UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
Amendment No. 1
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
Commission
File No.:
(Exact name of Registrant as specified in its charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) (Zip Code) |
Registrant’s
telephone number, including area code: (
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 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | (Do not check if a smaller reporting company) |
Smaller
reporting company |
Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Number of shares outstanding of the issuer’s Common Stock:
| Class | Outstanding at May 12, 2021 | |
| Common Stock, $.001 par value |
EXPLANATORY NOTE
References throughout this Amendment No. 1 to the Quarterly Report on Form 10-Q/A to “we,” “us,” the “Company” or “our company” are to Intellicheck, Inc. unless otherwise noted or the context otherwise indicates.
As described in more detail in Note 2 to the financial statements, we determined that we improperly accounted for certain option awards issued to employees commencing in the quarter ended September 30, 2020. Specifically, awards previously accounted for as equity awards should have been recorded as liability awards commencing at the date of exercise and adjusted to fair value at the end of each reporting period. In addition, the Company failed to sell shares surrendered by employees upon exercise and remit the equivalent amount of funds to the taxing authorities. These errors have caused our previously issued financial statements to understate the amount of liabilities on our balance sheets and overstate/understate our net income /loss on our statement of operations as of and for the periods affected. To correct these errors, we determined that we must restate our financial statements as of and for the quarterly period ended March 31, 2021. We also are amending our unaudited financial statements for each of the quarterly periods ended September 30, 2021, June 30, 2021, and September 30, 2020, as well as the years ended December 31, 2021 and 2020. The amended quarterly financial information will be included in our amendments to Form 10-Q/A, to be filed by the Company concurrent with the filing of this Form 10-Q/A, and the amended annual financial information included in our amendment on Form 10-K/A.
Internal Control Considerations
In light of the restatement discussed above, the Company has reassessed the effectiveness of its internal controls over financial reporting as of March 31, 2021, and has concluded that a material weakness in its internal control over financial reporting existed as of March 31, 2021. Specifically, the Company did not maintain a complement of accounting personnel with sufficient knowledge, experience, and training in the application of U.S. GAAP as it relates to the accounting and reporting for equity compensation. This material weakness contributed to a failure to maintain effective controls over the accounting and reporting for stock options. The effects of the material weakness are discussed in more detail in Item 4, Controls and Procedures.
Items Amended in this Form 10-Q/A
For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety; however, this Form 10-Q/A amends and restates only the following items of the Original Filing with respect to the matters affected by this restatement and the matters discussed above:
Part I:
| ● | Item 1 – Financial Statements | |
| ● | Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| ● | Item 4 – Controls and Procedures |
Part II:
| ● | Item 6 – Exhibits |
We are also filing currently dated signatures from our Directors and currently dated Certifications as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, from our Chief Executive Officer and Chief Financial Officer and Chief Operating Officer as exhibits 31.1, 31.2 and 32.
Except as provided above, this Form 10-Q/A does not reflect events occurring after the filing of the Original Filing and does not amend or otherwise update any information in the Original Filing. Accordingly, this Form 10-Q/A should be read in conjunction with our filings with the SEC subsequent to the date on which we filed the Original Filing with the SEC. For more information about the restatement and related disclosures, please see Intellicheck’s Current Report on Form 8-K (Item 4.02) filed May 20, 2022.
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INTELLICHECK, INC.
Index
Exhibits
| 31.1 | Rule 13a-14(a) Certification of Chief Executive Officer | |
| 31.2 | Rule 13a-14(a) Certification of Chief Financial Officer | |
| 32 | 18 U.S.C. Section 1350 Certifications | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTELLICHECK, INC.
BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| (As Restated) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance of $ | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| PROPERTY AND EQUIPMENT, net | ||||||||
| GOODWILL | ||||||||
| INTANGIBLE ASSETS, net | ||||||||
| OPERATING LEASE RIGHT-OF-USE ASSET | ||||||||
| OTHER ASSETS | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Operating lease liability, current portion | ||||||||
| Equity awards liability | ||||||||
| Liability for shares withheld | ||||||||
| Deferred revenue, current portion | ||||||||
| Total current liabilities | ||||||||
| NONCURRENT LIABILITIES: | ||||||||
| Deferred revenue, long-term portion | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 10) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Common stock - $ par value; shares authorized; and shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to financial statements.
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INTELLICHECK, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (As Restated) | ||||||||
| REVENUES | $ | $ | ||||||
| COST OF REVENUES | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| OPERATING EXPENSES | ||||||||
| Selling, general and administrative | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| (Loss) income from operations | ( | ) | ||||||
| OTHER INCOME | ||||||||
| Gain on forgiveness of unsecured promissory note | ||||||||
| Interest and other income | ||||||||
| Total other income | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| PER SHARE INFORMATION | ||||||||
| (Loss) income per common share - | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
| Weighted average common shares used in computing per share amounts - | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See accompanying notes to financial statements.
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INTELLICHECK, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Three months ended March 31, 2021 (As Restated) | ||||||||||||||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| BALANCE, December 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Equity compensation | - | |||||||||||||||||||
| Exercise of stock options, net of cashless exercise of shares and shares withheld | ||||||||||||||||||||
| Issuance of shares for vested restricted stock grants | ( | ) | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| BALANCE, March 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Three months ended March 31, 2020 | ||||||||||||||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| BALANCE, December 31, 2019 | $ | $ | ( | ) | $ | |||||||||||||||
| Equity compensation | - | |||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Exercise of stock options, net of cashless exercise of shares | ||||||||||||||||||||
| Issuance of shares for vested restricted stock grants | ( | ) | ||||||||||||||||||
| Net income | - | |||||||||||||||||||
| BALANCE, March 31, 2020 | $ | $ | ( | ) | $ | |||||||||||||||
See accompanying notes to financial statements.
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INTELLICHECK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (As Restated) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Equity compensation | ||||||||
| Forgiveness of unsecured promissory note | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) in accounts receivable | ( | ) | ( | ) | ||||
| (Increase) in other current assets | ( | ) | ( | ) | ||||
| (Decrease) in accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Increase in deferred revenue | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of software license | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Collection of note receivable | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Return of repayment on unsecured promissory note | ||||||||
| Net proceeds from issuance of common stock from exercise of stock options | ||||||||
| Proceeds from issuance of common stock from exercise of warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| CASH, beginning of period | ||||||||
| CASH, end of period | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Note payable for software license | $ | $ | ||||||
| Reclassification of stock option awards | $ | $ | ||||||
See accompanying notes to financial statements.
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INTELLICHECK, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited) (As Restated)
1. NATURE OF BUSINESS
Business
Intellicheck, Inc. (the “Company” or “Intellicheck”) is a prominent technology company that is engaged in developing, integrating and marketing identity verification solutions to address challenges that include commercial retail and banking fraud prevention. Intellicheck’s products include ID Check®, a solution for preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices.
Liquidity
For
the three months ended March 31, 2021, the Company incurred a net loss of $
As of the filing of this Form 10-Q, the COVID-19 pandemic, which first began affecting the Company in the first quarter of 2020, has impacted the Company’s business by a decline in revenues from its customers which will likely continue to impact its business directly and/or indirectly for the foreseeable future. The Company is unable to accurately predict the full impact that the COVID-19 pandemic will have on its results of operations or financial condition due to numerous factors that are not within its control, including the duration and severity of the outbreak together with any potential statewide closures if cases increase, the spread of recently discovered COVID-19 variants and the widespread adoption of vaccination measures.
See Part II, Item 1A for more information.
2. SIGNIFICANT ACCOUNTING POLICIES
Restatement of Previously Issued Financial Statements
On May 16, 2022, management in concurrence with the Company’s Audit Committee of our Board of Directors (the “Audit Committee”), concluded that that the financial statements previously issued as of and for the quarterly period ended March 31, 2021, should no longer be relied upon due to errors in accounting for certain option awards. Accordingly, we are restating our Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity, Statements of Cash Flows and the related notes as of and for the quarterly period ended March 31, 2021.
Specifically, the Company determined that a cashless withholding to satisfy personal income tax obligations from certain option awards exercised commencing in the third quarter of 2020 and the first quarter of 2021, caused the underlying options to no longer qualify as equity awards and should have instead been classified as liability awards commencing on the date of exercise.
The change in the classification of the awards to liability classified awards requires the Company to remeasure the fair value of the awards at the end of each reporting period they remain outstanding, with the increase or decrease in fair value correspondingly charged or credited to selling, general and administrative expenses in arriving at net income (loss). Furthermore, the Company, due to an administrative error, failed to sell the shares surrendered in 2021 and did not remit the equivalent amount of funds to the tax authorities. To date, the Company has not returned the shares or otherwise reimbursed the effected individuals for the shares withheld The Company is currently in the process of arranging payment to individuals, which is expected to be completed during the quarter ending June 30, 2022.
