##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 2007



| ̈ | 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: 0-20190





Authentidate Holding Corp.

(Exact name of registrant as specified in its
charter)







|                                                                                    |  |                                     
|----------------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                            |  | 14-1673067                          
|(State or other jurisdiction of incorporation or organization)                      |  | (I.R.S. Employer Identification No.)
|                                                                                   
|                                                                                    | 
|Connell Corporate Center 300 Connell Drive, 5th Floor, Berkeley Heights, New Jersey |  | 07922                               
|(Address of principal executive offices)                                            |  | (Zip Code)                          

(908) 787-1700

(Registrants telephone number, including area code)

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





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 the filing requirements for the past 90 days.    Yes  x    No   ̈

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

See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈    Accelerated filer  x    Non-accelerated filer   ̈

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ̈  Yes    x  No

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



|                                         |  |                                
|---------------------------------------- |  | -------------------------------
|Class                                    |  | Outstanding at February 5, 2008
|Common Stock, $0.001 par value per share |  | 34,502,277 shares              









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##### Table of Contents

Authentidate Holding Corp.

Form 10-Q

Table of Contents



|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                       |  | Page
|Part I     |  | Financial Information                                                                 |  |     
|           |  |                                                                                      
|Item 1.    |  | Financial Statements                                                                  |  |     
|           |  |                                                                                      
|           |  | Condensed Consolidated Balance Sheets (Unaudited)                                     |  | 3   
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Operations (Unaudited)                           |  | 4   
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Cash Flows (Unaudited)                           |  | 5   
|           |  |                                                                                      
|           |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                      |  | 6   
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 14  
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 21  
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 21  
|           |  |                                                                                      
|Part II    |  | Other Information                                                                     |  |     
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 22  
|           |  |                                                                                      
|Item 1A.   |  | Risk Factors                                                                          |  | 23  
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 32  
|           |  |                                                                                      
|Item 3.    |  | Defaults upon Senior Securities                                                       |  | 32  
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 32  
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 32  
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 33  
|           |  |                                                                                      
|Signatures |  |                                                                                       |  | 34  



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##### Table of Contents

Authentidate Holding Corp. and Subsidiaries

Condensed Consolidated Balance Sheets





|                                                                                                                                                       |  |                             |          |   |              |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | -------- | - | ------------ | - | -------- | -
|(in thousands, except per share data)                                                                                                                  |  | December 31,2007(Unaudited) |          |   | June 30,2007 |  
|                                                                                                                                                       | 
|                                                                                                                                                       | 
|Assets                                                                                                                                                 |  |                             |          |   |              |   |          |  
|Current assets                                                                                                                                         |  |                             |          |   |              |   |          |  
|Cash and cash equivalents                                                                                                                              |  | $                           | 6,302    |   |              | $ | 8,735    |  
|Restricted cash                                                                                                                                        |  |                             | 521      |   |              |   | 521      |  
|Marketable securities                                                                                                                                  |  |                             | 16,975   |   |              |   | 22,896   |  
|Accounts receivable, net                                                                                                                               |  |                             | 932      |   |              |   | 1,543    |  
|Prepaid expenses and other current assets                                                                                                              |  |                             | 710      |   |              |   | 399      |  
|                                                                                                                                                       |  |                             |          |   |              |   |          |  
|Total current assets                                                                                                                                   |  |                             | 25,440   |   |              |   | 34,094   |  
|Property and equipment, net                                                                                                                            |  |                             | 1,077    |   |              |   | 1,078    |  
|Note receivable, net of deferred gain of $2,000                                                                                                        |  |                             |         |   |              |   |         |  
|Other assets                                                                                                                                           |  |                             |          |   |              |   |          |  
|Software development costs, net                                                                                                                        |  |                             | 2,590    |   |              |   | 2,463    |  
|Goodwill                                                                                                                                               |  |                             | 7,341    |   |              |   | 7,341    |  
|Other assets                                                                                                                                           |  |                             | 1,497    |   |              |   | 1,609    |  
|Assets held for sale                                                                                                                                   |  |                             | 2,119    |   |              |   | 2,119    |  
|                                                                                                                                                       |  |                             |          |   |              |   |          |  
|Total assets                                                                                                                                           |  | $                           | 40,064   |   |              | $ | 48,704   |  
|                                                                                                                                                       |  |                             |          |   |              |   |          |  
|Liabilities and Shareholders Equity                                                                                                                   |  |                             |          |   |              |   |          |  
|Current liabilities                                                                                                                                    |  |                             |          |   |              |   |          |  
|Accounts payable and accrued expenses                                                                                                                  |  | $                           | 5,091    |   |              | $ | 3,992    |  
|Deferred revenue                                                                                                                                       |  |                             | 1,119    |   |              |   | 1,230    |  
|Other current liabilities                                                                                                                              |  |                             | 41       |   |              |   | 157      |  
|                                                                                                                                                       |  |                             |          |   |              |   |          |  
|Total current liabilities                                                                                                                              |  |                             | 6,251    |   |              |   | 5,379    |  
|Long-term deferred revenue                                                                                                                             |  |                             | 140      |   |              |   | 140      |  
|                                                                                                                                                       |  |                             |          |   |              |   |          |  
|Total liabilities                                                                                                                                      |  |                             | 6,391    |   |              |   | 5,519    |  
|                                                                                                                                                       |  |                             |          |   |              |   |          |  
|Commitments and contingencies                                                                                                                          |  |                             |          |   |              |   |          |  
|Shareholders equity                                                                                                                                   |  |                             |          |   |              |   |          |  
|Preferred stock $.10 par value; 5,000 shares authorized Series B, 28 shares issued and outstanding                                                     |  |                             | 3        |   |              |   | 3        |  
|Common stock, $.001 par value; 75,000 shares authorized, 34,468 and 34,430 issued and outstanding on December 31, 2007 and June 30,
2007, respectively |  |                             | 34       |   |              |   | 34       |  
|Additional paid-in capital                                                                                                                             |  |                             | 164,927  |   |              |   | 164,336  |  
|Accumulated deficit                                                                                                                                    |  |                             | (131,219 | ) |              |   | (121,125 | )
|Accumulated other comprehensive loss                                                                                                                   |  |                             | (72      | ) |              |   | (63      | )
|                                                                                                                                                       |  |                             |          |   |              |   |          |  
|Total shareholders equity                                                                                                                             |  |                             | 33,673   |   |              |   | 43,185   |  
|                                                                                                                                                       |  |                             |          |   |              |   |          |  
|Total liabilities and shareholders equity                                                                                                             |  | $                           | 40,064   |   |              | $ | 48,704   |  
|                                                                                                                                                       |  |                             |          |   |              |   |          |  

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



3



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##### Table of Contents

Authentidate Holding Corp. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)





|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                      |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|(in thousands, except per share data) |  | 2007                           |        |   | 2006                         |   |        | 2007 |  |   | 2006    |  
|Revenues                              |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Software licenses and support         |  | $                              | 1,134  |   |                              | $ | 568    |      |  | $ | 1,681   |   |  | $ | 1,082  |  
|Hosted software services              |  |                                | 527    |   |                              |   | 434    |      |  |   | 1,028   |   |  |   | 803    |  
|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Total revenues                        |  |                                | 1,661  |   |                              |   | 1,002  |      |  |   | 2,709   |   |  |   | 1,885  |  
|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Operating expenses                    |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Cost of revenues                      |  |                                | 537    |   |                              |   | 381    |      |  |   | 991     |   |  |   | 765    |  
|Selling, general and administrative   |  |                                | 5,689  |   |                              |   | 4,089  |      |  |   | 10,246  |   |  |   | 8,372  |  
|Product development                   |  |                                | 922    |   |                              |   | 499    |      |  |   | 1,694   |   |  |   | 1,400  |  
|Depreciation and amortization         |  |                                | 419    |   |                              |   | 540    |      |  |   | 798     |   |  |   | 814    |  
|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Total operating expenses              |  |                                | 7,567  |   |                              |   | 5,509  |      |  |   | 13,729  |   |  |   | 11,351 |  
|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Operating loss                        |  |                                | (5,906 | ) |                              |   | (4,507 | )    |  |   | (11,020 | ) |  |   | (9,466 | )
|                                      |  |                                |        |  
|Other income                          |  |                                | 430    |   |                              |   | 508    |      |  |   | 961     |   |  |   | 1,098  |  
|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Loss from continuing operations       |  |                                | (5,476 | ) |                              |   | (3,999 | )    |  |   | (10,059 | ) |  |   | (8,368 | )
|                                      |  |                                |        |  
|Income from discontinued operations   |  |                                |       |   |                              |   | 187    |      |  |   |        |   |  |   | 261    |  
|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Net loss                              |  | $                              | (5,476 | ) |                              | $ | (3,812 | )    |  | $ | (10,059 | ) |  | $ | (8,107 | )
|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Basic and diluted loss per share      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Continuing operations                 |  | $                              | (0.16  | ) |                              | $ | (0.12  | )    |  | $ | (0.29   | ) |  | $ | (0.25  | )
|Discontinued operations               |  |                                |       |   |                              |   | 0.01   |      |  |   |        |   |  |   | 0.01   |  
|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Basic and diluted loss per share      |  | $                              | (0.16  | ) |                              | $ | (0.11  | )    |  | $ | (0.29   | ) |  | $ | (0.24  | )
|                                      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  

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



4



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Authentidate Holding Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)





|                                                                           |  |                              |         |   |      |   |        |  
|-------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------ | -
|                                                                           |  | Six Months EndedDecember 31, |        
|(in thousands)                                                             |  | 2007                         |         |   | 2006 |  
|Cash flows from operating activities                                       |  |                              |         |   |      |   |        |  
|Net loss                                                                   |  | $                            | (10,059 | ) |      | $ | (8,107 | )
|Adjustments to reconcile net loss to net cash used by operating activities |  |                              |         |   |      |   |        |  
|Income from discontinued operations                                        |  |                              |        |   |      |   | (261   | )
|Depreciation and amortization                                              |  |                              | 798     |   |      |   | 814    |  
|Share-based compensation                                                   |  |                              | 540     |   |      |   | 891    |  
|Shares issued for services                                                 |  |                              | 51      |   |      |   |       |  
|Changes in assets and liabilities                                          |  |                              |         |   |      |   |        |  
|Accounts receivable                                                        |  |                              | 602     |   |      |   | (343   | )
|Prepaid expenses and other current assets                                  |  |                              | (311    | ) |      |   | (674   | )
|Accounts payable, accrued expenses and other liabilities                   |  |                              | 983     |   |      |   | (1,049 | )
|Deferred revenue                                                           |  |                              | (111    | ) |      |   | 43     |  
|                                                                           |  |                              |         |   |      |   |        |  
|Net cash used in operating activities                                      |  |                              | (7,507  | ) |      |   | (8,686 | )
|                                                                           |  |                              |         |   |      |   |        |  
|Cash flows from investing activities                                       |  |                              |         |   |      |   |        |  
|Purchases of property and equipment                                        |  |                              | (295    | ) |      |   | (214   | )
|Other intangible assets acquired                                           |  |                              | (22     | ) |      |   | (303   | )
|Capitalized software development costs                                     |  |                              | (495    | ) |      |   | (784   | )
|Net sales of marketable securities                                         |  |                              | 5,921   |   |      |   | 9,709  |  
|                                                                           |  |                              |         |   |      |   |        |  
|Net cash provided by investing activities                                  |  |                              | 5,109   |   |      |   | 8,408  |  
|                                                                           |  |                              |         |   |      |   |        |  
|Cash flows from financing activities                                       |  |                              |         |   |      |   |        |  
|Dividends paid                                                             |  |                              | (18     | ) |      |   | (18    | )
|                                                                           |  |                              |         |   |      |   |        |  
|Net cash used in financing activities                                      |  |                              | (18     | ) |      |   | (18    | )
|                                                                           |  |                              |         |   |      |   |        |  
|Effect of exchange rate changes on cash flows                              |  |                              | (17     | ) |      |   | 5      |  
|                                                                           |  |                              |         |   |      |   |        |  
|Net decrease in cash and cash equivalents                                  |  |                              | (2,433  | ) |      |   | (291   | )
|Cash flow from discontinued operations - operating activities              |  |                              |        |   |      |   | 164    |  
|Cash flow from discontinued operations - investing activities              |  |                              |        |   |      |   | (87    | )
|Cash flow from discontinued operations - financing activities              |  |                              |        |   |      |   |       |  
|                                                                           |  |                              |         |   |      |   |        |  
|Cash and cash equivalents, beginning of period                             |  |                              | 8,735   |   |      |   | 9,366  |  
|                                                                           |  |                              |         |   |      |   |        |  
|Cash and cash equivalents, end of period                                   |  | $                            | 6,302   |   |      | $ | 9,152  |  
|                                                                           |  |                              |         |   |      |   |        |  

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



5



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##### Table of Contents

Authentidate Holding Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)



1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the company pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The condensed
consolidated financial statements include the accounts of Authentidate Holding Corp. (AHC) and its subsidiaries Authentidate, Inc., Authentidate International AG, and Trac Medical Solutions, Inc., (collectively, the company). All
significant intercompany transactions and balances have been eliminated in consolidation. As discussed more fully in Note 5, in June 2007, the company completed the sale of its Document Management Solutions and Systems Integration businesses.
Accordingly, these businesses have been presented as discontinued operations in the condensed consolidated financial statements for the prior year periods presented. The results of operations for the periods ended December 31, 2007 are not
necessarily indicative of the results to be expected for the full year. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto included in the companys Form 10-K for
the fiscal year ended June 30, 2007 and the attached Managements Discussion and Analysis of Financial Condition and Results of Operations.

