SECURITIES AND EXCHANGEEXCHANGE 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 June 30, 2022March 31, 2023

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 001-40747

authID Inc.

(Exact name of registrant as specified in its charter)

13251385 S. Colorado Blvd

Denver, CO 80222

(Address of principal executive offices) (zip code)

516-274-8700

(Registrant’s telephone number, including area code)

Ipsidy Inc., 670 Long Beach Boulevard, Long Beach, New York 11561

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 ☒

Yes ☐    No ☒

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

TABLE OF CONTENTS

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, 20212022 and our other filings with the Securities and Exchange Commission. Some examples of risk factors which may affect our business are as follows:

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 “authID”, “authID.ai,” the “Company,” “we,” “our,” “us,” and similar terms refer to authID Inc., a Delaware corporation and its subsidiaries. The Company was formerly known as Ipsidy Inc. 

On July 18, 2022, Ipsidy Inc. changed its corporate name to authID Inc.

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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

authID INC. AND SUBSIDIARIES

(formerly known as Ipsidy Inc.)

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements. 

authID INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See notes to condensed consolidated financial statements. 

authID INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

See notes to condensed consolidated financial statements.

authID INC. AND SUBSIDIARIES

(formerly known as Ipsidy Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

(Unaudited)

See notes to condensed consolidated financial statements. 

authID INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCASH FLOWS

(Unaudited)

See notes to condensed consolidated financial statements.

authID INC. AND SUBSIDIARIES

(formerly known as Ipsidy Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

See notes to condensed consolidated financial statements.

authID INC. AND SUBSIDIARIES

(formerly known as Ipsidy Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

See notes to condensed consolidated financial statements.

authID INC. AND SUBSIDIARIES

(formerly known as Ipsidy Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to condensed consolidated financial statements.

authID INC. AND SUBSIDIARIES

(formerly known as Ipsidy Inc.)

NOTES TO UNAUDITED 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, 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, 2021.2022. The results of operations for the three and six months ended June 30, 2022March 31, 2023 are not necessarily indicative of the results to be expected for future periods or the full year.

Effective July 18, 2022, the Company changed its name to authID, Inc.

The condensed consolidated financial statements include the accounts of authID 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 and Cards Plus Pty Ltd. and Ipsidy Peru S.A.C.authID Gaming Inc. (collectively the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

On May 4, 2022, the Board of Directors of authID, Inc. approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank and payments services in Colombia and the Card Plus cards manufacturing and printing business in South Africa. As of June 30, 2022 and December 31, 2021, MultiPay S.A.S., IDGS S.A.S (collectively “MultiPay”) and Cards Plus Pty Ltd. (“Cards Plus”) legal entities’ assets are presented as assets held for sale on the Company’s Condensed Consolidated Balance Sheets and their results from operations presented as discontinued operations as they met the criteria for discontinued operations under the applicable accounting guidance. See Discontinued Operations Note 9 for details.

Going Concern

As of June 30, 2022,March 31, 2023, the Company had an accumulated deficit of approximately $127.8$145 million. For the three and six months ended June 30, 2022March 31, 2023, the Company earned revenue from continuing operations of approximately $0.1$0.04 million, and 0.2used approximately $2.2 million to fund its operations, and incurred a net loss from continuing operations of approximately $6.4 million $11.5 million, respectively.$5.3 million.

The reportscontinuation of our independent registered public accounting firm on our consolidatedthe Company as a going concern is dependent upon financial statements for the years ended December 31, 2021 and 2020 contained an emphasis of matter paragraph regardingsupport from the Company’s liquidity situationstockholders and management’s plan thereto.noteholders, the ability of the Company to obtain additional debt or 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 acquiring new clients to generate revenues and cash flows.

