SECURITIES AND EXCHANGEEXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-54545001-40747
IpsidyauthID Inc.
(Exact name of registrant as specified in its charter)
(Former Name of Registrant as Specified in its Charter)
Delaware | 46-2069547 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
780 Long Beach Boulevard 1325 S. Colorado Blvd
Long Beach, New York11561 Denver, CO 80222
(Address of principal executive offices) (zip code)
407-951-8640 516-274-8700
(Registrant’s telephone number, including area code)
Ipsidy Inc., 670 Long Beach Boulevard, Long Beach, New York 11561
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock par value $0.0001 per share | AUID | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”, “non-accelerated filer”,filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer | Smaller reporting company ☒ | |
Emerging growth Company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’sissuer’s classes of common stock as of the latest practicable date.
Class | Outstanding at | 2022 | |
Common Stock, par value $0.0001 | 24,789,418 shares | ||
Documents incorporated by reference: |
☐ No
TABLE OF CONTENTS
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:
You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in this report, in Part I. Item 1A. Risk Factors appearingalso appear in our Annual Report on Form 10-K for the year ended December 31, 20162021 and our other filings with the Securities and Exchange Commission. Some examples of risk factors which may affect our business are as follows:
● | our lack of significant revenues and history of losses, | |
● | market acceptance of our products; | |
● | our ability to attract and retain customers for existing and new products; | |
● | our ability to effectively maintain and update our technology and product and service portfolio; | |
● | our ability to hire and retain key personnel and additional talent; | |
● | our ability to raise capital under acceptable terms; | |
● | our ability to maintain listing of our common stock on the Nasdaq Capital Market; | |
● | our ability to adequately protect our intellectual property, or the loss of some of our intellectual property rights through costly litigation or administrative proceedings; | |
● | our ability to operate in non-US markets; | |
● | the impact of the Covid-19 Pandemic; | |
● | the impact of the war in Ukraine; | |
● | legislation and government regulation; and | |
● | general economic conditions, inflation and access to capital. |
Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “Ipsidy,“ID Global,”“authID”, the “Company,” “we,” “our,” “us,” and similar terms refersrefer to IpsidyauthID Inc., a Delaware corporation and its subsidiaries. The Company was formerly known as ID Global Solutions Corporation and its subsidiaries. As of February 1, 2017, the Company formallyIpsidy Inc.
On July 18, 2022, Ipsidy Inc. changed its corporate name to IpsidyauthID Inc.
The information which appears on our websitewww.ipsidy.com www.authID.ai is not part of this report.
ii
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTSSTATEMENTS.
IPSIDYauthID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 1,440,179 | $ | 689,105 | ||||
Accounts receivable, net | 216,921 | 138,359 | ||||||
Current portion of net investment in direct financing lease | 51,402 | 44,990 | ||||||
Inventory | 853,647 | 150,679 | ||||||
Other current assets | 207,938 | 166,479 | ||||||
Total current assets | 2,770,087 | 1,189,612 | ||||||
Property and Equipment, net | 242,290 | 115,682 | ||||||
Other Assets | 1,270,876 | 358,343 | ||||||
Intangible Assets, net | 3,185,416 | 3,474,291 | ||||||
Goodwill | 6,736,043 | 6,736,043 | ||||||
Net Investment in Direct Financing Lease, net of current portion | 632,492 | 674,015 | ||||||
Total assets | $ | 14,837,204 | $ | 12,547,986 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 1,684,377 | $ | 1,687,900 | ||||
Convertible notes payable, net | — | 250,000 | ||||||
Derivative liability | — | 8,388,355 | ||||||
Notes payable, net, current portion | — | 109,819 | ||||||
Capital lease obligation, current portion | 26,614 | — | ||||||
Deferred revenue | 277,287 | 398,680 | ||||||
Total current liabilities | 1,988,278 | 10,834,754 | ||||||
Convertible notes payable, net, less current maturities | — | 2,245,596 | ||||||
Notes payable, net less current maturities | 2,231,648 | 3,051,603 | ||||||
Capital lease obligation, net of current portion | 122,674 | — | ||||||
Derivative liability, net of current portion | — | 9,668,276 | ||||||
Total liabilities | 4,342,600 | 25,800,229 | ||||||
Commitments and Contingencies (Notes 8 and 12) | ||||||||
Stockholders’ Equity (Deficit): | ||||||||
Common stock, $0.0001 par value, 1,000,000,000 and 500,000,000 shares authorized; 364,320,216 and 234,704,655 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 36,432 | 23,470 | ||||||
Additional paid in capital | 73,646,880 | 35,341,669 | ||||||
Accumulated deficit | (63,507,684 | ) | (48,925,993 | ) | ||||
Accumulated comprehensive income | 318,976 | 308,611 | ||||||
Total stockholders’ equity (deficit) | 10,494,604 | (13,252,243 | ) | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 14,837,204 | $ | 12,547,986 |
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 9,978,252 | $ | 5,767,276 | ||||
Accounts receivable, net | 38,076 | 26,846 | ||||||
Other current assets | 997,113 | 502,721 | ||||||
Current assets held for sale | 781,895 | 629,752 | ||||||
Total current assets | 11,795,336 | 6,926,595 | ||||||
Property and Equipment, net | - | 25,399 | ||||||
Other Assets | 351,024 | 2,501 | ||||||
Intangible Assets, net | 1,958,142 | 2,379,451 | ||||||
Goodwill | 4,183,232 | 4,183,232 | ||||||
Non-current assets held for sale | 73,981 | 312,831 | ||||||
Total assets | $ | 18,361,715 | $ | 13,830,009 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 1,784,682 | $ | 1,778,092 | ||||
Convertible debt | 662,000 | 662,000 | ||||||
Deferred revenue | 45,644 | 199,007 | ||||||
Current liabilities held for sale | 534,118 | 295,332 | ||||||
Total current liabilities | 3,026,444 | 2,934,431 | ||||||
Non-current Liabilities: | ||||||||
Convertible debt | 7,607,011 | - | ||||||
Total liabilities | 10,633,455 | 2,934,431 | ||||||
Commitments and Contingencies (Note 10) | ||||||||
Stockholders’ Equity: | ||||||||
Common stock, $0.0001 par value, 1,000,000,000 shares authorized; 24,789,418 and 23,294,024 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | 2,478 | 2,329 | ||||||
Additional paid in capital | 135,322,838 | 126,581,702 | ||||||
Accumulated deficit | (127,773,494 | ) | (115,899,939 | ) | ||||
Accumulated comprehensive income | 176,438 | 211,486 | ||||||
Total stockholders’ equity | 7,728,260 | 10,895,578 | ||||||
Total liabilities and stockholders’ equity | $ | 18,361,715 | $ | 13,830,009 |
See notes to condensed consolidated financial statements.
IPSIDY
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: | ||||||||||||||||
Products and services | $ | 589,576 | $ | 576,466 | $ | 1,695,737 | $ | 1,373,892 | ||||||||
Lease income | 18,070 | 19,735 | 56,050 | 33,050 | ||||||||||||
Total revenues, net | 607,646 | 596,201 | 1,751,787 | 1,406,942 | ||||||||||||
Operating Expenses: | ||||||||||||||||
Cost of sales | 144,367 | 116,376 | 448,637 | 349,034 | ||||||||||||
General and administrative | 2,236,543 | 2,171,627 | 10,242,880 | 10,711,942 | ||||||||||||
Research and development | 6,278 | 65,582 | 63,116 | 387,246 | ||||||||||||
Depreciation and amortization | 99,779 | 127,473 | 346,313 | 388,233 | ||||||||||||
Total operating expenses | 2,486,967 | 2,481,058 | 11,100,946 | 11,836,455 | ||||||||||||
Loss from operations | (1,879,321 | ) | (1,884,857 | ) | (9,349,159 | ) | (10,429,513 | ) | ||||||||
Other Income (Expense): | ||||||||||||||||
Gain (loss) on derivative liability | — | (1,594,636 | ) | (452,146 | ) | 16,082,616 | ||||||||||
Gain on extinguishment of notes payable | — | — | 2,802,234 | — | ||||||||||||
Loss on modification of derivatives | — | — | (319,770 | ) | — | |||||||||||
Loss on modification of warrants | — | — | (158,327 | ) | — | |||||||||||
Loss on settlement of notes payable | — | — | (5,978,643 | ) | — | |||||||||||
Interest expense | (230,698 | ) | (853,543 | ) | (1,125,880 | ) | (3,126,320 | ) | ||||||||
Other income (expense), net | (230,698 | ) | (2,448,179 | ) | (5,232,532 | ) | 12,956,296 | |||||||||
(Loss) income before income taxes | (2,110,019 | ) | (4,333,036 | ) | (14,581,691 | ) | 2,526,783 | |||||||||
Income Taxes | — | — | — | — | ||||||||||||
Net (loss) income | $ | (2,110,019 | ) | $ | (4,333,036 | ) | $ | (14,581,691 | ) | $ | 2,526,783 | |||||
Net (loss) income Per Share - Basic | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | 0.01 | |||||
Net Loss Per Share - Diluted | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.04 | ) | ||||
Weighted Average Shares Outstanding - Basic | 344,658,454 | 226,796,302 | 328,131,720 | 212,790,554 | ||||||||||||
Weighted Average Shares Outstanding - Diluted | 344,658,454 | 226,796,302 | 328,131,720 | 289,858,911 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues: | ||||||||||||||||
Verified software license | $ | 51,409 | $ | 18,499 | $ | 86,902 | $ | 33,021 | ||||||||
Legacy authentication services | 15,000 | 128,272 | 144,559 | 261,810 | ||||||||||||
Total revenues, net | 66,409 | 146,771 | 231,461 | 294,831 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative | 4,806,275 | 2,733,786 | 9,284,897 | 4,343,822 | ||||||||||||
Research and development | 915,628 | 347,173 | 1,453,492 | 669,183 | ||||||||||||
Depreciation and amortization | 244,448 | 299,239 | 460,833 | 579,435 | ||||||||||||
Total operating expenses | 5,966,351 | 3,380,198 | 11,199,222 | 5,592,440 | ||||||||||||
Loss from continuing operations | (5,899,942 | ) | (3,233,427 | ) | (10,967,761 | ) | (5,297,609 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Other income | - | 480,156 | 3,240 | 480,156 | ||||||||||||
Interest expense, net | (459,262 | ) | (253,919 | ) | (493,904 | ) | (551,351 | ) | ||||||||
Other income (expense), net | (459,262 | ) | 226,237 | (490,664 | ) | (71,195 | ) | |||||||||
Loss from continuing operations before income taxes | (6,359,204 | ) | (3,007,190 | ) | (11,458,425 | ) | (5,368,804 | ) | ||||||||
Income tax expense | (7,316 | ) | (1,028 | ) | (8,100 | ) | (6,947 | ) | ||||||||
Loss from continuing operations | (6,366,520 | ) | (3,008,218 | ) | (11,466,525 | ) | (5,375,751 | ) | ||||||||
Loss from discontinued operations | (206,307 | ) | (49,392 | ) | (407,030 | ) | (171,858 | ) | ||||||||
Net loss | $ | (6,572,827 | ) | $ | (3,057,610 | ) | $ | (11,873,555 | ) | $ | (5,547,609 | ) | ||||
Net loss per share - Basic and Diluted | ||||||||||||||||
Continuing operations | $ | (0.26 | ) | $ | (0.15 | ) | $ | (0.48 | ) | $ | (0.27 | ) | ||||
Discontinued operations | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
Weighted average shares outstanding - Basic and Diluted | 24,673,806 | 20,248,868 | 24,118,829 | 20,003,913 |
See notes to condensed consolidated financial statements.
IPSIDY
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
(Unaudited)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) | $ | (2,110,019 | ) | $ | (4,333,036 | ) | $ | (14,581,691 | ) | $ | 2,526,783 | |||||
Foreign currency translation (losses) gains | 33,685 | (18,304 | ) | 10,365 | 102,739 | |||||||||||
Comprehensive income (loss) | $ | (2,076,334 | ) | $ | (4,351,340 | ) | $ | (14,571,326 | ) | $ | 2,629,522 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net loss | $ | (6,572,827 | ) | $ | (3,057,610 | ) | $ | (11,873,555 | ) | $ | (5,547,609 | ) | ||||
Foreign currency translation gain (loss) | (67,788 | ) | 1,669 | (35,048 | ) | 42,025 | ||||||||||
Comprehensive loss | $ | (6,640,615 | ) | $ | (3,055,941 | ) | $ | (11,908,603 | ) | $ | (5,505,584 | ) |
See notes to condensed consolidated financial statements.
IPSIDY
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
Balances, December 31, 2016 | 234,704,655 | $ | 23,470 | $ | 35,341,669 | $ | (48,925,993 | ) | $ | 308,611 | $ | (13,252,243 | ) | |||||||||||
Reclassification of derivatives removal of price protection in warrants | — | — | 7,614,974 | — | — | 7,614,974 | ||||||||||||||||||
Issuance of common stock upon conversion of debt and related interest | 84,822,006 | 8,482 | 21,601,191 | — | — | 21,609,673 | ||||||||||||||||||
Stock-based compensation | — | — | 4,891,251 | — | — | 4,891,251 | ||||||||||||||||||
Common stock issued for services | 593,555 | 60 | 140,091 | — | — | 140,151 | ||||||||||||||||||
Common stock issued with note payable | 4,500,000 | 450 | 841,277 | — | — | 841,727 | ||||||||||||||||||
Common stock issued for debt issuance costs | 1,200,000 | 120 | 224,340 | — | — | 224,460 | ||||||||||||||||||
Common stock issued for cash | 20,000,000 | 2,000 | 3,998,000 | — | — | 4,000,000 | ||||||||||||||||||
Cash and common stock issued for equity issuance costs | 1,000,000 | 100 | (289,490 | ) | — | — | (289,390 | ) | ||||||||||||||||
Common stock returned as part of extinguishment of notes payable | (2,500,000 | ) | (250 | ) | (874,750 | ) | — | — | (875,000 | ) | ||||||||||||||
Common stock issued for restricted stock | 20,000,000 | 2,000 | — | — | — | 2,000 | ||||||||||||||||||
Loss on modification of warrants | — | — | 158,327 | 158,327 | ||||||||||||||||||||
Net loss | — | — | — | (14,581,691 | ) | — | (14,581,691 | ) | ||||||||||||||||
Foreign currency translation | — | — | — | — | 10,365 | 10,365 | ||||||||||||||||||
Balances, September 30, 2017 | 364,320,216 | $ | 36,432 | $ | 73,646,880 | $ | (63,507,684 | ) | $ | 318,976 | $ | 10,494,604 |
See notes to condensed consolidated financial statements.