2. Loss Per Share

The following table sets forth the calculation of basic and diluted loss per share for the periods
presented (in thousands, except per share data):



|                                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|----------------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                                |  | 2007                           |        |   | 2006                         |   |        | 2007 |  |   | 2006    |  
|Loss from continuing operations                 |  | $                              | (5,476 | ) |                              | $ | (3,999 | )    |  | $ | (10,059 | ) |  | $ | (8,368 | )
|Income from discontinued operations             |  |                                |       |   |                              |   | 187    |      |  |   |        |   |  |   | 261    |  
|                                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Net loss                                        |  |                                | (5,476 | ) |                              |   | (3,812 | )    |  |   | (10,059 | ) |  |   | (8,107 | )
|Preferred stock dividends                       |  |                                | (17    | ) |                              |   | (17    | )    |  |   | (35     | ) |  |   | (35    | )
|                                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Net loss applicable to common shareholders      |  | $                              | (5,493 | ) |                              | $ | (3,829 | )    |  | $ | (10,094 | ) |  | $ | (8,142 | )
|                                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Weighted average shares                         |  |                                | 34,465 |   |                              |   | 34,413 |      |  |   | 34,457  |   |  |   | 34,413 |  
|                                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Basic and diluted loss per common share         |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Continuing operations, less preferred dividends |  | $                              | (0.16  | ) |                              | $ | (0.12  | )    |  | $ | (0.29   | ) |  | $ | (0.25  | )
|Discontinued operations                         |  |                                |       |   |                              |   | 0.01   |      |  |   |        |   |  |   | 0.01   |  
|                                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Basic and diluted loss per common share         |  | $                              | (0.16  | ) |                              | $ | (0.11  | )    |  | $ | (0.29   | ) |  | $ | (0.24  | )
|                                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  

All common stock equivalents were excluded from the calculation of net loss per share for the
periods presented because their impact is antidilutive, or for discontinued operations, not material. At December 31, 2007, employee and non-executive director options (4,858,000), warrants (473,000), performance based consultant options
(375,000) and convertible preferred stock (500,000) were outstanding. At December 31, 2006, employee and non-executive director options (4,303,000), warrants (832,000), performance based consultant options (375,000) and
convertible preferred stock (500,000) were outstanding.



6



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##### Table of Contents

Authentidate Holding Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





3. Share-Based Compensation

The impact of share-based compensation expense on the results of operations is as follows (in thousands, except per share data):



|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|----------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                        |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                                                        |  | 2007                           |        |   | 2006                         |   |        | 2007 |  |   | 2006    |  
|Loss from continuing operations before share-based compensation expense |  | $                              | (5,206 | ) |                              | $ | (3,533 | )    |  | $ | (9,519  | ) |  | $ | (7,477 | )
|Share-based compensation expense                                        |  |                                | (270   | ) |                              |   | (466   | )    |  |   | (540    | ) |  |   | (891   | )
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Loss from continuing operations                                         |  | $                              | (5,476 | ) |                              | $ | (3,999 | )    |  | $ | (10,059 | ) |  | $ | (8,368 | )
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Net loss before share-based compensation expense                        |  | $                              | (5,206 | ) |                              | $ | (3,312 | )    |  | $ | (9,519  | ) |  | $ | (7,182 | )
|Share-based compensation expense                                        |  |                                | (270   | ) |                              |   | (500   | )    |  |   | (540    | ) |  |   | (925   | )
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Net loss                                                                |  | $                              | (5,476 | ) |                              | $ | (3,812 | )    |  | $ | (10,059 | ) |  | $ | (8,107 | )
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Basic and diluted loss per share                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Continuing operations before share-based compensation                   |  | $                              | (0.15  | ) |                              | $ | (0.11  | )    |  | $ | (0.27   | ) |  | $ | (0.22  | )
|Share-based compensation expense                                        |  |                                | (0.01  | ) |                              |   | (0.01  | )    |  | $ | (0.02   | ) |  |   | (0.03  | )
|Discontinued operations before share-based compensation                 |  |                                |       |   |                              |   | 0.01   |      |  |   |        |   |  |   | 0.01   |  
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Basic and diluted loss per share                                        |  | $                              | (0.16  | ) |                              | $ | (0.11  | )    |  | $ | (0.29   | ) |  | $ | (0.24  | )
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Share-based compensation by category is as follows (in
thousands):      |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|                                                                        |  |                               
|                                                                        |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                                                        |  | 2007                           |        |   | 2006                         |   |        | 2007 |  |   | 2006    |  
|SG&A expenses, net                                                      |  | $                              | 5,449  |   |                              | $ | 3,688  |      |  | $ | 9,766   |   |  | $ | 7,608  |  
|Share-based compensation expense                                        |  |                                | 240    |   |                              |   | 401    |      |  |   | 480     |   |  |   | 764    |  
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Total SG&A expenses                                                     |  | $                              | 5,689  |   |                              | $ | 4,089  |      |  | $ | 10,246  |   |  | $ | 8,372  |  
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Product development expenses, net                                       |  | $                              | 892    |   |                              | $ | 439    |      |  | $ | 1,634   |   |  | $ | 1,280  |  
|Share-based compensation expense                                        |  |                                | 30     |   |                              |   | 60     |      |  |   | 60      |   |  |   | 120    |  
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Total product development expenses                                      |  | $                              | 922    |   |                              | $ | 499    |      |  | $ | 1,694   |   |  | $ | 1,400  |  
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Cost of revenues, net                                                   |  | $                              | 537    |   |                              | $ | 376    |      |  | $ | 991     |   |  | $ | 758    |  
|Share-based compensation expense                                        |  |                                |       |   |                              |   | 5      |      |  |   |        |   |  |   | 7      |  
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Total cost of revenues                                                  |  | $                              | 537    |   |                              | $ | 381    |      |  | $ | 991     |   |  | $ | 765    |  
|                                                                        |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  

The company computed the estimated fair values of all share-based compensation using the
Black-Scholes option pricing model and the assumptions set forth in the following table. The company based its estimate of the life of these options on historical averages over the past five years and estimates of expected future behavior. The
company retained a third party valuation firm to calculate expected volatility which was based on the companys historical stock volatility and historical stock volatility of comparable companies in the industry. The assumptions used in the
companys Black-Scholes calculations for fiscal 2008 and 2007 are as follows:



|                 |  |                        |   |  |               |   |  |                  |   |  |                                   
|---------------- |  | ---------------------- | - |  | ------------- | - |  | ---------------- | - |  | ----------------------------------
|                 |  | Risk FreeInterest Rate |   |  | DividendYield |   |  | VolatilityFactor |   |  | WeightedAverageOption Life(Months)
|Fiscal year 2008 |  | 4.5                    | % |  | 0             | % |  | 74               | % |  | 48                                
|Fiscal year 2007 |  | 4.2                    | % |  | 0             | % |  | 68% - 74         | % |  | 42                                



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Authentidate Holding Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





The Black-Scholes option-pricing model requires the input of highly subjective assumptions. Because
the companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion,
the existing models may not provide a reliable single measure of the fair value of share-based compensation for employee stock options. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of
share-based compensation as circumstances change and additional data becomes available over time, which may result in changes to these assumptions and methodologies. Such changes could materially impact the companys fair value determination.

Stock option activity under the Employees and Non-Executive Directors Stock Option Plans (the Plans) for the period ended
December 31, 2007 is as follows (in thousands, except per share and average life data):



|                                      |  |                  |   |  |                              |      |                                                 |      |                         |   |  
|------------------------------------- |  | ---------------- | - |  | ---------------------------- | ---- | ----------------------------------------------- | ---- | ----------------------- | - | -
|Employees Plan                        |  | Number ofOptions |   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualLife (Years) |      | AggregateIntrinsicValue
|Outstanding, June 30, 2007            |  | 4,330            |   |  | $                            | 4.64 |                                                 |      |                         |   |  
|Granted                               |  | 750              |   |  |                              | 1.26 |                                                 |      |                         |   |  
|Forfeited                             |  | (632             | ) |  |                              | 4.43 |                                                 |      |                         |   |  
|                                      |  |                  |   |  |                              |      |                                                 |      |                         |   |  
|Outstanding, December 31, 2007        |  | 4,448            |   |  | $                            | 4.12 |                                                 |      |                         | $ | 
|                                      |  |                  |   |  |                              |      |                                                 |      |                         |   |  
|Exercisable at December 31, 2007      |  | 3,391            |   |  | $                            | 4.63 |                                                 | 3.68 |                         | $ | 
|                                      |  |                  |   |  |                              |      |                                                 |      |                         |   |  
|Expected to vest at December 31, 2007 |  | 888              |   |  | $                            | 2.37 |                                                 | 9.28 |                         | $ | 
|                                      |  |                  |   |  |                              |      |                                                 |      |                         |   |  
|                                      |  |                  |   | 
|Non-Executive Director Plan           |  | Number ofOptions |   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualLife (Years) |      | AggregateIntrinsicValue
|Outstanding, June 30, 2007            |  | 340              |   |  | $                            | 4.47 |                                                 |      |                         |   |  
|Granted                               |  | 70               |   |  |                              | 1.32 |                                                 |      |                         |   |  
|                                      |  |                  |   |  |                              |      |                                                 |      |                         |   |  
|Outstanding, December 31, 2007        |  | 410              |   |  | $                            | 3.93 |                                                 | 7.27 |                         | $ | 
|                                      |  |                  |   |  |                              |      |                                                 |      |                         |   |  

Non-executive director options are granted at market price and vest on the grant date.



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Authentidate Holding Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Unvested options as of December 31, 2007, and changes in such options during the six month
period then ended are summarized below (in thousands, except per share and average life data):



|                                    |  |                  |   |  |                                     |      |                                                 |      |                         |   |  
|----------------------------------- |  | ---------------- | - |  | ----------------------------------- | ---- | ----------------------------------------------- | ---- | ----------------------- | - | -
|                                    |  | Number ofOptions |   |  | WeightedAverageGrant DateFair Value |      | WeightedAverageRemainingContractualLife (Years) |      | AggregateIntrinsicValue
|Unvested balance, June 30, 2007     |  | 1,018            |   |  | $                                   | 0.86 |                                                 |      |                         |   |  
|Granted                             |  | 750              |   |  |                                     | 0.73 |                                                 |      |                         |   |  
|Vested                              |  | (518             | ) |  |                                     | 0.81 |                                                 |      |                         |   |  
|Forfeited                           |  | (193             | ) |  |                                     | 1.08 |                                                 |      |                         |   |  
|                                    |  |                  |   |  |                                     |      |                                                 |      |                         |   |  
|Unvested balance, December 31, 2007 |  | 1,057            |   |  | $                                   | 0.76 |                                                 | 9.28 |                         | $ | 
|                                    |  |                  |   |  |                                     |      |                                                 |      |                         |   |  

As of December 31, 2007, there was $1,087,000 of total unrecognized compensation expense
related to unvested share-based compensation arrangements granted under the Plans. This expense is expected to be recognized over a weighted-average period of 34 months.

There were no options exercised during the six months ended December 31, 2007 and 2006. The weighted average grant date fair value of options granted during the six month periods ended December 31, 2007 and
2006 was approximately $0.73 and $0.67, respectively. These values were calculated using the Black-Scholes option-pricing model.

The total
fair value of options vested was $479,000 and $844,000 for the six month periods ended December 31, 2007 and 2006, respectively.

During fiscal 2006 the company issued 375,000 stock options to an independent consultant, exercisable at $3.25 per share. These options do not vest until the consultant realizes at least $1.0 million in sales of the companys products;
therefore no expense has been recorded as no sales have been realized to date. These options are not included in the disclosures above. These options expire at the later of seven years from the grant date or five years from the vesting date.

Effective January 17, 2007, the Board of Directors amended the terms of existing stock options previously granted to the
companys current employees whereby such options expire ten years from the original grant date. The incremental share-based compensation expense related to this change is being amortized as the related options vest.

On January 17, 2007, the shareholders approved several amendments to the 2001 Non-Executive Director Stock Option Plan whereby non-executive
director stock options expire ten years from the original date of grant, non-executive directors will have up to two years to exercise their options after leaving the board and may elect to receive up to 50% of their cash director compensation in
restricted common stock of the company issued at fair value in accordance with the terms of the Plan. For the period ending December 31, 2007, the company issued 37,637 shares of restricted common stock (valued at approximately $51,400) to
certain non-executive directors in connection with this program. In January 2008, the company issued 34,237 shares of restricted common stock (valued at approximately $20,200) to such directors under the program.

4. Comprehensive Loss:



|                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                |  | 2007                           |        |   | 2006                         |   |        | 2007 |  |   | 2006    |  
|Net loss as reported            |  | $                              | (5,476 | ) |                              | $ | (3,812 | )    |  | $ | (10,059 | ) |  | $ | (8,107 | )
|Currency translation adjustment |  |                                | 2      |   |                              |   | 3      |      |  |   | (9      | ) |  |   | 5      |  
|                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  
|Comprehensive loss              |  | $                              | (5,474 | ) |                              | $ | (3,809 | )    |  | $ | (10,068 | ) |  | $ | (8,102 | )
|                                |  |                                |        |   |                              |   |        |      |  |   |         |   |  |   |        |  



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Authentidate Holding Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





5. Discontinued Operations and Assets Held for Sale

In June 2007, the company completed the sale of its Document Management Solutions and Systems Integration businesses, including its wholly-owned
subsidiary DJS Marketing Group, Inc., to Astria Solutions Group, LLC (Astria). Astria is a newly formed New York limited liability company organized by members of the acquired businesses senior management team. Under the terms of
the definitive Asset Purchase Agreement, dated as of May 31, 2007, the company received approximately $7,100,000 for the acquired businesses and related assets (including cash of $750,000). Astria paid the company $3,250,000 in cash, issued to
the company a $2,000,000 seven-year note bearing an interest rate of 8.5% (Note), assumed approximately $1,600,000 in liabilities related to the acquired businesses, and agreed to pay the company approximately $270,000 based on the
collection of accounts receivable following the closing. In connection with the sale of the businesses and related assets, the company recorded a gain of approximately $1,264,000 in fiscal 2007. The reported gain does not include any value for the
Note. As discussed below, additional gain, if any, will be recorded as management determines that the debtors cash flows from operations are sufficient to repay the Note.