In March 2022, theThe Company has secured additional financing of $3.6 million which management believes will provide adequateprovides funding for its current operations as it continues to invest in its product, people, and technology. The Company may need additional capitalprojects that the investments will lead to revenue expansion thereby reducing liquidity needs. However, in the future but currently it believes it has sufficient funds and credit facilitiesorder to operatefurther implement its business through December 31, 2023. See Notes 5, 6plan and 8.satisfy its working capital requirements, the Company will need to raise additional capital. There is no guarantee that the Company will be able to raise additional equity or debt financing at acceptable terms, if at all.

There is no assurance that the Company will ever be profitable. These unaudited condensed consolidated financial statements have been prepareddo 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 basis, which impliesconcern. As there can be no assurance that the Company will be able to achieve positive cash flows (become cash flow profitable) and raise sufficient capital to maintain operations, there is substantial doubt about the Company’s ability to continue to meet its obligations and continue its operations for the next fiscal year.as a going concern.

Reclassification 

Certain prior year expenses have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the previously reported loss from continuing operations and management does not believe that this reclassification is material to the consolidated financial statements taken as a whole. Specifically, we reclassified certain expenses from general and administrative expenses to research and development expenses.

Net Loss per Common Share

The Company computes net loss per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)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 months ended March 31, 2023 and six months ended June 30, 2022 and 2021 because their effect was antidilutive:

Revenue Recognition

Starting in the quarter ended June 30, 2022, the Company separately reports Verified software license revenue from Legacy authentication services.services revenue. Prior periods revenues are recast accordingly for comparison purpose.purposes.

Verified Software License – The Company recognizes revenue based on the identified performance obligations over the performance period for fixed consideration and/or forand /or variable fees generated that are earned on a usage fee earnedbased over time based on monthly user or transaction or user volumes and/or on a minimum monthly flat fee rate. We allocate the selling price in a contract which has multiple performance obligations based on the contract selling price that we believe represents a fair market price for the service rendered based on estimated standalone selling price.

The Company had a contract liabilityliabilities of approximately $46,000$74,000 and $199,000$81,000 as of June 30, 2022,March 31, 2023, and December 31, 2021,2022 respectively for certain revenue that will be earned in future periods. Of the $46,000 ofAll deferred revenue contract liabilityliabilities as of June 30, 2022, the majorityMarch 31, 2023 will be earned duringover the balance of 2022. The majoritycourse of the deferred revenue contract liability as of December 31, 2021 related to legacy authentication services and was recognized in the quarter ended March 31, 2022. All contracts are reviewed for their respective performance obligations and related revenue and expense recognition implications. Certain of the revenues are derived from our products 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. Generally Accepted Accounting Principles (“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.year 2023.

As of March 31, 2023, and December 31, 2022, the Company did not have any deferred contract costs or fees payable.

Legacy Authentication Services – The Company alsohistorically has sold certain legacy software licenses to customers and revenue is recognized when delivery occurs, and all other revenue recognition criteria have been met. During both quarters ended March 31, 2023 and 2022, the Company provided annual software maintenance support services relating to previously licensed software on a stand readystand-ready basis. These fees were billed in advance and recognized ratably over the requisite service period as legacy authentication revenue. The contract terminated on April 1, 2022.

Furthermore,Recent Accounting Pronouncement - In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which replaces the current incurred loss impairment methodology for most financial assets with the current expected credit loss, or CECL, methodology. The series of new guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The Company will capitalizeadopted the incremental costs of acquiring and fulfilling a contract with a customer if the Company expects to recover those costs. These incremental costs were immaterial in both three-month periods and the Company recognizes these costs as incurred as it typically relates to a period of less than one year as allowed by the practical expedient and the amounts in the period were immaterial.

Contract cost assets will be amortized using the straight-line method over the expected period of benefit beginning at the time revenue begins to be realized. The amortization of contract fulfillment cost assets associated with facilitating transactions will be recorded as cost of services in the Company’s Consolidated Statements of Operations. The amortization of contract acquisition cost assets associated with sales commissions that qualify for capitalization will be recorded as selling, general and administrative expense in the Company’s Consolidated Statements of Operations.