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These errors resulted in misstatements to our Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity, and Statements of Cash Flows as of and for the quarterly period ended March 31, 2021 as follows:
| As of March 31, 2021 | ||||||||||||
| As Previously | Restatement | As | ||||||||||
| Reported | Adjustment | Restated | ||||||||||
| BALANCE SHEET | ||||||||||||
| Equity awards liability | $ | $ | ||||||||||
| Liability for shares withheld | $ | $ | ||||||||||
| Total current liabilities | $ | $ | ||||||||||
| Total liabilities | $ | $ | ||||||||||
| Common stock (dollars) | $ | ( | ) | $ | ||||||||
| Additional paid-in capital | $ | $ | ||||||||||
| Accumulated deficit | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Total stockholders’ equity | $ | ( | ) | $ | ||||||||
| Common stock (shares) | ( | ) | ||||||||||
| For the three months ended March 31, 2021 | ||||||||||||
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| STATEMENT OF OPERATIONS | ||||||||||||
| Selling, general and administrative expenses | $ | $ | ||||||||||
| Total operating expenses | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| PER SHARE INFORMATION | ||||||||||||
| Loss per common share | ||||||||||||
| Basic and Diluted | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Weighted average common shares used in computing per share amounts - | ||||||||||||
| Basic and Diluted | ( | ) | ||||||||||
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| For the three months ended March 31, 2021 | ||||||||||||
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| STATEMENT OF STOCKHOLDERS’ EQUITY | ||||||||||||
| Exercise of stock options, net of cashless exercise of shares and shares withheld | $ | $ | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Common stock (shares) | ( | ) | ||||||||||
| Common stock (dollars) | $ | ( | ) | $ | ||||||||
| Additional paid-in capital | $ | $ | ||||||||||
| Accumulated deficit | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Total stockholders’ equity | $ | ( | ) | $ | ||||||||
| For the three months ended March 31, 2021 | ||||||||||||
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| STATEMENT OF CASH FLOWS | ||||||||||||
| Net loss | $ | ( | ) | ( | ) | ( | ) | |||||
| Equity compensation | $ | $ | ||||||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||||||
| Reclassification of stock option awards | $ | $ | ||||||||||
The correction of these errors had no net effect on net cash used in operating activities.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary for a fair presentation of the Company’s financial position at March 31, 2021 and the results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2021 and 2020. All such adjustments are of a normal and recurring nature. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements. Results of operations for the three-month period ended March 31, 2021, are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2021.
As noted in the Explanatory Note, the Company has filed this Form 10-Q/A to amend our Quarterly Report on Form 10-Q for the three month period ended March 31, 2021, originally filed with the SEC on May 12, 2021 (the “Original Form 10-Q”), to restate our Financial Statements and related footnote disclosures as of and for the three months ended March 31, 2021.
The balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date, as restated, but does not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.
References in this Quarterly Report on Form 10-Q to “authoritative guidance” is to the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”).
For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and early adoption is permitted. The Company has adopted this standard and did not have a material impact on its financial statements.
Use of Estimates
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. Significant estimates and assumptions that affect amounts reported in the financial statements include impairment consideration and valuation of goodwill and intangible assets, deferred tax valuation allowances, and the fair value of stock options granted under the Company’s Equity compensation plan. Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates. As discussed above, certain option awards no longer qualify as equity awards and instead are being classified as liability awards. ASC 718 establishes fair value as the measurement objective in accounting for equity payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all equity payment transactions with employees. The company determined the fair value of these awards utilizing a Black-Scholes option pricing model.
Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
| ● | Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. | |
| ● | Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies. The Company had $610,978 worth of Level 2 liabilities as of March 31, 2021 for the liability classified stock options. | |
| ● | Level 3—Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when the fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The Company had no Level 3 assets or liabilities as of March 31, 2021 and 2020. |
Allowance for Doubtful Accounts
The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions and other factors that may affect customers’ ability to pay.
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Goodwill
Goodwill represents the excess of acquisition cost over the fair value of net assets acquired in business combinations. Pursuant to ASC Topic 350, the Company tests goodwill for impairment on an annual basis in the fourth quarter (December 31, 2021), or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform the two-step quantitative goodwill impairment test. An entity is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. Events or changes in circumstances which could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity specific events and sustained decrease in share price. There were no impairment charges recognized during either of the three months ended March 31, 2021 and 2020.
Intangible Assets
Intangible assets include patents, copyrights, intellectual property rights and licensed software. The Company uses the straight-line method to amortize these assets over their estimated useful lives. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable in accordance with ASC Topic 360. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows, without interest
charges, will be less than the carrying amount of the assets. There were no impairment charges recognized during either of the three months ended March 31, 2021 and 2020.
Income Taxes
The Company accounts for income taxes under in accordance with ASC Topic 740, “Accounting for Income Taxes.” 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 carryforwards. Deferred tax assets and liabilities are measured using expected tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company has recorded a full valuation allowance for its net deferred tax assets as of March 31, 2021 and December 31, 2020, due to the uncertainty of the realizability of those assets.
Fair Value of Financial Instruments
The Company adheres to the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”. This pronouncement requires that the Company calculate the fair value of financial instruments and include this additional information in the notes to financial statements when the fair value is different than the book value of those financial instruments. The Company’s financial instruments include cash, accounts receivable, accounts payable and accrued expenses. As of March 31, 2021 and December 31, 2020, the carrying value of the Company’s financial instruments approximated fair value, due to their short-term nature.
Revenue Recognition and Deferred Revenue
General
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. Substantially all customer contracts provide that the Company is compensated for services performed to date.
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Invoicing is based on schedules established in customer contracts. Payment terms are generally established from 30 to 60 days from the invoice date. Product returns are recorded as a reduction to revenue.
Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Furthermore, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
Nature of goods and services
The following is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each:
Software as a Service (SaaS)
Software as a service (SaaS) for hosted subscription services and licensed software allows customers to access a set of data for a predetermined period of time. As the customer obtains access at a point in time but continues to have access for the remainder of the subscription period, the customer is considered to simultaneously receive and consume the benefits provided by the entity’s performance as the entity performs. Accordingly, the revenue should be recognized over time based on the usage of the hosted subscription services and licensed software, which can vary from month to month. The revenue is typically based either on a formula such as number of locations using the service in a given month multiplied by a fee per location or the number of actual scans in a given month multiplied by a set price per scan based on the contract with the customer.
Other Subscription and Support Services
The Company also recognizes revenues from other subscription and support services, which includes jurisdictional updates to certain commercial customers and support services particularly to its Defense ID® customers. These subscriptions require continuing service or post contractual customer support and performance. As the customer obtains access at a point in time but continues to have access for the remainder of the subscription period, the customer is considered to simultaneously receive and consume the benefits provided by the entity’s performance as the entity performs. Accordingly, the revenue should be recognized over time based on usage, which can vary from month to month. The revenue is typically based on a formula such as number of locations in a given month multiplied by a fee per location.
Equipment Revenue
Revenue from the sale of equipment is recognized at a point in time. The point in time that the revenue is recognized is when the customer has control of the equipment which is when the customer receives the benefit and the Company’s performance obligation has been satisfied. Depending on the contract terms, that could either be at the time the equipment is shipped or at the time the equipment is received.
Non-Recurring Services Revenue
The non-recurring services include items such as training, installation, customization, and configuration. The Company recognizes revenue from non-recurring services contracts ratably over the service contract period as the customer consumes the benefit as it is provided and the Company’s performance obligation has been satisfied.
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Extended Warranty
Extended warranty revenues are generated when a warranty is provided to the customer separately of other performance obligations when the equipment is sold. As the customer obtains access at a point in time and continues to have access for the remainder of the warranty term, the customer is considered to simultaneously receive and consume the benefits provided by the Company’s performance as the Company performs. The related revenue is recognized ratably over the specified term of the warranty period. The extended warranty is separate to the Company’s standard warranty of usually one year that it receives from its vendor.
Disaggregation of revenue
In the following tables, revenue is disaggregated by product and service and the timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue.
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Products and services | ||||||||
| Software as a Service (SaaS) | $ | $ | ||||||
| Other subscription and support services | ||||||||
| Equipment | ||||||||
| Non-recurring services | ||||||||
| Extended warranties on equipment | ||||||||
| Other | ||||||||
| $ | $ | |||||||
| Timing of revenue recognition | ||||||||
| Products transferred at a point in time | $ | $ | ||||||
| Services transferred over time | ||||||||
| $ | $ | |||||||
Contract balances
The
current portion of deferred revenue at March 31, 2021 and December 31, 2020 was $
The Company did not recognize any material revenue in the current reporting period for performance obligations that were fully satisfied in previous periods.
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
| Remainder | ||||||||||||||||
| 2021 | 2022 | 2023 | Total | |||||||||||||
| Software as a Service (SaaS) | $ | $ | $ | $ | ||||||||||||
| Other subscription and support services | ||||||||||||||||
| Extended warranties on equipment | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
All consideration from contracts with customers is included in the amounts presented above.
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Business Concentrations and Credit Risk
During
the three-month period ended March 31, 2021, the Company made sales to three customers that accounted for approximately
Basic net (loss) income per share is computed by dividing the net (loss) income for the period by the weighted average number of common shares outstanding during the period. Diluted net (loss) income per share is computed by dividing the net (loss) income for the period by the weighted average number of shares of common stock and potentially dilutive common stock equivalents outstanding during the period. The dilutive effect of outstanding options, warrants and restricted stock is reflected in diluted earnings per share by application of the treasury stock method. The calculation of diluted net (loss) income per share excludes all anti-dilutive shares. In the periods of a net loss, all common stock equivalents are considered anti-dilutive.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Numerator: | ||||||||
| Net (Loss) Income | $ | ( | ) | $ | ||||
| Denominator: | ||||||||
| Weighted average common shares – Basic | ||||||||
| Dilutive effect of equity incentive plans | ||||||||
| Weighted average common shares – Diluted | ||||||||
| Net Loss per share – | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Restricted stock | ||||||||
| Performance stock units | ||||||||
| 15 |
3. INTANGIBLE ASSETS
The changes in the carrying amount of intangible assets for the three months ended March 31, 2021 were as follows:
| Net balance at December 31, 2020 | $ | |||
| Deduction: Amortization expense | ( | ) | ||
| Net balance at March 31, 2021 | $ |
The following summarizes amortization of intangible assets included in the accompanying statements of operations:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cost of sales | $ | $ | ||||||
| General and administrative | ||||||||
| $ | $ | |||||||
4. DEBT
Promissory Note
On
April 15, 2020 the Company received an advance of $
Revolving Line of Credit
On
February 6, 2019, the Company entered into a revolving credit facility with Citibank that allows for borrowings up to the lesser of (i)
$
5. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
March 31, 2021 | December 31, 2020 | |||||||
| Professional fees | $ | $ | ||||||
| Payroll and related | ||||||||
| Incentive bonuses | ||||||||
| Other | ||||||||
| $ | $ | |||||||
6. INCOME TAXES
The
Company’s available net operating loss (“NOL”) at December 31, 2020 was approximately $
| 16 |
The Company accounts for the issuance of equity awards to employees in accordance with ASC Topic 718, which requires that the cost resulting from all equity payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for equity payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all equity payment transactions with employees. All equity compensation is included in operating expenses for the periods as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Compensation cost recognized: | ||||||||
| Selling, general & administrative | $ | $ | ||||||
| Research & development | ||||||||
| $ | $ | |||||||
Stock Options
The Company uses the Black-Scholes option pricing model to value the options on the grant date. The expected life computation is based on the time to option expiration. For the awards which were modified and are no longer classified as equity awards, the Company uses the share price as of each reporting period to calculate the fair value of the options. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.
