Intellicheck, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS INTELLICHECK, INC. CONDENSED BALANCE SHEETS (In thousands except share and per share amounts) June 30, 2024 December 31, 2023 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,260 $ 3,980 Short-term investments — 5,000 Accounts receivable, net of allowance for credit losses of $ 87 and $ 69 at June 30, 2024 and December 31, 2023, respectively 3,315 4,703 Other current assets 645 692 Total current assets 11,220 14,375 PROPERTY AND EQUIPMENT, NET 592 666 GOODWILL 8,102 8,102 INTANGIBLE ASSETS, NET 1,912 575 OTHER ASSETS 90 90 Total assets $ 21,916 $ 23,808 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 909 $ 884 Accrued expenses 1,902 3,245 Equity awards liability — 4 Liability for shares withheld — 190 Deferred revenue 1,798 2,209 Total current liabilities 4,609 6,532 Total liabilities 4,609 6,532 COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS’ EQUITY: Preferred stock - $ 0.01 par value; 30,000 shares authorized; Series A convertible preferred stock, zero shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively — — Common stock - $ 0.001 par value; 40,000,000 shares authorized; 19,492,702 and 19,354,335 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively 19 19 Additional paid-in capital 151,422 150,822 Accumulated deficit ( 134,134 ) ( 133,565 ) Total stockholders’ equity 17,307 17,276 Total liabilities and stockholders’ equity $ 21,916 $ 23,808 See accompanying notes to unaudited condensed financial statements. 3 Index INTELLICHECK, INC. CONDENSED STATEMENTS OF OPERATIONS (In thousands except shares and per share amounts) (Unaudited) Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 REVENUES $ 4,672 $ 4,716 $ 9,352 $ 8,970 COST OF REVENUES ( 444 ) ( 352 ) ( 879 ) ( 684 ) Gross profit 4,228 4,364 8,473 8,286 OPERATING EXPENSES Selling, general and administrative 3,608 3,937 7,544 7,931 Research and development 835 1,276 1,653 2,584 Total operating expenses 4,443 5,213 9,197 10,515 Loss from operations ( 215 ) ( 849 ) ( 724 ) ( 2,229 ) OTHER INCOME Interest and other income 88 — 157 1 Total other income 88 — 157 1 Net loss before provision for income taxes ( 127 ) ( 849 ) ( 567 ) ( 2,228 ) Provision for income taxes — 4 2 12 Net loss $ ( 127 ) $ ( 853 ) $ ( 569 ) $ ( 2,240 ) PER SHARE INFORMATION Loss per common share - Basic/Diluted $ ( 0.01 ) $ ( 0.04 ) $ ( 0.03 ) $ ( 0.12 ) Weighted average common shares used in computing per share amounts - Basic/Diluted 19,460,351 19,120,327 19,380,605 19,168,534 See accompanying notes to unaudited condensed financial statements. 4 Index INTELLICHECK, INC. CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands except number of shares) (Unaudited) Three months ended June 30, 2024 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount BALANCE, March 31, 2024 19,404,561 $ 19 $ 151,166 $ ( 134,007 ) $ 17,178 Stock-based compensation – – 256 – 256 Stock option exercises, net of cashless exercises 4,875 – – – — Issuance of shares for vested restricted stock grants 83,266 – – – – Net loss – – – ( 127 ) ( 127 ) BALANCE, June 30, 2024 19,492,702 $ 19 $ 151,422 $ ( 134,134 ) $ 17,307 Three months ended June 30, 2023 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount BALANCE, March 31, 2023 19,215,863 $ 19 $ 149,875 $ ( 132,972 ) $ 16,922 Stock-based compensation – – 338 – 338 Issuance of shares for vested restricted stock grants 60,777 – – – – Shares forfeited in exchange for withholding taxes ( 24,720 ) – ( 54 ) — ( 54 ) Net loss – – – ( 853 ) ( 853 ) BALANCE, June 30, 2023 19,251,920 $ 19 $ 150,159 $ ( 133,825 ) $ 16,353 See accompanying notes to unaudited condensed financial statements. 5 Index Six months ended June 30, 2024 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount BALANCE, December 31, 2023 19,354,335 $ 19 $ 150,822 $ ( 133,565 ) $ 17,276 Stock-based compensation – – 600 – 600 Stock option exercises, net of cashless exercises 4,875 – – – — Issuance of common stock for vested restricted stock units and earned performance stock units 133,492 – – – – Net loss – – – ( 569 ) ( 569 ) BALANCE, June 30, 2024 19,492,702 $ 19 $ 151,422 $ ( 134,134 ) $ 17,307 Six months ended June 30, 2023 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount BALANCE, December 31, 2022 18,957,366 $ 19 $ 149,233 $ ( 131,585 ) $ 17,667 Stock-based compensation – – 980 – 980 Issuance of common stock for vested restricted stock units and earned performance stock units 319,274 – – – – Shares forfeited in exchange for withholding taxes ( 24,720 ) – ( 54 ) – ( 54 ) Net loss – – – ( 2,240 ) ( 2,240 ) BALANCE, June 30, 2023 19,251,920 $ 19 $ 150,159 $ ( 133,825 ) $ 16,353 6 Index INTELLICHECK, INC. CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six months ended June 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 569 ) $ ( 2,240 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 145 139 Stock-based compensation 405 1,005 Allowance for credit losses 18 16 Change in accrued interest and accretion of discount on short-term investments — ( 2 ) Changes in assets and liabilities: Decrease (Increase) in accounts receivable 1,371 ( 133 ) Decrease (Increase) in other current assets and long-term assets 47 ( 178 ) (Decrease) Increase in accounts payable and accrued expenses ( 1,318 ) 125 (Decrease) Increase in deferred revenue ( 411 ) 412 Net cash used in operating activities ( 312 ) ( 856 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 19 ) ( 31 ) Proceeds from maturity of short-term investments 5,000 — Software development costs ( 1,389 ) — Net cash provided by (used in) investing activities 3,592 ( 31 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds of insurance financing arrangement — 49 Withholding taxes paid on RSU vesting — ( 54 ) Repayment of insurance financing arrangements — ( 119 ) Net cash used in financing activities — ( 124 ) Net increase (decrease) in cash 3,280 ( 1,011 ) CASH, beginning of period 3,980 5,196 CASH, end of period $ 7,260 $ 4,185 Supplemental disclosures of cash flow information: Cash paid for interest $ — $ 2 Cash paid for income taxes $ — $ 87 See accompanying notes to unaudited condensed financial statements. 7 Index INTELLICHECK, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (All dollar amounts are rounded to thousands, except share and per 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 eleven ( 11) U.S. and one Canadian patents. Liquidity For the six months ended June 30, 2024, the Company incurred a net loss of $( 569 ) and used cash in operations of $( 312 ). As of June 30, 2024, the Company had cash and cash equivalents of $ 7,260 , working capital (defined as current assets minus current liabilities) of $ 6,611 and an accumulated deficit of $( 134,134 ). Based on the Company’s business plan and cash resources, Intellicheck expects its existing cash 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. 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 ("GAAP") 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 GAAP 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 June 30, 2024, the results of operations, and stockholders’ equity for the three and six months ended June 30, 2024 and 2023 and cash flows for the six months ended June 30, 2024 and 2023. 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 and six-month periods ended June 30, 2024, are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2024. The balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. References in this Quarterly Report on Form 10-Q to “authoritative guidance” is to the Accounting Standards Codification ("ASC") 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, 2023. Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances reporting requirements under Topic 280. The enhanced disclosure requirements include: title and position of the Chief Operating Decision Maker (CODM), significant segment expenses provided to the CODM, extending certain annual disclosures to interim periods, clarifying single reportable segment entities must apply ASC 280 in its entirety, and permitting more than one measure of segment profit or loss to be reported under certain circumstances. This change is effective for fiscal years beginning after December 15, 2023 and interim periods beginning 8 Index after December 15, 2024. This change will apply retrospectively to all periods presented. The Company is currently evaluating the impact of this ASU on its financial statements. In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The new guidance requires consistent categorization and greater disaggregation of information in the rate reconciliation, as well as further disaggregation of income taxes paid. This change is effective for annual periods beginning after December 15, 2024. This change will apply on a prospective basis to annual financial statements for periods beginning after the effective date. However, retrospective application in all prior periods presented is permitted. The Company is currently evaluating the impact of this ASU on its financial statements. Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP 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, capitalization of software development costs, revenue recognition (including breakage revenue), allowance for credit losses, and the fair value of stock options 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. Research and Development Research and development expenses are expensed as incurred and consist primarily of employee-related expenses (such as salaries, taxes, benefits and stock-based compensation), allocated overhead costs and outside services costs related to the development and improvement of the Company's SaaS applications. Allowance for Credit Losses Effective January 1, 2023, Intellicheck applied the new standard ASU 2016-13, codified as ASC 326. This impacts how the allowance for credit losses is calculated. Prior to ASC-326, Intellicheck would not recognize bad debt expense until the loss from customer non-payment was probable of occurring. Under the new model, Intellicheck’s allowance for credit losses reflects the Company’s estimate of all expected future credit losses from its current customer balances. Under the new guidance, the Company has applied a loss rate method which takes historical data as the basis for calculating the allowance amount, along with accounting for other factors like current and forecasted market conditions, and potential future impacts to the industry. In estimating whether accounts receivable will be collected, the Company performs evaluations of customers and continuously monitors collections and payments and estimates an allowance for credit losses based on collections experience to date and any specific collection issues that have been identified. The allowance for credit losses is recorded in the period in which revenue is recorded or when collection risk is identified. Cash and Cash Equivalents We classify time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents. Our cash and cash equivalents consist primarily of both cash on deposits with banks, which are maintained with major financial institutions in the United States, and money market funds. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000, however amounts may exceed FDIC insured limits. The Company has not experienced any losses with regard to its bank accounts and believes it is not exposed to any risk of loss on its cash bank accounts. Short-term investments Short-term investments include investments in U.S. treasury notes. Debt investments with original maturities at the date of purchase greater than approximately three months but less than a year are classified as short-term investments, as they represent the investment of cash available for current operations. All short-term investments that the Company 9 Index holds are classified as "held-to-maturity" as the Company has the intent and ability to hold these investments until maturity. See Note 3 for more detail and a breakdown of the Company's short-term investments. Property and Equipment Property and equipment are recorded at cost and are depreciated over their estimated useful lives ranging from three to seven years using the straight-line method. See Note 4. Goodwill Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations. Pursuant to ASC 350, Intangibles - Goodwill and Other, the Company tests goodwill for impairment on an annual basis in the fourth quarter on December 31st, or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assesses qualitative factors to determine whether it is 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 decreases in share price. The Company performed its annual impairment test of goodwill in the fourth quarter for the year ended December 31, 2023. For the six months ended June 30, 2024 and 2023, the Company determined no triggering events existed and as such no impairment charge was required. Intangible Assets Intangible assets include patents, copyrights, developed technology and capitalized software development costs. The Company amortizes these assets on a straight-line basis over their estimated useful lives, as it represents the pattern of economic benefits consumed. There were no impairment charges recognized during the three and six-months ended June 30, 2024 and 2023. See Note 5. We capitalize internal-use software costs which includes costs incurred in connection with the development of new internal-use software solutions and enhancements to existing software solutions that are expected to result in increased functionality. The costs incurred in the preliminary stages of development are expensed as incurred. Once the software has reached the application development stage, internal and external costs, if direct and incremental, are capitalized until the software is complete and available for its intended use. We evaluate the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There were no impairments of capitalized software development costs for the six months ended June 30, 2024 and 2023. Advertising Costs Advertising costs, which are expensed as incurred, were $ 183 and $ 371 for the six months ended June 30, 2024 and 2023, respectively. Advertising costs were $ 105 and $ 172 for the three months ended June 30, 2024 and 2023, respectively. These costs are recorded as a component of selling, general and administrative expenses within the Statements of Operations. Retirement Plan The Company has a retirement savings 401(k) plan ("Retirement Plan"). The Retirement 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 $ 0 and $ 54 for the six months ended June 30, 2024 and 2023, respectively. The Company’s matching contributions were $ 0 and $ 27 for the three months ended June 30, 2024 and 2023, respectively. During the three months ended June 30, 2024, funds from the plan's forfeiture account were used to fund the matching contributions in accordance with the terms of the plan and as such, the Company recorded no expense during the current period related to its retirement plans. These costs are recorded as a component of selling, general and administrative expenses within the Statements of Operations. 10 Index Shipping Costs The Company’s shipping and handling costs related to sales are included in cost of revenues for all periods presented. All other shipping and handling costs are included as a component of selling, general and administrative expenses within the Statements of Operations. Loss Contingencies and Legal Costs The Company accrues loss contingencies that are believed to be probable and can be reasonably estimated. As events evolve during the administration and litigation process and additional information becomes known, the Company reassesses its estimates related to loss contingencies. Legal costs are expensed in the period in which the costs are incurred. Sales Taxes Sales and other taxes collected from customers and remitted to governmental authorities are presented on a net basis and thus excluded from revenues. Income Taxes The Company accounts for income taxes in accordance with ASC 740, 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. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. The Company has recorded a full valuation allowance against its net deferred tax assets as of June 30, 2024 and December 31, 2023, as it is more likely than not these assets may not be fully realized 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 and cash equivalents, short-term investments, accounts receivable, other current assets, accounts payable and accrued expenses. At June 30, 2024 and December 31, 2023, the carrying value of the Company’s financial instruments approximated fair value, due to their short-term nature. 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). 11 Index 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. The Company's Level 1 assets consisted primarily of cash and cash equivalents as well as short-term investments totaling $ 7,260 and $ 8,980 as of June 30, 2024 and December 31, 2023, respectively. • 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 $ 0 and $ 4 of Level 2 liabilities as of June 30, 2024 and December 31, 2023, respectively, for the liability-classified stock options. The fair value of these awards were determined by utilizing a Black-Scholes option pricing model. • 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 June 30, 2024 and December 31, 2023. 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. The Company's performance obligations are satisfied over time, and as a result, we follow the right to invoice practical expedient meaning we may recognize revenue monthly as invoiced based on its contract terms. The Company has an additional revenue model where customers purchase a predetermined number of transactions for the term of the contract. Customers are charged a fixed monthly fee for a set number of scans (fixed consideration), with any overages charged on a per scan basis (variable consideration). The Company estimates the amount of unused transactions at 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. We do not estimate the variable consideration at any point; rather we calculate and recognize the variable portion at the end of the contract term since these contracts are considered monthly due to the termination clauses included within them. The fixed and variable performance obligations are recognized monthly based on the contract terms. Invoicing is based on schedules established in customer contracts. Payment terms are generally established from 30 to 60 days from the invoice date. Accordingly, the Company has determined that its contracts do not include a significant financing component. Product returns are estimated and recorded as a reduction to revenue, however, such amounts have been immaterial. The Company has not capitalized any costs to obtain a contract as the period of amortization for these associated costs would have been recognized over a period that is one year or less and the Company elected the practical expedient to expense those costs as incurred. 12 Index 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 requires the Company to provide a stand-ready obligation and 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, which can vary from month to month. Under the per-scan revenue model, the customer requires access to the Company's hosted subscription service but revenue is recognized over time as 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, which historically have not been material, consist primarily of revenues from other subscription and support 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 Company’s performance as the Company performs. Accordingly, the revenue is 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. 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 from the Company’s standard warranty that it receives from its vendor, which is typically one year. Disaggregation of revenue In the following tables, revenue is disaggregated by product and service and the timing of revenue recognition. 13 Index For the Three Months Ended June 30, 2024 2023 Products and services Software as a Service (SaaS) $ 4,627 $ 4,663 Equipment 40 31 Other 5 22 $ 4,672 $ 4,716 Timing of revenue recognition Products transferred at a point in time $ 45 $ 53 Services transferred over time 4,627 4,663 $ 4,672 $ 4,716 For the Six Months Ended June 30, 2024 2023 Products and services Software as a Service (SaaS) $ 9,236 $ 8,891 Equipment 95 46 Other 21 33 $ 9,352 $ 8,970 Timing of revenue recognition Products transferred at a point in time $ 116 $ 79 Services transferred over time 9,236 8,891 $ 9,352 $ 8,970 Contract balances The current portion of deferred revenue at June 30, 2024 and December 31, 2023 was $ 1,798 and $ 2,209 , respectively, and primarily consists of revenue recognized over time for software license contracts and hosted subscription services. The changes in these balances are related to purchases of a predetermined number of transactions, partially offset by the satisfaction or partial satisfaction of these contracts. Of the December 31, 2023 balance, $ 2,130 was recognized as revenue in the six months ended June 30, 2024. Accounts Receivable Accounts receivable, net of allowance for credit losses, at June 30, 2024 and December 31, 2023 was $ 3,315 and $ 4,703 , respectively. The allowance for credit losses at June 30, 2024 and December 31, 2023 was $ 87 and $ 69 , respectively. 