As of June 30, 2022 and December 31, 2021, the Companynew standard effective January 1, 2023, which did not have any deferred contract costs or fees payable.a material impact to the financial statements.

NOTE 2 – OTHER CURRENT ASSETS AND OTHER ASSETS

Other current assets consisted of the following at June 30, 2022March 31, 2023 (unaudited) and December 31, 2021:2022:

Other assets consisted of the following at June 30, 2022March 31, 2023 (unaudited) and December 31, 2021:2022:

NOTE 3 – INTANGIBLE ASSETS, NET (OTHER THAN GOODWILL)

The Company’s intangible assets primarily consist of acquired and developed software that is being amortized over their estimated useful lives as indicated below. The following is a summary of activity related to intangible assets for the sixthree months ended June 30 ,2022March 31, 2023 (unaudited):

The following is a summary of intangible assets as of June 30, 2022March 31, 2023 (unaudited):

Amortization expense totaled $428,00approximately $76,000 and $597,000,$215,000 for the sixthree months ended June 30,March 31, 2023, and 2022, and 2021, respectively.

Future expected amortization of intangible assets is as follows:

There is no impairment indicator identified for impairment of the Company’s intangible assets and goodwill as of June 30, 2022.March 31, 2023.

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following as of June 30, 2022March 31, 2023 (unaudited) and December 31, 2021:2022:

On February 14, 2023, the Company’s Board of Directors resolved to implement a revised budget for 2023 in order to reduce expenses and cash requirements and as part of such revised budget decided to re-balance staffing levels to better align with the evolving needs of the Company (the “Labor Reduction Plan”). Under the Labor Reduction Plan, 12 employees and 6 contractors have left the Company. The Company has also given termination notice to certain vendors and contractors that provide services to the Company. For the quarter ended March 31, 2023, the Company incurred approximately $0.8 million of severance expenses of which $0.2 million was paid; $0.3 million was included in the Accounts payable and accrued expenses and the remaining $0.3 million was accrued for in Other liabilities as a long term liability on the unaudited Condensed Consolidated Balance Sheets.

NOTE 5 – WORKING CAPITALCREDIT FACILTIY

On March 21, 2022, the Company entered into a Credit Facility Agreement (the “Original Facility Agreement”) with Stephen J. Garchik (“Garchik”), who is a current shareholder and noteholder of the Company, pursuant to which the shareholderGarchik agreed to provide to the Company a $10.0 million unsecured standby line of credit facility that will rank behind the Convertible Notes (see Note 6) and maycould be drawn down in several tranches, subject to certain conditions described in the Original Facility Agreement (the “Credit Facility”).Agreement. Pursuant to the CreditOriginal Facility Agreement, the Company paid Garchik a facility commitment feeFacility Commitment Fee of 100,000 shares of our common stock with a fair market value of $3.03 per share upon the effective date of the Credit Facility. Original Facility Agreement.

On March 8, 2023, the Company entered into an Amended and Restated Facility Agreement (“A&R Facility Agreement”) with Garchik, pursuant to which the Company and Garchik amended and restated the Original Facility Agreement in its entirety, to replace the credit facility contemplated by the Original Facility Agreement with (i) an initial credit facility to the Company in an amount of $900,000 and (ii) the parties to use their reasonable best efforts after the Initial Funding to negotiate the terms of a subsequent credit facility in the aggregate amount of $2,700,000 (the “Subsequent Funding”).

On March 9, 2023, pursuant to the A&R Facility Agreement, the Company entered into a promissory note (the “Initial Promissory Note”) in favor of Garchik, pursuant to which Garchik loaned the amount of $900,000 (the “Principal Amount”) to the Company.

