Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The discussion and analysis of our financial condition
and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis,
we evaluate estimates and judgments, including those described in greater detail below. We base our estimates on historical experience
and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
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. (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
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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.
Key Customer Benefits
Our solution allows our enterprise customers to:
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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. 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.
Key Trends
We believe that our financial results will be
impacted by several market trends in the identity verification and authentication markets, as well as expanding digital transformation
efforts across a wide range of market segments. These trends include:
● the growth in the sharing economy; and
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. 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.
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.
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Going Concern
The Company’s consolidated financial statements
included in this Annual Report have been prepared in accordance with U.S. 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, 2024, the Company had an accumulated
deficit of approximately $173.8 million. For the year ended December 31, 2024, the Company earned revenue of approximately $0.9 million,
used $11.6 million to fund its operations, and incurred a net loss from continuing operations of approximately $14.3 million.
The continuation of the Company as a going concern
is dependent upon financial support from the Company’s stockholders, the ability of the Company to obtain additional debt or equity
financing to continue operations, the Company’s ability to generate sufficient revenues and cash flows from operations (both from
existing and new customers), and successfully locating and negotiating with cash generating business entities for potential acquisition
by the Company. In June 2024, the Company raised approximately $10.0 million after expenses from existing and new stockholders through
the sale of Common Stock pursuant to a registered direct offering. Going forward, the Company plans to raise additional funds to support
its operations and investments as it seeks to create a sustainable organization. Our growth-oriented business plan to offer products to
our customers will require continued capital investment and there is no guarantee that such financing will be available, or available
on acceptable terms.
As discussed in “Liquidity and Capital Resources”
below, the Company secured additional financing during 2024 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. 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 assurance that the Company will ever
be profitable. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable 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 positive)
and raise sufficient capital to maintain operations, there is substantial doubt about the Company’s ability to continue as a going
concern.
Subsequent Events
Management of the Company has performed a review of all events and
transactions occurring after the condensed consolidated balance sheet date and determined there were no events or transactions requiring
adjustment to or disclosure in the accompanying condensed consolidated financial statements.
Related Party Transactions
On June 6, 2023, the Company entered into a services
agreement with The Pipeline Group, Inc. (“TPG”). Ken Jisser, a director of the Company, is the founder and CEO of TPG, a technology-enabled
services company that aims to deliver business results for companies looking to build a predictable and profitable pipeline. The agreement
provides that TPG will assist in providing outsourced sales including business development resources for outbound calling, provide support
for automated dialing technology, classify customer data and other sales related services for an initial term of one year. These services
and their contracted pricing has been evaluated by Management based on historical experience with similar providers and determined to
be priced at fair market rates. On October 25, 2023, on December 19, 2023 and on August 26, 2024, the Company entered into amendments
to the above services agreement, pursuant to which TPG will provide certain additional services to the Company. In consideration of the
services, the Company will pay TPG $70,000 per month during the current term ending in June 2025. 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. 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. Stephen Garchik, which are summarized in the following paragraphs. Mr. Garchik is now a holder
of more than 10% of the issued and outstanding common stock of the Company. Mr. Garchik’s financial support for the Company has
been a material factor in the continued operation of the Company over the period covered by this Annual Report and its current financial
position. Full details of these transactions are set forth in Item 13 “Certain Relationships and Related Transactions and Director
Independence” and in Note 7 “Related Party Transactions” to the Audited Consolidated Financial Statements of the Company
as of and for the years ended December 31, 2024 and 2023, which are exhibited hereto (the “Consolidated Financial Statements”).
30
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. By virtue of such right of nomination Mr. Garchik considered himself a “director
by deputization”.
As described in Note 5 “Working Capital
Facility”, the Original Facility Agreement was amended and restated effective March 8, 2023 pursuant to which amendment the amount
of the facility was reduced to $3.6 million, an initial advance of $900,000 was made and subsequent advances under the A&R Facility
Agreement are subject to various conditions including the granting of a security interest over substantially all the Company’s assets.
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. 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. Garchik agreed
to terminate the A&R Facility Agreement and satisfied and offset the outstanding balance of the Note and accrued interest in the amount
of $929,250 with the purchase price of 253,617 shares of common stock. In addition, Mr. Garchik invested a further $1,000,000 on the same
date. The purchase price of the shares issued in these two transactions was the same as the purchase price paid by all other investors
(who were not directors) in the same round and was the Nasdaq Official Closing Price in effect on the date of the transaction.