In connection with the sale, Astria also entered into a seven-year lease for a portion of the building owned by the company in Schenectady, New York
where the acquired businesses are located. Under the terms of the lease, Astria has elected to pay all taxes and operating costs for the land and building and rent and additional rent of approximately $186,000 per year for the term of lease. Based
on the companys intention to dispose of these assets in the next year, the carrying value of the land and building is classified as assets held for sale for all periods presented.

The Note is secured by the assets of the acquired businesses sold by the company to Astria and is subordinated to the interests of the senior creditor
and mezzanine lender to Astria as set forth in an intercreditor and subordination agreement among the company, Astria, and the senior creditor and mezzanine lender. The Note provides for monthly interest payments through May 2010, principal (based
on a 15-year amortization) and interest payments thereafter through April 2014 and a final payment of the balance in May 2014. Based on the subordination, the extended collection period and other factors, the company has no reasonable basis for
estimating the degree of collectibility of the Note. Accordingly, the company is using the guidance under Staff Accounting Bulletin No. 103Topic 5U Gain Recognition on Sale of a Business or Operating Assets to a Highly Leveraged
Entity for the Note and will recognize the additional gain, if any, on the sale of the businesses as management determines that the debtors cash flows from operations are sufficient to repay the Note.

Operating results for discontinued operations for the three and six month periods ended December 31, 2006 reflected operating income of
approximately $187,000 and $261,000 from revenues of $3,127,000 and $5,716,000, respectively.

6. Segment Information

FAS 131, Disclosures about Segments of an Enterprise and Related Information,requires certain financial and supplementary information to be
disclosed about operating segments of an enterprise. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our President.

The company operates in one reportable segment in the United States and Germany. In the United
States the business is engaged in the development and sale of secure workflow management web-based services. The companys automated and trusted workflow solutions enable enterprises and office professionals to employ rules-based electronic
forms, intelligent routing and transaction management, electronic signing, content authentication, identity credentialing and verification and web and fax based communication capabilities. Customer benefits from the companys offerings include
reduced costs, improved productivity and service levels, automated audit trails, enhanced compliance with regulatory requirements and the reduction of paper-based processes. In the United States we also offer our proprietary content authentication
technology in the form of the USPS Electronic Postmark ® (EPM). In Germany the business is engaged in the development and sale of software applications that provide electronic signature and
time stamping capabilities for a variety of corporate processes including electronic billing and archiving solutions. Our web-based services and software applications are compliant with applicable digital signature rules and guidelines.

Revenues from external customers include revenues from our German operations of approximately $1,134,000 and $1,681,000 for three and six month
periods ended December 31, 2007 and $568,000 and $1,082,000 for the three and six month periods ended December 31, 2006, respectively. This operation had assets of approximately $1,020,000 and $1,228,000 at December 31, 2007 and 2006,
respectively.



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Authentidate Holding Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





7. Goodwill and Other Intangible Assets

The company performs an annual valuation of goodwill at the end of the fiscal year. Any adverse development or change in our business during the year
would require an interim assessment. For the six months ended December 31, 2007 there were no adverse developments or changes that required such an assessment and the carrying amount of goodwill has not changed. Approximately $7,291,000 for
goodwill relates to our business in Germany.

Other intangible assets consist of the following (in thousands):



|                      |  |                   |       |                         |   |               |  |               |     |                         |   |               |  |                     |     |  |   |     |  |   
|--------------------- |  | ----------------- | ----- | ----------------------- | - | ------------- |  | ------------- | --- | ----------------------- | - | ------------- |  | ------------------- | --- |  | - | --- |  | --
|                      |  | December 31, 2007 |       | June 30, 2007           |   |              
|                      |  | GrossCarrying     |       | AccumulatedAmortization |   | Net BookValue |  | GrossCarrying |     | AccumulatedAmortization |   | Net BookValue |  | Useful LifeIn Years
|Patents               |  | $                 | 342   |                         | $ | 127           |  | $             | 215 |                         | $ | 342           |  | $                   | 117 |  | $ | 225 |  | 17
|Trademarks            |  |                   | 146   |                         |   | 42            |  |               | 104 |                         |   | 146           |  |                     | 38  |  |   | 108 |  | 20
|Acquired technologies |  |                   | 72    |                         |   | 72            |  |               |    |                         |   | 72            |  |                     | 72  |  |   |    |  | 2 
|Licenses              |  |                   | 1,223 |                         |   | 794           |  |               | 429 |                         |   | 1,201         |  |                     | 672 |  |   | 529 |  | 3 
|                      |  |                   |       |                         |   |               |  |               |     |                         |   |               |  |                     |     |  |   |     |  |   
|Total                 |  | $                 | 1,783 |                         | $ | 1,035         |  | $             | 748 |                         | $ | 1,761         |  | $                   | 899 |  | $ | 862 |  |   
|                      |  |                   |       |                         |   |               |  |               |     |                         |   |               |  |                     |     |  |   |     |  |   

The company amortizes other intangible assets under the straight line method. Amortization expense
was approximately $72,000 and $136,000 for the three and six month periods ended December 31, 2007, respectively. Amortization expense for the next five fiscal years is expected to be as follows (in thousands):



|           |  |   |    
|---------- |  | - | ---
|2008       |  | $ | 136
|2009       |  |   | 148
|2010       |  |   | 100
|2011       |  |   | 97 
|2012       |  |   | 57 
|Thereafter |  |   | 210
|           |  |   |    
|           |  | $ | 748
|           |  |   |    

8. Shareholders Equity

The changes in Shareholders Equity for the six months ended December 31, 2007 are summarized as follows (in thousands):



|                                      |  |                |   |             |   |                |  |                    |         |  |                                            |          |   |                          |   |     |   |  |   |         |  
|------------------------------------- |  | -------------- | - | ----------- | - | -------------- |  | ------------------ | ------- |  | ------------------------------------------ | -------- | - | ------------------------ | - | --- | - |  | - | ------- | -
|                                      |  | PreferredStock |   | CommonStock |   | Paid-inCapital |  | AccumulatedDeficit |         |  | AccumulatedOtherComprehensiveIncome (Loss) |          |   | TotalShareholdersEquity |  
|Balance, June 30, 2007                |  | $              | 3 |             | $ | 34             |  | $                  | 164,336 |  | $                                          | (121,125 | ) |                          | $ | (63 | ) |  | $ | 43,185  |  
|Preferred stock dividends             |  |                |   |             |   |                |  |                    |         |  |                                            | (35      | ) |                          |   |     |   |  |   | (35     | )
|Share-based compensation expense      |  |                |   |             |   |                |  |                    | 540     |  |                                            |          |   |                          |   |     |   |  |   | 540     |  
|Issuance of common stock for services |  |                |   |             |   |                |  |                    | 51      |  |                                            |          |   |                          |   |     |   |  |   | 51      |  
|Currency translation adjustment       |  |                |   |             |   |                |  |                    |         |  |                                            |          |   |                          |   | (9  | ) |  |   | (9      | )
|Net loss                              |  |                |   |             |   |               |  |                    |        |  |                                            | (10,059  | ) |                          |   |     |   |  |   | (10,059 | )
|                                      |  |                |   |             |   |                |  |                    |         |  |                                            |          |   |                          |   |     |   |  |   |         |  
|Balance, December 31, 2007            |  | $              | 3 |             | $ | 34             |  | $                  | 164,927 |  | $                                          | (131,219 | ) |                          | $ | (72 | ) |  | $ | 33,673  |  
|                                      |  |                |   |             |   |                |  |                    |         |  |                                            |          |   |                          |   |     |   |  |   |         |  

During the six months ended December 31, 2007, no stock options or common stock warrants were
exercised.



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Authentidate Holding Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





9. Preferred Stock

The company has the right to repurchase the outstanding Series B preferred stock at a redemption price equal to $25.00 per share, plus accrued and unpaid dividends. The holder of such shares has the right to convert
shares of preferred stock into an aggregate of 500,000 shares of our common stock at a conversion rate of $1.40 per share. In the event the company elects to redeem these securities, the holder will be able to exercise its conversion right
subsequent to the date that we issue a notice of redemption but prior to the deemed redemption date as would be set forth in such notice. The Series B preferred stock was originally issued in a private financing in October 1999 and the conversion
and redemption features were amended in October 2002 to provide for the rights and obligations described in this note.

10. Commitments and
Contingencies

As previously reported, Authentidate Holding Corp. was named as the defendant in a claim filed by Shore Venture Group in
the federal District Court for the District of New Jersey, under the caption Shore Venture Group, LLC, et al v. Authentidate Holding Corp., Authentidate, Inc. and John T. Botti. The complaint in this case was filed on March 2, 2005 and
an amended complaint was filed on or about April 26, 2005. On October 12, 2005, the parties entered into an agreement to arbitrate the claims asserted against us by plaintiffs. On October 19, 2005, the Court approved and entered a
Consent Order referring the case to arbitration by the American Arbitration Association and staying the lawsuit pending resolution of the arbitration. In this case, the claimants sought additional shares of the common stock of our subsidiary,
Authentidate, Inc., and had withdrawn a number of other claims in the arbitration, including claims for damages in connection with an alleged copyright infringement and rights under one or more of our patent applications. An arbitration hearing in
this matter concluded on September 10, 2007. On December 20, 2007, we received the decision of the arbitrators, which was rendered on December 19, 2007, awarding the claimants damages in the amount $1,079,262 plus interest in the
amount of $563,676. The arbitrators further awarded the claimants per diem interest at the rate of $303.00 from December 12, 2007 through the date the award was rendered. Following a post-hearing briefing, the arbitrators awarded the claimants
attorneys fees of $241,038 on January 31, 2008. The arbitration award extinguishes any interest of Shore Ventures in any shares of stock or stock options of Authentidate Holding Corp. or Authentidate, Inc. The full amount for this
settlement has been accrued as of December 31, 2007.

Between June and August 2005, six purported shareholder class actions were filed
in the United States District Court for the Southern District of New York against our company and certain of our current and former officers and directors. Plaintiffs in those actions alleged that defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Sections 11 and 15 of the Securities Act of 1933. The securities law claims were based on the allegations that we failed to disclose that our August 2002 agreement with the USPS contained certain performance
metrics, and that the USPS could cancel the agreement if we did not meet these metrics; that we did not disclose complete and accurate information as to our performance under, and efforts to renegotiate, the USPS agreement; and that when we did
disclose that the USPS might cancel the agreement, the market price of our stock declined. On October 5, 2005 the Court consolidated the class actions under the caption In re Authentidate Holding Corp. Securities Litigation., C.A.
No. 05 Civ. 5323 (LTS), and appointed the Illinois State Board of Investment as lead plaintiff under the Private Securities Litigation Reform Act. The plaintiff filed an amended consolidated complaint on January 3, 2006, which asserted the
same claims as the prior complaints and also alleged that Authentidate violated the federal securities laws by misrepresenting that it possessed certain patentable technology. On July 14, 2006, the Court dismissed the amended complaint in its
entirety; certain claims were dismissed with prejudice and plaintiff was given leave to replead those claims which were not dismissed with prejudice. In August 2006, plaintiff filed a second amended complaint, which does not assert any claims
relating to the companys patents or under the Securities Act of 1933, but which otherwise is substantially similar to the prior complaint. The second amended complaint seeks unspecified monetary damages. The company moved to dismiss the second
amended complaint on November 13, 2006. The motion is pending before the court.

In addition to the class action complaints, four
purported shareholder derivative actions were filed against certain former and current directors and officers of the company in June and July 2005 in the United States District Court for the Southern District of New York. These federal court
derivative actions were based on substantially the same events and factual allegations as the original class action complaints and asserted claims that Authentidate was injured by an alleged breach of fiduciary duty, waste, mismanagement, violations
of Sarbanes-Oxley, and misappropriation of inside information. The derivative complaints sought, among other things, damages, equitable relief, restitution, and payment of costs and expenses incurred in the litigation (including legal fees).
Plaintiffs in the derivative actions entered into a Court-approved stipulation providing for the consolidation of their actions and the selection of Maxine Philips as the lead plaintiff. Plaintiffs filed a consolidated complaint on November 14,
2005, which defendants moved to dismiss on January 13, 2006 on the ground that plaintiffs had not made a proper demand on the Board of Directors. On



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Notes to Condensed Consolidated Financial Statements (Unaudited)





March 20, 2006, before the motion to dismiss was decided, plaintiffs in the federal court derivative action voluntarily dismissed their complaint
without prejudice. On April 6, 2006, the court held a hearing to confirm, among other things, that plaintiffs had not received any payment or other consideration for the dismissal of their claims. At the hearing plaintiffs agreed to file a
motion seeking court approval for the dismissal. Plaintiffs filed this motion on April 18, 2006 and the court entered an order dismissing the consolidated complaint on May 5, 2006. Subsequently, on May 25, 2006, the plaintiffs sent a
letter to the Board of Directors demanding that it file a derivative suit on behalf of the company which asserts the same claims as the complaint which plaintiffs voluntarily dismissed only weeks earlier.

On December 13, 2005, a purported shareholder derivative action was filed in the Supreme Court of New York, Schenectady County, entitled Elkin v.
Goldman et al., No. 2005-2240. Plaintiff in that action demanded that our Board of Directors file a derivative action on behalf of the company against nine of its current and former directors and officers. The complaint asserts the same
claims that are alleged in the first federal court derivative actions. The Board of Directors, following a recommendation from a committee of the Board composed of outside, non-employee directors who were advised by independent outside counsel,
concluded that commencing litigation, as demanded by Elkin, is not in our best interest.

We are engaged in no other litigation which would
be anticipated to have a material adverse effect on our financial condition, results of operations or cash flows.

We are currently
negotiating the terms of an employment agreement with our new President. We have employment agreements with our Chief Financial Officer and the Chief Executive Officer of our German subsidiary that specify the executives current compensation,
benefits and perquisites, the executives entitlements upon termination of employment, and other employment rights and responsibilities.