7
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
Balances, December 31, 2021 | 23,294,024 | $ | 2,329 | $ | 126,581,702 | $ | (115,899,939 | ) | $ | 211,486 | $ | 10,895,578 | ||||||||||||
Stock-based compensation | - | - | 4,499,107 | - | - | 4,499,107 | ||||||||||||||||||
Sale of common stock for cash, net of offering costs | 1,063,514 | 106 | 3,146,834 | - | - | 3,146,940 | ||||||||||||||||||
Common stock issued with convertible debt | 28,496 | 3 | 91,754 | - | - | 91,757 | ||||||||||||||||||
Common stock issued for working capital facility | 100,000 | 10 | 302,990 | - | - | 303,000 | ||||||||||||||||||
Shares issued in lieu of interest | 116,896 | 11 | 250,996 | - | - | 251,007 | ||||||||||||||||||
Warrants for services with the issuance of convertible debt | - | - | 449,474 | - | - | 449,474 | ||||||||||||||||||
Cashless stock option exercise | 185,111 | 19 | (19 | ) | - | - | - | |||||||||||||||||
Cashless warrant exercise | 1,377 | - | - | - | - | - | ||||||||||||||||||
Net loss | - | - | - | (11,873,555 | ) | - | (11,873,555 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | (35,048 | ) | (35,048 | ) | ||||||||||||||||
Balances, June 30, 2022 | 24,789,418 | $ | 2,478 | $ | 135,322,838 | $ | (127,773,494 | ) | $ | 176,438 | $ | 7,728,260 | ||||||||||||
Balances, March 31, 2022 | 24,672,522 | $ | 2,467 | $ | 132,439,724 | $ | (121,200,667 | ) | $ | 244,226 | $ | 11,485,750 | ||||||||||||
Shares issued in lieu of interest | 116,896 | 11 | 250,996 | - | - | 251,007 | ||||||||||||||||||
Stock-based compensation | - | - | 2,632,118 | - | - | 2,632,118 | ||||||||||||||||||
Net loss | - | - | - | (6,572,827 | ) | - | (6,572,827 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | (67,788 | ) | (67,788 | ) | ||||||||||||||||
Balances, June 30, 2022 | 24,789,418 | $ | 2,478 | $ | 135,322,838 | $ | (127,773,494 | ) | $ | 176,438 | $ | 7,728,260 | ||||||||||||
Balances, December 31, 2020 | 19,642,519 | $ | 1,964 | $ | 102,651,304 | $ | (98,234,151 | ) | $ | 160,642 | $ | 4,579,759 | ||||||||||||
Stock-based compensation | - | - | 2,261,126 | - | - | 2,261,126 | ||||||||||||||||||
Settlement of accrued expense with stock options | - | - | 349,376 | - | - | 349,376 | ||||||||||||||||||
Convertible note converted to common stock | 1,171,296 | 117 | 6,232,223 | - | - | 6,232,340 | ||||||||||||||||||
Cashless stock option exercise | 286,453 | 30 | (30 | ) | - | - | - | |||||||||||||||||
Cashless warrant exercise | 262,759 | 26 | (26 | ) | - | - | - | |||||||||||||||||
Net loss | - | - | - | (5,547,609 | ) | - | (5,547,609 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | 42,025 | 42,025 | ||||||||||||||||||
Balances, June 30, 2021 | 21,363,027 | $ | 2,137 | $ | 111,493,973 | $ | (103,781,760 | ) | $ | 202,667 | $ | 7,917,017 | ||||||||||||
Balances, March 31, 2021 | 20,116,348 | $ | 2,012 | $ | 103,401,916 | $ | (100,724,150 | ) | $ | 200,998 | $ | 2,880,776 | ||||||||||||
Stock-based compensation | - | - | 1,634,546 | - | - | 1,634,546 | ||||||||||||||||||
Settlement of accrued expense with stock options | - | - | 349,376 | - | - | 349,376 | ||||||||||||||||||
Convertible note converted to common stock | 1,138,346 | 114 | 6,108,146 | - | - | 6,108,260 | ||||||||||||||||||
Cashless stock option exercise | 108,333 | 11 | (11 | ) | - | - | - | |||||||||||||||||
Net loss | - | - | - | (3,057,610 | ) | - | (3,057,610 | ) | ||||||||||||||||
Foreign currency translation | - | - | - | - | 1,669 | 1,669 | ||||||||||||||||||
Balances, June 30, 2021 | 21,363,027 | $ | 2,137 | $ | 111,493,973 | $ | (103,781,760 | ) | $ | 202,667 | $ | 7,917,017 |
IPSIDY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (14,581,691 | ) | $ | 2,526,783 | |||
Adjustments to reconcile net income (loss) with cash flows from operations: | ||||||||
Depreciation and amortization expense | 346,313 | 388,233 | ||||||
Stock-based compensation | 4,891,251 | 6,805,776 | ||||||
Common stock issued for services | 140,151 | 285,227 | ||||||
Amortization of debt discount | 446,410 | 2,191,786 | ||||||
Amortization of debt issuance costs | 346,651 | 549,867 | ||||||
Loss (gain) on derivative liability | 452,146 | (16,082,616 | ) | |||||
Gain on settlement of notes payable | (2,802,234 | ) | — | |||||
Loss on modification of derivatives | 319,770 | — | ||||||
Loss on modification of warrants | 158,327 | — | ||||||
Loss on settlement of debt | 5,978,643 | — | ||||||
Write off of abandoned product | — | 225,862 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (75,806 | ) | 125,814 | |||||
Net investment in direct financing lease | 35,111 | 17,845 | ||||||
Other current assets | (41,459 | ) | (12,929 | ) | ||||
Inventory | (704,326 | ) | (159,494 | ) | ||||
Accounts payable and accrued expenses | 319,814 | (401,465 | ) | |||||
Deferred revenue | (121,395 | ) | 476,457 | |||||
Net cash flows from operating activities | (4,892,324 | ) | (3,062,854 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (11,392 | ) | (23,309 | ) | ||||
Investment in other assets | (921,780 | ) | (136,162 | ) | ||||
Cash acquired in acquisition | — | 419,042 | ||||||
Net cash flows from investing activities | (933,172 | ) | 259,571 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of notes payable and common stock | 3,000,000 | 1,650,000 | ||||||
Proceeds from the sale of common stock and other | 4,002,000 | 1,250,000 | ||||||
Payment of debt and equity issuance costs | (375,821 | ) | (253,642 | ) | ||||
Principal payments on notes payable | (59,819 | ) | (60,875 | ) | ||||
Principal payments on capital lease obligation | (14,119 | ) | — | |||||
Net cash flows from financing activities | 6,552,241 | 2,585,483 | ||||||
Effect of Foreign Currencies | 24,329 | 102,739 | ||||||
Net Change in Cash | 751,074 | (115,061 | ) | |||||
Cash, Beginning of the Period | 689,105 | 349,873 | ||||||
Cash, End of the Period | $ | 1,440,179 | $ | 234,812 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Cash paid for interest | $ | — | $ | — | ||||
Cash paid for income taxes | $ | — | $ | — | ||||
Non-cash Investing and Financing Activities: | $ | 21,609,673 | $ | 21,222 | ||||
Issuance of common stock for conversion of debt and accrued interest | $ | — | $ | 79,081 | ||||
Issuance of common stock in settlment of a contingent liability | $ | — | $ | 59,681 | ||||
Reclassification of derivative liabilities upon removal of price protection in warrants | $ | 7,614,974 | $ | 692,850 | ||||
Issuance of warrants for inventory costs | $ | 224,460 | $ | 169,125 | ||||
Reclassification of inventory to net investment in direct financing lease | $ | — | $ | 747,944 | ||||
Acquisition of equipment pursuant to a capital lease | $ | 163,407 | $ | — | ||||
Issunace of common stock with convertible debt | $ | — | $ | 54,470 | ||||
Acquisition of FIN Holdings: | ||||||||
Issuance of common stock as consideration | $ | — | $ | 9,000,000 | ||||
Assumed liabilities | — | 914,218 | ||||||
Inventory | — | (112,408 | ) | |||||
Accounts receivable | — | (311,867 | ) | |||||
Property and equipment | — | (100,339 | ) | |||||
Intangible assets | — | (8,970,562 | ) | |||||
Cash acquired | $ | — | $ | 419,042 |
See notes to condensed consolidated financial statements.
IPSIDY
authID INC. AND SUBSIDIARIES
(formerly known as Ipsidy Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (11,873,555 | ) | $ | (5,547,609 | ) | ||
Adjustments to reconcile net loss with cash flows from operations: | ||||||||
Depreciation and amortization expense | 460,833 | 579,417 | ||||||
Stock-based compensation | 4,499,107 | 2,261,126 | ||||||
Shares issued in lieu of interest | 251,007 | - | ||||||
Amortization of debt discounts and issuance costs | 210,722 | 237,435 | ||||||
Forgiveness of notes payable | - | (485,760 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (11,230 | ) | (86,607 | ) | ||||
Net investment in direct financing lease | - | (46,560 | ) | |||||
Other assets | (295,233 | ) | (289,716 | ) | ||||
Accounts payable and accrued expenses | 6,587 | 780,062 | ||||||
Deferred revenue | (153,363 | ) | 289,102 | |||||
Other liabilities | - | (47,809 | ) | |||||
Adjustments relating to discontinued operations | 422,423 | (20,405 | ) | |||||
Net cash flows from operating activities | (6,482,702 | ) | (2,377,324 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (7,978 | ) | - | |||||
Purchase of property and equipment – discontinued operations | (16,159 | ) | (78,325 | ) | ||||
Purchase of intangible assets | (6,306 | ) | (10,829 | ) | ||||
Net cash flows from investing activities | (30,443 | ) | (89,154 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from sale of common stock, net of offering costs | 3,146,940 | - | ||||||
Proceeds from issuance of convertible note payable, net of issuance costs | 7,992,841 | - | ||||||
Cash paid for working capital facility | (300,000 | ) | - | |||||
Proceeds from the exercise of warrants | - | 485,760 | ||||||
Payments on notes payable – discontinued operations | (1,579 | ) | (2,892 | ) | ||||
Principal payments on capital lease obligation – discontinued operations | (10,582 | ) | (19,224 | ) | ||||
Net cash flows from financing activities | 10,827,620 | 463,644 | ||||||
Effect of foreign currencies | (33,826 | ) | 42,971 | |||||
Net change in cash | 4,280,649 | (1,959,863 | ) | |||||
Cash, beginning of the period | 5,767,276 | 3,506,171 | ||||||
Cash, beginning of the period – discontinued operations | 270,707 | 259,106 | ||||||
Cash, end of the period – discontinued operations | (340,380 | ) | (236,051 | ) | ||||
Cash, end of the period | $ | 9,978,252 | $ | 1,569,363 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Cash paid for interest – discontinued operations | $ | - | $ | 8,779 | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
Cash paid for income taxes – discontinued operations | $ | - | $ | - | ||||
Schedule of Non-cash Investing and Financing Activities: | ||||||||
Cashless option and warrant exercises | $ | 19 | $ | 56 | ||||
Common stock issued with convertible notes | $ | 91,757 | $ | - | ||||
Common stock for working capital facility | $ | 303,000 | $ | - | ||||
Warrants for services with the issuance of convertible debt | $ | 449,474 | $ | - | ||||
Settlement of accounts payable with issuance of common stock | $ | - | $ | 349,376 | ||||
Conversion of convertible note payable and accrued interest to common stock | $ | - | $ | 6,232,340 |
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:
Net Income | Shares | Per Share Amount | ||||||||||
Basic EPS | ||||||||||||
Income available to stockholders | $ | 2,526,783 | 212,790,554 | $ | 0.01 | |||||||
Effect of Dilutive Securities | ||||||||||||
Stock Options | — | 17,037,007 | ||||||||||
Warrants | — | 21,350,729 | ||||||||||
Convertible Debt | (15,533,674 | ) | 38,680,621 | |||||||||
Dilute EPS | ||||||||||||
Loss available to stockholders plus assumed conversions | $ | (12,806,891 | ) | 289,858,911 | $ | (0.04 | ) |
Security | 2022 | 2021 | ||||||
Convertible notes payable | 2,601,503 | 117,529 | ||||||
Warrants | 1,304,356 | 1,411,308 | ||||||
Stock options | 9,697,615 | 9,167,642 | ||||||
13,603,474 | 10,696,479 |
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:
June 30, 2022 | December 31, 2021 | |||||||
Prepaid Insurance | $ | 493,715 | $ | 126,042 | ||||
Unamortized working capital facility fees | 199,156 | - | ||||||
Prepaid Marketing | 80,551 | 157,972 | ||||||
Prepaid Third Party Services | 135,676 | 57,354 | ||||||
Other | 88,015 | 161,353 | ||||||
$ | 997,113 | $ | 502,721 |
Other assets consisted of the following at June 30, 2022 (unaudited) and December 31, 2021:
June 30, 2022 | December 31, 2021 | |||||||
Unamortized working capital facility fees | $ | 348,524 | $ | - | ||||
Other | 2,400 | 2,501 | ||||||
$ | 351,024 | $ | 2,501 |
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):
Customer Relationships | Intellectual Property | Non-Compete | Patents Pending | |||||||||||||||||
Useful Lives | 10 Years | 10 Years | 10 Years | n/a | Total | |||||||||||||||
Carrying Value at December 31, 2016 | $ | 1,446,166 | $ | 2,000,858 | $ | 8,067 | $ | 19,200 | $ | 3,474,291 | ||||||||||
Additions | — | — | — | 9,247 | 9,247 | |||||||||||||||
Amortization | (119,037 | ) | (176,972 | ) | (2,113 | ) | — | (298,122 | ) | |||||||||||
Carrying Value at September 30, 2017 | $ | 1,327,129 | $ | 1,823,886 | $ | 5,954 | $ | 28,447 | $ | 3,185,416 |
Acquired and Developed Software | Patents | Total | ||||||||||
Useful Lives | 5 Years | 10 years | ||||||||||
Carrying Value at December 31, 2021 | $ | 2,238,882 | $ | 140,570 | $ | 2,379,452 | ||||||
Additions | - | 6,311 | 6,311 | |||||||||
Amortization | (419,627 | ) | (7,994 | ) | (427,621 | ) | ||||||
Carrying Value at June 30,2022 | $ | 1,819,255 | $ | 138,887 | $ | 1,958,142 |
The following is a summary of intangible assets as of SeptemberJune 30, 2017:2022 (unaudited):
Customer Relationships | Intellectual Property | Non-Compete | Patent Pending | Total | ||||||||||||||||
Cost | $ | 1,587,159 | $ | 2,444,646 | $ | 14,087 | $ | 28,447 | $ | 4,074,339 | ||||||||||
Accumulated amortization | (260,030 | ) | (620,760 | ) | (8,133 | ) | — | (888,923 | ) | |||||||||||
Carrying Value at September 30, 2017 | $ | 1,327,129 | $ | 1,823,886 | $ | 5,954 | $ | 28,447 | $ | 3,185,416 |
Acquired and Developed Software | Patents | Total | ||||||||||
Cost | $ | 4,476,271 | $ | 164,610 | $ | 4,640,881 | ||||||
Accumulated amortization | (2,657,016 | ) | (25,723 | ) | (2,682,739 | ) | ||||||
Carrying Value at June 30,2022 | $ | 1,819,255 | $ | 138,887 | $ | 1,958,142 |
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:
2017 | 101,927 | ||||
2018 | 407,706 | ||||
2019 | 407,706 | ||||
2020 | 402,109 | ||||
2021 | 398,567 | ||||
2022 | 389,076 | ||||
Thereafter | 1,078,325 | ||||
$ | 3,185,416 |
NOTE 3 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of September 30, 2017 and December 31, 2016:
2017 | 2016 | |||||||
Computers and equipment | $ | 197,491 | $ | 192,928 | ||||
Equipment under capital lease (see note 12) | 163,407 | — | ||||||
Furniture and fixtures | 109,200 | 109,200 | ||||||
470,098 | $ | 302,128 | ||||||
Less Accumulated depreciation | (227,808 | ) | (186,446 | ) | ||||
Property and equipment, net | $ | 242,290 | $ | 115,682 |
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:
Fiscal Year Ending December 31, | ||||
Remainder of 2022 | $ | 427,855 | ||
2023 | 804,722 | |||
2024 | 580,409 | |||
2025 | 63,791 | |||
2026 | 16,456 | |||
2027 | 16,456 | |||
Thereafter | 48,453 | |||
$ | 1,958,142 |
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:
2017 | 2016 | |||||||
Trade payables | $ | 353,793 | $ | 341,002 | ||||
Accrued interest | 295,657 | 600,624 | ||||||
Accrued payroll and related liabilites | 626,712 | 421,771 | ||||||
Other accrued expenses | 408,215 | 324,503 | ||||||
Total | $ | 1,684,377 | $ | 1,687,900 |
June 30, 2022 | December 31, 2021 | |||||||
Trade payables | $ | 623,675 | $ | 548,087 | ||||
Accrued interest | 66,653 | 33,533 | ||||||
Accrued payroll and related obligations | 782,907 | 783,144 | ||||||
Other | 311,447 | 413,328 | ||||||
Total | $ | 1,784,682 | $ | 1,778,092 |
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.