As discussed above, certain option awards no longer qualify as equity awards and instead are classified as liability awards. The fair value of these awards are determined at each reporting period utilizing a Black Scholes option pricing model, and the associated compensation expense for the reporting period is recorded. The Company recorded $ of additional compensation expense in the first quarter of 2021 as a result of this award reclassification.
| Number of Shares Subject to Issuance | Weighted-average Exercise Price | Weighted-average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2020 | $ | years | $ | |||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Outstanding at March 31, 2021 | $ | years | $ | |||||||||||||
| Exercisable at March 31, 2021 | $ | | years | $ | ||||||||||||
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on March 31, 2021. This amount changes based upon the fair market value of the Company’s stock.
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Restricted Stock Units
The Company issues Restricted Stock Units (“RSUs”) which are equity-based instruments that may be settled in shares of common stock of the Company. During the three months ended March 31, 2021, the Company issued RSUs to its officers and certain employees and to certain directors as compensation. RSU agreements can vest immediately or with the passage of time. The vesting of all RSUs is contingent on continued board and employment services.
The compensation expense incurred by the Company for RSUs is based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period and charged to general and administrative expense with a corresponding increase to additional paid-in capital.
| Number of Shares | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||
| Outstanding at December 31, 2020 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Vested and settled in shares | ( | ) | ||||||||||
| Outstanding at March 31, 2021 | $ | $ | ||||||||||
Performance Stock Units
On August 7, 2020, the Company issued Performance Stock Units (PSUs) to its officers and certain employees as compensation. For these PSU agreements, % vest based on the Company’s market price and % vest based on its Adjusted EBITDA performance metric. Both the conditions are to occur over a passage of a specified time and is contingent on continued employment services.
For the market condition, compensation expense is based on a Geometric Brownian Motion valuation model based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite period. For the performance condition, the Company reviews the probability of achieving this goal on a periodic basis. If the Company determines that it is probable that the performance criteria will be achieved, the amount of compensation cost derived for this performance metric is amortized over the anticipated service period. If these criteria are not met, no compensation cost is recognized and any previously recognized compensation cost would be reversed. For both conditions, compensation expense is charged to selling, general and administrative and research and development expense with a corresponding increase to additional paid-in capital.
| Number of Shares | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||
| Outstanding at December 31, 2020 | $ | $ | ||||||||||
| Granted and Vested | ||||||||||||
| Outstanding at March 31, 2021 | $ | $ | ||||||||||
As of March 31, 2021, there was of total unrecognized compensation cost, net of estimated forfeitures, related to all unvested stock options, RSUs and PSUs, which is expected to be recognized over a weighted average period of approximately years.
The Company had shares available for future grants under the Plan at March 31, 2021.
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Warrants
All
previously granted warrants were issued with an exercise price that was equal to or above the fair market value of the Company’s
common stock on the date of grant. As of March 31, 2021, the Company had
8. COMMON STOCK
On
June 23, 2020, the Company completed a public offering of shares of its common stock, offered to the public at $ per share.
Net proceeds to the Company from this offering were approximately $
9. LEGAL PROCEEDINGS
The Company is not aware of any infringement by the Company’s products or technology on the proprietary rights of others.
The Company is not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material effect on its business.
10. COMMITMENTS AND CONTINGENCIES
Appointment of New President
The Board has appointed Garrett Gafke as the Company’s President. Mr. Gafke’s first day of employment as President was March 23, 2021. With the appointment of Mr. Gafke as President, Bryan Lewis is continuing as the Company’s Chief Executive Officer. In connection with becoming the Company’s President, Mr. Gafke and the Company have entered into an employment agreement, dated March 23, 2021 (the “Agreement”). Mr. Gafke, on his first day of employment as President, was granted a restricted stock unit award of shares and an option to purchase shares of the Company’s common stock, both of which are subject to a three-year vesting schedule under the Company’s 2015 Omnibus Incentive Plan, as amended.
Severance and Change-in-Control Agreements
Each of the agreements requires the executive to devote substantially all his time and efforts to our business and contains non-competition and nondisclosure covenants of the officer for the term of his employment and for a one-year period thereafter. Each agreement provides that we may terminate the agreement for cause.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References made in this Quarterly Report on Form 10-Q/A to “we,” “our,” “us,” “Intellicheck,” or the “Company,” refer to Intellicheck, Inc.
The following discussion and analysis of our financial condition and results of operations constitutes management’s review of the factors that affected our financial and operating performance for the three-month period ended March 31, 2021. This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2020.
Overview
We are a prominent technology company that is engaged in developing, integrating and marketing identity verification solutions to address challenges that include commercial retail and banking fraud prevention. Our products include ID Check®, a solution for preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices.
We continue to develop and release innovative products based upon our rich patent portfolio consisting of nineteen issued patents and four pending patents. We also continue to expand our customer base as we completed four customer implementations for the three months ended March 31, 2021.
Critical Accounting Policies and the Use of Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Significant estimates and assumptions that affect amounts reported in the financial statements include impairment consideration and valuation of goodwill and intangible assets, deferred tax valuation allowances, allowance for doubtful accounts and the fair value of stock options granted under the Company’s equity compensation plans. Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates.
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, equity compensation, deferred taxes goodwill and intangible asset valuation and impairment, and commitments and contingencies. These policies and our procedures related to these policies are described in detail below.
Goodwill
The excess of the purchase consideration over the fair value of the assets of acquired businesses is considered goodwill. Under authoritative guidance, purchased goodwill is not amortized, but rather it is periodically reviewed for impairment. We had goodwill of $8,101,661 as of March 31, 2021. This goodwill resulted from the acquisitions of Mobilisa, Inc. and Positive Access Corporation. These entities were merged into one company under Intellicheck on December 31, 2018.
For the year ended December 31, 2020, we performed our annual impairment test of goodwill in the fourth quarter. Under authoritative guidance, we can use industry and Company specific qualitative factors to determine whether it is more likely than not that impairment exists, before using a two-step quantitative analysis. Events or changes in circumstances which could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity specific events and sustained decrease in share price. We performed the first step of the goodwill impairment test in order to identify potential impairment by comparing our fair value of the Company to our carrying amount, including goodwill. The fair value was determined using the weighting of certain valuation techniques, including both income and market approaches which include a discounted cash flow analysis, similar public company financial comparisons, along with market capitalization. The market capitalization is sensitive to the volatility of our stock price. Although we believe that the factors considered in the impairment analysis are reasonable, changes in any one of the assumptions used could have produced a different result which may have led to an impairment charge. Any future impairment loss could have a material adverse effect on our long-term assets and operating expenses in the period in which impairment is determined to exist.
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For the year ended December 31, 2020, we determined that the fair value was more than our carrying amount and therefore the second step of the goodwill impairment test was not required.
We determined that no events occurred or circumstances changed during the three months ended March 31, 2021 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 2021 annual test for goodwill impairment in the fourth quarter, or at such time where an indicator of impairment appears to exist.
Intangible Assets
Our intangible assets consist of patents and a software license. We determined that no events occurred or circumstances changed during the three months ended March 31, 2021 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.
Revenue Recognition and Deferred Revenue
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 our software. Under the fixed-price revenue model customers are charged a fixed monthly fee either per device or physical business location to access our software. In certain instances, customization services are determined to be essential to the functionality of the delivered 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. We measure 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 our services as they are performed. Substantially all customer contracts provide that we are compensated for services performed to date.
Invoicing is based on schedules established in customer contracts. Payment terms are generally established from 30 to 60 days from the invoice date. Product returns are recorded as a reduction to revenue.
Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Furthermore, we recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer.
Equity Compensation
We account for the issuance of equity awards to employees in accordance with ASC Topic 718, which requires that the cost resulting from all equity payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for equity payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all equity payment transactions with employees.
Deferred Income Taxes
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 expected 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 March 31, 2021, due to the uncertainty of our ability to realize those assets.
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Commitments and Contingencies
We are not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material adverse effect on our business.
The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.
Results of Operations (All figures have been rounded to the nearest $1,000)
Comparison of the three months ended March 31, 2021 to the three months ended March 31, 2020
Revenues for the three months ended March 31, 2021 decreased 8% to $2,863,000 compared to $3,115,000 for the previous year. The decrease in revenues for the three months ended March 31, 2021 is primarily the result of one-time hardware orders totaling approximately $784,000 in the prior year. Software as a Service (“SaaS”) revenue, which consists of software licensed on a subscription basis, increased $538,000 or 24% to $2,776,000 for the three months ended March 31, 2021 compared to $2,238,000 for the three months ended March 31, 2020.
Gross profit increased by $220,000 to $2,642,000 for three months ended March 31, 2021 from $2,422,000 for the three months ended March 31, 2020. Our gross profit, as a percentage of revenues, was 92.3% and 77.8% for the three months ended March 31, 2021 and 2020, respectively. The increase in percentage is primarily due to higher hardware sales in the prior period which contain lower than usual margins.
Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $4,883,000 or 204% to $7,281,000 for the three months ended March 31, 2021 compared to $2,398,000 for the three months ended March 31, 2020. This increase is primarily due to higher equity compensation costs, increased headcount and expanded research and development efforts. Included in this increase is $3,564,000 of additional equity compensation costs resulting from the restatement discussed in Note 2 to the financial statements.