We have entered into various agreements by which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification provisions are included in contracts arising in the normal course of
business under which we customarily agree to hold the indemnified party harmless against losses arising from a breach of representations related to such matters as intellectual property rights. Payments by us under such indemnification clauses are
generally conditioned on the other party making a claim. Such claims are generally subject to challenge by us and to dispute resolution procedures specified in the particular contract. Further, our obligations under these arrangements may be limited
in terms of time and/or amount and, in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements
due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, the company has not made any payments under these agreements that have been material individually or in the aggregate. As of
December 31, 2007, we were not aware of any obligations under such indemnification agreements that would require material payments.

11. Income
Taxes

On July 1, 2007, the company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109,(FIN 48). FIN 48 provides a two-step approach to recognizing and measuring tax benefits when the benefits realization is uncertain. The first step is to
determine whether the benefit is to be recognized; the second step is to determine the amount to be recognized. Income tax benefits should be recognized when, based on the technical merits of a tax position, the entity believes that if a dispute
arose with the taxing authority and was taken to a court of last resort, it is more likely than not (i.e., a probability of greater than 50 percent) that the tax position would be sustained as filed; and if a position is determined to be more likely
than not of being sustained, the entity should recognize the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority. Upon the adoption of FIN 48, the company
analyzed filing positions in all of the federal and state jurisdictions where the company is required to file income tax returns, as well as all open tax years in these jurisdictions. In connection with the adoption of FIN 48, the company has
elected an accounting policy to classify interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively. No adjustment was necessary as a result of the implementation of FIN 48. The company
continues to fully recognize its tax benefits which are offset by a valuation allowance due to the uncertainty that the deferred tax assets will be realized. We will continue to evaluate the realizability of our domestic net deferred tax assets and
may record additional benefits in future earnings if we determine the realization of these assets is more likely than not. At July 1, 2007 and December 31, 2007, the company did not have any unrecognized tax benefits.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward-Looking Statements and Factors That May Affect Future Results

Certain statements in this Form 10-Q, including information set forth under Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (the Act). We desire to avail ourselves of certain safe harbor provisions of the Act and are therefore including this special note to enable us to do so.
Forward-looking statements in this Form 10-Q or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to our stockholders and other publicly available statements issued or released by us
involving known and unknown risks, uncertainties and other factors which could cause our actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements
expressed or implied by such forward-looking statements. Such future results are based upon our managements best estimates based upon current conditions and the most recent results of operations. These risks include, but are not limited to
risks associated with the market acceptance of our software and services, competition, pricing, technological changes, implementation of our business plan, related decisions by the USPS, and other risks as discussed in our filings with the
Securities and Exchange Commission, in particular our Annual Report on Form 10-K for the year ended June 30, 2007 and subsequently filed Quarterly Reports on Form 10-Q, all of which risk factors could adversely affect our business and the
accuracy of the forward-looking statements contained herein.

Overview

Authentidate Holding Corp. (AHC or the company) is a worldwide provider of secure workflow management software and web-based services. AHC and its
subsidiaries provide software applications and web-based services that address a variety of business needs for our customers, including reducing costs, raising service levels, improving productivity, providing automated audit trails, enhancing
compliance with regulatory requirements and reducing paper based processes. Our scalable offerings are primarily targeted at enterprises and office professionals and incorporate security technologies such as rules based electronic forms, intelligent
routing and transaction management, electronic signing, content authentication, identity credentialing and verification and web and fax-based communication capabilities to electronically facilitate secure and trusted workflows. The company operates
its business in the United States and Germany with technology and service offerings that address emerging growth opportunities based on the regulatory and legal requirements specific to each market. In the United States the business is engaged in
the development and sale of web-based services largely based on our Inscrybe platform and related capabilities. In the United States, we offer our patent pending content authentication technology in the form of the United States Postal
Service® Electronic Postmark® (EPM). In Germany the business is engaged in the development and sale of software applications that provide electronic signature and time stamping capabilities for a variety of corporate processes including
electronic billing and archiving solutions. Our web-based services and software applications are compliant with applicable digital signature rules and guidelines. We sell our web-based services and software applications through a direct sales effort
and reseller arrangements.

For a number of years, we have experienced net losses and negative cash flow from operating activities. Our
principal activities during this period have focused on developing new products, hiring management, refining our business strategies and repositioning our businesses for growth. Although we believe we are well positioned for such growth, we expect
to continue to generate net losses and negative cash flow for the foreseeable future as we expand our operations. See Liquidity and Capital Resources.

During fiscal 2007, we took several steps to sharpen our strategic business focus and realigned our operations accordingly. In the United States we continued to invest in developing our Inscrybe platform and
launched Inscrybe Healthcare, a trusted content exchange service specifically targeting the needs of enterprises in the healthcare sector. In June 2007 we completed the sale of our Document Management Solutions and Systems Integration businesses
that were strategically not relevant to our business direction and in August 2007 we launched Inscrybe Office which brings together the power of online communications with a number of powerful features, such as electronic signatures, content
authentication and trusted time stamps using the USPS EPM seal. Meanwhile, our operating unit in Germany continued to grow acceptance for its electronic invoicing product, and made a successful entry into the German healthcare market with its
security technology offerings.

In July 2007, we entered into a new three-year license agreement with the USPS to act as a non-exclusive
authorized service provider of the USPS EPM. Pursuant to this license agreement, the USPS granted the company a non-exclusive, worldwide license to use its applicable trademarks and other intellectual property rights for the EPM service in order to
enable the company to offer the EPM service directly to the market. The USPS will define and maintain the technical and operational standards for the EPM service, and serve as backup verifier for all EPM transactions. Authentidate is the first
provider to be authorized in a new standards-based EPM service model created by the USPS to help ensure performance standards and facilitate the development of a multi-provider environment. The company previously operated the EPM service on behalf
of the USPS since March 2003, under a strategic alliance agreement that expired on July 31, 2007.



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On November 26, 2007, our Board of Directors promoted Mr. OConnell Benjamin to the office
of President to fill one of the positions formerly held by Mr. Suren Pai, who departed as our President and Chief Executive Officer and resigned as a member of our Board of Directors. We are currently negotiating the terms of an employment
agreement with Mr. Benjamin. In January 2008, we announced a comprehensive plan intended to accelerate revenue growth and enhance shareholder value in the second half of fiscal 2008. The plan, set forth in a series of strategic initiatives,
follows a detailed assessment of the companys business strategy and operations by senior management and the Board of Directors. Pursuant to this plan, we intend to enhance our sales and customer service capabilities by leveraging our existing
resources, focus our marketing and sales efforts on additional segments of the healthcare industry and reduce our operating costs, including downsizing our management team and certain product development resources. Although we will incur severance
costs in the second and third quarters of fiscal 2008 as a result of these actions, we do not believe that such costs will have a material adverse impact on us.

We intend to continue our efforts to develop and market our software applications and web-based services in the United States and European markets. We also intend to focus on identifying additional applications and
markets where our technology can address customer needs.

Our revenues consist principally of transaction fees for web-based services,
software license fees, hosting fees and maintenance charges. Growth in our business is affected by a number of factors, including general economic and business conditions, and is characterized by long sales cycles. The timing of customer contracts,
implementations and ramp-up to full utilization can have a significant impact on results and we believe our results over a longer period of time provide better visibility into our performance.

Critical Accounting Policies

Our discussion and
analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States and the rules of
the Securities and Exchange Commission. The preparation of our condensed consolidated financial statements and related notes in accordance with generally accepted accounting principles requires us to make estimates, which include judgments and
assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe
to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Actual results may differ from these estimates under different assumptions or conditions. To the extent that there are material
differences between these estimates and actual results, our financial condition or results of operations will be affected.

A critical
accounting estimate is based on judgments and assumptions about matters that are uncertain at the time the estimate is made. Different estimates that reasonably could have been used or changes in accounting estimates could materially impact our
financial statements. We believe that the policies described below represent our critical accounting policies, as they have the greatest potential impact on our financial statements. However, you should also review our Summary of Significant
Accounting Policiesbeginning on page F-8 of the notes to our consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007.

Long-Lived Assets

Long-lived assets, including
property and equipment, software development costs, patent costs, trademarks and licenses are reviewed for impairment using an undiscounted cash flow approach whenever events or changes in circumstances such as significant changes in the business
climate, changes in product offerings, or other circumstances indicate that the carrying amount may not be recoverable.

Software Development Costs

Software development and modification costs incurred subsequent to establishing technological feasibility are capitalized and amortized
based on anticipated revenue for the related product with an annual minimum charge equal to the straight-line amortization over the remaining economic life of the related products (generally three years). Amortization expense is included in
depreciation and amortization expense.

Goodwill

Goodwill is reviewed for impairment annually or whenever events such as significant changes in the business climate, changes in product offerings, or other circumstances indicate that the carrying amount may not be
recoverable. We perform our annual goodwill impairment test at the end of each fiscal year using a discounted cash flow approach.



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Revenue Recognition

Revenue is derived from transaction fees for web-based services, software licenses, maintenance arrangements, hosting services, Electronic Postmark (EPM) sales and post contract customer support services. Revenue is
recognized when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed and collectibility is reasonably assured. Multiple-element arrangements are assessed to determine whether they can be separated into more
than one unit of accounting. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met: the delivered item has value to the customer on a stand alone basis; there is objective and
reliable evidence of the fair value of the undelivered items in the arrangement, if the arrangement includes a general right of return relative to the delivered items, and delivery or performance of the undelivered item is considered probable and
substantially in our control. If these criteria are not met, then revenue is deferred until such criteria are met or until the period over which the last undelivered element is delivered, which is typically the life of the contract agreement. If
these criteria are met, we allocate total revenue among the elements based on the sales price of each element when sold separately which is referred to as vendor specific objective evidence or VSOE.

Revenue from web-based services, EPM sales and post contract customer support services is recognized when the related service is provided and, when
required, accepted by the customer. Software license revenue is recognized when the criteria discussed above is met. Maintenance and hosting services revenue is recognized over the period in which the service is performed. Revenue from multiple
element arrangements that cannot be allocated to identifiable items is recognized ratably over the contract term which is generally one year.

Management Estimates

Preparing financial statements requires management to make estimates, judgments and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses. Examples include estimates of loss contingencies and product life cycles, assumptions such as elements comprising a software arrangement, including the distinction between
upgrades/enhancements and new products; when technological feasibility is achieved for our products; the potential outcome of future tax consequences; and determining when investment or other impairments exist. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to make required payments. We make estimates on the future recoverability of capitalized goodwill which is highly dependent on the future success of marketing and sales, we
record a valuation allowance against deferred tax assets when we believe it is more likely than not that such deferred tax assets will not be realized and we make assumptions in connection with the calculations of share-based compensation expense.
Actual results and outcomes may differ from managements estimates, judgments and assumptions. We have based our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances and we
evaluate our estimates on a regular basis and make changes accordingly. Historically, our estimates relative to our critical accounting estimates have not differed materially from actual results; however, actual results may differ from these
estimates under different conditions. If actual results differ from these estimates and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on
our consolidated statement of operations, and in certain situations, could have a material adverse effect on liquidity and our financial condition.

Stock-Based Compensation

We apply Statement of Financial Accounting Standard No. 123R, Share Based
Payment(FAS 123R) to account for employee and director stock option plans. Share-based employee compensation expense is determined using the Black-Scholes option pricing model which values options based on the stock price at the grant
date, the expected life of the option, the estimated volatility, expected dividend payments and the risk-free interest rate over the expected life of the options.

The company computed the estimated fair values of all share-based compensation using the Black-Scholes option pricing model and the assumptions set forth in the following table. The company based its estimate of the
life of these options on historical averages over the past five years and estimates of expected future behavior. The company retained a third party valuation firm to calculate expected volatility which was based on the companys historical
stock volatility and historical stock volatility of comparable companies in the industry. The assumptions used in the companys Black-Scholes calculations for fiscal 2008 and 2007 are as follows:



|                 |  |                        |   |  |               |   |  |                  |   |  |                                   
|---------------- |  | ---------------------- | - |  | ------------- | - |  | ---------------- | - |  | ----------------------------------
|                 |  | Risk FreeInterest Rate |   |  | DividendYield |   |  | VolatilityFactor |   |  | WeightedAverageOption Life(Months)
|Fiscal year 2008 |  | 4.5                    | % |  | 0             | % |  | 74               | % |  | 48                                
|Fiscal year 2007 |  | 4.2                    | % |  | 0             | % |  | 68% - 74         | % |  | 42                                



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The Black-Scholes option-pricing model requires the input of highly subjective assumptions. Because the
companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion, the
existing models may not provide a reliable single measure of the fair value of share-based compensation for employee stock options. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of
share-based compensation as circumstances change and additional data becomes available over time, which may result in changes to these assumptions and methodologies. Such changes could materially impact the companys fair value determination.

Concentrations of Credit Risk

Financial instruments which subject us to concentrations of credit risk consist of cash and cash equivalents, marketable securities and trade accounts receivable. To reduce credit risk, we place our investments with several high credit
quality financial institutions and typically invest in AA or better rated investments. Our credit customers are not concentrated in any specific industry or business. We establish an allowance for doubtful accounts based upon factors surrounding the
credit risk of specific customers, historical trends and other information.

The following analysis of our financial condition and results
of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto contained elsewhere in this Form 10-Q.

Results of Operations

Three and six months ended December 31, 2007 compared to three and six months ended December 31,
2006.

Revenues increased approximately 66% to $1,661,000 for the quarter ended December 31, 2007, compared to $1,002,000 for
the prior year period. These results reflect increases in transaction volumes and new customers in both our US and German operations. Revenues for the six months ended December 31, 2007 reflect the same trends as the quarter and increased
approximately 44% to $2,709,000 from $1,885,000 for the prior year.

Cost of revenues increased to $537,000 for the quarter ended
December 31, 2007, compared to $381,000 for the prior year period. Cost of revenues for the six months ended December 31, 2007 increased to $991,000 compared to $765,000 for the same period in the prior year. These increases are due
primarily to the increase in revenues discussed above.

