Intellicheck Inc

Previous wording

We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management’s judgments and estimates. These significant accounting policies relate to revenue recognition, stock-based compensation, deferred taxes, goodwill and intangible asset valuation and impairment, and commitments and contingencies. These policies and our procedures related to these policies are summarized below and described in further detail in the Notes to Financial Statements.

Current wording

We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management’s judgments and estimates. These significant accounting policies relate to revenue recognition, stock-based compensation, deferred taxes, goodwill and intangible asset valuation and impairment, and commitments and contingencies. These policies and our procedures related to these policies are summarized below and described in further detail in the Notes to condensed Financial Statements.

Previous wording

We determined that no events occurred or circumstances changed during the three and six-months ended June 30, 2024 that would more likely than not reduce the fair value of the Company below its carrying amounts. We will, however, continue to monitor our stock price and operations for any potential indicators of impairment. We will conduct the 2024 annual test for goodwill impairment in the fourth quarter, or at such time where an indicator of impairment appears to exist.

Current wording

We determined that no events occurred or circumstances changed during the three and nine-months ended September 30, 2024 that would more likely than not reduce the fair value of the Company below its carrying amounts. We will, however, continue to monitor our stock price and operations for any potential indicators of impairment. We will conduct the 2024 annual test for goodwill impairment in the fourth quarter, or at such time where an indicator of impairment appears to exist.

Previous wording

Our intangible assets consist of patents, a software license, and capitalized software development costs. We determined that no events occurred, or circumstances changed during the three months ended June 30, 2024 that would more likely than not reduce our intangible assets below our carrying amounts. We will, however, continue to monitor any potential indicators of impairment. See Note 5, “Intangible Assets,” in the Notes to Financial Statements for details on the Company’s intangible assets.

Current wording

Our intangible assets consist of patents, a software license, and capitalized software development costs. We determined that no events occurred, or circumstances changed during the three months ended September 30, 2024 that would more likely than not reduce our intangible assets below our carrying amounts. We will, however, continue to monitor any potential indicators of impairment. See Note 5, “Intangible Assets,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s intangible assets.

Previous wording

Most license fees and services revenue are generated from a combination of fixed-price and per-scan contracts. Under the per-scan revenue model, customers are charged a fee each time the customer scans an identity document, such as a driver’s license, with the Company’s software. Under the fixed-price revenue model customers are charged a fixed monthly fee either per device or physical business location to access the Company’s software. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company measures revenue based on the consideration specified in a customer arrangement, and revenue is recognized when the performance obligations in an arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the customer receives the benefit of the performance obligation. Customers typically receive the benefit of the Company’s services as they are performed. The Company's performance obligations are satisfied over time, and as a result, we may follow the right to invoice practical expedient meaning we recognize revenue monthly as invoiced based on our contract terms. Reference Note 2, “Significant Accounting Policies,” in the Notes to Financial Statements for additional details on the Company’s recognized and deferred revenue.

Current wording

Most license fees and services revenue are generated from a combination of fixed-price and per-scan contracts. Under the per-scan revenue model, customers are charged a fee each time the customer scans an identity document, such as a driver’s license, with the Company’s software. Under the fixed-price revenue model customers are charged a fixed monthly fee either per device or physical business location to access the Company’s software. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company measures revenue based on the consideration specified in a customer arrangement, and revenue is recognized when the performance obligations in an arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the customer receives the benefit of the performance obligation. Customers typically receive the benefit of the Company’s services as they are performed. The Company's performance obligations are satisfied over time, and as a result, we may follow the right to invoice practical expedient meaning we recognize revenue monthly as invoiced based on our contract terms. Reference Note 2, “Significant Accounting Policies,” in the Notes to Unaudited Condensed Financial Statements for additional details on the Company’s recognized and deferred revenue.

Previous wording

We account for the issuance of stock-based compensation awards to employees in accordance with ASC 718, Compensation – Stock Compensation, which requires that the cost resulting from all stock-based compensation payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for stock-based compensation payment arrangements and requires all companies to apply a fair

Current wording

We account for the issuance of stock-based compensation awards to employees in accordance with ASC 718, Compensation – Stock Compensation, which requires that the cost resulting from all stock-based compensation payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement

Previous wording

value-based measurement method in accounting for all stock-based compensation payment transactions with employees. Reference Note 9, “Stockholders' Equity,” in the Notes to Financial Statements for details on the Company’s stock-based compensation plans.

