What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-12 · 132 added, 123 removed, 143 unchanged (64% of the section changed)

Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations

made in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” “Intellicheck,” or the

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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 six-month period ended June 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

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.

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pending patents.

We also continue to expand our customer base as we completed 18 customer implementations for the six months ended June

We also continue to expand our customer base as we completed 21 customer implementations for the nine months ended September

Accounting Policies and the Use of Estimates

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We had goodwill of $8,101,661 as

of June 30, 2021.

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.

These entities

were merged into one company under Intellicheck on December 31, 2018.

the year ended December 31, 2020, we performed our annual impairment test of goodwill in the fourth quarter.

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the goodwill impairment test was not required.

determined that no events occurred or circumstances changed during the six months ended June 30, 2021 that would more likely than not

reduce the fair value of the Company below its carrying amounts.

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

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We determined that no events occurred or circumstances changed during the

six months ended June 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.

nine months ended September 30, 2021 that would more likely than not reduce our intangible assets below our carrying amounts.

however, continue to monitor any potential indicators of impairment.

Recognition and Deferred Revenue

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

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.

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.

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.

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

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.

is based on schedules established in customer contracts.

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Product returns are recorded as a reduction to 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.

account for the issuance of equity awards to employees in accordance with ASC Topic 718, which requires that the cost resulting from

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to be recovered or settled.

We have recorded a full valuation allowance for our net deferred tax assets as of June 30, 2021, due to the

uncertainty of our ability to realize those assets.

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.

and Contingencies

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of Operations (All figures have been rounded to the nearest $1,000)

of the three months ended June 30, 2021 to the three months ended June 30, 2020

for the three months ended June 30, 2021 increased 160% to $4,797,000 compared to $1,842,000 for the previous year.

The increase in revenues

for the three months ended June 30, 2021 is primarily the result of increased hardware sales totaling approximately $1.4 million.

as a Service (“SaaS”) revenue, which consists of software licensed on a subscription basis, increased $1,563,000 or 94% to

$3,234,000 for the three months ended June 30, 2021 compared to $1,671,000 for the three months ended June 30, 2020.

profit increased by $1,697,000 to $3,329,000 for three months ended June 30, 2021 from $1,632,000 for the three months ended June 30,

Our gross profit, as a percentage of revenues, was 69.4% and 88.6% for the three months ended June 30, 2021 and 2020, respectively.

The decrease in percentage is primarily due to higher hardware sales in the current period which contain lower than usual margins.

hardware sales and related costs, our gross profit as a percentage was 93.3% and 89.8% for the three months ended June 30, 2021 and 2020,

of the three months ended September 30, 2021 to the three months ended September 30, 2020

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.

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.

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.

and other income (expense) was insignificant in the three month periods ended September 30, 2021 and 2020.

have incurred net losses to date;

therefore, we have paid nominal income taxes.

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.

of the nine months ended September 30, 2021 to the nine months ended September 30, 2020

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.

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 increase in percentage is primarily due to continued growth of our SaaS revenue.

expenses, which consist of selling, general and administrative and research and development expenses, increased $1,665,000 or 69% to

$4,067,000 for the three months ended June 30, 2021 compared to $2,402,000 for the three months ended June 30, 2020.

This increase is

primarily due to higher stock-based compensation costs, increased headcount and expanded research and development efforts.

and other income was insignificant in the three-month periods ended June 30, 2021 and 2020.

have paid nominal income taxes for the three months ended June 30, 2021 and 2020.

a result of the factors noted above, the Company had a net loss of $738,000 for the three months ended June 30, 2021 as compared to a

net loss of $760,000 for the three months ended June 30, 2020.

of the six months ended June 30, 2021 to the six months ended June 30, 2020

for the six months ended June 30, 2021 increased 55% to $7,660,000 compared to $4,957,000 for the previous year.

The increase in revenues

in the six months ended June 30, 2021 is primarily the result increased hardware revenues.

SaaS revenue increased $2,099,000 or 54% to

$6,009,000 for the six months ended June 30, 2021 compared to $3,910,000 for the six months ended June 30, 2020.

The increase is primarily

a result of the continued growth we are experiencing in the Financial Services and Retail verticals.

profit increased by $1,915,000 to $5,970,000 for six months ended June 30, 2021 from $4,055,000 for the six months ended June 30, 2020.

Our gross profit, as a percentage of revenues, was 77.9% and 81.8% for the six months ended June 30, 2021 and 2020, respectively.

decrease in percentage is primarily due to an increase in hardware sales which contain lower than usual margins.

Excluding hardware sales

and related costs, our gross profit as a percentage was 93.1% and 91.0% for the six months ended June 30, 2021 and 2020, respectively.

The decrease in percentage is primarily due to an increase in hardware sales which contain lower margins.

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.

expenses, which consist of selling, general and administrative and research and development expenses, increased $4,878,000, or 68%, to

$7,784,000 for the six months ended June 30, 2021 compared to $4,800,000 for the six months ended June 30, 2020.

This increase is primarily

due higher stock-based compensation costs, increased headcount and expanded research and development efforts.

and other income was insignificant in the six-month periods ended June 30, 2021 and 2020.

have paid nominal income taxes for the six months ended June 30, 2021 and 2020.

a result of the factors noted above, the Company generated net income of $1,798,000 for the six months ended June 30, 2021 compared to

a net loss of $734,000 for the six months ended June 30, 2020.

$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

and other income was insignificant in the nine month periods ended September 30, 2021 and 2020.

have incurred net losses to date;

therefore, we have paid nominal income taxes.

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.

and Capital Resources (All figures have been rounded to the nearest $1,000)

of June 30, 2021, we had cash of $11,940,000, working capital (defined as current assets minus current liabilities) of $13,288,000, total

assets of $25,386,000 and stockholders’ equity of $22,111,000.

the six months ended June 30, 2021, we used net cash of $1,076,000 in operating activities as compared to net cash used of $262,000 in

the six months ended June 30, 2020.

Cash used in investing activities was $182,000 for the six months ended June 30, 2021 compared to

cash used in investing activities of $110,000 for the six months ended June 30, 2020.

Cash provided by financing activities was $76,000

for the six months ended June 30, 2021 compared to cash provided by financing activities of $11,611,000 for the six months ended June

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.

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,

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.

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”).

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.

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.

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.

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.

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.

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or (ii) the collateralized balance in our existing fixed income investment account with Citibank subject to certain limitations.

facility bears interest at a rate consistent of Citibank’s Base Rate (4.75% at June 30, 2021) minus 2%.

Interest is payable monthly

and as of June 30, 2021, there were no amounts outstanding and unused availability under this facility was $2,000,000.

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.

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 six months ended June 30,

2021 compared to the respective three and six months ended June 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

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.

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Adjusted EBITDA is calculated by adjusting net loss 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 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.

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.

consider Adjusted EBITDA to be an important indicator of our operational strength and performance of our business and a useful measure

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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, 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

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.

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.

reconciliation of GAAP net loss to Non-GAAP Adjusted EBITDA follows:

on forgiveness of unsecured promissory note

and other income

and amortization

compensation expense

Net (loss) income

$ (2,750,084 )

Reconciling items:

Gain on forgiveness of unsecured promissory

Interest and other income (expense), net

Depreciation and amortization

Stock-based compensation

Adjusted EBITDA

Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis