Intellicheck, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 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.: 001-15465 Intellicheck, Inc. (Exact name of Registrant as specified in its charter) Delaware 11-3234779 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 200 Broadhollow Road , Suite 207 , Melville , NY 11747 (Address of Principal Executive Offices) (Zip Code) Registrant’s telephone number, including area code: ( 516 ) 992-1900 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. Yes ☒ No ☐ 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.) Yes ☒ No ☐ 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 ☐ Non-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 ☐ No ☒ Number of shares outstanding of the issuer’s Common Stock: Class Outstanding at November 12, 2021 Common Stock, $.001 par value 18,744,768 INTELLICHECK, INC. Index Page PART I – FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 Balance Sheets – September 30, 2021 (Unaudited) and December 31, 2020 3 Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (Unaudited) 4 Statements of Stockholders’ Equity for the three months ended September 30, 2021 and 2020 (Unaudited) 5 Statements of Stockholders’ Equity for the nine months ended September 30, 2021 and 2020 (Unaudited) 6 Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited) 7 NOTES TO FINANCIAL STATEMENTS 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 4. Controls and Procedures 23 Part II – OTHER INFORMATION 24 Item 1. Legal Proceedings 24 Item 1A. Risk Factors 24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25 Item 3. Defaults Upon Senior Securities 25 Item 4. Mine Safety Disclosures 25 Item 5. Other Information 25 Item 6. Exhibits 25 Signatures 26 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 (formatted in Inline XBRL and contained in Exhibit 101) 2 PART I – FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS INTELLICHECK, INC. BALANCE SHEETS September 30, December 31, 2021 2020 (Unaudited) ASSETS CURRENT ASSETS: Cash $ 13,266,031 $ 13,121,392 Accounts receivable, net of allowance of $ 0 and $ 42,974 at September 30, 2021 and December 31, 2020, respectively 2,777,222 2,119,861 Other current assets 869,583 340,718 Total current assets 16,912,836 15,581,971 PROPERTY AND EQUIPMENT, net 430,341 138,870 GOODWILL 8,101,661 8,101,661 INTANGIBLE ASSETS, net 403,856 482,591 OPERATING LEASE RIGHT-OF-USE ASSET - 31,131 OTHER ASSETS 8,500 4,250 Total assets $ 25,857,194 $ 24,340,474 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 231,780 $ 46,171 Accrued expenses 2,445,534 1,638,798 Operating lease liability, current portion - 32,620 Deferred revenue, current portion 1,372,311 402,782 Total current liabilities 4,049,625 2,120,371 OTHER LIABILITIES: Deferred revenue, long-term portion 9,737 8,662 Total liabilities 4,059,362 2,129,033 COMMITMENTS AND CONTINGENCIES - STOCKHOLDERS’ EQUITY: Common stock - $. 001 par value; 40,000,000 shares authorized; 18,735,915 and 18,410,458 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 18,736 18,410 Additional paid-in capital 140,905,895 138,569,746 Accumulated deficit ( 119,126,799 ) ( 116,376,715 ) Total stockholders’ equity 21,797,832 22,211,441 Total liabilities and stockholders’ equity $ 25,857,194 $ 24,340,474 See accompanying notes to financial statements. 3 INTELLICHECK, INC. STATEMENTS OF OPERATIONS (Unaudited) Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 REVENUES $ 4,831,229 $ 2,698,975 $ 12,490,911 $ 7,656,442 COST OF REVENUES ( 1,510,590 ) ( 293,699 ) ( 3,199,834 ) ( 1,196,528 ) Gross profit 3,320,639 2,405,276 9,291,077 6,459,914 OPERATING EXPENSES Selling, general and administrative 2,856,794 1,472,094 7,951,970 4,341,985 Research and development 1,415,666 907,763 4,104,531 2,837,374 Total operating expenses 4,272,460 2,379,857 12,056,501 7,179,359 (Loss) Income from operations ( 951,821 ) 25,419 ( 2,765,424 ) ( 719,445 ) OTHER INCOME (EXPENSE) Gain on forgiveness of unsecured promissory note - - 10,000 - Interest and other income (expense), net ( 412 ) 6,993 5,340 18,186 Total other income (expense) ( 412 ) 6,993 15,340 18,186 Net (loss) income $ ( 952,233 ) $ 32,412 $ ( 2,750,084 ) $ ( 701,259 ) PER SHARE INFORMATION (Loss) Income per common share - Basic $ ( 0.05 ) $ 0.00 $ ( 0.15 ) $ ( 0.04 ) Diluted $ ( 0.05 ) $ 0.00 $ ( 0.15 ) $ ( 0.04 ) Weighted average common shares used in computing per share amounts Basic 18,735,097 18,336,107 18,653,823 16,960,770 Diluted 18,735,097 18,764,994 18,653,823 16,960,770 See accompanying notes to financial statements. 