Further, On May 23, 2023, pursuant to an Exchange
Agreement, Mr. Garchik, exchanged a Convertible Note and accrued interest in the amount of $1,014,625 for 268,705 shares of common stock.
The price of the shares issued to Mr. Garchik under the Exchange Agreement was the same as the purchase price paid by all other investors
(who were not directors) pursuant to the Exchange Agreement and was the Nasdaq Official Closing Price in effect on the date of the transaction.
As a result of such exchange, the issuance of shares in satisfaction of the Credit Facility and the purchase of additional shares of common
stock as referenced above (See Note 8 “Shareholders’ Equity” to the Consolidated Financial Statements), Mr. Garchik
is now a holder of more than 10% of the outstanding shares of the Company’s common stock.
On November 20, 2023, Mr. Garchik, purchased 166,667
shares of Company’s common stock at a price of $1,000,000. The purchase price of the shares issued in this transaction was the same
as the purchase price paid by all other investors in the same round and was higher than the Nasdaq Official Closing Price in effect on
the date of the transaction.
On June 26, 2024, Mr. Garchik, purchased
150,000 shares of the Company’s common stock at a price of $1,125,000. The purchase price of the shares issued in this
transaction was the same as the purchase price paid by all other investors in the same round and represented a 24% discount to the
Nasdaq Official Closing Price in effect on the date of the transaction.
Since June 2023, the Company has employed Dale
Daguro, the brother of our CEO, Rhon Daguro as a VP Sales. Dale Daguro’s employment is at will and may be terminated at any time,
with or without cause. Dale’s compensation is commensurate with other executives employed by the Company at a similar level of seniority
and experience. During the year ended December 31, 2024, Dale Daguro earned approximately $255,000 in base salary and sales commission.
As further described in Item 13 “Certain
Relationships and Related Transactions and Director Independence” and in Note 7 “Related Party Transactions” to the
Consolidated Financial Statements, the Company has entered into various equity investments and employment agreements with Directors and
Officers of the Company.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully
described in the notes to our consolidated financial statements. Those material accounting estimates that we believe are the most critical
to an investor’s understanding of our financial results and condition are discussed immediately below and are particularly important
to the portrayal of our financial position and results of operations and require the application of significant judgment by our management
to determine the appropriate assumptions to be used in the determination of certain estimates.
Use of Estimates
In preparing these consolidated financial statements
in conformity with U.S. GAAP, management is required to make estimates and assumptions that may affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported
amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
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Revenue Recognition
Software License – The Company recognizes revenue
based on the identified performance obligations over the performance period for fixed consideration and / or variable fees generated.
Variable fees are typically earned over time based on monthly users and transaction volumes. We allocate the selling price in a contract
which has multiple performance obligations based on the contract selling price that we believe represents a fair market price for the
service rendered based on estimated standalone selling price. Transaction fees are billed monthly and are constrained to transactions
incurred within the month.
For contracts with minimum annual fees, the Company generally recognizes
the amount of revenue ratably over the contract year and records contract assets for the amount in excess of monthly contract billings
relating to variable contract consideration. For certain contracts, the Company enters into an agreement which stipulates a minimum annual
fee which is generally due at the end of the contract year, in excess of the amount of monthly billings. The Company may also require
milestone payments of the minimum annual fee. The amount of any billed fees in excess of revenue recognized is recorded as deferred revenue.
The company accounts for any price concessions granted to a customer as reductions to consideration under each respective contract and
subsequently recognizes revenue up to the amount of the revised consideration after the concession is provided.
Any usage-based fees in excess of the minimum
contract amount are charged to the customer and allocated to the annual period in which they are earned under the contract. At the beginning
of each annual period in the contract, the Company estimates the variable amounts for the annual period subject to the constrained variable
consideration (usage-based fees) and recognizes that amount on a time-elapsed basis over the annual period. At each reporting date within
an annual period, the Company reassesses its estimate of the excess variable amounts for the annual period and updates the amount recognized
on a time-elapsed basis over the remainder of the annual period.