Interest and other income was insignificant in the three-month periods ended March 31, 2021 and 2020.
We have paid nominal income taxes for the three months ended March 31, 2021 and 2020.
As a result of the factors noted above, the Company had a net loss of $4,624,000 for the three months ended March 31, 2021 as compared to net income of $27,000 for the three months ended March 31, 2020.
Liquidity and Capital Resources (All figures have been rounded to the nearest $1,000)
As of March 31, 2021, we had cash of $12,612,000, working capital (defined as current assets minus current liabilities) of $11,550,000, total assets of $24,168,000 and stockholders’ equity of $20,277,000.
During the three months ended March 31, 2021, we used net cash of $471,000 in operating activities as compared to net cash used of $461,000 in the three months ended March 31, 2020. Cash used in investing activities was $48,000 for the three months ended March 31, 2021 compared to cash used in investing activities of $115,000 for the three months ended March 31, 2020. Cash generated by financing activities was $10,000 for the three months ended March 31, 2021 as compared to cash provided by financing activities of $235,000 for the three months ended March 31, 2020.
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On April 15, 2020 we received an advance of $10,000 from the U.S. Small Business Administration (“SBA”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). We repaid this EIDL advance on December 7, 2020. We did not impute interest on this advance as the rate was determined to be a below-market rate due to the scope exception in ASC 835-30-15-3(e) for government-mandated interest rates. On December 27, 2020, Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (“the Economic Aid Act”) which relieves companies of their obligations to repay EIDL advances. As a result of this ruling, the SBA returned this advance, plus interest to the Loan Servicer on February 18, 2021, which was immediately returned to us and included in Other Income on the Statements of Operations.
On June 23, 2020, we completed a public offering of 1,769,230 shares of our common stock, offered to the public at $6.50 per share. Our net proceeds from this offering were approximately $10,710,000 after deducting underwriting discounts and commissions paid by us. Direct offering costs totaling approximately $141,000 were recorded as a reduction to the net proceeds and included in additional paid-in-capital on the statement of stockholders’ equity.
On February 6, 2019, we entered into a revolving credit facility with Citibank that allows for borrowings up to the lesser of (i) $2,000,000 or (ii) the collateralized balance in our existing fixed income investment account with Citibank subject to certain limitations. The facility bears interest at a rate consistent of Citibank’s Base Rate (4.75% at March 31, 2021) minus 2%. Interest is payable monthly and as of March 31, 2021, there were no amounts outstanding and unused availability under this facility was $2,000,000.
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and including how it may impact our customers, employees and vendors. We continue to have a decline in revenues from our customers disruptions through March 31, 2021 from COVID-19 and we are unable to predict the impact that this pandemic will have on us going forward, including our financial position, results of operations and cash flows, the impact on our customers and the related demand for our services due to numerous uncertainties including the effect on the pandemic of variants of the original COVID-19 strain coupled with the speed, adoption and effectiveness of the ongoing widespread vaccination roll out.
We currently anticipate that our available cash, expected cash from operations and availability under the revolving credit agreement, 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.
We keep the option open to raise additional funds to respond to business contingencies which may include the need to fund more rapid expansion, fund additional marketing expenditures, develop new markets for our technology, enhance our operating infrastructure, respond to competitive pressures, or acquire complementary businesses or necessary technologies. There can be no assurance that we will be able to secure the additional funds when needed or obtain such on terms satisfactory to us, if at all.
We have filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”), which became effective July 19, 2010. Under the shelf registration statement, we may offer and sell, from time to time in the future in one or more public offerings, our common stock, preferred stock, warrants, and units. The aggregate initial offering price of all securities sold by us will not exceed $25,000,000. We renewed this registration with the SEC on June 1, 2020 and it was declared effective June 4, 2020.
The specific terms of any future offering, including the prices and use of proceeds, will be determined at the time of any such offering and will be described in detail in a prospectus supplement which will be filed with the SEC at the time of the offering.
The shelf registration statement is designed to give us the flexibility to access additional capital at some point in the future when market conditions are appropriate.
We are not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material effect on our business.
Net Operating Loss Carry Forwards
Our available net operating loss (“NOL”) at December 31, 2020 was approximately $17 million. The federal and state NOLs are available to offset future taxable income and begin to expire in 2021.
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Adjusted EBITDA
We use Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by adjusting net (loss) income for certain reductions such gains on debt forgiveness and interest and other income and certain addbacks such as income taxes, impairments of long-lived assets and goodwill, depreciation, amortization and equity 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 equity compensation, as well as non-operating charges for interest and 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.
We consider Adjusted EBITDA to be an important indicator of our operational strength and performance of our business and a useful measure of our historical operating trends. However, there are significant limitations to the use of Adjusted EBITDA since it excludes gains on debt forgiveness, interest and other income, impairments of long-lived assets and goodwill, equity compensation expense, all of which impact our profitability, as well as depreciation and amortization related to the use of long-term assets which benefit multiple periods. We believe that these limitations are compensated by providing Adjusted EBITDA only with GAAP net (loss) income and clearly identifying the difference between the two measures. Consequently, Adjusted EBITDA should not be considered in isolation or as a substitute for net (loss) income presented in accordance with GAAP. Adjusted EBITDA as defined by us may not be comparable with similarly named measures provided by other entities.
A reconciliation of GAAP net (loss) income to Non-GAAP Adjusted EBITDA follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net (loss) income | $ | (4,624,000 | ) | $ | 27,000 | |||
| Reconciling items: | ||||||||
| Gain on forgiveness of unsecured promissory note | (10,000 | ) | - | |||||
| Interest and other income | (5,000 | ) | (2,000 | ) | ||||
| Depreciation and amortization | 43,000 | 34,000 | ||||||
| Equity compensation including liability classified awards | 4,545,000 | 86,000 | ||||||
| Adjusted EBITDA | $ | (51,000 | ) | $ | 145,000 | |||
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements and have not established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Forward Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, loss from operations and cash flow. Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Financial instruments, which subject us to concentrations of credit risk, consist primarily of cash. We maintain cash in two financial institutions. We perform periodic evaluations of the relative credit standing of these institutions.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer, concluded that, as of March 31, 2021, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed in the reports required to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company. Management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2021, based on the framework and criteria established in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
At the time of our Original Filing, management, including our Chief Executive Officer and our Chief Financial Officer , initially concluded that our internal control over financial reporting was effective as of March 31, 2021. As a result of the restatement of the Company’s financial statements and the filing of this Form 10-Q/A, our management has reconsidered its assessment and now concludes that we did not maintain effective internal control over financial reporting as of March 31, 2021, due to the material weakness in internal control over financial reporting described below that existed as of March 31, 2021.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management identified the following material weaknesses in our internal control over financial reporting related to its accounting for equity compensation. Specifically, the Company did not maintain a compliment of accounting personnel with sufficient knowledge, experience and training in the application of U.S. GAAP as it relates to accounting and reporting for equity compensation. This material weakness contributed to a failure to maintain effective controls over the accounting and reporting for stock options.
Remediation Plan
Historically, the Company managed the administration and recordkeeping of the Company’s equity compensation in-house. Managing this complex process was unduly burdensome and directly contributed to the material weakness.
Beginning in the second quarter of 2022, the Company will no longer maintain the administration and recordkeeping of its equity compensation plans internally but instead will outsource this function to a third-party brokerage firm specializing in these tasks. This specialization will improve the accuracy of reporting and the Company’s legal and regulatory compliance around equity compensation.
| 25 |
The Company has also engaged a professional services firm to oversee the implementation of a global broker-dealer firm specializing in equity compensation platforms, as well as provide recommendations on best practices, processes, and internal controls going forward.
Changes in Internal Controls over Financial Reporting
There was no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter of 2021 covered by this Quarterly Report on Form 10-Q/A that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Part II - Other Information
Item 1. LEGAL PROCEEDINGS
None.
Item 1A. Risk Factors
Current economic conditions including the ongoing COVID-19 pandemic may cause a decline in business and consumer spending which could adversely affect our business and financial performance.
Our operating results may be impacted by the overall health of the North American economy. Our business and financial performance, including collection of our accounts receivable and recoverability of assets, may be adversely affected by current and future economic conditions, such as a reduction in the availability of credit, financial market volatility, recession, etc.
In December 2019, it was first reported that there had been an outbreak of a novel strain of COVID-19, in China. Since then, COVID-19 has continued to spread outside of China, including throughout the United States and other parts of the world, becoming a global pandemic. For the period covered by this Form 10-Q, the COVID-19 pandemic has impacted our business and will likely continue to impact our business directly and/or indirectly for the foreseeable future. While we are hopeful that widespread vaccinations from COVID-19 will usher a new sense of normalcy, we are unable to accurately predict the full impact that the COVID-19 pandemic will have on our results of operations or financial condition due to numerous factors that are not within our control, including the duration and severity of the outbreak together with any additional statewide closures resulting from increases in cases nationwide, whether from COVID-19 or recently discovered variants which may or may not be preventable by the currently available vaccines.
Governments in affected regions have implemented and may continue to implement safety precautions, including stay-at-home orders, travel restrictions, business closures, cancellations of public gatherings, and other measures. Other organizations and individuals are taking additional steps to avoid or reduce infection, including limiting travel and having employees work remotely. These measures are disrupting normal business operations both in and outside of affected areas. We continue to monitor our operations and government recommendations and have made appropriate modifications to our operations because of COVID-19, including transitioning to a remote work environment, substantial reductions in employee travel, virtualization or cancellation of customer and employee events, and remote sales, implementation, and support activities, among other modifications. These decisions may delay or reduce sales and harm productivity and collaboration. The cancellation of industry events nationwide reduces our ability to meet with existing and potential new customers. Our customers’ businesses could be disrupted or they could seek to limit technology spending, either of which could foreclose future business opportunities, could negatively impact the willingness of our customers to enter into or renew contracts with us, and ultimately adversely affect our revenues. Although we are unable to predict the precise impact of COVID-19 on our business, our business depends to a large extent on the willingness of customers to enter into or renew contracts with us.
| 26 |
In addition, while the long-term economic impact and the duration of the COVID-19 pandemic may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which could reduce our ability to access capital and could negatively affect our liquidity and the liquidity and stability of markets for our common stock.
