Intellicheck, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS INTELLICHECK, INC. BALANCE SHEETS (in thousands except share amounts) March 31, December 31, 2022 2021 (Unaudited) ASSETS CURRENT ASSETS: Cash $ 11,123 $ 13,651 Accounts receivable, net of allowance of zero and $ 3 at March 31, 2022 and December 31, 2021, respectively 2,348 2,192 Other current assets 692 643 Total current assets 14,163 16,486 PROPERTY AND EQUIPMENT, net 826 737 GOODWILL 8,102 8,102 INTANGIBLE ASSETS, net 351 378 OTHER ASSETS 8 8 Total assets $ 23,450 $ 25,711 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 321 $ 368 Accrued expenses 1,768 2,870 Equity awards liability 141 378 Liability for shares withheld 1,244 1,244 Deferred revenue, current portion 1,032 1,266 Total current liabilities 4,506 6,126 OTHER LIABILITIES: Deferred revenue, long-term portion 6 8 Total liabilities 4,512 6,134 COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS’ EQUITY: Common stock - $ .001 par value; 40,000,000 shares authorized; 18,674,980 and 18,660,369 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively 19 19 Additional paid-in capital 147,284 146,455 Accumulated deficit ( 128,365 ) ( 126,897 ) Total stockholders’ equity 18,938 19,577 Total liabilities and stockholders’ equity $ 23,450 $ 25,711 See accompanying notes to financial statements. 3 INTELLICHECK, INC. STATEMENTS OF OPERATIONS (In thousands except shares and per share amounts) (Unaudited) 2022 2021 Three months ended March 31, 2022 2021 REVENUES $ 3,395 $ 2,863 COST OF REVENUES ( 316 ) ( 221 ) Gross profit 3,079 2,642 OPERATING EXPENSES Selling, general and administrative 2,943 5,945 Research and development 1,604 1,336 Total operating expenses 4,547 7,281 Loss from operations ( 1,468 ) ( 4,639 ) OTHER INCOME Gain on forgiveness of unsecured promissory note - 10 Other income - 5 Total other income - 15 Net loss $ ( 1,468 ) $ ( 4,624 ) PER SHARE INFORMATION Loss per common share - Basic $ ( 0.08 ) $ ( 0.25 ) Diluted $ ( 0.08 ) $ ( 0.25 ) Weighted average common shares used in computing per share amounts - Basic 18,674,493 18,480,013 Diluted 18,674,493 18,480,013 See accompanying notes to financial statements. 4 INTELLICHECK, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands except number of shares) (Unaudited) Shares Amount Capital Deficit Equity Three months ended March 31, 2022 Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity BALANCE, December 31, 2021 18,660,369 $ 19 $ 146,455 $ ( 126,897 ) $ 19,577 Equity compensation - - 829 - 829 Issuance of shares for vested restricted stock grants 14,611 - - - - Net loss - - - ( 1,468 ) ( 1,468 ) BALANCE, March 31, 2022 18,674,980 $ 19 $ 147,284 $ ( 128,365 ) $ 18,938 Three months ended March 31, 2021 Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity BALANCE, December 31, 2020 18,410,458 $ 18 $ 141,612 $ ( 119,419 ) $ 22,211 Equity compensation - - 981 - 981 Exercise of stock options, net of cashless exercise of 58,122 shares and 92,634 shares withheld 181,545 1 1 ,708 - 1,709 Issuance of shares for vested restricted stock grants 1,754 - - - - Net loss - - - ( 4,624 ) ( 4,624 ) BALANCE, March 31, 2021 18,593,757 $ 19 $ 144,301 $ ( 124,043 ) $ 20,277 See accompanying notes to financial statements. 5 INTELLICHECK, INC. STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) 2022 2021 Three months ended March 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 1,468 ) $ ( 4,624 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 69 43 Equity compensation 592 4,545 Forgiveness of unsecured promissory note - ( 10 ) Changes in assets and liabilities: Increase in accounts receivable ( 156 ) ( 148 ) Increase in other current assets ( 49 ) ( 215 ) Decrease in accounts payable and accrued expenses ( 1,149 ) ( 113 ) (Decrease) increase in deferred revenue ( 236 ) 51 Net cash used in operating activities ( 2,397 ) ( 471 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 131 ) ( 48 ) Net cash used in investing activities ( 131 ) ( 48 ) CASH FLOWS FROM FINANCING ACTIVITIES: Return of repayment on unsecured promissory note - 10 Net cash provided by financing activities - 10 Net decrease in cash ( 2,528 ) ( 509 ) CASH, beginning of period 13,651 13,121 CASH, end of period $ 11,123 $ 12,612 Supplemental disclosure of noncash investing and financing activities: Reclassification of stock option awards $ - $ 1,411 See accompanying notes to financial statements. 6 INTELLICHECK, INC. NOTES TO FINANCIAL STATEMENTS (All dollar amounts are rounded to thousands, except share data) (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 solutions 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 seventeen (18) U.S. and one Canadian patents, as well as two U.S. patents pending. Liquidity For the three months ended March 31, 2022, the Company incurred a net loss of $ 1,468 and used cash in operations of $ 2,397 . As of March 31, 2022, the Company had cash of $ 11,123 , working capital of $ 9,657 and an accumulated deficit of $ 128,365 . 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 from the date of filing. 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 months ended March 31, 2022 compared to the same period of 2021, the COVID-19 pandemic may continue to impact our business directly and/or indirectly for the foreseeable future. Although many of the restrictions previously imposed by local and national governmental authorities have been lifted or eased, should cases increase, these restrictions could be re-implemented. 