What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-06-17 · 95 added, 71 removed, 123 unchanged (57% of the section changed)

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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 three-month period ended March 31, 2022.

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/A

that affected our financial and operating performance for the six-month period ended June 30, 2022.

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/A

for the year ended December 31, 2021.

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breakage revenue), and the fair value of stock options under our equity compensation plans.

Due to the inherent uncertainties

involved in making estimates, actual results reported in future periods may be different from those estimates.

Due to the inherent uncertainties involved

in making estimates, actual results reported in future periods may be different from those estimates.

believe that there are several accounting policies that are critical to understanding our historical and future performance, as these

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We had goodwill of $8,102 as of

March 31, 2022.

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.

June 30, 2022.

the year ended December 31, 2021, the Company performed its annual impairment test of goodwill in the fourth quarter.

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sustained decrease in share price.

determined that no events occurred or circumstances changed during the three months ended March 31, 2022 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 six months ended June 30, 2022 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

three months ended March 31, 2022 that would more likely than not reduce our intangible assets below our carrying amounts.

six months ended June 30, 2022 that would more likely than not reduce our intangible assets below our carrying amounts.

We will, however,

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is recognized when the performance obligations in an arrangement are satisfied.

The Company adopted an additional revenue model where customers purchase

a predetermined number of transactions for the term of the contract, where revenue for these transactions is recognized on a per transaction

The Company estimates the number of transactions that will be unused by the end of each contract period and recognized a portion

of that revenue as breakage revenue each reporting period.

Reference Note 2, “Significant Accounting Policies,”

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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.

Reference Note 8,

“Equity Compensation,” in the Notes to Financial Statements for details on the company’s equity compensation plans.

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.

Reference Note 8, “Equity

Compensation,” in the Notes to Financial Statements for details on the company’s equity compensation plans.

Note 2, “Significant Accounting Policies,” for a discussion of the 2021 equity compensation accounting oversights and remediations.

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to be recovered or settled.

We have recorded a full valuation allowance for our net deferred tax assets as of March 31, 2022, 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 June 30, 2022, due to the

uncertainty of our ability to realize those assets.

Reference Note 7, “Income Taxes,” in the Notes to Financial Statements

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dollar amounts are rounded to thousands, except shares and per share data)

OF THE THREE MONTHS ENDED MARCH 31, 2022

THE THREE MONTHS ENDED MARCH 31, 2021

for the three months ended March 31, 2022 increased 19% to $3,395 compared to $2,863 for the three months ended March 31, 2021.

in revenues for the three months ended March 31, 2022 is primarily the result of higher commercial Software as a Service (“SaaS”)

SaaS revenue, which consists of software licensed on a subscription basis, increased $577 or 21% to $3,353 for the three months

ended March 31, 2022 compared to $2,776 for the three months ended March 31, 2021.

profit increased by $437 to $3,079 for three months ended March 31, 2022 from $2,642 for the three months ended March 31, 2021.

profit, as a percentage of revenues, was 90.7% and 92.3% for the three months ended March 31, 2022 and 2021, respectively.

in gross profit percentage is primarily due to increased costs for cloud and other web-based support services in the current period.

Excluding hardware sales and related costs, our gross profit as a percentage was 91.7% and 93.0%

for the three months ended March 31, 2022 and 2021, respectively.

Operating expenses,

which consist of selling, general and administrative and research and development expenses, decreased $2,734 or 38% to

$4,547 for the three months ended March 31, 2022 compared to $7,281 for the three months ended March 31, 2021.

This decrease

is primarily due to higher equity compensation costs in the prior period.

income was insignificant in the three-month periods ended March 31, 2022 and 2021.

a result of the factors noted above, the Company had a net loss of $1,468 for the three months ended March 31, 2022 as compared

to a net loss of $4,624 for the three months ended March 31, 2021.

OF THE THREE MONTHS ENDED JUNE 30, 2022

THE THREE MONTHS ENDED JUNE 30, 2021

for the three months ended June 30, 2022 decreased $789, or 16%, to $4,008 compared to $4,797 for the same period of 2021.

in revenues is primarily the result of lower equipment revenues in the current period.

Excluding equipment sales, revenues for the three

months ended June 30, 2022 increased $556, or 16%, compared to the same period of 2021.

SaaS revenue, which consists of software licensed

on a subscription basis, increased $694 or 21% to $3,928 for the three months ended June 30, 2022 compared to $3,234 for the same period

profit increased $316, or 9%, to $3,644 for three months ended June 30, 2022 from $3,328 for the same period of 2021.

Our gross profit,

as a percentage of revenues, was 91% and 69% for the three months ended June 30, 2022 and 2021, respectively.

The increase in gross profit

percentage is primarily due to lower equipment revenues in the current period.

Excluding equipment

sales, our gross profit as a percentage of revenues was 93% for both quarters ended June 30, 2022 and 2021.

expenses, which consist of selling, general and administrative and research and development expenses, increased $577, or 14%, to $4,742

for the three months ended June 30, 2022 compared to $4,165 for the same period of 2021.

The increase in operating expenses was driven by higher personnel expenses,

professional fees and marketing expenses.

a result of the factors noted above, the Company had a net loss of $1,098 for the three months ended June 30, 2022 as compared to a net

loss of $836 for the three months ended June 30, 2021.