Our operations and financial results are subject to various other risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of our common stock. Please refer to our annual report on Form 10-K/A for fiscal years ended December 31, 2021 and 2020 filed June 9, 2022.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None
Item 6. Exhibits
(a) The following exhibits are filed as part of the Quarterly Report on Form 10-Q:
| Exhibit No. | Description | ||
| 31.1 | Rule 13a-14(a) Certification of Chief Executive Officer | ||
| 31.2 | Rule 13a-14(a) Certification of Chief Financial Officer | ||
| 32 | 18 U.S.C. Section 1350 Certifications | ||
| 101.INS | Inline XBRL Instance Document | ||
| 101.SCH | Inline XBRL Taxonomy Extension Schema | ||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | ||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | ||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | ||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | ||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 27 |
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.
| Date: June 9, 2022 | Intellicheck, Inc. | |
| By: | /s/ Bryan Lewis | |
| Bryan Lewis | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Jeffrey Ishmael | |
| Jeffrey Ishmael | ||
| Chief Financial Officer, Chief Operating Officer | ||
| 28 |
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
| I, | Bryan Lewis, certify that: |
| 1. | I have reviewed this quarterly report on Form 10-Q/A of Intellicheck, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: | June 9, 2022 | /s/ Bryan Lewis | |
| Name: | Bryan Lewis | ||
| Title: | Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey Ishmael certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q/A of Intellicheck, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: | June 9, 2022 | /s/Jeffrey Ishmael | |
| Name: | Jeffrey Ishmael | ||
| Title: | Chief Financial Officer, Chief Operating Officer |
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Intellicheck, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q/A for the period ended March 31, 2021 of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q/Afairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: | June 9, 2022 | /s/ Bryan Lewis | |
| Name: | Bryan Lewis | ||
| Title: | Chief Executive Officer | ||
| (Principal Executive Officer) | |||
| Dated: | June 9, 2022 | /s/ Jeffrey Ishmael | |
| Name: | Jeffrey Ishmael | ||
| Title: | Chief Financial Officer, Chief Operating Officer |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q/A or as a separate disclosure document.
Balance Sheets (Parenthetical) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance for accounts receivable | $ 42,974 | $ 42,974 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 40,000,000 | 40,000,000 |
| Common stock, shares issued | 18,593,757 | 18,410,458 |
| Common stock, shares outstanding | 18,593,757 | 18,410,458 |
Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
| Income Statement [Abstract] | ||
| REVENUES | $ 2,862,541 | $ 3,115,272 |
| COST OF REVENUES | (220,728) | (692,884) |
| Gross profit | 2,641,813 | 2,422,388 |
| OPERATING EXPENSES | ||
| Selling, general and administrative | 5,945,162 | 1,454,555 |
| Research and development | 1,336,241 | 943,299 |
| Total operating expenses | 7,281,403 | 2,397,854 |
| (Loss) income from operations | (4,639,590) | 24,534 |
| OTHER INCOME | ||
| Gain on forgiveness of unsecured promissory note | 10,000 | |
| Interest and other income | 5,142 | 2,068 |
| Total other income | 15,142 | 2,068 |
| Net (loss) income | $ (4,624,448) | $ 26,602 |
| (Loss) income per common share - | ||
| Basic | $ (0.25) | $ 0.00 |
| Diluted | $ (0.25) | $ 0.00 |
| Weighted average common shares used in computing per share amounts - | ||
| Basic | 18,480,013 | 16,153,549 |
| Diluted | 18,480,013 | 17,153,861 |
Statements of Stockholders' Equity (Unaudited) (Parenthetical) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
| Statement of Stockholders' Equity [Abstract] | ||
| Exercise of stock options, net of cashless exercise of shares | 58,122 | 2,451 |
| Exercise of stock options, net of cashless exercise of shares withheld | 92,634 | |
NATURE OF BUSINESS |
3 Months Ended |
|---|---|
Mar. 31, 2021 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| NATURE OF BUSINESS | 1. NATURE OF BUSINESS
Business
Intellicheck, Inc. (the “Company” or “Intellicheck”) is a prominent technology company that is engaged in developing, integrating and marketing identity verification solutions to address challenges that include commercial retail and banking fraud prevention. Intellicheck’s products include ID Check®, a solution for preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices.
Intellicheck continues to develop and release innovative products based upon its rich patent portfolio consisting of nineteen issued patents and four pending patents.
Liquidity
For the three months ended March 31, 2021, the Company incurred a net loss of $4,624,448 and used cash in operations of $471,401. As of March 31, 2021, the Company had cash of $12,611,616, working capital of $11,550,386 and an accumulated deficit of $124,043,557 Based on the Company’s business plan and cash resources, Intellicheck expects its existing and future resources and revenues generated from operations to satisfy its working capital requirements for at least the next 12 months.
As of the filing of this Form 10-Q, the COVID-19 pandemic, which first began affecting the Company in the first quarter of 2020, has impacted the Company’s business by a decline in revenues from its customers which will likely continue to impact its business directly and/or indirectly for the foreseeable future. The Company is unable to accurately predict the full impact that the COVID-19 pandemic will have on its results of operations or financial condition due to numerous factors that are not within its control, including the duration and severity of the outbreak together with any potential statewide closures if cases increase, the spread of recently discovered COVID-19 variants and the widespread adoption of vaccination measures.
See Part II, Item 1A for more information.
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SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SIGNIFICANT ACCOUNTING POLICIES | 2. SIGNIFICANT ACCOUNTING POLICIES
Restatement of Previously Issued Financial Statements
On May 16, 2022, management in concurrence with the Company’s Audit Committee of our Board of Directors (the “Audit Committee”), concluded that that the financial statements previously issued as of and for the quarterly period ended March 31, 2021, should no longer be relied upon due to errors in accounting for certain option awards. Accordingly, we are restating our Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity, Statements of Cash Flows and the related notes as of and for the quarterly period ended March 31, 2021.
Specifically, the Company determined that a cashless withholding to satisfy personal income tax obligations from certain option awards exercised commencing in the third quarter of 2020 and the first quarter of 2021, caused the underlying options to no longer qualify as equity awards and should have instead been classified as liability awards commencing on the date of exercise.
The change in the classification of the awards to liability classified awards requires the Company to remeasure the fair value of the awards at the end of each reporting period they remain outstanding, with the increase or decrease in fair value correspondingly charged or credited to selling, general and administrative expenses in arriving at net income (loss). Furthermore, the Company, due to an administrative error, failed to sell the shares surrendered in 2021 and did not remit the equivalent amount of funds to the tax authorities. To date, the Company has not returned the shares or otherwise reimbursed the effected individuals for the shares withheld The Company is currently in the process of arranging payment to individuals, which is expected to be completed during the quarter ending June 30, 2022.
These errors resulted in misstatements to our Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity, and Statements of Cash Flows as of and for the quarterly period ended March 31, 2021 as follows:
The correction of these errors had no net effect on net cash used in operating activities.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary for a fair presentation of the Company’s financial position at March 31, 2021 and the results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2021 and 2020. All such adjustments are of a normal and recurring nature. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements. Results of operations for the three-month period ended March 31, 2021, are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2021.
As noted in the Explanatory Note, the Company has filed this Form 10-Q/A to amend our Quarterly Report on Form 10-Q for the three month period ended March 31, 2021, originally filed with the SEC on May 12, 2021 (the “Original Form 10-Q”), to restate our Financial Statements and related footnote disclosures as of and for the three months ended March 31, 2021.
The balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date, as restated, but does not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.
References in this Quarterly Report on Form 10-Q to “authoritative guidance” is to the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”).
For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and early adoption is permitted. The Company has adopted this standard and did not have a material impact on its financial statements.
Use of Estimates
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. Significant estimates and assumptions that affect amounts reported in the financial statements include impairment consideration and valuation of goodwill and intangible assets, deferred tax valuation allowances, and the fair value of stock options granted under the Company’s Equity compensation plan. Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates. As discussed above, certain option awards no longer qualify as equity awards and instead are being classified as liability awards. ASC 718 establishes fair value as the measurement objective in accounting for equity payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all equity payment transactions with employees. The company determined the fair value of these awards utilizing a Black-Scholes option pricing model.
Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Allowance for Doubtful Accounts
The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions and other factors that may affect customers’ ability to pay.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of net assets acquired in business combinations. Pursuant to ASC Topic 350, the Company tests goodwill for impairment on an annual basis in the fourth quarter (December 31, 2021), or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform the two-step quantitative goodwill impairment test. An entity is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. Events or changes in circumstances which could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity specific events and sustained decrease in share price. There were no impairment charges recognized during either of the three months ended March 31, 2021 and 2020.
Intangible Assets
Intangible assets include patents, copyrights, intellectual property rights and licensed software. The Company uses the straight-line method to amortize these assets over their estimated useful lives. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable in accordance with ASC Topic 360. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. There were no impairment charges recognized during either of the three months ended March 31, 2021 and 2020.
Income Taxes
The Company accounts for income taxes under in accordance with ASC Topic 740, “Accounting for Income Taxes.” 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 carryforwards. Deferred tax assets and liabilities are measured using expected tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company has recorded a full valuation allowance for its net deferred tax assets as of March 31, 2021 and December 31, 2020, due to the uncertainty of the realizability of those assets.
Fair Value of Financial Instruments
The Company adheres to the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”. This pronouncement requires that the Company calculate the fair value of financial instruments and include this additional information in the notes to financial statements when the fair value is different than the book value of those financial instruments. The Company’s financial instruments include cash, accounts receivable, accounts payable and accrued expenses. As of March 31, 2021 and December 31, 2020, the carrying value of the Company’s financial instruments approximated fair value, due to their short-term nature.