14 Index 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: Remainder 2024 2025 2026 Total Software as a Service (SaaS) $ 1,376 $ 421 $ — $ 1,797 Other 1 — — 1 $ 1,377 $ 421 $ — $ 1,798 All consideration from contracts with customers is included in the amounts presented above. Business Concentrations and Credit Risk Financial instruments, which subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company maintains cash with two financial institutions. The Company performs periodic evaluations of the relative credit standing of these institutions. The Company’s sales are principally made to large retail customers, financial institutions concentrated in the United States of America and to U.S. government entities. The Company performs ongoing credit evaluations, generally does not require collateral, and establishes an allowance for credit losses based upon factors surrounding the credit risk of customers, historical trends, and other market and economic information. During the six-month period ended June 30, 2024, the Company made sales to three customers that accounted for approximately 45 % of total revenues, 19 %, 14 % and 12 %, respectively for each customer. The revenue was primarily associated with commercial identity sales customers. These three customers, in addition with one other customer, represented 61 % of total accounts receivable at June 30, 2024, 37 %, 1 %, 12 %, and 11 % respectively for each customer. During the six-month period ended June 30, 2023, the Company made sales to the same three customers that accounted for approximately 48 % of total revenues, 22 %, 13 % and 13 %, respectively. These three customers represented 46 % of total accounts receivable at June 30, 2023, 37 %, 8 %, 1 %, respectively. 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 and restricted stock is reflected in diluted earnings per share by 15 Index 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. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Net Loss $ ( 127 ) $ ( 853 ) $ ( 569 ) $ ( 2,240 ) Denominator: Weighted average common shares – Basic/Diluted 19,460,351 19,120,327 19,380,605 19,168,534 Net Loss per share – Basic/Diluted $ ( 0.01 ) $ ( 0.04 ) $ ( 0.03 ) $ ( 0.12 ) The following table summarizes the common stock equivalents excluded from loss per diluted share because their effect would be anti-dilutive: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Stock options 1,483,007 1,202,044 1,483,007 1,202,044 Restricted stock units 93,351 129,982 93,351 129,982 1,576,358 1,332,026 1,576,358 1,332,026 Segment Information The Company adheres to the provisions of ASC 280, Segment Reporting, which establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in financial statements issued to shareholders. The Company’s Chief Operating Decision Maker, its Chief Executive Officer (CEO), reviews the financial information presented for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable segment. All of the Company’s long-lived assets are located in the United States. Since the Company operates in one operating segment, all required financial segment information can be found in the financial statements. 3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Short-term investments include investments in U.S. treasury notes. Short-term investments with original maturities of approximately three months or less from the date of purchase are classified within cash and cash equivalents. Debt investments with original maturities at the date of purchase greater than approximately three months but less than one year are classified as short-term investments, as they represent the investment of cash available for current operations. All short-term investments that the Company holds are classified as "held-to-maturity". The Company has accounted for and disclosed the purchase of its short-term investments in accordance with ASC 320, Investments - Debt Securities . The following table summarizes the fair value of cash and cash equivalents, and short-term investments as well as any gross unrealized holding gains and losses as of June 30, 2024 and December 31, 2023. Due to the nature of these assets and the 16 Index short-term nature of the U.S. treasury notes being held to maturity, both these cash and cash equivalents and short-term investments fall under the Level 1 fair value hierarchy as referenced in Note 2. As of June 30, 2024 Amortized cost Gross unrealized holding gains Gross unrealized holding losses Estimated fair value Cash and cash equivalents $ 7,260 $ — $ — $ 7,260 U.S. treasury notes — — — — Total cash, cash equivalents and short-term investments $ 7,260 $ — $ — $ 7,260 As of December 31, 2023 Amortized cost Gross unrealized holding gains Gross unrealized holding losses Estimated fair value Cash and cash equivalents $ 3,980 $ — $ — $ 3,980 U.S. treasury notes (1) 5,000 — — 5,000 Total cash, cash equivalents and short-term investments $ 8,980 $ — $ — $ 8,980 (1) These U.S. treasury notes are classified as "held-to-maturity" as they were purchased in August 2023 and matured in January 2024. The Company did no t hold any securities that were in an unrealized loss position for more than 12 months as of June 30, 2024. There were no material realized gains or losses on these specific short-term investments during the three months ended June 30, 2024. 