4 INTELLICHECK, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Three months ended September 30, 2021 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity BALANCE, June 30, 2021 18,727,552 $ 18,728 $ 140,267,314 $ ( 118,174,566 ) $ 22,111,476 Stock-based compensation expense - - 638,589 - 638,589 Issuance of common stock, net of costs Issuance of common stock, net of costs, shares Exercise of stock options, net of cashless exercise of 82,161 shares Exercise of stock options, net of cashless exercise of 82,161 shares, shares Exercise of stock options, net of cashless exercise of 58,122 shares Exercise of stock options, net of cashless exercise of 58,122 shares, shares Exercise of stock options, net of cashless exercise of 93,570 shares Exercise of stock options, net of cashless exercise of 93,570 shares,shares Exercise of warrants Exercise of warrants, shares Issuance of shares for restricted stock grants 8,363 8 ( 8 ) - - Settlement of executive bonuses with issuance of restricted stock units Settlement of executive bonuses with issuance of restricted stock units, shares Shares forfeited in exchange for withholding taxes Shares forfeited in exchange for withholding taxes, shares Net loss - - - ( 952,233 ) ( 952,233 ) BALANCE, September 30, 2021 18,735,915 $ 18,736 $ 140,905,895 $ ( 119,126,799 ) $ 21,797,832 Three months ended September 30, 2020 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity BALANCE, June 30, 2020 18,028,282 $ 18,028 $ 139,715,197 $ ( 117,668,783 ) $ 22,064,442 Stock-based compensation expense - - 97,157 - 97,157 Exercise of stock options, net of cashless exercise of 82,161 shares 527,214 527 28,823 - 29,350 Exercise of warrants 750 1 1,649 - 1,650 Issuance of shares for restricted stock grants 7,284 7 ( 7 ) - - Settlement of executive bonuses with issuance of restricted stock units 5,531 6 31,245 - 31,251 Shares forfeited in exchange for withholding taxes ( 178,832 ) ( 179 ) ( 1,462,415 ) - ( 1,462,594 ) Net income - - - 32,412 32,412 BALANCE, September 30, 2020 18,390,229 $ 18,390 $ 138,411,649 $ ( 117,636,371 ) $ 20,793,668 See accompanying notes to financial statements. 5 INTELLICHECK, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Nine months ended September 30, 2021 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity BALANCE, January 1, 2021 18,410,458 $ 18,410 $ 138,569,746 $ ( 116,376,715 ) $ 22,211,441 Stock-based compensation expense - - 2,270,205 - 2,270,205 Exercise of stock options, net of cashless exercise of 58,122 shares 299,179 299 46,171 - 46,470 Exercise of warrants 9,000 9 19,791 - 19,800 Issuance of shares for restricted stock grants 17,278 18 ( 18 ) - - Net loss - - - ( 2,750,084 ) ( 2,750,084 ) BALANCE, September 30, 2021 18,735,915 $ 18,736 $ 140,905,895 $ ( 119,126,799 ) $ 21,797,832 Nine months ended September 30, 2020 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity BALANCE, January 1, 2020 16,041,650 $ 16,042 $ 128,668,583 $ ( 116,935,112 ) $ 11,749,513 Stock-based compensation expense - - 286,909 - 286,909 Issuance of common stock, net of costs 1,769,230 1,769 10,567,698 - 10,569,467 Exercise of stock options, net of cashless exercise of 93,570 shares 674,171 674 167,934 - 168,608 Exercise of stock options, net of cashless exercise of shares 674,171 674 167,934 - 168,608 Exercise of warrants 50,750 51 111,599 - 111,650 Issuance of shares for restricted stock grants 20,279 20 ( 20 ) - - Settlement of executive bonuses with issuance of restricted stock units 14,993 15 84,696 - 84,711 Shares forfeited in exchange for withholding taxes ( 180,844 ) ( 181 ) ( 1,475,750 ) - ( 1,475,931 ) Net loss - - - ( 701,259 ) ( 701,259 ) Net income (loss) - - - ( 701,259 ) ( 701,259 ) BALANCE, September 30, 2020 18,390,229 $ 18,390 $ 138,411,649 $ ( 117,636,371 ) $ 20,793,668 See accompanying notes to financial statements. 6 INTELLICHECK, INC. STATEMENTS OF CASH FLOWS (Unaudited) Nine months ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 2,750,084 ) $ ( 701,259 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 126,226 127,143 Stock-based compensation expense 2,270,205 286,909 Forgiveness of unsecured promissory note ( 10,000 ) - Changes in assets and liabilities: (Increase) in accounts receivable ( 657,361 ) ( 64,228 ) (Increase) in other current assets ( 528,865 ) ( 192,103 ) (Increase) in other assets ( 4,250 ) - Increase in accounts payable and accrued expenses 990,856 361,395 Increase (decrease) in deferred revenue 970,604 ( 128,779 ) Net cash provided by (used in) operating activities 407,331 ( 310,922 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of software license - ( 400,000 ) Capital expenditures ( 338,962 ) ( 36,520 ) Collection of note receivable - 29,017 Net cash used in investing activities ( 338,962 ) ( 407,503 ) CASH FLOWS FROM FINANCING ACTIVITIES: Return of repayment on unsecured promissory note 10,000 - Net proceeds from issuance of common stock - 10,569,467 Loan proceeds on unsecured promissory note - 806,100 Net proceeds from issuance of common stock from exercise of stock options 46,470 168,608 Proceeds from issuance of common stock from exercise of warrants 19,800 111,650 Withholding taxes paid on exercise of stock options and vesting of restricted stock units - ( 1,475,931 ) Net cash provided by financing activities 76,270 10,179,894 Net increase in cash 144,639 9,461,469 CASH, beginning of period 13,121,392 3,350,853 CASH, end of period $ 13,266,031 $ 12,812,322 Supplemental disclosure of noncash investing and financing activities: Settlement of executive bonuses with restricted stock units $ - $ 84,710 See accompanying notes to financial statements. 7 INTELLICHECK, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) 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 nine months ended September 30, 2021, the Company incurred a net loss of $ 2,750,084 and had cash provided by operating activities of $ 407,331 . As of September 30, 2021, the Company had cash of $ 13,266,031 , working capital (defined as current assets minus current liabilities) of $ 12,863,211 and an accumulated deficit of $ 119,126,799 . 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 temporary decline in revenues from its customers. Though the Company has had an increase in SaaS revenues for the three and nine months ended September 30, 2021 over the respective periods in 2020, the COVID-19 pandemic may continue to impact its business directly and/or indirectly for the foreseeable future. The Company is further 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 COVID-19 variants, including the Delta variant, and the widespread adoption of vaccination measures including recently approved booster regimens. See Part II, Item 1A for more information. 2. SIGNIFICANT ACCOUNTING POLICIES 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 September 30, 2021 and the results of operations, stockholders’ equity and cash flows for the nine months ended September 30, 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 nine-month period ended September 30, 2021, are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2021. The balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date 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. 8 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. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments to measure credit losses on financial instruments, including trade receivables. The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. The guidance is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. The Company does not expect this standard will 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 stock-based compensation plan. Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates. 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 nine months ended September 30, 2021 and 2020. 9 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, as it represents the pattern of economic benefits consumed. 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 nine months ended September 30, 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 September 30, 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 September 30, 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. 10 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. 11 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. SCHEDULE OF DISAGGREGATION OF REVENUE 2021 2020 For the Three Months Ended September 30, 2021 2020 Products and services Software as a Service (SaaS) $ 3,245,274 $ 2,451,381 Other subscription and support services 3,282 36,346 Equipment 1,470,333 176,061 Non-recurring services 12,000 29,000 Extended warranties on equipment 1,405 5,058 Other 98,935 1,129 Revenues $ 4,831,229 $ 2,698,975 Timing of revenue recognition Products transferred at a point in time $ 1,569,268 $ 177,190 Services transferred over time 3,261,961 2,521,785 Revenues $ 4,831,229 $ 2,698,975 2021 2020 For the Nine Months Ended September 30, 2021 2020 Products and services Software as a Service (SaaS) $ 9,254,591 $ 6,361,150 Other subscription and support services 22,588 186,280 Equipment 2,931,980 1,011,608 Non-recurring services 65,200 70,450 Extended warranties on equipment 7,009 17,232 Other 209,543 9,722 $ 12,490,911 $ 7,656,442 Timing of revenue recognition Products transferred at a point in time $ 3,141,523 $ 1,021,330 Services transferred over time 9,349,388 6,635,112 Revenues $ 12,490,911 $ 7,656,442 Contract balances The current portion of deferred revenue at September 30, 2021 and December 31, 2020 was $ 1,372,311 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, $ 48,378 and $ 383,162 was recognized as revenue for the three and nine months ended September 30, 2021, respectively. The long-term portion of deferred revenue was $ 9,737 and $ 8,662 as of September 30, 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. 