Under the A&R Facility Agreement Garchik had a one-time right for the nomination of four designees specified in writing by Garchik for appointment to our board of directors.
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Our Verified platform that delivers Human Factor Authentication TM , binds strong passwordless authentication with biometric identity, which offers our customers a streamlined path to zero trust architecture. Verified FIDO2 passwordless authentication is certified by the FIDO Alliance to be compliant and interoperable with FIDO specifications.
Added
(together with its subsidiaries, the “Company”, “authID”, “we” or “our”) ensures cyber-savvy enterprises “Know Who’s Behind the Device” TM for every customer or employee login and transaction.
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The explosive growth in online and mobile commerce, telemedicine, remote working and digital activities of all descriptions is self-evident to everyone who lived through the Covid 19 pandemic since 2020. Identity theft, phishing attacks, spear-phishing, password vulnerabilities, account takeovers, benefits fraud - it seems like these words have entered our daily lexicon overnight.
Added
Through its easy-to-integrate, patented, biometric identity platform, authID quickly and accurately verifies a user’s identity, eliminating any assumption of ‘who’ is behind a device and preventing cybercriminals from taking over accounts. authID combines digital onboarding, biometric passwordless authentication and account recovery, with a fast, accurate, user-friendly experience – delivering identity verification in 700ms.
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These are significant impediments to the operations and growth of any business or organization, and dealing with the risks and consequences of these criminal activities has created significant friction in both time, cost and lost opportunity. Consider all the outdated methods that organizations have implemented in order to prevent fraud.
Added
Establishing a biometric root of trust for each user that is bound to their accounts, or provisioned devices, authID stops fraud at onboarding, eliminates password risks and costs, and provides the faster, frictionless, and more accurate user identity experience demanded by operators of today’s digital ecosystems.
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The requests to receive and enter one-time passwords, that can be easily hijacked. The vulnerable security questions you get asked – whether on-line or when reaching out to a call center – what was your first pet’s name? who was your best friend in high school?
Added
Our Platform Our Verified TM cloud-based platform was developed with internally developed software as well as acquired and licensed technology and provides the following core services: ● Biometric Identity Verification ● Biometric Identity Authentication ● Account / Access Recovery ● FIDO Passkey binding 29 Biometric Identity Verification Biometric identity verification establishes the trusted identity of a user based on a variety of ground truth sources, including government-issued identity documents such as national IDs, driver’s licenses and passports or electronic machine-readable travel documents (or eMRTDs).
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These steps all add up to friction, making it difficult for consumers to login, transact and execute daily tasks, with little added protection from fraud. Surely there is a better way to address these challenges? authID believes there is. authID provides secure, facial biometric, identity verification, and strong customer authentication.
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Our Verified TM platform detects presentation attack and spoofing threats, evaluates the authenticity of security features present on a government-issued identity document, and biometrically matches the reference picture of the document with a live user’s selfie (a photograph that the user has taken of themselves).
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We maintain a global, cloud-based Verified platform for our enterprise customers or employees to enable their users to easily verify and authenticate their identity through a mobile device or desktop (with camera) of their choosing (without requiring dedicated hardware, or authentication apps).
Added
Usually occurring at account opening or onboarding, identity verification ensures that the enterprise knows that the person interacting with the enterprise is who they say they are, in real time. authID’s Proof TM identity verification product eliminates the need for costly and less accurate face-to-face, in-person ID checks and instead provides a verified identity in seconds.
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We can help our customers establish a proven identity, creating a root of trust that ensures the highest level of assurance for our passwordless login and step-up verification products.
Added
In a digital, online world of increasing fraud and security threats, Proof speeds up onboarding and offers our customers confidence in the identities of consumers, employees or third-party vendors.
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Our system enables participants to consent to transactions using their biometric information with a digitally signed authentication response, embedding the underlying transaction data and each user’s identity attributes within every electronic transaction message processed through our platform. Digital transformation across all market segments requires trusted identity.
Added
Biometric Identity Authentication Biometric identity authentication provides any organization with a secure, convenient solution to validate that an individual is the verified account owner for various purposes including passwordless login and performing specific transactions, or functions.
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Our identity platform offers innovative solutions that are flexible, fast and easy to integrate and offer seamless user experiences. authID’s products help advance digital transformation efforts without the fear of identity fraud, while delivering frictionless user experiences.
Added
The authID Verified product allows users to confirm their identity with their facial biometric by simply taking a selfie on a mobile phone or device of their choosing (as opposed to dedicated hardware). The solution includes a patented audit trail created for each transaction, containing the digitally signed transaction details, with proof of identity authentication and consent.
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We believe that it is also essential that electronic transactions have an audit trail, proving that the identity of the individual was duly authenticated.
Added
Account Access and Recovery authID’s Verified biometric identity authentication solution allows users to recover, via a facial biometric, account access that is lost or blocked due to expired credentials, lockouts, lost or stolen devices, or compromised accounts. Because the account owner’s root of trust is established in the cloud, recovery is independent of any device or hardware.
Removed
Our platform provides biometric and multi-factor identity software, which are intended to establish, authenticate and verify identity across a wide range of use cases and electronic transactions. authID’s products focus on the broad requirement for enabling frictionless commerce by allowing an entity to instantly “Recognise their Customer”, their Employee or their Member.
Added
In this way, account recovery is instant, portable, and does not require the presence of or access to a previously provisioned device in order to secure access from a different device.
Removed
Organizations of all descriptions require cost-effective and secure means of growing their business while mitigating identity fraud. We aim to offer our enterprise customers products that can be integrated easily into each of their business and organizational operations, in order to facilitate their adoption and enhance the end user customer experience.
Added
FIDO Passkey Binding FIDO Passkey Binding enables enterprises and their users to bind biometrically verified user identities to FIDO2 passkeys, enabling strong authentication for device-based passwordless login and transaction authentication that is tied to a trusted identity.
Removed
Our management believes that some of the advantages of our Verified Platform approach are the ability to leverage the platform to support a variety of vertical markets and the adaptability of the platform to the requirements of new markets and new products requiring cost-effective, secure, and configurable mobile solutions.
Added
This solution establishes a digital chain of trust between biometrically verified individuals, their accounts, and their devices, thus eliminating passwords and protecting users and systems against fraud attacks. 30 Key Customer Benefits Our solution allows our enterprise customers to: ● Verify and Authenticate users.
Removed
Our target markets include cybersecurity, workforce, banking, fintech and other disrupters of traditional commerce, small and medium sized businesses, and system integrators working with government and Fortune 1000 enterprises. At its core, the Company’s offering, combining its proprietary and acquired biometric and artificial intelligence technologies (or AI), is intended to facilitate frictionless commerce, whether in the physical or digital world.
Added
Customers can use the authID platform not only to verify the identity of new users, but also to authenticate those users seamlessly on an ongoing basis to enable quick, secure logins and transaction authentications. ● Benefit from high-speed processing .
Removed
The Company intends to increase its investment in developing, patenting and acquiring the various elements necessary to enhance the platform, which are intended to allow us to achieve our goals.

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Other AUID 10-K year-over-year comparisons