OF THE SIX MONTHS ENDED JUNE 30, 2022

THE SIX MONTHS ENDED JUNE 30, 2021

for the six months ended June 30, 2022 decreased $257, or 3%.

to $7,403 compared to $7,660 for the same period of 2021.

in revenues in the six months ended June 30, 2022 is primarily the result of lower equipment revenues in the six months ended June 30,

2022 compared to the same period of 2021.

Excluding equipment sales, revenues for the six months ended June 30, 2022 increased $1,088

or 18%, compared to the same period of 2021.

SaaS revenue increased $1,272 or 21% to $7,281 for the six months ended June 30, 2022 compared

to $6,009 for the same period of 2021.

profit increased by $752, or 13%, to $6,723 for six months ended June 30, 2022 from $5,971 for same period of 2021.Our gross profit,

as a percentage of revenues, was 91% and 78% for the six months ended June 30, 2022 and 2021, respectively.

The increase in gross profit

as a percentage of revenues was due to the lower sales of equipment, which have lower gross profit margins, in the first six months

Excluding equipment sales, our gross profit as a percentage was 92% and 93% for the six

months ended June 30, 2022 and 2021, respectively.

expenses, which consist of selling, general and administrative and research and development expenses, decreased $2,158 or 19% to

$9,289 for the six months ended June 30, 2022 compared to $11,447 for the six months ended June 30, 2021.

This decrease is primarily

due to lower equity compensation expenses in the current period, driven by the liability award reclassification adjustments recorded

during the first six months of 2021.

the six months ended June 30, 2021, the Company recorded a $10 gain on the forgiveness of an unsecured promissory note.

a result of the factors noted above, the Company incurred a net loss of $2,566 for the six months ended June 30, 2022 compared to a net

loss of $5,461 for the six months ended June 30, 2021.

and Capital Resources

of March 31, 2022, we had cash of $11,123, working capital (defined as current assets minus current liabilities) of $9,657, total

assets of $23,450 and stockholders’ equity of $18,938.

the three months ended March 31, 2022, we used net cash of $2,397 in operating activities as compared to net cash used of $471 in the

three months ended March 31, 2021.

Cash used in investing activities was $131 for the three months ended March 31, 2022 compared to cash

used in investing activities of $48 for the three months ended March 31, 2021.

Cash generated by financing activities was zero for the

three months ended March 31, 2022 compared to cash generated by financing activities of $10 for the three months ended March 31, 2021.

of June 30, 2022, we had cash and cash equivalents of $11,957, working capital (defined as current assets minus current liabilities)

of $9,121, total assets of $24,194 and stockholders’ equity of $18,360.

the six months ended June 30, 2022, we used net cash of $1,538 in operating activities as compared to net cash used of $1,075 in the

six months ended June 30, 2021.

Cash used in investing activities was $156 for the six months ended June 30, 2022 compared to cash used

in investing activities of $182 for the six months ended June 30, 2021.

Cash generated by financing activities was zero for the six months

ended June 30, 2022 compared to cash generated by financing activities of $76 for the six months ended June 30, 2021.

are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and including how it may impact our customers,

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Operating Loss Carry Forwards

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.

available net operating loss (“NOL”) at December 31, 2021 was approximately $18.0 million.

The federal and state NOLs are

available to offset future taxable income and begin to expire in 2021.

use Adjusted EBITDA as a non-GAAP financial performance measurement.

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compensation expenses.

Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance

Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing our financial results

with other companies that also use Adjusted EBITDA in their communications to investors.

By excluding non-cash charges such as impairments

of long-lived assets and goodwill, amortization, depreciation and equity compensation, as well as non-operating charges for interest

and income taxes, investors can evaluate our operations and can compare the results on a more consistent basis to the results of other

In addition, Adjusted EBITDA is one of the primary measures management uses to monitor and evaluate financial and operating

Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP.

Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing our financial results with other

companies that also use Adjusted EBITDA in their communications to investors.

By excluding non-cash charges such as impairments of long-lived

assets and goodwill, amortization, depreciation and equity compensation, as well as non-operating charges for interest and income taxes,

investors can evaluate our operations and can compare the results on a more consistent basis to the results of other companies.

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, other income, impairments of long-lived assets and goodwill, and equity compensation, all of which impact

our profitability, as well as depreciation and amortization related to the use of long-term assets which benefit multiple periods.

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.

on debt forgiveness, other income, impairments of long-lived assets and goodwill, and equity compensation, 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

Consequently, Adjusted EBITDA should not be considered in isolation or as a substitute for net loss presented in accordance

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:

Three Months Ended

Reconciling items:

Gain on forgiveness of unsecured promissory note

Depreciation and amortization expenses

Equity compensation including liability classified awards

Adjusted EBITDA

on forgiveness of unsecured promissory note

and other income

and amortization

compensation including liability classified awards

Sheet Arrangements

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Quantitative and Qualitative Disclosures About Market Risk

instruments, which subject us to concentrations of credit risk, consist primarily of cash.

We maintain cash in two financial institutions

and perform periodic evaluations of the relative credit standing of these institutions.

Financial instruments, which subject us to concentrations of credit risk,

consist primarily of cash and cash equivalents.

We maintain cash and cash equivalents in two financial institutions and perform periodic

evaluations of the relative credit standing of these institutions.

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