SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31,September 30, 2021

 

OR

 

☐ 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 000-54545001-40747

 

 

Ipsidy Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 46-2069547

(State or other jurisdiction of


incorporation or organization)

 (I.R.S. Employer

Identification No.)

 

670 Long Beach Boulevard

Long Beach, New York

11561

(Address of principal executive offices) (zip code)

 

516-274-8700

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol Name of each exchange on which registered
Not applicable.Common Stock par value $0.0001 per share AUID  The NASDAQ Stock Market LLC

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.

files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Class Outstanding at April 30,October 31, 2021
Common Stock, par value $0.0001 604,308,061 shares23,204,488
Documents incorporated by reference: None

 

 

 

 

 

TABLE OF CONTENTS

 

  Page No.
PART I - FINANCIAL INFORMATION  
   
Item 1. Financial Statements. 1 - 5
   
Condensed Consolidated Balance Sheets as of March 31,September 30, 2021 (unaudited) and December 31, 2020 1
   
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31,September 30, 2021 and 2020 (unaudited) 2
   
Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended March 31,September 30, 2021 and 2020 (unaudited) 3
   
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended March 31,September 30, 2021 and 2020 (unaudited) 4
   
Condensed Consolidated Statements of Cash Flows for the ThreeNine Months Ended March 31,September 30, 2021 and 2020 (unaudited) 5
   
Notes to Unaudited Condensed Consolidated Financial Statements 6-186-21
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 19-2422-27
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 2428
   
Item 4. Controls and Procedures. 2428
   
PART II - OTHER INFORMATION  
   
Item 1. Legal Proceedings. 2529
   
Item 1A. Risk Factors. 2529
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 2529
   
Item 3. Defaults Upon Senior Securities. 2529
   
Item 4. Mine Safety Disclosures. 2529
   
Item 5. Other Information. 2529
   
Item 6. Exhibits. 26-2830

 

i

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs.

 

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in this report, in Part I. Item 1A. Risk Factors also appear in our Annual Report on Form 10-K for the year ended December 31, 2020 and our other filings with the Securities and Exchange Commission. Some examples of risk factors which may affect our business are as follows:

 

our lack of significant revenues and history of losses,

 

our ability to continue as a going concern,

 

our ability to raise additional working capital as necessary,

 

our ability to satisfy our obligations as they become due,

 

the failure to successfully commercialize our product or sustain market acceptance,

 

the reliance on third party agreements and relationships for development of our business,

 

our operations in foreign markets,

 

breaches of network or information technology services,

 

the control exercised by our management,

 

the impact of government regulation on our business,

 

our ability to effectively compete,

 

the possible inability to effectively protect our intellectual property,

 

the lack of a public market for our securities and the impact of the penny stock rules on trading in our common stock should a public market ever be established, and

 

the impact of the Covid-19 Pandemic.

 

Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

 

OTHER PERTINENT INFORMATION

 

Unless specifically set forth to the contrary, when used in this report the terms “Ipsidy,” “authID.ai”, the “Company,” “we,” “our,” “us,” and similar terms refer to Ipsidy Inc., a Delaware corporation and its subsidiaries.

 

Effective June 14, 2021 we completed a 1-for-30 reverse stock split of our common stock. Additionally, the Company changed its ticker symbol to AUID.

The information which appears on our website www.ipsidy.comwww.authID.ai is not part of this report.

 

ii

 

 

PART I – FINANCIAL INFORMATION

 

IPSIDY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  March 31,  December 31, 
  2021  2020 
  (unaudited)    
ASSETS
Current Assets:      
Cash $2,618,078  $3,765,277 
Accounts receivable, net  618,586   72,986 
Current portion of net investment in direct financing lease  74,645   72,682 
Inventory, net  123,495   254,951 
Other current assets  301,351   237,769 
Total current assets  3,736,155   4,403,665 
         
Property and Equipment, net  88,135   97,829 
Other Assets  221,378   240,223 
Intangible Assets, net  4,233,805   4,527,476 
Goodwill  4,183,232   4,183,232 
Net investment in direct financing lease, net of current portion  402,608   422,021 
Total assets $12,865,313  $13,874,446 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current Liabilities:        
Accounts payable and accrued expenses $2,537,461  $2,665,132 
Notes payable, current portion  6,098   5,947 
Convertible debt, net of discounts  5,812,650   - 
Finance lease obligation, current portion  40,421   39,232 

Contract liabilities

  556,882   237,690 
Total current liabilities  8,953,512   2,948,001 
         
Finance lease obligation, net of current portion  -   10,562 
Notes payable, net of current portion  971,520   487,339 
Convertible debt, net of discounts  -   5,800,976 
Other liabilities  59,506   47,809 
Total liabilities  9,984,538   9,294,687 
         
Commitments and Contingencies (Note 12)        
         
Stockholders’ Equity:        
Common stock, $0.0001 par value, 1,000,000,000 shares authorized; 603,486,888 and 589,272,023 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively  60,348   58,927 
Additional paid in capital  103,343,579   102,594,341 
Accumulated deficit  (100,724,150)  (98,234,151)
Accumulated comprehensive income  200,998   160,642 
Total stockholders’ equity  2,880,775   4,579,759 
Total liabilities and stockholders’ equity $12,865,313  $13,874,446 
  September 30,  December 31, 
  2021  2020 
  

(Unaudited)

   
ASSETS      
Current Assets:      
Cash $9,233,399  $3,765,277 
Accounts receivable, net  170,291   72,986 
Current portion of net investment in direct financing lease  78,731   72,682 
Inventory  214,289   254,951 
Other current assets  929,692   237,769 
Total current assets  10,626,402   4,403,665 
         
Property and Equipment, net  127,705   97,829 
Other Assets  73,243   240,223 
Intangible Assets, net  3,657,569   4,527,476 
Goodwill  4,183,232   4,183,232 
Net investment in direct financing lease, net of current portion  362,185   422,021 
Total assets $19,030,336  $13,874,446 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities:        
Accounts payable and accrued expenses $2,122,257  $2,665,132 
Notes payable obligation, current  portion  3,126   5,947 
Capital lease obligation, current portion  20,813   39,232 
Convertible debt  662,000   

-

 
Deferred revenue  369,708   237,690 
Total current liabilities  3,177,904   2,948,001 
         
Capital lease obligation, net of current portion  -   10,562 
Notes payable, net of discounts and current portion  -   487,339 
Convertible debt  -   5,800,976 
Other liabilities  -   47,809 
Total liabilities  3,177,904   9,294,687 
         
Stockholders’ Equity:        
Common stock, $0.0001 par value, 1,000,000,000 shares authorized; 23,198,419 and 19,642,401 shares issued and outstanding as of  September 30, 2021 and December 31, 2020, respectively  2,319   1,964 
Additional paid in capital  124,609,145   102,651,304 
Accumulated deficit  (108,980,665)  (98,234,151)
Accumulated comprehensive income  221,633   160,642 
Total stockholders’ equity  15,852,432   4,579,759 
Total liabilities and stockholders’ equity $19,030,336  $13,874,446 

See notes to condensed consolidated financial statements.

1


 

 

IPSIDY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

  Three Months Ended March 31, 
  2021  2020 
       
Revenues:      
Products and services $575,913  $778,938 
Lease income  13,086   14,851 
Total revenues, net  588,999   793,789 
         
Operating Expenses:        
Cost of sales  216,144   355,723 
General and administrative  1,927,926   1,504,255 
Research and development  322,010   430,401 
Impairment loss  -   871,807 
Depreciation and amortization  309,829   304,211 
Total operating expenses  2,775,909   3,466,397 
         
Loss from operations  (2,186,910)  (2,672,608)
         
Other Expense:        
Other income, net  1,537   9,953 
Debt extinguishment  -   (985,842)
Interest expense, net  (297,438)  (179,050)
Other expense, net  (295,901)  (1,154,939)
         
Loss before income taxes  (2,482,811)  (3,827,547)
         
Income Tax Expense  (7,188)  (8,874)
         
Net loss $(2,489,999) $(3,836,421)
         
Net Loss Per Share - Basic and Diluted $(0.00) $(0.01)
         
Weighted Average Shares Outstanding - Basic and Diluted  592,768,709   519,436,402 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2021  2020  2021  2020 
Revenues:                
Products and services $516,218  $501,700  $1,657,296  $1,587,330 
Lease income  12,131   13,992   37,833   43,270 
Total revenues, net  528,349   515,692   1,695,129   1,630,600 
                 
Operating Expenses:                
Cost of Sales  121,509   114,985   494,558   532,506 
General and administrative  5,331,159   1,527,723   10,308,785   5,400,639 
Research and development  419,313   308,038   1,088,496   928,778 
Impairment loss  -   -   -   1,035,629 
Depreciation and amortization  319,017   276,232   943,436   923,563 
Total operating expenses  6,190,998   2,226,978   12,835,275   8,821,115 
                 
Loss from operations  (5,662,649)  (1,711,286)  (11,140,146)  (7,190,515)
                 
Other Expense:                
Warrant inducement expense  -   -   -   (366,795)
Extinguishment of debt - gain (loss)  485,762   -   971,522   (985,842)
Other income  6,736   16,779   14,394   51,445 
Interest expense,  net  (25,780)  (212,658)  (579,768)  (701,861)
Other income (expense), net  466,718   (195,879)  406,148   (2,003,053)
                 
Loss before income taxes  (5,195,931)  (1,907,165)  (10,733,998)  (9,193,568)
                 
Income Tax Expense  (2,974)  (11,074)  (12,516)  (23,540)
                 
Net loss $(5,198,905) $(1,918,239) $(10,746,514) $(9,217,108)
                 
Net Loss Per Share - Basic and Diluted $(0.24) $(0.11) $(0.52) $(0.52)
                 
Weighted Average Shares Outstanding - Basic and Diluted  22,088,865   18,237,647   20,703,970   17,664,446 

 

See notes to condensed consolidated financial statements.


IPSIDY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

  Three Months Ended March 31, 
  2021  2020 
Net Loss $(2,489,999) $(3,836,421)
Foreign currency translation gain (loss)  40,356   (116,264)
Comprehensive loss $(2,449,643) $(3,952,685)
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2021  2020  2021  2020 
Net Loss $(5,198,905) $(1,918,239) $(10,746,514) $(9,217,108)
Foreign currency translation gain (loss)  18,966   29,057   60,991   (6,972)
Comprehensive loss $(5,179,939) $(1,889,182) $(10,685,523) $(9,224,080)

 

See notes to condensed consolidated financial statements.

 

3


 

 

IPSIDY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

              Accumulated    
        Additional     Other    
  Common Stock  Paid-in  Accumulated  Comprehensive    
  Shares  Amount  Capital  Deficit  Income  Total 
Balances, December 31, 2020  589,272,023  $58,927  $102,594,341  $(98,234,151) $160,642  $4,579,759 
Stock-based compensation  -   -   626,579   -   -   626,579 
Convertible note and accrued interest converted to common stock  988,500   99   123,981   -   -   124,080 
Cashless stock option exercises  5,343,599   534   (534)  -   -   - 
Cashless warrant exercises  7,882,766   788   (788)  -   -   - 
Net loss  -   -   -   (2,489,999)  -   (2,489,999)
Foreign currency translation  -   -   -   -   40,356   40,356 
Balances, March 31, 2021  603,486,888  $60,348  $103,343,579  $(100,724,150) $200,998  $2,880,775 
                         
Balances, December 31, 2019  518,125,454  $51,812  $94,982,167  $(86,935,593) $177,385  $8,275,771 
Modification of warrants issued with debt  -   -   95,223   -   -   95,223 
Stock-based compensation  4,500,000   450   168,660   -   -   169,110 
Issuance of common stock to settle accounts payable  106,192   11   8,259   -   -   8,270 
Net loss  -   -   -   (3,836,421)  -   (3,836,421)
Foreign currency translation  -   -   -   -   (116,264)  (116,264)
Balances, March 31, 2020  522,731,646  $52,273  $95,254,309  $(90,772,014) $61,121  $4,595,689 
              Accumulated    
        Additional     Other    
 Common Stock  Paid-in  Accumulated  Comprehensive    
Nine Months Ended September 30, 2021 Shares  Amount  Capital  Deficit  Income  Total 
Balances, December 31, 2020  19,642,401  $1,964  $102,651,304  $(98,234,151) $160,642  $4,579,759 
Sale of common stock for cash  1,642,856   164   10,282,834   -   -   10,282,998 
Stock-based compensation  -   -   4,795,069   -   -   4,795,069 
Settlement of accrued expense with stock options  -   -   349,376   -   -   349,376 
Convertible notes converted to common stock  1,171,296   117   6,232,223   -   -   6,232,340 
Stock option exercise for cash  4,802   1   24,659           24,660 
Warrant exercise for cash  60,834   6   273,747           273,753 
Cashless stock option exercise  412,569   40   (40)  -   -   - 
Cashless warrant exercise  263,661   27   (27)  -   -   - 
Net loss  -   -   -   (10,746,514)  -   (10,746,514)
Foreign currency translation  -   -   -   -   60,991   60,991 
Balances, September 30, 2021  23,198,419  $2,319  $124,609,145  $(108,980,665) $221,633  $15,852,432 
                         
