UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended JuneSeptember 30, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38296

PARTS iD, INC.

(Exact Name of Registrant as Specified in Charter)

1 Corporate Drive, Suite C

Cranbury, New Jersey 08512

(Address of Principal Executive Offices, Zip Code)

Registrant’s telephone number, including area code: (609) 642-4700

Securities registered under 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 ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 35,102,55342,932,553 shares of Class A common stock, $0.0001 par value per share, outstanding on August 14,November 27, 2023.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements in this Quarterly Report on Form 10-Q that address events, developments, or results that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “project,” “forecast,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “seeks,” “scheduled,” or “will,” and similar expressions are intended to identify forward-looking statements. These statements relate to future periods, future events or our future operating or financial plans or performance, are made on the basis of management’s current views and assumptions with respect to future events, including management’s current views regarding the impacts of the COVID-19 pandemic, supply chain constraints from current economic conditions, high inflation and the conflict in Ukraine. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. We operate in a changing environment where new risks emerge from time to time and it is not possible for us to predict all risks that may affect us, particularly those associated with the COVID-19 pandemic and the conflict in Ukraine, which have had wide-ranging and continually evolving effects. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. These risks and uncertainties include, without limitation:

See also the section titled “Risk Factors” (refer to Part I,II, Item 1A of this report), and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission (the “SEC”), for further discussion of certain risks and uncertainties that could cause actual results and events to differ materially from our forward-looking statements. Readers of this report are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This cautionary note is applicable to all forward-looking statements contained in this report.

PART I

Item 1. Financial Statements

Index to Condensed Consolidated Financial Statements

PARTS iD, INC.

Condensed Consolidated Balance Sheets

As of JuneSeptember 30, 2023 and December 31, 2022

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PARTS iD, INC.

Condensed Consolidated Statements of Operations

For the three and sixnine months ended JuneSeptember 30, 2023 and 2022 (Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PARTS iD, INC.

Condensed Consolidated Statements of Changes in Shareholders’ Deficit

For the three and sixnine months ended JuneSeptember 30, 2023 and 2022 (Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PARTS iD, INC.

Condensed Consolidated Statements of Cash Flows

For the sixnine months ended JuneSeptember 30, 2023 and 2022 (Unaudited)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

PARTS iD, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Organization and Description of Business

Description of Business

PARTS iD, Inc., a Delaware corporation (the “Company,” “PARTS iD,” “we,” “our” or “us”), is a technology-driven, digital commerce company focused on creating custom infrastructure and unique user experience within niche markets. PARTS iD has a product portfolio comprised of approximately 18 million SKUs, when fully available, an end-to-end digital commerce platform for both digital commerce and fulfillment, and a virtual shipping network comprising over 2,500 locations, approximately 4,500 active brands, and machine learning algorithms for complex fitment industries such as vehicle parts and accessories. Management believes that the Company is a market leader and proven brand-builder, fueled by its commitment to delivering an engaging shopping experience; comprehensive, accurate and varied product offerings; and continued digital commerce innovation.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements are presented in U.S. dollars and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Results for interim periods should not be considered indicative of results for any other interim period or for the full year.

The unaudited condensed consolidated financial statements include the accounts of PARTS iD, Inc. and its wholly owned subsidiary, PARTS iD, LLC. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements include revenue recognition, return allowances, allowance for credit losses, depreciation, inventory valuation, valuation of deferred income tax assets and the capitalization and recoverability of software development costs.

Stock Compensation

Compensation expense related to stock option awards and restricted stock units granted to certain employees, directors and consultants is based on the fair value of the awards on the grant date. If the service inception date precedes the grant date, accrual of compensation cost for periods before the grant date is based on the fair value of the award at the reporting date. In the period in which the grant date occurs, cumulative compensation cost is adjusted to reflect the cumulative effect of measuring compensation cost based on fair value at the grant date rather than the fair value previously used at the service inception date or any subsequent reporting date. Forfeitures are recorded as they occur. The Company recognizes compensation cost related to time-vested options and restricted stock units with graded vesting features on a straight-line basis over the requisite service period. Compensation cost related to performance-vesting options and performance-based units, where a performance condition or a market condition that affects vesting exists, is recognized over the shortest of the explicit, implicit, or defined service periods. Compensation cost is adjusted depending on whether the performance condition is achieved. If the achievement of the performance condition is probable or becomes probable, the full fair value of the award is recognized. If the achievement of the performance condition is not probable or ceases to be probable, then no compensation cost is recognized or amounts previously recognized are reversed.

Concentration of Credit Risk

Financial instruments that expose the Company to a concentration of credit risk principally include cash and accounts receivable balances. The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows. The Company manages accounts receivable credit risk through its policy of limiting extensions of credit to customers. Substantially all customer orders are paid by credit card at the point of sale.

Going Concern

These condensed consolidated financial statements have been prepared in accordance with GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assts and satisfaction of liabilities in the normal course of business. We have operated with a negative working capital model since our inception. The Company has a working capital deficiency of approximately $47.4$47 million. We continue to face macro-economic headwinds and the resulting declining revenue and profitability, which increased the working capital deficit, and resulted in the use of approximately $5.0$8.4 million in cash from operating activities, of which $1.0$2.4 million was attributable to changes in working capital during the sixnine months ended JuneSeptember 30, 2023. With this, substantial doubt exists about the Company’s ability to continue as a going concern within one year from the date of the issuance of these condensed consolidated financial statements.

The accompanying condensed consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and does not reflect 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 from uncertainty related to our ability to continue as a going concern.

To address liquidity concerns, the Company is pursuing additional financing and continues to restructure and optimize its operations including moderating capital investments, improving gross margin, reducing expenses, and renegotiating vendor payment terms. In addition, to address its liquidity needs, the Company recently obtained an aggregate of $1.25approximately $14 million from the sale and issuance of convertible notes and warrants (as discussed below) and a $0.7 million loan from JGB Collateral, LLC.. In addition, the Company obtained additional financing in JulyOctober and November 2023. See Note 10 – Subsequent Events for more information.

Additionally, management is implementing cost saving initiatives to reduce operating costs and plans to continue to implement further cost saving initiatives where appropriate. The Company’s plans are dependent on conditions and factors, many of which are outside of the Company’s control. There can be no assurance that the Company will be successful in implementing its plans or that it will be able to generate positive cash flow from operations in any future period, nor can there be any assurance that it will be able to raise additional capital. The result of such inability, whether individually or in the aggregate, will adversely impact the Company’s financial condition and could cause the Company to curtail or cease operations or to pursue other strategic alternatives, including commencing a case under the U.S. Bankruptcy Code. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources” below for additional details.

PARTS iD has also retained Canaccord Genuity Group, Inc. (“Canaccord”) as its financial advisor and DLA Piper LLP (US) as its legal counsel to assist in evaluating potential strategic alternatives.

There can be no assurance that the evaluation of strategic alternatives will result in any potential transaction, or any assurance as to its outcome or timing. PARTS iD has not set a timetable for completion of the process and does not intend to disclose developments related to the process unless and until PARTS iD executes a definitive agreement with respect thereto, or the Board of Directors otherwise determines that further disclosure is appropriate or required.

Accounts Receivable

Accounts receivable balances include amounts due from customers. The Company periodically reviews its accounts receivable balances to determine whether an allowance for credit losses is necessary based on an analysis of past due accounts, historical occurrences of credit losses, existing economic conditions, and other circumstances that may indicate that the realization of an account is in doubt. As of JuneSeptember 30, 2023 and December 31, 2022, the Company determined that an allowance for credit losses was not necessary.

On September 11, 2023, the Company entered into a Purchase and Sale of Future Receivables Agreement (the “Riverside Agreement”) with Riverside Capital NY (“RCNY”). Pursuant to the terms of the Riverside Agreement, the Company agreed to sell, and RCNY agreed to purchase, the Company’s right, title and interest in and to $700,000 of the Company’s future receivables, for a purchase price of $500,000. Pursuant to the terms of the Riverside Agreement, the Company agreed to pay RCNY $35,000 each week until such time as RCNY has been repaid.

Additionally, on September 11, 2023, the Company also entered into a Standard Merchant Cash Advance Agreement (the “WAVE Agreement”) with WAVE ADVANCE INC (“WAVE”). Pursuant to the terms of the WAVE Agreement, the Company agreed to sell, and WAVE agreed to purchase, the Company’s right, title and interest in and to $700,000 of the Company’s future receivables, for a purchase price of $500,000. Pursuant to the terms of the WAVE Agreement, the Company agreed to pay WAVE $35,000 each week until such time as WAVE has been repaid.

Each of the Riverside Agreement and the Wave Agreement provides for the grant of a junior security interest in the future receivables and other related collateral under the Uniform Commercial Code in accounts and proceeds, subordinated to the indebtedness incurred under that certain Securities Purchase Agreement, dated as of July 14, 2023, by and between the Company and Lind Global Fund II LP, as amended.

Inventory

Inventory consists of purchased goods that are immediately available-for-sale and are stated at the lower cost or net realizable value, determined using the first-in, first-out method. Merchandise-in-transit directly from suppliers to customers is recorded in inventory until the product is delivered to the customer. As of JuneSeptember 30, 2023, and December 31, 2022, merchandise-in-transit amounted to $341,690$258,935 and $957,735, respectively. The risk of loss is transferred from the supplier to the Company at the shipping point. Since the purchased goods are immediately shipped directly from suppliers to customers the Company deemed that an inventory reserve for obsolete or slow-moving goods was unnecessary.

Other Current Assets

Other current assets include advances to vendors amounting to $2,171,240$2,584,464 and $1,796,680 as of JuneSeptember 30, 2023, and December 31, 2022, respectively, which are included in prepaid expenses and other current assets on the condensed consolidated balance sheets.

Website and Software Development

The Company capitalizes certain costs associated with website and software developed for internal use in accordance with ASC 350-50, Intangibles – Goodwill and Other – Website Development Costs, and ASC 350-40, Intangibles – Goodwill and Other – Internal Use Software, when both the preliminary project design and the testing stage are completed and management has authorized further funding for the project, which it deems probable of completion and to be used for the function intended. Capitalized costs include amounts related to website and software development such as contractors’ fees, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project. Capitalization of such costs ceases when the project is complete and ready for its intended use. Capitalized costs are amortized over a three-year period commencing on the date that the specific module or platform is placed in service. Costs incurred during the preliminary stages of development and ongoing maintenance costs are expensed as incurred.

Intangible Assets

Intangible assets consist of indefinite-lived domain names and are stated at cost less impairment losses, if any. The Company reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that an impairment exists, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the asset. The Company has determined that there were no triggering events in the sixnine months ended JuneSeptember 30, 2023 and 2022, and no impairment charges were necessary.

During the first quarter ofnine months ended September 30, 2023, the Company sold its Onyx.com domain name for $250,000.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

Accounts Payable

Accounts payable as of JuneSeptember 30, 2023, consisted of amounts payable to vendors of $35.1$33.2 million and credit card payable of $2.8$2.2 million payable to a credit card company. As of December 31, 2022, accounts payable consisted of amounts payable to vendors of $33.1 million and $3.3 million credit card payable to the same credit card company mentioned above.

Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard replaced all previous accounting guidance on this topic, eliminated all industry-specific guidance and provided a unified model to determine how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard requires companies to use more judgment and make more estimates than under prior guidance. Judgments include identifying performance obligations in the contract, estimating the amount of consideration to include in the transaction price, and allocating the transaction price to each performance obligation.

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identifies contracts with customers; (ii) identifies performance obligation(s); (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligation(s); and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.

The Company recognizes revenue on product sales through its website as the principal in the transaction as the Company has concluded it controls the product before it is transferred to the customer. The Company controls products when it is the entity responsible for fulfilling the promise to the customer and takes responsibility for the acceptability of the goods, assumes inventory risk from shipment through the delivery date, has discretion in establishing prices, and selects the suppliers of products sold.

Sales discounts earned by customers at the time of purchase and taxes collected from customers, which are remitted to governmental authorities, are deducted from gross revenue in determining net revenue. Allowances for sales returns are estimated and recorded based on historical experience and reduce product revenue, inclusive of shipping fees, by expected product returns. Allowances for sales returns at JuneSeptember 30, 2023 and December 31, 2022, were $213,534$243,099 and $549,250, respectively.

The Company has two types of contractual liabilities: (a) amounts received from customers prior to the delivery of products are recorded as customer deposits in the accompanying condensed consolidated balance sheets and are recognized as revenue when the products are delivered, which amounted to $875,508$815,527 and $3,098,119 at JuneSeptember 30, 2023 and December 31, 2022, respectively, and (ii) (ii) site credits (which are initially recorded in accrued expenses and are recognized as revenue in the period they are redeemed), amounting to $158,306$3,567,138 and $3,414,019 at JuneSeptember 30, 2023 and December 31, 2022, respectively.

Cost of Goods Sold

Cost of goods sold consists of the cost of product sold to customers, plus shipping and handling costs and shipping supplies, net of vendor rebates.

Advertising Costs

Advertising costs are expensed as incurred. The Company incurred $0.4$0.5 million in advertising costs during the three months ended JuneSeptember 30, 2023, and $9.4$7.3 million during the three months ended JuneSeptember 30, 2022. For the sixnine months ended JuneSeptember 30, 2023, advertising costs were $1.6$2.1 million and $19.1$26.5 for the sixnine months ended JuneSeptember 30, 2022.

Income Taxes

The Company is a C corporation for U.S. federal income tax purposes. Accordingly, the Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates for years in which those temporary differences are expected to be recovered or settled. The measurement of deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding allowance is established. The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible on the Company’s various income tax returns for the reporting year.

ASC 740 also provides guidance on the accounting for uncertain tax positions recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on the Company’s evaluation, management concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements. The Company files U.S. federal and State of New Jersey state tax returns and had no unrecognized tax benefits at JuneSeptember 30, 2023 and December 31, 2022.

The Company’s policy for recording interest and penalties associated with audits is to record such expenses as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the sixnine months ended JuneSeptember 30, 2023 and 2022. Management is currently unaware of any issues under review that could result in significant payments, accruals, or material deviations from its filing positions.

Loss Per Share

For the three and sixnine months ended JuneSeptember 30, 2023 and 2022, basic net loss per common share was determined by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For purposes of calculating diluted net loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include performance-based stock units, and unvested restricted stock units, and warrants using the treasury stock method. For all periods presented, there is no difference in the number of shares used to compute basic and diluted net loss per common share due to the Company’s net loss.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. This ASU is effective for smaller reporting companies for years beginning January 1, 2023. The Company adopted Topic 326 on January 1, 2023, and the adoption of this guidance did not have a material impact on the condensed consolidated financial statements.

Certain Significant Risks and Uncertainties

In February 2022, the Russian Federation launched a full-scale invasion against Ukraine, and sustained conflict and disruption in the region is ongoing. The Company’s engineering and product data development team as well as back office and part of its customer service center are in Ukraine. The Company’s ability to maintain adequate liquidity for its operations is dependent upon several factors, including its revenue and earnings, the impacts of COVID-19 and Russian-Ukraine conflict on macroeconomic conditions, and its ability to take further cost savings and cash conservation measures if necessary. The Russian-Ukraine conflict could have a material adverse effect upon the Company.

Significant Accounting Policies

There have been no significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Form 10-K”).

Note 3 – Property and Equipment

Property and equipment consists of the following as of:

Depreciation of property and equipment for three months ended JuneSeptember 30, 2023 and 2022 was $1,978,114$1,899,995 and $2,142,433,$2,113,695, respectively. Depreciation of property and equipment for the sixnine months ended JuneSeptember 30, 2023 and 2022 was $3,977,030$5,877,025 and $4,096,895,$6,210,590, respectively.

Note 4 – Leases

Operating Leases

The Company has lease arrangements for office spaces and an equipment lease. These leases expire at various dates through 2025.

Note 5 – Debt

JGB Collateral, LLC Convertible Notes and Warrants

On October 21, 2022, the Company entered into a Loan and Security Agreement with JGB Collateral, LLC (as amended, the “JGB Loan Agreement”), a Delaware limited liability company (“JGB”), in its capacity as collateral agent (the “Agent”) and the several financial institutions or entities that from time to time become parties to the JGB Loan Agreement as lenders (collectively, the “Lender”).

As collateral for the obligations, the Company has granted the Lender senior security interest in all the Company’s right, title and interest in, to and under all of the Company’s property.

The loan agreement provided for term loans in an aggregate principal amount of up to $11.0 million under two tranches. The tranches consist of (a) a first tranche consisting of term loans in the aggregate principal amount of $5.5 million, of which the entire amount was funded to the Company on the closing date (the “Initial Term Loan Advance”); and (ii) a second tranche consisting of term loans in the aggregate principal amount of an additional $5.5 million, which may funded to the Company by the Lender in its sole and absolute discretion (subject to the terms and conditions of the Loan Agreement) until the date that is six months after the Closing Date (the “Second Term Loan Advance” and together with the Initial Term Loan Advance, the “Term Loan Advances”). Each of the Term Loan Advances will be issued with an original issue discount of $500,000.

In connection with the entry into the loan agreement, with respect to the Initial Term Loan Advance, the Company issued to the Lender a warrant (the “Warrant”) to purchase 1,000,000 shares (the “Warrant Shares”) of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”). The Warrant will be exercisable for a period of five years from the date of issuance at a per-share exercise price equal to $2.00, subject to certain adjustments as specified in the Warrant. If the Company seeks and obtains the Second Term Loan Term Advance in accordance with the terms of the Loan Agreement, the Company will issue another Warrant to the Lender to purchase 1,000,000 shares of the Company’s Common Stock at a per-share exercise price equal to $2.00 and otherwise on the same terms and conditions as the Warrant issued with respect to the Initial Term Loan Advance. The Warrant also provides for customary shelf and piggyback registration rights with respect to the Warrant Shares.

The effective interest rate on the Initial Term Loan Advance of $5.5 million was 17.9%. The Company incurred debt issue issuance costs of approximately $165,000 in connection with this loan and recorded a discount of $500,000. As of December 31, 2022 and June 30, 2023, the Company had $4.2 million and $3.4 million outstanding on the note respectively, net of debt discounts and debt issuance costs. The Company incurred $249,721 and $436,121 of interest expense on the note during the three and six months ended June 30, 2023, respectively. A portion of the note was attributed to the warrants for 1,000,000 shares of the Company’s stock which at the time of issuance had been valued at $799,000 using the Black-Scholes model. As of December 31, 2022, the fair value of the warrant was determined to be approximately $551,000, and at June 30, 2023 the fair value of the warrant was determined to be $168,000, and accordingly, the decreasewhich is remeasured each reporting period with changes in its value was recorded as a change in fair value of warrants on the condensed consolidated statement of operations. The loan requires the Company to make 30 monthly payments of $183,333 beginning on April 30, 2023, with the last payment due September 30, 2025. On January 6, 2023, the Company notified its Agent and Lender that it was not in compliance with the Consolidated Quarterly Net Revenue Covenant (as defined in the Loan Agreement) for the calendar quarter ended December 31, 2022. On February 22, 2023, the Company and JGB executed an amendment to the Loan Agreement (the “Amendment”) and on February 27, 2023, the Company repaid $2.0 million of the loan to JGB.

On February 22, 2023 the Company and the Agent executed an amendment to the Loan Agreement (the “First Amendment”), which, among other things, (i) the Company agreed to repay the principal amount of the term loan to the Agent in the following installments: (A) $2 million on February 23, 2023, (B) $1 million on August 22, 2023 and (C) the entire remaining principal balance and all accrued but unpaid interest which remained at the original loan rate of 8.0% (including the Original Issue Discount, as defined in the Amendment) on August 22, 2024; (ii) the Agent agreed to withdraw the Notice of Default and not exercise its purported rights and remedies thereunder; (iii) the Lender may elect, at any time and from time to time, to convert any outstanding portion of the outstanding term loan into shares of the Company’s common stock at a conversion price of $0.50 per share; (iv) removed the “Cash Minimum” covenant of which the Company had to maintain unrestricted, unencumbered Cash (as defined in the Loan Agreement) of at least $2,000,000; (v) removed the EBITDA (as defined in the JGB Loan Agreement) covenant of which the Company had to maintain at least the applicable EBITDA Target (as defined in the JGB Loan Agreement) for each calendar quarter; (vi) removed the revenue covenant in which the Company had to maintain consolidated quarterly net revenue of at least $75 million each calendar quarter and (vii) provided a lien to JGB in the Company’s claims for trademark infringement against Volkswagen Group of America, Inc. pursuant to the lawsuit currently pending in the United States District Court for the District of New Jersey and captioned as Onyx Enterprises Int’l, Corp v. Volkswagen Group of America, Inc., and all proceeds and products thereof and United States District Court for the District of Massachusetts and captioned as Onyx Enterprises International Corp. v. ID Parts LLC, and all proceeds and products thereof (collectively, the “Volkswagen Trademark Claims”), provided that the Company can secure the Permitted Litigation Indebtedness (as defined in the Amendment) on the terms described in the Amendment.

In connection with the First Amendment, the Company and the Agent entered into an Amended and Restated Intellectual Property and Security Agreement (the “A&R Security Agreement”) which amended and restated that certain Intellectual Property and Security Agreement, dated as of October 21, 2022. The A&R Security Agreement removed the exclusion of the Volkswagen Trademark Claims from the Agent’s security interest in the Company’s intellectual property.

The First Amendment was accounted for as a debt extinguishment in accordance with ASC 470, which resulted in the Initial Term Loan Advance being derecognized and the convertible notes that were issued as a result of the First Amendment being recorded at fair value with the difference resulting in a $879,045 loss on debt extinguishment for the three months ended March 31, 2023 and sixnine months ended JuneSeptember 30, 2023.

On June 16, 2023, the Company executed a Second Amendment to the JGB Loan Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Company borrowed an additional $700,000 with an original discount on such additional loan of $100,000. In accordance with the terms of the Second Amendment, the Company shall repay the loan in equal weekly installments of $50,000 commencing on July 7, 2023; provided, however, that in the event the Company receives gross proceeds of at least $2,000,000 from any debt or equity financing following the effective date of the Second Amendment, then the Company shall repay an amount equal to $950,000 on the outstanding balances under the JGB Loan Agreement.

On July 14, 2023, the Company repaid all the outstanding JGB notes of $4.2 million plus accrued interest of $0.1 million. Thereafter, JGB attempted to exercise its put right on all of the warrants issued in connection with the JGB notes, however, the Company has not paid the $350,000 to JGB for the exercise of the put right on such warrants as of September 30, 2023, which is accrued on the balance sheet and was recorded as a loss on extinguishment of warrants on the statement of operations partially offset by the derivative value of the warrants of $33,000 at the time of the attempted exercise of the put right.

March 2023 Convertible Notes and Warrants

On March 6, 2023 (the “Initial Closing Date”), PARTS iD, Inc., a Delaware corporation (the “Company”), entered into a Note and Warrant Purchase Agreement (the “March Purchase Agreement”) whereby the Company agreed to issue and sell to certain investors (collectively, the “Investors”), in a private placement, (a) an aggregate principal amount of up to $10 million in junior secured convertible promissory notes (the “March Convertible Notes”) and (i) an aggregate of up to two million warrants to purchase the Company’s common stock at an exercise price of $0.50 per share (the “March Warrants”), in one or more closings pursuant to the terms of the March Purchase Agreement. All the disinterested directors of the Company’s Board of Directors, as well as the disinterested directors of the Audit Committee, reviewed and approved the terms of the March Purchase Agreement, March Convertible Notes and March Warrants. As of the Initial Closing Date, the Company issued and sold (a) an aggregate principal amount of $2,900,000 of March Convertible Notes and (ii) an aggregate of 580,000 March Warrants, of which $2,650,000 of March Convertible Notes and 530,000 March Warrants were purchased by entities affiliated with certain directors, officers, and beneficial owners of the Company. At the time of issuance, the fair value of the March Warrants was determined to be $158,000 using the Black-Scholes model. As of JuneSeptember 30, 2023, the fair value of the March Warrants was determined to be de minimus,de-minimis, and accordingly, the decrease in their value was recorded as a change in fair value of warrants on the condensed consolidated statement of operations.

The March Convertible Notes accrue interest at 7.75% per annum, compounded semi-annually and such interest may be paid at the option of the Company either in cash or common stock. Upon the Company’s sale and issuance of equity or equity-linked securities pursuant to which the Company receives aggregate gross proceeds of at least $3 million (a “Qualified Equity Financing”), the March Convertible Notes are mandatorily convertible into shares of such equity securities sold in the Qualified Equity Financing. The Company may, at its option, redeem the March Convertible Notes (including the outstanding principal and any accrued but unpaid interest thereon) for cash, in full or in part, if the March Convertible Notes have otherwise not been converted within 180 days of the date of issuance. In addition, upon a Change of Control (as defined in the March Convertible Notes) of the Company, the March Convertible Notes shall be repaid in full at or before the closing of such transaction in cash.

The March Convertible Notes are strictly subordinated to the (i) senior secured indebtedness incurred or owed by the Company pursuant to the JGB Loan Agreement; and (ii) the Permitted Litigation Indebtedness (as defined in the JGB Loan Agreement).

Subject to the subordination provisions described above and more fully described in the March Convertible Notes, the March Convertible Notes are secured by a junior security interest in all the Company’s rights, title, and interest in and to all the Company’s assets. The March Convertible Notes mature on March 6, 2025.

The March Warrants will expire after 5 years from the date of issuance and may not be exercised on a cashless basis. The March Warrants provide that a holder of March Warrants will not have the right to exercise any portion of its March Warrants, if such holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that each holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that any holder of the Warrants that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the Warrants shall not be subject to the Beneficial Ownership Limitation.

The Company intends to use the proceeds from the issuance of the March Convertible Notes and the March Warrants for working capital purposes and the repayment of current indebtedness.

The March Convertible Notes and the March Warrants were issued by the Company in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and have not been registered under the Securities Act.

As of JuneSeptember 30, 2023, the Company had $2.8 million outstanding on the March Convertible Notes, net of debt discounts.

May 2023 Convertible Notes and Warrants

On May 19, 2023, the Company issued to certain investors, in a private placement (i) unsecured convertible promissory notes in the aggregate principal amount of $1,000,000 (the “May Convertible Notes”) and (ii) an aggregate of 2,083,333 warrants (the “May Warrants”) to purchase shares of the Company’s Class A common stock at an exercise price of $0.48 per share. Lev Peker, the Chief Executive Officer and a director of the Company purchased an aggregate principal amount of $750,000 May Convertible Notes and received an aggregate of 1,562,500 May Warrants in this offering. All the disinterested directors of the Company’s Board of Directors, as well as the disinterested directors of the Audit Committee, reviewed and approved the terms of the May Convertible Notes and May Warrants.

The Company allocated the proceeds from the private placement between the May Convertible Notes and the May Warrants by applying the relative fair value methodology. The Company allocated $578,704 to the May Convertible Notes and $421,296 to the May Warrants. As of JuneSeptember 30, 2023, the Company had approximately $601,000$653,000 outstanding on the May Convertible Notes, net of discounts.

The May Convertible Notes accrue interest at 7.75% per annum compounded semi-annually. The May Convertible Notessemi-annually and mature on May 19, 2025 (the “Maturity Date”). Effective on the Maturity Date, if the convertible notes have not otherwise been repaid by the Company in accordance with the terms and conditions set forth therein, then at the option of the purchasers, the outstanding balance of the convertible notes (including any accrued but unpaid interest thereon) (the “May Note Amounts”) shall convert into that number of fully paid and nonassessable shares of the Company’s common stock at a conversion price equal to the respective May Note Amounts (as defined in the May Convertible Notes) divided by the conversion price (as defined in the May Convertible Notes). The Company may prepay the May Note Amounts at any time prior to the Maturity Date.

