See notes to condensed consolidated financial statements.

authID INC. AND SUBSIDIARIES

(formerly known as Ipsidy Inc.)

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

(Unaudited)

See notes to condensed consolidated financial statements.

IPSIDY INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to condensed consolidated financial statements.

authID INC. AND SUBSIDIARIES

(formerly known as Ipsidy Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to condensed consolidated financial statements.

authID INC. AND SUBSIDIARIES

(formerly known as Ipsidy Inc.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

In the opinion of the Company,Management, the accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q, include all adjustments (consisting only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2021. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results to be expected for future periods or the full year.

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

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

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

Going Concern

As of June 30, 2022, the Company had an accumulated deficit of approximately $127.8 million. For the three and six months ended June 30, 2022 the Company earned revenue from continuing operations of approximately $0.1 million and 0.2 million and incurred a loss from continuing operations of approximately $6.4 million $11.5 million, respectively.

The reports of our independent registered public accounting firm on our consolidated financial statements for the years ended December 31, 2021 and 2020 contained an emphasis of matter paragraph regarding the Company’s liquidity situation and management’s plan thereto.

In March 2022, the Company secured additional financing which management believes will provide adequate funding for its operations as it continues to invest in its product, people, and technology. The Company may need additional capital in the future but currently it believes it has sufficient funds and credit facilities to operate its business through December 31, 2023. See Notes 5, 6 and 8.

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year.

Net Loss per Common Share

The Company computes net loss per share in accordance with FASB ASCFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (EPS)(“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss)loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible notes and stock warrants, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, warrants and conversion of convertible notes. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. For the three and nine months ended September 30, 2017, and the three months ended September 30, 2016, allThe following potentially diluted sharesdilutive securities were excluded from the calculation of diluted EPSloss per share for the three months and six months ended June 30, 2022 and 2021 because their impacteffect was anti-dilutive. The following table illustrates the computation of basic and diluted EPS for the nine months ended September 30, 2016:antidilutive:

Going concern

As of September 30, 2017, the Company had an accumulated deficit of approximately $63.5 million. For the nine months ended September 30, 2017, the Company earned revenue of approximately $1.8 million and incurred a loss from operations of approximately $9.3 million.

The reports of our independent registered public accounting firms on our consolidated financial statements for the years ended December 31, 2016 and 2015 contained an explanatory paragraph regarding our ability to continue as a going concern based upon our net losses and accumulated deficits.

These condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon financial support from the Company’s current shareholders, the ability of the Company to obtain additional equity financing to continue operations, the Company’s ability to generate sufficient cash flows from operations, successfully locating and negotiating with other business entities for potential acquisition and /or acquiring new clients to generate revenues and cash flows. As there can be no assurance that the Company will be able to achieve positive cash flows (become profitable) and raise sufficient capital to maintain operations there is substantial doubt about the Company’s ability to continue as a going concern.

These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

Inventories

Inventories of kiosks held by IDGS S.A.S are stated at the lower of cost (using the first-in, first-out method) or market. The kiosks will provide electronic ticketing for transit systems. Inventory of plastic/ID cards, digital printing material, which are held by Cards Plus Pty Ltd., are at the lower of cost (using the average method) or market. The Plastic/ID cards and digital printing material are used to provide plastic loyal ID and other types of cards. Inventories as of September 30, 2017 consist of cards inventory and kiosks that have not been placed into service and inventory as of December 31, 2016 consist solely of cards inventory. The Company, in 2017, acquired approximately $707,000 of additional kiosks and components.

Leases

All leases are classified at the inception as direct finance leases or operating leases based on whether the lease transfers substantially all the risks and rewards of ownership.

Leases that transfer to the lessee substantially all of the risks and rewards incidental to ownership of the asset are classified as direct finance leases.

Other Assets

The increase in other assets is principally due to its continuing investments in its technology platform prior to the respective assets being placed into service.

Revenue Recognition

Revenue is recognized when persuasive evidence of arrangement exists, delivery has occurred,Starting in the fee is fixed or determinable and collectability is probable. Revenue is recognized net of allowancesquarter ended June 30, 2022, the Company separately reports Verified software license revenue from Legacy authentication services. Prior periods revenues are recast accordingly for returns and any taxes collected from customers and subsequently remitted to governmental authorities.comparison purpose.

Revenue from the sale of unique secure credential products and solutions to customers is recorded at the completion of the project unless the solution benefits to the end user in which additional resources or services are required to be provided.

Revenue from club-based services arrangements that allow for the use of hosted software product that are provided on a consumption basis (for example, the number of transactions processed over a period of time) is recognized commensurate with the customer utilization of such resources. Generally, the contract calls for a minimum number of transactions to be charged by theThe Company monthly. Accordingly, the Company records the minimum transactional feerecognizes revenue based on the passageidentified performance obligations over the performance period for fixed consideration and/or for variable fees generated that are earned on a usage fee earned over time based on monthly transaction or user volumes and/or on a minimum monthly flat fee rate. The Company had a contract liability of a month’s timeapproximately $46,000 and $199,000 as revenues. Amountsof June 30, 2022, and December 31, 2021, respectively, for certain revenue that will be earned in excessfuture periods. Of the $46,000 of deferred revenue contract liability as of June 30, 2022, the majority will be earned during the balance of 2022. The majority of the monthly minimum, are chargeddeferred revenue contract liability as of December 31, 2021 related to customers based on the actual number of transactions.

Consultinglegacy authentication services revenue isand was recognized as services are rendered, generally based on the negotiated hourly rate in the consulting arrangementquarter ended March 31, 2022. All contracts are reviewed for their respective performance obligations and the number of hours worked during the period. Consultingrelated revenue for fixed price services arrangements is recognized as services are provided.

Revenue related to direct financing leases is recognized over the termand expense recognition implications. Certain of the lease using the effective interest method.

Income Taxes

revenues are derived from our products that could include multiple performance obligations. A performance obligation is defined as a promise to provide a “distinct” good or service to a customer. The Company accounts for income taxeshas determined that one possible treatment under FinancialU.S. Generally Accepted Accounting Standards BoardPrinciples (“FASB”GAAP”) Accounting Standards Codification (“ASC”) 740 “Income Taxes.” Underis that these services will represent a stand-ready series of distinct daily services that are substantially the assetsame, with the same pattern of transfer to the customer.   Further, the Company has determined that the performance obligation to provide account access and liability method of FASB ASC 740, deferred tax assets and liabilities are recognizedfacilitate transactions should meet the criteria for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income“as invoiced” practical expedient, in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. For the three and nine months ended September 30, 2017 and 2016, there is no provision for income tax as the Company hadhas a tax loss for United States and foreign activities and all of the Company’s carryforwards are reserved for. The Company’s gain or loss on derivative liability during the nine months ending September 30, 2017 and 2016 is not subjectright to tax.

Recent Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issuedconsideration from a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under generally accepted accounting principles in the United States. The core principal of the new standard is that a company will recognize revenue when it transfers promised goods or services to customerscustomer in an amount that reflectscorresponds directly with the considerationvalue to the customer of the Company’s performance completed to date. As a result, the Company anticipates it may recognize revenue in the amount to which the company expectsCompany has a right to be entitled in exchange for those goodsinvoice, based on completed performance at the relevant date. Additionally, the contracts could include implementation services, or services. The new standard is effective for annualsupport on an “as needed” basis and interim periods beginning after December 15, 2017we will review each contract and early adoption is permitted. The Company will adoptdetermine whether such performance obligations are separate and distinct and apply the new standard accordingly to the revenue and expense derived from or related to each such service.

The Company also provided annual software maintenance support services relating to previously licensed software on Januarya stand ready basis. These fees were billed in advance and recognized ratably over the requisite service period as legacy authentication revenue. The contract terminated on April 1, 20182022.

Furthermore, the Company will capitalize the incremental costs of acquiring and fulfilling a contract with a customer if the Company expects to userecover those costs. These incremental costs were immaterial in both three-month periods and the modified retrospective approach upon adoption.Company recognizes these costs as incurred as it typically relates to a period of less than one year as allowed by the practical expedient and the amounts in the period were immaterial.

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

As of June 30, 2022 and December 31, 2021, the Company believes the impact of adopting the new accounting standard willdid not have a significant impact on its consolidated financial position, results of operationsany deferred contract costs or cash flows. However, the Company’s evaluation of the new standard and the final determination of the impact of the new standard’s adoption is still in progress.fees payable.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04 –Simplifying the Test for Goodwill Impairment, which modified the goodwill impairment test and required an entity to write down the carrying value of goodwill up to the amount by which carrying amount of a reporting unit exceeded its fair value. We have not early adopted this ASU and are currently evaluating the impact on our financial statements.

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-11,Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. The effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt -Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. We are currently reviewing the potential impact to the financial statements.

NOTE 2 – OTHER CURRENT ASSETS AND OTHER ASSETS

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

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

NOTE 23 – INTANGIBLE ASSETS, NET (OTHER THAN GOODWILL)

The Company’s intangible assets primarily consist of intellectual property acquired from MultiPay and FIN and aredeveloped software that is being amortized over their estimated useful lives as indicated below. The following is a summary of activity related to intangible assets for the ninesix months ended SeptemberJune 30 2017:,2022 (unaudited):

The following is a summary of intangible assets as of SeptemberJune 30, 2017:2022 (unaudited):

Amortization expense totaled $428,00 and $597,000, for the six months ended June 30, 2022, and 2021, respectively.

Future expected amortization of intangible assets is as follows for the three-month period remaining in 2017 and the calendar years ending from 2018-2022 and thereafter: 

NOTE 3 – PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following as of September 30, 2017 and December 31, 2016:

Depreciation expense totaled $48,191 and $24,029 for the nine months ended September 30, 2017 and 2016, respectively.

See Note 11 for equipment amounting to $163,407 acquired pursuant to a capital lease.follows:

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

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following as of SeptemberJune 30, 20172022 (unaudited) and December 31, 2016:2021:

NOTE 5 - NOTES PAYABLE, NET– WORKING CAPITAL FACILTIY

On January 31, 2017,March 21, 2022, the Company entered intoConversion Agreements a Facility Agreement with several accredited investors (the “Investors”)a current shareholder and noteholder of the Company, pursuant to which substantially all Investorsthe shareholder agreed to convert all amountsprovide to the Company a $10.0 million unsecured standby line of notes payablecredit facility that will rank behind the Convertible Notes (see Note 6) and convertible notes payable (Note 6) due and payablemay be drawn down in several tranches, subject to such persons including interest undercertain conditions described in the termsFacility Agreement (the “Credit Facility”). Pursuant to the Credit Facility, the Company paid a facility commitment fee of their respective financing or loan agreement as of January 31, 2017 into100,000 shares of Company common stock at $0.10 per share. Certain Investors that had a conversion price less than $0.10 converted at such applicable conversion price. The Conversion Agreements resulted in the conversion of notes and convertible notes amounting to approximately $6,331,000 into 84,822,006 shares of Companyour common stock with a fair market value of approximately $21,610,000.$3.03 per share upon the effective date of the Credit Facility. The Investors also agreedvalue of the shares along with the $300,000 cash fee paid to waive any existing rights with respectthe placement agent are being expensed over the life of the Credit Facility that has a term ending on March 31, 2025.

The outstanding borrowings under the Credit Facility will accrue interest at 15% per annum. Drawdowns of the Credit Facility will be in tranches of not less than $500,000 up to certain anti-dilution rights contained in their Stock Purchase Warrants.the maximum amount of the Credit Facility, subject to the satisfaction of customary certifications and a certification from the Company that it has no more than $5 million of cash available to it as of the date of the drawdown request. The Credit Facility contains customary representations and warranties and defined events of default. The Company agreedwill be permitted to reduceprepay borrowings under the exerciseCredit Facility at any time, without penalty, in part or in full. Upon conversion or redemption of all amounts outstanding Stock Purchase Warrants acquired as partunder the Convertible Notes and release of all security over the Company’s assets, the Company will provide a financing or loan that had an exercise price in excess of $0.10 per sharelien on the Company’s intellectual property assets to $0.10 per share.secure the Credit Facility.

As a resultThere were no borrowings under the Credit Facility as of June 30, 2022. The unamortized deferred debt expense is approximately $548,000 of which $199,000 is included in Other current assets and the above agreements associated with the conversion Agreements, the Company recorded a loss on the conversion of debt of approximately $6.0 million (including the effect of the elimination of related conversion feature derivative liabilitiesbalance in Other assets.

NOTE 6 – see Note 7), a loss on the modification of warrants of approximately $0.2 million, and a loss on the modification of the derivatives of approximately $0.3 million.CONVERTIBLE NOTES PAYABLE

On February 22, 2017,March 21, 2022, the Company entered into ana Securities Purchase Agreement and Release the (“February 22, 2017 Agreement”SPA”) with certain accredited investors, including certain directors of the Company or their affiliates (the “Note Investors”), and, pursuant to the SPA, sold to the Note Investors Senior Secured Convertible Notes (the “Convertible Notes”) with an aggregate initial principal amount of approximately $9.2 million and a holderconversion price of $3.70. The Convertible Notes were sold with an aggregate cash origination fee of approximately $200,000, and we issued a total of approximately 28,500  shares of our common stock to the Note Investors as an additional origination fee. The Convertible Notes will accrue interest at the rate of 9.75% per annum, which will be payable in cash or, for some or all of the first five quarterly interest payments, in shares of our common stock at the Company’s option, on the last day of each calendar quarter before the maturity date and on the maturity date. The maturity date of the Convertible Notes is March 31, 2025.