Revenue Recognition and Deferred Revenue
General
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. Substantially all customer contracts provide that the Company is compensated for services performed to date.
Invoicing is based on schedules established in customer contracts. Payment terms are generally established from 30 to 60 days from the invoice date. Product returns are recorded as a reduction to revenue.
Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Furthermore, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
Nature of goods and services
The following is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each:
Software as a Service (SaaS)
Software as a service (SaaS) for hosted subscription services and licensed software allows customers to access a set of data for a predetermined period of time. As the customer obtains access at a point in time but continues to have access for the remainder of the subscription period, the customer is considered to simultaneously receive and consume the benefits provided by the entity’s performance as the entity performs. Accordingly, the revenue should be recognized over time based on the usage of the hosted subscription services and licensed software, which can vary from month to month. The revenue is typically based either on a formula such as number of locations using the service in a given month multiplied by a fee per location or the number of actual scans in a given month multiplied by a set price per scan based on the contract with the customer.
Other Subscription and Support Services
The Company also recognizes revenues from other subscription and support services, which includes jurisdictional updates to certain commercial customers and support services particularly to its Defense ID® customers. These subscriptions require continuing service or post contractual customer support and performance. As the customer obtains access at a point in time but continues to have access for the remainder of the subscription period, the customer is considered to simultaneously receive and consume the benefits provided by the entity’s performance as the entity performs. Accordingly, the revenue should be recognized over time based on usage, which can vary from month to month. The revenue is typically based on a formula such as number of locations in a given month multiplied by a fee per location.
Equipment Revenue
Revenue from the sale of equipment is recognized at a point in time. The point in time that the revenue is recognized is when the customer has control of the equipment which is when the customer receives the benefit and the Company’s performance obligation has been satisfied. Depending on the contract terms, that could either be at the time the equipment is shipped or at the time the equipment is received.
Non-Recurring Services Revenue
The non-recurring services include items such as training, installation, customization, and configuration. The Company recognizes revenue from non-recurring services contracts ratably over the service contract period as the customer consumes the benefit as it is provided and the Company’s performance obligation has been satisfied.
Extended Warranty
Extended warranty revenues are generated when a warranty is provided to the customer separately of other performance obligations when the equipment is sold. As the customer obtains access at a point in time and continues to have access for the remainder of the warranty term, the customer is considered to simultaneously receive and consume the benefits provided by the Company’s performance as the Company performs. The related revenue is recognized ratably over the specified term of the warranty period. The extended warranty is separate to the Company’s standard warranty of usually one year that it receives from its vendor.
Disaggregation of revenue
In the following tables, revenue is disaggregated by product and service and the timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue.
Contract balances
The current portion of deferred revenue at March 31, 2021 and December 31, 2020 was $455,896 and $402,782, respectively, and primarily consists of revenue that is recognized over time for software license contracts and hosted subscription services. The changes in these balances are related to the satisfaction or partial satisfaction of these contracts. Of this balance, at December 31, 2020, $242,738 was recognized as revenue for the three months ended March 31, 2021, respectively. The long-term portion of deferred revenue was $6,763 and $8,662 as of March 31, 2021 and December 31, 2020, respectively.
The Company did not recognize any material revenue in the current reporting period for performance obligations that were fully satisfied in previous periods.
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
All consideration from contracts with customers is included in the amounts presented above.
Business Concentrations and Credit Risk
During the three-month period ended March 31, 2021, the Company made sales to three customers that accounted for approximately 59% of total revenues. The revenue was associated with commercial identity sales customers. These customers represented 55% of total accounts receivable at March 31, 2021. During the three-month period ended March 31, 2020, the Company made sales to three customers that accounted for approximately 51% of total revenues. The revenue was associated with commercial identity sales customers.
Basic net (loss) income per share is computed by dividing the net (loss) income for the period by the weighted average number of common shares outstanding during the period. Diluted net (loss) income per share is computed by dividing the net (loss) income for the period by the weighted average number of shares of common stock and potentially dilutive common stock equivalents outstanding during the period. The dilutive effect of outstanding options, warrants and restricted stock is reflected in diluted earnings per share by application of the treasury stock method. The calculation of diluted net (loss) income per share excludes all anti-dilutive shares. In the periods of a net loss, all common stock equivalents are considered anti-dilutive.
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INTANGIBLE ASSETS |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS | 3. INTANGIBLE ASSETS
The changes in the carrying amount of intangible assets for the three months ended March 31, 2021 were as follows:
The following summarizes amortization of intangible assets included in the accompanying statements of operations:
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DEBT |
3 Months Ended |
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Mar. 31, 2021 | |
| Debt Disclosure [Abstract] | |
| DEBT | 4. DEBT
Promissory Note
On April 15, 2020 the Company received an advance of $10,000 from the U.S. Small Business Administration (“SBA”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company repaid this EIDL advance on December 7, 2020. The Company has not imputed interest on this advance as the rate was determined to be a below-market rate due to the scope exception in ASC 835-30-15-3(e) for government-mandated interest rates. On December 27, 2020, Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (“the Economic Aid Act”) which relieves companies of their obligations to repay EIDL advances. As a result of this ruling, the SBA returned this advance, plus interest to the Loan Servicer on February 18, 2021, which was immediately returned to the Company and included in Other Income on the Statements of Operations.
Revolving Line of Credit
On February 6, 2019, the Company entered into a revolving credit facility with Citibank that allows for borrowings up to the lesser of (i) $2,000,000 or (ii) the collateralized balance in the Company’s existing fixed income investment account with Citibank subject to certain limitations. The facility bears interest at a rate consistent of Citibank’s Base Rate (4.75% at March 31, 2021) minus 2%. Interest is payable monthly and as of March 31, 2021, there were no amounts outstanding and unused availability under this facility was $2,000,000.
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ACCRUED EXPENSES |
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCRUED EXPENSES | 5. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
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INCOME TAXES |
3 Months Ended |
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Mar. 31, 2021 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | 6. INCOME TAXES
The Company’s available net operating loss (“NOL”) at December 31, 2020 was approximately $17 million. The federal and state NOLs are available to offset future taxable income and begin to expire in 2021.
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EQUITY COMPENSATION |
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| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EQUITY COMPENSATION |
The Company accounts for the issuance of equity awards to employees in accordance with ASC Topic 718, which requires that the cost resulting from all equity payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for equity payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all equity payment transactions with employees. All equity compensation is included in operating expenses for the periods as follows:
Stock Options
The Company uses the Black-Scholes option pricing model to value the options on the grant date. The expected life computation is based on the time to option expiration. For the awards which were modified and are no longer classified as equity awards, the Company uses the share price as of each reporting period to calculate the fair value of the options. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.
As discussed above, certain option awards no longer qualify as equity awards and instead are classified as liability awards. The fair value of these awards are determined at each reporting period utilizing a Black Scholes option pricing model, and the associated compensation expense for the reporting period is recorded. The Company recorded $ of additional compensation expense in the first quarter of 2021 as a result of this award reclassification.
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on March 31, 2021. This amount changes based upon the fair market value of the Company’s stock.
Restricted Stock Units
The Company issues Restricted Stock Units (“RSUs”) which are equity-based instruments that may be settled in shares of common stock of the Company. During the three months ended March 31, 2021, the Company issued RSUs to its officers and certain employees and to certain directors as compensation. RSU agreements can vest immediately or with the passage of time. The vesting of all RSUs is contingent on continued board and employment services.
The compensation expense incurred by the Company for RSUs is based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period and charged to general and administrative expense with a corresponding increase to additional paid-in capital.
Performance Stock Units
On August 7, 2020, the Company issued Performance Stock Units (PSUs) to its officers and certain employees as compensation. For these PSU agreements, % vest based on the Company’s market price and % vest based on its Adjusted EBITDA performance metric. Both the conditions are to occur over a passage of a specified time and is contingent on continued employment services.
For the market condition, compensation expense is based on a Geometric Brownian Motion valuation model based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite period. For the performance condition, the Company reviews the probability of achieving this goal on a periodic basis. If the Company determines that it is probable that the performance criteria will be achieved, the amount of compensation cost derived for this performance metric is amortized over the anticipated service period. If these criteria are not met, no compensation cost is recognized and any previously recognized compensation cost would be reversed. For both conditions, compensation expense is charged to selling, general and administrative and research and development expense with a corresponding increase to additional paid-in capital.
As of March 31, 2021, there was of total unrecognized compensation cost, net of estimated forfeitures, related to all unvested stock options, RSUs and PSUs, which is expected to be recognized over a weighted average period of approximately years.
The Company had shares available for future grants under the Plan at March 31, 2021.
Warrants
All previously granted warrants were issued with an exercise price that was equal to or above the fair market value of the Company’s common stock on the date of grant. As of March 31, 2021, the Company had 12,680 warrants outstanding with an exercise price of $2.20 which are exercisable through 2021. During the three months ended March 31, 2021, no warrants were exercised.
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COMMON STOCK |
3 Months Ended |
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Mar. 31, 2021 | |
| Equity [Abstract] | |
| COMMON STOCK | 8. COMMON STOCK
On June 23, 2020, the Company completed a public offering of shares of its common stock, offered to the public at $ per share. Net proceeds to the Company from this offering were approximately $10,710,000 after deducting underwriting discounts and commissions paid by the Company. Direct offering costs totaling approximately $141,000 were recorded as a reduction to the net proceeds and included in additional paid-in-capital on the statement of stockholders’ equity.
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LEGAL PROCEEDINGS |
3 Months Ended |
|---|---|
Mar. 31, 2021 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| LEGAL PROCEEDINGS | 9. LEGAL PROCEEDINGS
The Company is not aware of any infringement by the Company’s products or technology on the proprietary rights of others.
The Company is not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material effect on its business.