Stock-based compensation
The Company has accounted for stock-based compensation
under the provisions of FASB ASC 718 – “Stock Compensation” which requires the use of the fair-value based method to
determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (stock options
and common stock purchase warrants). 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. 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. We continually monitor exercise activity from the date of grant and consider our short history and
certain stock price growth during various periods to determine if expected term should be modified. 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. The Company accounts for forfeitures of
employee awards as they occur.
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. 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. Other items included the following:
● Conversion expense of $0 in 2024 and $7.5 million in 2023
● Severance cost of $0.01 million in 2024 and $0.9 million in 2023
● Loss on debt extinguishment of $0 in 2024 and $0.4 million in 2023
Management believes that Adjusted EBITDA, when
viewed with our results under U.S. GAAP and the accompanying reconciliations, provides useful information about our period-over-period
results. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of
our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the
evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance
of our company and our management, and it will be a focus as we invest in and grow the business.
32
Adjusted EBITDA has limitations as an
analytical tool, and you should not consider it in isolation from, or as a substitute for, analysis of our results as reported under GAAP.
Some of these limitations are:
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.
For the Year Ended
December 31,
Addback:
Loss on debt extinguishment 380,741
Non-Cash recruiting fees 438,000
Adjusted EBITDA continuing operations (Non-GAAP) $ (11,878,801 ) $ (8,711,601 )
The increase in Adjusted EBITDA Loss From Continuing
Operations in 2024 compared to 2023 can be attributed to several factors. First, the Company took a strategic approach to increase funding
for its operations, resulting in an increase in its overall operating expenses. Additionally, the Company invested significantly in research
and development, and people.
Results of Operations and Financial Condition
for the Year Ended December 31, 2024 as Compared to the Year Ended December 31, 2023
Revenues, net
During the year ended December 31, 2024,
the Company revenues were approximately $886,000 compared to approximately $190,000 for the year ended December 31, 2023. Revenue increased
as we acquired and went live with new customers.
General and administrative expenses
During the year ended December 31, 2024, general
and administrative expenses increased by approximately $1.1 million compared to the year ended December 31, 2023, principally due to higher
stock-based compensation expenses as well as the Company’s increase in headcount costs and higher third-party vendor costs.
33
Research and development expenses
During the year ended December 31, 2024,
research and development expenses increased by approximately $3.7 million compared to the year ended December 31, 2023, principally due
to higher stock-based compensation expenses as well as the Company’s increase in headcount costs and higher third-party vendor costs.
Depreciation and amortization expense
During the year ended December 31, 2024, depreciation
and amortization decreased by approximately $0.1 million compared to the year ended December 31, 2023, as the Company’s intangible
assets useful life decreases.
Interest expense
Interest expense during the year ended December
31, 2024 compared to the year ended December 31, 2023 decreased by $1.1 million, principally due to the exchange of Convertible Notes
for common stock in May 2023.
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. 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. Our sales and 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 of our revenue from those products.
Liquidity and Capital Resources
As of December 31, 2024, current assets
were $10.1 million and current liabilities outstanding amounted to $3.0 million which resulted in net working capital of $7.1 million.
Net cash used by operating activities was $11.6
million for the year ended December 31, 2024 compared to $8.4 million in 2023. Cash used in operations for 2024 and 2023 was primarily
the result of funding the business operations as the Company invested in people and product.
Net cash (used)/generated in investing activities
in 2024 and 2023 was approximately ($66,000) and $75,000 as the Company received certain proceeds from the sale of its discontinued businesses
in 2023.
Net cash provided by financing activities
for 2024 was approximately $10.0 million, compared to $15.4 million in 2023. Cash provided by financing activities in 2024 consisted primarily
of proceeds from sale of Common Stock pursuant to a registered direct offering in June 2024. Cash provided by financing activities in
2023 consists of proceeds from the sale of common stock in May 2023 and November 2023 and a $0.5 million initial drawdown net of debt
issuance costs under the Company’s A&R Facility Agreement.
In 2025, 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. Research and development activities and technology deployment will require
continued investment.
34
The Company projects that the current and past
investments in technology and systems will lead to revenue expansion, thereby reducing liquidity needs. However, to further implement
its business plan and satisfy its working capital requirements, the Company will need to raise more 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 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. 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. The Company has not been able to achieve positive
cash flows from operations and raised additional financing in 2024 and 2023 from the sale of equity and convertible notes.