12 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: SCHEDULE OF REVENUE PERFORMANCE OBLIGATION Remainder 2021 2022 2023 Total Software as a Service (SaaS) $ 550,647 $ 812,288 $ 3,136 $ 1,366,071 Other subscription and support services 3,086 5,649 2,602 11,337 Extended warranties on equipment 1,097 2,324 1,219 4,640 $ 554,830 $ 820,261 $ 6,957 $ 1,382,048 All consideration from contracts with customers is included in the amounts presented above. Business Concentrations and Credit Risk During the three and nine-month periods ended September 30, 2021, the Company made sales to two customers that accounted for approximately 60 % and 58 % of total revenues, respectively. The revenue was associated with commercial identity sales customers. These customers represented 28 % of total accounts receivable at September 30, 2021. During the three and nine month periods ended September 30, 2020, the Company made sales to two customers that accounted for approximately 46 % and 37 % of total revenues, respectively. The revenue was associated with commercial identity sales customers. 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. SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED 2021 2020 2021 2020 Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Numerator: Net (Loss) Income $ ( 952,233 ) $ 32,412 $ ( 2,750,084 ) $ ( 701,259 ) Denominator: Weighted average common shares – Basic 18,735,097 18,336,107 18,653,823 16,960,770 Dilutive effect of equity incentive plans - 428,887 - - Weighted average common shares –Diluted 18,735,097 18,764,994 18,653,823 16,960,770 Net (Loss) Income per share – Basic $ ( 0.05 ) $ 0.00 $ ( 0.15 ) $ ( 0.04 ) Diluted $ ( 0.05 ) $ 0.00 $ ( 0.15 ) $ ( 0.04 ) 13 The following table summarizes the common stock equivalents excluded from loss per diluted share because their effect would be anti-dilutive to the net loss: SUMMARY OF COMMON STOCK EQUIVALENTS EXCLUDED FROM LOSS PER DILUTED SHARE 2021 2020 2021 2020 Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Stock options 502,424 - 502,424 653,882 Warrants - - - 12,680 Restricted stock 408,657 - 408,657 4,499 Performance stock units 228,498 - 228,498 265,942 1,139,579 - 1,139,579 937,003 Antidilutive securities excluded from computation of earnings per share amount 1,139,579 - 1,139,579 937,003 3. INTANGIBLE ASSETS The changes in the carrying amount of intangible assets for the nine months ended September 30, 2021 were as follows: SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS Net balance at December 31, 2020 $ 482,591 Deduction: Amortization expense ( 78,735 ) Net balance at September 30, 2021 $ 403,856 The following summarizes amortization of intangible assets included in the accompanying statements of operations: SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSE 2021 2020 2021 2020 Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Cost of sales $ 23,676 $ 23,677 $ 71,029 $ 57,696 General and administrative 2,569 2,568 7,706 7,705 Amortization of intangible assets $ 26,245 $ 26,245 $ 78,735 $ 65,401 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 had 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 September 30, 2021) minus 2%. Interest is payable monthly and as of September 30, 2021, there were no amounts outstanding and unused availability under this facility was $ 2,000,000 . 14 5. ACCRUED EXPENSES Accrued expenses are comprised of the following: SCHEDULE OF ACCRUED EXPENSES September 30, 2021 December 31, 2020 Professional fees $ 144,050 $ 123,787 Payroll and related 1,131,424 604,302 Incentive bonuses 1,100,808 834,910 Other 69,252 75,799 Accrued expenses $ 2,445,534 $ 1,638,798 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. 7. SHARE BASED 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 share-based payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for share based payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all share based payment transactions with employees. All stock-based compensation is included in operating expenses for the periods as follows: SCHEDULE OF STOCK BASED COMPENSATION 2021 2020 2021 2020 Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Compensation cost recognized: Selling, general & administrative $ 540,188 $ 88,511 $ 1,800,180 $ 264,758 Research & development 98,401 8,646 470,025 22,151 Share-based compensation expenses $ 638,589 $ 97,157 $ 2,270,205 $ 286,909 Stock Options The Company uses the Black-Scholes option pricing model to value the options. The table below presents the weighted average expected life of the options in years. The expected life computation is based on the time to option expiration. 