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COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
|---|---|
Mar. 31, 2021 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | 10. COMMITMENTS AND CONTINGENCIES
Appointment of New President
The Board has appointed Garrett Gafke as the Company’s President. Mr. Gafke’s first day of employment as President was March 23, 2021. With the appointment of Mr. Gafke as President, Bryan Lewis is continuing as the Company’s Chief Executive Officer. In connection with becoming the Company’s President, Mr. Gafke and the Company have entered into an employment agreement, dated March 23, 2021 (the “Agreement”). Mr. Gafke, on his first day of employment as President, was granted a restricted stock unit award of shares and an option to purchase shares of the Company’s common stock, both of which are subject to a three-year vesting schedule under the Company’s 2015 Omnibus Incentive Plan, as amended.
The Company’s agreement with Mr. Gafke also provides for certain severance payments in the event Mr. Gafke is terminated without cause including pay for six (6) months if Mr. Gafke is terminated without cause less than 12 months after March 23, 2021 and pay for twelve (12) months if Mr. Gafke is terminated without cause after March 23, 2022.
Severance and Change-in-Control Agreements
On November 25, 2020, Bill White, the Chief Financial Officer and Chief Operating Officer entered into a severance agreement with the Company (the “Agreement”). The Agreement provides that in consideration of his services and pursuant to the Agreement, in the event that Mr. White’s employment is terminated without “cause” (as such term is defined in the Agreement), Mr. White will receive a 24-month continuation of salary payments, continuation of certain eligible medical benefits under the COBRA program, and a lump sum payment equal to any quarterly bonus target applicable during the quarter of termination plus any prior completed quarterly bonus which has not yet been determined (if any). In addition, the Agreement provides that upon such termination without cause, the Company will accelerate the vesting of all of Mr. White’s outstanding but unvested stock options or other equity incentives. This Agreement expires on November 29, 2023 and replaces an amended severance agreement previously executed by Mr. White and the Company on November 29, 2017.
The Company’s employment agreement dated February 1, 2018 (the “Agreement”) with Bryan Lewis, the Chief Executive Officer provides for certain severance payments in the event Mr. Lewis is terminated without cause including pay for six (6) months if Mr. Lewis is terminated without cause less than 12 months after February 1, 2018, pay for twelve (12) months if Mr. Lewis is terminated without cause between one (1) and five (5) years after February 1, 2018, and pay for eighteen (18) months if Mr. Lewis is terminated without cause after the fifth anniversary of this Agreement, in addition to reimbursement for certain living expenses and relocation advances and expenses in certain situations.
Each of the agreements requires the executive to devote substantially all his time and efforts to our business and contains non-competition and nondisclosure covenants of the officer for the term of his employment and for a one-year period thereafter. Each agreement provides that we may terminate the agreement for cause. |
SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary for a fair presentation of the Company’s financial position at March 31, 2021 and the results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2021 and 2020. All such adjustments are of a normal and recurring nature. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements. Results of operations for the three-month period ended March 31, 2021, are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2021.
As noted in the Explanatory Note, the Company has filed this Form 10-Q/A to amend our Quarterly Report on Form 10-Q for the three month period ended March 31, 2021, originally filed with the SEC on May 12, 2021 (the “Original Form 10-Q”), to restate our Financial Statements and related footnote disclosures as of and for the three months ended March 31, 2021.
The balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date, as restated, but does not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.
References in this Quarterly Report on Form 10-Q to “authoritative guidance” is to the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”).
For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and early adoption is permitted. The Company has adopted this standard and did not have a material impact on its financial statements.
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| Use of Estimates | Use of Estimates
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. Significant estimates and assumptions that affect amounts reported in the financial statements include impairment consideration and valuation of goodwill and intangible assets, deferred tax valuation allowances, and the fair value of stock options granted under the Company’s Equity compensation plan. Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates. As discussed above, certain option awards no longer qualify as equity awards and instead are being classified as liability awards. ASC 718 establishes fair value as the measurement objective in accounting for equity payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all equity payment transactions with employees. The company determined the fair value of these awards utilizing a Black-Scholes option pricing model.
Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
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| Allowance for Doubtful Accounts | Allowance for Doubtful Accounts
The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions and other factors that may affect customers’ ability to pay.
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| Goodwil | Goodwill
Goodwill represents the excess of acquisition cost over the fair value of net assets acquired in business combinations. Pursuant to ASC Topic 350, the Company tests goodwill for impairment on an annual basis in the fourth quarter (December 31, 2021), or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform the two-step quantitative goodwill impairment test. An entity is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. Events or changes in circumstances which could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity specific events and sustained decrease in share price. There were no impairment charges recognized during either of the three months ended March 31, 2021 and 2020.
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| Intangible Assets | Intangible Assets
Intangible assets include patents, copyrights, intellectual property rights and licensed software. The Company uses the straight-line method to amortize these assets over their estimated useful lives. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable in accordance with ASC Topic 360. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. There were no impairment charges recognized during either of the three months ended March 31, 2021 and 2020.
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| Income Taxes | Income Taxes
The Company accounts for income taxes under in accordance with ASC Topic 740, “Accounting for Income Taxes.” 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 carryforwards. Deferred tax assets and liabilities are measured using expected tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company has recorded a full valuation allowance for its net deferred tax assets as of March 31, 2021 and December 31, 2020, due to the uncertainty of the realizability of those assets.
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| Fair Value of Financial Instruments | Fair Value of Financial Instruments
The Company adheres to the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”. This pronouncement requires that the Company calculate the fair value of financial instruments and include this additional information in the notes to financial statements when the fair value is different than the book value of those financial instruments. The Company’s financial instruments include cash, accounts receivable, accounts payable and accrued expenses. As of March 31, 2021 and December 31, 2020, the carrying value of the Company’s financial instruments approximated fair value, due to their short-term nature.
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| Revenue Recognition and Deferred Revenue | Revenue Recognition and Deferred Revenue
General
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. Substantially all customer contracts provide that the Company is compensated for services performed to date.
Invoicing is based on schedules established in customer contracts. Payment terms are generally established from 30 to 60 days from the invoice date. Product returns are recorded as a reduction to revenue.
Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Furthermore, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
Nature of goods and services
The following is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each:
Software as a Service (SaaS)
Software as a service (SaaS) for hosted subscription services and licensed software allows customers to access a set of data for a predetermined period of time. As the customer obtains access at a point in time but continues to have access for the remainder of the subscription period, the customer is considered to simultaneously receive and consume the benefits provided by the entity’s performance as the entity performs. Accordingly, the revenue should be recognized over time based on the usage of the hosted subscription services and licensed software, which can vary from month to month. The revenue is typically based either on a formula such as number of locations using the service in a given month multiplied by a fee per location or the number of actual scans in a given month multiplied by a set price per scan based on the contract with the customer.
Other Subscription and Support Services
The Company also recognizes revenues from other subscription and support services, which includes jurisdictional updates to certain commercial customers and support services particularly to its Defense ID® customers. These subscriptions require continuing service or post contractual customer support and performance. As the customer obtains access at a point in time but continues to have access for the remainder of the subscription period, the customer is considered to simultaneously receive and consume the benefits provided by the entity’s performance as the entity performs. Accordingly, the revenue should be recognized over time based on usage, which can vary from month to month. The revenue is typically based on a formula such as number of locations in a given month multiplied by a fee per location.
Equipment Revenue
Revenue from the sale of equipment is recognized at a point in time. The point in time that the revenue is recognized is when the customer has control of the equipment which is when the customer receives the benefit and the Company’s performance obligation has been satisfied. Depending on the contract terms, that could either be at the time the equipment is shipped or at the time the equipment is received.
Non-Recurring Services Revenue
The non-recurring services include items such as training, installation, customization, and configuration. The Company recognizes revenue from non-recurring services contracts ratably over the service contract period as the customer consumes the benefit as it is provided and the Company’s performance obligation has been satisfied.
Extended Warranty
Extended warranty revenues are generated when a warranty is provided to the customer separately of other performance obligations when the equipment is sold. As the customer obtains access at a point in time and continues to have access for the remainder of the warranty term, the customer is considered to simultaneously receive and consume the benefits provided by the Company’s performance as the Company performs. The related revenue is recognized ratably over the specified term of the warranty period. The extended warranty is separate to the Company’s standard warranty of usually one year that it receives from its vendor.
Disaggregation of revenue
In the following tables, revenue is disaggregated by product and service and the timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue.
Contract balances
The current portion of deferred revenue at March 31, 2021 and December 31, 2020 was $455,896 and $402,782, respectively, and primarily consists of revenue that is recognized over time for software license contracts and hosted subscription services. The changes in these balances are related to the satisfaction or partial satisfaction of these contracts. Of this balance, at December 31, 2020, $242,738 was recognized as revenue for the three months ended March 31, 2021, respectively. The long-term portion of deferred revenue was $6,763 and $8,662 as of March 31, 2021 and December 31, 2020, respectively.
The Company did not recognize any material revenue in the current reporting period for performance obligations that were fully satisfied in previous periods.
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
All consideration from contracts with customers is included in the amounts presented above.
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| Business Concentrations and Credit Risk | Business Concentrations and Credit Risk
During the three-month period ended March 31, 2021, the Company made sales to three customers that accounted for approximately 59% of total revenues. The revenue was associated with commercial identity sales customers. These customers represented 55% of total accounts receivable at March 31, 2021. During the three-month period ended March 31, 2020, the Company made sales to three customers that accounted for approximately 51% of total revenues. The revenue was associated with commercial identity sales customers.
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| Net (Loss) Income Per Share |
Basic net (loss) income per share is computed by dividing the net (loss) income for the period by the weighted average number of common shares outstanding during the period. Diluted net (loss) income per share is computed by dividing the net (loss) income for the period by the weighted average number of shares of common stock and potentially dilutive common stock equivalents outstanding during the period. The dilutive effect of outstanding options, warrants and restricted stock is reflected in diluted earnings per share by application of the treasury stock method. The calculation of diluted net (loss) income per share excludes all anti-dilutive shares. In the periods of a net loss, all common stock equivalents are considered anti-dilutive.