In the quarter ended June 30, 2022, the Company issued 116,896 shares of common stock for approximately $251,000 of interest owed from the effective date of the loan until June 30, 2022. The number of shares issued to each Note Investor was based on the VWAP of the common stock as defined in the Convertible Notes, or a higher minimum price per share for certain debentures that will represent finaldirectors, in accordance with the terms of the Convertible Notes.
In connection with the issuance of the Convertible Notes, the Company issued 142,690 common stock warrants to the broker and full payment of all amounts owed under these debentures which include debtits representatives with a facean estimated grant date fair value of $300,000, accruedapproximately $449,000 which has been recorded as a reduction in the carrying value of the Convertible Notes.
The Company also has a note outstanding to the Stern Trust in the amount of $662,000 that earns interest at 10% per annum, which at the election of approximately $31,000, cancellation of 3,600,000 warrants previously accounted for as derivative liabilities as well as certain pledged shares (2,500,000 shares) in exchange for $300,000 in cash which wasthe Stern Trust can be paid in May 2017. Asshares of common stock at a resultconversion price of $6.00 (the “Stern Note”). Theodore Stern, the Trustee of the Stern Trust was formerly a director of the Company. The maturity date of the Stern Note was previously February 22, 2017 Agreement,29, 2022 and the Stern Trust and the Company recordedhave mutually agreed to extend the due date to December 31, 2022. The Stern Trust shall have the right at is sole option to extend the maturity date for a gainfurther six months after December 31, 2022, by service of written notice upon the Borrower at any time on the extinguishment of notes payable of approximately $2.8 million.or before December 31, 2022.
See notes 6 and 7.
The following is a summary of the convertible notes payable outstanding as of June 30, 2022 (unaudited):
10.0% convertible note due December 31, 2022 | $ | 662,000 | ||
9.75% convertible notes due March 31, 2025 | 9,176,224 | |||
less: | ||||
Unamortized debt discount expense | (249,067 | ) | ||
Unamortized debt issuance expense | (1,320,146 | ) | ||
$ | 8,269,011 |
Future maturities of convertible notes payable as of September 30, 2017 and December 31, 2016:June 30,2022:
2017 | 2016 | |||||||
In connection with the acquisition of MultiPay in 2015, the Company assumed three promissory notes. The interest rate was 15.47% per annum. Note was fully repaid in the third quarter of 2017. | $ | — | $ | 46,210 | ||||
The below section of notes payable were all converted to common stock at $0.10 per share. in connection with the January 2017, conversion agreements described above. | ||||||||
In September 2015, the Company issued 12% notes totaling $973,000. The notes were secured by the assets of the Company, matured in September 2016, and accrued interest was convertible into common stock of the Company at a rate of $0.10 per share. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 6,486,667 shares of the Company’s common stock at an exercise price of $0.15 per share for a period of five years. The Company also incurred debt issuance costs of $77,480, which were presented as a discount against the notes and amortized into interest expense over the terms of the notes. | — | 963,000 |
In October 2015, the Company issued 12% notes in the amount of $225,000. The notes were secured by the assets of the Company, matured in October 2016, and accrued interest was convertible into common stock of the Company at a rate of $0.10 per share. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 1,500,000 shares of the Company’s common stock at an exercise price of $0.15 per share for a period of five years. The Company also incurred debt issuance costs of $36,400, which were presented as a discount against the note and amortized into interest expense over the terms of the notes. | — | 225,000 | ||||||
In November 2015, the Company issued a 12% note in the amount of $25,000. The note was secured by the assets of the Company, matured in October 2016, and accrued interest was convertible into common stock of the Company at a rate of $0.10 per share. In connection with the issuance of this note, the Company also issued warrants for the purchase of 166,667 shares of the Company’s common stock at an exercise price of $0.15 per share for a period of five years. The Company also incurred debt issuance costs of $94,400, which was presented as a discount against the note and amortized into interest expense over the term of the note | — | 25,000 | ||||||
In December 2015, the Company issued 12% notes totaling $850,000. The notes are secured by the assets of the Company and matured in December 2016. Any unpaid accrued interest on the note is convertible into common stock of the Company at a rate of $0.48 per share. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 1,770,834 shares of the Company’s common stock at an exercise price of $0.48 per share for a period of five years. The conversion rate on the accrued interest and the exercise price on the warrants provide the holders with anti-dilution protection that requires these features to be bifurcated and presented as derivative liabilities at their fair values. See Note 8. | — | 850,000 | ||||||
In January 2016, the Company issued 12% notes in the amount of $100,000. The note was secured by the assets of the Company, matured in January 2017, and accrued interest was convertible into common stock of the Company at a rate of $0.48 per share. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 208,332 shares of the Company’s common stock at an exercise price of $0.48 per share for a period of five years. The conversion rate on the accrued interest and the warrants provide the holders with anti-dilution protection that requires these features to be bifurcated and presented as derivative liabilities at their fair values. See Note 8. | — | 100,000 | ||||||
In December 2016, the Company issued promissory notes with an aggregate face value of $1,275,000 which were payable one year from the date of issuance and accrued interest of 10% per annum for the initial nine months of the term of the Notes and 15% per annum for the remaining nine months of the term of the Notes. The notes holders also received 1,912,500 shares of common stock, with a fair value of $191,250. The Company allocated the proceeds to the notes and common stock based on their relative fair values, resulting in a discount against the notes for the common stock of $166,304, which was amortized into expense through the date of conversion. In connection with the issuance of the notes and common stock, the Company also incurred debt issuance costs of $212,427, of which $184,719 was recorded as debt issuance costs against the notes to be amortized over the one-year terms of the notes. | — | 1,275,000 | ||||||
In November 2016,, the Company issued a 12% promissory note due in January 2017 to an officer and principal stockholder in the amount of $13,609. In connection with the issuance of this note, the company also issued warrants for the purchase of 1,146,667 shares of the Company’s common stock at an exercise price of $0.15 per share. This loan was repaid in April 2017. The note holder also received 20,414, shares of the Company’s common stock with a fair value of $2,041. | — | 13,609 | ||||||
In January 2017, the Company issued a Senior Unsecured Note with a face value of $3,000,000, payable two years form issuance, along with an aggregate of 4,500,000 shares of Common Stock, with a fair value of $1,147,500. This loan is due to a Board Member upon his election in September 2017. The Company allocated the proceeds to the common stock based on their relative fair value and recorded a discount of $391,304 to be amortized into interest expense over the two-year term of the note. The Company also paid debt issuance costs consisting of a cash fee of $120,000 and 1,020,000 shares of common stock of the Company with a fair value of $306,000, of which $208,696 was recorded as debt issuance costs to be amortized into interest expense over the two-year term of the note. | 3,000,000 | — | ||||||
Total Principal Outstanding | $ | 3,000,000 | $ | 3,497,819 | ||||
Unamortized Deferred Debt Discounts | (561,158 | ) | (159,375 | ) | ||||
Unamortized Deferred Debt Issuance Costs | (207,194 | ) | (177,022 | ) | ||||
Notes Payable, Net | $ | 2,231,648 | $ | 3,161,422 |
2022 | $ | 662,000 | ||
2025 | 9,176,224 | |||
$ | 9,838,224 |
The following is a roll-forward of the Company’s notes payable and related discounts for the nine months ended September 30, 2017:
Principal Balance | Debt Issuance Costs | Debt Discounts | Total | |||||||||||||
Balance at December 31, 2016 | $ | 3,497,819 | $ | (177,022 | ) | $ | (159,375 | ) | $ | 3,161,422 | ||||||
New issuances | 3,000,000 | (310,790 | ) | (841,727 | ) | 1,847,483 | ||||||||||
Payments | (59,819 | ) | — | — | (59,819 | ) | ||||||||||
Conversions | (3,438,000 | ) | — | — | (3,438,000 | ) | ||||||||||
Amortization | — | 280,618 | 439,944 | 720,562 | ||||||||||||
Balance at September 30, 2017 | $ | 3,000,000 | $ | (207,194 | ) | $ | (561,158 | ) | $ | 2,231,648 |
Future maturities of notes payable are as follows for the three-month period remaining in 2017 and the calendar years ending from 2018-2019:
2017 | $ | — | |||
2018 | — | ||||
2019 | 3,000,000 | ||||
$ | 3,000,000 |
15
NOTE 6 - CONVERTIBLE NOTES PAYABLE, NET
See Note 5 for transactions associated with the reduction in convertible notes payable on January 31, 2017.
Convertible notes consisted of the following as of September 30, 2017 and December 31, 2016:
2017 | 2016 | |||||||
The below section of convertible notes payable were all converted to common stock at $0.10 per share in connection with the January 2017,conversion agreements described in Note 5. In June 2015, the Company issued 10% convertible notes in the aggregate principal amount of $700,000. The notes were secured by the assets of the Company, matured in September 2016, and were convertible into common stock of the Company at a conversion rate of $0.03 per share, subject to adjustment. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 15,400,000 shares of the Company’s common stock at an exercise price of $0.05 per share for a period of five years. The conversion rate on the notes and exercise price of the warrants are subject to adjustment to anti-dilution protection that required these features to be bifurcated and presented as derivative liabilities at their fair values. See Note 7. The Company also incurred debt issuance costs of $124,000, which were presented as a discount against the note and amortized into interest expense over the term of the note. | — | $ | 680,000 | |||||
In July 2015, the Company issued 10% convertible notes with in the aggregate principal amount of $190,000. The notes are secured by the assets of the Company, matured in July 2016, and are convertible into common stock of the Company at a conversion rate of $0.03 per share, subject to adjustment. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 4,180,000 shares of the Company’s common stock at an exercise price of $0.05 per share for a period of five years. The conversion rate on the notes and exercise price of the warrants are subject for adjustment to anti-dilution protection that requires these features to be bifurcated and presented as derivative liabilities at their fair values. See Note 7. The Company also incurred debt issuance costs of $16,200, which are presented as a discount against the note and amortized into interest expense over the term of the note | — | 166,000 | ||||||
In February 2016, the Company re-issued a 12% convertible note in the amount of $172,095. The note is secured by the assets of the Company, originally maturing in September 2016, and is convertible into common stock of the Company at a rate of $0.10 per share. In connection with the issuance of this note, the Company issued warrants for the purchase of 1,146,667 shares of the Company’s common stock at an exercise price of $0.15 per share for a period of five years. | — | 172,095 | ||||||
In April 2016, the Company issued 12% convertible notes in the amount of $1,550,000. The note is secured by the assets of the Company, matures in October 2016, and is convertible into common stock of the Company at a rate of $0.25 per share. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 6,200,000 shares of the Company’s common stock at an exercise price of $0.25 per share for a period of five years. The Company also issued 1,033,337 shares of common stock to the noteholders. The Company also incurred debt issuance costs of $226,400, which are presented as a discount against the note and amortized into interest expense over the term of the note. In August 2016, the Company entered into an agreement with the April 2016 Investors to reduce the exercise price on the embedded conversion feature and warrants to $0.10 and increase the number of warrants to 15,500,000. The August 2016 change in the terms of these convertible notes has been determined to be a debt extinguishment in accordance with ASC 470. The reported amounts under the debt extinguishment are not significantly different than that of the Company’s reported amounts. | — | 1,550,000 | ||||||
Total Principal Outstanding | $ | — | $ | 2,568,095 | ||||
Unamortized Discounts – Derivatives | — | (6,466 | ) | |||||
Unamortized Discounts – Debt issuance costs | — | (66,033 | ) | |||||
Convertible Notes, Net | $ | — | $ | 2,495,596 |
The following is a roll-forward of the Company’s convertible notes and related discounts for the nine months ended September 30, 2017:
Principal Balance | Debt Issuance Costs | Debt Discounts | Total | ||||||||||||||
Balance at December 31, 2016 | $ | 2,568,095 | $ | (66,033 | ) | $ | (6,466 | ) | $ | 2,495,596 | |||||||
Conversions | (2,568,095 | ) | — | — | (2,568,095 | ) | |||||||||||
Amortization | — | 66,033 | 6,466 | 72,499 | |||||||||||||
Balance at September 30, 2017 | $ | — | $ | — | $ | — | $ | — |
NOTE 7 –DERIVATIVE LIABILITY
Due to the potential adjustment in the conversion price associated with certain of the convertible debentures and the potential adjustment in the exercise price of certain of the warrants, the Company had determined that certain conversion features and warrants are derivative liabilities.
As described in Note 5 above, the Company on January 31, 2017 entered intoConversion Agreements with Investors pursuant to which each Investors agreed to convert all amounts of debt accrued and payable to such persons including interest under the terms of their respective financing or loan agreement into 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 investors at the time of conversion also agreed to waive any existing rights with respect to certain price protection and anti-dilution rights contained in their Stock Purchase Warrants.
Additionally, on February 22, 2017, the Company entered into an Agreement and Release with a holder of certain debentures that will represent final and full payment of all amounts owed under such which include debt with a face value of $300,000, accrued interest of approximately $31,000, cancellation of 3,600,000 warrants (previously accounted for as derivative liabilities) as well as certain pledged shares (2,500,000 shares) in exchange for $300,000 in cash. These debentures also had potential price adjustments on these debentures that have also been eliminated.
Therefore, as a result of the conversion and repayment of the outstanding indebtedness and related accrued interest as well as the elimination of anti-dilution rights of Stock Purchase Warrants, the Company no longer holds liabilities with derivatives requiring fair value as of September 30, 2017.
A summary of derivative activity for the nine months ended September 30, 2017 is as follows:
Balance at December 31, 2016 | $ | 18,056,631 | ||
Modification of derivatives | 319,770 | |||
Cancellation of warrants previously accounted for as derivative liabilities and elimination of derivative conversion features resulting from conversion of related party debt to equity | (11,213,573 | ) | ||
Reclassification of derivatives to equity upon removal of price protection in warrants | (7,614,974 | ) | ||
Change in fair value | 452,146 | |||
Balance at September 30, 2017 | $ | — |
NOTE 87 – RELATED PARTY TRANSACTIONS
Amount Due Officer and DirectorConvertible Notes Payable
During the six months ended June 30, 2022, two Directors, an affiliate of one of such Directors and one Executive Officer invested in $1.2 million of the Convertible Notes issued. See Note 6. In November 2016,connection with the payment of interest on the Convertible Notes, 10,978 shares were issued to two Directors and an affiliate of one of the Directors.
Issuance of Common Stock
Two Directors and one Executive Officer invested $0.2 million in the common stock offering in the quarter ended March 31, 2022. See Note 8.
Executive Officers Agreements
On April 25, 2022, Stuart Stoller indicated his intention to resign as Chief Financial Officer of the Company issued a note payable for $13,609 to one if itsin connection with his planned retirement. The resignation and retirement were effective as of June 17, 2022 at which time Annie Pham was appointed as Chief Financial Officer in his place. In connection with his retirement, the Board of Director’s approved the vesting of approximately 122,222 stock options which were unvested as of June 17, 2022. Additionally, the Board of Directors and was outstanding at December 31, 2016. The note was repaid in April 2017. In November 2016, the related party also received 20,414 shares of the Company’s common stock withapproved a fair value of $2,041.consulting arrangement for Mr. Stoller to provide transitional services.
Convertible Notes Payable
On January 31, 2017,April 25, 2022, Hang Pham and the Company entered into Conversion Agreementsan Offer Letter pursuant to which Ms. Pham agreed to serve as Chief Financial Officer with Mr. Selzer, a directorplanned employment date commencing June 20, 2022. Ms. Pham receives an annual salary of $275,000. The Company agreed to provide a bonus of 40% of the base salary (pro rated for 2022) based on achievement of performance milestones, calculated and payable in accordance with the corporate milestones approved by the Board for the year 2022. For subsequent fiscal years the bonus shall be subject to performance targets to be mutually agreed with the Compensation Committee of the Board. In addition, Ms. Pham received a signing bonus in the amount of $25,000, which is fully refundable to the Company and Vista Associates, a family partnershipif Ms. Pham leaves her employment voluntarily or is terminated for cause prior to which Mr. Selzer converted $150,000 in debt plus interest into 1,753,500the first anniversary of the commencement of employment. Upon commencing employment, Ms. Pham was granted an option to acquire 350,000 shares of common stock at an exercise price of $2.41 with an exercise period of ten years subject to certain performance and $40,000 of debt plus interest into 1,537,778 shares of common stock.market vesting requirements
NOTE 8 – STOCKHOLDER’S EQUITY
Purchase of Common Stock
In March 2017, Mr. Selzer purchased an additional 500,000During the six months ended June 30, 2022, shares of common stock were issued as a result of the latest offering as described in Note 9.
Other
In connection with securing third-party financing, the Company incurred fees to Network 1 Financial Securities, Inc. (“Network 1”), a registered broker-dealer. The Network 1 fees comprise of $360,000 payable in cash and the issuance of 2,200,000 shares of common stock of the Company. A member of the Company’s Board of Directors previously maintained a partnership with a key principal of Network 1. The agreement calls for Network 1 to receive commission, in cash and stock based on the total amount of proceeds from any financing it secures for the Company.following transactions:
The Company leases it Corporate headquarters from Bridgeworks LLC, (“Bridgeworks”), a company providing office facilities to emerging companies, principally owned by Mr. Beck and his family. Mr. Beck is Chairman, Chief Executive Officer and President of the Company. During the first nine months of 2017, the Company paid Bridgeworks $52,322.
● | On March 18 and March 21, 2022, the Company entered into Subscription Agreements (the “Subscription Agreements”) with an accredited investor and certain members of authID’s management team (the “PIPE Investors”), and, pursuant to the Subscription Agreements, sold to the PIPE Investors a total of 1,063,514 shares of our common stock at prices of $3.03 per share for an outside investor and $3.70 per share for the management investors (the “PIPE”). The aggregate gross proceeds from the PIPE are approximately $3.3 million. |
The Company entered into a consulting agreement with Graham Beck, a son of Mr. Beck for digital marketing services beginning April 1, 2017 at a rate of $2,500 per month. During the first nine months of 2017, the expense associated with Graham Beck was $15,000.
● | The Company issued 28,496 shares of our common stock to the Note Investors as an additional origination fee. Additionally, on June 30, 2022, the Company issued 116,896 shares of common stock for approximately $251,000 of interest owed from the effective date of the Convertible Notes until June 30, 2022. On March 21, 2022, the Company entered into a Facility Agreement with a current shareholder and noteholder of the Company, pursuant to which the shareholder agreed to provide to the Company a $10.0 million unsecured standby line of credit facility. Pursuant to the Credit Facility, the Company paid a facility commitment fee of 100,000 shares of our common stock with a fair market value of $3.03 per share upon the effective date of the Credit Facility | |
● | Certain warrant and stock option holders exercised their respective warrants and stock options by means of the cashless exercise feature and were issued approximately 186,488 common shares of the Company. |
On September 13, 2017, one of the former officers and a former director (Douglas Solomon) of the Company entered into a Confidential Settlement Agreement and General Release (the “Settlement Agreement”) pursuant to which the Offer Letter and Executive Retention Agreement entered between the Company and Mr. Solomon dated January 31, 2017, were terminated effective September 1, 2017 and Mr. Solomon resigned as Executive Director, Government Relations Enterprise Security upon execution of the Settlement Agreement. The Company agreed to pay Mr. Solomon approximately $8,000 representing unused 2017 vacation entitlement and pay for one day, reimburse Mr. Solomon for all expenses consistent with the Company’s reimbursement policy and pay Mr. Solomon’s COBRA employee only benefits through September 2018 if Mr. Solomon elected to be included under such coverage. The parties also provided mutual releases from all claims, demands, actions, causes of action or liabilities. As further consideration for entering into the Settlement Agreement, Mr. Solomon and the Company entered into an Agency Agreement dated September 13, 2017 pursuant to which Mr. Solomon agreed to be engaged as a non-exclusive sales agent for the Company’s products on an as needed basis for a term of three years in consideration of sales commissions including a monthly non-refundable minimum commission to be paid for 24 months. During the quarter ended September 30, 2017, the Company paid Mr. Solomon $13,028 under the terms of such agreement.Warrants
18
NOTE 9 –STOCKHOLDER’S EQUITY (DEFICIT)
Common Stock
On September 28, 2017, the stockholders of the Company approved increasing the number of authorized shares of common stock from 500,000,000 to 1,000,000,000.
As described in Note 5, on January 31, 2017, in connection with the issuance of a $3,000,000 Senior Unsecured Note, an aggregate of 4,500,000 shares of Common Stock was issued to the Investor and the Company issued Network 1 Financial Securities, Inc. (“Network 1”), a registered broker-dealer, 1,200,000 shares of common stock of the Company in conjunction with its services.
As described in Notes 5 and 6, on January 31, 2017, the Company entered intoConversion Agreements with Investors pursuant to which each Investors agreed to convert all amounts of debt accrued and payable to such person including interest under the terms of their respective financing or loan agreement as of January 31, 2017 into shares of Company common stock at $0.10 per shares. The Conversion Agreements resulted in the issuance of an approximately of 84,822,000 shares of Company common stock.
On March 22, 2017, the Company entered into Subscription Agreements with several accredited investors (the “March 2017 Accredited Investors”) pursuant to which the March 2017 Accredited Investors agreed to purchase an aggregate of 20,000,000 shares of the Company’s common stock for an aggregate purchase price of $4,000,000. The proceeds were received during 2017. In connection with this private offering, the Company paid Network 1 Financial Securities, Inc. (“Network”), a registered broker-dealer, a cash fee of $240,000 and issued Network 1,000,000 shares of common stock of the Company.
Additionally, the Company cancelled certificates for 2,500,000 shares of common stock acquired in conjunction with the purchase of certain debentures.
During the nine months ended September 30, 2017, the Company issued approximately 594,000 shares of common stock as consideration for services. The fair value of the shares, totaling approximately $140,000 was estimated based on the publicly quoted trading price and recorded as expense.
In connection with the engagement of the CEO and Chief Financial Officer (“CFO”) on January 31, 2017 (the “Grant Date”), the Company agreed to enter into Restricted Stock Purchase Agreements (the “Restricted Shares”) with the CEO and CFO to provide 15,000,000 and 5,000,000 shares of common stock, respectively, at a per share price of $0.0001. On September 29, 2017, and in connection with the increase in the authorized shares, the Company issued the Restricted Shares. The shares are restricted and are not able to be sold or otherwise transferred by the CEO or CFO until such time the Restricted Shares vest. The Restricted Shares vest only upon achieving one of several performances thresholds. As of September 30, 2017, none of the performance thresholds have been met. Accordingly, no compensation expense has been recorded in connection with the issuance of these Restricted Shares. Compensation expense associated with these Restricted Shares will be recorded based on the fair value of the shares on the date it is determined that it is probable that one or more of the performance thresholds will be met in the near term.
Warrants
As more fully described above the Company agreed to reduce the exercise of all outstanding Stock Purchase Warrants acquired as part of a financing or loan that had an exercise price in excess of $0.10 per share to $0.10 per share.
Furthermore, as more fully described above in Note 5, the Company as part of a transaction cancelled 3.6 million warrants.
The following is a summary of the Company’s warrant activity for the ninesix months ended SeptemberJune 30, 2017:2022 (unaudited):
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Life | |||||||||||
Outstanding at December 31, 2016 | 51,138,697 | $ | 0.11 | 3.8 Years | |||||||||
Cancelled | (3,600,000 | ) | $ | 0.08 | 3.9 Years | ||||||||
Outstanding at September 30, 2017 | 47,538,697 | $ | 0.08 | 2.9 Years |
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Life | ||||||||
Outstanding at December 31, 2021 | 1,403,610 | $ | 4.61 | 3.0 years | ||||||
Granted | 142,690 | $ | 3.70 | 5.0 years | ||||||
Exercised/cancelled | (241,944 | ) | $ | 4.49 | 0.1 years | |||||
Outstanding at June 30, 2022 | 1,304,356 | $ | 4.53 | 3.3 years |
Stock Options
On August 10, 2016, the Company entered into an amended agreement (the “Amendment”) with Parity Labs, LLC (“Parity”) to amend the compensation section of an existing Advisory Agreement previously entered into between the Company and Parity on November 16, 2015 for the provision of strategic advisory services. The Amendment calls for the Company to issue to Parity the option (the “Parity Option”) to acquire 20,000,000 shares of common stock of the Company, exercisable at $0.05 per share for a period of ten years. The Parity Option vests as to 10,000,000 shares of common stock immediately and then in 12 equal tranches of 833,333 shares per month commencing on September 1, 2016. Parity options vested in entirety when Mr. Beck became Chief Executive Officer (“CEO”) of Ipsidy, Inc. in January 2017. Mr. Beck is the manager of Parity.
In connection with the engagement of the CEO and Chief Financial Officer (“CFO”) on January 31, 2017,the Company granted the CEO and CFO stock options to acquire 15,000,000 shares and 5,000,000 shares of common stock of the Company respectively at an exercise price of $0.10 per share for a period of ten years. Additionally, the Company granted one employee stock options to acquire 1,000,000 shares of common stock at an exercise price of $0.29 per share for a period of ten years.
The Company determined the grant date fair value of the options granted duringfor the Ninesix months ended SeptemberJune 30, 20172022, using the Black Scholes Method and a Monte Carlo simulation for those stock options granted with a market vesting condition and the following assumptions:
Expected Volatility – 85%
Expected Term – 5.0 Years
Risk Free Rate – 1.92%
Dividend Rate – 0.00%
Expected volatility | 123-127% | |||
Expected term | 5 years | |||
Risk free rate | 2.14%-3.38% | |||
Dividend rate | 0.00% |
Activity related to stock options for the ninesix months ended SeptemberJune 30, 20172022 (unaudited), is summarized as follows:
Number of Shares | Weighted Average Exercise Price | Weighted Average Contractual Term (Yrs.) | Aggregate Intrinsic Value | ||||||||||||||
Outstanding as of December 31, 2016 | 86,925,000 | $ | 0.21 | 9.5 | $ | 10,023,400 | |||||||||||
Granted | 21,000,000 | $ | 0.11 | 10.0 | $ | — | |||||||||||
Forfeitures | (3,425,000 | ) | $ | 0.06 | 10.0 | $ | — | ||||||||||
Outstanding as of September 30, 2017 | 104,500,000 | $ | 0.19 | 9.1 | $ | 3,989,000 | |||||||||||
Exercisable as of September 30, 2017 | 78,704,170 | $ | 0.17 | 8.7 | $ | 2,788,000 |
Number of Shares | Weighted Average Exercise Price | Weighted Average Contractual Term (Yrs.) | Aggregate Intrinsic Value | |||||||||||||
Outstanding as of December 31, 2021 | 8,910,994 | $ | 6.48 | 6.7 | $ | 67,488,214 | ||||||||||
Granted | 1,141,541 | $ | 2.80 | 10.0 | 0 | |||||||||||
Exercised | (281,031 | ) | $ | 3.28 | 8.8 | 0 | ||||||||||
Forfeited/cancelled | (73,889 | ) | $ | 7.22 | 0 | |||||||||||
Outstanding as of June 30, 2022 | 9,697,615 | $ | 5.96 | 6.1 | $ | 403,078 | ||||||||||
Exercisable as of June 30, 2022 | 5,052,541 | $ | 5.45 | 4.4 | $ | 393,411 |
The following table summarizes stock option information as of SeptemberJune 30, 2017:2022 (unaudited):
Exercise Prices | Outstanding | Weighted Average Contractual Life | Exercisable | |||||||||||
$ | 0.0001 | 3,500,000 | 8.00 Years | 3,500,000 | ||||||||||
$ | 0.05 | 33,950,000 | 8.86 Years | 23,312,502 | ||||||||||
$ | 0.10 | 27,250,000 | 9.05 Years | 15,583,336 | ||||||||||
$ | 0.15 | 6,300,000 | 7.85 Years | 4,258,332 | ||||||||||
$ | 0.25 | 500,000 | 8.50 Years | 300,000 | ||||||||||
$ | 0.29 | 1,000,000 | 9.75 Years | — | ||||||||||
$ | 0.40 | 1,000,000 | 8.42 Years | 1,000,000 | ||||||||||
$ | 0.45 | 31,000,000 | 8.00 Years | 30,750,000 | ||||||||||
Total | 104,500,000 | 8.57 Years | 78,704,170 |
Exercise Price | Outstanding | Contractual Life (Yrs.) | Exercisable | |||||||||
$.03 - $4.00 | 4,438,577 | 4.2 | 3,097,242 | |||||||||
$4.01 - $7.00 | 151,667 | 4.1 | 151,667 | |||||||||
$7.01 - $10.00 | 3,416,135 | 8.9 | 724,466 | |||||||||
$10.01 - $15.97 | 1,691,236 | 5.3 | 1,079,166 | |||||||||
9,697,615 | 6.1 | 5,052,541 |
Stock option expense forDuring the three and ninesix months ended SeptemberJune 30, 2017 was2022, the Company recognized approximately $625,000$4,499,000 of stock option compensation expense of which approximately $1,396,000 relates to market condition-based awards of directors and $4,892,000, respectively, and for the corresponding periods ended September 30, 2016 was $654,000 and $6,806,000, respectively. The three and nine months ended September 30, 2017, included approximately $61,000 and $1,565,000, respectively of non-employee stock compensation.officers. As of SeptemberJune 30, 2017,2022, there was approximately $3,652,000$13,450,774 of unrecognized compensation costs related to stock options outstanding which willthat is expected to be expensed through 2020.2026.
NOTE 9 – DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
NOTE 10 – DIRECT FINANCING LEASEThe Board of Directors of authID considers it in the best interests of the Company to focus its business activities on providing biometric identity verification products and services by means of our proprietary IDaaS platform. Accordingly, on May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank payments services in Colombia and the Cards Plus cards manufacturing and printing business in South Africa.
In September 2015, the Company and an entityCards Plus business in Colombia entered into a rental contract for the rental of 78 kiosks to provide cash collection and fare services at transportation stations. The lease term began in May 2016 when the kiosk were installed and operational and when the lease commenced. The term of the rental contract is ten years at an approximate monthly rental of $11,900. The lease has the option at the end of the lease term to purchase each unit for approximately $40. The term of the lease approximates the expected economic life of the kiosks. The lease was accounted for as a direct financing lease.South Africa
The Company hasplans to exit the Cards Plus business and is in discussions with a buyer to purchase the Company’s interests in Cards Plus.
The estimated sale price is $300,000 less selling costs which resulted in a charge of approximately $68,000 for the Cards Plus. In the six months ended June 30, 2022, the Company also recorded an impairment charge of approximately $144,000 for certain intangible assets of Cards Plus.
MultiPay business in Colombia
The Company plans to exit the transaction as it’s net investmentMultiPay business in Colombia in an orderly fashion, honoring our obligations to employees, customers and under applicable laws and regulations. We plan to maintain our customer support and operations team in Bogota, which performs essential functions to support the global operations of our Verified family of products.
The Company will incur certain costs associated with its employees and other contractual obligations. MultiPay will continue to service its customer base in the leaseinterim as it will look to minimize all such costs and in addition to realize proceeds from the potential disposition or use of its assets.
As of June 30, 2022, MultiPay has notified the customers and the impacted employees of the Company’s plan. MultiPay also communicated to each employee their compensation entitlements and severance packages under its retention plan and obligations under the appropriate statutes.
As of June 30, 2022, MultiPay is working with a major customer to implement a transition plan to provide an essential service for certain bill pay services which will receive monthly payments of $11,856 before estimated executory costs, or $142,272, annually, to reduce investmentprobably result in the leaseleasing and record incomesale of certain of MultiPay’s proprietary software as well as the assumption by the customer of certain expenses.
The Company expects to incur costs associated with the proposed exit of the MultiPay business which include approximately $195,000 for payment to employees and consultants including statutory obligations and certain contingent retention bonuses; and approximately $57,000 for accelerated depreciation (non-cash) for certain assets which reflects their estimated remaining useful life. In the six months ended June 30, 2022, MultiPay recorded $68,000 of additional expense for employee obligations during the transitional period. We should have a revenue offset to certain expenses as we solidify the sale of the assets.
MultiPay has accelerated the depreciation of certain assets with the effective date of the announcement to reflect the estimated remaining useful life.
The operations of Cards Plus and MultiPay for the three and six months ended June 30, 2022 on a consolidated basis are below (unaudited):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Discontinued Operations | ||||||||||||||||
Total Revenues, net | $ | 579,246 | $ | 431,010 | $ | 1,021,556 | $ | 871,949 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of sales | 336,540 | 156,905 | 520,064 | 371,228 | ||||||||||||
General and administrative | 372,750 | 315,914 | 658,132 | 635,625 | ||||||||||||
Impairment loss | 67,984 | - | 211,703 | - | ||||||||||||
Depreciation and amortization | 11,572 | 15,351 | 39,774 | 44,984 | ||||||||||||
Total operating expenses | 788,846 | 488,170 | 1,429,673 | 1,051,837 | ||||||||||||
Loss from operations | (209,600 | ) | (57,160 | ) | (408,117 | ) | (179,888 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Other income | 4,334 | 11,725 | 8,029 | 13,262 | ||||||||||||
Interest expense, net | - | (2,631 | ) | (364 | ) | (2,637 | ) | |||||||||
Other income, net | 4,334 | 9,094 | 7,665 | 10,625 | ||||||||||||
Loss before income taxes | (205,266 | ) | (48,066 | ) | (400,452 | ) | (169,263 | ) | ||||||||
Income tax expense | (1,041 | ) | (1,326 | ) | (6,578 | ) | (2,595 | ) | ||||||||
Loss from discontinued operations | $ | (206,307 | ) | $ | (49,392 | ) | $ | (407,030 | ) | $ | (171,858 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Cards Plus | ||||||||||||||||
Total Revenues, net | $ | 510,142 | $ | 334,679 | $ | 883,300 | $ | 679,435 | ||||||||
Operating Expenses: | ||||||||||||||||
Cost of Sales | 336,540 | 156,905 | 520,064 | 371,228 | ||||||||||||
General and administrative | 167,390 | 151,453 | 322,699 | 286,977 | ||||||||||||
Impairment loss | 67,984 | - | 211,703 | - | ||||||||||||
Depreciation and amortization | 4,667 | 16,113 | 25,897 | 35,233 | ||||||||||||
Total operating expenses | 576,581 | 324,471 | 1,080,363 | 693,438 | ||||||||||||
Income (loss) from operations | (66,439 | ) | 10,208 | (197,063 | ) | (14,003 | ) | |||||||||
Other income (expense): | ||||||||||||||||
Other income | 3,468 | 1,914 | 6,816 | 3,451 | ||||||||||||
Interest expense, net | - | (1,111 | ) | (364 | ) | (2,637 | ) | |||||||||
Other income, net | 3,468 | 803 | 6,452 | 814 | ||||||||||||
Income (loss) before income taxes | (62,971 | ) | 11,011 | (190,611 | ) | (13,189 | ) | |||||||||
Income tax expense | - | - | (4,681 | ) | - | |||||||||||
Income (loss) from discontinued operations | $ | (62,971 | ) | $ | 11,011 | $ | (195,292 | ) | $ | (13,189 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
MultiPay | ||||||||||||||||
Total Revenues, net | $ | 69,104 | $ | 96,331 | $ | 138,256 | $ | 192,514 | ||||||||
Operating Expenses: | ||||||||||||||||
General and administrative | 205,360 | 164,461 | 335,433 | 348,648 | ||||||||||||
Depreciation and amortization | 6,905 | (762 | ) | 13,877 | 9,751 | |||||||||||
Total operating expenses | 212,265 | 163,699 | 349,310 | 358,399 | ||||||||||||
Loss from operations | (143,161 | ) | (67,368 | ) | (211,054 | ) | (165,885 | ) | ||||||||
Other Income: | ||||||||||||||||
Other income | 866 | 8,291 | 1,213 | 9,811 | ||||||||||||
Loss before income taxes | (142,295 | ) | (59,077 | ) | (209,841 | ) | (156,074 | ) | ||||||||
Income tax expense | (1,041 | ) | (1,326 | ) | (1,897 | ) | (2,595 | ) | ||||||||
Loss from discontinued operations | $ | (143,336 | ) | $ | (60,403 | ) | $ | (211,738 | ) | $ | (158,669 | ) |
As a result of meeting the discontinued operations/assets held for sale criteria for Cards Plus and the MultiPay operations, the assets and liabilities have been reclassified as assets held for sale as of the respective balance sheet date as follows (unaudited):
June 30, 2022 | December 31, 2021 | |||||||
Discontinued Operations | �� | |||||||
Current assets: | ||||||||
Cash | $ | 340,380 | $ | 270,707 | ||||
Accounts receivable, net | 105,844 | 110,977 | ||||||
Inventory | 301,837 | 153,149 | ||||||
Other current assets | 33,834 | 94,919 | ||||||
Current assets held for sale | 781,895 | 629,752 | ||||||
Noncurrent assets: | ||||||||
Property and equipment, net | 56,891 | 93,132 | ||||||
Intangible assets | - | 153,004 | ||||||
Other assets | 17,090 | 66,695 | ||||||
Noncurrent assets held for sale | 73,981 | 312,831 | ||||||
Total assets held for sale | $ | 855,876 | $ | 942,583 | ||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 259,217 | $ | 235,348 | ||||
Deferred revenue | 274,901 | 47,823 | ||||||
Notes payable obligation, current portion | - | 1,579 | ||||||
Capital lease obligation, current portion | - | 10,582 | ||||||
Total liabilities held for sale | $ | 534,118 | $ | 295,332 |
June 30, 2022 | December 31, 2021 | |||||||
Cards Plus | ||||||||
Current assets: | ||||||||
Cash | $ | 325,247 | $ | 182,518 | ||||
Accounts receivable, net | 36,139 | 88,235 | ||||||
Inventory | 301,837 | 153,149 | ||||||
Other current assets | 9,306 | 52,678 | ||||||
Current assets held for sale | 672,529 | 476,580 | ||||||
Noncurrent assets: | ||||||||
Property and equipment, net | - | 24,619 | ||||||
Intangible assets | - | 153,004 | ||||||
Noncurrent assets held for sale | - | 177,623 | ||||||
Total assets held for sale | $ | 672,529 | $ | 654,203 | ||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 121,195 | $ | 122,725 | ||||
Deferred revenue | 274,901 | 47,823 | ||||||
Notes payable obligation, current portion | - | 1,579 | ||||||
Capital lease obligation, current portion | - | 10,582 | ||||||
Total liabilities held for sale | $ | 396,096 | $ | 182,709 |
June 30, 2022 | December 31, 2021 | |||||||
MultiPay | ||||||||
Current Assets: | ||||||||
Cash | $ | 15,133 | $ | 88,189 | ||||
Accounts receivable, net | 69,705 | 22,742 | ||||||
Other current assets | 24,528 | 42,241 | ||||||
Current assets held for sale | 109,366 | 153,172 | ||||||
Noncurrent Assets: | ||||||||
Property and equipment, net | 56,891 | 68,513 | ||||||
Other assets | 17,090 | 66,695 | ||||||
Noncurrent assets held for sale | 73,981 | 135,208 | ||||||
Total assets held for sale | $ | 183,347 | $ | 288,380 | ||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 138,022 | $ | 112,623 | ||||
Total liabilities held for sale | $ | 138,022 | $ | 112,623 |
As a result of meeting the discontinued operations/assets held for sale criteria for Cards Plus and the MultiPay operations, the cash flow from operating activities related amount due. Executory coststo discontinued operations is presented separately on the statement of cash flows as summarized below:
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (407,030 | ) | $ | (171,858 | ) | ||
Adjustments to reconcile net loss with cash flows from operations: | ||||||||
Depreciation and amortization expense | 39,774 | 45,002 | ||||||
Impairment of intangible assets | 211,703 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 6,332 | (41,323 | ) | |||||
Net investment in direct financing lease | (17,306 | ) | 81,931 | |||||
Other current assets | 106,920 | (18,763 | ) | |||||
Inventory | (140,653 | ) | 113,870 | |||||
Accounts payable and accrued expenses | (11,425 | ) | (135,413 | ) | ||||
Deferred revenue | 227,078 | (65,709 | ) | |||||
Adjustments relating to discontinued operations | 422,423 | (20,405 | ) | |||||
Cashflows from discontinued operations | $ | 15,393 | $ | (192,263 | ) |
Notes to Financial Statements – Discontinued Operations
Inventories
Inventory of plastic/ID cards, digital printing material, which are estimatedheld 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 be $1,677 monthlyprovide plastic loyalty ID and initial direct costsother types of cards.
Inventories at June 30, 2022 and December 31, 2021, consist of cards inventory. As of June 30, 2022 and December 31, 2021, respectively, the Company recorded an inventory valuation allowance of approximately $23,000 and $20,000, respectively to reflect net realizable value of the cards inventory.
Any adjustments to reduce the cost of inventories to their net realizable value are not considered significant. The transaction resultedrecognized in incremental revenueearnings in the nine months ended Septembercurrent period.
Revenue Recognition
Cards Plus recognizes revenue for the design and production of cards at the point in time when products are shipped, or services have been performed due to the short-term nature of the contracts. As of June 30, 20172022 and December 31, 2021, Cards Plus had approximately $275,000 and $48,000, respectively, of approximately $56,000.contract liability from payments received in advance that will be earned in future periods.
MultiPay recognizes revenue for variable fees generated for payment processing solutions that are earned on a usage fee over time based on monthly transaction volumes or on a monthly flat fee rate. Additionally, MultiPay also sells certain equipment from time to time for which revenue is recognized upon delivery to the customer.
The equipment is subject
Revenue related to direct lease valued at approximately $748,000. Atfinancing leases is outside the inceptionscope of the lease term, the aggregate minimum future lease payments to be receivedTopic 606 and is approximately $1,422,000 before executory cost. Unearned income is recorded at the inception of this lease was approximately $474,000 and will be recordedrecognized over the term of the lease using the effective income rateinterest method. Future minimum lease payments to be received under the lease for the next five years and thereafter are as follows for the three-month period remaining in 2017 and the calendar years ending from 2018-2022 and thereafter:
2017 | $ | 30,537 | ||
2018 | 122,145 | |||
2019 | 122,145 | |||
2020 | 122,145 | |||
2021 | 122,145 | |||
2022 | 122,145 | |||
Thereafter | 407,175 | |||
Sub-total | 1,048,437 | |||
Less deferred revenue | (364,543 | ) | ||
Net investment in lease | $ | 683,894 |
NOTE 11 – LEASE OBLIGATION PAYABLE
Note Payable
Cards Plus had an installment loan payable at a rate of 10.8% that was repaid in full the first quarter of 2022. The Companyoutstanding loan balance was $1,579 as of December 31, 2021.
Lease Obligation
Cards Plus entered into a lease in March 2017 for the rental of its printer for its secured plastic and credential card products business under an arrangement that is classified as a capitalfinance lease. The leased equipment iswas amortized on a straight linestraight-line basis over its lease term including the last payment (61 payments) which would transferand ownership transferred to the Company. Total amortization related to theThe lease equipmentwas fully paid off as of SeptemberJune 30, 2017 is $18.752. The following is a schedule showing2022.
Impairment loss
During the future minimum lease payments under capital lease by year and the presentsix months ended June 30, 2022, Cards Plus recorded an impairment loss of approximately $143,000 associated with its intangible assets. We also recorded an additional $68,000 reserve as we estimate net realizable value of the minimumnet assets held for sale will be lower than their net book value.
Leases
In October 2021, MultiPay entered into a one-year lease payments as of Septemberfor approximately $2,900 per month in Bogota, Colombia. MultiPay provided notice that it will not be renewing the current lease.
Cards Plus leases space for its operation in South Africa. The lease term was through June 30, 2017. The interest rate related to the lease obligation is 12%2022, and the maturity datefacility is March 31, 2022. Future cash payment related to this capital lease are as follow for the three-month period remaining in 2017 and the calendar years ending from 2018-2022 and thereafter. being rented on a month-to-month basis. The approximate monthly rent is $8,000.
2017 | $ | 10,773 | ||
2018 | 43,096 | |||
2019 | 43,096 | |||
2020 | 43,096 | |||
2021 | 43,096 | |||
2022 | 10,776 | |||
Total minimum lease payments | 193,933 | |||
Less: Amount representing interest | 44,645 | |||
Present value of minimum lease payments | $ | 149,288 |
NOTE 1210 –COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be involved inis a party to various legal or administrative proceedings arising in the ordinary course of business, which could result in litigation.our business. While any litigation contains an element of uncertainty, we have no reason to believe that the outcome of such proceedings will have a material adverse effect on the financial condition or results of operations of the Company.
OtherLeases
The Company entered intorented office space in Long Beach, New York at a monthly cost of $2,500. The agreement was month to month and was terminated on July 31, 2022. The agreement was between the Company and Bridgeworks LLC, an Agency Agreement dated September 13, 2017 pursuant to whichentity principally owned by Mr. Beck, a former officerCEO and director agreed to be engaged as a non-exclusive sales agent for the Company’s products on an as needed basis for a term of three years in consideration of sales commissions including a monthly non-refundable minimum commission to be paid for 24 months. The minimum commitment during the term of the agreement is approximately $335,000.Board Member along with his family.
In September 2017,July 2022, the Company entered intosigned a consultingnew lease agreement and agency agreement with an organizationmoved its headquarters to provide ongoing business developmentDenver, Colorado. The new office monthly lease cost approximates $1,500 per month.
For the six months ended June 30, 2022, lease expense was approximately $80,000 inclusive of short-term leases of which $13,000 was for continuing operations and marketing analysis/support beginning October 1, 2017$67,000 was for a period of 24 months but is cancelable at the end of the first year. The minimum commitment for the first year is $180,000 payable monthly at a rate of $15,000. The agreement also provides a one-time payment of $75,000 upon the Company meeting a performance target. The agency agreement provides for additional compensation to be paid upon successful customer acquisition and cash collection from introduced new customers.discontinued operations
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.Overview
As used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” except where the context otherwise requires, the term “we,” “us,” “our,” or “the Company,” refers to the business of IpsidyauthID Inc. and its subsidiaries.
Overview
Ipsidy Inc. together(together with its subsidiaries, (thethe “Company”, “authID”, “we” or “our”), is a leading provider of secure, mobile, biometric identification, identity managementverification software products branded “VerifiedTM”, delivered by an easy to integrate Identity as a Service (IDaaS) platform. Our mission is ultimately to eliminate all passwords and electronic transaction processing services. In a world that is increasingly digital and mobile, ourto be the preferred global platform for biometric identity authentication. Our vision is to enable solutionsevery organization to “Recognise Your Customer” instantly, without friction or loss of privacy, powered by the most sophisticated biometric and artificial intelligence technologies.
The explosive growth in online and mobile commerce, telemedicine, remote working and digital activities of all descriptions is self-evident to everyone who lived through the Covid 19 pandemic since 2020. Identity theft, phishing attacks, spear-phishing, password vulnerabilities, account takeovers, benefits fraud - it seems like these words have entered our daily lexicon overnight. These are significant impediments to the operations and growth of any business or organization, and dealing with the risks and consequences of these criminal activities has created significant friction in both time, cost and lost opportunity. Consider all the outdated methods that provide pre-transactionorganizations have implemented in order to prevent fraud. The requests to receive and enter one-time passwords, that can be easily hijacked. The vulnerable security questions you get asked – whether on-line or when reaching out to a call center – what was your first pet’s name? who was your best friend in high school? These steps all add up to friction, making it difficult for consumers to login, transact and execute daily tasks, with little added protection from fraud. Surely there is a better way to address these challenges? authID believes there is.
authID provides secure, facial biometric, identity verification, and strong customer authentication. We maintain a global, cloud-based IDaaS platform for our enterprise customers to enable their users to easily verify and authenticate their identity through a mobile device or desktop (with camera) of their choosing (without requiring dedicated hardware, or authentication apps). We can help our customers establish a proven identity, as well as embedcreating a root of trust that ensures the highest level of assurance for our passwordless login and step-up verification products. Our system enables participants to consent to transactions using their biometric information with a digitally signed authentication response, embedding the underlying transaction data and each user’s identity verificationattributes within every electronic transaction message processed through our platform.
Digital transformation across all market segments requires trusted identity. Our identity platform or otheroffers innovative solutions that are flexible, fast and easy to integrate and offer seamless user experiences. authID’s products help advance digital transformation efforts without the fear of identity fraud, while delivering frictionless user experiences. We believe that it is also essential that electronic systems. We are building upon our existing capabilities intransactions have an audit trail, proving that the identity of the individual was duly authenticated. Our platform provides biometric identification and multi-factor identity management solutionssoftware, which are intended to develop anestablish, authenticate and verify identity transaction platform for our business customers. The platform is being designed to enable the end usersacross a wide range of our business customers to more easily authenticate their identity to a mobile phone or portable device of their choosing (as opposed to dedicated hardware). The existing system enables participants to complete transactions with a digitally signed authentication response, including the underlying transaction datause cases and embedded attributes of the participant’s identity.electronic transactions.
The Company’sauthID’s products currently focus on the broad requirement for identity, access and transaction verification and associated identity management needs and the requirement forenabling frictionless commerce by allowing an entity to instantly “Recognise their Customer”. Organizations of all descriptions require cost-effective and secure mobile electronic payment solutions for institutions andmeans of growing their customers.business while mitigating identity fraud. We aim to offer our enterprise customers solutionsproducts that can be integrated easily into each customer’sof their business and organizational operations, in order to facilitate their useadoption and enhance the end user customer experience.
ManagementOur management believes that some of the advantages of the Company’s platformour IDaaS Platform approach are the ability to leverage the platform to support a variety of vertical markets including the identity management and transaction processing sectors and the adaptability of the platform to the requirements of new markets and new products requiring low cost,cost-effective, secure, and configurable mobile solutions. These verticalOur target markets include butcybersecurity, workforce, banking, fintech and other disrupters of traditional commerce, small and medium sized businesses, and system integrators working with government and Fortune 1000 enterprises. At its core, the Company’s offering, combining its proprietary and acquired biometric and artificial intelligence technologies (or AI), is intended to facilitate frictionless commerce, whether in the physical or digital world. The Company intends to increase its investment in developing, patenting and acquiring the various elements necessary to enhance the platform, which are not limitedintended to borderallow us to achieve our goals. One of the principal intended areas of investment is to enhance and expand our use of artificial intelligence in proprietary software, that we believe will increase our value to enterprise customers and stockholders alike.
authID is dedicated to developing advanced methods of protecting consumer privacy and deploying ethical and socially responsible AI. authID is developing a culture that proactively encourages and rewards our employees for considering the ethical implications of our products. We believe that a proactive commitment to ethical AI presents a strong business opportunity for authID and will enable us to bring more accurate products to market more quickly and with less risk to better serve our global user base. Our methods to achieve ethical AI include engaging the users of our products with informed consent, prioritizing the security public safety, public transportation, enterprise security payment transactionsof our user’s personal information, considering and banking.avoiding potential bias in our algorithms, and monitoring of algorithm performance in our applications.
The companyCompany also owns an entity in South Africa, Cards Plus and in Colombia, MultiPay. On May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payments services in Colombia and the Card Plus cards manufacturing and printing business in South Africa. See Discontinued Operations.
The Company was incorporated in the State of Delaware on September 21, 2011 and changed itsour name tofrom Ipsidy Inc. to authID Inc. on February 1, 2017, and our common stockJuly 18, 2022.
Our Common Stock is traded on the OTC MarketsNasdaq Capital Market under the trading symbol “IDGS”“AUID”. Our corporate headquarters are located at 780 Long Beach Boulevard, Long Beach, NY 11561have been relocated to 1325 S. Colorado, Blvd., Building A Suite 322, Denver, CO 80222 and our main phone number remains as is (407) 951-8640.(516) 274-8700. We maintain oura website atwww.ipsidy.com. www.authID.ai. The contents ofinformation contained on, or that can be accessed through, our website arewebsites is not incorporated by reference into or otherwise to be regarded as part of this Report on this Quarterly Report on Form 10-Q.prospectus and is intended for informational purposes only.
Key Trends
We believe that our financial results will be impacted by several market trends in the identity management and transaction processing marketplace, including growing concerns over identity theft and fraud and the increase in electronic payments, solutions provided by non-bank entities. Our results are also impacted by the changes in levels of spending on identity management and security methods, and thus, negative trends in the global economy and other factors which negatively impact such spending may negatively impact the growth our revenue from those products. The global economy has been undergoing a period of political and economic uncertainty and stock markets are experiencing high levels of volatility, and it is difficult to predict how long this uncertainty and volatility will continue.
We plan to grow our business by increasing the use of our services by our existing customers, by adding new customers by expanding into new markets and innovation. If we are successful in these efforts, we would expect our revenue to continue to grow. In addition, based on the positive trends in the international payment processing industry noted above, we anticipate that as and when more payments are made using electronic and mobile methods, such as those that we offer, our revenue would also increase.
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.
These 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.
There is no assurance that the Company will ever be profitable. 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.
Adjusted EBITDA – Continuing Operations
This discussion includes information about Adjusted EBITDA – Continuing Operations that is not prepared in accordance with GAAP. Adjusted EBITDAEBITDA- Continuing Operations is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. A reconciliation of this non-GAAP measure is included below.
Adjusted EBITDA – Continuing Operations is a non-GAAP financial measure that represents GAAP net income (loss)loss from continuing operations adjusted to exclude (1) interest expense, (2) interest income, (3) provision for income taxes,tax expense, (4) depreciation and amortization, (5) stock-based compensation expense and (6) certain other items management believes affect the comparability of operating results.
Management believes that Adjusted EBITDA – Continuing Operations, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period results. Adjusted EBITDA – Continuing Operations is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA – Continuing Operations as a primary measure to review and assess the operating performance of our company and our management, and it will be a focus as we invest in and grow the business. Additionally, we will consider using
Adjusted EBITDA in connection with our executive compensation in 2018.
Adjusted EBITDA– Continuing Operations has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:
● | Adjusted EBITDA – Continuing Operations does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
● | Adjusted EBITDA – Continuing Operations does not reflect changes in, or cash requirements for, our working capital needs; |
● | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA – Continuing Operations does not reflect any cash requirements for such replacements; |
● | Adjusted EBITDA – Continuing Operations does not include the impact of certain charges or gains resulting from matters we consider not to be indicative of our ongoing operations. |
Because of these limitations, adjusted EBITDA – Continuing Operations should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA Continuing Operations only as a supplement to our GAAP results.
Reconciliation of Net Loss from Continuing Operations to Adjusted EBITDA Continuing Operations
Three Months Ended | Nine months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
Net (loss) gain | $ | (2,110,019 | ) | $ | (4,333,036 | ) | $ | (14,581,691 | ) | $ | 2,526,783 | |||||
Add Back: | ||||||||||||||||
Interest expense | 230,698 | 853,543 | 1,125,880 | 3,126,320 | ||||||||||||
Conversion of debt, derivative liability, and modifications | — | 1,594,636 | 4,106,652 | (16,082,616 | ) | |||||||||||
Depreciation and amortization | 99,779 | 127,473 | 346,313 | 388,233 | ||||||||||||
Write-off of asset | — | 225,862 | — | 225,862 | ||||||||||||
Taxes | — | — | — | — | ||||||||||||
Stock compensation | 624,581 | 654,066 | 4,891,251 | 6,805,776 | ||||||||||||
Adjusted EBITDA (Non-GAAP) | $ | (1,154,961 | ) | $ | (877,456 | ) | $ | (4,111,595 | ) | $ | (3,009,642 | ) |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Loss from continuing operations | $ | (6,366,520 | ) | $ | (3,008,218 | ) | $ | (11,466,525 | ) | $ | (5,375,751 | ) | ||||
Add back: | ||||||||||||||||
Interest expense | 459,262 | 253,919 | 493,904 | 551,351 | ||||||||||||
Other (income) | - | (480,156 | ) | (3,240 | ) | (480,156 | ) | |||||||||
Severance cost | - | - | 150,000 | - | ||||||||||||
Depreciation and amortization | 244,448 | 299,239 | 460,833 | 579,435 | ||||||||||||
Taxes | 7,316 | 1,028 | 8,100 | 6,947 | ||||||||||||
Stock compensation | 2,632,118 | 1,634,546 | 4,499,107 | 2,261,126 | ||||||||||||
Adjusted EBITDA continuing operations (Non-GAAP) | $ | (3,023,376 | ) | $ | (1,299,642 | ) | $ | (5,857,821 | ) | $ | (2,457,048 | ) |
The increase in adjustedAdjusted EBITDA loss in 2017 compared to 2016 is principallycontinuing operations for the quarter and six months ended June 30, 2022, increased by approximately $1.7 million and $3.4 million due to the Company’s investment in resources required to provide the support for future operations.people, technology, and marketing.
Three and NineSix Months Ended SeptemberJune 30, 20172022 and SeptemberJune 30, 20162021 – Continuing Operations
Revenues, net
During the three and ninesix months ended SeptemberJune 30, 2017,2022, the Company had revenues from Verified software license were approximately $51,000 and $87,000 compared to approximately $18,000 and $33,000 in the three and six months ended June 30, 2021. Verified software license revenue increased as we acquired new customers.
Legacy authentication services revenues were $15,000 and $145,000, respectively during the three months and six months ended June 30, 2022 compared to approximately $128,000 and $262,000, respectively for the three months and six months ended June 30, 2021. Revenue from Legacy authentication services dropped significantly due to the loss of a large customer that decommissioned an older product offering as of April 1, 2022.
General and administrative expenses
During the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, general and administrative expense increased by approximately $2.1 million and $4.9 million principally due to higher non-cash stock compensation charges ($0.7 million and $2.3 million), higher compensation, marketing, and professional fee costs as the Company makes investment in people, marketing and its product offering.
Research and development expenses
During the three-month and six-month periods ended June 30, 2022 compared to June 30, 2021, research and development expenses increased by approximately $0.6 million and $1.8$0.8 million respectively, compared to $0.6 millionas the Company increased staffing and $1.4 million in the threethird party resources as it focuses on key products initiatives.
Depreciation and nine months ended September 30, 2016, respectively. The increase in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 is principally related to Cards Plus and ID Solutions which were acquired on February 8, 2016.amortization expense
Cost of sales
During the three and ninesix months ended SeptemberJune 30, 2017, cost2022 compared to June 30, 2021, depreciation and amortization expense was approximately $0.1 and $0.1 million less as the Company reduced the value of salescertain legacy business asset values.
Interest expense
Interest expense increased during the three-month period ended June 30, 2022 compared to June 30, 2021 principally due to the issuance of $9.2 million of convertible notes in mid-March 2022. Interest expense decreased during the six months ended quarter ended June 30, 2022 as a majority of the 2020 convertible notes were higher thanoutstanding for all of the costperiod in 2021, and were converted into common shares at the end of salesJune 2021.
Discontinued operations
The Board of Directors of authID considers it in the best interests of the Company to focus its business activities on providing biometric identity verification products and services by means of our proprietary IDaaS platform. Accordingly, on May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank, payments services in Colombia and the Card Plus cards manufacturing and printing business in South Africa.
Cards Plus business in South Africa
The Company plans to exit the Cards Plus business and is in discussions with a buyer to purchase the Company’s interests in Cards Plus.
The estimated sale price is $300,000 less selling costs. In the six months ended June 30, 2022, the Cards Plus recorded an impairment charge of approximately $144,000 for certain intangible assets of Cards Plus.
MultiPay business in Colombia
The Company plans to exit the MultiPay business in Colombia in an orderly fashion, honoring our obligations to employees, customers and under applicable laws and regulations. We plan to maintain our customer support and operations team in Bogota, which performs essential functions to support the global operations of our Verified family of products.
The Company will incur certain costs associated with its employees and other contractual obligations. MultiPay will continue to service its customer base in the interim as it will look to minimize all such costs and in addition to realize proceeds from the potential disposition or use of it assets.
The Company as of June 30, 2022, has notified the customers and the impacted employees of the Company’s plan. The Company also communicated to each employee their compensation entitlements and severance packages under the MultiPay retention plan and obligations under the appropriate statutes.
As of June 30, 2022, the Company is working with a major customer to implement a transition plan to provide an essential service for certain bill pay services which will probably result in the leasing and sale of certain of MultiPay’s proprietary software as well as the assumption by the Customer of certain expenses.
In the six months ended June 30, 2022, MultiPay recorded $68,000 of additional expense for employee obligations during the transitional period. We should have a revenue offset to certain expenses as we solidify the sale of the assets.
In the three and ninesix months ended September 30, 2016 due to the revenue increase atJune 30,2022, Cards Plus whichrevenue was acquiredapproximately $510,000 and $883,000, respectively. MultiPay revenue in February 2016.
Operating Expenses
During the three monththose periods was approximately $69,000 and nine months ended September 30, 2017 general$138,000, respectively. Cards Plus had losses of $63,000 and administrative expenses were $2.3 million and $10.3 million, respectively, compared to general and administrative expenses of $2.2 million and $10.7 million$195,000, for the three and ninesix months ended SeptemberJune 30, 2016,2022, respectively. Stock compensation wasMultiPay had losses of approximately $.1 million$143,000 and $1.9 million less$212,000, respectively in the threesame periods.
The financial statements of Cards Plus and nine months in 2017 compared to 2016. The increase in expenses in 2017 other than the decrease in stock compensation was principally due to higher staff compensation expense and consulting servicesMultiPay have been classified as resources were added to support the current and future operations.
During the nine months ended September 30, 2017, the Company’s research and development expense decreased by approximately $0.3 million as the nine months ended September 30, 2016 included a write-off of certain costs associated with assets being tested which were no longer considered viable.
Depreciation and amortization expense remained largely consistent with the three and nine months ended September 30, 2017 compared to September 30, 2016.
Other Income (Expense)
Derivative Liability and Net Loss on Modification of Debt
The derivative liability is associated with potential adjustments in the conversion price associated with certain convertible debentures and warrants that were used to finance the business. As a result of the valuation of these provisionsdiscontinued operations as of SeptemberJune 30, 2016, the Company experienced an increase in the derivative liability of approximately $1.6 million in the three months and a reduction in the derivative liability of approximately $16.1 million in the nine months. The decline in the derivative liability for the nine months is associated with the lower stock price.
During the nine months ended September 30, 2017, the Company performed valuations of the existing liability at the applicable dates2022, as these debentures and warrant terms and conditionsall required classification criteria under appropriate accounting guidance were modified and/or eliminated as a result of the Company’s elimination and repayment of certain existing obligationsmet as of January 31, 2017. In the first nine months of 2017, the Company recorded an expense of $0.5 million due to these valuations. Additionally, the Company recorded a gain on the extinguishment of certain notes payable (approximately $2.8 million), and a loss on the modification of derivatives (approximately $.3 million), loss on modification of warrants (approximately $0.2 million), and a loss on the conversion of debt (approximately $6.0 million) (See Notes 5, 6, and 7).June 30, 2022.
Interest expense
Interest expense decreased in the three and nine months ended September 30, 2017 compared to the prior year principally due to the debt for equity conversion on January 31, 2017.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash.As of September 30, 2017, theThe Company hadhas approximately $1.4$10.0 million of cash on hand and had $0.8approximately $8.8 million of net working capital. Stockholders’ equity was approximately $10.5 millioncapital as of SeptemberJune 30 2017.,2022, as the fund raise in March 2022 provided cash of approximately $11.4 million.
The Company also has a $10.0 million unsecured working capital facility which has no borrowings outstanding as of June 30, 2022.
Cash used in operating activities was approximately $4.9$6.5 million and $2.4 million in the ninesix months ended SeptemberJune 30, 2017 compared to $3.1 million2022 and June 30, 2021, respectively.
Cash provided by financing activities in the ninesix months ended SeptemberJune 30, 20162022, was as the Company invested in staff and consulting services to support current and future operations.follows:
● | The Company entered into an SPA with the Note Investors, and, pursuant to the SPA, sold to the Note Investors the Convertible Notes with an aggregate initial principal amount of approximately $9.2 million and a conversion price of $3.70 per share. The Convertible Notes were sold with an aggregate cash origination fee of approximately $200,000, and issued a total of approximately 28,500 shares of our common stock to the Note Investors as an additional origination fee. Net proceeds from issuance of convertible notes are approximately $8 million. |
The Company raised $7.0 million of additional financing in the first nine months of 2017.
● | The Company entered into Subscription Agreements with the PIPE Investors, and, pursuant to the Subscription Agreements, sold to the PIPE Investors a total of 1,063,514 shares of our common stock at prices of $3.03 per share for an outside investor and $3.70 per share for the management investors. The aggregate gross proceeds from the PIPE are approximately $3.3 million. |
Additionally, the Company entered into and closed a Securities Purchase AgreementCredit Facility with an accredited investor, who is both a current shareholder of the Company and a Note Investor, pursuant to which the accredited investor agreed to provide a $10.0 million unsecured standby line of credit facility that will rank behind the Convertible Notes and may be drawn down in several tranches, subject to certain conditions described in the Credit Facility. Pursuant to the Credit Facility, the Company borrowed $3.0 million on January 31, 2017 in considerationpaid the lender a facility commitment fee of a Senior Unsecured Note and an aggregate of 4,500,000100,000 shares of Common Stock. our common stock upon the effective date of the Credit Facility.
The Senior Unsecured Note maturesCompany may need additional capital in Januarythe future but because of the above financing activities, we believe we have sufficient funds and credit facilities to operate our business through December 31, 2023.
Covid 19
Covid-19 emerged globally in December 2019, and bears interest atit has been declared a ratepandemic. Covid-19 is still impacting customers, business, results and financial condition throughout the world. The Company’s day-to-day operations have been impacted differently depending on geographic location and services that are being performed.
Recently we have seen our business opportunities develop more slowly as business partners and potential customers include Covid-19 considerations and working remotely can cause a delay in decision making and finalization of 10%. Additionally on March 22, 2017,negotiations and agreements.
Ukraine
The ongoing war in Ukraine may impact the Company entered into Subscription Agreementsand its operations in a number of different ways, which are yet to be fully assessed and are therefore causing uncertainty. The Company works with several accredited investors (the “March 2017 Accredited Investors”) pursuant to which the March 2017 Accredited Investors agreed to purchase an aggregatethird party sub-contractors for outsourced services, including software engineering and development, some of 20,000,000 shareswhom are based in Eastern Europe, including Russia and Ukraine. The Company also works with outsourced engineers and developers and third-party providers in other parts of the Company’s common stockworld, including the United States, India, South Africa and South America. While the continuing impact of this conflict and the response of the United States and other countries to it by means of trade and economic sanctions, or other actions is still unknown, any disruption of our ability to work with such contractors caused by this conflict could require the Company to seek alternative sub-contractors at short notice, which may give rise to additional costs and delays in delivering software and product upgrades.
The uncertainty impacting and potential interruption in energy and other supply chains resulting from military hostilities in Europe and the response of the United States and other countries to it by means of trade and economic sanctions, or other actions, may give rise to increases in costs of goods and services generally and may impact the market for an aggregate purchase priceour products as prospective customers reconsider additional capital expenditure, or other investment plans until the situation becomes clearer. On the other hand, the threat of $4.0 million.increased cyber-attacks from Russia or other countries may prompt enterprises to adopt additional security measures such as those offered by the Company.
We do not have any formal commitments or arrangementsFor so long as the hostilities continue and perhaps even thereafter as the situation in Europe unfolds, we may see increased volatility in financial markets which may make it more difficult for the sales of stockCompany to raise additional capital at the time when it needs to do so, or the advancement or loan of funds at this time other than the amounts detailed in the subsequent events. There can be no assurance that such additionalfor financing willto be available to us on acceptable terms,terms. All or at all. Our failure to obtain financing wouldany of these risks separately, or in combination, could have a material adverse effect on the organization
As described in Note 6, on January 31, 2017, the Company converted approximately $6.3 millionour business, financial condition, results of debt and accrued interest in 84,822,006 shares of Company’s common stock. All investors that converted their debt and accrued interest to equity also agreed to waive any existing rights with respect to certain anti-dilution rights contained in their Stock Purchase Warrants. The Company agreed to reduce the exercise price of all outstanding Stock Purchase Warrants acquired as part of a financing or loan that had an exercise price in excess of $0.10 per share to $0.10 per share. Additionally, on February 22, 2017, the Company entered into an Agreement and Release (“February 22, 2017 Agreement”) with a holder of certain debentures that will represent final and full payment of all amounts owed under these debentures which include debt with a face value of $300,000, accrued interest of approximately $31,000, cancellation of 3,600,000 warrants previously accounted for as derivative liabilities as well as the right to certain pledged shares in exchange (2,500,000 shares) for $300,000 in cash which was paid in May 2017.
The combination of the above events effectively refinanced the Company’s financial position in the first nine months of 2017 and provided the current period financing requirements. The Company anticipates additional financing will be required beyond the current actions and the amounts will be dependent on current operations, and investments the Company may pursue. We are expecting to raise capital in the fourth quarter of 2017.
cash flows.
Additionally, during the first nine months of 2017, the Company entered into a lease that met the criteria for capitalization and resulted in a capital lease obligation of approximately $161,000 at lease inception. The payments are approximately $43,095 annually during the five year lease term.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.
Recent Accounting Policies
The recent material accounting policies that may be the most critical to understanding of the financial results and conditions are discussed in Note 21 of the auditedunaudited financial statements includedstatements.
In August the FASB issued a new standard (ASU 2021-06) to reduce the complexity of accounting for convertible debt and other equity-linked instruments. For certain convertible debt instruments with a cash conversion feature, the changes are a trade-off between simplifications in our annual report on form 10-Kthe accounting model (no separation of an “equity” component to impute a market interest rate, and simpler analysis of embedded equity features) and a potentially adverse impact to diluted EPS by requiring the use of the if-converted method. The new standard will also impact other financial instruments commonly issued by both public and private companies. For example, the separation model for beneficial conversion features is eliminated simplifying the analysis for issuers of convertible debt and convertible preferred stock. Also, certain specific requirements to achieve equity classification and/ or qualify for the derivative scope exception for contracts indexed to an entity’s own equity are removed, enabling more freestanding instruments and embedded features to avoid mark-to-market accounting. The new standard is effective for companies that are SEC filers (except for Smaller Reporting Companies) for fiscal years beginning after December 15, 2021 and interim periods within that year, endedand two years later for other companies. Companies can early adopt the standard at the start of a fiscal year beginning after December 31, 2016.15, 2021. The standard can either be adopted on a modified retrospective or a full retrospective basis. The Company is currently reviewing the newly issued standard and does not believe it will materially impact the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to include disclosure under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures asAs of the end of the period covered by this report. The term “disclosureQuarterly Report, our Chief Executive Officer and Chief Financial Officer performed an evaluation of the effectiveness of our disclosure controls and procedures”,procedures as defined underin Rules 13a-15(e) and 15d-15(e) underof the Exchange Act, meansAct. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, the Company’s disclosure controls and other procedures of a company that are designedeffective to ensure that the information required to be disclosed by a companythe Company in the reportsreport that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’sSEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon the evaluation of the disclosure controls and procedures at the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective but improvingas a result of continuing weaknesses in its internal control over financial reporting initially identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and as a result of the Company’s March 31, 2017 Form 10-Q amended filing, which are as follows:
In order to address the above material weaknesses, Philip D. Beck, the Chief Executive Officer and President of the Company, and Stuart P. Stoller, the Chief Financial Officer of the Company, who were appointed to such offices on January 31, 2017 have initiated the following actions to remediate the material weaknesses:
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quartersix months ended SeptemberJune 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
We are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened material legal or administrative proceedings arising in the ordinary course of business. We may fromFrom time to time, becomethe Company is a party to various legal or administrative proceedings arising in the ordinary course of our business. While any litigation contains an element of uncertainty, we have no reason to believe the outcome of such proceedings will have a material adverse effect on the financial condition or results of operations of the Company.
Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2016.2021. There has been no material change in our risk factors from those previously discussed in the Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 31, 2017, Mr. Stoller andMarch 21, 2022, the Company entered into an Executive Retention Agreement pursuant to which Mr. Stoller agreed to serve as Chief Financial Officer pursuant to which the Company granted Mr. Stoller a Stock Option to acquire 5 million shares of common stock of the Company at an exercise price of $0.10 per share for a period of ten years. Further, upon the Company being legally entitled to do so, the Company has agreed to enter a Restricted Stock Purchase Agreement with Mr. Stoller pursuant to which Mr. Stoller will purchase 5 million shares of common stock at a per share price of $0.0001, which shares of common stock vest upon achieving various milestones. The Stock Options vest with respect to (i) one-third of the shares of common stock upon the one year anniversary of the grant date and (ii) in 24 equal tranches commencing on the one-year anniversary of the grant date.
On January 31, 2017, Mr. Beck and the Company entered into an Executive Retention Agreement pursuant to which the Company granted Mr. Beck a Stock Option to acquire 15 million shares of common stock of the Company at an exercise price of $0.10 per share for a period of ten years. Further, upon the Company being legally entitled to do so, the Company has agreed to enter a Restricted Stock Purchase Agreement with Mr. Beck pursuant to which Mr. Beck will purchase 15 million shares of common stock at a per share price of $0.0001, which shares of common stock vest upon achieving various milestones. The Stock Options vest with respect to (i) one-third of the shares of common stock upon January 31, 2017 and (ii) in 24 equal monthly tranches commencing on the grant date.
On January 31, 2017, the Company entered into Conversion Agreements with several accredited investors (the “Investors”) pursuant to which each of the Investors agreed to convert all amounts of debt accrued and payable to such person including interest under the terms of their respective financing or loan agreement as of January 31, 2017 into shares of Company common stock at $0.10 per share provided that 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 an aggregate of approximately $6,331,000 into 84,822,006 shares of Company common stock. Certain Investors also agreed to waive any existing rights with respect to certain anti-dilution rights contained in their Stock Purchase Warrants. The Company agreed to reduce the exercise of all outstanding Stock Purchase Warrants acquired as part of a financing or loan that had an exercise price more than $0.10 per share to $0.10 per share.
On January 31, 2017, the Company entered and closed a Securities Purchase Agreement (“SPA”) with the Theodore Stern Revocable Trust (the “Stern Trust”) pursuant to which the Stern Trust invested an aggregate of $3 million into the Company in consideration of a Promissory Note (the “Stern Note”) and 4.5 million shares of common stock. The Stern Note is payable two years from the date of issuance and bears interest of 10% per annum, which compounds annually. The Stern Note may be prepaid in whole or in part by the Company at any time without penalty; provided, that any partial payment of principal must be accompanied by payment of accrued interest to the date of prepayment. The Stern Trust may convert interest payable under the Stern Note into shares of common stockcertain accredited investors, including certain directors of the Company ator their affiliates (the “Note Investors”), and, pursuant to the SPA, sold to the Note Investors Senior Secured Convertible Notes (the “Convertible Notes”) with an aggregate initial principal amount of approximately $9.2 million and a conversion price of $0.20$3.70 per share. The CompanyConvertible 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 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 required to prepay all outstanding principal and accrued but unpaid interest on this Note upon the Company (including any of its subsidiaries) closing on financing that, individually or collectively, generates gross proceeds equal to or more than $15 million. Mr. Stern became a Board Member upon his election in September 2017.March 31, 2025.
On March 22, 2017,18 and March 21, 2022, the Company entered into Subscription Agreements (the “Subscription Agreements”) with severalan accredited investor and certain members of authID’s management team (the “PIPE Investors”), and, pursuant to the Subscription Agreements, sold to the PIPE Investors a total of 1,063,514 shares of our common stock at prices of $3.03 per share for an outside investor and $3.70 per share for the management investors (the “March 2017 Accredited Investors”“PIPE”). The aggregate gross proceeds from the PIPE are approximately $3.3 million.
Additionally, the Company entered into a Credit Facility with an accredited investor, who is both a current shareholder of the Company and a Note Investor, pursuant to which the March 2017 Accredited Investorsaccredited investor agreed to purchase an aggregateprovide a $10.0 million unsecured standby line of 20,000,000credit facility that will rank behind the Convertible Notes and may be drawn down in several tranches, subject to certain conditions described in the Credit Facility. Pursuant to the Credit Facility, the Company agreed to pay the Lender a facility commitment fee of 100,000 shares of the Company’sour common stock for an aggregate purchase priceupon the effective date of $4,000,000 or a per share price of $0.20. The Company has received proceeds of $3,170,000 as of March 22, 2017. One individual March 2017 Accredited Investor has agreed to fund $830,000, of which $400,000 was received the secondFacility Agreement.
During the quarter of 2017 and the balance will be received in the third quarter of 2017. In connection with this private offering,ended June 30, 2022, the Company paid Network 1, a registered broker-dealer, a cash fee of $240,000 and issued Network 1,000,000approximately 186,488 shares of common stock pursuant to cashless exercises of common stock purchase warrants and options.
The gross proceeds of the Company upon increasing its authorizedsale of the Convertible Notes and the PIPE were used to pay the expenses of those offerings and to provide working capital for the Company. The shares of common stock.
On January 31, 2017,issued in connection with Convertible Notes, the issuance of the Stern Note an aggregate of 4,500,000 shares of Common Stock, the Company issued Network 1, a registered broker-dealer 1,200,000 shares of common stock of the Company in conjunction with its services.
On September 29, 2017, the Company issued to the CEO and CFO in connection with their Restricted Stock Purchase Agreements 15,000,000 and 5,000,000 shares of common stock.
During 2017, the Company issued approximately 594,000 shares of common stock issued in consideration of certain technical services.
The above offers and sales of the securities were made to accredited investorsPIPE and the Company relied uponCredit Facility were subsequently registered under a resale registration statement on Form S-3.
The securities described herein been offered and sold pursuant to exemptions from the exemptions contained in Section 4(2)registration requirements of the Securities Act and/orafforded by Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated there under with regards tothereunder, for the sales. No advertising or general solicitation was employed in offerings the securities. The offers and sales were made to accredited investors and transfersale of the securities was restricted by the Company in accordance with the requirements of the Securities Act of 1933.not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our operations.
Annual Meeting
The Company held its Annual Meeting on September 28, 2017 in Long Beach, New York. Of the 336,565,097 shares of Common Stock outstanding on August 29, 2017, the record date, 281,040,309 shares were represented at the Annual Meeting, in person or by proxy, constituting a quorum. The proposals considered at the Annual Meeting are described in detail in the Proxy Statement. The proposals described below were voted upon at the Annual Meeting and the number of votes cast with respect to each proposal was as set forth below:
(1) Elect five (5) directors until his successor is duly elected and qualified, or until his earlier death, resignation or removal. The five directors receiving the highest vote were appointed to the board. The following directors were elected to the board.
For | Withheld | |
PHILIP D. BECK | 266,299,861 | 14,740,448 |
HERBERT SELZER | 266,799,861 | 14,240,448 |
RICKY SOLOMON | 266,299,861 | 14,740,448 |
THEODORE STERN | 266,799,861 | 14,240,448 |
THOMAS SZOKE | 276,511,543 | 4,528,766 |
(2) Ratify the appointment of Cherry Bekaert LLP as the Company’s independent auditors for the fiscal year ending December 31, 2017. This matter was determined based on majority of the shares cast.
For | Against | Abstain |
266,799,961 | 14,240,348 | 0 |
(3) Approving the 2017 Incentive Stock Plan and to authorize 70,000,000 shares of Common Stock for issuance thereunder. This matter was determined based on majority of the shares cast.
For | Against | Abstain |
195,348,041 | 60,724,008 | 24,968,260 |
(4) Approving the amendment of the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 500,000,000 to 1,000,000,000. This matter was determined based on majority of the shares outstanding.
For | Against | Abstain |
232,319,547 | 48,720,762 | 0 |
(5) Approving an amendment to our certificate of incorporation to effect a reverse stock split at a ratio not less than 1-for-2 and not greater than 1-for-25, with the exact ratio to be set within that range at the discretion of our board of directors before December 31, 2018 without further approval or authorization of our stockholders. This matter was determined based on majority of the shares cast.
For | Against | Abstain |
187,964,609 | 67,607,440 | 25,468,260 |
Amendment to the Certificate of Incorporation
As detailed above, on September 28, 2017, the stockholders of the Company approved an amendment to the Company’s Certificate of Incorporation, increasing the number of authorized shares of common stock from 500,000,000 to 1,000,000,000. The increase in authorized shares was effected pursuant to a Certificate of Amendment to the Certificate of Incorporation filed with the Secretary of State of the State of Delaware.
Other
On December 30, 2016, LATAM, a wholly owned subsidiary ofMarch 21, 2022, the Company entered into a ContractCredit Facility with Stephen J. Garchik, who is both a current shareholder of the Company and holds Senior Secured Convertible Notes (“Garchik”), pursuant to which Garchik agreed to provide to the Company a $10.0 million unsecured standby line of credit facility that will rank behind the Senior Secured Convertible Notes and may be drawn down in several tranches, subject to certain conditions described in the Facility Agreement. Upon request by Garchik and until the full amount due under the Credit Facility is repaid in full, the Company will provide for the Provisionnomination of Cash Collection Services (the “Contract”)one designee specified in writing by Garchik for appointment to our board of directors and for subsequent election to our board of directors and to recommend such nominee for election to our board of directors. The Company will be entitled to reject any nominee upon reasonable grounds, or the nominee may not be elected by the stockholders, in which case Garchik may nominate another person to be a director.
On April 18, 2022, Joseph Trelin, as Garchik’s designee under the Credit Facility, was appointed as a member of the Board of Directors of the Company. Except as set forth above, there is no understanding or arrangement between Mr. Trelin and any other person pursuant to which Mr. Trelin was selected as a director of the Company. Mr. Trelin does not have any family relationship with Recaudo Bogota S.A.S. (“RB”),any director, executive officer or person nominated or chosen by us to become a Colombian company,director or an executive officer. Mr. Trelin has not had direct or indirect material interest in any transaction or proposed transaction in which the Company was or is a proposed participant exceeding $120,000.
On April 18, 2022, Mr. Trelin entered into a letter agreement with the Company pursuant to which he was appointed as a director of the Company in consideration of (i) an initial equity award having a Black Scholes value on the date of grant of $270,000, subject to annual vesting of one-third of the common shares over three years on the date of each Annual Meeting commencing with the 2022 Annual Meeting and (b) commencing following the Company’s 2023 Annual Meeting, assuming Mr. Trelin is re-elected to office, an annual equity award having a Black Scholes value on the date of grant of $90,000, subject to vesting over twelve months.
On April 25, 2022, Stuart Stoller indicated his intention to resign as Chief Financial Officer of the Company in connection with his planned retirement. The resignation and retirement were effective as of June 17, 2022.
On April 25, 2022, Hang Pham and the Company entered an Offer Letter pursuant to which Ms. Pham agreed to serve as Chief Financial Officer with a planned employment date commencing June 20, 2022. Ms. Pham will receive an annual salary of $275,000. The Company agreed to provide a bonus of 40% of the base salary (pro rated for 2022) based on achievement of performance milestones, calculated and payable in accordance with the corporate milestones approved by the Board for the year 2022. For subsequent fiscal years the bonus shall be subject to performance targets to be mutually agreed with the Compensation Committee of the Board. In addition, Ms. Pham received a signing bonus in the amount of $25,000, which is fully refundable to the Company if Ms. Pham leaves her employment voluntarily or is terminated for cause prior to the first anniversary of the commencement of employment. The employment of Ms. Pham will be at will and may be terminated at any time, with or without formal cause. The Company also entered an Executive Retention Agreement with Ms. Pham, pursuant to which the Company agreed to supply, maintainprovide specified severance and bonus amounts and to accelerate the vesting on her equity awards upon termination upon a change of control or an involuntary termination, as each term is defined in the agreements. In the event of a termination upon a change of control or an involuntary termination, Ms. Pham is entitled to receive an amount equal to 100% of her base salary and the target bonus then in effect for the executive officer for the year in which such termination occurs. At the election of the executive officer, the Company will also continue to provide platform serviceshealth related employee insurance coverage for 740 unattended payment collection and fare ticketing kiosks, in considerationup to twelve months, at the Company’s expense. Upon commencing employment, Ms. Pham was granted an option to acquire 350,000 shares of approximately $30 million dollars (excluding VAT) payable over the ten yearcommon stock at an exercise price of $2.41, an exercise period of the Contract. The parties are currently re-negotiating the terms of the Contract, including a potential termination of the Contract by mutual consent. Thereten years and is no guarantee that the parties will be ablesubject to enter a definitive agreement pertaining to the re-negotiation or cancellation of the Contract.certain performance vesting requirements.
* | Filed herewith |
(1) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 23, 2021. |
(2) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on January 22, 2021. |
(3) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on June 15, 2021. |
(4) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 16, 2019. |
(5) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 18, 2020. |
(6) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on May 13, 2020. |
(7) | Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on May 6, 2021. |
(8) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 6, 2017. |
(9) | Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on May 4, 2018. |
(10) | Incorporated by reference to the Form 10-K Annual Report filed with the Securities Exchange Commission on July 12, 2017. |
(11) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 1, 2017. |
(12) | Incorporated by reference to the Form S-1/A Amendment No. 1 to the S-1 Registration Statement filed with the Securities Exchange Commission on July 16, 2021. |
(13) | Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on November 8, 2021. |
(14) | Incorporated by reference to the Form S-8 Registration Statement filed with the Securities Exchange Commission on February 1, 2022. |
(15) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 21, 2022. |
(16) | Incorporated by reference to the Form 10-K Annual Report filed with the Securities Exchange Commission on March 22, 2022. |
(17) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on April 18, 2022. |
(18) | Incorporated by reference to the Form 8-K current Report filed with the Securities and Exchange Commission on April 27, 2022. |
(19) | Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on July 19, 2022. |
101.INS XBRL Instance Document *
101.SC XBRL Taxonomy Extension Schema Document *
H
101.CA XBRL Taxonomy Extension Calculation Linkbase Document *
L
101.DEF XBRL Taxonomy Extension Definition Linkbase Document *
101.LA XBRL Taxonomy Extension Label Linkbase Document *
B
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *
* Filed herein
(1) Previously filed on Form 10-12G on November 9, 2011 (File No.: 000-54545) as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference.
(2) Previously filed on Form 8-K on August 13, 2013 (File No.: 000-54545) as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference.
(3) Previously filed on Form S-1 on February 13, 2014 (File No.: 333-193924), as amended, as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference.
(4) Previously filed on Form S-1 on September26, 2014 (File No.: 333-193924), as amended, as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference
(5) Previously filed on Form S-1 on August 12, 2014 (File No.: 333-193924), as amended, as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference
(6) Previously filed on Form 8-K on September 25, 2014 (File No.: 000-54545) as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference.
(7) Previously filed on Form 8-K on October 9, 2014 (File No.: 000-54545) as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference.
(8) Previously filed on Form 10-Q on November 14, 2014 (File No.: 000-54545) as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference.
(9) Previously filed on Form 8-K on November 28, 2014 (File No.: 000-54545) as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference.
(10) Previously filed on Form 8-K on December 22, 2014 (File No.: 000-54545) as the same exhibit number as the exhibit number listed here, and incorporated herein by this reference.
(11) Previously filed on Form 8-K on March 12, 2015 (File No.: 000-54545) and incorporated herein by this reference.
(12) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 12, 2015.
(13) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September1, 2015.
(14) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September1, 2015.
(15) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September1, 2015.
(16) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September1, 2015.
(17) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on July 2, 2015.
(18) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on July 2, 2015.
(19) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on July 2, 2015.
(20) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on July 2, 2015.
(21) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September 9, 2015.
(22) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September 9, 2015.
(23) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September 9, 2015.
(24) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September 9, 2015
(25) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September 22, 2015.
(26) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(27) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(28) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(29) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(30) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(31) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(32) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(33) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(34) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(35) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(36) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(37) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(38) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(39) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(40) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(41) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(42) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 1, 2015.
(43) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 29, 2015.
(44) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 29, 2015.
(45) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 29, 2015.
(46) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 29, 2015.
(47) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on January 8, 2016.
(48) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 12, 2016.
(49) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on April 25, 2016.
(50) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on April 25, 2016.
(51) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on April 25, 2016.
(52) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on April 25, 2016.
(53) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 28, 2016.
(54) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on December 28, 2016.
(55) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on January 6, 2017.
(56) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on August 16, 2016.
(57) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 1, 2017.
(58) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on February 6, 2017.
(59) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on March 23, 2017.
(60) Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities Exchange Commission on March 31, 2017.
(61) Incorporated by reference to the Form 10-K Annual Report filed with the Securities Exchange Commission on July 12, 2017.
(62) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on September 14, 2017
(63) Incorporated by reference to the Form 8-K Current Report filed with the Securities Exchange Commission on October 3, 2017
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By: | /s/ Thomas L. Thimot | |
| Thomas L. Thimot | |
Chief Executive Officer
| ||
Principal Executive Officer | ||
By: | /s/ Hang Thi Bich Pham | |
Chief Financial Officer, | ||
Principal Financial and Accounting Officer | ||
Dated: August 9, 2022 | ||
29