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. Stock option activity under the 2015 Stock Option Plan (the “Plan”) during the period indicated below were as follows: SCHEDULE OF STOCK OPTION ACTIVITY Number of Shares Subject to Issuance Weighted-average Exercise Price Weighted-average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2020 637,882 $ 2.50 2.55 years $ 5,686,421 Granted 221,843 10.38 Exercised ( 357,301 ) 2.34 Outstanding at September 30, 2021 502,424 $ 6.09 3.25 years $ 1,548,558 Exercisable at September 30, 2021 135,859 $ 2.72 2.14 years $ 743,173 15 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 September 30, 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 nine months ended September 30, 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. SCHEDULE OF RESTRICTED STOCK UNITS OUTSTANDING Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Outstanding at December 31, 2020 1,754 $ 11.40 $ - Granted 428,831 10.49 Vested and settled in shares ( 17,278 ) 8.68 Forfeited ( 4,650 ) 11.50 Outstanding at September 30, 2021 408,657 $ 10.56 $ 7,905 Performance Stock Units On August 7, 2020, the Company issued 265,942 Performance Stock Units (PSUs) to its officers and certain employees as compensation. For these PSU agreements, 50 % vest based on the Company’s market price and 50 % 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. SCHEDULE OF PERFORMANCE STOCK UNITS Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Outstanding at December 31, 2020 265,942 $ 7.91 $ - Forfeited ( 37,444 ) 7.91 Outstanding at September 30, 2021 228,498 $ 7.91 $ - 16 As of September 30, 2021, there was $ 4,436,416 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 2.25 years. The Company had 1,371,637 shares available for future grants under the Plan at September 30, 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 September 30, 2021, the Company had no remaining warrants available to exercise. During the nine months ended September 30, 2021, there were 9,000 warrants exercised at an exercise price of $ 2.20 per share. 8. COMMON STOCK On June 23, 2020, the Company completed a public offering of 1,769,230 shares of its common stock, offered to the public at $ 6.50 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. 9. COMMITMENTS AND CONTINGENCIES 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. 17 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations References made in this Quarterly Report on Form 10-Q 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 nine-month period ended September 30, 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 21 customer implementations for the nine months ended September 30, 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 stock-based 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, stock-based compensation, deferred taxes goodwill and intangible asset valuation and impairment, and commitments and contingencies. These policies and our procedures related to these policies are 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 September 30, 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. 18 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 nine months ended September 30, 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 nine months ended September 30, 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-transaction contracts. Under the per-transaction 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. Stock-Based 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 share-based payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for share based payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all share based 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 September 30, 2021, due to the uncertainty of our ability to realize those assets. 