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SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ERRORS RESULTED IN MISSTATEMENTS | These errors resulted in misstatements to our Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity, and Statements of Cash Flows as of and for the quarterly period ended March 31, 2021 as follows:
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| SCHEDULE OF DISAGGREGATION OF REVENUE | In the following tables, revenue is disaggregated by product and service and the timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue.
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| SCHEDULE OF REVENUE PERFORMANCE OBLIGATION | The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
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| SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED |
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| SUMMARY OF COMMON STOCK EQUIVALENTS EXCLUDED FROM LOSS PER DILUTED SHARE |
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INTANGIBLE ASSETS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS | The changes in the carrying amount of intangible assets for the three months ended March 31, 2021 were as follows:
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| SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSES | The following summarizes amortization of intangible assets included in the accompanying statements of operations:
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ACCRUED EXPENSES (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCRUED EXPENSES | Accrued expenses are comprised of the following:
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EQUITY COMPENSATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF EQUITY COMPENSATION |
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| SCHEDULE OF STOCK OPTION ACTIVITY |
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| SCHEDULE OF RESTRICTED STOCK UNITS OUTSTANDING |
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| SCHEDULE OF PERFORMANCE STOCK UNITS OUTSTANDING |
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NATURE OF BUSINESS (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Jun. 30, 2021 |
Dec. 31, 2020 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
| [custom:NumberOfPatentsDescription] | Intellicheck continues to develop and release innovative products based upon its rich patent portfolio consisting of nineteen issued patents and four pending patents. | |||
| Net income (loss) | $ 4,624,448 | $ (26,602) | ||
| Net cash provided by operating activities | 471,401 | $ 460,657 | ||
| Cash | 12,611,616 | $ 13,121,392 | ||
| Working capital | 11,550,386 | |||
| Accumulated deficit | $ 124,043,557 | $ 119,419,109 | ||
SCHEDULE OF ERRORS RESULTED IN MISSTATEMENTS (Details) (Parenthetical) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
| Accounting Policies [Abstract] | ||
| Exercise of stock options, net of cashless exercise of shares | 58,122 | 2,451 |
| Exercise of stock options, net of cashless exercise of shares withheld | 92,634 | |
SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
| Accounting Policies [Abstract] | ||
| Net (Loss) Income | $ (4,624,448) | $ 26,602 |
| Weighted average common shares – Basic | 18,480,013 | 16,153,549 |
| Dilutive effect of equity incentive plans | 1,000,312 | |
| Weighted average common shares – Diluted | 18,480,013 | 17,153,861 |
| Net Loss per share – | ||
| Basic | $ (0.25) | $ 0.00 |
| Diluted | $ (0.25) | $ 0.00 |
SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
|
| Product Information [Line Items] | |||
| Deferred revenue, current portion | $ 455,896 | $ 402,782 | |
| Recognized defferred revenue | 242,738 | ||
| Deferred revenue | $ 6,763 | $ 8,662 | |
| Three Customers [Member] | Revenue from Contract with Customer Benchmark [Member] | Customer Concentration Risk [Member] | |||
| Product Information [Line Items] | |||
| Percentage of credit risk | 59.00% | 51.00% | |
| Three Customers [Member] | Accounts Receivable [Member] | Customer Concentration Risk [Member] | |||
| Product Information [Line Items] | |||
| Percentage of credit risk | 55.00% | ||
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Beginning balance | $ 482,591 | |
| Deduction: Amortization expense | (26,245) | $ (12,911) |
| Balance at end of period | $ 456,346 | |
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSES (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
| Goodwill [Line Items] | ||
| Amortization of intangible assets | $ 26,245 | $ 12,911 |
| Cost of Sales [Member] | ||
| Goodwill [Line Items] | ||
| Amortization of intangible assets | 23,677 | 10,343 |
| General and Administrative Expense [Member] | ||
| Goodwill [Line Items] | ||
| Amortization of intangible assets | $ 2,568 | $ 2,568 |
DEBT (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Apr. 15, 2020 |
Mar. 31, 2021 |
Feb. 06, 2019 |
|
| Revolving Credit Facility [Member] | Citi Bank [Member] | |||
| Line of Credit Facility [Line Items] | |||
| Line of credit facility, maximum borrowing capacity | $ 2,000,000 | ||
| Line of credit facility, interest rate description | The facility bears interest at a rate consistent of Citibank’s Base Rate (4.75% at March 31, 2021) minus 2% | ||
| Percentage of line of credit interest | 4.75% | ||
| Line of credit outstanding amount | $ 0 | ||
| Line of credit facility, unused availability | $ 2,000,000 | ||
| U.S. Small Business Administration [Member] | CARES Act [Member] | |||
| Line of Credit Facility [Line Items] | |||
| Proceeds from promissory note | $ 10,000 |
SCHEDULE OF ACCRUED EXPENSES (Details) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Professional fees | $ 154,850 | $ 123,787 |
| Payroll and related | 828,361 | 604,302 |
| Incentive bonuses | 279,324 | 834,910 |
| Other | 54,763 | 75,799 |
| Accrued Expenses | $ 1,317,298 | $ 1,638,798 |
INCOME TAXES (Details Narrative) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2021 |
Dec. 31, 2020 |
|
| Income Tax Disclosure [Abstract] | ||
| Net operating loss carryforwards | $ 17 | |
| Operating loss carryforwards expiration term | expire in 2021 |
SCHEDULE OF EQUITY COMPENSATION (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Share-based Compensation Expense | $ 4,545,015 | $ 86,042 |
| Selling, General and Administrative Expenses [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Share-based Compensation Expense | 4,271,792 | 6,753 |
| Research and Development Expense [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Share-based Compensation Expense | $ 79,289 | $ 273,223 |
SCHEDULE OF RESTRICTED STOCK UNITS OUTSTANDING (Details) - Restricted Stock Units (RSUs) [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2021
$ / shares
shares
| |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Number of Shares, Outstanding, Beginning Balance | shares | 1,754 |
| Weighted Average Grant Date Fair Value, Outstanding, Beginning Balance | $ 11.40 |
| Aggregate Intrinsic Value Outstanding, Beginning Balance | |
| Number of Shares, Granted | shares | 405,576 |
| Weighted Average Grant Date Fair Value, Granted | $ 10.62 |
| Number of Shares, Vested and Settled in Shares | shares | (1,754) |
| Weighted Average Grant Date Fair Value, Vested and Settled in Shares | $ 11.40 |
| Number of Shares, Outstanding, Ending Balance | shares | 405,576 |
| Weighted Average Grant Date Fair Value, Outstanding, Ending Balance | $ 10.62 |
| Aggregate Intrinsic Value Outstanding, Ending Balance | $ 11,568 |
SCHEDULE OF PERFORMANCE STOCK UNITS OUTSTANDING (Details) - Performance Shares [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2021
$ / shares
shares
| |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Number of Shares, Outstanding, Beginning Balance | shares | 265,942 |
| Weighted Average Grant Date Fair Value, Outstanding, Beginning Balance | $ 7.91 |
| Aggregate Intrinsic Value Outstanding, Beginning Balance | |
| Number of Shares Granted and Vested | shares | |
| Weighted Average Grant Date Fair Value Granted and Vested | |
| Number of Shares, Outstanding, Ending Balance | shares | 265,942 |
| Weighted Average Grant Date Fair Value, Outstanding, Ending Balance | $ 7.91 |
| Aggregate Intrinsic Value Outstanding, Ending Balance |
COMMON STOCK (Details Narrative) - IPO [Member] |
Jun. 23, 2020
USD ($)
$ / shares
shares
|
|---|---|
| Subsidiary, Sale of Stock [Line Items] | |
| Number of common stock shares issued | shares | 1,769,230 |
| Shares issued price per share | $ / shares | $ 6.50 |
| Proceeds from offering | $ 10,710,000 |
| Direct offering costs | $ 141,000 |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - Employment Agreement [Member] |
Mar. 23, 2021
shares
|
|---|---|
| Mr. Gafke's [Member] | |
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |
| Number of restricted stock shares granted | 90,000 |
| Number of options to purchase shares of common stock | 60,000 |
| Agreement description | The Company’s agreement with Mr. Gafke also provides for certain severance payments in the event Mr. Gafke is terminated without cause including pay for six (6) months if Mr. Gafke is terminated without cause less than 12 months after March 23, 2021 and pay for twelve (12) months if Mr. Gafke is terminated without cause after March 23, 2022 |
| Bill White [Member] | |
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |
| Agreement description | On November 25, 2020, Bill White, the Chief Financial Officer and Chief Operating Officer entered into a severance agreement with the Company (the “Agreement”). The Agreement provides that in consideration of his services and pursuant to the Agreement, in the event that Mr. White’s employment is terminated without “cause” (as such term is defined in the Agreement), Mr. White will receive a 24-month continuation of salary payments, continuation of certain eligible medical benefits under the COBRA program, and a lump sum payment equal to any quarterly bonus target applicable during the quarter of termination plus any prior completed quarterly bonus which has not yet been determined (if any). In addition, the Agreement provides that upon such termination without cause, the Company will accelerate the vesting of all of Mr. White’s outstanding but unvested stock options or other equity incentives. This Agreement expires on November 29, 2023 and replaces an amended severance agreement previously executed by Mr. White and the Company on November 29, 2017. |
| Bryan Lewis [Member] | |
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |
| Agreement description | The Company’s employment agreement dated February 1, 2018 (the “Agreement”) with Bryan Lewis, the Chief Executive Officer provides for certain severance payments in the event Mr. Lewis is terminated without cause including pay for six (6) months if Mr. Lewis is terminated without cause less than 12 months after February 1, 2018, pay for twelve (12) months if Mr. Lewis is terminated without cause between one (1) and five (5) years after February 1, 2018, and pay for eighteen (18) months if Mr. Lewis is terminated without cause after the fifth anniversary of this Agreement, in addition to reimbursement for certain living expenses and relocation advances and expenses in certain situations |