4. PROPERTY AND EQUIPMENT Property and equipment, net is summarized as follows: June 30, 2024 December 31, 2023 Computer equipment and software $ 1,904 $ 1,886 Furniture and fixtures 139 139 Office equipment 618 618 2,661 2,643 Less – Accumulated depreciation ( 2,069 ) ( 1,977 ) $ 592 $ 666 Depreciation expense for the six months ended June, 2024 and 2023 amounted to $ 92 and $ 86 , respectively. Depreciation expense for the three months ended June 30, 2024 and 2023 amounted to $ 46 and $ 43 , respectively. 17 Index 5. INTANGIBLE ASSETS The changes in the carrying amount of intangible assets, net for the six months ended June 30, 2024 were as follows: Net balance at December 31, 2023 $ 575 Addition: Capitalized software costs 1,389 Deduction: Amortization expense ( 52 ) Net balance at June 30, 2024 $ 1,912 The following tables set forth the components of intangible assets as of June 30, 2024 and December 31, 2023: As of June 30, 2024 Estimated Useful Life Adjusted Carrying Amount Accumulated Amortization Net Patents and copyrights 2 - 17 years $ 375 $ ( 313 ) $ 62 Developed technology 5 years 400 ( 347 ) 53 Software development — $ 1,797 $ — $ 1,797 $ 2,572 $ ( 660 ) $ 1,912 The Company has capitalized $ 1,797 in software development costs as of June 30, 2024. The projects are still in development and not yet ready for their intended use, and therefore no estimated useful life has been determined and these costs are not being amortized as of June 30, 2024. As of December 31, 2023 Estimated Useful Life Adjusted Carrying Amount Accumulated Amortization Net Patents and copyrights 2 - 17 years $ 375 $ ( 300 ) $ 75 Developed technology 5 years 400 ( 307 ) 93 Software development — $ 407 $ — 407 $ 1,182 $ ( 607 ) $ 575 The following summarizes amortization of intangible assets included in the accompanying statements of operations: Three Months Ended June 30, For the Six Months Ended June 30, 2024 2023 2024 2023 Cost of revenues $ 23 $ 23 $ 47 $ 47 General and administrative 2 3 5 6 $ 25 $ 26 $ 52 $ 53 18 Index 6. DEBT 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 with Citi Personal Wealth Management’s Base Rate ( 8.00 % and 8.50 % at June 30, 2024 and December 31, 2023, respectively) minus 2 %. Interest is payable monthly and as of June 30, 2024 and December 31, 2023, there were no amounts outstanding and unused availability under this facility was $ 2,000 . The Company is not subject to any financial covenants related to this revolving line of credit. This line will remain open as long as the Company keeps a depository relationship with the financial institution. 7. ACCRUED EXPENSES Accrued expenses are comprised of the following: June 30, 2024 December 31, 2023 Professional fees $ 99 $ 1 Payroll and related 599 1,159 Incentive bonuses 590 824 Sales tax accrual 557 1,064 Other 57 197 $ 1,902 $ 3,245 8. INCOME TAXES Our available net operating loss (“NOL”) as of December 31, 2023 was approximately $ 26,300 , of which $ 10,900 expires between 2035 and 2037. In accordance with the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), U.S. NOLs arising in a tax year ending after 2017 in the amount of $ 15,400 will not expire, but are subject to 80% limitation on utilization. In addition to the NOLs, the Company has approximately $ 708 of research and development credits. ASC 740 requires evaluation of uncertain tax positions and as of June 30, 2024, the Company has no material uncertain tax positions. 9. STOCKHOLDERS' EQUITY Stock-based Compensation To retain and attract qualified personnel necessary for the success of the Company, the Company adopted the 2015 Omnibus Incentive Plan (the “Plan”) covering up to 5,236,000 of the Company’s common shares, pursuant to which officers, directors, key employees and consultants to the Company are eligible to receive incentive stock options, nonqualified stock options and restricted stock units. All the equity compensation plans prior to Company’s 2015 Omnibus Incentive Plan have been closed. The Compensation Committee of the Board of Directors administers this Plan and determines the terms and conditions of stock options granted, including the exercise price. This Plan generally provides that all stock options will expire within ten years of the date of grant. Incentive stock options granted under this Plan must be granted at an exercise price that is not less than the fair market value per share at the date of the grant and the exercise price must not be less than 110 % of the fair market value per share at the date of the grant for grants to persons owning more than 10 % of the voting stock of the Company. This Plan also entitles non-employee directors to receive grants of non-qualified stock options as approved by the Board of Directors. The Company accounts for the issuance of stock-based awards to employees in accordance with ASC Topic 718, Compensation - Stock Compensation, which requires that the cost resulting from all stock-based compensation payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for stock-based compensation payment arrangements and requires all companies to apply a fair 19 Index value based measurement method in accounting for all stock-based compensation payment transactions with employees. All stock-based compensation is included in operating expenses as follows: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Compensation cost recognized: Selling, general & administrative $ 58 $ 229 $ 382 $ 824 Research & development 14 94 23 181 $ 72 $ 323 $ 405 $ 1,005 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 Company uses the simplified method for all restricted stock units and stock options to estimate the expected life of the option and assumes that stock options will be exercised evenly over the period from vesting until the awards expire. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on U.S. Treasury yield curve in effect on the grant date. Options, generally, vest from one year to four years . The compensation expense is recognized over the requisite service period on a straight-line basis, reduced by forfeitures as they occur. Certain option awards 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 (credit) for the reporting period is recorded. The Company decreased stock-based compensation expense by approximately $ 0 and $( 4 ) for the three and six-months ended June 30, 2024, respectively, as a result of the change in fair value of these awards. The Company increased stock-based compensation expense by approximately $ 15 and decreased stock-based compensation expense by approximately $( 25 ) for the three and six-months ended June 30, 2023, respectively, as a result of the change in fair value of these awards. Stock option activity under the 2015 Plan during the period indicated below is as follows: Number of Shares Subject to Issuance Weighted- average Exercise Price Weighted- average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2023 1,152,714 $ 3.07 3.18 years $ 38 Granted 519,750 1.92 – – Forfeited, cancelled, or expired ( 184,582 ) 2.68 – – Exercised ( 4,875 ) $ 2.02 — — Outstanding at June 30, 2024 1,483,007 $ 2.05 2.10 years $ 852 Exercisable at June 30, 2024 479,129 $ 3.68 3.03 years $ 453 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 June 30, 2024. This amount changes based upon the fair market value of the Company’s stock. 20 Index Restricted Stock Units The Company periodically issues Restricted Stock Units (“RSUs”) which are equity-based instruments that may be settled in shares of common stock of the Company. The Company issues RSUs to certain directors as compensation which vest 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, reduced by forfeitures when they occur. Restricted stock unit activity during the period indicated below is as follows: Number of RSUs Weighted Average Grant Date Fair Value Outstanding at December 31, 2023 60,500 $ 4.23 Granted 166,343 2.22 Vested and settled in shares ( 133,492 ) 3.31 Outstanding at June 30, 2024 93,351 $ 1.96 As of June 30, 2024, there was approximately $ 1,218 of total unrecognized compensation costs, related to all unvested stock options and RSUs. These costs are expected to be recognized as compensation expense over a weighted-average period of approximately 2.22 years. The Company had 637,414 shares available for future grants under the Company's equity compensation plans at June 30, 2024. 10. COMMITMENTS AND CONTINGENCIES Leases The Company leases an office in Melville, New York. Rent expense, which includes utilities, was $ 11 and $ 14 for the three months ended June 30, 2024 and 2023, respectively, and $ 15 and $ 35 for the six months ended June 30, 2024 and 2023 and is included in Selling, general and administrative expenses on the condensed Statements of Operations. The Company determines if an arrangement is a lease at lease inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company did no t have an Operating Lease ROU or Operating Lease Liability as of June 30, 2024, as its office lease is on a month-to-month term and allows for either party to terminate the lease without a significant penalty. Legal Proceedings The Company is not aware of any infringement by our products or technology on the proprietary rights of others. From time to time, the Company may be involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. In accordance with GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, ruling, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable. If any unfavorable ruling was to occur in any specific period or if a 21 Index loss becomes probable and estimable, there exists the possibility of a material adverse impact on the Company’s results of operations, financial position or cash flows. As of June 30, 2024, no material amounts are recorded related to legal proceedings on the balance sheets. The Company was served a class action complaint in March 2024 alleging violations of the Illinois Biometric Information Privacy Act. The litigation is currently in its early stage and the Company does not currently believe that a material loss is probable. As such, the Company has not recognized a liability and intends to fully defend the matter. 22 Index