19 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 September 30, 2021 to the three months ended September 30, 2020 Revenues for the three months ended September 30, 2021 increased $2,132,000, or 79%, to $4,831,000 compared to $2,699,000 for the previous year. The increase in revenues in the three months ended September 30, 2021 is primarily the result of higher commercial SaaS revenues as well as higher equipment sales. Software as a Service (“SaaS”) revenue, which consists of software licensed on a subscription basis, increased $794,000 or 32% to $3,245,000 for the three months ended September 30, 2021 compared to $2,451,000 for the three months ended September 30, 2020. Gross profit increased by $916,000, or 38.1%, to $3,321,000 for three months ended September 30, 2021 from $2,405,000 for the three months ended September 30, 2020. Our gross profit, as a percentage of revenues, was 68.7% and 89.1% for the three months ended September 30, 2021 and 2020, respectively. The decrease in percentage is primarily due to an increase in hardware sales which contain lower margins. Excluding hardware sales and related costs, our gross profit as a percentage was 93.0% and 92.6% for the three months ended September 30, 2021 and 2020, respectively. The increase in percentage is primarily due to continued growth of our SaaS revenue. Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $1,892,000, or 79.5%, to $4,272,000 for the three months ended September 30, 2021 compared to $2,380,000 for the three months ended September 30, 2020. This increase is primarily due to higher stock-based compensation costs, increased headcount, and related accrued incentives along with expanded marketing costs. Interest and other income (expense) was insignificant in the three month periods ended September 30, 2021 and 2020. We have incurred net losses to date; therefore, we have paid nominal income taxes. As a result of the factors noted above, the Company generated a net loss of $952,000 for the three months ended September 30, 2021 compared to net income of $32,000 for the three months ended September 30, 2020. Comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2020 Revenues for the nine months ended September 30, 2021 increased $4,835,000, or 63%, to $12,491,000 compared to $7,656,000 for the previous year. The increase in revenues during the nine months ended September 30, 2021 is primarily the result of higher commercial SaaS revenues and higher hardware sales. SaaS revenue increased $2,894,000 or 46% to $9,255,000 for the nine months ended September 30, 2021 compared to $6,361,000 for the nine months ended September 30, 2020. Gross profit increased by $2,831,000, or 44%, to $9,291,000 for nine months ended September 30, 2021 from $6,460,000 for the nine months ended September 30, 2020. Our gross profit, as a percentage of revenues, was 74.4% and 84.4% for the nine months ended September 30, 2021 and 2020, respectively. The decrease in percentage is primarily due to an increase in hardware sales which contain lower margins. Excluding hardware sales and related costs, our gross profit as a percentage was 93.1% and 91.6% for the nine months ended September 30, 2021 and 2020, respectively. The increase in percentage is primarily due to continued growth of our SaaS revenue. 20 Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $4,878,000, or 68%, to $12,057,000 for the nine months ended September 30, 2021 compared to $7,179,000 for the nine months ended September 30, 2020. This increase is primarily due to higher stock-based compensation costs, increased headcount, and related accrued incentives along with expanded marketing costs. Interest and other income was insignificant in the nine month periods ended September 30, 2021 and 2020. We have incurred net losses to date; therefore, we have paid nominal income taxes. As a result of the factors noted above, the Company generated a net loss of $2,750,000 for the nine months ended September 30, 2021 compared to a net loss of $701,000 for the nine months ended September 30, 2020. Liquidity and Capital Resources (All figures have been rounded to the nearest $1,000) As of September 30, 2021, we had cash of $13,266,000, working capital (defined as current assets minus current liabilities) of $12,863,000, total assets of $25,857,000 and stockholders’ equity of $21,798,000. During the nine months ended September 30, 2021, net cash provided by operating activities was $407,000 compared to net cash used in operating activities of $311,000 in the nine months ended September 30, 2020. Cash used in investing activities was $339,000 for the nine months ended September 30, 2021 compared to cash used in investing activities was $408,000 for the nine months ended September 30, 2020. Cash provided by financing activities was $76,000 for the nine months ended September 30, 2021 compared to cash provided by financing activities of $10,180,000 for the nine months ended September 30, 2020. 