Selling, general and administrative (SG&A) expenses increased to $5,689,000 for
the quarter ended December 31, 2007, compared to $4,089,000 for the same period in 2006. This increase reflects cost management activities and lower share-based compensation expense for the quarter which were offset by legal expenses and
settlements of approximately $1,600,000, and professional service and accrued severance expenses of approximately $50,000 and $612,000, respectively, for various board projects and initiatives. The prior year amount also includes incremental legal
expenses of approximately $750,000. SG&A expenses for the six months ended December 31, 2007 increased to $10,246,000 compared to $8,372,000 for the prior year due to the items discussed above. For the six month period, legal expenses and
settlements were approximately $2,300,000, and professional services and accrued severance were approximately $300,000 and $780,000, respectively. The prior year period includes incremental legal expenses of approximately $1,300,000.

Product development expenses were $922,000 for the quarter ended December 31, 2007, compared to $499,000 for the comparable period in 2006. Product
development spending relates primarily to our investment in our US business and fluctuates period to period based on the amounts capitalized. Total spending for the quarter, including capitalized amounts, was $1,117,000 compared to $913,000 for the
prior year due primarily to an increase in the use of contract employees in the current period. Product development expenses for the six months ended December 31, 2007 were $1,694,000 compared to $1,400,000 for the prior year. Total spending
for the period was $2,189,000 compared to $2,184,000 for the same period in 2006.

Depreciation and amortization expense decreased to
$419,000 for the quarter ended December 31, 2007, compared to $540,000 for the prior year period reflecting the timing of certain purchases and in service dates. Depreciation and amortization expense for the six months ended December 31,
2007 was $798,000 compared to $814,000 for the prior year period.



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Interest and other income decreased to $430,000 for the quarter ended December 31, 2007, compared to
$508,000 for the prior year period. For the six months ended December 31, 2007 interest and other income decreased to $961,000 compared to $1,098,000 for the prior year. These decreases are due primarily to higher interest rates during the
current periods, net of the effect of lower cash and investment balances as we continue to invest in our business.

Net loss from
continuing operations for the quarter ended December 31, 2007 was $5,476,000, or $0.16 per share, compared to $3,812,000, or $0.11 per share, from continuing and discontinued operations for the quarter ended December 31, 2006. For the six
months ended December 31, 2007 net loss from continuing operations was $10,059,000, or $0.29 per share, compared to $8,107,000, or $0.24 per share, from continuing and discontinued operations for the prior year. The increase in net loss
reflects the increase in revenues and the cost management activities discussed above which were offset by the higher legal expenses and settlements and other incremental expenses discussed above for fiscal 2008.

Liquidity and Capital Resources

Overview

Our operations and product development activities have required substantial capital investment to date. Our primary sources of funds have been the
issuance of equity and the incurrence of third party debt. In February 2004, we sold 5,360,370 common shares in private placements pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506, promulgated thereunder. We realized gross
proceeds of approximately $73,700,000 from these transactions and received net proceeds of approximately $69,100,000 after payment of offering expenses and broker commissions. We have been using the cash raised in this financing to fund our
operations and product development activities since that time.

Property, plant and equipment expenditures totaled approximately $295,000,
software license expenditures totaled approximately $22,000 and capitalized software development expenditures totaled approximately $495,000 for the six months ended December 31, 2007. We have developed and intend to continue to develop new
services and applications to grow our business and address new markets.

Cash Flows

At December 31, 2007, cash, cash equivalents and marketable securities amounted to approximately $23,277,000 and total assets at that date were
$40,064,000. These amounts have decreased since June 30, 2007 by $8,354,000 and $8,640,000, respectively, as we utilized cash principally to fund operating losses, product development activities, changes in working capital and capital
expenditures for corporate infrastructure during the period ended December 31, 2007. Cash used for the period also includes expenditures of approximately $1,347,000 for incremental legal expenses, $262,000 for board projects and $168,000 for
payment of accrued severance obligations. We expect to continue to use cash to fund operating losses, product development activities and capital expenditures for the foreseeable future.

Net cash used by operating activities was $7,507,000 for the six months ended December 31, 2007, compared to $8,686,000 for the comparable period in
2006. This decrease is due primarily to working capital and expense management which was offset in part by the legal expenses discussed above.

Net cash used by investing activities, excluding purchases and sales of marketable securities, was $812,000 for the six months ended December 31, 2007, compared to $1,301,000 for the comparable period in 2006. This decrease is due
primarily to the amount of product development spending capitalized in fiscal 2007 and lower spending for software licenses.

Cash flows
from financing activities for the six months ended December 31, 2007 and 2006 were not significant.

To date we have been largely
dependent on our ability to sell additional shares of our common stock or other securities to obtain financing to fund our operating deficits, product development activities and capital expenditures. Under our current operating plan to grow our
business, our ability to improve operating cash flow has been highly dependent on the market acceptance of our offerings. We believe we have enough cash, cash equivalents and marketable securities to support our operations for at least the next
twelve months.

Our future capital requirements may vary materially from those now planned. The amount of capital that we will need in the
future will depend on many factors, including:



| |  |  | our relationships with suppliers and customers;
| | - |  | -----------------------------------------------



| |  |  | the market acceptance of our software and services;
| | - |  | ---------------------------------------------------



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| |  |  | the levels of promotion and advertising that will be required to launch our new offerings and achieve and maintain a competitive position in the marketplace;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | price discounts on our software and services to our customers;
| | - |  | --------------------------------------------------------------



| |  |  | our pursuit of strategic transactions;
| | - |  | --------------------------------------



| |  |  | our business, product, capital expenditure and research and development plans and product and technology roadmaps;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | the level of accounts receivable that we maintain;
| | - |  | --------------------------------------------------



| |  |  | capital improvements to new and existing facilities;
| | - |  | ----------------------------------------------------



| |  |  | technological advances; and
| | - |  | ---------------------------



| |  |  | our competitors response to our offerings.
| | - |  | -------------------------------------------

Financing Activities

We have not engaged in any external financing activities in fiscal 2008 and 2007.

Other Matters

The events and contingencies
described below have impacted or may impact our liquidity and capital resources.

Presently, 28,000 shares of our Series B preferred stock,
originally issued in a private financing in October 1999, remain outstanding. As of October 1, 2004, our right to redeem these shares of Series B preferred stock is vested. Accordingly, we have the right to repurchase such shares at a
redemption price equal to $25.00 per share, plus accrued and unpaid dividends. The holder, however, has the right to convert these shares of preferred stock into an aggregate of 500,000 shares of our common stock at a conversion rate of $1.40. In
the event we elect to redeem these securities, the holder will be able to exercise its conversion right subsequent to the date that we issue a notice of redemption but prior to the deemed redemption date as would be set forth in such notice. As of
December 31, 2007, no shares of the Series B preferred stock have been redeemed.

As previously reported, we were the respondent in a
proceeding arising out of our contractual relationships with Shore Venture Group, LLC alleging that we have infringed certain patent rights and other matters. Shore Venture Group had withdrawn from the proceeding a number of claims, including a
claim for damages in connection with an alleged copyright infringement and that it has rights under one or more of our patent applications. As described in detail at Item 1. Legal Proceedings of Part II of this Report on Form 10-Q,
we received the decision of the arbitrators in this proceeding in December 2007 in which the arbitrators awarded the claimants damages in the amount $1,079,262 plus interest in the amount of $563,676. The arbitrators further awarded the claimants
per diem interest of $303.00 from December 12, 2007 through the date the award was rendered. Following a post-hearing briefing, the arbitrators awarded the claimants attorneys fees of $241,038 on January 31, 2008. The full amount for
this settlement has been accrued as of December 31, 2007.

Between June and August 2005, several purported shareholder class and
derivative actions were filed against our company and certain current and former officers and directors. The complaints and current status of these actions are described in detail under the caption Legal Proceedings, appearing in
Item 1 of Part II of this Quarterly Report on Form 10-Q. Management is unable to determine at this time whether these complaints will have a material adverse impact on its financial condition, results of operations or cash flow.

Commitments

Office Lease Commitments

We entered into the lease agreement for our executive offices on July 11, 2005. The lease is for a term of ten years and four months, with a
commencement date of October 1, 2005 and covers approximately 19,700 total rentable square feet. The annual rent in the first year was $324,000 increasing to $512,000 in year 2 and increasing at regular intervals until year 10 when the annual
rent will be approximately $561,000. The lease also provides us with a one-time option to renew the lease for a term of five years at the then-current market rate. We also have an option to terminate the lease five years and four months after the
commencement date upon 12 months prior notice to the Landlord. If we exercise this option, we would be required to pay an early termination fee of approximately $568,000. As part of the lease agreement, we posted a letter of credit securing our
lease payments of approximately $512,000.

The offices of our subsidiary Authentidate International, AG are located at Großenbaumer
Weg 6, 404072 Dusseldorf. We lease approximately 820 square meters at an annual rent of approximately $200,000 pursuant to a lease agreement which expired on May 31, 2007. We are currently leasing this facility on a month to month basis. On
December 28, 2007 we entered into a lease for a new location in Dusseldorf. The lease is for a term of five years commencing on July 1, 2008. The annual rent is approximately $300,000 per year and the lease provides us with options to
renew the lease for two additional five year terms at the then-current market rate.



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Severance Other and Commitments

Effective November 15, 2004, John T. Botti departed as our President and Chief Executive Officer. Subsequently, Mr. Botti retired from his position as Chairman of the Board and on February 7, 2005 we
entered into an Agreement and Release with Mr. Botti. Under that agreement, we agreed to pay to Mr. Botti severance payments as set forth in his employment agreement equal to his base salary for twenty-four months through January 2007. We
also agreed to retain him to provide consulting services to us for a one year term. Under the consulting agreement, we agreed to pay Mr. Botti a monthly retainer of $10,000 in consideration of his provision of such services as may be requested
by our Chief Executive Officer. The severance benefits were accrued in fiscal 2005.

On January 9, 2006, we entered into a Termination
Agreement and a separate consulting agreement with John J. Waters, our Executive Vice PresidentChief Administrative Officer and a member of our board of directors. Pursuant to the Termination Agreement, Mr. Waters relinquished his
employment position in favor of a consulting relationship, effective as of January 1, 2006. We agreed to pay and/or provide to Mr. Waters (a) an amount of approximately $350,000, in accordance with the terms and conditions of the
consulting agreement; (b) an amount of $5,000 for attorneys fees; and (c) the accelerated vesting of all options granted to him, along with the continuation of the exercise period for the duration of their original term.
Mr. Waters continues to serve on our board of directors. The full cost of this arrangement was accrued in fiscal 2006 and paid in full by September 30, 2006.

On January 26, 2006, we entered into a Termination Agreement with Dennis H. Bunt, our Chief Financial Officer, and he resigned his position effective April 30, 2006. Pursuant to the Termination Agreement, we
agreed to pay and/or provide Mr. Bunt (a) a severance payment of approximately $315,000, payable in equal installments over a period of twenty-four months; (b) an additional payment of $33,000 as additional severance and reimbursement
of certain expenses; and (c) the accelerated vesting of all options granted to him and the continuation of the exercise period in which he may exercise such options. The full cost of this arrangement was accrued during the year fiscal 2006.

On November 26, 2007, our Board of Directors appointed Mr. OConnell Benjamin to the office of President, effective
immediately. Mr. Benjamins appointment fills one of the positions formerly held by Mr. Suren Pai, who ceased serving as our President and Chief Executive Officer as of such date. Pursuant to the employment agreement we had with
Mr. Pai, in connection with the cessation of his employment with us, Mr. Pai is entitled to: (a) all compensation accrued but not paid as of the termination date; (b) a severance payment equal to the sum of (i) 12 months of
the greater of (A) his base salary in effect on the termination date and (B) the highest base salary in effect at any time during the ninety (90) day period to the date of termination; and (ii) an additional severance payment of
$187,500; and (c) continued participation in our benefit plans through the end of the month of the one-year anniversary of the termination of his employment. In addition, pursuant to his employment agreement, the options we granted Mr. Pai
under such employment agreement which vested as of the date of termination, plus 200,000 options, are deemed vested and exercisable for two years from the date of termination. The full cost of this arrangement was accrued during the quarter ended
December 31, 2007.

Contractual Commitments

A summary of the contractual commitments associated with our lease obligations as of December 31, 2007 is as follows (in thousands):



|                       |  |       |       |                 |   |           |  |           |       |                  |   |       |  |   |      
|---------------------- |  | ----- | ----- | --------------- | - | --------- |  | --------- | ----- | ---------------- | - | ----- |  | - | -----
|                       |  | Total |       | Less than 1year |   | 1-3 years |  | 4-5 years |       | More than 5years
|Total operating leases |  | $     | 6,215 |                 | $ | 800       |  | $         | 2,674 |                  | $ | 1,571 |  | $ | 1,169
|                       |  |       |       |                 |   |           |  |           |       |                  |   |       |  |   |      

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or
operating parts of our business that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially
affect our liquidity or the availability of our capital resources. We have entered into various agreements by which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification provisions are
included in contracts arising in the normal course of business under which we customarily agree to hold the indemnified party harmless against losses arising from a breach of representations related to such matters as intellectual property rights.
Payments by us under such indemnification clauses are generally conditioned on the other party making a claim. Such claims are generally subject to challenge by us and to dispute resolution procedures specified in the particular contract. Further,
our obligations under these arrangements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of
future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, we have not made any payments under these agreements that have been material
individually or in the aggregate. As of December 31, 2007, we were not aware of any obligations under such indemnification agreements that would require material payments.



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Effects of Inflation and Changing Prices

The impact of general inflation on our operations has not been significant to date and we believe inflation will continue to have an insignificant impact
on us.

Present Accounting Standards Not Yet Adopted

In September 2006, the FASB issued Financial Accounting Standard (FAS) No. 157, Fair Value Measurements. FAS No. 157 defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value. FAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of this standard on our Consolidated Financial Statements.