Current wording

objective in accounting for stock-based compensation payment arrangements and requires all companies to apply a fair value-based measurement method in accounting for all stock-based compensation payment transactions with employees. Reference Note 9, “Stockholders' Equity,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s stock-based compensation plans.

Previous wording

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We have recorded a full valuation allowance for our net deferred tax assets as of June 30, 2024, due to the uncertainty of our ability to realize those assets. Reference Note 8, “Income Taxes,” in the Notes to Financial Statements for details on the Company’s income taxes.

Current wording

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We have recorded a full valuation allowance for our net deferred tax assets as of September 30, 2024, due to the uncertainty of our ability to realize those assets. Reference Note 8, “Income Taxes,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s income taxes.

Previous wording

Revenues for the three months ended June 30, 2024 decreased $44, or 1%, to approximately $4,672 compared to $4,716 for the same period of 2023. The decrease in revenues is primarily the result of lower transaction volumes for SaaS for the current period. SaaS revenue, which consists of software licensed as a service on a subscription basis, decreased $36 or 1% to $4,627 for the three months ended June 30, 2024 compared to $4,663 for the same period of 2023.

Current wording

Revenues for the three months ended September 30, 2024 decreased $51, or 1%, to approximately $4,709 compared to $4,760 for the same period of 2023. The decrease in revenues is primarily the result of lower Equipment revenues for the current period. Equipment revenue, which consists of the sale of equipment is recognized at a point in time, decreased $93 or 88% to $13 for the three months ended September 30, 2024 compared to $106 for the same period of 2023. SaaS revenue increased $26 or 1% to $4,661 for the three months ended September 30, 2024 compared to $4,635 for the same period of 2023.

Previous wording

Gross profit decreased $136, or 3%, to $4,228 for three months ended June 30, 2024 from $4,364 for the same period of 2023. Our gross profit, as a percentage of revenues, was 91% and 93% for the three months ended June 30, 2024 and 2023, respectively.

Current wording

Gross profit decreased $47, or 1%, to $4,285 for three months ended September 30, 2024 from $4,332 for the same period of 2023. Our gross profit, as a percentage of revenues, was 91% for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $770, or 15%, to $4,443 for the three months ended June 30, 2024 compared to $5,213 for the same period of 2023. This decrease was primarily driven by lower research and development costs, and more specifically headcount-related expenses.

Current wording

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $32, or 0.6%, to $5,195 for the three months ended September 30, 2024 compared to $5,227 for the same period of 2023.

Previous wording

As a result of the factors noted above, the Company had a net loss of $(127) for the three months ended June 30, 2024 as compared to a net loss of $(853) for the three months ended June 30, 2023.

Current wording

As a result of the factors noted above, the Company had a net loss of $(837) for the three months ended September 30, 2024 as compared to a net loss of $(724) for the three months ended September 30, 2023.

Previous wording

Revenues for the six months ended June 30, 2024 increased $382, or 4%, to approximately $9,352 compared to $8,970 for the same period of 2023. The increase in revenues is primarily the result of higher transaction volumes for SaaS for the current period. SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $345 or 4% to $9,236 for the six months ended June 30, 2024 compared to $8,891 for the same period of 2023.

Current wording

Revenues for the nine months ended September 30, 2024 increased $330, or 2%, to approximately $14,060 compared to $13,730 for the same period of 2023. The increase in revenues is primarily the result of higher transaction volumes for SaaS for the current period. SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $370 or 2% to $13,896 for the nine months ended September 30, 2024 compared to $13,526 for the same period of 2023.

Previous wording

Gross profit increased $187, or 2%, to $8,473 for six months ended June 30, 2024 from $8,286 for the same period of 2023. Our gross profit, as a percentage of revenues, was 91% and 92% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Gross profit increased $139, or 1%, to $12,757 for nine months ended September 30, 2024 from $12,618 for the same period of 2023. Our gross profit, as a percentage of revenues, was 91% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $1,318, or 13%, to $9,197 for the six months ended June 30, 2024 compared to $10,515 for the same period of 2023. This decrease was primarily driven by lower stock based compensation and severance expenses.