The valueCompany wrote-off approximately $410,000 of the shares along with the $300,000 cash fee paidissuance costs related to the placement agent are being expensed overOriginal Credit Facility and capitalized $426,000 issuance costs related to the lifeA&R Facility Agreement. As of March 31, 2023, the unamortized deferred issuance cost is approximately $449,000 which has been recorded as a reduction in the carrying value of the Credit Facility, that hasnet on the unaudited Condensed Consolidated Balance Sheets. The deferred issuance costs balance will be amortized from March 9, 2023 to March 31, 2025.

Initial Promissory Note

Interest accrues on the Principal Amount until paid in full at a term endingper annum rate equal to 15%, computed on the basis of a 360-day year and twelve 30-day months, payable in arrears or in kind on March 31, June 30, September 30 and December 31 of each year commencing March 31, 2023 or the first business day following each such date if any such date falls on a day which is not a business day, in cash. The Principal Amount shall mature on March 31, 2025.

The outstanding borrowings underWhile the Credit Facility will accrue interest at 15% per annum. DrawdownsInitial Promissory Note is unsecured, in the event of either (I) the Credit Facility will be in tranches of not less than $500,000 up to the maximum amount of the Credit Facility, subject to the satisfaction of customary certifications and a certification from the Company that it has no more than $5 million of cash available to it as of the date of the drawdown request. The Credit Facility contains customary representations and warranties and defined events of default. The Company will be permitted to prepay borrowings under the Credit Facility at any time, without penalty, in part or in full. Upon conversion or redemption of all amounts outstanding under the Convertible Notes (as defined in Note 6 below) and the release of all securityliens over the Company’s assets granted by and through the Transaction Documents (as defined in the Convertible Notes) or (II) receipt of the consent of the requisite holders of the Convertible Notes, in each case, the Company will, provideas collateral security for the due and punctual payment and performance of all obligations under the Initial Promissory Note, pledge and assign to Garchik a lienfirst-priority, continuing security interest in substantially all of the assets of the Company, subject to exclusions consistent with those contained in the Transaction Documents. The Company has agreed to use its reasonable best efforts to deliver to Garchik an amendment to the Securities Purchase Agreement, dated as of March 21, 2022, pursuant to which the Convertible Notes were purchased, permitting the grant of that collateral security to Garchik. Upon the grant of that collateral security, interest will accrue on the Company’s intellectual property assetsoutstanding Principal Amount under the Initial Promissory Note at a per annum rate equal to secure12% paid in kind, capitalized and added to the Credit Facility.balance of the loan on a quarterly basis, calculated on a 360-day year basis, on the outstanding aggregate balance.

There were no borrowings under the Credit Facility as of June 30, 2022. The unamortized deferred debt expense is approximately $548,000 of which $199,000 is included in Other current assets and the balance in Other assets.

The Initial Promissory Note includes customary Events of Default, including, among other things, failing to make payment of any of the Principal Amount or interest due and such failure continues for not less than 5 business days without being cured. Upon an Event of Default, Garchik can declare all outstanding amounts under the Initial Promissory Note due, along with any accrued interest.

A&R Facility Agreement

Under the A&R Facility Agreement, Garchik agreed to provide initial funding of the Principal Amount to the Company upon receipt of a fully executed Initial Promissory Note and an executed Release Agreement relating to the Original Facility Agreement. The Company and Garchik agreed to use reasonable best efforts to negotiate the terms of the Subsequent Funding and negotiations continue, but the A&R Facility Agreement will terminate if definitive documentation for the Subsequent Funding is not entered into before July 1, 2023, for any reason other than breach of a party’s obligations.

The Subsequent Funding would be a $2,700,000 secured note facility with a 12% per annum interest rate, paid in kind, capitalized and added to the balance of the loan on a quarterly basis, calculated on a 360-day year basis, on the outstanding aggregate balance of the Subsequent Facility. The Subsequent Facility will mature twenty-four (24) months after effectiveness. Garchik will be granted a fully perfected, non-avoidable, first-priority security interest and lien on all assets of the Company. The Subsequent Facility would be the senior obligation of the Company and will rank senior in right to payment of the obligations under the existing Convertible Notes and the liens granted in connection with the Subsequent Facility shall rank pari passu with the liens granted to holders of the Convertible Notes. Pursuant to the A&R Facility Agreement, the Company will use reasonable best efforts to obtain the consent of two-thirds of the holders of Convertible Notes.