As of December 31, 2024, the Company has the remaining balance of a
series of Senior Secured Convertible Notes outstanding for $245,000 due in March 2025.
See Notes 5 and 6 of the Consolidated Financial Statements for additional
information associated with the convertible notes payable.
Equity Financing
See Note 8 of the Consolidated Financial Statements for additional
information associated with equity financing in 2024 and 2023.
2024 Common Stock Transactions
2023 Common Stock Transactions
Off-Balance Sheet Arrangements
We have no off-balance sheet financing arrangements.
35
Contractual Obligations
As of December 31, 2024, the Company had the following contractual
obligations.
Payments due by period
Less than More than
Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements
and notes thereto and the report of our independent registered public accounting firm (PCOAB ID 00677), are set forth on pages F-1 through
F-28 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual
Report, our Chief Executive Officer and Chief Financial Officer performed an evaluation of the effectiveness of our disclosure controls
and procedures as defined in Rules 13a-15 and 15d-15(e) of the Exchange Act. Based on the evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of December 31, 2024, the Company’s disclosure controls and procedures are effective
to ensure that the information required to be disclosed by the Company in the report that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible
for establishing and maintaining adequate internal control over financial reporting for the Company, as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide
reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements in
accordance with U.S. accepted accounting principles. Our management, including the Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all
errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, have been detected and such evaluation is subject to the risks discussed in item 1A – Risk Factors
of this Report.
The Company’s management assessed the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2024, using the criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s
assessment using the above criteria, management concluded that the Company maintained effective internal control over financial reporting
as of December 31, 2024.
Changes in Internal Control over Financial Reporting
During the last fiscal year, there have been no
changes except as noted above in our internal control over financial reporting that occurred during our last fiscal year that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
During the quarter ended December 31, 2024, no
director or officer adopted or terminated (i) any contract, instruction or written plan for the purchase or sale of securities of the
Company intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or (ii) any “non-Rule 10b5-1 trading arrangement”
as defined in paragraph (c) of item 408 of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.
Not applicable.
36
PART III
Item 10. Directors, Executive Officers, and Corporate Governance;
The current Directors and Officers of the Company are as follows:
Name Age Position (s) and Offices Held
Rhoniel A. Daguro (2) 50 Director and Chief Executive Officer
Edward C. Sellitto 40 Chief Financial Officer
Thomas R. Szoke 60 Director, Chief Technology Officer
Erick Soto 37 Chief Product Officer
Ken Jisser 47 Director
Kunal Mehta (3) 56 Director
Michael L. Koehneman*(1)(2) 64 Director
Michael C. Thompson (1)(2)(3) 64 Director
Jacqueline L. White*(1)(3) 60 Director
* denotes Committee Chair
(1) Audit Committee
(2) Governance Committee
(3) Compensation Committee
Rhoniel A. Daguro
Mr. Daguro joined our company as a director on
March 9, 2023 and was appointed CEO on March 23, 2023. He has over 20 years of sales, marketing, technology, and venture capital experience.
He has built multiple profitable software and professional services firms. Most recently, from 2018 to 2022, he served as the Chief Revenue
Officer of Socure Inc. Prior to that, Mr. Daguro held various executive sales positions with Persistent Systems, Hortonworks, and Oracle.
Edward C. Sellitto
Mr. Sellitto joined authID as Chief Financial
Officer of the Company on August 15, 2023. Mr. Sellitto has over 15 years of experience in Financial Management and Revenue Operations
roles supporting a wide range of industries and company sizes, from startups to Fortune 100 organizations. Most
recently, from December 2022 through present, he served as Vice President, Revenue Operations at Zero Hash, a Digital Asset-as-a-Service
infrastructure provider. From February 2022 through December 2022, Mr. Sellitto served as the Head of Go-To-Market Financial Planning
and Analysis for Sprinklr (NYSE: CXM) and held various roles including Director – Sales Operations and VP – Revenue Operations
with Source from May 2019 through February 2022. Further, from 2018 to 2019, Mr. Sellitto served as the Director – Sales Operations
for SmartSource Rentals. Ed holds an MBA in Corporate Finance and Strategy from the Stern School of Business at New York University.
Thomas R. Szoke
Mr. Szoke is a co-founder of authID and has over
35 years of executive management, solutions engineering, and operations management experience in Government Security, Identity Access
Management and SaaS solutions industries. He rejoined the Company as a Director on March 9, 2023 and in April 2023 became the Company’s
Chief Technology Officer. Mr. Szoke previously served as a Director and the Company’s Chief Solutions Architect and has held several
other executive positions since its inception, from 2013 through 2021. He has also expanded the Company’s market presence and product
portfolio through technological innovation and global strategic partnerships. Mr. Szoke has been issued several US and international patents
focused on identity solutions and has pioneered the concept and development of different product lines for the Company including its Multi-Factor
Out-of-Band Identity and Transaction Authentication Platform. From 2021 to 2023, he was an independent consultant for the Company and
others.
Erick Soto
Mr. Soto joined authID as Chief Product Officer
of the Company on September 23, 2024. Mr. Soto is a seasoned product leader with over 15 years of experience in product management within
the fintech and identity industries. Mr. Soto most recently served as Chief Product Officer at Oxygen Health, a provider of health benefit
plans, from September 2023, through August 2024. From September 2022 to August 2023, Mr. Soto was Chief Product Officer – New Digital
Initiatives at BBVA, the global financial services group. Prior to that from April 2018 to July 2022, Erick was VP of Product at Socure,
a provider of identity verification and fraud prevention solutions.
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Ken Jisser
Mr. Jisser joined authID on March 9, 2023. He
is the Founder & CEO of The Pipeline Group, Inc., a technology-enabled services company that aims to deliver business results for
companies looking to build predictable and profitable pipeline. Mr. Jisser founded the company in his garage in 2017, and it reached #415
among the fastest growing private companies in America, according to Inc. Magazine rankings published in 2021. Prior to that, Mr. Jisser
served as GTM Advisor at Druva Inc., where he rebuilt the global inside sales team.
Michael L. Koehneman
Mr. Koehneman joined our company as a Director
on June 9, 2021. Mr. Koehneman previously held various positions at Pricewaterhouse Coopers, a global accounting firm, through 2020, including
the Global Advisory Chief Operating Officer and Human Capital Leader from 2016 through 2019, the U.S. Advisory Operations Leader from
2005 through 2016 responsible for the oversight of Advisory services for PwC, including business unit performance, finance, investments,
human resources, acquisitions, and administration, and the Lead Engagement Partner for Financial Statement Audits and Internal Control
and Security Reviews from 1993 through 2004 for several public and private company audits. Since 2020 he has also served as a director
and member of the Audit Committee of Aspen Group, Inc.
Kunal Mehta
Mr. Mehta became a Director of the Company on March 25, 2024. Mr. Mehta
has over 25 years of experience building value-creation programs for private equity firms and industry experience scaling global revenue
operations, marketing, and sales programs for several of the biggest names in the technology space. In January 2025, Mr. Mehta joined
LaunchQ Inc. (dba TPG Technologies), a go-to-market technology company, as CEO. From 2022-2024, he was an Expert Partner at Boston, Massachusetts-based
Bain & Company, working with a number of Private Equity firms to accelerate Go To Market (GTM) value creation. Between Sept 2019 and
March 2022, he built the Go To Market (GTM) Center of Excellence at Menlo Park, CA-based Technology Crossover Ventures (TCV). From September
2018 to March 2019, Mr. Mehta worked at Druva, a private equity backed portfolio company as VP of Sales Strategy and Operations. Mr. Mehta
began his management career at Hewlett-Packard, progressing through a series of solutions, marketing, and enablement roles with increasing
responsibility. Mr. Mehta earned his MBA in Management of Information Systems, BA in Economics from The George Washington University in
Washington, DC, and MHS in Health Finance & Management from Johns Hopkins.
Michael C. Thompson
Mr. Thompson joined the Company as a Director
on March 9, 2023. He has over 38 years of domestic and international experience in publicly traded and private equity backed consumer
and commercial businesses. Since 2022, Mr. Thompson has been a partner at Hemingway Capital, an operationally focused private equity firm.
Previously, he served as Chief Executive Officer for companies in the bedding (Corsicana Mattress from 2018 to 2022), polyurethane foam
and pet products industries and was an operating executive for two leading middle-market private equity firms. Mr. Thompson has also held
executive positions with Rubbermaid Commercial Products, Merillat Industries, a division of Masco Corporation, and Black+Decker, and began
his career with Sunbeam Appliance Company.
Jacqueline L. White
Ms. White joined our company as a Director on
June 9, 2021. Ms. White has been a leader in enterprise technology software and IT consulting for the past 25 years. Ms. White has held
global positions at SAP, Oracle, and Accenture, always leading diverse, high performing organizations around the world. In May 2023 Ms.
White became President of i2C Inc, which operates a global payments and digital banking platform. Prior to that, Ms. White joined the
Executive Management Team of Temenos AG (Six: TEMN), a company specializing in enterprise software for banks and financial services, as
the President of the Americas Region in January 2021. Ms. White led the Banking & Capital Markets line of business of DXC Technology
Co. (NYSE: DXC) as Senior Vice President and Practice Lead from September 2019 to January 2021. From January 2018 through September 2019,
Ms. White served as the Chief Revenue Officer of Saltstack, a VM Ware Company, and from January 2015 through January 2018 as Global Senior
Vice President Global FSI Consulting for SAP (NYSE: SAP). Prior to joining SAP, Ms. White held various positions with Accenture Services
Pvt. Ltd., Oracle, BearingPoint and Novell. Ms. White was named by Utah Business Magazine as “Top Executives to Watch” in
July 2020. Ms. White received a BA in Comparative Literature from Brigham Young University and a Leadership Certificate from Boston University.
Board & Committees
Board meetings during calendar year ended 2024
During 2024, the Board of Directors held nine
meetings as well as committee meetings, as outlined below. Each director attended all of the meetings of the Board and all of the meetings
held by all committees on which such director served, apart from one Board meeting which one director was not able to attend. The Board
and the Pricing Committee that was formed for the purposes of approval of the funding transaction in June 2024 also approved certain actions
by unanimous written consent.
Committees established by the Board
The Board of Directors has standing Audit,
Compensation, and Governance Committees. Information concerning the function of each Board committee follows.
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Audit Committee
The Audit Committee is responsible for overseeing
management’s implementation of effective internal accounting and financial controls, supervising matters relating to audit functions,
reviewing and setting internal policies and procedures regarding audits, accounting and other financial controls, reviewing the results
of our audit performed by the independent public accountants, and evaluating and selecting the independent public accountants. The Audit
Committee has adopted an Audit Committee Charter which is posted on the Corporate Governance page under the tab labeled “Board Committees”
on our Investor Relations website at https://investors.authid.ai. The Board has designated the Chair of the Committee as the “audit
committee financial expert” as defined by the SEC. During 2024, the Audit Committee held four meetings. The Committee also approved
certain actions by unanimous written consent.
Compensation Committee
The Compensation Committee determines matters
pertaining to the compensation of our named executive officers and administers our stock option and incentive compensation plans. The
Compensation Committee has adopted a Compensation Committee Charter which is posted on the Corporate Governance page under the tab labeled
“Board Committees” on our Investor Relations website at https://investors.authid.ai. During 2024, the Compensation Committee
held two meetings and also approved certain actions by unanimous written consent.
Governance Committee
The Governance Committee is responsible for considering
potential Board members, nominating Directors for election to the Board, implementing the Company’s corporate governance policies,
recommending compensation for the Board and for all other purposes outlined in the Governance Committee Charter, which is posted on the
Corporate Governance page under the tab labeled “Board Committees” on our Investor Relations website at https://investors.authid.ai.
During 2024, the Governance Committee held one meeting.
Nomination of Directors
As provided in its charter, the Governance Committee
is responsible for identifying individuals qualified to become directors. The Governance Committee seeks to identify director candidates
based on input provided by a number of sources including (1) the Governance Committee members, (2) our other directors, (3) our stockholders,
(4) our Chief Executive Officer or Chair of the Board, and (5) third parties such as service providers. In evaluating potential candidates
for director, the Governance Committee considers the entirety of each candidate’s credentials.
Qualifications for consideration as a
director nominee may vary according to the particular areas of expertise being sought as a complement to the existing composition of the
Board of Directors. However, at a minimum, candidates for director must possess:
● high personal and professional ethics and integrity;
● the ability to exercise sound judgment;
● the ability to make independent analytical inquiries;
● the appropriate and relevant business experience and acumen.
Except as set forth below, during the year ended
December 31, 2024, there have been no material changes to the procedures by which security holders may recommend nominees to our board
of directors.
Legal Proceedings
There are currently no legal proceedings, and during the past 10 years
there have been no legal proceedings, that are material to the evaluation of the ability or integrity of any of our directors.
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Family Relationships
There are no family relationships among our directors and executive
officers. There is no arrangement or understanding between or among our executive officers and directors pursuant to which any director
or officer was or is to be selected as a director or officer.
Involvement in Certain Legal Proceedings
To our knowledge, during the last ten years, none of our directors
and executive officers has:
To our knowledge, none of our directors and executive officers
has at any time been subject to any proceedings:
● that were initiated by any regulatory, civil or criminal agency
Code of Ethics
We have adopted a Code of Business Conduct and
Ethics Policy (the “Code of Ethics”) that applies to all directors and officers, which is posted on the Corporate Governance
page under the tab labeled “Board Committees” on our Investor Relations website at https://investors.authid.ai. The Code of
Ethics describes the legal, ethical and regulatory standards that must be followed by the directors and officers of the Company and sets
forth high standards of business conduct applicable to each director and officer. As adopted, the Code of Ethics sets forth written standards
that are designed to deter wrongdoing and to promote, among other things:
● compliance with applicable governmental laws, rules and regulations;
● accountability for adherence to the Code of Ethics.
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Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of
1934, as amended, requires our directors and executive officers and persons who own more than 10% of the issued and outstanding shares
of our common stock to file reports of initial ownership of common stock and other equity securities and subsequent changes in that ownership
with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of
all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written
representations that no other reports were required, during the fiscal year ended December 31, 2024 all Section 16(a) filing requirements
applicable to our officers, directors and greater than 10% beneficial owners were complied with, except that one director filed Form 3
late and another director filed two Forms 4 late.
Equity Award Grant Practices
Equity awards are made by the Compensation Committee,
are discretionary and are not granted to executive officers and employees at any specific time in the year. In April 2024 the Board adopted
a Policy on Granting Equity Awards (“Equity Policy”). Under the Equity Policy, awards to employees shall be made on a date
when the Company’s insider trading window is “open” (i.e., when the Company is not in possession of material non-public
information), and which is at least three business days after the most recent release of the Company’s quarterly or annual earnings,
or Form 8-K Current Report that discloses material non-public information. With respect to grants made to executive officers, and new
hires who will become executive officers the Company shall not grant and/or price of stock options or other incentive securities under
any securities-based compensation arrangement of the Company during the period beginning four (4) business days before and ending one
(1) business day after the filing by the Company of a Form 10-Q Quarterly Report, Form 10-K Annual Report or Form 8-K Current Report that
discloses material non-public information (other than a current report on Form 8–K disclosing a material new option award grant
under Item 5.02(e) of that form). Grants of stock options to new hires (other than those who will become Section 16 officers), will not
be subject to the same restrictions but will be made on the later of the date of approval of the grant by the Compensation Committee and
the date of commencement of employment.
Annual grants of equity awards to members of the
Board shall be effective within three business days after the date of the Annual Stockholders Meeting at which such Director is elected
or re-elected (subject that being in an open period in accordance with the previous paragraph). For Directors appointed other than at
an Annual Stockholders Meeting, initial grants of equity awards shall be effective on the date the Director is appointed (subject that
being in an open period in accordance with the previous paragraph).
In each case where applicable, the exercise/grant price for an award
will be equal to the closing market price of our common stock on the grant date.
Item 11. Executive Compensation
The below table sets forth information concerning
all cash and non-cash compensation awarded to, earned by or paid to (i) all individuals serving as the Company’s principal executive
officers or acting in a similar capacity during the last completed fiscal year, regardless of compensation level, and (ii) the Company’s
two most highly compensated executive officers other than the principal executive officers serving at the end of the last completed fiscal
year (collectively, the “Named Executive Officers”).
SUMMARY COMPENSATION TABLE
Non-Equity All
Option Incentive Plan Other
Salary Bonus Awards Compensation Compensation Total
Name and Title Year ($) ($) ($) ($) ($) ($)