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 further outbreaks together with any potential statewide or local closures or restrictions if cases increase, the spread of COVID-19 variants, including the Delta,Omicron and BA.2 variants, and the widespread adoption of vaccination measures including 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 March 31, 2022 and the results of operations, stockholders’ equity and cash flows for the three months ended March 31, 2022 and 2021. All such adjustments are of a normal and recurring nature. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements. Results of operations for the three-month period ended March 31, 2022, are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2022. 7 The balance sheet as of December 31, 2021 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. 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/A for the year ended December 31, 2021. Equity Compensation Accounting On May 16, 2022, management in concurrence with the Company’s Audit Committee of our Board of Directors (the “Audit Committee”), concluded that that the financial statements previously issued for the third quarter of 2020, for each quarter ended 2021 and for the years ended December 31, 2021 and 2020 should no longer be relied upon due to errors in accounting for certain option awards. Accordingly, we have restated our Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity, Statements of Cash Flows and the related notes for the third quarter of 2020, for each quarter ended 2021, and as of and for the years ended December 31, 2021 and 2020. Specifically, the Company determined that a cashless withholding to satisfy personal income tax obligations from certain option awards exercised commencing in the third quarter of 2020 and the first quarter of 2021, caused the underlying options to no longer qualify as equity awards and should have instead been classified as liability awards commencing on the date of exercise. The change in the classification of the awards to liability classified awards requires the Company to remeasure the fair value of the awards at the end of each reporting period they remain outstanding, with the increase or decrease in fair value correspondingly charged or credited to selling, general and administrative expenses in arriving at net income. Furthermore, the Company, due to an administrative error, failed to sell the shares surrendered in 2021 and did not remit the equivalent amount of funds to the tax authorities. To date, the Company has not returned the shares or otherwise reimbursed the effected individuals for the shares withheld. The Company is currently in the process of arranging payment to individuals, which is expected to be completed during 2022. Recent Accounting Pronouncements 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. 8 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, allowance for doubtful accounts, revenue recognition (including breakage revenue) and the fair value of stock options under the Company’s Equity compensation plan. Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates. 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. Property and Equipment Property and equipment are recorded at cost and are depreciated over their estimated useful lives ranging from three to ten -years using the straight-line method. Leasehold improvements are amortized utilizing the straight-line method over the lesser of the term of the lease or estimated useful life of the asset. See Note 3. Goodwill Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations. Pursuant to ASC 350, the Company tests goodwill for impairment on an annual basis in the fourth quarter, or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform step one of the 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. The Company performed its annual impairment test of goodwill in the fourth quarter for the year ended December 31, 2021. For the three months ended March 31, 2022 and 2021, the Company determined no impairment charge was required. Intangible Assets Intangible assets include patents, copyrights, and developed technology. The Company amortizes these assets on a straight-line basis 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 360. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. There were no impairment charges recognized during either of the three months ended March 31, 2022 and 2021. Advertising Costs . Advertising costs, which are charged to expense as incurred, were $ 149 and $ 93 for the three months ended March 31, 2022 and 2021, respectively. These costs are recorded as a component of selling, general and administrative expenses on the Statement of Operations. 