Three Months Ended September 30, 2021                        
Balances, June 30, 2021  21,363,027  $2,137  $111,493,973  $(103,781,760) $202,667  $7,917,017 
Sale of common stock for cash  1,642,856   164   10,282,834   -   -   10,282,998 
Stock-based compensation  -   -   2,533,943   -   -   2,533,943 
Stock option exercise for cash  4,802   1   24,659   -   -   24,660 
Warrant exercise for cash  60,834   6   273,747   -   -   273,753 
Cashless stock option exercise  125,998   11   (11)  -   -   - 
Cashless warrant exercise  902   -   -   -   -   - 
Net loss  -   -   -   (5,198,905)  -   (5,198,905)
Foreign currency translation  -   -   -   -   18,966   18,966 
Balances, September 30, 2021  23,198,419  $2,319  $124,609,145  $(108,980,665) $221,633  $15,852,432 
                         
Nine Months Ended September 30, 2020                        
Balances, December 31, 2019  17,270,848  $1,727  $95,032,252  $(86,935,593) $177,385  $8,275,771 
Modification of warrants issued with debt  -   -   95,223   -   -   95,223 
Sale of common stock for cash  114,719   12   199,988   -   -   200,000 
Warrant exercise  727,107   73   1,248,910   -   -   1,248,983 
Warrant exercise inducement  -   -   366,795   -   -   366,795 
Stock-based compensation  150,000   15   741,653   -   -   741,668 
Issuance of common stock to settle accounts payable  3,540   -   8,270   -   -   8,270 
Net loss  -   -   -   (9,217,108)  -   (9,217,108)
Foreign currency translation  -   -   -   -   (6,972)  (6,972)
Balances, September 30, 2020  18,266,214  $1,827  $97,693,091  $(96,152,701) $170,413  $1,712,630 
                         
Three Months Ended September 30, 2020                        
Balances, June 30, 2020  18,221,807  $1,822  $97,581,421  $(94,234,462) $141,356  $3,490,137 
Warrant and stock cashless exercises  44,407   5   (5)  -   -   - 
Stock-based compensation  -   -   111,675   -   -   111,675 
Net loss  -   -   -   (1,918,239)  -   (1,918,239)
Foreign currency translation  -   -   -   -   29,057   29,057 
Balances, September 30, 2020  18,266,214  $1,827  $97,693,091  $(96,152,701) $170,413  $1,712,630 

 

See notes to condensed consolidated financial statements.


IPSIDY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  Three Months Ended March 31, 
  2021  2020 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $(2,489,999) $(3,836,421)
Adjustments to reconcile net loss with cash flows from operations:        
Depreciation and amortization expense  309,829   304,211 
Stock-based compensation  626,579   169,110 
Extinguishment of note payable  -   985,842 
Amortization of debt discounts and issuance costs  131,674   95,948 
Impairment losses  -   871,807 
Changes in operating assets and liabilities:        
Accounts receivable  (543,955)  (450,291)
Net investment in direct financing lease  17,450   15,686 
Other current assets  (63,582)  355,880 
Inventory  129,863   37,714 
Accounts payable and accrued expenses  (124,665)  156,085 
Contract liabilities  319,192   121,719 
Other liabilities  11,697   - 
Net cash flows from operating activities  (1,675,917)  (1,172,710)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of property and equipment  -   (2,394)
Purchase of intangible assets�� (4,424)  - 
Decrease (increase) in other assets  18,845   (128,676)
Net cash flows from  investing activities  14,421   (131,070)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from issuance of convertible note payable  -   1,510,000 
Payment of debt issuance costs  -   (104,800)
Proceeds from Paycheck Protection Program Loan  485,760   - 
Principal payments on finance lease obligation and notes payable  (10,801)  (9,600)
Net cash flows from financing activities  474,959   1,395,600 
         
Effect of Foreign Currencies  39,338   (96,653)
         
Net Change in Cash  (1,147,199)  (4,833)
Cash, Beginning of the Period  3,765,277   567,081 
Cash, End of the Period $2,618,078  $562,248 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid for interest $8,779  $2,792 
Cash paid for income taxes $7,188  $8,874 
         
Modification of warrants issued with convertible debt $-  $95,223 
Exchange of notes payable and accrued interest for convertible notes payable $-  $2,662,000 
Settlement of accounts payable with issuance of common stock $-  $8,270 
Conversion of convertible note payable and accrued interest to common stock $124,080  $- 
Equity reclassification due to cashless option and warrant exercises $1,322  $- 
  Nine Months Ended
September 30,
 
  2021  2020 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $(10,746,514) $(9,217,108)
Adjustments to reconcile net loss with cash flows from operations:        
Depreciation and amortization expense  943,436   923,563 
Stock-based compensation  4,795,069   741,668 
(Gain)/loss on extinguishment of note payable  (971,522)  985,842 
Amortization of debt discounts and issuance costs  554,020   333,388 
Impairment losses  -   1,035,629 
Warrant exercise inducement  -   366,795 
Changes in operating assets and liabilities:        
Accounts receivable  (92,993)  73,442 
Net investment in direct financing lease  53,787   48,341 
Other current assets  (524,943)  450,755 
Inventory  47,480   (70,040)
Accounts payable and accrued expenses  336,099   1,232,898 
Deferred revenue  132,018   (36,902)
Other liabilities  (47,809)  - 
Net cash flows from operating activities  (5,521,872)  (3,131,729)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of property and equipment  (79,703)  (8,643)
Purchase of intangible assets  (23,702)  - 
Investment in other assets  -   (172,880)
Net cash flows from  investing activities  (103,405)  (181,523)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from sale of common stock, net of offering costs  10,282,998   - 
Proceeds from exercise of warrants  273,753   1,248,983 
Proceeds from exercise of stock options  24,660   1,510,000 
Proceeds from paycheck protection program  485,762   485,760 
Payment of debt issuance costs  -   (104,800)
Payments on notes payable  (4,400)  - 
Principal payments on capital lease obligation  (28,981)  (29,669)
Net cash flows from financing activities  11,033,792   3,110,274 
         
Effect of Foreign Currencies  59,607   (96,653)
         
Net Change in Cash  5,468,122   (299,631)
Cash, Beginning of the Period  3,765,277   567,081 
Cash, End of the Period $9,233,399  $267,450 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid for interest $10,984  $7,505 
Cash paid for income taxes $12,516  $23,540 
         
Non-cash Investing and Financing Activities:        
Reclass from other assets to intangible assets $8,270  $- 
Modification of warrants issued with convertible debt $-  $95,223 
Exchange of notes payable and accrued interest for convertible notes payable $-  $2,662,000 
Settlement of accounts payable with issuance of common stock $349,376  $8,270 
Conversion of convertible note payable and accrued interest to common stock $6,232,340  $- 

 

See notes to condensed consolidated financial statements.

5


 

 

IPSIDY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

 

In the opinion of Management, the accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q and include all adjustments (consisting only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the threenine months ended March 31,September 30, 2021 are not necessarily indicative of the results to be expected for future periods or the full year.

 

The condensed consolidated financial statements include the accounts of Ipsidy Inc. and its wholly-owned subsidiaries MultiPay S.A.S., ID Global LATAM, IDGS S.A.S., ID Solutions, Inc., FIN Holdings Inc., Ipsidy Enterprises Limited, Cards Plus Pty Ltd. and Ipsidy Peru S.A.C. (collectively the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

 

Reverse Stock Split

At the Annual Meeting of stockholders of the Company held on March 22, 2021, the stockholders approved an amendment to our certificate of incorporation to effect a reverse stock split at a ratio not less than 1-for-2 and not greater than 1-for-50, with the exact ratio to be set within that range at the discretion of our board of directors before December 31, 2021

On June 14, 2021 (the “Effective Time”), the Company completed a 1-for-30 reverse stock split of its Common Stock, as previously authorized at the Annual Meeting. Pursuant to the reverse stock split, at the Effective Time, every 30 issued shares of Common Stock were automatically combined into one share of Common Stock without any change in the par value per share.

The par value of the Company’s Common Stock was unchanged at $0.0001 per share after the reverse stock split. As a result, on the effective date of the reverse stock split, the stated capital on the Company’s balance sheet attributable to Common Stock was reduced proportionately based on the reverse stock split ratio of 1-for-30 and the additional paid-in capital account was credited with the amount by which the stated capital was reduced.

After the reverse stock split, net income or loss per share, and other per share amounts were adjusted because there are fewer shares of the Company’s Common Stock outstanding.

The financial statements, net income or loss per share and other per share amounts for periods ending before the reverse stock split were recast to give retroactive effect to the reverse stock split.

Going Concern

 

As of March 31,September 30, 2021, the Company had an accumulated deficit of approximately $100.7$109.0 million. For the threenine months ended March 31,September 30, 2021 the Company earned revenue of approximately $0.6$1.7 million and incurred a loss from operations of approximately $2.2$11.1 million.

  

The reports of our independent registered public accounting firm on our consolidated financial statements for the years ended December 31, 2020 and 2019 contained an explanatory paragraph regarding our ability to continue as a going concern based upon our net losses.

 


These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon financial support from the Company’s current shareholders, the ability of the Company to obtain additional financing to continue operations, the Company’s ability to generate sufficient cash flows from operations, successfully locating and negotiating with other business entities for potential acquisition and /or acquiring new clients to generate revenues and cash flows.

 

On October 30, 2020 and on November 6, 2020,August 26, 2021, the Company entered into Securities Purchase Agreements with several accredited investorsCompany’s completed its public offering (the “October 2020 Accredited Investors”“Offering”) pursuant to whichof 1,642,856 shares of its common stock at a public offering price of $7.00 per share, including 214,285 shares sold upon full exercise of the October 2020 Accredited Investors agreedunderwriter’s option to purchase an aggregate of 52,435,000additional shares, of the Company’s common stock together with Warrants to acquire 26,217,500 shares of common stock for a term of five years at an exercise price of $0.15 per share for an aggregate purchase pricegross proceeds of approximately $5.24 million. $11.5 million, before deducting underwriting discounts and offering expenses.

In JanuaryNovember 2021, the Company receivedfiled an S-3 to register an indeterminate number of securities of each identified class of securities up to a second loanproposed aggregate offering price of approximately $486,000 under the Paycheck Protection Program (“PPP”) of the U.S. Small Business Association (“USSBA”) related$200,000,000, which may from time to its U.S. operations.time be offered in unspecified numbers and at indeterminate prices.

 

There is no assurance that the Company will ever be profitable or be able to secure funding or generate sufficient revenues to sustain operations. As such, there is substantial doubt about the Company’s ability to continue as a going concern. These unaudited condensed 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.

6

 

Covid-19

 

A novel strain of coronavirus (“Covid-19”) Covid-19 emerged globally in December 2019, and it has been declared a pandemic. The extent to which Covid-19 will impact ouris still impacting customers, business, results and financial condition will depend on current and future developments, which are highly uncertain and cannot be predicted at this time.throughout the world. The Company’s day-to-day operations beginning March 2020 have been impacted differently depending on geographic location and services that are being performed. The Cards Plus business located in South Africa did not have any operations in April 2020 and has had limitations on its operations thereafter as the Company isthey are following the guidance and requirements of the South African government. Our operations in the United States and Colombia have suffered less immediate impact as most staff can work remotely and can continue to develop our product offerings.

 

That said we have seen our business opportunities develop more slowly as business partners and potential customers are dealing withinclude Covid-19 issues,considerations. Furthermore, working remotely and these issues are causing delayscan cause a delay in decision making and finalization of negotiations and agreements.

 

Net Loss per Common Share

 

The Company computes net loss per share in accordance with FASB ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible notes and stock warrants, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, warrants and conversion of convertible notes. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. The following potentially dilutive securities were excluded from the calculation of diluted loss per share for the three and nine months ended March 31,September 30, 2021 and 2020 because their effect was antidilutive:

 

Security   
  2021  2020 
Convertible notes payable  34,047,500   35,476,705 
Warrants  42,339,235   47,453,227 
Stock options  162,305,394   109,823,340 
   238,692,129   192,753,272 
Security 2021  2020 
Convertible notes payable  117,529   1,182,557 
Warrants  1,413,611   1,581,774 
Stock options  9,322,153   3,660,778 
   10,853,293   6,425,109 


 

Inventories

Inventory of plastic/ID cards, digital printing material, which are held by Cards Plus Pty Ltd., are at the lower of cost (using the average method) or market. The Plastic/ID cards and digital printing material are used to provide plastic loyal ID and other types of cards. Inventories of kiosks held by IDGS S.A.S are stated at the lower of cost (using the first-in, first-out method) or net realizable value

Inventories at March 31,September 30, 2021 and December 31, 2020 consist of cards inventory. As of March 31,September 30, 2021 and December 31, 2020, the Company recorded an inventory valuation allowance of approximately $26,000 and $18,000 to reflect net realizable value of the cards inventory.

Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.


Revenue Recognition

 

Cards Plus – The Company recognizes revenue for the design and production of cards at the point in time when products are shipped, or services have been performed due to the short term nature of the contracts. Additionally, the cards produced by the Company have no alternative use and the Company has an enforceable right to payment for work performed should the contract be cancelled. As of March 31,September 30, 2021 and December 31, 2020, Cards Plus had approximately $24,000$40,000 and $88,000, respectively, of contract liability from payments received in advance that will be earned in future periods.

Payment Processing – The Company recognizes revenue for variable fees generated for payment processing solutions that are earned on a usage fee over time based on monthly transaction volumes or on a monthly flat fee rate. Additionally, the Company also sells certain equipment from time to time for which revenue is recognized upon delivery to the customer.

Identity Solutions Software – The Company recognizes revenue based on the identified performance obligations over the performance period for fixed consideration and for variable fees generated that are earned on a usage fee based over time based on monthly transaction volumes or on a monthly flat fee rate. The Company had a contract liability of approximately $530,000$330,000 and $150,000 as of March 31,September 30, 2021 and December 31, 2020   relating to certain revenue that will be earned in future periods. The majority of the $150,000 of deferred revenue contract liability as of December 31, 2020 was earned in the first quarter of fiscal year 2021. As of March 31,September 30, 2021, the majority of the deferred revenue contract liability of $533,000$330,000 will be recognized in the ensuing fourtwo quarters. We have allocated the selling price in the contract to one customer; the contract has multiple performance obligations based on the contract selling price that we believe represents a standalone selling price for the service rendered.

All contracts are reviewed for their respective performance obligations and related revenue and expense recognition implications. Certain of the revenues are derived from identity services that could include multiple performance obligations. A performance obligation is defined as a promise to provide a “distinct” good or service to a customer. The Company has determined that one possible treatment under U.S. GAAP is that these services will represent a stand-ready series of distinct daily services that are substantially the same, with the same pattern of transfer to the customer. Further, the Company has determined that the performance obligation to provide account access and facilitate transactions should meet the criteria for the “as invoiced” practical expedient, in that the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date. As a result, the Company anticipates it may recognize revenue in the amount to which the Company has a right to invoice, based on completed performance at the relevant date. Additionally, the contracts could include implementation services, or support on an “as needed” basis and we will review each contract and determine whether such performance obligations are separate and distinct and apply the new standard accordingly to the revenue and expense derived from or related to each such service.

Revenue related to direct financing leases is outside the scope of Topic 606 and is recognized over the term of the lease using the effective interest method.


NOTE 2 – OTHER CURRENT ASSETS

Other current assets consisted of the following as of September 30, 2021 and December 31, 2020:

  September 30, 2021  December 31, 2020 
Prepaid insurance $163,361  $39,117 
Prepaid licensing fees  103,521   30,841 
Operating lease right of use  99,667   131,568 
Prepaid marketing expense  263,929   - 
Payroll tax receivable  85,735   - 
Prepaid services  175,000   - 
Other  38,479   36,243 
         
  $929,692  $237,769 

NOTE 23 – PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following as of March 31,September 30, 2021 and December 31, 2020:

  March 31,
2021
  December 31,
2020
 
Property and equipment $297,839  $297,839 
Equipment under finance lease (see Note 10)  163,407   163,407 
   461,246   461,246 
Less Accumulated depreciation  (373,111)  (363,417)
Property and equipment, net $88,135  $97,829 
  September 30,
2021
  December 31,
2020
 
Property and equipment $377,622  $297,839 
Equipment under finance lease  163,407   163,407 
   541,029   461,246 
Less Accumulated depreciation  (413,324)  (363,417)
Property and equipment, net $127,705  $97,829 

Depreciation expense totaled $11,734$49,827 and $14,525$40,231 for the threenine months ended March 31,September 30, 2021 and 2020, respectively.


NOTE 34 – OTHER ASSETS

Other assets consisted of the following at March 31,September 30, 2021 and December 31, 2020:

  September 30,
2021
  December 31,
2020
 
       
Operating lease right of use assets $-  $49,856 
Other  73,243   190,367 
  $73,243  $240,223 


 

  March 31,
2021
  December 31,
2020
 
       
Operating lease right of use assets $44,489  $49,856 
Other  176,889   190,367 
  $221,378  $240,223 

NOTE 45 – INTANGIBLE ASSETS, NET (OTHER THAN GOODWILL)

The Company’s intangible assets consist primarily of acquired and developed software as well as intellectual property acquired from MultiPay and FINprevious acquisitions and are amortized over their estimated useful lives as indicated below. The following is a summary of activity related to intangible assets for the threenine months ended March 31,September 30, 2021:

  Customer
Relationships
  Acquired and
Developed
Software
  Intellectual
Property
  Patents  Total 
                
Useful Lives 10 Years  5 Years  10 Years  N/A    
                
Carrying Value at December 31, 2020 $811,303  $3,171,394  $416,471  $128,308  $4,527,476 
Additions  -   -   -   4,424   4,424 
Amortization  (41,196)  (233,220)  (20,351)  (3,328)  (298,095)
Carrying Value at March 31, 2021 $770,107  $2,938,174  $396,120  $129,404  $4,233,805 
  Customer Relationships  Acquired and Developed Software  Intellectual Property  Patents  Total 
                
Useful Lives  10 Years   5 Years   10 Years   -    
                     
Carrying Value at December 31, 2020 $811,303  $3,171,394  $416,471  $128,308  $4,527,476 
Additions  -   -   -   23,702   23,702 
Amortization  (122,645)  (699,442)  (61,018)  (10,504)  (893,609)
Carrying Value at September 30, 2021 $688,658  $2,471,952  $355,453  $141,506  $3,657,569 

The following is a summary of intangible assets as of March 31,September 30, 2021

  Customer
Relationships
  Acquired and
Developed
Software
  Intellectual
Property
  Patents  Total 
                
Cost $1,587,159  $4,476,271  $828,580  $136,022  $7,028,032 
Accumulated amortization  (817,052)  (1,538,097)  (432,460)  (6,618)  (2,794,227)
Carrying Value at March 31, 2021 $770,107  $2,938,174  $396,120  $129,404  $4,233,805 
  Customer
Relationships
  Acquired and
Developed
Software
  Intellectual
Property
  Patents  Total 
                
Cost $1,587,159  $4,476,273  $828,577  $155,297  $7,047,306 
Accumulated amortization  (898,501)  (2,004,321)  (473,124)  (13,791)  (3,389,737)
Carrying Value at September 30, 2021 $688,658  $2,471,952  $355,453  $141,506  $3,657,569 

Amortization expense totaled $298,095approximately $894,000 and $289,686$883,000 for the threenine months ended March 31,September 30, 2021 and 2020, respectively.

Future expected amortization of intangible assets is as follows:

Fiscal Year Ending December 31,   
Remainder of 2021 $297,060 
2022  1,094,905 
2023  1,043,916 
2024  819,604 
2025  302,986 
Thereafter  99,098 
  $3,657,569 


 

Fiscal Year Ending December 31,   
Remainder of 2021 $1,162,977 
2022  1,092,977 
2023  1,007,995 
2024  662,007 
2025  246,454 
Thereafter  61,395 
  $4,233,805 

NOTE 56 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following as of March 31,September 30, 2021 and December 31, 2020:

  March 31,
2021
  December 31,
2020
 
Trade payables $183,450  $311,024 
Accrued interest  704,624   554,755 
Accrued payroll and related obligations  799,377   891,790 
Current portion of operating lease liabilities  52,858   117,414 
Other*  797,152   790,149 
Total $2,537,461  $2,665,132 
  September 30,
2021
  December 31,
2020
 
Trade payables $769,602  $311,024 
Accrued interest*  17,469   554,755 
Accrued payroll and related obligations  656,938   891,790 
Current portion of operating lease liabilities  100,290   117,414 
Other**  577,958   790,149 
Total $2,122,257  $2,665,132 

*In June 2021, the majority of the accrued interest was converted into common stock. See Note 8.

**Included in Other expenses iswas accrued non-employee Directors’ Compensation of approximately $392,000 and $349,000 as of March 31, 2021 andat December 31, 2020, respectively.2020. In May 2021, the Non-employeenon-employee Directors were compensated for their service through a grant of stock options.options and therefore the balance of the accrual for Director’s Compensation was $ 0 as of September 30, 2021. See Note 9.10.

NOTE 67 - NOTES PAYABLE, NET

The following is a summary of notes payable as of March 31,September 30, 2021 and December 31, 2020:

  September 30,
2021
  December 31,
2020
 
       
Paycheck Protection Program Loan #1 $-  $485,760 
Paycheck Protection Program Loan #2  -  - 
Installment loan payable related to a vehicle acquisition payable in monthly payments of $539 per month at an interest rate of 10.8% per annum payable for 36 months  3,126   7,526 
Notes Payable, Net $3,126  $493,286 
Notes Payable, current portion, $3,126  $5,947 
Notes Payable, net of current portion  -   487,339 
  $3,126  $493,286 


 

  March 31,
2021
  December 31,
2020
 
       
Paycheck Protection Program Loans $971,520   485,760 
Installment loan payable related to a vehicle acquisition payable in monthly payments of $539 per month at an interest rate of 10.8% per annum payable for 36 months  6,098   7,526 
Notes Payable, Net $977,618  $493,286 
Notes Payable, current portion, $6,098  $5,947 
Notes Payable, net of current portion  971,520   487,339 
  $977,618  $493,286 

Paycheck Protection Program Loans

In May 2020, the Company received a loan of approximately $486,000 under the Paycheck Protection Program (“PPP”) as part of the CARESCoronavirus Aid, Relief and Economic Security Act which is administered by the U.S. Small Business Association (“USSBA”) related to its U.S. Operations. The Company anticipates subject to approval byreceived notice from the Small Business Administration, if certain requirements areUSSBA in May 2021, that the May 2020 PPP loan was forgiven as we met the loan proceeds may be forgiven. Any amounts not forgiven will be required to be repaid. The loan bears interest at an annual rate 1% per annum and matures on May 5, 2022.applicable requirements.

In January 2021, the Company received a second loan of approximately $486,000 under the PPP related to its U.S. Operations. The Company anticipates subject to approval by USSBA, if certain requirements are met the second loan will be forgiven. Any amounts not forgiven will be required to be repaid. The loan bears interest at an annual rate 1% per annum and matures on January 31, 2023.

Ifreceived notice from the USSBA determinesin August 2021, that eitherthe January 2021 PPP loan was not properly obtained and/or expenditures supporting forgiveness were not appropriate,forgiven as the Company would need to repay some or allmet the applicable requirements.

In accordance with ASC 470, extinguishment accounting, the amount forgiven by the USSBA is recorded as other income – gain on extinguishment of the PPP loans and record additional expense which could have a material adverse effect on the Company’s financial condition and results of operations in a future period.

notes payable.

10

NOTE 78 – CONVERTIBLE NOTES PAYABLE

On December 13, 2019, the Company entered into Securities Purchase Agreements with several accredited investors (the “8% Note Investors”) providing for the sale by the Company to the 8% Note Investors of 8% Convertible Notes in the aggregate amount of $428,000 (the “8% Notes”). The 8% Notes were to mature on November 30, 2021 and were a general unsecured obligation of the Company. The Company can prepay all or a portion of the 8% Notes at any time. The Company shall pay any interest on the 8% Notes at the rate of 8.0% per annum payable at the earlier of the maturity date or conversion date, in cash or, at the holder’s option, shares of common stock of the Company. At the option of the 8% Note investors, all or a portion of the 8% Notes may be converted into shares of common stock of the Company at a conversion price of $0.08 per share. If the holders of the 8% Notes owning outstanding 8.0% Notes representing in excess of half of the aggregate outstanding principal amount of all 8% Notes provide notice to the Company of their intent to convert their 8% Notes, then all 8% Notes plus unpaid interest and other amounts owing to each of the holders shall be automatically converted.

In February 2020, the Company and the holders of the 8% Notes entered into an amendment agreement pursuant to which the principal and interest due under the 8% Notes will remain due and payable on the same terms as exist in the 8% Notes prior to modification, that the maturity shall be extended to the same maturity date as the 2020 Notes, namely February 28, 2022, and the 8% Notes became a secured obligation of the Company.

On February 14, 2020 the Company, entered into Securities Purchase Agreements with several accredited investors (the “2020 Note Investors”) providing for the sale by the Company to the 2020 Note Investors of 15% Senior Secured Convertible Notes in the aggregate amount of $1,510,000 (the “2020 Notes”). Philip D. Beck, Chief Executive Officer and Chairman of the Board, invested $50,000 in consideration of a 2020 Note in the principal amount of $50,000 paid by a deduction from his salary. Theodore Stern, a former director of the Company, invested $50,000 in consideration of a 2020 Note in the principal amount of $50,000. Herbert Selzer, a former director of the Company invested $100,000 in consideration of a 2020 Note in the principal amount of $100,000. Mr. Selzer provided $50,000 on the closing date and provided the balance of the funding in April 2020.

The 2020 Notes mature February 28, 2022 and are a secured obligation of the Company. The Company can prepay all or a portion of the 2020 Notes at any time provided that such amount prepaid shall be equal to 150% of the principal due. The Company shall pay interest on the 2020 Notes at the rate of 15% per annum payable at the earlier of the maturity date or conversion date, in cash or, at the investor’s option, shares of common stock of the Company.


At the option of the 2020 Note Investors, they may at any time convert the 2020 Notes. The number of shares delivered shall be equal to 150% of the amount of the principal converted divided by the conversion price of $0.20$6.00 per share. The Company may require that the 2020 Note Investors convert all or a portion of the 2020 Notes, if the Company’s volume weighted average price for any preceding 20-day period is equal to or greater than $0.30.$9.00.

The 2020 Note Investors are entitled to nominate, and the Company will not unreasonably reject the appointment of a new member to the Company’s Board of Directors.

The Company and FIN Holdings, Inc. and ID Solutions, Inc., two of the Company’s subsidiaries, entered into a security agreement with the 2020 Note Investors (“Security Agreement”), the holders of the 8% Notes and the Stern Trust, which is the holder of the Promissory Note in the principal amount of $2,000,000 (the “Stern Note”). The Security Agreement provides that until the principal and accrued but unpaid interest under the 2020 Notes, 8% Notes and Stern Note is paid in full or converted pursuant to their terms, the Company’s obligations under the 2020 Notes, 8% Notes and Stern Note will be secured by a lien on all assets of the Company. The security interest granted to the holders of the 2020 Notes, 8% Notes and Stern Note ranks pari passu. The Security Agreement permits sales of assets up to a value of $1,000,000 which proceeds may be used for working capital purposes and the secured parties will take such steps as may be reasonably necessary to release its security interest and enable such sales in such circumstances. Each of the secured parties appointed Mr. Stern and a third-party investor as joint collateral agents. Mr. Stern, a director of the Company, is the trustee of the Stern Trust.

Further, the Company and the Stern Trust entered an Amended and Restated Promissory Note (the “Restated Stern Note”) providing that the $2,000,000 principal of the Stern Note will be due and payable on the same terms (bearing interest at 15% per annum) and on the same maturity date as the 2020 Notes. The interest due under the Stern Note as of January 31, 2020 in the amount of $662,000 has been capitalized and will earn interest at 10% per annum, which at the election of the Stern Trust can be paid in shares of common stock at a conversion price of $0.20 and the maturity of such interest shall be extended to the same maturity date as the 2020 Notes.

In connection with this private offering, the Company paid Network 1 Financial Securities, Inc., a registered broker-dealer, a cash fee of approximately $104,800.

During the first quarter ended March 31,of 2021, convertible notes totaling $120,000 and a portion of their accrued interest at the option of the noteholders were converted into approximately 989,00033,000 shares of common stock of the Company.


 

Additionally, during the nine months ended September 30, 2021, the Company received conversion notices from (i) the Stern Trust converting the principal amount, repayment premium and interest in the amount of approximately $3.5 million payable under the Restated Stern Note into approximately 561,000 shares of common stock, (ii) the 8% Note Investors converting principal and interest in the amount of approximately $0.4 million into approximately 180,000 shares of common stock and (iii) the 2020 Note Investors converting principal, repayment premium and interest in the amount of approximately $2.5 million into approximately 398,000 shares of common stock. The Stern Trust is owed approximately $0.7 million in interest under the Restated Stern Note, which has not been converted and remains outstanding. As a result, a total of approximately $6.1 million of Company net indebtedness was converted and the Company issued approximately 1,138,000 shares of common stock in the aggregate.

The following is a summary of the convertible notes payable outstanding at March 31,September 30, 2021:

8% convertible notes payable issued December 2019 $383,000 
15% convertible notes payable issued February 2020  5,190,000 
10% convertible notes payable issued February 2020  662,000 
Unamortized discount on convertible notes  (376,876)
Unamortized debt issuance costs  (45,474)
     
  $5,812,650 
8% convertible notes payable issued December 2019 $- 
15% convertible notes payable issued February 2020  - 
10% convertible notes payable issued February 2020  662,000 
     
  $662,000 

Future maturities of convertible notes payable are as follows:

2021 $- 
2022  6,235,000 
     
  $6,235,000 

12

2021 $- 
2022  662,000 
     
  $662,000 

NOTE 89 – RELATED PARTY TRANSACTIONS

Convertible Notes Payable

In 2021, the Company received conversion notices from Stern Trust of which Theodore Stern, and Philip Beck, members(a former member of the boardBoard of directors ofDirectors until June 9, 2021) is the Company at that time, invested $50,000 each in consideration of the 2020 Notes. Another director, Herbert Selzer invested $100,000 in consideration of a 2020 Note inTrustee, converting the principal amount, repayment premium and interest in the amount of $100,000. See Note 7

Further, the Company and the Stern Trust enteredapproximately $3.5 million payable under the Restated Stern Note providing that the $2,000,000 principalinto approximately 561,000 shares of common stock. Additionally, Theodore Stern and Herbert Selzer (also a former member of the Stern Note will be due and payable on the same terms (bearing interest at 15% per annum) and on the same maturity date as theBoard of Directors until June 9, 2021) provided conversion notices for their respective 2020 Notes converting the principal, repayment premium and subject to the same Security Agreement and that the interest due under the Stern Note as of January 31, 2020 in the amount of $662,000 will remain due and payable onapproximately $256,000 into approximately 41,000 shares of common stock. The Stern Trust is owed approximately $0.7 million in interest under the same terms as exist in the Stern Note prior to modification provided that the maturity of such interest shall be extended to the same maturity date as the 2020 Notes. The Restated Stern Note, includes a 50% repayment premium. Mr. Stern, the Trusteewhich has not been converted and remains outstanding.

Executive Officers

On June 14, 2021, Phillip L. Kumnick resigned as Chief Executive Officer of the Stern Trust also entered into the Security AgreementIpsidy Inc., and Thomas L. Thimot was appointed Chief Executive Officer in his place. Further, Philip R. Broenniman resigned as one of the joint collateral agents.

Issuance of Common Stock

During the quarter ended March 31, 2020,President and Chief Operating Officer and Cecil N. Smith III (Tripp) was appointed President and Chief Technology Officer. In May 2021 the Company granted 1,500,000 shares of Restricted Common Stock to each of PhillipMr. Kumnick and PhilipMr. Broenniman new membersoptions (the “May 2021 Options”) to acquire a total of our Board1,166,667 shares of Directors, in connection with their compensationcommon stock at an exercise price of $7.20 per share for service as Board Members. The restricted stock vestsa term of ten years that vest upon the achievement of certain market capitalization thresholds, or performance criteria. The performance criteria have not been metconditions. In November 2021 Mr. Kumnick and Mr. Broenniman agreed to cancel 300,000 and 200,000, respectively, of these stock options in consideration of removing certain service conditions.

Mr. Thomas Thimot and Mr. Cecil Smith, became employed by the Company as Chief Executive Officer and President and Chief Technology Officer effective June 14, 2021. Mr. Thimot and the Company entered into an Offer Letter pursuant to which Mr. Thimot will earn an annual salary of March 31, 2020.

Other

In connection$325,000 with a bonus target at 50% of the base salary (pro-rated for 2021) upon terms to be agreed with the offeringCompensation Committee for 2021 and on the understanding that the 2022 target will include a requirement of the 2020 Notes,Company achieving three times the annual revenue of 2021. Additionally, Mr. Thimot was granted an option to acquire 1,200,000 shares of common stock at an exercise price of $7.80 per share for a term of ten years of which half of the options vest monthly over four years and the balance is subject  to certain performance vesting requirements.

On June 14, 2021, Mr. Smith and the Company paid Network 1 Financial Securities, Inc.,entered an into an Offer Letter pursuant to which Mr. Smith will earn an annual salary of $275,000 with a registered broker-dealer (“Network 1”), a cash fee of approximately $104,800. A former memberbonus target at 50% of the Company’sbase salary (pro-rated for 2021) upon terms to be agreed with the Compensation Committee for 2021. In addition, Mr. Smith will receive a bonus of $50,000 after 90 days of service. Additionally. Mr. Smith was granted an option to acquire 600,000 shares of common stock at an exercise price of $7.80 per share for a term of ten years of which half of the options vest monthly over four years and the balance is subject to certain performance vesting requirements.


Appointment of Board of Directors

On June 9, 2021 Theodore Stern, Herbert Selzer and Thomas Szoke resigned as directors of the Company. The size of the Board of directors was increased to seven and Dr. Michael A. Gorriz, Michael L. Koehneman, Sanjay Puri, Mr. Thimot and Jacqueline L. White were appointed as additional directors of the Company. Messrs. Stern, Selzer and Szoke did not advise the Company of any disagreement with the Company on any matter relating to its operations, policies or practices. Mr. Szoke will continue with the Company as Chief Solutions Architect.  

The Company granted each of the four new Board of Directors maintainsas of June 2021 stock options to acquire 62,500 shares of common stock or a partnership withtotal of 250,000 at an exercise price of $7.80 per share for a term of ten years that vest one third per year after each Annual Meeting. The Company granted the previously serving Board of Directors stock options to acquire 93,470 common shares that are vested as the services were previously rendered. The stock options were granted in lieu of other forms of Board of Director Compensation. The Company also granted Mr. Selzer and Mr. Stern 22,388 stock options to acquire common shares for service in 2021 prior to their resignation as Board Members. Upon their resignation as directors in June 2021, 13,992 stock options were vested and the balance was cancelled.

Other

In the third quarter of 2021, the Company and Progress Partners Inc. (“Progress”) modified their Business Advisory Agreement dated May 6, 2020 (“Progress Agreement”).  The amended Progress Agreement provides for Progress to undertake continuing business development activities for the Company, for which the Company agreed to pay Progress $350,000 which was paid, October 15, 2021.   Additionally, the Company agreed to pay Progress, another $115,000 for additional consulting services. Mr. Puri, a Director of the Company beginning  June 9, 2021 is an employee and  Managing Director of Progress but is not a principal shareholder nor an executive officer of Network 1.Progress.

NOTE 910STOCKHOLDER’S EQUITY

Common Stock

On August 26, 2021, the Company completed the Offering of 1,642,856 shares of its common stock at a public offering price of $7.00 per share, including 214,285 shares sold upon full exercise of the underwriter’s option to purchase additional shares, for gross proceeds of approximately $11.5 million, before deducting underwriting discounts and offering expenses.

 

During the quarternine months ended March 31,September 30, 2021, shares of common stock were issued as a result of the following non-cash transactions:

ConvertibleIn the first quarter of 2021, convertible notes totaling $120,000 and a portion of their accrued interest at the option of the noteholders were converted into approximately 989,00033,000 shares of common stock of the Company.Company


Additionally, during the three and nine months ended September 30, 2021, the Company received conversion notices from (i) the Stern Trust converting the principal amount, repayment premium and interest in the amount of approximately $3.5 million payable under the Restated Stern Note into approximately 561,000 shares of common stock, (ii) the 8% Note Investors converting principal and interest in the amount of approximately $0.4 million into approximately 180,000 shares of common stock and (iii) the 2020 Note Investors converting principal, repayment premium and interest in the amount of approximately $2.5 million into approximately 398,000 shares of common stock. The Stern Trust is owed approximately $0.7 million in interest under the Restated Stern Note, which has not been converted and remains outstanding. As a result, a total of approximately $6.1 million of Company indebtedness was converted and the Company issued approximately 1,138,000 shares of common stock in the aggregate.

Certain warrant and stock option holders exercised their respective warrants and stock options by means of the cashless exercise feature and were issued approximately 13,226,000549,000 common shares of the Company.

During the quarter ended March 31, 2020, shares of common stock were issued as a result of the following transactions:

The Company granted 4,500,000 shares of Restricted Common Stock of which 3,000,000 shares were granted to two new members of our Board of Directors in connection with their compensation for service as Board Members and 1,500,000 shares to an employee in connection with his employment compensation. The shares were valued at the fair market value at the date of grant. The restricted stock vests upon the achievement of certain performance criteria.

The Company issued approximately 106,000 shares of common stock to a third-party provider of services in lieu of cash compensation.

13

Warrants

The following is a summary of the Company’s warrant activity for the threenine months ended March 31,September 30, 2021:

  Number of
Shares
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Life
 
Outstanding at December 31, 2020  54,697,021  $0.14   3.4 Years 
Exercised/cancelled  (12,357,786)  0.10   - 
Outstanding at March 31, 2021  42,339,235  $0.15   4.0 Years 
     Weighted
Average
  Weighted
Average
  Number of  Exercise  Remaining
  Shares  Price  Life
Outstanding at December 31, 2020  1,823,267  $4.20  3.4 Years
Granted  64,286  $8.75  4.3 Years
Exercised/cancelled  (473,942) $3.20  4.2 years
Outstanding at September 30, 2021  1,413,611  $4.61  3.2 Years

Under the terms of the Underwriting Agreement in connection with the Offering, the Company issued underwriters warrants (the “Representative’s Warrants”) to purchase an aggregate of 64,286 shares of common stock (4.5% of the total shares issued in the Offering). The Representative’s Warrants are exercisable at a per share price of $8.75 (equal to 125% of the Offering price of the Company’s common stock). The Representative’s Warrants are exercisable for a term of four and one half years beginning on February 23, 2022.

Stock Options

 

During the nine months ended September 30, 2021, the Company determined the grant date fair value of the options granted using the Black Scholes Method and use the following assumptions:

The Company did not grant any stock options in the first quarter of 2021.

Expected Volatility – 68-75%

Expected Term – 5.0 Years

Risk Free Rate – 0.70- 0.78%

Dividend Rate – 0.00%

Activity related to stock options for the threenine months ended March 31,September 30, 2021 is summarized as follows:

The Company granted Mr. Thimot and Mr. Smith stock options to acquire 1,200,000 and 600,000 shares of common stock respectively upon their employment of which half of the options vest monthly over four years and the balance vest upon the achievement of certain market capitalization thresholds or performance conditions.

The Company granted each of Mr. Kumnick and Mr. Broenniman stock options to acquire 583,333 shares of common stock that vest upon the achievement of certain market capitalization thresholds or performance conditions. In November 2021 Mr. Kumnick and Mr. Broenniman agreed to cancel 300,000 and 200,000, respectively, of these stock options in consideration of removing certain service conditions.


 

     Weighted
Average
  Weighted
Average
  Aggregate 
  Number of  Exercise  Contractual  Intrinsic 
  Shares  Price  Term (Yrs.)  Value 
Outstanding as of December 31, 2020  169,374,061  $0.15   7.5  $8,283,639 
Granted  -   -   -   - 
Exercised/cancelled  (7,068,667)  0.05         
Outstanding as of March 31, 2021  162,305,394   0.15   7.2  $29,442,247 
Exercisable as of March 31, 2021  123,108,727  $0.18   6.7  $20,362,319 

The Company granted each of the four new Board of Directors as of June 2021 stock options to acquire 62,500 shares of common stock or a total of 250,000 that vest one third a year after each Annual Meeting.

The Company granted the previously serving Board of Directors stock options to acquire 93,470 common shares that are vested as the services were rendered. The stock options were granted in lieu of other forms of Board of Director Compensation and was used to eliminate previously accrued Board of Director compensation. The Company also granted to each of Mr. Selzer and Mr. Stern 22,388 stock options to acquire common shares for service in 2021 prior to their resignation as Board Members. Upon their resignation as directors in June 2021, 6,997 stock options to each of them were vested and the balance was cancelled.

The Company granted options to acquire 1,003,334 shares of common stock to employees. The options for 803,334 vest annually over a three-year period, 100,000 vest equally over a four-year period, and the balance of 100,000 vest upon the achievement of certain market capitalization thresholds or performance conditions.

The options have a term of ten years and all options were granted at market value.

Activity related to stock options for the nine months ended September 30, 2021, is summarized as follows:

     Weighted  Weighted    
     Average  Average  Aggregate 
  Number of  Exercise  Contractual  Intrinsic 
  Shares  Price  Term (Yrs.)  Value 
             
Outstanding as of December 31, 2020  5,645,802  $4.50   7.5  $8,823,639 
                 
Granted  4,358,246  $7.95   10.0   - 
Exercised  (504,804) $1.54   5.0  $3,485,482 
Forfeited/cancelled  (177,091) $4.30   8.8   - 
                 
Outstanding as of September 30, 2021  9,322,153  $6.28   7.1  $48,380,894 
Exercisable as of September 30, 2021  4,708,113  $5.15   4.5  $30,866,033 

The following table summarizes stock option information as of March 31,September 30, 2021:

Exercise Price Outstanding  Weighted
Average
Contractual
Life (Yrs.)
  Exercisable 
          
$.03 - $4.00  3,664,901   4.9   3,208,347 
$4.01 - $7.00  162,784   4.7   162,784 
$7.01 - $10.00  4,007,801   9.6   270,315 
$10.01 - $13.50  1,486,667   4.3   1,066,667 
   9,322,153   7.1   4,708,113 


 

Exercise Price  Outstanding  Weighted Average
Contractual Life (Yrs).
  Exercisable 
$0.0001   3,500,000   5.3   3,500,000 
 0.05   26,700,006   6.2   23,950,006 
 0.06   1,042,054   9.2   1,042,054 
 0.07   50,000,000   9.2   26,000,000 
 0.09   11,630,000   9.5   - 
 0.10   27,200,000   6.3   27,200,000 
 0.12   933,334   8.5   616,667 
 0.13   250,000   7.4   250,000 
 0.15   2,800,000   5.4   2,800,000 
 0.22   2,583,333   7.6   2,083,333 
 0.25   2,500,000   7.4   2,500,000 
 0.26   166,667   7.9   166,667 
 0.29   1,000,000   6.9   1,000,000 
 0.40   1,000,000   5.7   1,000,000 
 0.45   31,000,000   5.4   31,000,000 
     162,305,394   7.2   123,108,727 

During the threenine months ended March 31,September 30, 2021, the Company recognized approximately $614,000$3,567,000 of stock option based compensation expense of which approximately $452,000$2,388,000 relates to performance-based awards of director/directors and officers. As of March 31,September 30, 2021, there was approximately $1,154,000$15,443,000 of unrecognized compensation costs related to stock options outstanding that willare expected to be expensed through 2023. 2025.

Additionally, the Company recorded approximately $13,000$1,228,000 for restricted stock expense.expense as the Company met certain performance thresholds.

Total stock-based compensation expense consisting of stock options and restricted stock in the nine months ended September 30, 2021 was approximately $4,795,000.

At the Annual Meeting of Stockholders held on March 22, 2021, the stockholders approved and ratified an increase of 75,000,0002,500,000 shares of common stock allocated to the Company’s 2017 Incentive Stock Plan.

Subsequent event

On May 5, 2021, the Company granted options to acquire shares of common stock (“Stock Options”) at an exercise price equivalent to fair market value on the date of grant with an exercise period of ten years, as follows:

17,500,000 Stock Options to each of Mr. Kumnick and Mr. Broenniman subject to tranche vesting upon achieving certain corporate performance measures.
11,500,000 Stock Options to certain officers and employees that vest over a three-year period, subject to continued service.
Approximately 2,700,000 fully vested Stock Options for present and former non-employees Directors compensation for services from 2019 through April 30, 2021.
Approximately 1,300,000 Stock Options to two present non-employee Director that vest over a twelve-month period.

See Note 56 for additional information regarding accrued Directors’ compensation.

NOTE 1011 – DIRECT FINANCING LEASE

The Company and an entity in Colombia entered into a rental contract for the rental of 78 kiosks to provide cash collection and fare services at transportation stations. The lease term began in May 2016 when the kiosk was installed and operational and when the lease commenced. The term of the rental contract is ten years at an approximate monthly rental of $11,900. The lease has the option at the end of the lease term to purchase each unit for approximately $40. The term of the lease approximates the expected economic life of the kiosks. The lease was accounted for as a direct financing lease.

The Company has recorded the transaction as its net investment in the lease and will receive monthly payments of $11,856 before estimated executory costs, or $142,272, annually, to reduce investment in the lease and record income associated with the related amount due. Executory costs are estimated to be $1,677 per month and initial direct costs are not considered significant. The transaction resulted in incremental revenue in the quarter ended March 31,September 30, 2021 of approximately $13,000.$38,000.

The equipment is subject to a direct lease valued at approximately $748,000. At the inception of the lease term, the aggregate minimum future lease payments to be received is approximately $1,422,000 before executory cost. Unearned income recorded at the inception of this lease was approximately $474,000 and will be recorded over the term of the lease using the effective income rate method. Future minimum lease payments to be received under the lease for the next five years and thereafter are as follows:

Year ending December 31   
Remainder of 2021  30,537 
2022  122,148 
2023  122,148 
2024  122,148 
2025  122,148 
Thereafter  40,716 
Sub-total  559,845 
Less deferred revenue  (118,929)
Net investment in lease $440,916 


 

Year ending December 31   
Remainder of 2021  91,611 
2022  122,148 
2023  122,148 
2024  122,148 
2025  122,148 
Thereafter  40,716 
Sub-total  620,919 
Less deferred revenue  (143,666)
Net investment in lease $477,253 

NOTE 1112 – LEASE OBLIGATION PAYABLE

 

The Company entered into a lease in March 2017 for the rental of its printer for its secured plastic and credential card products business under an arrangement that is classified as a finance lease. The leased equipment is amortized on a straight-line basis over its lease term including the last payment (61 payments) which would transfer ownership to the Company. The cost basis of the lease equipment is $163,407 and the accumulated amortization as of March 31,September 30, 2021 is $131,261.$147,334. The following is a schedule showing the future minimum lease payments under finance lease by year and the present value of the minimum lease payments as of March 31,September 30, 2021. The interest rate related to the lease obligation is 12% and the maturity date is March 31, 2022.

 

Year ending December 31   
2021 $32,322 
2022  10,774 
Total minimum lease payments  43,096 
Less: Amount representing interest  (2,675)
Present value of minimum lease payments $40,421 
Year ending December 31   
Remainder of 2021 $10,774 
2022  10,774 
Total minimum lease payments  21,548 
Less: Amount representing interest  (735)
Present value of minimum lease payments $20,813 

NOTE 1213 – COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

From time to time, the Company is a party to various legal or administrative proceedings arising in the ordinary course of our business. While any litigation contains an element of uncertainty, we have no reason to believe the outcome of such proceedings will have a material adverse effect on the financial condition or results of operations of the Company.

 

Leases

 

For the threenine months ended March 31,September 30, 2021, lease expense was approximately $63,000$141,000 inclusive of short-term leases.

 

The lease related balances included in the Condensed Consolidated Balance Sheet as of March 31,September 30, 2021 were as follows:

 

Assets:   
    
Current portion of operating lease ROU assets - included in other current assets $63,325 
     
Operating lease ROU assets – included in Other Assets $44,489 
     
Total operating lease assets $107,814 

Assets:

Current portion of operating lease ROU assets - included in other current assets $99,667 
     
Operating lease ROU assets – included in Other Assets $- 
     
Total operating lease assets $99,667 

 

Liabilities:   
    
Current portion of ROU liabilities – included in Accounts payable and accrued expenses $52,858 
     
Long-term portion of ROU liabilities – included in Other liabilities  59,506 
     
Total operating lease liabilities $112,364 

Liabilities:

Current portion of ROU liabilities – included in Accounts payable and accrued expenses $100,290 
     
Long-term portion of ROU liabilities – included in Other liabilities  - 
     
Total operating lease liabilities $100,290 


The weighted average lease of the remaining term is 1.8 years1.0 year or less and weighted average discount rate used in the calculations werewas 13.55%.

 

The following table presents the maturity of the Company’s operating lease liabilities as of March 31,September 30, 2021:

 

Remainder of 2021 $72,455 
2022  49,716 
Total operating lease payments  122,171 
Less: Imputed interest  (9,807)
Total operating lease liabilities $112,364 
Remainder of 2021 $34,692 
2022  66,564 
Total operating lease payments  101,256 
Imputed interest  (966)
Total operating lease liabilities $100,290 

 

The Company rents office space in Long Beach, New York at a monthly cost of $2,500. The agreement is month to month and can be terminated on 30 days’ notice. The agreement is between the Company and Bridgeworks LLC, an entity principally owned by Mr. Beck, our former CEO and Board Member along with his family.

 

The Company leasesleased an office location in Bogota, Colombia. In April 2017, MultiPay S.A.S. entered an office lease beginning April 22, 2017. The lease cost isColombia with a base rent of approximately $8,500 per month with anwhich was adjusted for inflation adjustment after one year.when compared to its initial lease date in 2017. The lease is automatically extended for one additional year unless written notice to the contrary is provided at least six monthsexpired in advance. Multipay extended the lease through April 2021. In April 2021, MultipayMultiPay entered into a six-month lease for a monthly rental of approximately $1,375.$1,375 which terminated in September 2021. In October 2021, MultiPay entered into a one-year lease for approximately $2,900 per month.

 

The Company also leases space for its operation in South Africa. The current lease is through June 30, 2022 and the approximate monthly rent is $8,000.

 

NOTE 13 – IMPAIRMENT LOSS

Goodwill is recorded when the purchase price paid for an acquisition exceeds the fair value of net identified tangible and intangible assets acquired. The Company performs an annual impairment test of goodwill and further periodic tests to the extent indicators of impairment develop between annual impairment tests. The Company’s impairment review process compares the fair value of the reporting unit to its carrying value, including the goodwill related to the reporting unit utilizing qualitative considerations. To determine the fair value of the reporting unit, the Company may use various approaches including an asset or cost approach, market approach or income approach or any combination thereof. These approaches may require the Company to make certain estimates and assumptions including future cash flows, revenue and expenses. These estimates and assumptions are reviewed each time the Company tests goodwill for impairment and are typically developed as part of the Company’s routine business planning and forecasting process. While the Company believes its estimates and assumptions are reasonable, variations from those estimates could produce materially different results.

During the quarter ended March 31, 2020, the Company recorded an impairment loss of approximately $0.9 million, associated with goodwill at Cards Plus as the carrying value may not be recovered as revenue assumptions and related profitability were revised downward. The Company reviews its projections as a result of the current pandemic and its potential impact on future results. The fair value of the reporting unit was determined using a discounted cash flow analysis.

17


 

NOTE 14 – SEGMENT INFORMATION

 

General information

 

The segment and geographic information provided in the table below is being reported consistent with the Company’s method of internal reporting. Operating segments are defined as components of an enterprise for which separate financial information is available and which is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM regularly reviews net revenue and gross profit by geographic regions. The Company’s products and services operate in two2 reportable segments; identity management and payment processing.

 

Information about revenue, profit/loss and assets

 

The CODM evaluates performance and allocates resources based on net revenue and operating results of the geographic region as the current operations of each geography are either primarily identity management or payment processing. Identity management revenue is generated in North America and Africa and payment processing revenue is earned in South America which are the three geographic regions of the Company. We have included the lease income in payment processing as the leases are related to unattended ticketing kiosks.

 

Long lived assets are in North America, South America and Africa. Most assets are intangible assets recorded from the acquisition of MultiPay (South America) in 2015 and FIN Holdings (North America and Africa) in 2016. AssetsLong-lived assets for North America, South America and Africa amounted to approximately $7.3$7.7 million, $0.7$0.1 million and $1.3 million.$0.2 million   consisting of property and equipment – net, intangible assets – net and goodwill.

 


Analysis of revenue by segment and geographic region and reconciliation to consolidated revenue, gross profit, and net loss are provided below. The Company has included in the schedule below an allocation of corporate overhead based on management’s estimate of resource requirements.

 

  (unaudited)
Three Months Ended
 
  March 31,
2021
  March 31,
2020
 
Net Revenues:      
North America $148,060  $133,554 
South America  96,183   113,624 
Africa  344,756   546,611 
   588,999   793,789 
         
Identity Management  492,816   680,165 
Payment Processing  96,183   113,624 
   588,999   793,789 
         
Loss From Operations:        
North America  (1,270,403)  (407,392)
South America  (731,688)  (1,212,152)
Africa  (184,819)  (1,053,064)
   (2,186,910)  (2,672,608)
         
Identity Management  (1,455,222)  (1,460,456)
Payment Processing  (731,688)  (1,212,152)
   (2,186,910)  (2,672,608)
         
Interest Expense  (297,438)  (179,050)
Other income/(expense)  1,537   (975,889)
         
Loss before income taxes  (2,482,811)  (3,827,547)
         
Income tax expense  (7,188)  (8,874)
         
Net loss $(2,489,999) $(3,836,421)
  (Unaudited) 
  Three Months Ended  Nine Months Ended 
  September  September,  September,  September, 
  2021  2020  2021  2020 
Net Revenues:            
North America $162,433  $176,448  $464,181  $445,700 
South America  89,581   106,453   275,179   292,208 
Africa  276,335   232,791   955,769   892,692 
   528,349   515,692   1,695,129   1,630,600 
                 
Identity Management  438,768   409,239   1,419,950   1,338,392 
Payment Processing  89,581   106,453   275,179   292,208 
   528,349   515,692   1,695,129   1,630,600 
                 
Loss From Operations                
North America  (3,614,358)  (562,729)  (6,902,429)  (1,536,138)
South America  (1,655,667)  (937,281)  (3,440,771)  (4,852,094)
Africa  (392,624)  (211,276)  (796,946)  (802,283)
   (5,662,649)  (1,711,286)  (11,140,146)  (7,190,515)
                 
Identity Management  (4,010,982)  (774,005)  (7,699,375)  (2,338,421)
Payment Processing  (1,655,667)  (937,281)  (3,440,771)  (4,852,094)
   (5,662,649)  (1,711,286)  (11,140,146)  (7,190,515)
                 
Interest Expense  (25,780)  (212,658)  (579,768)  (701,861)
Other income/(expense)  492,498   16,779   985,916   (1,301,192)
                 
Loss before income taxes  (3,015,256)  (1,907,165)  (10,733,998)  (9,193,568)
                 
Income tax expense  (2,974)  (11,074)  (12,516)  (23,540)
                 
Net loss $(5,198,905) $(1,918,239) $(10,746,514) $(9,217,108)


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Going concern

 

As of March 31,September 30, 2021, the Company had an accumulated deficit of approximately $100.7$109.0 million. For the threenine months ended March 31,September 30, 2021, the Company earned revenue of approximately $0.6$1.7 million and incurred a loss from operations of approximately $2.2$11.1 million.

 

The reports of our independent registered public accounting firm on our consolidated financial statements for the years ended December 31, 2020 and 2019 contained an explanatory paragraph regarding our ability to continue as a going concern based upon our net losses.

 

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependentdependent upon financial support from the Company’s current shareholders, the ability of the Company to obtain additional equity financing to continue operations, the Company’s ability to generate sufficient cash flows from operations, successfully locating and negotiating with other business entities for potential acquisition and /or acquiring new clients to generate revenues and cash flows.

 

On October 30, 2020 and on November 6, 2020, the Company entered into Securities Purchase Agreements with several accredited investors (the “October 2020 Accredited Investors”) pursuant to which the October 2020 Accredited Investors agreed to purchase an aggregate of 52,435,000 shares of the Company’s common stock together Warrants to acquire 26,217,500 shares of common stock for a term of five years at an exercise price of $0.15 per share for an aggregate purchase price of approximately $5.24 million. In January 2021, the Company received a second loan of approximately $486,000 under the PPP of the USSBA related to its U.S. operations. The first PPP loan was received in 2020 and both of the PPP loans were forgiven as the Company met the applicable requirements.

 

On August 26, 2021, the Company’s completed its public offering (the “Offering”) of 1,642,856 shares of its common stock at a public offering price of $7.00 per share, including 214,285 shares sold upon full exercise of the underwriter’s option to purchase additional shares, for gross proceeds of approximately $11.5 million, before deducting underwriting discounts and offering expenses.

In November 2021, the Company filed an S-3 to register an indeterminate number of securities of each identified class of securities up to a proposed aggregate offering price of $200,000,000, which may from time to time be offered in unspecified numbers and at indeterminate prices.

There is no assurance that the Company will ever be profitable or be able to secure funding or generate sufficient revenues to sustain operations. As such, there is substantial doubt about the Company’sCompany’s ability to continue as a going concern. These unaudited condensed 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.

 

Overview

 

IpsidyauthID.ai (Ipsidy Inc. (together with its subsidiaries, the “Company”, “we” or “our”) is a leading provider of secure, mobile, biometric identity verification software products delivered by an easy to integrate Identity as a Service (IDaaS) platform. Our mission is to eliminate all passwords and to be the preferred global platform deliveringfor biometric identity authentication. Our vision is to enable every organization to “Recognise Your Customer” instantly, without friction or loss of privacy, powered by the most sophisticated biometric and artificial intelligence technologies.

The explosive growth in online and mobile commerce, telemedicine, remote working and digital activities of all descriptions is self-evident to everyone who lived into 2021. Identity theft, phishing attacks, spear-phishing, password vulnerabilities, account takeovers, benefits fraud - words that have entered our daily lexicon it seems like overnight. These risks are significant impediments to the operations and growth of any business or organization, and dealing with the consequences of these criminal activities has created significant friction in both time, cost and lost opportunity. Consider all the methods that organizations have had to implement in order to prevent fraud. The requests to receive and enter one-time passwords. The maddening questions you get asked – whether on-line or when reaching out to a suite ofcall center – what was your first pet’s name? who was your best friend in high school? These steps all add up to friction, making it difficult for consumers to login, transact and execute daily tasks. Surely there is a better way to address these challenges? authID.ai believes there is.


authID.ai provides secure, mobile, biometric, identity verification, solutions. InFIDO2 passwordless login and strong customer authentication. We maintain a world that is increasingly digital and mobile, our mission is to help our customers know with biometric certainty the identity of the people with whom they are engaging. We provide solutions to everyday problems: Who is applying for a loan? Who is accessing the computer system? Who is sending money? Who is requesting an account change?

Ipsidy provides secure, biometric identification, identity verification and electronic transaction authentication and processing services. We have developed anglobal, cloud-based, IDaaS platform for our enterprise customers be they businesses, governments, or other organizations, to enable their users to easily verify and authenticate their identity more easily through a mobile phone or portable device of their choosing (as opposed to dedicated hardware). We establish a proven identity, creating a root of trust that ensures the highest level of assurance for our passwordless login and step-up verification products. Our system enables participants to consent to transactions using their biometric information with a digitally signed authentication response, includingembedding the underlying transaction data. In this way our systems can provide pre-transaction authentication of identity as well as embeddata and each user’s identity attributes within every electronic transaction message processed through our platform, or other electronic systems.platform.

 


Digital transformation across all market segments requires trusted identity. Our identity platform offers innovative solutions that are flexible, fast and easy to integrate and offer seamless user experiences. authID’s products help advance digital transformation efforts without the fear of identity fraud, while delivering frictionless user experiences. We believe that it is also essential that businesses and consumers know who is on the other side of anevery electronic transaction and havehas an audit trail, proving that the identity of the other partyindividual was duly authenticated. Our solutions are intended to provide our customers with the next level of transaction security, control and certainty. Our platform usesprovides biometric and multi-factor identity solutions,software, which are intended to establish, authenticate, and verify and authenticate identity duringacross a wide varietyrange of use cases and electronic transactions. We define “electronic transactions” in the broadest sense to include not only financial transactions (i.e. exchanges of value in all of their forms), and legal transactions (e.g. approving the release of personal or other confidential data), but also access control to both digital environments (e.g. accessing financial accounts, voting systems, email systems, healthcare records and controlling data network log-ins) and physical environments (e.g. entrances to offices, public buildings, data centers and other sensitive locations).

 

The Company’sauthID ’s products focus on the broad requirement for identity verification and multi-factor authentication.enabling frictionless commerce by allowing an entity to instantly “Recognise their Customer”. Organizations of all descriptions require cost-effective and secure means of growing their business while mitigating identity fraud - whether that fraud takes place during a new account onboarding, or an attempt to takeover an existing account by the misuse of the account holder’s personal information, or access credentials.fraud. We aim to offer our enterprise customers solutionsproducts that can be integrated easily integrated into each customer’sof their business and organizational operations, in order to facilitate their useadoption and enhance the end user customer experience.

 

ProofTM our mobile identity onboarding and verification application, establishes the trusted identity of users based on a variety of ground truth sources, such as chip based electronic machine readable travel documents, or eMRTDs, national IDs, drivers licenses, as well as by means of direct verification by national ID databases in Peru and in the future, South Africa. The application uses these sources to obtain trusted demographic information and the reference facial biometric images that are matched against the user’s captured live selfie. Proof enables the remote onboarding of people in services associated with fintech, telecom, healthcare, government services or benefits and other online industries.

Our identity authentication solution, Verified by Ipsidy, can be delivered seamlessly via mobile web browser, by Ipsidy’s mobile application or into a customer’s mobile app, using our SDK’s. Verified helps our customers gain identity certainty of their users (customers and employees) who can conveniently and securely consent to a variety of electronic transactions, using their biometrics.

In 2020 we added a FIDO2 strong authentication solution, AuthentifIDTM. AuthentifID by Ipsidy delivers trusted FIDO2 strong authentication for passwordless login and transaction authentication tied to a trusted identity. During user registration, AuthentifID leverages Ipsidy’s seamless biometric identity verification service to scan an identity document and take a selfie, to establish a digital chain of trust between biometrically verified individuals, their accounts, and their devices. For example, an international financial bank entered into an agreement with us to use AuthentifID in order to provide added security to users of its banking systems.

The Company’s solutions for fingerprint-based identity management and electronic payment transaction processing have been in the market for several years. For example, in December 2017, we won an international competitive tender to provide our SearchTM Automated Fingerprint Identification de-duplication system (AFIS) to the Zimbabwe Electoral Commission, for them to ensure that no duplicate entries existed in the voter roll for the 2018 election. The AFIS system was delivered under tight deadlines and within budget, in order to enable the voter roll to be published and the election to occur as planned.

Management believes that some of the advantages of the Company’sour IDaaS Platform approach are the ability to leverage the platform to support a variety of vertical markets including the identity solutions and transaction processing sectors and the adaptability of the platform to the requirements of new markets and new products requiring low cost,cost-effective, secure, and configurable mobile solutions. These verticalOur target markets include but are not limited to banking, fintech and payment transactions, elections, schools, public transportation,other disrupters of traditional commerce, small and medium sized businesses, and system integrators working with government and enterprise security.Fortune 1000 enterprises. At its core, the Company’s offering, combining its proprietary and acquired biometric and artificial intelligence technologies with those acquired(or AI), is intended to facilitate frictionless commerce, whether in the processing of diverse electronic transactions, be they payments, votes,physical or digital access, all of which can include identity verification, authentication and identity transaction recording.world. The Company continuesintends to investincrease its investment in developing, patenting, and acquiring the various elements necessary to enhance the platform, which isare intended to allow us to achieve our goals. One of the principal intended areas of investment is to enhance and expand our use of artificial intelligence in proprietary software, that we believe will increase our value to enterprise customers and stockholders alike.


authid.ai is dedicated to developing advanced methods of protecting consumer privacy and deploying ethical and socially responsible AI. authID is developing a culture that proactively encourages and rewards our employees for considering the ethical implications of our products. We believe that a proactive commitment to ethical AI presents a strong business opportunity for authID and will enable us to bring more accurate products to market more quickly and with less risk to better serve our global user base. Our methods to achieve ethical AI include engaging the users of our products with informed consent, prioritizing the security of our user’s personal information, considering and avoiding potential bias in our algorithms, and monitoring of algorithm performance in our applications.

The Company was incorporated in the State of Delaware on September 21, 2011 and changed its name to Ipsidy Inc. on February 1, 2017, and our common stock is currently (beginning July 13, 2021) traded on the OTCQB U.S. MarketNASDAQ under the trading symbol “IDTY”“AUID”. Our corporate headquarters is located at 670 Long Beach Blvd., Long Beach, NY 11561 and our main phone number is (516) 274-8700. We maintain a website at www.ipsidy.com.www.authID.ai. The contents of our website are not incorporated into, or otherwise to be regarded as part of, this Quarterly Report on Form 10-Q

 

Adjusted EBITDA

 

This discussion includes information about Adjusted EBITDA that is not prepared in accordance with GAAP. Adjusted EBITDA is not based on any standardized methodology prescribed by 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 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 restricted stock) and (6) certain other items management believes affect the comparability of operating results.

 

Other items includedinclude the following infollowing:

For the quarternine months ended March 31,September 30, 2021:

Gain on extinguishment of notes payable - $1.0 million

For the nine months ended September 30, 2020:

 

ExtinguishmentLoss on extinguishment of debt of $1.0 million

 

Impairment loss of $0.9 million

  

Warrant exercise inducement expense $0.4 million

  

Severance expense $0.4 million

Management believes that Adjusted EBITDA, when viewed with our results under 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. Additionally, we will continue to use Adjusted EBITDA in connection with our executive performance-based compensation in 2021.

 


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:

 

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

 

Adjusted EBITDA does not include the impact of certain charges or gains resulting from matters we consider not to be indicative of our ongoing operations.

 

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 GAAP results and using Adjusted EBITDA only as a supplement to our GAAP results.


Reconciliation of Net Loss to Adjusted EBITDA

 

  For the Quarter Ended 
  March 31,
2021
  March 31,
2020
 
Net loss $(2,489,999) $(3,836,421)
         
Add Back:        
         
Interest Expense  297,438   179,050 
Debt extinguishment  -   985,842 
Other expense/(income)  (1,537)  (9,953)
Depreciation and amortization  309,829   325,344 
Taxes  7,188   8,874 
Impairment loss  -   871,807 
Stock compensation  626,579   169,110 
         
Adjusted EBITDA (Non-GAAP) $(1,250,502) $(1,306,347)
  For the Quarter Ended  For the Nine Months Ended 
  September 30,
2021
  September 30,
2020
  September 30,
2021
  September 30,
2020
 
             
Net loss $(5,198,905) $(1,918,239) $(10,746,514) $(9,217,108)
Add Back:                
                 
Interest Expense  25,780   212,658   579,768   701,861 
Debt extinguishment – loss/(gain)  (485,762)  -   (971,522)  985,842 
Warrant exercise inducement expense  -   -   -   366,795 
Severance cost  -   -   -   426,175 
Other expense/(income)  (6,736)  (16,779)  (14,394)  (51,445)
Depreciation and amortization  319,017   276,232   943,436   923,563 
Taxes  2,974   11,074   12,516   23,540 
Impairment loss  -   -   -   1,035,629 
Stock compensation  2,533,943   112,125   4,795,069   741,668 
                 
Adjusted EBITDA (Non-GAAP) $(2,809,689) $(1,322,929) $(5,401,641) $(4,063,480)

 

Adjusted EBITDA loss for the quarternine months ended March 31,September 30, 2021, decreasedincreased by approximately $0.1$1.3 million compared to the previous year, principally due to a decrease in overall spending while focusing costs on key products.higher compensation, marketing and targeting technology.

 

Three and Nine Months Ended March 31,September 30, 2021 and March 31,September 30, 2020

 

Revenues, net

 

During the three months and nine months ended March 31,September 30, 2021, the Company had revenues of approximately $589,000$0.5 million and $1.7 million compared to $794,000$0.5 million and $1.6 million in the three months and nine months ended March 31,September 30, 2020. The decreaserevenue in revenue is principally related to a reduction in revenuethe three and nine month periods ended September 30, 2021 was higher at Cards Plus and our Colombiancompared to the prior year, when business was severely impacted due to Covid-19. Ipsidy, North America new revenue increased slightly in the impact of Covid-19 offset by higher incomenine month period ended September 30, 2021 and revenue at Ipsidy resulting from adding new customers for identity services.MultiPay decreased slightly in the three and nine month periods ended September 30, 2021.

 


Cost of sales

 

During the three months ended March 31,September 30, 2021, cost of sales was lesshigher than the cost of sales in the three months ended March 31,September 30, 2020, principally due to lower marginhigher revenue at Cards Plus. In the nine-month period ended September 30, 2021, compared to September 30, 2020, cost of sales was lower as Cards Plus sold products at higher margins.

  

General and administrative expenses

 

During the three-month periodand nine-month periods ended March 31,September 30, 2021, compared to March 31,September 30, 2020, general and administrative expense increased by approximately $0.4$3.8 million principallyand $4.9 million due to increased compensation, marketing and technology costs in addition to higher non-cash stock compensation charges. Stock compensation charges were $2.4 million and $4.1 million higher in three and nine months ended September 30, 2021 compared to the prior year.

 

22

Research and development expenses

  

During the three-month periodand nine-month periods ended March 31,September 30, 2021, compared to March 31,September 30, 2020, research and development expenses decreasedincreased by approximately $0.1 million and $0.2 million as the Company reduced overall spend including lower staff levels while focusing itshas focused resources on key products initiatives.

 

Impairment loss

 

During the threenine months ended March 31,September 30, 2020, the Company recorded an impairment loss of approximately $872,000 associated with goodwill of one of its reporting units.units of approximately $1,036,000.

 

As a result of the current pandemic and its potential impact on future results, the Company updated its reporting unit projections, and it indicated a goodwill impairment as the carrying value was in excess of its estimated recoverable value. The fair value of the reporting unit was determined using a discounted cash flow analysis.

 

Depreciation and amortization expense

 

DuringDepreciation and amortization expense increased slightly both the three-month periodthree and nine months ended March 31,September 30, 2021 compared to March 31, 2020, depreciation and amortization expense was approximately the same in both periods.September 30, 2020.

 

Other Income (Expense)

 

During the three-month periodthree- and nine-month periods ended March 31,September 30, 2021, the Company recorded a gain on the extinguishment of a note payable of approximately $486,000 and $972,000, respectively, related to the forgiveness of the two Paycheck Protection Program loans as the Company met the applicable requirements.

During the nine months ended September 30, 2020, the Company recorded a charge of approximately $986,000$985,000 related to an extinguishment of a note payable.payable and a charge of approximately $367,000 in connection with an inducement to certain warrant holders to exercise their outstanding warrants.

 

Interest expense

 

Interest expense increaseddecreased during the three-month periodthree months and nine months ended March 31,September 30, 2021 compared to March 31,the three and nine months ended September 30, 2020 principally due toas the Company received conversion notices from the majority of convertible debt offeringsnoteholders in February 2020June 2021 and converted the increased amount of debt discount.Company’s outstanding indebtedness into common shares reducing its interest obligation.

 


Liquidity and Capital Resources

 

TheAs of September 30, 2021 the Company hashad approximately $2.6$9.2 million of cash on hand and has a deficiency inhad working capital of approximately $5.2 million as its convertible debt has been reclassified to a current liability as it is due in February 2022.$7.4 million. 

 

Cash used in operating activities was approximately $1.7$5.5 million and $1.2$3.1 million in the threenine months ended March 31,September 30, 2021, and March 31,September 30, 2020, respectively.

 

In January 2021, the Company received a second loan of approximately $486,000 under the Paycheck Protection Program of the U.S. Small Business Association (“USSBA”) related to its U.S. operations. The Company anticipates, subject to approval byreceived notice in August 2021, the USSBA, if certain requirements areJanuary 2021 Paycheck Protection Program loan was forgiven as the Company met the loan will be forgiven. Any amount not forgiven will be required to be repaid.applicable requirements.

 

InDuring the first quarter of 2021, convertible notes totaling $120,000 and a portion of their accrued interest at the option of the noteholders were converted into approximately 33,000 shares of common stock of the Company.

Additionally, in the nine months ended September 30, 2021, the Company will continuereceived conversion notices from (i) the Stern Trust converting the principal amount, repayment premium and interest in the amount of approximately $3.5 million payable under the Restated Stern Note into approximately 561,000 shares of common stock, (ii) the 8% Note Investors converting principal and interest in the amount of approximately $0.4 million into approximately 180,000 shares of common stock and (iii) the 2020 Note Investors converting principal, repayment premium and interest in the amount of approximately $2.5 million into approximately 398,000 shares of common stock. The Stern Trust is owed approximately $0.7 million in interest under the Restated Stern Note, which has not been converted and remains outstanding. As a result, a total of approximately $6.1 million of Company net indebtedness was converted and the Company issued 1,138,000 shares of common stock in the aggregate.

On August 26, 2021, the Company’s completed its public offering (the “Offering”) of 1,642,856 shares of its common stock at a public offering price of $7.00 per share, including 214,285 shares sold upon full exercise of the underwriter’s option to be opportunistic as well as judicious in raisingpurchase additional funds to support its operationsshares, for gross proceeds of approximately $11.5 million, before deducting underwriting discounts and investments as it creates a sustainable organization. There is no guarantee that such financing will be available or available on acceptable terms. offering expenses.

In order to implement and grow our operations through December 31, 2022, achieve an expected revenue stream from our products and repay our outstanding convertible debt obligations (to the extent that the same are not converted to common stock),obligation, we expect that we will need to raise approximately $12.5$5.0 to $15.0$10.0 million. There is no guarantee that our current business plan will not change and, as a result of such change, that we will need additional capital to implement such business plan.

 

In November 2021, the Company filed an S-3 to register an indeterminate number of securities of each identified class of securities up to a proposed aggregate offering price of $200,000,000, which may from time to time be offered in unspecified numbers and at indeterminate prices.

Covid 19

 

A novel strain of coronavirus (“Covid-19”)Covid-19 emerged globally in December 2019, and it has been declared a pandemic. The extent to which Covid-19 will impact ouris still impacting customers, business, results and financial condition will depend on current and future developments, which are highly uncertain and cannot be predicted at this time.throughout the world. The Company’s day-to-day operations beginning March 2020 have been impacted differently depending on geographic location and services that are being performed. The Cards Plus business located in South Africa did not have any operations in April 2020 and has had limitations on its operations thereafter as the Company isthey are following the guidance and requirements of the South African government. Our operations in the United States and Colombia have suffered less immediate impact as most staff can work remotely and can continue to develop our product offerings.


That said we have seen our business opportunities develop more slowly as business partners and potential customers are dealing withinclude Covid-19 issues,considerations. Furthermore, working remotely and these issues are causing delayscan cause a delay in decision making and finalization of negotiations and agreements.

 

See above – Impairment loss and Note 13 to the unaudited financial statements.


 

Subsequent Event

 

On May 5, 2021, the Company granted options to acquire shares of common stock (“Stock Options”) at an exercise price equivalent to fair market value on the date of grant with an exercise period of ten years, as follows:

17,500,000 Stock Options to each of Mr. Kumnick and Mr. Broenniman subject to tranche vesting upon achieving certain corporate performance measures.
11,500,000 Stock Options to certain officers and employees that vest over a three-year period, subject to continued service.
Approximately 2,700,000 fully vested Stock Options for present and former non-employees Directors compensation for services from 2019 through April 30, 2021.
Approximately 1,300,000 Stock Options to two present non-employee Director that vest over a twelve-month period.

See Note 5 for additional information regarding accrued Directors’ compensation.

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.

 

Recent Accounting Policies

 

The recent material accounting policies that may be the most critical to understanding of the financial results and conditions are discussed in Note 1 of the unaudited financial statements.

 

In August the FASB issued a new standard (ASU 2020-06) to reduce the complexity of accounting for convertible debt and other equity-linked instruments. For certain convertible debt instruments with a cash conversion feature, the changes are a trade-off between simplifications in the accounting model (no separation of an “equity” component to impute a market interest rate, and simpler analysis of embedded equity features) and a potentially adverse impact to diluted EPS by requiring the use of the if-converted method. The new standard will also impact other financial instruments commonly issued by both public and private companies. For example, the separation model for beneficial conversion features is eliminated simplifying the analysis for issuers of convertible debt and convertible preferred stock. Also, certain specific requirements to achieve equity classification and/ or qualify for the derivative scope exception for contracts indexed to an entity’s own equity are removed, enabling more freestanding instruments and embedded features to avoid mark-to-market accounting. The new standard is effective for companies that are SEC filers (except for Smaller Reporting Companies) for fiscal years beginning after December 15, 2021 and interim periods within that year, and two years later for other companies. Companies can early adopt the standard at the start of a fiscal year beginning after December 15, 2020. The standard can either be adopted on a modified retrospective or a full retrospective basis. The Company is currently reviewing the newly issued standard and does not believe it will materially impact the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As a smaller reporting company, we are not required to include disclosure under this item.

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly 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(e) and 15d-15(e) of the Exchange Act. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31,September 30, 2021, the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the CompanyCompany 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.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the threenine months ended March 31,September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, the Company is a party to various legal or administrative proceedings arising in the ordinary course of business. While any litigation contains an element of uncertainty, we have no reason to believe the outcome of such proceedings will have a material adverse effect on the financial condition or results of operations of the Company.

ITEM 1A. RISK FACTORS

 

Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2020. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable to our operations.

ITEM 5. OTHER INFORMATION

 

At the Annual Meeting of stockholders of the Company held on March 22, 2021, in addition to the re-election of all the directors and the ratification of the appointment of Cherry Bekaert, LLP as the auditors of the Company for the year ended 2020, the stockholders approved a number of additional resolutions, summarized as follows:None.

 

Approved an amendment to our certificate of incorporation to effect a reverse stock split at a ratio not less than 1-for-2 and not greater than 1-for-50, with the exact ratio to be set within that range at the discretion of our board of directors before December 31, 2021.


 

Approved the adoption of an amended and restated certificate of incorporation, which has since been duly filed with the Secretary of State of Delaware.

 

Approved and ratified an increase in the shares allocated to the 2017 Incentive Stock Plan by an additional 75 million shares of common stock.

ITEM 6. EXHIBITS

 

Exhibit
Number 
 Description
2.1(1)Agreement and Plan of Reorganization
   
3.1(25)Amended & Restated Certificate of Incorporation
   
3.2(23)Amended & Restated By-laws
   
4.1(4)Stock Option dated September 25, 2015 issued to Herbert M. Seltzer
   
4.2(5)Stock Option issued to Thomas Szoke dated September 25, 2015
   
4.3(6)Stock Option issued to Parity Labs, LLC
   
4.4(7)Stock Option Agreement entered between the Company and Stuart P. Stoller dated January 31, 2017
   
4.5(3)Stock Option Agreement entered between the Company and Philip D. Beck dated January 31 2017
   
4.6(15)Letter Agreement between Ipsidy Inc. and Theodore Stern Revocable Trust dated April 30, 2018.
   
4.7(16)Form of Subscription Agreement by and between Ipsidy Inc. and the August 2018 Accredited Investors
   
4.8(17)Form of Subscription Agreement by and between Ipsidy Inc. and the June 2019 Accredited Investors
   
4.9(18)Letter Agreement between The Theodore Stern Revocable Trust and Ipsidy Inc. dated December 13, 2019
   
4.10(18)Form of Securities Purchase Agreement entered between Ipsidy Inc. and the 8% Note Investors
   
4.11(18)Form of 8% Convertible Note
   
4.12(19)Form of 15.0% Convertible Note
   
4.13(19)Amended and Restated Promissory Note issued to The Theodore Stern Revocable Trust
   
4.14(21)Paycheck Protection Program Term Note dated May 6, 2020
   
4.15* Paycheck Protection Program Term Note dated February 1, 2021
   
10.1(8)Assignment of Patents
   
10.2(8)Assignment of Patents
   
10.3(8)Assignment of Patents

Exhibit Number  Description
3.1(1) Amended & Restated Certificate of Incorporation
3.2(2) Amended & Restated Bylaws
3.3(3) Certificate of Amendment dated June 1, 2021
4.1(3) Form of Stock Option
4.2(4) Form of 8.0% Convertible Note
4.3(5) Form of 15.0% Convertible Note
4.4(5) Amended and Restated Promissory Note issued to The Theodore Stern Revocable Trust
4.5(6) Paycheck Protection Program Term Note dated May 6, 2020
4.6(7) Paycheck Protection Program Term Note dated February 1, 2021
10.1(3) Form of Director Agreement
10.2(3) Form of Indemnification Agreement
10.3(11) Executive Retention Agreement entered between the Company and Stuart P. Stoller dated January 31, 2017
10.4(8) Executive Retention Agreement entered between the Company and Thomas Szoke dated January 31 2017
10.5(9) 2017 Incentive Stock Plan
10.7(3) Executive Retention Agreement entered between the Company and Thomas L. Thimot dated June 14, 2021
10.8(3) Executive Retention Agreement entered between the Company and Cecil N. Smith III dated June 14, 2021
10.9(3) Letter Agreement between the Company and Thomas L. Thimot dated June 14, 2021
10.10(3) Letter Agreement between the Company and Cecil N. Smith III dated June 14, 2021
10.11* Letter Agreement between the Company and Phillip L. Kumnick dated as November 5, 2021
10.12*  Letter Agreement between the Company and Philip R. Broenniman dated as November 5, 2021
14.1(10) Code of Ethics
21.1(10) List of Subsidiaries
31.1*  Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
31.2*  Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
32.1*  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS  Inline XBRL Instance Document *
101.SCH  Inline XBRL Taxonomy Extension Schema Document *
101.CAL  Inline XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF  Inline XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB  Inline XBRL Taxonomy Extension Label Linkbase Document *
101.PRE  Inline XBRL Taxonomy Extension Presentation Linkbase Document *
104  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 


10.4(9)The ID Global Solutions Corporation Equity Compensation Plan
   
10.5(10)Share Purchase Agreement by and between ID Global Solutions Corporation and the Multipay S.A. Shareholders
   
10.6(11)Director Agreement by and between ID Global Solutions Corporation and Herbert M. Seltzer dated September 25, 2015
   
10.7(12)Share Exchange Agreement by and between ID Global Solutions Corporation, Fin Holdings, Inc. and the Fin Holdings, Inc. shareholders
   
10.8(7)Executive Retention Agreement entered between the Company and Stuart P. Stoller dated January 31, 2017
   
10.9(3)Indemnification Agreement entered between the Company and Stuart P. Stoller dated January 31, 2017
   
10.10(3)Executive Retention Agreement entered between the Company and Philip D. Beck dated January 31 2017
   
10.11(3)Executive Retention Agreement entered between the Company and Thomas Szoke dated January 31 2017
   
10.12(3)Executive Retention Agreement entered between the Company and Douglas Solomon dated January 31, 2017
   
10.13(3)Form of Conversion Agreement dated January 31, 2017
   
10.14(3)Stand-Off Agreement dated January 31, 2017 entered between Philip Beck, Stuart Stoller, Thomas Szoke, Douglas Solomon, Herbert Selzer, Ricky Solomon and the Company
   
10.15(3)Form of Indemnity Agreement
   
10.16(13)Restricted Stock Agreement dated September 29, 2017 between Stuart P. Stoller and Ipsidy Inc.
   
10.17(15) 2017 Incentive Stock Plan
   
10.18 (15)Letter from Ipsidy Inc. to Philip Beck dated May 3, 2018
   
10.19(15)Letter from Ipsidy Inc. to Stuart Stoller dated May 3, 2018
   
10.20(15)Letter from Ipsidy Inc. to Thomas Szoke dated May 3, 2018
   
10.21(18)Letter Agreement between Phillip L. Kumnick and Ipsidy Inc.
   
10.22(19)Form of Securities Purchase Agreement – 2020 Notes
   
10.23(19)Form of Security Agreement – 2020 Notes
   
10.24(19)Form of Letter Agreement between Ipsidy Inc. and the 8% Convertible Note Holders
   
10.25(20)Letter Agreement between Phillip R. Broenniman and Ipsidy Inc.
   
10.26(22)Letter Agreement between Philip D. Beck and Ipsidy Inc. dated May 22, 2020
   
10.27(22)Offer Letter between Ipsidy Inc. and Phillip K. Kumnick dated December 31, 2020
  
10.28(24)Offer Letter between Ipsidy inc. and Philip R. Broenniman dated December 31, 2020
*Filed herewith

 


14.1(14)Code of Ethics
   
21.1(14)List of Subsidiaries
   
31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
   
31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
   
32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS(1)XBRL Instance Document *
101.SCHXBRL Taxonomy Extension Schema Document *
101.CALXBRL Taxonomy Extension Calculation Linkbase Document *
101.DEFXBRL Taxonomy Extension Definition Linkbase Document *
101.LABXBRL Taxonomy Extension Label Linkbase Document *
101.PREXBRL Taxonomy Extension Presentation Linkbase Document *

*Filed herewith

(1)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on August 13, 2013.March 23, 2021.

(2)
(2)Incorporated by reference to the Form 10-12G Registration Statement8-K Current Report filed with the Securities Exchange Commission on November 9, 2011.January 22, 2021.

(3)
(3)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on June 15, 2021.
(4)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 16, 2019.
(5)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 18, 2020.
(6)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on May 13, 2020.
(7)Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on May 6, 2021.
(8)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 6, 2017.

(4)
(9)Incorporated by reference to the Form 8-K Current10-Q Quarterly Report filed with the Securities Exchange Commission on October 1, 2015.May 4, 2018.

(5)
(10)Incorporated by reference to the Form 8-K Current10-K Annual Report filed with the Securities Exchange Commission on October 1, 2015.July 12, 2017.

(6)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on August 16, 2016.

(7)(11)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 1, 2017.

(8)
(12)Incorporated by reference to the Form S-1/A Amendment No. 1 to the S-1 Registration Statement filed with the Securities Exchange Commission on February 13, 2014.July 16, 2021


 

(9)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on November 28, 2014.

 

(10)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 12, 2015.

(11)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.

(12)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 12, 2016.

(13)Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on November 13, 2017.

(14)Incorporated by reference to the Form 10-K Annual Report filed with the Securities Exchange Commission on July 12, 2017.
(15)Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on May 4, 2018.
(16)Incorporated by reference to the Form 10-K Annual Report filed with the Securities Exchange Commission on August 17, 2018.
(17)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on June 21, 2019.
(18)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 16, 2019.
(19)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 18, 2020.
(20)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 10, 2020.
(21)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on May 13, 2020.
(22)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on May 29, 2020. 
(23)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on January 22, 2021.
(24)Incorporated by reference to the Form 10-K Annual Report filed with the Securities Exchange Commission on March 8, 2021.
(25)Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 23, 2021.


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 IPSIDY INC.
   
 By:/s/ Phillip KumnickThomas Thimot
  Phillip Kumnick, Chairman of the Board of Directors andThomas Thimot, Chief Executive Officer   
  Principal Executive Officer
   
 By:/s/ Stuart Stoller
  Chief Financial Officer,
  Principal Financial and Accounting Officer
   
Dated: May 6,November 8, 2021  

  

 

2931

 

iso4217:USD xbrli:shares