Guaranty

In connection with the Company and Garchik entering into the Initial Promissory Note, each of the principal United States based subsidiaries of the Company agreed to, for the benefit and security of Garchik, guarantee the payment and performance all of the Company’s obligations under the Initial Promissory Note and the Guaranty.

Release Agreement

In connection with the A&R Facility Agreement, on March 9, 2023, the Company and Garchik entered into the Release Agreement, pursuant to which the Company and Garchik mutually agreed to release any and all rights to make a claim against the other and any existing claims against the other arising out of or relating to the Original Facility Agreement.

The following is a summary of the Credit facility balance, net as of March 31, 2023 (unaudited):

NOTE 6 – CONVERTIBLE NOTES PAYABLE

On March 21, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with certain accredited investors, including certain directors of the Company or their affiliates (the “Note Investors”), and, pursuant to the SPA, sold to the Note Investors Senior Secured Convertible Notes (the “Convertible Notes”) with an aggregate initial principal amount of approximately $9.2 million and a conversion price of $3.70. The Convertible Notes were sold with an aggregate cash origination fee of approximately $200,000, and we issued a total of approximately 28,500 shares of our common stock to the Note Investors as an additional origination fee. The Convertible Notes will accrue interest at the rate of 9.75% per annum, which will be payable in cash or, for some or all of the first five quarterly interest payments, in shares of our common stock at the Company’s option, on the last day of each calendar quarter before the maturity date and on the maturity date. The maturity date of the Convertible Notes is March 31, 2025.

In the quarterthree months ended June 30,March 31, 2023 and 2022, the Company issued 116,896545,342 and 0 shares of common stock for approximately $251,000$223,000 and $0, respectively of interest owed from the effective date of the loan until June 30, 2022. The number of shares issuedrelated to each Note Investor was based on the VWAP of the common stock as defined in the Convertible Notes, or a higher minimum price per share for certain directors, in accordance with the terms of the Convertible Notes.

In connection with the issuance of the Convertible Notes, the Company issued 142,690 common stock warrants to the broker and its representatives with an estimated grant date fair value of approximately $449,000 which has been recorded as a reduction in the carrying value of the Convertible Notes.

The Company also has a note outstanding to the Stern Trust in the amount of $662,000 that earns 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 $6.00 (the “Stern Note”). Theodore Stern, the Trustee of the Stern Trust was formerly a director of the Company. The maturity date of the Stern Note was previously February 29, 2022 and the Stern Trust and the Company have mutually agreed to extend the due date to December 31, 2022. The Stern Trust shall have the right at is sole option to extend the maturity date for a further six months after December 31, 2022, by service of written notice upon the Borrower at any time on or before December 31, 2022.

The following is a summary of the convertible notes payable outstanding as of June 30, 2022March 31, 2023 (unaudited):

Future maturities of convertible notes payable as of June 30,2022:

NOTE 7 – RELATED PARTY TRANSACTIONS

Convertible Notes Payable

During the six monthsquarter ended June 30,March 31, 2022, two Directors, an affiliate of one of such Directors and one Executive Officer invested in $1.2 million of the Convertible Notes issued. See Note 6. In connection with the payment of interest on the Convertible Notes, 10,97820,761 shares were issued to two Directors and an affiliate of one of the Directors. The Executive Officer resigned in June 2022 and the two directors resigned during the quarter ended March 31, 2023.

One Convertible Note holder, Mr. Ken Jisser, joined our Board of Directors on March 9, 2023. Mr. Jisser is the Founder and Chief Executive Officer of The Pipeline Group, Inc., a technology-enabled services company that assists the Company with pipeline generation.

