Intellicheck, Inc. 10-Q

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. While we are hopeful that widespread vaccinations from COVID-19, together with increases in immunity within the population, will usher in 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. Governments in affected regions have in the past implemented 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. Most of the original restrictions levied by governments in 2020 have been removed at local and national levels. 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 25 Index or cancellation of customer and employee events, and remote sales, implementation, and support activities, among other modifications. These decisions could delay or reduce sales and harm productivity and collaboration. The conflict in Ukraine could have an adverse effect on our business, results of operations, financial condition, and cash flow in the future. The ongoing conflict in the Ukraine raises a host of potential risk factors to consider even though the Company does not conduct business in the Ukraine or Russia. Recent sanctions brought against Russia will impact the import, export, sale, and supply of goods and services with companies located in the US and other regions. This will likely have a negative impact on the global economy and effect economic and capital markets. A downturn in the economy and economic activity caused by these measures could result in a reduction in our revenue. In light of the above-described sanctions, we are aware of the possibilities of increased cyber-attacks. The US Cyber-security and Infrastructure Security Agency has recently issued a warning of the risk of Russian cyber-attacks on US networks and critical infrastructure. While we do not currently believe that we are a likely target of a cyber-attack, we continue to be diligent in our controls over our information technology, systems and data. If we do fall victim to such attack, it could have an adverse effect on our business operations. 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 2021 filed March 24, 2022 as amended June 9, 2022, for further information concerning other risks and uncertainties that could negatively impact us. We have identified a material weakness in our internal control over financial reporting, and this or other material weaknesses, or inadequate remediation measures, could impair our ability to report accurate financial information in a timely manner, which could adversely affect our business and results of operations. Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). As disclosed in Part I, Item 4. “Controls and Procedures”, our management identified a material weakness relating to certain administrative errors accounting for shares surrendered in option exercises to cover personal income tax liabilities, the calculation of shares issued and outstanding, and weighted-average shares outstanding as well as in our treatment of certain equity awards as liabilities which results in an increase in our selling, general and administrative expenses in certain prior periods. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of September 30, 2022. If our remedial measures described in Part I, Item 4 are insufficient to address the above described weakness, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and may not be available in a timely manner and we could be required to restate our financial statements which could lead to substantial additional costs for accounting and legal fees. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses. 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.