9 Retirement Plan The Company has a retirement savings 401(k) plan. The plan permits eligible employees to make voluntary contributions to a trust, up to a maximum of 35 % of compensation, subject to certain limitations. The Company has elected to contribute a matching contribution equal to 50 % of the first 6 % of an eligible employee’s deferral election. The Company’s matching contributions were $ 29 and $ 20 for the three months ended March 31, 2022 and 2021, respectively, which are recorded as a component of selling, general and administrative expenses on the Statement of Operations. Shipping Costs The Company’s shipping and handling costs are included in cost of revenues for all periods presented. Income Taxes The Company accounts for income taxes under in accordance with ASC Topic 740, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred tax assets and liabilities are measured using expected tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company has recorded a full valuation allowance for its net deferred tax assets as of March 31, 2022 and December 31, 2021, due to the uncertainty of the realizability of those assets. Fair Value of Financial Instruments The Company adheres to the provisions of ASC 820, “Fair Value Measurement” which requires the Company to calculate the fair value of financial instruments and include this additional information in the notes to financial statements when the fair value of those financial instruments is different than the book value. The Company’s financial instruments include cash, accounts receivable, other current assets, accounts payable and accrued expenses. At March 31, 2022 and December 31, 2021, the carrying value of the Company’s financial instruments approximated fair value, due to their short-term nature. All of the Company’s financial instruments are categorized as Level 1 within the fair value hierarchy. Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: ● Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. ● Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies. The Company had $ 141 and $ 378 of Level 2 liabilities as of March 31, 2022 and December 31, 2021 respectively, for the liability classified stock options. ● Level 3—Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when the fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The Company had no Level 3 assets or liabilities as of March 31, 2022 and 2021. 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. During 2021, the Company adopted an additional revenue model where customers purchase a predetermined number of transactions for the term of the contract. Revenue for these transactions is recognized on a per transaction basis. The Company estimates the amount of transactions that will be unused by the end of each contract period and recognizes a portion of that revenue as breakage revenue each reporting period. If the Company expects the customer to use all transactions in the specified service period, the Company will recognize the transaction price as revenue in the specified service period as the promised units of service are transferred to the customer. Alternatively, if the Company expects that the customer cannot or will not use all transactions in the specified service period (referred to as “breakage”), the Company will recognize the estimated breakage amount as revenue ratably over the service period in proportion to the revenue that the Company will recognize for actual transactions used by the customer in the service period. 10 Invoicing is based on schedules established in customer contracts. Payment terms are generally established from 30 to 60 days from the invoice date. Product returns are recorded as a reduction to revenue. Revenue is measured based on the consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Furthermore, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Nature of goods and services The following is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each: Software as a Service (SaaS) Software as a service (SaaS) for hosted subscription services and licensed software allows customers to access a set of data for a predetermined period of time. As the customer obtains access at a point in time but continues to have access for the remainder of the subscription period, the customer is considered to simultaneously receive and consume the benefits provided by the entity’s performance as the entity performs. Accordingly, the revenue should be recognized over time, under the fixed pricing model, based on the usage of the hosted subscription services and licensed software, which can vary from month to month. Under the per-scan revenue model, revenue is recognized each time the customer scans an identity document. 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. Other Revenue Other Revenues consist primarily of revenues from other subscription and support services, non-recurring services, and extended warranties. The Company’s revenues from other subscription and support services 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. 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 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. SCHEDULE OF DISAGGREGATION OF REVENUE For the Three Months Ended March 31, 2022 2021 Products and services Software as a Service (SaaS) $ 3,353 $ 2,776 Equipment 36 36 Other 6 51 $ 3,395 $ 2,863 Timing of revenue recognition Products transferred at a point in time $ 40 $ 47 Services transferred over time 3,355 2,816 $ 3,395 $ 2,863 Contract balances The current portion of deferred revenue at March 31, 2022 and December 31, 2021 was $ 1,032 and $ 1,266 , 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 the December 31, 2021 balance, $ 811 was recognized as revenue in the three months ended March 31, 2022. The noncurrent deferred revenue balances were $ 6 and $ 8 as of March 31, 2022 and December 31, 2021, respectively. The Company did not recognize any material revenue in the current reporting period for performance obligations that were fully satisfied in previous periods. Transaction price allocated to the remaining performance obligations The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period: SCHEDULE OF REVENUE PERFORMANCE OBLIGATION Remainder 2022 2023 2024 Total Software as a Service (SaaS) $ 965 $ 2 $ - $ 967 Equipment 61 - - 61 Other 6 3 1 10 $ 1,032 $ 5 $ 1 $ 1,038 All consideration from contracts with customers is included in the amounts presented above. Business Concentrations and Credit Risk During the three-month period ended March 31, 2022, the Company made sales to three customers that accounted for approximately 53 % of total revenues. The revenue was primarily associated with commercial identity sales customers. These three customers, in addition to another customer, represented 63 % of total accounts receivable at March 31, 2022. During the three-month period ended March 31, 2021, the Company made sales to three customers that accounted for approximately 59 % of total revenues. The revenue was associated with commercial identity sales customers. 12 Net Loss Per Share Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss 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 per share excludes all anti-dilutive shares. In periods of a net loss, all common stock equivalents are considered anti-dilutive. SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED 2022 2021 Three Months Ended March 31, 2022 2021 Numerator: Net loss $ ( 1,468 ) $ ( 4,624 ) Denominator: Weighted average common shares – Basic and Diluted 18,674,493 18,480,013 Net loss per share – Basic and Diluted $ ( 0.08 ) $ ( 0.25 ) The following table summarizes the common stock equivalents excluded from loss per diluted share because their effect would be anti-dilutive: SUMMARY OF COMMON STOCK EQUIVALENTS EXCLUDED FROM LOSS PER DILUTED SHARE 2022 2021 Three Months Ended March 31, 2022 2021 Stock options 496,424 527,424 Warrants - 12,680 Restricted stock 424,942 405,576 Performance stock units 228,498 265,942 Antidilutive securities excluded from computation of earnings per share amount 1,149,684 1,211,622 3. PROPERTY AND EQUIPMENT Property and equipment is summarized as follows: SCHEDULE OF PROPERTY AND EQUIPMENT March 31, 2022 December 31, 2021 Computer equipment and software $ 1,750 $ 1,708 Furniture and fixtures 139 139 Leasehold improvements 55 55 Office equipment 600 599 2,544 2,501 Less – Accumulated depreciation ( 1,718 ) ( 1,764 ) $ 826 $ 737 Depreciation expense for the three months ended March 31, 2022 and 2021 amounted to $ 42 and $ 17 respectively. 13 4. INTANGIBLE ASSETS The changes in the carrying amount of intangible assets for the three months ended March 31, 2022 were as follows: SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS Net balance at December 31, 2021 $ 378 Deduction: Amortization expense ( 27 ) Net balance at March 31, 2022 $ 351 The following tables set forth the components of intangible assets as of March 31, 2022 and December 31, 2021: SCHEDULE OF INTANGIBLE ASSETS AND GOODWILL As of March 31, 2022 Estimated Useful Life Adjusted Carrying Amount Accumulated Amortization Net Patents and copyrights 2 - 17 years $ 375 $ ( 257 ) $ 118 Developed technology 5 years 400 ( 167 ) 233 $ 775 $ ( 424 ) $ 351 As of December 31, 2021 Estimated Useful Life Adjusted Carrying Amount Accumulated Amortization Net Patents and copyrights 2 - 17 years $ 375 $ ( 250 ) $ 125 Developed technology 5 years 400 ( 147 ) 253 $ 775 $ ( 397 ) $ 378 The following summarizes amortization of intangible assets included in the accompanying statements of operations: SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSE 2022 2021 Three Months Ended March 31, 2022 2021 Cost of sales $ 24 $ 24 General and administrative 3 3 Amortization of intangible assets $ 27 $ 27 14 5. DEBT Promissory Note On April 15, 2020 the Company received an advance of $ 10 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 Economic Injury Disaster Loan program (“EIDL”) advance on December 7, 2020. The Company has not imputed interest on this advance as the rate was determined to be a below-market rate due to the scope exception in ASC 835-30-15-3(e) for government-mandated interest rates. On December 27, 2020, Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (“the Economic Aid Act”) which relieves companies of their obligations to repay EIDL advances. As a result of this ruling, the SBA returned this advance, plus interest to the Loan Servicer on February 18, 2021, which was immediately returned to the Company and included in Other Income on the Statements of Operations. Revolving Line of Credit On February 6, 2019, the Company entered into a revolving credit facility with Citi Personal Wealth Management that allows for borrowings up to the lesser of (i) $ 2,000 or (ii) the collateralized balance in the Company’s existing fixed income investment account with Citi Personal Wealth Management subject to certain limitations. The facility bears interest at a rate consistent of Citi Personal Wealth Management’s Base Rate (5.00% and 4.75% at March 31, 2022 and December 31, 2021, respectively) minus 2%. Interest is payable monthly and as of March 31, 2022 and December 31, 2021, there were no amounts outstanding and unused availability under this facility was $ 2,000 . 6. ACCRUED EXPENSES Accrued expenses are comprised of the following: SCHEDULE OF ACCRUED EXPENSES March 31, 2022 December 31, 2021 Professional fees $ 118 $ 127 Payroll and related 1,124 1,100 Incentive bonuses 439 1,565 Other 87 78 Accrued expenses $ 1,768 $ 2,870 7. INCOME TAXES Our available net operating loss (“NOL”) at March 31, 2022 was approximately $ 18.0 million. The federal and state NOLs are available to offset future taxable income and begin to expire in 2021 . 