In February 2007, the FASB issued Financial Accounting Standard (FAS) No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities. FAS No. 159 provides an option to report selected financial assets and financial liabilities using fair value. The standard establishes required presentation and disclosures to facilitate comparisons with companies that
use different measurements for similar assets and liabilities. FAS No. 159 is effective for fiscal years beginning after November 15, 2007, with early adoption allowed only if FAS No. 157 is also adopted. We are currently evaluating
the impact of this standard on our Consolidated Financial Statements.

In December 2007, the FASB issued Financial Accounting Standard
(FAS) No.141 (Revised 2007), Business Combination.. Under FAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited
exceptions. FAS 141R also changed the accounting treatment for certain specific items, including: acquisition costs will generally be expensed as incurred; non controlling interests will be valued at fair value at the acquisition date; acquired
contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies; in-process research and
development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in
deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. FAS 141R applies prospectively to business combinations for which the acquisition date is on or after the first
annual reporting period beginning on or after December 15, 2008. We are currently evaluating the impact of this standard on our Consolidated Financial Statements.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

We have approximately $16,975,000 invested in high quality, short term investments as of December 31, 2007. We do not believe that any of our financial instruments have significant risk associated with market sensitivity. We are not
exposed to significant financial market risks from changes in foreign currency exchange rates and are only minimally impacted by changes in interest rates. However, in the future, we may enter into transactions denominated in non-U.S. currencies or
increase the level of our borrowings, which could increase our exposure to these market risks. We have not used, and currently do not contemplate using, any derivative financial instruments.

Interest Rate Risk

At any time, fluctuations in
interest rates could affect interest earnings on our cash and marketable securities. We believe that the effect, if any, of reasonably possible near term changes in interest rates on our financial position, results of operations, and cash flows
would not be material. Currently, we do not hedge these interest rate exposures. The primary objective of our investment activities is to preserve capital. We have not used derivative financial instruments in our investment portfolio.

At December 31, 2007, our unrestricted cash and marketable securities totaled $23,277,000, most of which was invested in asset backed short term
investments, commercial paper, and money market accounts. The remainder of our cash was in non-interest bearing checking accounts used to pay operating expenses.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

Our President and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, have concluded that, based on the evaluation of these controls and procedures, our disclosure controls and procedures were effective
at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act



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is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms and that such information is accumulated
and communicated to our management, including our President and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management, including our President and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been
detected. Our management, however, believes our disclosure controls and procedures are in fact effective to provide reasonable assurance that the objectives of the control system are met.

Changes in Internal Control over Financial Reporting

As previously reported, on November 26, 2007, we appointed OConnell Benjamin as our President to replace our former Chief Executive. Inherent with changes in management is a change in understanding of the control environment, the
business processes and internal controls. Management believes that the integration of the new President has been successful.

Other than as
described above, there was no change in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our fiscal quarter ended December 31, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II Other Information



|Item 1. | Legal Proceedings
|------- | -----------------

As previously reported,
Authentidate Holding Corp. was named as the defendant in a claim filed by Shore Venture Group in the federal District Court for the District of New Jersey, under the caption Shore Venture Group, LLC, et al v. Authentidate Holding Corp.,
Authentidate, Inc. and John T. Botti. The complaint in this case was filed on March 2, 2005 and an amended complaint was filed on or about April 26, 2005. On October 12, 2005, the parties entered into an agreement to arbitrate the
claims asserted against us by plaintiffs. On October 19, 2005, the Court approved and entered a Consent Order referring the case to arbitration by the American Arbitration Association and staying the lawsuit pending resolution of the
arbitration. In this case, the claimants seek additional shares of the common stock of our subsidiary, Authentidate, Inc., and had withdrawn a number of other claims in the arbitration, including claims for damages in connection with an alleged
copyright infringement and rights under one or more of our patent applications. An arbitration hearing in this matter concluded on September 10, 2007. On December 20, 2007, we received the decision of the arbitrators, which was rendered on
December 19, 2007, awarding the claimants damages in the amount $1,079,262 plus interest in the amount of $563,676. The arbitrators further awarded the claimants per diem interest at the rate of $303.00 from December 12, 2007 through the
date the award was rendered. Following a post-hearing briefing, the arbitrators awarded the claimants attorneys fees of $241,038 on January 31, 2008. The arbitration award extinguishes any interest of Shore Ventures in any shares of stock
or stock options of Authentidate Holding Corp. or Authentidate, Inc. The full amount for this settlement has been accrued as of December 31, 2007.

Between June and August 2005, six purported shareholder class actions were filed in the United States District Court for the Southern District of New York against our company and certain of our current and former
officers and directors. Plaintiffs in those actions alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11 and 15 of the Securities Act of 1933. The securities law claims were based on the
allegations that we failed to disclose that our August 2002 agreement with the USPS contained certain performance metrics, and that the USPS could cancel the agreement if we did not meet these metrics; that we did not disclose complete and accurate
information as to our performance under, and efforts to renegotiate, the USPS agreement; and that when we did disclose that the USPS might cancel the agreement, the market price of our stock declined. On October 5, 2005 the Court consolidated
the class actions under the caption In re Authentidate Holding Corp. Securities Litigation., C.A. No. 05 Civ. 5323 (LTS), and appointed the Illinois State Board of Investment as lead plaintiff under the Private Securities Litigation
Reform Act. The plaintiff filed an amended consolidated complaint on January 3, 2006, which asserted the same claims as the prior complaints and also alleged that Authentidate violated the federal securities laws by misrepresenting that it
possessed certain patentable technology. On July 14, 2006, the Court dismissed the amended complaint in its entirety; certain claims were dismissed with prejudice and plaintiff was given leave to replead those claims which were not dismissed
with prejudice. In August 2006, plaintiff filed a second amended complaint, which does not assert any claims relating to the companys patents or under the Securities Act of 1933, but which otherwise is substantially similar to the prior
complaint. The second amended complaint seeks unspecified monetary damages. The company moved to dismiss the second amended complaint on November 13, 2006. The motion is pending before the court.



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In addition to the class action complaints, four purported shareholder derivative actions were filed
against certain former and current directors and officers of the company in June and July 2005 in the United States District Court for the Southern District of New York. These federal court derivative actions were based on substantially the same
events and factual allegations as the original class action complaints and asserted claims that Authentidate was injured by an alleged breach of fiduciary duty, waste, mismanagement, violations of Sarbanes-Oxley, and misappropriation of inside
information. The derivative complaints sought, among other things, damages, equitable relief, restitution, and payment of costs and expenses incurred in the litigation (including legal fees). Plaintiffs in the derivative actions entered into a
Court-approved stipulation providing for the consolidation of their actions and the selection of Maxine Philips as the lead plaintiff. Plaintiffs filed a consolidated complaint on November 14, 2005, which defendants moved to dismiss on
January 13, 2006 on the ground that plaintiffs had not made a proper demand on the Board of Directors. On March 20, 2006, before the motion to dismiss was decided, plaintiffs in the federal court derivative action voluntarily dismissed
their complaint without prejudice. On April 6, 2006, the court held a hearing to confirm, among other things, that plaintiffs had not received any payment or other consideration for the dismissal of their claims. At the hearing plaintiffs
agreed to file a motion seeking court approval for the dismissal. Plaintiffs filed this motion on April 18, 2006 and the court entered an order dismissing the consolidated complaint on May 5, 2006. Subsequently, on May 25, 2006, the
plaintiffs sent a letter to the Board of Directors demanding that it file a derivative suit on behalf of the company which asserts the same claims as the complaint which plaintiffs voluntarily dismissed only weeks earlier.

On December 13, 2005, a purported shareholder derivative action was filed in the Supreme Court of New York, Schenectady County, entitled Elkin v.
Goldman et al., No. 2005-2240. Plaintiff in that action demanded that our Board of Directors file a derivative action on behalf of the company against nine of its current and former directors and officers. The complaint asserts the same
claims that are alleged in the first federal court derivative actions. The Board of Directors, following a recommendation from a committee of the Board composed of outside, non-employee directors who were advised by independent outside counsel,
concluded that commencing litigation, as demanded by Elkin, is not in our best interest.

In addition, we are subject to other claims and
litigation arising in the ordinary course of business. Our management considers that any liability from any reasonably foreseeable disposition of such other claims and litigation, individually or in the aggregate, would not have a material adverse
effect on our consolidated financial position, results of operations or cash flows.



|Item 1A. | Risk Factors
|-------- | ------------

As provided for under the Private
Securities Litigation Reform Act of 1995, we wish to caution shareholders and investors that the following important factors, among others discussed throughout this Report on Form 10-Q , including certain revisions to the risk factors included in
our Annual Report on Form 10-K for the fiscal year ended June 30, 2007, and subsequent filings with the SEC, have affected, and in some cases could affect, our actual results of operation and cause our results to differ materially from those
anticipated in forward looking statements made herein. Our business, results of operations and financial condition may be materially and adversely affected due to any of the following risks. The risks described below are not the only ones we face.
Additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business operations. The trading price of our common stock could decline due to any of these risks. In assessing these risks, you should
also refer to the other information contained or incorporated by reference in this quarterly report on Form 10-Q, including our financial statements and related notes.

Risks Related to Our Business

Failure to increase our revenue and keep our expenses consistent with revenues
could prevent us from achieving and maintaining profitability.

We incurred net losses of approximately $15,063,000, $17,823,000 and
$19,184,000 for the fiscal years ended June 30, 2007, 2006 and 2005, respectively and a net loss of approximately $10,059,000 for the six months ended December 31, 2007. We have expended, and will continue to be required to expend,
substantial funds to pursue product development projects, enhance our marketing and sales efforts and to otherwise operate our business. Therefore, we will need to generate higher revenues to achieve and maintain profitability and cannot assure you
that we will be profitable in any future period. Our prospects should be considered in light of the difficulties frequently encountered in connection with the establishment of a new business line, which characterizes our business, such as the
difficulty in creating a viable market, the significant related development and marketing costs and the overall competitive environment in which we operate. This risk may be more acute in light of our disposition of our other operating segments.
Accordingly, there can be no assurance that we will be able to achieve profitable operations in future operating periods.



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Our capital requirements are significant and we have historically financed our operations through private placements
of securities.

Our capital requirements have been and will continue to be significant. We have been substantially dependent upon
private placements of our securities and on short-term and long-term loans from lending institutions to fund such requirements. We are expending significant amounts of capital to develop, promote and market our software and services, such as our
Inscrybe Healthcare platform and related modules and our Inscrybe Office offering. Due to these expenditures, we have incurred significant losses to date. We used approximately $14,852,000, $13,743,000 and $10,821,000 in cash for continuing
operating activities for the fiscal years ended June 30, 2007, 2006 and 2005, respectively, and $7,507,000 for the six months ended December 31, 2007. We expect the proceeds received from our February 2004 private financing, in which we
raised approximately $69,100,000 in net proceeds, and cash generated from operations and asset sales, to satisfy our cash needs for the foreseeable future. No assurances can be given that we will be able to attain sales levels and support our costs
through revenues derived from operations. If we are unable to attain projected revenue levels for our business, it may be necessary to raise additional capital to fund operations and to meet our obligations in the future.

If the United States Postal Service cancels our new license agreement, we may need to incur additional costs in our efforts to successfully commercialize this
technology.

In July 2007, we entered into a new three-year license agreement
with the U.S. Postal Service® (USPS) to act as a non-exclusive authorized service provider of the USPS Electronic Postmark®
(EPM). Pursuant to this license agreement, the USPS granted the company a non-exclusive, worldwide license to use its applicable trademarks and other intellectual property rights for the EPM service in order to enable us to offer the EPM service
directly to the market. The USPS will define and maintain the technical and operational standards for the EPM service, and serve as backup verifier for all EPM transactions. Authentidate is the first provider to be authorized in a new
standards-based EPM service model created by the USPS to help ensure performance standards and facilitate the development of a multi-provider environment. We have operated the EPM service on behalf of the USPS since March 2003, under a strategic
alliance agreement that expired on July 31, 2007.

This license agreement is effective as of August 1, 2007 and will expire in
three years unless it is sooner terminated in accordance with its terms. Either party may terminate the agreement upon written notice if the other party is in material breach of any provision thereof, subject to applicable cure periods. In addition,
either party may terminate this agreement for any reason, upon 120 days notice to the other party. The USPS will also have the right to terminate the license agreement upon written notice in connection with a change in control transaction affecting
Authentidate. No assurances can be given that the USPS will not terminate this agreement which termination could adversely affect our ability to commercialize this technology.

Our license with the USPS may also be adversely affected by recently enacted legislation regarding the USPS. On December 20, 2006, the President
signed into law PL 109-435. This statute defines as postal services essentially the carriage of paper and printed matter, but grandfathers other services that were being offered by the USPS as of January 1, 2006, which we
believe would include the EPM. However, the legislation further directs the Postal Regulatory Commission (PRC) to review non-postal services within two years to determine whether they should continue taking into account the public
need for the service and the ability of the private sector to meet the public need for the service. Based upon this legislation, the PRC may review the current licensing arrangement for the EPM. Accordingly, there can be no
assurance the USPS will not terminate this licensing program, which could adversely affect our ability to commercialize this technology.

We depend on
growth in the software as a service market, and lack of growth or contraction in this market could materially adversely affect our sales and financial condition.

Our software and internet solutions compete with other software as a service solutions. Demand for our solutions and software offerings is driven by several factors, including an increased focus on
protecting business-critical applications, government and industry regulations requiring data protection and integrity, and the growth in the market for software as a service. Segments of the computer and software industry have in the past
experienced significant economic downturns and decreases in demand as a result of changing market factors. A change in the market factors that are driving demand for offerings of software as a service could adversely affect our sales, profitability
and financial condition.

We have been named as a party to several class action and derivative action lawsuits, and we may be named in additional
litigation, all of which could require significant management time and attention and result in significant legal expenses. An unfavorable outcome in one or more of these lawsuits could have a material adverse effect on our business, financial
condition, results of operations and cash flows.

