UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year
ended December 31, 2024
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-40747
authID Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1580 North Logan Street, Suite 660, Unit 51767
Denver, CO80203
(Address of principal executive offices)
Registrant’s telephone number, including
area code: 516-274-8700
Title of each class Trading Symbol: Name of each exchange on which registered
Common Stock par value $0.0001 per share AUID The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12(g)
of the Exchange Act:
Common Stock, $.0001 par value per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act ☐ Yes ☒No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒No
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. ☒Yes☐
No
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). ☒ Yes☐ No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐ Yes ☒
No
If securities are registered pursuant to
Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Yes ☒ No
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Yes ☒ No
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
No
As of June 28, 2024, the last business day of
the Registrant’s most recently completed second fiscal quarter, the market value of our common stock held by non-affiliates was
$96,708,261 which is based on the average bid and ask price of such common equity, as of the last practical business day of the registrant’s
most recently completed second fiscal quarter of $10.44.
Indicate the number of shares outstanding of each of the registrant’s
classes of common stock as of the latest practicable date.
Class Outstanding at March10, 2025
Documents incorporated by reference: None
TABLE OF CONTENTS
GENERAL INFORMATION
PART I
Item 1. Business 1
Item 1A. Risk Factors 5
Item 1B. Unresolved Staff Comments 20
Item 1C. Cybersecurity 20
Item 2. Properties 22
Item 3. Legal Proceedings 22
Item 4. Mine Safety Disclosures 22
PART II
Item 6. Reserved 27
Item 8. Financial Statements and Supplementary Data 36
Item 9A. Controls and Procedures 36
Item 9B. Other Information 36
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection 36
PART III
Item 10. Directors, Executive Officers and Corporate Governance 37
Item 11. Executive Compensation 41
Item 14. Principal Accounting Fees and Services 52
PART IV
Item 15. Exhibits and Financial Statement Schedules 53
SIGNATURES 55
i
FORWARD-LOOKING STATEMENTS
Certain statements discussed in Item 1 (Business),
Item 1A (Risk Factors), Item 3 (Legal Proceedings), Item 7 (Management’s Discussion and Analysis of Financial Condition and Results
of Operations), Item 7A (Quantitative and Qualitative Disclosures About Market Risk) and elsewhere in this Annual Report on Form 10-K
as well as in other materials and oral statements that the Company releases from time to time to the public constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concerning
management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and
other similar matters involve significant known and unknown risks, uncertainties and other important factors that could cause the actual
results, performance or achievements of results to differ materially from any future results, performance or achievements discussed or
implied by such forward-looking statements. Such risks, uncertainties and other important factors are discussed in Item 1A (Risk Factors)
and Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations. In addition, these statements
constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995. It should be understood
that it is not possible to predict or identify all such factors. Consequently, the following should not be considered to be a complete
discussion of all potential risks or uncertainties. The words “anticipate,” “estimate,” “expect,”
“project,” “intend,” “believe,” “plan,” “target,” “forecast” and
similar expressions are intended to identify forward-looking statements. Forward-looking statements speak only as of the date of the document
in which they are made. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking
statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which the
forward-looking statement is based. It is advisable, however, to consult any further disclosures the Company makes on related subjects
in its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission.
ii
PART I
Item 1. Business
Overview
authID Inc. (together with its subsidiaries, the
“Company”, “authID”, “we” or “our”) ensures enterprises “Know Who’s Behind
the Device”TM for every customer or employee login and transaction. 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. 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, more accurate and privacy preserving user identity experience demanded by operators
of today’s digital ecosystems.
Our Platform
Our 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 – ProofTM
● Biometric Identity Authentication - VerifiedTM
● PrivacyKeyTM Privacy Preserving Biometrics
● Account / Access Recovery
Biometric Identity Verification - Proof
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). Our VerifiedTMplatform
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). 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
ProofTM 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. Additionally, authID’s PrivacyKey technology enables customers to perform
biometric verification through the use of Public/Private Keys that is performed without storing any biometric data, which ensures
individual data privacy. 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.
Biometric Identity Authentication - Verified
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. 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.
PrivacyKey Privacy Preserving Biometrics
authID’s PrivacyKey solution provides biometric authentication
without the requirement to store any biometric or derivative of biometric data. The technology transforms biometric verification into
Public/Private Key cryptography whereby the facial image of the person is converted into an elliptical public/private key pair where only
the public key is stored and the private key only exists during authentication and is deleted immediately after. The solution is compliant
to the ISO30136 Privacy Biometric standard and provides a False Match Rate accuracy of 1:1 Billion at a False Rejection Rate of 0.3%,
as confirmed by independent tests conducted by the Commonwealth Scientific and Industrial Research Organization (“CSRIO”).
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. 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.
1
Key Customer Benefits
Our solution allows our enterprise customers to:
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”).
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, which was dissolved in August 2024. MultiPay S.A.S., and IDGS S.A.S. operations, together
with those of Cards Plus Pty Ltd., are presented as discontinued operations in the Consolidated Statements of Operations during the year
ended December 31, 2023, as they met the criteria for discontinued operations under applicable accounting guidance.
Corporate Information
The Company was incorporated in the State of Delaware on September
21, 2011. Our corporate headquarters is a virtual address 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. 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.
Global Market Opportunity
The momentum towards a digital economy in recent
years, accompanied by a massive growth in cyberattacks, fraud, and account takeovers fueled by Artificial Intelligence 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. 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. 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, cybercrime costs in the
United States alone increased to approximately $452 million in 2024 and are projected to increase to approximately $640 million in 2025
and continue rising to over $1.8 billion in 2028 (Statista: Annual Cost of Cybercrime in the U.S. 2017-2028). 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. 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).
2
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. 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.
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. The Global Biometric Technology
Market is estimated to reach a market size of $50 billion by 2024, increasing at a 20% CAGR to reach over $150 billion by 2030 (Grand
View Research, Biometric Technology Market Size, Share & Trends Analysis Report, 2023 - 2030).
Growth Strategy
We orient our business strategy and invest for future growth by focusing
on the following key priorities:
Sales and Marketing
authID provides its Verified platform based on a subscription and usage-based
model, with fees per transaction, enrolled or active users.
We sell our platform primarily through our direct
sales team, which consists of inside sales and field sales professionals based in the United States. 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. Our leadership team significantly expanded our sales force
and technical sales support. We also use a 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 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.
3
Competition
The market for our service offerings is highly
competitive and rapidly evolving. We face competition from a broad range of providers with solutions across the identity management lifecycle,
including:
● New entrants seeking to develop and market competing technologies.
It is also possible that, as the digital identity
market continues to grow and evolve, larger companies with significant resources may increase their presence in the market and develop
competing solutions through internal efforts or partnerships with existing players.
Due to our ability to serve both identity verification
and authentication needs, as well as the tendency for enterprises to acquire multiple digital identity solutions, we can and often do
co-exist with competing products within our customer base.
Research and Development
Our research and development team is responsible
for the design, development, testing and quality of our platform as well as any new technologies, features, integrations and improvements.
The team includes specialists in software engineering, user experience, quality assurance, product management, infrastructure, and technical
writing. Our employees are located primarily in the United States, with additional sub-contractors based in Europe, India and the Caribbean.
We intend to continue to invest in our technology to strengthen and expand our platform to stay ahead of our competition and meet the
evolving needs of our current and prospective customers.
Intellectual Property
We rely on a combination of patents, trademarks,
copyrights, trade secrets and contractual provisions to protect our proprietary technology. For example, we enter into confidentiality
and invention assignment agreements with our employees, consultants and other third parties, and control access to software, services,
documentation and other proprietary information. We believe the duration of our patents is adequate relative to the expected lives of
our service offerings. We also purchase or license technology that we incorporate into our products or services. While it may be necessary
in the future to seek or renew licenses relating to various aspects of our products, we believe, based upon past experience and industry
practice, such licenses generally could be obtained on commercially reasonable terms.
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.
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.
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. 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. These regulations could have a significant impact on our business.
Human Capital
As of December 31, 2024, the Company had a total
of 46 employees who are located in the United States, Latvia and Colombia as well as outsourced service providers. There are 31 employees
in the United States who provide overall Company strategic, business and technological leadership. Employees in the U.S. and Latvia receive
health benefits on a cost-sharing basis and employees in Colombia are provided the respective Government required benefits.
4
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 had one subsidiary in Colombia: MultiPay
S.A.S. which was dissolved as of August 2, 2024. The Company has one subsidiary in the United Kingdom: Ipsidy Enterprises Limited. The
Company is the sole shareholder of all its subsidiaries.