8. EQUITY COMPENSATION The Company accounts for the issuance of equity awards to employees in accordance with ASC Topic 718, which requires that the cost resulting from all equity payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for equity payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all equity payment transactions with employees. All equity compensation is included in operating expenses for the periods as follows: SCHEDULE OF EQUITY COMPENSATION Three Months Ended March 31, 2022 2021 Compensation cost recognized: Selling, general & administrative $ 427 $ 4,272 Research & development 165 273 $ 592 $ 4,545 15 Stock Options The Company uses the Black-Scholes option pricing model to value the options on the grant date. The table below presents the weighted average expected life of the stock options in years. The expected life computation is based on the time to stock 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 on the grant date. Options, generally, vest from one to four years. As noted in Note 2, option awards no longer qualify as equity awards and instead are classified as liability awards. The fair value of these awards are determined at each reporting period utilizing a Black-Scholes option pricing model, and the associated compensation expense for the reporting period is recorded. The Company reduced equity compensation by approximately $ 237 in the three months ended March 31, 2022 and increased equity compensation by approximately $ 3,564 for the three months ended March 31, 2021 as a result of this award reclassification. 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, 2021 496,424 $ 6.13 3.03 years $ 527,937 Granted - - - - Exercised - - - - Outstanding at March 31, 2022 496,424 $ 6.13 2.78 years $ - Exercisable at March 31, 2022 228,679 $ 6.15 1.01 years $ - The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on March 31, 2022. This amount changes based upon the fair market value of the Company’s stock. Restricted Stock Units The Company issues Restricted Stock Units (“RSUs”) which are equity-based instruments that may be settled in shares of common stock of the Company. During the three months ended March 31, 2022, the Company issued RSUs 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, is amortized on a straight-line basis over the requisite service period and charged to operating expenses with a corresponding increase to additional paid-in capital. SCHEDULE OF RESTRICTED STOCK UNITS OUTSTANDING Number of Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2021 408,376 $ 10.43 Granted 31,177 2.55 Vested and settled in shares ( 14,611 ) 4.62 Outstanding at March 31, 2022 424,942 $ 10.05 16 Performance Stock Units On August 7, 2020, the Company issued 265,942 Performance Stock Units (PSUs) to its officers and certain employees as compensation. 50 % of the PSUs were to vest based on the Company’s market price and 50 % were to vest based on the Company’s Adjusted EBITDA. Both the conditions were to occur over a specified time and were contingent on continued employment services. On November 4, 2021, the Company amended its PSU Plan so that 100 % of the PSUs will vest based on the Company’s market price as the sole vesting criteria. As a result of this amendment, the adjusted EBITDA performance metric from the previous plan is no longer a criteria performance metric. 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. 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. Compensation expense is charged to operating expenses with a corresponding increase to additional paid-in capital. SCHEDULE OF PERFORMANCE STOCK UNITS OUTSTANDING Number of Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2021 228,498 $ 7.91 Granted and Vested - - Outstanding at March 31, 2022 228,498 $ 7.91 As of March 31, 2022, total unrecognized compensation cost was $ 3,865 , 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 1.67 years. The Company had 1,425,570 shares available for future grants under the Plan at March 31, 2022. 9. COMMITMENTS AND CONTINGENCIES The Company is not aware of any infringement by the Company’s products or technology on the proprietary rights of others. The Company is not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material effect on its business. 10. SUBSEQUENT EVENTS Appointment of Jeffrey Ishmael as Chief Financial Officer On May 9, 2022, the Board of Directors appointed Jeffrey Ishmael as Chief Financial Officer effective close of business May 13. Departing CFO Bill White is pursuing a role at another company outside the identity space. Intellicheck Receives Notice from the Nasdaq Stock Market Relating to delinquent Filing of 10-Q for the Quarter Ended March 31, 2022 On May 24, 2022, Intellicheck, Inc. (the “Company”) received correspondence from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it is not currently in compliance with Nasdaq Listing Rule 5250(c)(1), which requires timely filing of periodic financial reports with the Securities and Exchange Commission, as a result of not filing the Company’s Form 10-Q for the period ended March 31, 2022 on a timely basis. On May 31, 2022, the Company issued a press release as required by Nasdaq rules and filed an Item 3.01 Form 8-K. 17