As described in detail at Item 1. Legal Proceedings of Part II of
this Report on Form 10-Q, several purported class action complaints were filed in federal court alleging that we and certain of our current and former officers and directors violated the federal securities laws. Subsequently, four purported
shareholder derivative actions were filed against certain current and former officers and



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directors based on allegations substantially similar to those set forth in the purported class actions. The expense of defending such litigation may be
substantial and the time required to defend the actions could divert managements attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows. In addition, an
unfavorable outcome in such litigation could have a material adverse effect on our business, results of operations and cash flows.

Our success is
dependent on the performance of our management and the cooperation, performance and retention of our executive officers and key employees.

Our business and operations are substantially dependent on the performance of our senior management team and executive officers. If our management team is unable to perform it may adversely impact our results of operations and financial
condition. We do not maintain key person life insurance on any of our executive officers. The loss of one or several key employees could seriously harm our business. Any reorganization or reduction in the size of our employee base could
harm our ability to attract and retain other valuable employees critical to the success of our business.

If we lose key personnel or fail to integrate
replacement personnel successfully, our ability to manage our business could be impaired.

Our future success depends upon the
continued service of our key management, technical, sales, finance, and other critical personnel. On November 26, 2007, our board of directors appointed Mr. OConnell Benjamin to the office of President, effective immediately.
Mr. Benjamins appointment fills one of the positions formerly held by Mr. Suren Pai, who ceased serving as our President and Chief Executive Officer as of such date. We are currently negotiating the terms of an employment agreement
with Mr. Benjamin and except for our CFO and the CEO of our German operation, our key personnel do not have employment agreements with us. We cannot assure you that we will be able to retain our key employees for any particular length of time.
Key personnel have left our company in the past and there likely will be additional departures of key personnel from time to time in the future. The loss of any key employee could result in significant disruptions to our operations, including
adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, and the
results of our operations. In addition, hiring, training, and successfully integrating replacement sales and other personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively
impact future revenues.

Our reported financial results could be adversely affected by changes in financial accounting standards or by the application
of existing or future accounting standards to our business as it evolves. For example, accounting for employee stock options under FAS 123R has had a material impact on our consolidated results of operations and earnings per share.

As a result of the enactment of the Sarbanes-Oxley Act and the review of accounting policies by the SEC and national and international accounting
standards bodies, the frequency of accounting policy changes may accelerate. For example, the adoption of FAS123(R) in fiscal 2006 required us to adopt a different method of determining and accounting for the compensation expense of our employee
stock options. As a result of the adoption of FAS 123(R), our losses during fiscal 2008, 2007 and 2006 were higher than they would have been had we not been required to adopt FAS 123(R). This will continue to be the case for future periods. This and
other possible changes to accounting standards, could adversely affect our reported results of operations. Further, accounting policies affecting software revenue recognition have been the subject of frequent interpretations, which could
significantly affect the way we account for revenue related to our products. As we enhance, expand and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those relating to
the way we account for revenue, could have a significant adverse effect on our reported results although not necessarily on our cash flows.

If the
carrying value of our long-lived assets is not recoverable, an impairment loss must be recognized which would adversely affect our financial results.

We evaluate our long-lived assets, including property and equipment, goodwill, acquired product rights, and other intangible assets, whenever events or circumstances occur which indicate that these assets might be
impaired. Goodwill is evaluated annually for impairment at the end of each fiscal year, regardless of events and circumstances. In fiscal 2005 we recorded an impairment charge of approximately $4,800,000 for goodwill and other long-term intangible
assets. As of December 31, 2007, we had approximately $7,300,000 of goodwill principally from our acquisition of our German subsidiary, Authentidate International, AG. We will continue to evaluate the recoverability of the carrying amount of
our long-lived assets, and we may incur substantial impairment charges, which could adversely affect our financial results.



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We have incurred significant additional costs concerning our international operations and may incur additional costs
in the future.

We have incurred substantial costs in supporting the operation of our German subsidiary, Authentidate International,
AG. In June 2007, we entered into a new one-year employment agreement with Mr. Jan Wendenburg, the CEO of Authentidate International, pursuant to which he received a base salary of approximately, 210,000 Euros. Further, for the fiscal years
ended June 30, 2007, 2006 and 2005 and the six months ended December 31, 2007, we advanced or made capital investments of approximately $3,372,000 to this subsidiary. We cannot provide any assurance that we will recoup any of these amounts
from this subsidiary. We expect to incur additional costs in the future in connection with the operations of this subsidiary.

Developing and
implementing new or updated software and services may take longer and cost more than expected.

We rely on a combination of internal
development, strategic relationships, licensing and acquisitions to develop our software and services. The cost of developing new software and services, such as Inscrybe Healthcare and related modules and Inscrybe Office, is inherently difficult to
estimate. Our development and implementation of proposed software and services may take longer than originally expected, require more testing than originally anticipated and require the acquisition of additional personnel and other resources. If we
are unable to develop new or updated software and services on a timely basis and implement them without significant disruptions to the existing systems and processes of our customers, we may lose potential revenues and harm our relationships with
current or potential customers.

New or updated software and services will not become profitable unless they achieve sufficient levels of market
acceptance, which may require significant efforts and costs.

There can be no assurance that customers and potential customers will
accept from us new or updated software and services. The future results of our business will depend, in significant part, on the success of our software and services. Current and potential customers may choose to use similar products and services
offered by our competitors or may not purchase new or updated software or services, especially when they are initially offered and if they require changes in equipment or workflow. For software and services we are developing or may develop in the
future, there can be no assurance that we will attract sufficient customers or that such software and services will generate sufficient revenues to cover the costs of developing, marketing and providing such software and services. Furthermore, there
can be no assurance that any pricing strategy that we implement for any new software and services will be economically viable or acceptable to the target markets. Failure to achieve broad penetration in target markets with respect to new or updated
software and services could have a material adverse effect on our business prospects. Further, achieving market acceptance for new or updated software and services is likely to require substantial marketing efforts and expenditure of significant
funds to create awareness and demand by potential customers.

We do not have patents on all the technology we use, which could harm our competitive
position.

On May 2, 2006, we were issued our first U.S. patent and we also have seven issued foreign patents. In addition, we
have ten U.S., ten foreign and one PCT patent applications pending relating to the technology and business processes underlying our services and applications. However, some of the technology embodied in some of our current products cannot be
patented. We have registered the trademarks Authentidate and CareCert in the U.S., the trademark Authentidate in Germany and in the European Community and a number of other trademarks as Madrid Protocol
international registrations. We have also sought to register a number of additional trademarks in the U.S. and certain foreign markets, including Inscrybe, MyInscrybe and Inscrybe Office. We continue to take steps
to protect our intellectual property rights including filing additional trademark and patent applications where appropriate. We rely on confidentiality agreements with our key employees to the extent we deem it to be necessary. We further intend to
file patent applications for any new products we may develop, to the extent that we believe that any technology included in such products is patentable. There can be no assurance that any patents in fact, will be issued or that any such patents that
do issue will be effective to protect our products and services from duplication by other manufacturers or developers or to prevent our competitors from offering similar products and services.

Other companies operating within our business segments may independently develop substantially equivalent proprietary information or otherwise obtain
access to our know-how, much of which is maintained as trade secrets. In addition, there can be no assurance that we will be able to afford the expense of any litigation which may be necessary to enforce our rights under any patent. Although we
believe that the products we sell do not and will not infringe upon the patents or violate the proprietary rights of others, it is possible that such infringement or violation has occurred or may occur. On August 25, 2005, we became aware of an
action filed against us entitled TimeCertain LLC vs. Authentidate Holding Corporation, Authentidate, Inc. and NCipher Inc. The plaintiff in this matter had claimed that our products and systems incorporating secure time-stamping technology,
including but not limited to the USPS Electronic Postmark system, infringes certain of its patent rights. This matter has resulted in a favorable settlement for the company in which all of the plaintiffs claims were dismissed with prejudice
and the case terminated. We have investigated patents held by third parties of which we are aware and believe that our products and services do not infringe on the claims of these patents. Although we have not received notice of any other claims
that our products or services are infringing, we cannot provide any assurances that our products and services do not infringe upon any third party patents, including the patents we have investigated.



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As described under the caption Legal Proceedings, we received the decision of the arbitrators
in the proceeding commenced against us by Shore Venture Group, LLC. As described in detail at Item 1. Legal Proceedings of Part II of this Report on Form 10-Q, the arbitrators awarded the claimants damages in the amount $1,079,262
plus interest in the amount of $563,676. The arbitrators further awarded the claimants per diem interest of $303.00 from December 12, 2007 through the date the award was rendered. Following a post-hearing briefing, the arbitrators awarded the
claimants attorneys fees of $241,038 on January 31, 2008. The arbitration award extinguishes any interest of Shore Ventures in any shares of stock or stock options of Authentidate Holding Corp. or Authentidate, Inc. Shore Venture Group
had withdrawn from the proceeding a number of claims, including a claim for damages in connection with an alleged copyright infringement and that it has rights under one or more of our patent applications.

In the event that products we sell or services we provide are deemed to infringe upon the patents or proprietary rights of others, we could be required
to modify our products and/or services or obtain a license for the manufacture, use and/or sale of such products and services. There can be no assurance that, in such an event, we would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon our business. Moreover, there can be no assurance that we will have the financial or other resources necessary to defend against a patent
infringement or proprietary rights violation action. In addition, if our products, services or proposed products or services are deemed to infringe upon the patents or proprietary rights of others, we could, under certain circumstances, become
liable for damages or subject to an injunction, which could also have a material adverse effect on our business.

Because we derive a majority of our
revenues from a few software and service offerings, any decline in demand for these offerings could severely harm our ability to generate revenues.

We derive a majority of our revenues from a limited number of software and service offerings. In addition, our focus on building our business is concentrated on markets for software and services where content
integrity, workflow automation, electronic signatures and time and date stamping are important to customers. As a result, we are particularly vulnerable to fluctuations in demand for these offerings, whether as a result of competition, product
obsolescence, technological change, customer spending, or other factors. If our revenues derived from our software and service offerings were to decline significantly, our business and operating results would be adversely affected. Additionally, for
the year ended June 30, 2007 we reported that two customers accounted for approximately 43% of our consolidated revenues. As a result, if our relationships with these or other significant customers were disrupted we could lose a significant
percentage of our anticipated revenues which could have material adverse effect on our business.

Some of our software and service offerings have long
and unpredictable sales cycles, which may impact our quarterly operating results.

Transactions for some of our software and service
offerings require customers to undertake customized installations to integrate the solutions into their legacy systems and require them to modify existing business practices. The period from our initial contact with a potential customer until the
execution of an agreement is difficult to predict and can be in excess of six months. The sales cycles for these transactions can be long and unpredictable due to a number of uncertainties such as:



| |  |  | customers budgetary constraints;
| | - |  | ---------------------------------



| |  |  | the need to educate potential customers about our software and service offerings;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the timing of customers budget cycles;
| | - |  | ---------------------------------------



| |  |  | delays caused by customers internal review processes;
| | - |  | ------------------------------------------------------



| |  |  | customers willingness to invest resources and modify their network infrastructures to take advantage of our offerings; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | for sales to government customers, governmental regulatory, approval and purchasing requirements.
| | - |  | -------------------------------------------------------------------------------------------------

We are unable to control or influence many of these factors. Further, we have experienced delays in the pace of adoption and use by our customers of our
transaction-based offerings, such as Inscrybe Healthcare, which has adversely affected our earnings. We may experience similar delays with Inscrybe Office as well. During the sales cycle and the implementation period, we may expend substantial time,
effort and money preparing contract proposals, negotiating contracts and implementing solutions without receiving any related revenue. In addition, many of our expenses are relatively fixed in the short term, including personnel costs and technology
and infrastructure costs. Accordingly, our inability to generate sufficient revenues from these offerings has a direct impact on our results of operations.



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The failure to properly manage our growth could cause our business to lose money.

We are expanding our sales and marketing efforts in order to develop and pursue existing and potential market opportunities. This growth is expected to
place a significant demand on management and operational resources. In order to manage growth effectively, we must implement and improve our operational systems and controls on a timely basis. If we fail to implement these systems and controls, our
business, financial condition, results of operations and cash flows will be materially and adversely affected.

Our software and web-based services and
web site may be subject to intentional disruption.

Although we believe we have sufficient controls in place to prevent intentional
disruptions, such as software viruses specifically designed to impede the performance of our software and web-based services, we may be affected by such efforts in the future. Further, despite the implementation of security measures, this
infrastructure or other systems that we interface with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, programming errors, attacks by third parties or similar
disruptive problems, resulting in the potential misappropriation of our proprietary information or interruptions of our services. Any compromise of our security, whether as a result of our own systems or systems that they interface with, could
substantially disrupt our operations, harm our reputation and reduce demand for our services.

Performance problems with our systems or system failures
could cause us to lose business or incur liabilities.

Our customer satisfaction and our business could be harmed if we experience
transmission delays or failures or loss of data in the systems we use to provide services to our customers, including transaction-related services. These systems are complex and, despite testing and quality control, we cannot be certain that
problems will not occur or that they will be detected and corrected promptly if they do occur. In providing these services, we rely on internal systems as well as communications and hosting services provided by third parties, such as the Internet.
To operate without interruption, both we and the service providers we use must guard against:



| |  |  | damage from fire, power loss and other natural disasters;
| | - |  | ---------------------------------------------------------



| |  |  | communications failures;
| | - |  | ------------------------



| |  |  | software and hardware errors, failures or crashes;
| | - |  | --------------------------------------------------



| |  |  | security breaches, computer viruses and similar disruptive problems; and
| | - |  | ------------------------------------------------------------------------



| |  |  | other potential interruptions.
| | - |  | ------------------------------

We
have experienced periodic system interruptions in the past, and we cannot guarantee that they will not occur again. In the event of a catastrophic event at one of our data centers or any third party facility we use, we may experience an extended
period of system unavailability, which could negatively impact our business. Further, if such an event caused the loss of stored data, it could have a material adverse impact on our business or cause us to incur material liabilities. Although we
maintain insurance for our business, we cannot guarantee that our insurance will be adequate to compensate us for all losses that may occur or that this coverage will continue to be available on acceptable terms or in sufficient amounts.

In addition, some of our web-based services may, at times, be required to accommodate higher than expected volumes of traffic. At those times, we may
experience slower response times or system failures. Any sustained or repeated interruptions or disruptions in these systems or slow down in their response times could damage our relationships with customers. Further, the Internet has experienced,
and is likely to continue to experience, significant growth in the number of users and the amount of traffic. If the Internet continues to experience increased usage, the Internet infrastructure may be unable to support the demands placed on it
which could harm its reliability and performance. Any significant interruptions in our services or increases in response time could result in a loss of potential or existing users of services and, if sustained or repeated, could reduce the
attractiveness of our services.

Our software and service offerings may not be accepted by the market, which would seriously harm our business.

Demand and market acceptance for our software and service offerings remain subject to a high level of uncertainty. Achieving widespread
acceptance of these offerings will continue to require substantial marketing efforts and the expenditure of significant funds to create and maintain brand recognition and customer demand for such offerings. Demand for our software and services
depend on, among other things:



| |  |  | the perceived ability of our offerings to address real customer problems;
| | - |  | -------------------------------------------------------------------------



| |  |  | the perceived quality, price, ease-of-use and interoperability of our offerings as compared to our competitors offerings;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | the markets perception of how easy or difficult it is to deploy our software or services, especially in complex, network environments;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the continued evolution of electronic commerce as a viable means of conducting business;
| | - |  | ----------------------------------------------------------------------------------------



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| |  |  | market acceptance and use of new technologies and standards;
| | - |  | ------------------------------------------------------------



| |  |  | the ability of network infrastructures to support an increasing number of users and services;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | the pace of technological change and our ability to keep up with these changes; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | general economic conditions, which influence how much money our customers and potential customers are willing to allocate to their information technology budgets.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

There can be no assurance that adequate marketing arrangements will be made and continued for our software and services
and there can be no assurance that any of these offerings will ever achieve or maintain widespread market acceptance or that such offerings will be profitable.

If we cannot continuously enhance our software and web-based service offerings in response to rapid changes in the market, our business will be harmed.

The software-based services industry and computer industry are characterized by extensive research and development efforts which result in the frequent introduction of new products and services which render existing
products and services obsolete. Our ability to compete successfully in the future will depend in large part on our ability to maintain a technically competent research and development staff and our ability to adapt to technological changes in the
industry and enhance and improve our software and web-based service offerings and successfully develop and market new offerings that meet the changing needs of our customers. Although we are dedicated to continued improvement of our offerings with a
view towards satisfying market needs with the most advanced capabilities, there can be no assurance that we will be able to continue to do so on a regular basis and remain competitive with products offered by other manufacturers. At the present
time, we do not have a targeted level of expenditures for research and development. We will evaluate all opportunities but believe the majority of our research and development will be devoted to enhancements of our existing software and web-based
services.

If our software and web-based service offerings are not competitive, our business will suffer.

We are engaged in the highly competitive businesses of developing software-based workflow and authentication offerings. These markets are also
continually evolving and, in some cases, subject to rapid technological change. Many of our competitors have greater financial, technical, product development, marketing and other resources than we do. These organizations may be better known than we
are and have more customers than we do. We cannot provide assurance that we will be able to compete successfully against these organizations. We believe that the principal competitive factors affecting our markets include performance, ease of use,
scalability, manageability, price and customer service and support. There can be no assurance that we will be able to successfully incorporate these factors into our software and web-based services and compete against current or future competitors
or that competitive pressure we face will not harm our business. If we are unable to develop and market products to compete with the products of competitors, our business will be materially and adversely affected.

Our business, including Inscrybe Healthcare, Inscrybe Office and our electronic signing solutions are relatively new business lines and although the
level of competition for these offerings is unknown at this point in time, the field of software-based solutions is highly competitive. There can be no assurances, however, that any of our offerings will achieve market acceptance.

We also expect that competition will increase as a result of industry consolidations and the formation of new companies with new, innovative offerings.
Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their software and service offerings to address the needs of our prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced operating margins and loss of market
share, any of which could harm our business.

Our software and web-based services are complex and are operated in a wide variety of computer
configurations, which could result in errors or product failures.

Our software and web-based services are complex and may contain
undetected errors, failures or bugs that may arise when they are first introduced or when new versions are released. These offerings may be used in large-scale computing environments with different operating systems, system management software and
equipment and networking configurations, which may cause errors or failures in our software or services or may expose undetected errors, failures or bugs in such offerings. Our customers computer environments are often characterized by a wide
variety of configurations that make pre-release testing for programming or compatibility errors difficult and time-consuming. Despite testing by us and by others, errors, failures or bugs may not be found in new products or releases after
commencement of commercial use. Errors, failures or bugs in our offerings could result in negative publicity, returns, loss of or delay in market acceptance of our software or services or claims by customers or others. Alleviating these problems
could require significant expenditures of our capital and resources and could cause interruptions, delays or cessation of our



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licenses which could cause us to lose existing or potential customers and would adversely affect our financial conditions, results of operations and cash
flows. Most of our license agreements with customers contain provisions designed to limit our exposure to potential product liability claims. It is possible, however, that these provisions may not prove effective in limiting our liability.

We have a significant amount of net operating loss carryforwards which we may not be able to utilize in certain circumstances.

At June 30, 2007, the date of our most recent year end, we had net operating loss carryforwards (NOLS) for federal income tax purposes
of approximately $96,000,000 available to offset future taxable income. Under Section 382 of the Internal Revenue Code of 1986, as amended, utilization of prior NOLS is limited after an ownership change, as defined in Section 382, to an
annual amount equal to the value of the corporations outstanding stock immediately before the date of the ownership change multiplied by the federal long-term exempt tax rate. Use of our NOLS could also be limited as a result of grants of
stock options under stock option plans and other events. In the event we achieve profitable operations, any significant limitation on the utilization of NOLS would have the effect of increasing our current tax liability.

Risks Related to Our Common Stock

Our stock price is volatile and
could decline.

The price of our common stock has been, and is likely to continue to be, volatile. For example, our stock price during
the fiscal year ended June 30, 2007 traded as low as $1.20 per share and as high as $2.73 per share. During the six months ended December 31, 2007, our stock traded in the range of $0.55 to $1.60. We cannot assure you that your initial
investment in our common stock will not fluctuate significantly. The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including:



| |  |  | quarterly variations in our operating results;
| | - |  | ----------------------------------------------



| |  |  | announcements we make regarding significant contracts, acquisitions, dispositions, strategic partnerships, or joint ventures;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | additions or departures of key personnel;
| | - |  | -----------------------------------------



| |  |  | the introduction of competitive offerings by existing or new competitors;
| | - |  | -------------------------------------------------------------------------



| |  |  | uncertainty about and customer confidence in the current economic conditions and outlook;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | reduced demand for any given software or web-based service offering; and
| | - |  | ------------------------------------------------------------------------



| |  |  | sales of our common stock.
| | - |  | --------------------------

In
addition, the stock market in general, and companies whose stock is listed on The NASDAQ Global Market, have experienced extreme price and volume fluctuations that have often been disproportionate to the operating performance of these companies.
Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.

We
currently are not in compliance with The Nasdaq Global Market $1.00 minimum bid price requirement and failure to regain and maintain compliance with this standard could result in delisting and adversely affect the market price and liquidity of our
common stock.

On December 18, 2007, we received a deficiency letter from the Nasdaq Stock Market notifying us that the closing
price per share of our common stock was below the $1.00 minimum bid price requirement for 30 consecutive trading days and that, as a result, we no longer meet The Nasdaq Stock Markets minimum bid price requirement for continued listing. Nasdaq
has provided us with 180 calendar days, or until June 16, 2008, to regain compliance. To regain compliance with the minimum bid price requirement, the closing bid price of our common stock must remain above $1.00 for a minimum of ten
consecutive trading days during the 180-day compliance period. If this occurs, Nasdaq will provide us with written notification of compliance. However, if we do not regain compliance within the time frame provided by Nasdaq, our common stock may be
delisted from The Nasdaq Global Market. In the event that we were to receive a delisting notice, we are permitted to appeal the delisting determination to a Nasdaq Listings Qualifications Panel. In addition, in the event that such a delisting
determination was based solely on non-compliance with the minimum bid price rule, we may be permitted to transfer the listing of our common stock to the Nasdaq Capital Market if we satisfy all criteria for initial inclusion on such market other than
compliance with the minimum bid price requirement. In the event of such a transfer, the Nasdaq Marketplace Rules provide that we would be granted an additional 180 calendar days to comply with the minimum bid price rule while on the Nasdaq Capital
Market. The 180-day compliance period relates exclusively to our bid price deficiency and we may be delisted during the 180-day period for failure to maintain compliance with any other listing requirement which occurs during this period.



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If our common stock were to be delisted from The Nasdaq Stock Market, trading of our common stock most
likely will be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the OTC Bulletin Board. Such trading will reduce the market liquidity of our common stock. As a result, an investor
would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock. If our common stock is delisted from The Nasdaq Stock Market and the trading price remains below $5.00 per share, trading in our
common stock might also become subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a penny stock
(generally, any equity security not listed on a national securities exchange or quoted on Nasdaq that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks
to their clients. Moreover, various regulations and policies restrict the ability of shareholders to borrow against or margin low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls.
Additionally, because brokers commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual shareholder
paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional
burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common
stock. As a result, the ability of our shareholders to resell their shares of common stock, and the price at which they could sell their shares, could be adversely affected. The delisting of our stock from the Nasdaq Stock Market would also make it
more difficult for us to raise additional capital.

Since we have not paid dividends on our common stock, you may not receive income from this
investment.

We have not paid any dividends on our common stock since our inception and do not contemplate or anticipate paying any
dividends on our common stock in the foreseeable future. Earnings, if any, will be used to finance the development and expansion of our business.

The
exercise of our outstanding options and warrants, or conversion of our outstanding shares of Series B Preferred Stock, may depress our stock price.

As of December 31, 2007, the following options and warrants were outstanding:



| |  |  | Stock options to purchase approximately 4,858,000 shares of common stock at exercise prices ranging from $0.79 to $15.33 per share, not all of which are immediately
exercisable. The weighted average exercise price of the outstanding stock options is $4.11 per share. These stock options are employee and non-executive director options.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Immediately exercisable warrants to purchase approximately 473,000 shares of common stock at exercise prices ranging from $2.60 to $20.00 per share. The weighted
average exercise price of the outstanding warrants is $10.17.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Stock options to purchase 375,000 shares of common stock at an exercise price of $3.25 per share to an independent consultant which are exercisable upon achieving
certain sales levels.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, there are currently outstanding 28,000 shares of our Series B Preferred Stock. The
holder of the Series B Preferred Stock may convert these shares into shares of our common stock at a conversion price equal to $1.40 per share. Accordingly, the outstanding 28,000 shares of Series B Preferred Stock are presently convertible into an
aggregate of 500,000 shares of our common stock.

To the extent that these securities are exercised or converted, dilution to our
shareholders will occur. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of these securities can be expected to exercise or convert them at a time when we would, in all
likelihood, be able to obtain any needed capital on terms more favorable to us than the exercise and conversion terms provided by those securities. Further, in the event the conversion price of the Series B Preferred Stock is lower than the actual
trading price on the day of conversion, the holder could immediately sell all of its converted common shares, which would have a dilutive effect on the value of the outstanding common shares. Furthermore, the significant downward pressure on the
trading price of our common stock as Series B Preferred Stock holders converted these securities and sell the common shares received on conversion could encourage short sales by the holders of Series B Preferred Stock or other shareholders. This
would place further downward pressure on the trading price of our common stock. Even the mere perception of eventual sales of common shares issued on the conversion of the Series B Preferred Stock could lead to a decline in the trading price of our
common stock.



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|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

a) Sales of Unregistered Securities

In October 2007, we issued an aggregate of 18,481 shares of our common stock to those
of our non-executive directors that elected to receive shares of common stock in lieu of a portion of the cash fees earned for their service as members of our board of directors pursuant to our 2001 Non-Executive Director Stock Option Plan, as
amended. In January 2008, we issued an aggregate of 34,237 shares of our common stock to those of our non-executive directors that elected to participate in this program. The shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.

b) Not applicable

c) Repurchase of Equity Securities

We did not repurchase any of our equity securities during the six months ended December 31, 2007.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Securities Holders
|------- | -----------------------------------------------------

Not Applicable.



|Item 5. | Other Information
|------- | -----------------

None.



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|Item 6. | Exhibits
|------- | --------

The following exhibits are filed herewith
or incorporated by reference.



|              |  |                                                                                                                                                                 |  |                           |  |         |  |               |  |  
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------- |  | ------------- |  | -
|ExhibitNumber |  | Exhibit Description                                                                                                                                             |  | Incorporated by Reference |  |        
|              |  | Form                                                                                                                                                            |  | Dated                     |  | Exhibit |  | FiledHerewith
|31.1          |  | Certification of President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                            |  |                           |  |         |  |               |  | X
|              |  |                                                                                                                                                                 |  |                           | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                              |  |                           |  |         |  |               |  | X
|              |  |                                                                                                                                                                 |  |                           | 
|32.1          |  | Certification of President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |                           |  |         |  |               |  | X



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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.



|                 |  |                                    
|---------------- |  | -----------------------------------
|                 |  | AUTHENTIDATE HOLDING CORP.         
|                 | 
|February 7, 2008 |  | /s/ OConnell Benjamin             
|Date             |  | OConnell Benjamin                 
|                 |  | President                          
|                 | 
|                 |  | /s/ William A. Marshall            
|                 |  | William A. Marshall                
|                 |  | Chief Financial Officer & Treasurer



34