Available Information
Our Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and any amendment to these reports are filed with the SEC. Such reports and other information filed by us
with the SEC are available free of charge on our website at investors.authid.ai as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. The SEC maintains an internet site that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC at www.sec.gov. The information contained on the
websites referenced in this Form 10-K is not incorporated by reference into this filing.
Recent Developments
None.
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. This summary should be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive
summary of the material risks facing our business. The following factors could result in harm to our business, reputation, revenue, financial
results, and prospects, among other impacts:
● We depend upon key personnel and need additional personnel.
● 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.
5
● We do not anticipate paying any cash dividends in the foreseeable future.
6
We have a history of losses and we may not be able to achieve profitability
going forward.
We have an accumulated deficit of approximately
$173.8 million as of December 31, 2024 and incurred an operating loss of approximately $14.3 million for the year ended December 31, 2024.
We have had net losses in most of our quarters since our inception. We expect that we will continue to incur net losses in 2025. 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.
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. There is no assurance that even if we successfully implement
our business plan, that we will be able to curtail our losses. If we incur significant additional operating losses, our stock price may
decline, perhaps significantly and the Company will need to raise substantial additional capital in order to be able to continue to operate,
which will dilute the existing stockholders and such dilution may be significant. Additional capital may not be available on terms acceptable
to the Company, or at all. As there can be no assurance that the Company will be able to achieve positive cash flows (become cash flow
positive) and raise sufficient capital to maintain operations, there is substantial doubt about the Company’s ability to continue
as a going concern.
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 $11.6 million and approximately $8.4 million for the years ended December 31, 2024 and 2023, respectively.
We anticipate that we will continue to have negative cash flows from operating activities through at least the next 12 months 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. An inability to generate
positive cash flow from operations may adversely affect our ability to raise needed capital for our business on reasonable terms, if at
all. It may also diminish supplier or customer willingness to enter into transactions with us, and have other adverse effects that may
impact our long-term viability. 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. 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.
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 $10.0 million and $15.4 million net proceeds after expenses in 2024 and 2023, respectively, through equity and
debt financing at varying terms.
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. 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. 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.
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. 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. Further, there can be no guarantee
that we will not lose business to our existing or potential new competitors.
7
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. 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. 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. If we are successful in attracting and retaining such individuals, it is likely that our payroll costs
and related expenses will increase significantly and that there will be additional dilution to existing stockholders as a result of equity
incentives that may need to be issued to such management personnel. 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.
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. 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. 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. Realizing the benefits of any future acquisition will depend in part on the integration of
intellectual property, products, operations, personnel and sales force and the completion of assignments of current and past contracts
and rights. These integration activities are complex and time-consuming, and we may encounter unexpected difficulties or incur unexpected
costs. We may not successfully integrate our existing and acquired operations, and may not realize the anticipated net reductions in costs
and expenses and other benefits and synergies of the acquisition to the extent, or in the timeframe, anticipated. In addition to the integration
risks, we could face numerous other risks, including, but not limited to, the following:
● our responsibility for the liabilities of the businesses we acquire;
● potential loss of key employees of the companies we acquire.
The occurrence of any of these risks could have
a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger
acquisition, or concurrent acquisitions.
8
The market for our products is characterized
by changing technology, requirements, standards and products, is impacted by the growing use of AI technologies and we may be adversely
affected if we do not respond promptly and effectively to these changes.
The market for our identity verification and authentication
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. In addition, cyberattack attempts
are increasing in number, magnitude, and technical sophistication, and we expect emerging technologies to contribute to the increasing
sophistication of attacks and to lead to new threats. For example, threat actors are leveraging emerging artificial intelligence (or,
AI) technologies to develop new hacking tools and attack vectors, generate deep fake images, exploit vulnerabilities, obscure their activities,
and increase the difficulty of threat attribution. The use of AI by bad actors can increase both the sophistication and ease of production
and therefore proliferation of these new threats. 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 AI threats,
keep pace with technological developments and emerging industry standards and address the increasingly sophisticated needs of our customers.
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.
There can be no assurance that we will successfully
identify new product opportunities and develop and bring new products to market in a timely manner, or that the products and technologies
developed by others will not render our products or technologies obsolete or noncompetitive. The failure of our new product development
efforts could have a material adverse effect on our business, results of operations and future growth.
Issues relating to
the development and use of AI, including generative AI, in our offerings may result in reputational harm, liability and adverse financial
results.
Social, ethical and operational
issues relating to the use of AI, including generative AI, in our offerings may result in reputational harm, liability and additional
costs. We are incorporating AI technologies, developed by third parties, into our offerings. If our AI development, deployment, data privacy
and product disclosures, or governance is ineffective or inadequate, it may result in incidents that impair the public acceptance of our
AI solutions, or cause harm to individuals, customers or society, or result in our offerings not working as intended or producing unexpected
outcomes.
Jurisdictions around
the world are developing and passing new regulations that apply specifically to the use of AI. For example, the EU AI Act was adopted
in 2024 and will be implemented in phases through 2030, and other jurisdictions are considering similarly focused legislation. These regulations
and the evolving AI regulatory environment may, among other impacts, result in inconsistencies among AI regulations and frameworks across
jurisdictions, increase our compliance, governance and research and development costs, increase our exposure to claims related to our
AI models and increase liability related to the use of AI by our customers or users that are beyond our control. There can be no guarantee
that future AI regulations will not adversely impact us or conflict with our approach to AI, including affecting our ability to make our
offerings available without costly changes, delaying or halting development of our offerings, requiring us to change our development practices,
go to market strategies and indemnity protections and subjecting us to additional compliance requirements, regulatory action, competitive
harm, reputational harm and legal liability. To the extent we rely on third-party AI technologies in our products, services and solutions,
we will face risks inherent in how those technologies and their AI models have been developed and deployed.
Uncertainty around new
and evolving AI uses may require significant, additional investment. We may in the future experience, challenges accessing AI models,
datasets or hardware. Developing, testing and deploying AI systems and countermeasures to AI threats outlined above, may also increase
the cost of our offerings, including due to the nature of the computing costs.
9
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.
Our ability to grow depends significantly on whether
organizations of various types and sizes adopt our technology and solutions as part of their new standards. If these organizations do
not adopt our technology, we may not be able to penetrate some of the new markets we are targeting, or we may lose some of our existing
customer base.
In order for us to achieve our growth objectives,
our identity verification and authentication technologies and solutions must be adapted to and adopted in a variety of areas including,
among others, computer and online systems access control, and identity verification for transaction authentication purposes.
We cannot accurately predict the future growth
rate, if any, or the ultimate size of these markets. The growth of the market for our products and services depends on a number of factors
such as the cost, performance and reliability of our products and services compared to the products and services of our competitors, customer
perception of the benefits of our products and solutions, public perception of the intrusiveness of these solutions and the manner in
which organizations use the information collected, customer satisfaction with our products and services and marketing efforts and publicity
for our products and services. 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.
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.
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).
We may not be afforded the opportunity in the
future to bid on contracts that are held by other companies and are scheduled to expire, if the governments, or the applicable state or
local agency or municipality determines to extend the existing contract. If we are unable to win new contract awards or retain those contracts,
if any, that we are awarded over any extended period, our business, prospects, financial condition and results of operations will be adversely
affected.
In addition, Governmental Contracts subject us
to risks associated with public budgetary restrictions and uncertainties, actual contracts that are less than awarded contract amounts,
the requirement for posting a performance bond and the related cost and cancellation at any time at the option of the governmental agency.
Any failure to comply with the terms of any Governmental Contracts could result in substantial civil and criminal fines and penalties,
as well as suspension from future contracts for a significant period of time, any of which could adversely affect our business by requiring
us to pay significant fines and penalties or prevent us from earning revenues from Governmental Contracts during the suspension period.
Additionally, we are subject to the U.S. 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.
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 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. 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. Governmental agencies also have the power, based
on financial difficulties or investigations of their contractors, to deem contractors unsuitable for new contract awards. Because we will
engage in the government contracting business, we will be subject to additional regulatory and legal compliance requirements, as well
as audits, and may be subject to investigation, by governmental entities. Compliance with such additional regulatory requirements is likely
to result in additional operational costs in performing such Governmental Contracts which may impact on our profitability. Failure to
comply with the terms of any Governmental Contract could result in substantial civil and criminal fines and penalties, as well as suspension
from future contracts for a significant period of time, any of which could adversely affect our business by requiring us to pay fines
and penalties and prohibiting us from earning revenues from Governmental Contracts during the suspension period.
10
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 and current congressional uncertainty over the debt ceiling which could lead to a further shutdown, 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.
Competitive bidding, whether for contracts with governments or with
private enterprises, presents a number of risks, including:
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.