Current wording

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $1,352, or 9%, to $14,391 for the nine months ended September 30, 2024 compared to $15,743 for the same period of 2023. This decrease was primarily driven by lower stock-based compensation.

Previous wording

As a result of the factors noted above, the Company had a net loss of $(569) for the six months ended June 30, 2024 as compared to a net loss of $(2,240) for the six months ended June 30, 2023.

Current wording

As a result of the factors noted above, the Company had a net loss of $(1,406) for the nine months ended September 30, 2024 as compared to a net loss of $(2,964) for the nine months ended September 30, 2023.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of $7,260, working capital (defined as current assets minus current liabilities) of $6,611, total assets of $21,916 and stockholders’ equity of $17,307.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $5,747, working capital (defined as current assets minus current liabilities) of $5,699, total assets of $20,682 and stockholders’ equity of $16,735.

Previous wording

During the six months ended June 30, 2024, we used net cash of $(312) in operating activities as compared to net cash of $(856) used by operating activities in the six months ended June 30, 2023. Cash provided by investing activities was $3,592 for the six months ended June 30, 2024 compared to cash used in investing activities of $(31) for the six months ended June 30, 2023. Cash used in financing activities was zero for the six months ended June 30, 2024 compared to net cash of $(124) used in financing activities for the six months ended June 30, 2023.

Current wording

During the nine months ended September 30, 2024, we used net cash of $(1,373) in operating activities as compared to net cash of $(1,114) used by operating activities in the nine months ended September 30, 2023. Cash provided by investing activities was $3,120 for the nine months ended September 30, 2024 compared to cash provided by investing activities of $18 for the nine months ended September 30, 2023. Cash provided by financing activities was $20 for the nine months ended September 30, 2024 compared to net cash of $(138) used in financing activities for the nine months ended September 30, 2023.

Previous wording

We currently anticipate that our available cash, expected cash from operations and availability under the revolving line of credit, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months from the date of filing. Reference Note 6, “Debt,” in the Notes to Financial Statements for details on the Company’s revolving line of credit.

Current wording

We currently anticipate that our available cash, expected cash from operations and availability under the revolving line of credit, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months from the date of filing. Reference Note 6, “Debt,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s revolving line of credit.

Previous wording

Our available net operating loss (“NOL”) as of December 31, 2023 was approximately $26.3 million, of which $10.9 million expires between 2035 and 2037. In accordance with the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), U.S. NOLs arising in a tax year ending after 2017 in the amount of $15.4 million will not expire, but are subject to 80% limitation on utilization. In addition to the NOLs, the Company has approximately $708 thousand of research and development credits.

Current wording

Our available net operating loss (“NOL”) as of December 31, 2023 was approximately $26,300, of which $10,900 expires between 2035 and 2037. In accordance with the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), U.S. NOLs arising in a tax year ending after 2017 in the amount of $15,400 will not expire, but are subject to 80% limitation on utilization. In addition to the NOLs, the Company has approximately $708 of research and development credits.

Previous wording

We use Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by adjusting net loss for certain reductions such as interest and other income (expense), provisions for income taxes, depreciation, amortization and stock-based compensation expense. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing our financial results with other companies that also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as impairments of long-lived assets and goodwill, amortization, depreciation and stock-based compensation, as well as non-operating charges for interest and provisions for income taxes, investors can evaluate our operations and can compare the results on a more consistent basis to the results of other companies. In addition, Adjusted EBITDA is one of the primary measures management uses to monitor and evaluate financial and operating results.

Current wording

We use Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by adjusting net loss for certain reductions such as interest and other income (expense), provisions for income taxes, depreciation, amortization and stock-based compensation expense. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing our financial results with other companies that also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as impairments of long-lived assets and goodwill, amortization, depreciation and stock-based compensation, as well as non-operating charges for interest and provisions for income taxes, investors can evaluate our operations and can compare the results on a more consistent