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 September 30, 2021) minus 2%. Interest is payable monthly and as of September 30, 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. While we have had an increase in SaaS revenues from our customers for the three and nine months ended September 30, 2021 compared to the respective three and nine months ended September 30, 2020, we are unable to predict the impact that ongoing effects of the 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, such as the Delta variant, coupled with the speed, adoption and effectiveness of the ongoing vaccination roll out including recently approved booster regimens. Such factors continue to be beyond our control. 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. 21 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 originally 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 most recently 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. Adjusted EBITDA We use Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by adjusting net loss for certain reductions such gains on debt forgiveness and interest and other income (expense) and certain addbacks such as income taxes, impairments of long-lived assets and goodwill, depreciation, amortization and stock-based compensation expense. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing our financial results with other companies that also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as impairments of long-lived assets and goodwill, amortization, depreciation and stock-based compensation, as well as non-operating charges for interest and 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 (expense), impairments of long-lived assets and goodwill, stock-based 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 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 presented in accordance with GAAP. Adjusted EBITDA as defined by us may not be comparable with similarly named measures provided by other entities. 22 A reconciliation of GAAP net loss to Non-GAAP Adjusted EBITDA follows: (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net (loss) income $ (952,233 ) $ 32,412 $ (2,750,084 ) $ (701,259 ) Reconciling items: Gain on forgiveness of unsecured promissory note - - (10,000 ) - Interest and other income (expense), net 412 (6,993 ) (5,340 ) (18,186 ) Depreciation and amortization 42,237 46,387 126,226 127,143 Stock-based compensation expense 638,589 97,157 2,270,205 286,909 Adjusted EBITDA $ (270,995 ) $ 168,963 $ (368,993 ) $ (305,393 ) 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. 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 Our Chief Executive Officer and our Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. As of September 30, 2021, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures, as defined in Securities Exchange Act Rule 13a-15(e) and 15d-15(e), were effective. Our disclosure controls and procedures have been formulated to ensure (i) that information that we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 were recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) that the information required to be disclosed by us is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. 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 third quarter of 2021 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. 23 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 variants to COVID-19, such as the Delta variant, which may be more contagious and may or may not be preventable by the currently available vaccines, including recently approved booster regimens. 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 have disrupted normal business operations both in and outside of affected areas. While many of the original restrictions levied by governments have been removed, given the recent rise in cases, it is possible that local governments may reinstitute some or all of the previously implemented restrictive measures in order to curtail the increase in the number of reported cases. 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. 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 for fiscal year 2020 filed March 29, 2021, for further information concerning other risks and uncertainties that could negatively impact us. 24 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 (formatted in Inline XBRL and contained in Exhibit 101) 25 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: November 12, 2021 Intellicheck, Inc. By: /s/ Bryan Lewis Bryan Lewis Chief Executive Officer (Principal Executive Officer) By: /s/ Bill White Bill White Chief Financial Officer, Chief Operating Officer (Principal Financial and Accounting Officer) 26