We rely in part on third-party software to develop and provide our
solutions.
We rely in part on software licensed from third
parties to develop and offer some of our solutions. Any loss of the right to use any such software or other intellectual property required
for the development and maintenance of our solutions, or any defects or other issues with such software could result in problems or delays
in the provision of our solutions until equivalent technology is either developed by us, or, if available from others, is identified,
obtained, and integrated, which could harm our business.
We depend upon a small number of large sales
with contractual commitments ranging from $500,000 up to $10,000,000, which take longer to close and may result in a concentration of
business and unpredictable quarterly revenue.
We derive a substantial portion of our revenues
from a small number of sales with large contractual commitments ranging from $500,000 up to $10,000,000. We have changed the product set
of the business 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. We have at the same time changed our marketing focus
to target major enterprises, which involve a longer sales cycle but if we are successful in securing contracts with multi-million dollar
contractual commitments with such enterprises, we believe that such contracts will generate substantial, sustainable revenue growth. At
the same time, we are also focusing our efforts in expanding our channel partner relationships, in the expectation that these will bring
additional sales that will be quicker and easier to close. We are still endeavoring to enter into multi-year contracts for our new products
with minimum commitments ranging in price from $50,000 to $10,000,000 and we may, or may not, be successful in achieving such sales. If
we are successful in securing the major contractual commitments that we are targeting, that may result in concentration of our business
amongst a small number of customers, the loss of any one of which could have significant adverse effects on our revenue and financial
situation. Additionally, the longer sales and implementation cycle of major enterprises may delay the recognition of revenue and adversely
affect our results of operations in the meantime. Some of our large contractual commitments are from enterprises, which are at an early
stage of business development and the ramp in their business and processing volumes may be unpredictable. 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.
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.
11
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. Although we are now focusing our efforts
in generating more United States based revenues, we continue to pursue international sales, in particular in Asia and Europe. 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:
● local Data Privacy and other regulations;
● trade restrictions;
● import 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;
● impact of the Coronavirus or other pandemics; and
● 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 our business, results of operations
or financial condition.
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.
In conducting our business in foreign countries,
we are subject to political, economic, legal, operational and other risks that are inherent in operating in other countries. Risks inherent
to operating in other countries range from difficulties in settling transactions in emerging markets to possible nationalization, expropriation,
price controls and other restrictive governmental actions. We also face the risk that exchange controls or similar restrictions imposed
by foreign governmental authorities may restrict our ability to convert local currency received or held by us in their countries into
U.S. dollars or other currencies, or to take those dollars or other currencies out of those countries.
It is possible that countries in which we do or
intend to do business, or companies and their principals become subject to sanctions under U.S. law. This would prevent us from doing
business with those countries or with those entities or individuals. 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.
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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.
Cyberattacks 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. 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. 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. There is no guarantee that we can prevent all such attacks, even if we become aware of their potential. While we maintain insurance
coverage for some of these events, the potential liabilities associated with these events could exceed the insurance coverage we maintain.
A failure to protect the privacy of customer and employee confidential data against breaches of network or IT security could result in
damage to our reputation. To date, we have not been subject to cyberattacks 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.
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. Although we are not aware that we have experienced
any act of sabotage or unauthorized access by a third party of our software or technology to date, if an actual or perceived breach of
security occurs in our internal systems or those of our customers, regardless of whether we caused the breach, it could adversely affect
the market’s perception of our products and services. This could cause us to lose customers, resellers, alliance partners or other
business partners, thereby causing our revenues to decline. If we or our customers were to experience a breach of our internal systems,
our business could be severely harmed by adversely affecting the market’s perception of our products and services.
Most recently, we have considered the impact of
pandemics (e.g. COVID-19) on our overall operations. The impact of any disease which may give rise to a pandemic in the United States
and worldwide are unknown, and the widespread growth in infections, or travel restrictions, quarantines or site closures imposed as a
result of disease, among other things, may impact the ability of our employees, sub-contractors, or our customers’ employees and
sub-contractors to attend places of work, to meet with potential customers, or undertake implementations at our customer’s locations.
In addition, such a disease could lead to disruptions in our supply chain, causing shortages or unavailability of software updates, or
necessary equipment. Any of these outcomes could have a material adverse effect on our business, financial condition, results of operations,
and cash flows.
The wars 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.
The wars 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. 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,