The May Convertible Notes are strictly subordinated to the (i) senior secured indebtedness incurred or owed by the Company pursuant to the JGB Loan Agreement and (ii) Permitted Litigation Indebtedness (as defined in the JGB Loan Agreement).

The May Warrants will expire after 5 years from the date of issuance and may not be exercised on a cashless basis. The warrants provide that a holder of May Warrants will not have the right to exercise any portion of its warrants, if such holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that each holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that any holder of the May Warrants that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the May Warrants shall not be subject to the Beneficial Ownership Limitation.

June 2023 Convertible Notes and Warrants

On June 14, 2023, the Company entered into a Note and Warrant Purchase Agreement whereby the Company agreed to issue and sell to an investor in a private placement, (i) an unsecured convertible promissory note in the aggregate principal amount of $250,000 (the “June Convertible Note”) and (ii) a warrant (the “June Warrant”) to purchase an aggregate of 694,444 shares of the Company’s Class A common stock (the “Common Stock”), at an exercise price of $0.36 per share. The June Convertible Note accrues interest at 7.75% per annum, compounded semi-annually. The June Convertible Note matures on June 14, 2025. At maturity, if the June Convertible Note has not otherwise been repaid by the Company, then at the option of the purchaser, the outstanding balance of the June Convertible Note, including any accrued but unpaid interest thereon, shall convert into that number of fully paid and nonassessable shares of the Company’s Common Stock at a Conversion Price (as defined in the June Convertible Note). The Company may prepay the June Note Amount at any time prior to the Maturity Date.

The Company allocated the proceeds from the private placement between the June Convertible Note and the June Warrants by applying the relative fair value methodology. The Company allocated $144,342 to the June Convertible Note and $105,658 to the June Warrants. As of JuneSeptember 30, 2023, the Company had approximately $147,000$160,000 outstanding on the June Convertible Note, net of discounts.

The June Convertible Note is strictly subordinated to the (i) senior secured indebtedness incurred or owed by the Company pursuant to the JGB Loan Agreement and (ii) Permitted Litigation Indebtedness (as defined in the Loan Agreement).

The June Warrant will expire after 5 years from the date of issuance and may not be exercised on a cashless basis. The June Warrant provides that the holder will not have the right to exercise any portion of the June Warrant, if the holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that the holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that the holder of the June Warrant that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the June Warrant shall not be subject to the Beneficial Ownership Limitation.

July 2023 Convertible Notes and Warrants

On June 16,July 13, 2023, the Company entered into a Second Amendment to Note and Warrant Purchase Agreement (the JGB Loan Agreement (the “Second Amendment”“July Purchase Agreement”). Pursuant to the Second Amendment,whereby the Company borrowedagreed to issue and sell to certain investors affiliated with certain directors, officers and beneficial owners of the Company, in a private placement (i) an additional $700,000 withaggregate principal amount of up to $3.25 million in junior secured convertible promissory notes (the “July Convertible Notes”) and (ii) an original discount on such additional loanaggregate of $100,000. In accordance withup to 7,738,094 warrants (the “July Warrants”) to purchase the Company’s Common Stock at an exercise price of $0.42 per share. All the disinterested directors of the Company’s Board of Directors, as well as the disinterested directors of the Audit Committee, reviewed and approved the terms of the Second Amendment,July Purchase Agreement, July Convertible Notes and July Warrants.

The July Convertible Notes issued to the non-insider purchaser accrues interest at 7.75% per annum, compounded semi-annually. Effective on the maturity date, if the July Convertible Notes have not otherwise been repaid by the Company, then at the option of the purchasers, the outstanding balance of the July Convertible Notes, including any accrued but unpaid interest thereon (the “July Note Amounts”), shall convert into that number of fully paid and nonassessable shares of the Company’s Common Stock. Upon the Company’s sale and issuance of equity or equity-linked securities pursuant to which the Company receives aggregate gross proceeds of at least $10.0 million (an “Equity Financing”), the Company shall repay the loanNote Amounts in equal weekly installmentscash. In addition, upon a Change of $50,000 commencingControl (as defined in the July Convertible Notes) of the Company, the July Convertible Notes shall be repaid in full at or before the closing of such transaction in cash. The Convertible Notes are strictly subordinated to the Lind Senior Notes (described below) and are secured by a junior security interest in all the Company’s right, title, and interest in and to all the Company’s assets. The July Convertible Notes mature on July 7, 2023;13, 2024.

The July Warrants will expire after 5 years from the date of issuance and the July Warrants issued to the non-insider Purchaser may be exercised on a cashless basis. The July Warrants provide that a holder of July Warrants will not have the right to exercise any portion of its July Warrants, if such holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that ineach holder may increase or decrease the eventBeneficial Ownership Limitation by giving notice to the Company, receives gross proceedswith any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of at least $2,000,000 from9.99%; provided that any debt or equity financing followingholder of the effectiveJuly Warrants that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the Second Amendment, thenJuly Warrants shall not be subject to the Beneficial Ownership Limitation. The July Convertible Notes and the July Warrants were issued by the Company shall repay an amount equal to $950,000in reliance on the outstanding balances underexemption from registration provided by Section 4(a)(2) of the JGB Loan Agreement.

Securities Act. The July Purchase Agreement provides for customary shelf registration rights with respect to the shares of Common Stock underlying the July Convertible Notes and July Warrants.

The July Warrants were valued at $2.4 million at issuance using the Black-Scholes model. The Company allocated the proceeds from the July Convertible Notes and the July Warrants by applying the relative fair value methodology. The Company allocated $1.4 million to the July Warrants, which were recorded in shareholders’ equity and as a discount on the notes that will be amortized over the life of the notes. As of JuneSeptember 30, 2023, the Company had approximately $615,000 outstanding onbalance related to the loan,July Convertible Notes was $2.1 million, net of discounts.

On July 13, 2023, the Company repaid in fullused proceeds from the indebtedness owedJuly Convertible Notes and the Lind Financing (as described below) to repay JGB and the JGB Loan Agreement was thereby terminated upon the receipt by JGB of a payoff amount of $4,318,444 which included the outstanding principal balance due under the JGB Loan Agreement, accrued but unpaid interest thereon and the Agent’s legal fees and other expenses. The payoff amount paid by the Company in connection with the termination of the JGB loanLoan Agreement was made pursuant to a payoff letter. As a result, the JGB Loan Agreement, together with all documents and agreements executed in connection therewith, have terminated and all liens associated therewith have been released.

Lind Financing

On July 14, 2023 the Company entered into a Securities Purchase Agreement with Lind Global Fund II LP (the “Lind Purchase Agreement”). The Lind Purchase Agreement provides for loans in an aggregate principal amount of up to $10 million under various tranches (the “Lind Financing”). As of the Initial Closing Date, Lind funded $3.75 million (less commitment fees) to the Company out of the $4.75 million “First Funding Amount” (as defined in the Lind Purchase Agreement) and Lind funded the remaining $1.0 million (less commitment fees) 5 business days after the Company (i) having a registration statement declared effective by the SEC for the registration of the shares of the Company’s Class A common stock (the “Common Stock”) issuable upon conversion of the Lind Note (as defined below) and the Lind Warrant (as defined below) and (ii) the receipt of Stockholder Approval (as defined in the Lind Purchase Agreement), if required. In consideration for the First Funding Amount, the Company issued and sold to Lind, in a private placement, (A) a senior secured convertible promissory note in the aggregate principal amount of $5,367,500 (the “Lind Note”) and (B) 12,837,838 warrants to purchase the Company’s Common Stock at an exercise price of $0.50 per share (subject to certain adjustments) (the “Lind Warrant”).

The Company concluded that the proceeds from the Note should be allocated based on the relative fair values of the Note and the Warrant. The Lind Warrant was valued at $3.7 million on the issue date using the Black-Scholes method. The fair value of the Note is deemed to be the residual value arrived at by subtracting the $0.6 million original issue discount, the $1.1 million fair value of the conversion feature that was deemed to be a bi-furcated embedded derivative and valued on the issuance date using a Monte-Carlo Simulation Model, and the $0.5 million in debt issuance costs. The net proceeds were allocated between the Note and the Warrant based on relative fair value basis. The Company allocated $2.3 million to the Lind Warrant, which was recorded in shareholders’ equity and as a discount on the Lind Note that will be amortized over the life of the note. In addition, the Company booked an additional $2.2 million of debt issuance costs and debt discounts related to the relative fair value allocations and recorded amortization of $0.4 million during the third quarter of 2023. As of September 30, 2023, the outstanding balance related to the Lind Note was $4.8 million, net of $3.6 million unamortized discounts.

At any time while the Lind Note is outstanding and subject to certain conditions, including no event(s) of default has occurred, being satisfied as set forth in the Lind Purchase Agreement, the Company may deliver a written notice to Lind (an “Additional Funding Request”) requesting an increase in the amount of funding provided by Lind to the Company under the Lind Note, and such Additional Funding Request shall be equal to no less than $1.0 million and shall not exceed $5.25 million (the “Additional Funding Limit”). Events of default include but are not limited to having market capitalization of less than $6.0 million for ten (10) consecutive days, the Company’s intention not comply with a conversion request, default on any payment of any amount of principal or interest, not having sufficient number of shares of Common Stock authorized, reserved and available for issuance to satisfy the conversion in full of the Lind note, or failure to observe or perform any other covenant, condition or agreement contained in any transaction document.

Within 7 business days of receiving the Additional Funding Request, Lind shall give a written response to the Company (an “Investor Response”) that provides that Lind has elected (in its sole and absolute discretion) to (i) advance the full requested amount, (ii) advance an amount less than the full requested amount or (iii) not advance any of the requested amount. In addition, Lind may, in its sole discretion and without any action by the Company, deliver written notice to the Company (an “Investor Funding Notice”) of its election to advance up to an aggregate of $2.0 million of increased funding to the Company. Any such increased funding amounts directed by Lind shall count toward the Additional Funding Limit.

On August 2, 2023 (the “Effective Date”), the Company and Lind entered into an amendment to the Lind Purchase Agreement to have the remaining $1.0 million (less commitment fees) of the First Funding Amount (as defined in the Lind Purchase Agreement) payable in two tranches: (i) $500,000 (less a $15,000 commitment fee) on the Effective Date and (ii) $500,000 (less a $15,000 commitment fee) within 5 business days of the Company (A) having a registration statement declared effective by the SEC for the registration of the shares of the Company’s Common Stock issuable upon conversion of the notes and warrants issued to Lind pursuant to the Lind Purchase Agreement and (B) the receipt of Stockholder Approval (as defined in the Lind Purchase Agreement).

On August 18, 2023, the Company and Lind entered into a second amendment to the Lind Purchase Agreement to have the second $500,000 tranche described above payable within 5 business days upon the later of (i) the Company having filed the preliminary proxy statement for the receipt of Stockholder Approval (as defined in the Lind Purchase Agreement) and (ii) the effective date of the second amendment.

The Lind Note does not bear any interest and matures on July 14, 2024. Following the date that is sixty (60) days after the earlier to occur of (A) the date the Registration Statement is declared effective by the SEC or (B) the date that any shares issued pursuant to the Lind Note may be immediately resold under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), the Company may repay all, but not less than all, of the then outstanding principal amount of the Lind Note, subject to a 5% premium. If the Company elects to prepay the Lind Note, Lind has the right to convert up to 33 1/3% of the principal amount of the Lind Note at the Conversion Price (as defined below) into shares of the Company’s Common Stock. The Lind Note is convertible, at the option of Lind, into shares of the Company’s common stock at price per share equal to the lower of $0.50 or 90% of the average of the 3 lowest daily VWAPs (as defined in the Note) during the 20 Trading Days (as defined in the Note) prior to conversion.

As collateral for the obligations under the Lind Purchase Agreement, the Company has granted to Lind a senior security interest in all of Company’s right, title, and interest in, to and under all of Company’s property (inclusive of intellectual property), subject to certain exceptions, as set forth in the LLC Guarantor Security Agreement (as defined in the Lind Purchase Agreement) and the Security Agreement (as defined in the Lind Purchase Agreement).

The Lind Warrant will expire after 5 years from the date of issuance and may be exercised on a cashless basis. The Lind Warrant provides that Lind will not have the right to exercise any portion of the Lind Warrant, if, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Securities Exchange Act of 1934, as amended, would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that the Beneficial Ownership Limitation by shall automatically increase to 9.99% if Lind, together with its affiliates, owns in excess of 4.99% of the Company’s outstanding Common Stock.

The Lind Purchase Agreement provided for customary shelf and piggyback registration rights with respect to the shares of Common Stock underlying the Lind Note and the Lind Warrant. On July 28, 2023, the Company filed a resale registration statement on Form S-3 (the “Resale S-3”) to register the shares of Common Stock underlying the Lind Note and Lind Warrant. The Resale S-3 was declared effective by the SEC on August 7, 2023.

On August 21, 2023, the Company filed a definitive proxy statement to obtain the Stockholder Approval (as defined in the Lind Purchase Agreement). On October 5, 2023, the Company held a Special Meeting of Stockholders and obtained the requisite votes for the Stockholder Approval.

Placement Agent Warrant

On July 14, 2023, in consideration for its services in respect of the Lind Financing described above, the Company also issued to Titan Partners Group LLC, a division of American Partners, LLC (the “Placement Agent”) warrants to purchase 536,570 shares of the Company’s Common Stock at an exercise price per share of $0.625 (the “Placement Agent Warrant”). These warrants were valued at $148,000 using the Monte-Carlo Simulation Model. The Placement Agent Warrant has a 5-year term. In addition, the Company paid the Placement Agent a commission of $285,000. The Placement Agent Warrant also provides for customary demand and piggyback registration rights with respect to the shares of Common Stock underlying the Placement Agent Warrant.

Conversion of Convertible Notes

On August 8, 2023, Lind converted $250,000 of debt into 1,082,250 shares of the Company’s stock at $0.231 per share. The conversion price was based on 90% of the average of three lowest VWAPs during the twenty Trading Days prior to the conversion.

On September 15, 2023, Lind converted $300,000 of debt into 1,515,151 shares of the Company’s stock at $0.198 per share. The conversion price was based on 90% of the average of three lowest VWAPs during the twenty Trading Days prior to the conversion.

August 2023 Convertible Note

In August 2023, Lev Peker, the Chief Executive Officer and a director of the Company, provided a loan to the Company in the aggregate amount of $1.1 million. On October 9, 2023, the Company entered into a Note Purchase Agreement with Mr. Peker whereby the Company issued to Mr. Peker, in a private placement, a junior secured convertible promissory note in the aggregate principal amount of $1.1 million in consideration for such loan. The convertible note does not bear any interest and matures on October 9, 2024. If on that date the convertible note has not otherwise been repaid by the Company in accordance with its terms. See “Subsequent Events” belowthe terms and conditions set forth therein, then at the option of Mr. Peker, the outstanding balance of the convertible note (including any accrued but unpaid interest thereon) (the “Note Amount”) shall convert into that number of fully paid and nonassessable shares of the Company’s Common Stock at a conversion price equal to the Note Amount divided by the Conversion Price, as defined in the Convertible Note. In addition, upon a Change of Control, as defined in the convertible note, the Convertible Note shall be repaid in full at or before the closing of such transaction in cash. The convertible note is strictly subordinated to the indebtedness owed by the Company to Lind pursuant to the Lind Purchase Agreement, and the convertible note is secured by a junior security interest in all of the Company’s right, title, and interest in and to all of the Company’s assets, excluding the Existing Commercial Tort Claim (as defined in the Lind Purchase Agreement).

Litigation Funding

On September 29, 2023 the Company entered into a Litigation Funding Agreement (the “Funding Agreement”) with Pravati Capital, LLC (the “Funder”) for more information.the purpose of funding the Company’s currently pending litigation matters (i) in the District of Massachusetts and captioned as Parts iD, Inc. v. ID Parts, LLC (Case No. 1:20-cv-1253-RWZ) and (ii) in the District of New Jersey and captioned as Onyx Enterprises, Int’l Corp. v. Volkswagen Group of America, Inc. (Case No. 20-9976) (collectively, the “Litigation”), which were both initiated by the Company in 2020 for purported trademark infringement. Under the terms of the Funding Agreement, the Funder agreed to pay up to an aggregate of $1,500,000 to fund reasonable legal fees, court costs, and other expenses incurred by the Company in connection with the Litigation. As of September 30, 2023 the Company has not received any funds with respect to the aforementioned agreement.

The Company agreed to pay the Funder from the proceeds of the Litigation an amount that is the greater of the (i) Multiple-Based Payment Amount or (ii) Percentage-Based Payment Amount. Each of such amounts shall include (x) the funded amount of the payment with respect to the applicable funding; plus (y) all of the fees and costs related to such funding; plus (z) (A) for the purposes of the Multiple-Based Payment Amount, one of the following: (1) if a payment is made on or before 15 months from the date of the funding, a 2.3 times multiple on the funded amount of the funding (excluding the fees and costs related to such Funding); (2) if a payment is made after 15 months from the date of the funding but on or before 24 months from the date of the funding, a 2.7 times multiple on the funded amount of the funding (excluding the fees and costs related to such Funding); or (3) if a payment is made after 24 months from the date of the funding, a 3.5 times multiple on the funded amount of the funding (excluding the fees and costs related to such funding) or (B) for the purposes of the Percentage-Based Payment Amount, an amount equal to 2.0% of the outstanding daily balance of such funding, compounded monthly, computed on the basis of a 360-day year for the actual number of days elapsed, to the extent accrued and unpaid. No Percentage-Based Payment Amount shall be charged with respect to any funding that is paid based upon a Multiple-Based Payment Amount.

Additionally, the Company agreed to pay the Funder (i) an underwriting fee of $50,000, (ii) a funding origination fee equal to 3% of each funded amount and (iii) a service fee of $1,500 on the first day of each calendar quarter beginning on October 15, 2023. The underwriting fee and the funding origination fee are fully earned on the Closing Date (as defined in the Funding Agreement) but are only due and payable upon the Receipt of Recoveries (as defined in the Funding Agreement) and only to the extent of the Recoveries (as defined in the Funding Agreement). The service fees are fully earned on each of the dates specified in the foregoing clause (iii) but are only due and payable upon the Receipt of Recoveries and only to the extent of the Recoveries.

The Company also granted to the Funder a first priority security interest in and to all Recoveries from the Litigation.

Although the Company is required under the terms of the Funding Agreement to provide notice to the Funder of any settlement offers, any decision regarding settlement of the Litigation, including the ultimate decision whether and for how much to settle, lies solely with the Company.

Subject to the terms and conditions of the Funding Agreement, the Company shall not owe Funder any repayment of the fundings advanced under the Funding Agreement if (i) there is no recovery by the Company in the Litigation, and (ii) the Company is not in default under the Funding Agreement. The Funding Agreement contains customary events of default, including but not limited to, (i) failure by the Company to remit to Funder any amount owed under the Funding Agreement within 14 business days of such amount becoming due; (ii) the occurrence of a Material Adverse Change (as defined in the Funding Agreement); (iii) the intentional non-disclosure or concealment of material information regarding the Litigation by the Company’s law firm (at the direction of the Company) required to be provided under the Funding Agreement; (iv) voluntary and unreasonable dismissal or voluntary and unreasonable abandonment by the Company or the Company’s law firm (at the Company’s direction) of any Litigation prior to a final resolution; (v) the commencement of any bankruptcy or Insolvency Proceeding (as defined in the Funding Agreement) by or against the Company and such Insolvency Proceeding is not dismissed with 60 days and the Company has not assumed the Funding Agreement in connection with such Insolvency Proceeding; and (vi) any change in control of the Company or any entity or combination of entities that directly or indirectly control the Company, unless upon occurrence of a change in control of the Company, the change of control is acknowledged and waived by a signed writing by the Company and the Funder.

Note 6 – Shareholders’ Deficit

Preferred Stock

As of JuneSeptember 30, 2023, the Company had authorized for issuance a total of 1,000,000 shares of preferred stock, par value of $0.0001 per share (“Preferred Stock”). As of JuneSeptember 30, 2023 and December 31, 2022, no shares of Preferred Stock were issued or were outstanding. The Certificate of Incorporation of the Company authorizes the Board of Directors to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional, special, and other rights at the time of issue of any Preferred Stock.

Common Stock

As of JuneSeptember 30, 2023, and December 31, 2022, the Company had 35,102,55337,838,931 and 34,825,971, respectively, shares of Class A common stock outstanding. As of JuneSeptember 30, 2023 and December 31, 2022, the Company had reserved 5,729,078 and 6,005,660, respectively, shares of Class A common stock for issuance as follows:

Note 7 – Commitments and Contingencies

As of JuneSeptember 30, 2023, there were no material changes to the Company’s legal matters and other contingencies disclosed in Note 7 of the “Notes to Consolidated Financial Statements” included in our Annual Report on 2022 Form 10-K for the year ended December 31, 2022.

Note 8 – Share-Based Compensation

During the three months ended JuneSeptember 30, 2023 and 2022, selling, general and administrative expenses included $458,981$575,299 and $(180,529)$915,007 of share-based compensation expense, respectively. ForDuring the threenine months ended June 30, 2022, share-based compensation was negative $(180,529) due to nil accrual for performance-based restricted stock units (“PSUs”) as well as the reversal of previous PSUs accrual of $973,659 as the Company no longer believed the performance criteria included in the PSUs plan was likely to be achieved. During the six months ended JuneSeptember 30, 2023 and 2022, selling general and administrative expenses included $1,114,568$1,689,867 and $686,841$1,601,848 of share-based compensation expense, respectively.

During the three months ended JuneSeptember 30, 2023 and 2022, the Company capitalized $324,423$326,780 and $432,224,$435,238, respectively, of share-based compensation expense associated with awards issued to consultants who are directly associated with and who devote time to our internal-use software. During the sixnine months ended JuneSeptember 30, 2023 and 2022, the Company capitalized $787,813$1,114,610 and $856,334,$1,291,572, respectively, of share based compensation expense associated with awards issued to consultants who are directly associated with and who devote time to our internal-use software.

Equity Incentive Plan

In October 2020, in connection with the Business Combination, the Company’s stockholders approved the Parts iD, Inc. 2020 Equity Incentive Plan (the “2020 EIP”). The 2020 EIP became effective immediately upon the closing of the Business Combination. As of JuneSeptember 30, 2023, of the 4,904,596 shares of Class A common stock reserved for issuance under the 2020 EIP in the aggregate, 2,935,496 shares remained available for issuance.

The 2020 EIP provides for the grant of stock options, restricted stock, restricted stock units (“RSUs”), PSUs, stock appreciation rights, other stock-based awards, and cash awards (collectively, “awards”). The awards may be granted to employees, directors, and consultants of the Company.

Restricted Stock Units

The following table summarizes the activity related to RSUs during the sixnine months ended JuneSeptember 30, 2023:

As of JuneSeptember 30, 2023, approximately $1.7$0.4 million of unamortized share-based compensation expense was associated with outstanding RSUs, which is expected to be recognized over a remaining weighted average period of 0.420.18 years.

Performance-Based Restricted Stock Units

The following table summarizes the activity related to PSUs during the sixnine months ended JuneSeptember 30, 2023:

As of JuneSeptember 30, 2023, the performance criteria included in the PSUs plan are unlikely to be achieved, and accordingly, the Company has no accrual of share-based compensation expenses associated with the outstanding PSUs. The weighted average period of 0.580.32 years was remaining before the expiration of outstanding PSUs.

Employee Stock Purchase Plan

In October 2020, in connection with the Business Combination, the Company’s stockholders approved the Parts iD, Inc. 2020 Employee Stock Purchase Plan (the “2020 ESPP”). There are 2,043,582 shares of Class A common stock available for issuance under the 2020 ESPP. The 2020 ESPP became effective immediately upon the closing of the Business Combination, but it has not yet been implemented. As of JuneSeptember 30, 2023, no shares had been issued under the 2020 ESPP.

Note 9 – Income Taxes

Deferred tax assets and liabilities are recognized based on temporary differences in financial statements and income tax carrying values using rates in effect for years such differences are to reverse. Due to uncertainties surrounding the Company’s ability to generate future taxable income and consequently realize such deferred income tax assets, a full valuation allowance has been established.

The disclosures regarding deferred tax assets included in our 2022 Form 10-K continue to be accurate for the three and sixnine months ended JuneSeptember 30, 2023.

The Company does not currently anticipate any significant increase or decrease in the total amount of unrecognized tax benefits within the next twelve months.

None of the Company’s U.S. federal or state income tax returns are currently under examination by the Internal Revenue Service (the “IRS”) or state authorities. However, fiscal years 2017 and later remain subject to examination by the IRS and respective states.

Note 10 – Subsequent Events

Convertible NotesOn October 6, 2023, the Company entered into a definitive Restructuring Support Agreement (the “RSA”) to restructure the Company’s indebtedness with certain of its trade vendors (the “Consenting Vendors”). Pursuant to the terms and Warrantsconditions of the RSA, the Company agreed to pay to each holder of a (i) Vendor Claim (as defined in the RSA), an amount equal to 55% of such total Vendor Claim consisting of (A) 12.5% of such Vendor Claim (the “Initial Payment”) on the earlier to occur of (X) two business days following the Company’s receipt of the Restructuring Funds (as defined in the RSA) and (Y) December 15, 2023, and (B) the remaining 42.5% of such Vendor Claim paid monthly over 36 months; and (ii) a Convenience Claim (as defined in the RSA), an amount equal to 65% of such Convenience Claim (A) with respect to a Consenting Vendor, no later than two business days after the Company makes the Initial Payment and (B) with respect to an Additional Consenting Vendor (as defined in the RSA), on the later of (X) two business days after the Company makes the Initial Payment and (Y) five business days after such Additional Consenting Vendor’s execution of an Accession Letter (as defined in the RSA). The RSA will terminate automatically upon the earliest occur of (i) payment of the full amount of the Agreed Vendor Claim (as defined in the RSA) to each Consenting Vendor and (ii) the mutual written consent of the Company and the Consenting Vendors holding at least 80% of the Total Vendor Claim Amount (as defined in the RSA).

On July 13,October 9, 2023, Lind Global Partners II, L.P. converted $230,000 of debt into 1,703,704 shares of the Company’s stock at $0.135 per share. The conversion price was based on the three lowest VWAPS during the twenty Trading Days prior to the conversion.

On October 20, 2023, the Company entered into a Note and Warrant Purchase Agreement (the “July Purchase Agreement”) whereby the Company agreed to issue and sell to certain investors affiliated with certain directors, officers and beneficial owners ofSanjiv Gomes, the Company,Company’s Chief Information Officer, in a private placement, (i) an unsecured promissory note in the aggregate principal amount of up$1,000,000 (the “Unsecured Note”). The Unsecured Note bears interest at the rate of 7.75% per annum, compounded semi-annually, and matures on October 20, 2024. The Unsecured Note is unsecured and is strictly subordinated in right of payment to $3.25 millionthe prior payment in junior secured convertible promissory notes (the “July Convertible Notes”)full of all of the (i) indebtedness owed by the Company to Lind pursuant to the Lind Purchase Agreement and (ii) litigation funding provided by the Funder pursuant to the Funding Agreement. The Unsecured Note also provides that the Company and Mr. Gomes intend for the Unsecured Note to be an aggregateemergency loan advance to bridge the Company to a possible debtor-in-possession financing facility and for such advance to be included as part of upthat facility (if and when applicable).

The Company failed to 7,738,094 warrants (the “July Warrants”) to purchase the Company’s Common Stock at an exercise price of $0.42 per share. All the disinterested directors of the Company’s Board of Directors, as well as the disinterested directors of the Audit Committee, reviewed and approvedmeet its obligations under the terms of the July PurchaseLind Agreement July Convertible Notes and July Warrants.

The July Convertible Notes issuedLind Note after the balance sheet date. In October, the Company did not have sufficient authorized shares to fulfill its obligations to issue shares upon request from the Lind Note and Lind Warrant, which is deemed to be an event of default. Upon occurrence of the event of default, the Company is liable to, among other remedies available to the non-insider purchaser accrues interest at 7.75% per annum, compounded semi-annually. Effective oninvestor, pay 110% of the maturity date, ifoutstanding principal amount of the July Convertible Notes have not otherwise been repaid by the Company, thenLind Note resulting in a payoff of $5.3 million or convert, at the optionrequest of the purchasers,investor, all or a portion of the outstanding principal amount into shares of Common Stock at the lower of (i) the then-current Conversion Price (as defined in the Lind Note) and (ii) 80% of the average of the three (3) lowest daily VWAPs during the 20 trading days prior to the delivery by Lind of the applicable notice of conversion. The Company does not currently have sufficient amount of authorized shares of Common Stock to have the outstanding principal balance of the July Convertible Notes, including any accrued but unpaid interest thereon (the “JulyLind Note Amounts”), shall convert into, that number of fully paid and nonassessablethe Lind Warrant exercised into, shares of the Company’s Common Stock. Upon the Company’s sale and issuance of equity or equity-linked securities pursuant to which the Company receives aggregate gross proceeds of at least $10.0 million (an “Equity Financing”), the Company shall repay the Note Amounts in cash. In addition, upon a Change of Control (as defined in the July Convertible Notes) of the Company, the July Convertible Notes shall be repaid in full at or before the closing of such transaction in cash. The Convertible Notes are strictly subordinated to the Lind Senior Notes (described below) and are secured by a junior security interest in all the Company’s right, title, and interest in and to all the Company’s assets. The July Convertible Notes mature on July 13, 2024.

On October 25, 2023, Lind Global Partners II, L.P. converted $201,500 of debt into 1,707,627 shares of the Company’s stock at $0.118 per share. The July Warrants will expire after 5 yearsconversion price was based on the three lowest VWAPS during the twenty Trading Days prior to the conversion.

On October 27, 2023 the Company received written notice from the date of issuance andNYSE American LLC indicating that the July Warrants issued toCompany is not in compliance with the non-insider Purchaser may be exercised on a cashless basis. The July Warrants provide that a holder of July Warrants will not have the right to exercise any portion of its July Warrants, if such holder, together with its affiliates, and any other party whose holdings would be aggregated with thosecontinued listing standard set forth in Section 1003(f)(v) of the holder for purposes of NYSE American Company Guide (“Section 13(d) or Section 161003(f)(v)”) because the shares of the Exchange Act would beneficially own in excessCompany’s Class A common stock, par value $0.0001 per share (the “Common Stock”) have been selling for a substantial period of 4.99%, oftime at a low price per share. The Notice has no immediate effect on the number of shareslisting or trading of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that each holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that any holder of the July Warrants that beneficially owns in excess of 19.99% of the number of shares ofand the Common Stock outstandingwill continue to trade on the issuance dateNYSE American under the symbol “ID” with the designation of “.BC” to indicate that the Company is not in compliance with the NYSE American’s continued listing standards. Additionally, the Notice does not result in the immediate delisting of the July Warrants shall notCompany’s Common Stock from the NYSE American.

Pursuant to Section 1003(f)(v), the NYSE American staff (the “Staff”) determined that the Company’s continued listing is predicated on effecting a reverse stock split of its Common Stock or demonstrating sustained price improvement within a reasonable period of time, which the Staff determined to be no later than April 27, 2024. The Notice further stated that as a result of the foregoing, the Company has become subject to the Beneficial Ownership Limitation.procedures and requirements of Section 1009 of the NYSE American Company Guide, which could, among other things, result in the initiation of delisting proceedings, unless the Company cures the deficiency in a timely manner. The July Convertible Notes andNYSE American may also accelerate delisting action in the July Warrants were issuedevent that the Company’s Common Stock trades at levels viewed by the Staff to be abnormally low. 

The Company intends to monitor the price of its Common Stock and consider available options if its Common Stock does not trade at a consistent level likely to result in reliance on the exemption from registration providedCompany regaining compliance by Section 4(a)(2)April 27, 2024. The Company’s receipt of the Notice does not affect the Company’s business, operations or reporting requirements with the Securities Act. The July Purchase Agreement provides for customary shelf registration rights with respect to the shares of Common Stock underlying the July Convertible Notes and July Warrants.Exchange Commission. 

On July 13,October 30, 2023, the Company used proceeds fromentered into an interim officer engagement agreement (the “Engagement Agreement”) with SRV Partners, LLC, a Delaware limited liability company (“SRVP”). Pursuant to the July Convertible Notes andEngagement Agreement, Arkady A. Goldinstein was appointed as the Lind Financing (as described below) to repay the Lenders and the JGB Loan Agreement was thereby terminated upon the receipt by the Lendersinterim Chief Financial Officer of a payoff amount of $4,318,444.46 which included the outstanding principal balance due under the JGB Loan Agreement, accrued but unpaid interest thereon and Lenders’ and Agent’s legal fees and other expenses. The payoff amount paid by the Company, in connection witheffective November 1, 2023. Mr. Goldinstein also assumed on an interim basis the terminationduties of Principal Financial Officer and Principal Accounting Officer of the JGB Loan Agreement was made pursuant to a payoff letter. As a result, the JGB Loan Agreement, together with all documents and agreements executed in connection therewith, have terminated and all liens associated therewith have been released, subject to the Company continuing to be bound by certain terms under the JGB Loan Agreement that customarily survive the termination of similar agreements, including, without limitation, certain indemnification obligations and the terms of the warrants previously issued to the Lenders.Company.

Lind Financing

On July 14,November 2, 2023, (the “Initial Lind Closing Date”), the Company entered into a SecuritiesNote Purchase Agreement (the “Lind Purchase Agreement”) with Lind Global Partners II, L.P. (“Lind”) and one other external investor. The agreement provides for loans in an aggregate principal amount of up to $10.0 million under various tranches. On the Initial Lind Closing Date,whereby the Company received funding in the amount of $3.75 million and pursuant to the terms of the Lind Purchase Agreement, Lind agreed to fund an additional $1.0 million within 5 business days of the Company (i) having a registration statement (the “Registration Statement”) declared effective by the SEC for the registration of the shares of the Company’s Common Stock issuable upon conversion of the Lind Note (as defined below)issue and Lind Warrant (as defined below) and (ii) the receipt of Stockholder Approval (as defined in the Lind Purchase Agreement), if necessary. In consideration for the $4.75 million, the Company issued and soldsell to Lind,2642186 Ontario Inc. (“Ontario”), in a private placement, (a) a seniorjunior secured convertible promissory note in the aggregate principal amount of $5,367,500 (the “Lind Note”) and (b) 12,837,838 warrants (the “Lind Warrant”) to purchase$1,000,000. The note bears interest at the Company’s Common Stock at an exercise pricerate of $0.507.75% per share.

At any time while the Lind Note is outstanding, the Company may deliver a written notice requesting an increase in the amount of funding equal to no less than $1.0 million and shall not exceed $5.25 million. Lind shall, within 7 business days of receiving the notice give a written response to the Company stating that Lind has elected (in its sole and absolute discretion) to (i) advance the full requested amount, (ii) advance an amount less than the full requested amount or (iii) not advance any of the requested amount. In addition, Lind may, in its sole discretion and without any action by the Company, deliver written notice to the Company of its election to advance up to an aggregate of $2.0 million of increased funding to the Company.

The Lind Note was issued at a discountannum, compounded semi-annually, and matures on July 14,November 2, 2024. FollowingThe note is (A) secured by a junior security interest in any potential proceeds from the date that is sixty (60) days afterCompany’s currently pending litigation matters (i) in the earlierDistrict of Massachusetts and captioned as Parts iD, Inc. v. ID Parts, LLC (Case No. 1:20-cv-1253-RWZ) and (ii) in the District of New Jersey and captioned as Onyx Enterprises, Int’l Corp. v. Volkswagen Group of America, Inc. (Case No. 20-9976) (collectively, the “Litigation”) and (B) strictly subordinated in right of payment to occurthe prior payment in full of (A)all of the date the Registration Statement is declared effectiveLitigation funding provided by the SEC or (B) the date that any shares issuedFunder pursuant to the Lind Note may be immediately resold under Rule 144 of the Securities Act,Funding Agreement. The note also provides that the Company may repay all, but not less than all, ofand Ontario intend for the then outstanding principal amount ofnote to be an emergency loan advance to bridge the Lind Note, subjectCompany to a 5% premium. If the Company electspossible debtor-in-possession financing facility and for such advance to prepay thebe included as part of that facility (if and when applicable).

On November 3, 2023, Lind Note, Lind has the right to convert up to 33 1/3%Global Partners II, L.P. converted $161,500 of the principal amount of the Lind Note at the Conversion Price (as defined in the Lind Note)debt into 1,682,291 shares of the Company’s Common Stock.stock at $0.0965 per share. The Lind Note is convertible, atconversion price was based on the optionthree lowest VWAPS during the twenty Trading Days prior to the conversion.

On November 30, 2023, PARTS iD, Inc., a Delaware corporation (the “Company”) entered into a Purchase and Sale of Lind, into sharesFuture Receivables Agreement (the “Riverside Agreement”) with Riverside Capital NY (“RCNY”). Pursuant to the terms of the Company’s common stock at price per share equal to the lower of $0.50 or 90% of the average of the 3 lowest daily VWAPs during the 20 Trading Days (as defined in the Lind Note) prior to conversion.

As collateral for the obligations under the Lind PurchaseRiverside Agreement, the Company has grantedagreed to Lind a senior security interest in all ofsell, and RCNY agreed to purchase, the Company’s right, title and interest in and to $1,469,700 of the Company’s future receivables, for a purchase price of $1,065,000. Pursuant to the terms of the Riverside Agreement, the Company agreed to pay RCNY $15,400 each day until such time as RCNY has been repaid.

Also on November 30, 2023, the Company also entered into a Standard Merchant Cash Advance Agreement (the “Wave Agreement”) with WAVE ADVANCE INC (“WAVE”). Pursuant to the terms of the Wave Agreement, the Company agreed to sell, and under allWAVE agreed to purchase, the Company’s right, title and interest in and to $1,518,000 of the Company’s property (inclusivefuture receivables, for a purchase price of intellectual property), subject$1,100,000. Pursuant to certain exceptions.the terms of the Wave Agreement, the Company agreed to pay RCNY $15,400 each day until such time as WAVE has been repaid.

The Lind Warrant expires 5 years from the date of issuance and may be exercised on a cashless basis. The Lind Warrant provides that Lind will not have the right to exercise any portion of the warrant, if, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Securities Exchange Act of 1934, as amended, would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that the Beneficial Ownership Limitation shall automatically increase to 9.99% if Lind, together with its affiliates, owns in excess of 4.99% of the Company’s outstanding Common Stock. The noteRiverside Agreement and the warrant were issued byWave Agreement each provides for the Companygrant of a junior security interest in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Actfuture receivables and have not been registeredother related collateral under the Securities Act.

The Lind Warrant provides for customary shelfUniform Commercial Code in accounts and piggyback registration rights with respectproceeds, subordinated to the sharesindebtedness incurred under that certain Securities Purchase Agreement, dated as of Common Stock underlying the Lind Note and the Lind Warrant.

Placement Agent Warrant

On July 14, 2023, in consideration for its services in respect of the Lind Financing described above,by and between the Company also issued to Titan Partners Group LLC, a division of American Partners, LLC (the “Placement Agent”) warrants to purchase 536,570 shares of the Company’s Common Stock at an exercise price per share of $0.625 (the “Placement Agent Warrant”). The Placement Agent Warrant has a 5-year term. In addition, the Company paid the Placement Agent a commission of $285,000. The Placement Agent Warrant also provides for customary demand and piggyback registration rights with respect to the shares of Common Stock underlying the Placement Agent Warrant.

Management has evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q and believes that all material subsequent events have been disclosed.Lind Global Fund II LP, as amended.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis of financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements, together with the related notes thereto, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Form 10-K”).

The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in the section “Risk Factors” included in our 2022 Form 10-K. See also the “Cautionary Note Regarding Forward-Looking Statements” set forth at the beginning of this Quarterly Report on Form 10-Q.

Overview

PARTS iD, Inc. (the “Company”) is a technology-driven, digital commerce company on a mission to transform the U.S. automotive aftermarket and the adjacent complex parts markets we serve by providing customers a differentiated customer experience with advanced product search capabilities, proprietary product options, exclusive shop by service type functionality, visually inspired browsing, easy product discovery, rich custom content, an exhaustive product catalog and competitive prices.

The Company delivers this customer experience vision using our purpose-built technology platform and user interface (UI), proprietary parts and accessories fitment data with more than fourteen billion product and fitment data points powered with machine learning, and a comprehensive product catalog spanning approximately eighteen million parts and accessories, when fully available, from over one thousand suppliers we partner with across eight verticals.

The Company’s technology platform integrates software engineering with catalog management, data intelligence, mining, and analytics, along with user interface development which utilizes distinctive rules-based parts fitment software capabilities. To manage the ever-growing need for accurate product and parts data, we use cutting-edge computational and software engineering techniques, including Bayesian classification, to enhance and improve data records and product information, and ultimately to contribute to the overall development of a rich and engaging user experience. Furthermore, our technology platform is designed to support much more than just car parts and accessories. We believe that we have demonstrated the flexibility and scalability of our technology by launching seven adjacent verticals, including BOATiD.com, MOTORCYCLEiD.com, CAMPERiD.com, and others in August 2018, all of which leverage the same proprietary technology platform and data architecture.

There are several key competitive strengths that management believes highlight the attractiveness of the Company’s platform business model and underscore how PARTS iD, Inc. is differentiated from its competition, including:

The Company’s proprietary and asset-light fulfillment model is enabled by a network of hundreds of suppliers with whom we have cultivated relationships with and integrated over the last fifteen years. This has enabled us to further scale our catalog size and to add adjacent verticals which allows us to offer a broader array of product lines over our competitors. Furthermore, our geo-sourcing fulfillment algorithm factors in real-time inventory when available, customer proximity, shipping cost, and profitability to optimize product sourcing. This algorithmic approach allows us to increase fill rate and delivery speed.

The Company has invested sixteen years in building its proprietary platform and we believe that our investment in technology and data has allowed us to expand into adjacent verticals, leveraging a capital-efficient just-in-time inventory model to offer our consumers an extensive selection and customer experience. 

During 2022, we took several measures to reduce operating costs, including reducing advertising expenses, general and administrative overhead, and capital expenditures. In June 2022, we took steps to reduce our costs by reducing our employment base in the United States, and reducing our independent contractors in Ukraine, the Philippines, and Costa Rica, and by reducing other operating expenses. The employees and independent contractors affected by this reduction were informed of the Company’s decision beginning in June 2022. The annualized savings from the measures described above were approximately $12 million. Additionally, in October 2022, the Company successfully negotiated a new shipping contract that will yield more than 15% in lower outbound shipping rates. The shipping cost reduction is expected to reduce shipping losses and the cost of delivery to customers.

In the first quarter of 2023, the Company took additional reductions in its advertising expense by approximately 77%, its US-based salaries by approximately 55%, and outside contractor costs by approximately 35%. These reductions were made in order to bring the cost structure of the Company in line with the current business environment.

In the second quarter of 2023, the Company further reduced SG&A to $5.1 million from $9.9 million compared to the same quarter in 2022. Discretionary spending such as salaries and support costs were reduced significantly. Net loss decreased from $6.5 million in the first quarter of 2023 to $3.8$4.0 million in the second quarter of 2023. Gross margin for the three months ended June 30, 2023 increased to 25.2% from 19.7% in the same quarter last year as the Company is focused on increasing gross margins. Gross margin for the sixnine months ended JuneSeptember 30, 2023 increased to 23.2%24.6% from 19.6%19.7% for the same period last year.

In the third quarter of 2023, the Company continued reductions in SG&A to $5.9 million compared to $9.5 million in the same quarter in 2022. Net loss decreased from $6.3 million to $5.7 million.

Russian-Ukrainian Conflict

The Russian invasion of Ukraine and resulting response from several nations have impacted, and are expected to continue to impact, our business in the near term. Russia’s invasion of Ukraine has elevated global geopolitical tensions and security concerns as well as having recently created some inflationary pressures. Our engineering and product data development team as well as back office and part of its customer service center are in Ukraine. Therefore, the conflict in Ukraine could have a material adverse effect on our business, financial condition, and results of operations. While the conflict has not caused significant disruptions to our operations to date, it could have a material adverse effect upon the Company in future periods.

Since the onset of the active conflict in February 2022, most of our contractors have been able to continue their work, although at a reduced capacity and/or schedule. 

Our websites and call centers have continued to function but could be more negatively impacted in the future. Many of our contractors have moved outside of Ukraine to neighboring countries where they continue to work remotely. Some of our contractors who have remained in Ukraine have moved to other areas in Ukraine, but their ability to continue work is subject to significant uncertainty and potential disruptions. 

The situation in Ukraine is complex and continues to evolve. We cannot provide any assurance that our outsourced teams in Ukraine will be able to provide efficient and uninterrupted services, which could have an adverse effect on our operations and business. In addition, our ability to maintain adequate liquidity for our operations is dependent on several factors, including our revenue and earnings, which could be significantly impacted by the conflict in Ukraine. Further, any major breakdown or closure of utility services, any major threat to civilians or any international banking disruption could materially impact the operations and liquidity of the Company. We will continue monitoring the military, social, political, regulatory, and economic environment in Ukraine and Russia, and will consider further actions as appropriate.

Middle East Conflict

As a result of coordinated attacks on Israel by Hamas militants in October 2023, war broke out between the State of Israel and Hamas. Since then, the two sides have traded daily rocket fire, and the subsequent military response by the Israeli government has resulted in significant unrest and uncertainty within that region, including the possibility that escalating violence and involvement of other terrorist groups from neighboring countries may further impact the conflict. In addition, Israel is engaged in ongoing hostilities with Hezbollah in Lebanon. Tensions are rising in the region, and the outcome of the conflict is uncertain. The Company does not have operations in the region and does not believe that the conflict will have a significant impact on its operations.

Key Financial and Operating Metrics

We measure our business using financial and operating metrics, as well as non-GAAP financial measures. See “Results of Operations – Non-GAAP Financial Measures” below for more information on non-GAAP financial measures. We monitor several key business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions, including the following:

Traffic and Engagement Metrics

For the Three Months Ended JuneSeptember 30,

For the SixNine Months Ended JuneSeptember 30,

We use the metrics above to gauge our ability to acquire targeted traffic and keep users engaged. This information informs us of how effective our proprietary technology, data, and content is, and helps us define our strategic roadmap and key initiatives.

Results of Operations

For the Three Months Ended JuneSeptember 30,