Issuance of Common Stock

Two DirectorsOne Director and onetwo Executive OfficerOfficers invested $0.2 million in the common stock offering induring the quarter ended March 31, 2022. See Note 8.The Director and Officers resigned during the quarter ended March 31, 2023.

Credit Facility

On March 21, 2022 the Company entered into the Original Facility Agreement with an accredited investor Mr. Stephen Garchik, who is both a current shareholder of the Company and a Note Investor, pursuant to which the accredited investor agreed to provide a $10.0 million unsecured standby line of credit facility that will rank behind the Convertible Notes and may be drawn down in several tranches, subject to certain conditions described in the Original Facility Agreement. Pursuant to the Original Facility Agreement, the Company agreed to pay the Garchik the Facility Commitment Fee of 100,000 shares of our common stock upon the effective date of the Original Facility Agreement. Upon request by Mr. Garchik and until the full amount due under the Original Facility Agreement is repaid in full, the Company will provide for the nomination of one designee specified in writing by Garchik for appointment to our board of directors and for subsequent election to our board of directors and to recommend such nominee for election to our board of directors. On April 18, 2022, Joseph Trelin, as Garchik’s designee under the Original Facility Agreement, was appointed as a member of the Board of Directors of the Company. By virtue of such right of nomination Mr. Garchik considers himself a “director by deputization”.

As described in the Credit Facility footnote, Note 5, the Original Facility Agreement was amended and restated effective March 6, 2023 pursuant to which amendment the amount of the facility was reduced to $3.6 million, an initial advance of $900,000 was made and subsequent advances under the A&R Facility Agreement are subject to various conditions including the granting of a security interest over substantially all the Company’s assets. Under the A&R Facility Agreement Garchik had a one-time right for the nomination of four designees specified in writing by Garchik for appointment to our board of directors. On March 9, 2023 Rhoniel Daguro, Ken Jisser, Michael Thompson and Thomas Szoke as Garchik’s designees under the A&R Facility Agreement, were appointed as members of the Board of Directors of the Company.

Executive Officers AgreementsOfficer

Effective March 23, 2023, Mr. Thomas Thimot resigned as the Company’s Chief Executive Officer.

On April 25, 2022, Stuart Stoller indicated his intention to resign as Chief Financial Officer ofMarch 23, 2023, the Company in connection with his planned retirement. The resignation and retirement were effective asRhoniel A. Daguro, a director of June 17, 2022 at which time Annie Pham was appointed as Chief Financial Officer in his place. In connection with his retirement, the Board of Director’s approved the vesting of approximately 122,222 stock options which were unvested as of June 17, 2022. Additionally, the Board of Directors approved a consulting arrangement for Mr. Stoller to provide transitional services.

On April 25, 2022, Hang Pham and the Company, entered an Offer Letter pursuant to which Ms. PhamMr. Daguro agreed to serve as Chief FinancialExecutive Officer with a planned employment date commencing June 20, 2022. Ms. Pham receivesof the Company in consideration of an initial annual salary of $275,000. The Company agreed$400,000. Mr. Daguro will be eligible for an annual target bonus of up to provide$375,000 based on performance milestones. For the period ending March 31, 2024, a bonus amount of 40%$75,000 shall be payable upon the Company achieving increments of the base salary (pro rated for 2022) based on achievement$1,000,000 in total contract value of performance milestones, calculated and payableall customer agreements less claw backs (“Bookings”) up to an aggregate of $5,000,000 in accordance with the corporate milestones approved by the Board for the year 2022.Bookings. For subsequent fiscal years, the bonus shall be subject to performance targets to be mutually agreed withMr. Daguro and the Compensation Committee of the Board. In addition, Ms. Pham receivedBoard will mutually agree as to the performance targets to earn for the annual bonus. The Company provided Mr. Daguro with an initial grant of options (“Initial Grant”) to purchase 2,455,000 shares of common stock at the exercise price of 0.397 per share for a signingperiod of ten years vesting subject to achievement of performance and service conditions. The exercise price of the Initial Grant is the closing price of the common stock on the Nasdaq Stock Market on the third trading day after the announcement of all pending material non-public information which was determined to be April 10, 2023. Upon the Company being able to grant additional options under a stock incentive plan, it will make an additional grant of options to Mr. Daguro to acquire 1,115,000 shares of common stock for a period of ten years vesting subject to achievement of performance and service conditions (the “Additional Grant”). The exercise price of the options shall be equal to the closing price of the common stock on the Nasdaq Stock Market on the date of such Additional Grant. If and to the extent that the exercise price under the Additional Grant is higher than the exercise price under the Initial Grant, the Company shall determine the incremental cost of the Additional Grant by deducting the exercise price of the Initial Grant from the exercise price of the Additional Grant and multiplying the difference by 1,115,000 (the “Difference”). The Difference shall be payable by the Company to Mr. Daguro as a bonus payable upon exercise of options comprised in the amountAdditional Grant, by way of $25,000, which is fully refundableoffset against the exercise price of such options to the Company if Ms. Pham leaves her employment voluntarily or is terminated for cause prior to the first anniversaryextent of the commencementtotal exercise price of employment. Upon commencing employment, Ms. Pham was grantedthe options being exercised at that time. To the extent that the entire Difference cannot be applied to any particular exercise, the balance shall be carried forward and applied to future exercises of the Additional Grant. In lieu of agreeing to pay the bonus, the Company may in its sole discretion elect to grant Mr. Daguro an option to acquireadditional 350,000 shares of common stock as part of the Additional Grant (for a total of 1,465,000 shares of common stock under the Additional Grant).

Board of Directors

Messrs. Thimot, Phillip L. Kumnick, Philip R. Broenniman, Michael A. Gorriz and Ms. Neepa Patel tendered their resignations from the Board of Directors of the Company on March 9, 2023. The Board of Directors appointed Joseph Trelin to the Company’s Compensation and Audit Committees. On March 9, 2023, the Board of Directors appointed Rhon Daguro, Ken Jisser, Michael Thompson and Thomas Szoke as additional directors of the Company and reduced the size of the Board of Directors from 8 directors to 7 directors. The Company granted Messrs. Jisser, Thompson and Szoke 100,000 options each at anthe exercise price of $2.41 with an exercise period$0.33 per share.

On March 16, 2023, the Company appointed Joe Trelin as the Chairman of ten years subjectthe Board, Michael Koehneman as Chairman of the Governance Committee and appointed Michael Thompson to certain performancethe Company’s Compensation and market vesting requirementsGovernance Committees.

NOTE 8 – STOCKHOLDER’S EQUITY

Common Stock

During the six monthsquarter ended June 30,March 31, 2023, the Company issued 545,342 shares of common stock for approximately $223,000 of interest accrued under the Convertible Notes. See Note 6 for details.

During the quarter ended March 31, 2022, shares of common stock were issued as a result of the following transactions:

Warrants

The following is a summary of the Company’sThere was no warrant activity for the sixthree months ended June 30, 2022 (unaudited):March 31, 2023. As of March 31, 2023, there are warrants to acquire 1,229,226 shares for a weighted average exercise price of $4.62 per share with weighted average remaining life of 2.7 years. 

Stock Options

TheDuring the quarter ended March 31, 2023, the Company determinedgranted 3 new directors, Messrs. Jisser, Thompson and Szoke 100,000 options each at the grant date fair valueexercise price of options granted for the six months ended June 30, 2022, using the Black Scholes Method and a Monte Carlo simulation for those stock options granted with a market vesting condition and the following assumptions:$0.33 per share.

Activity related to stock options for the six months ended June 30, 2022 (unaudited), is summarized as follows:

The following table summarizes stock option information as of June 30, 2022 (unaudited):March 31, 2023: