What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-14 · 45 added, 43 removed, 97 unchanged (48% of the section changed)

6 unchanged sentences

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

The 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 months ended June 30, 2024.

This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2023.

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These significant accounting policies relate to revenue recognition, stock-based compensation, deferred taxes, goodwill and intangible asset valuation and impairment, and commitments and contingencies.

These policies and our procedures related to these policies are summarized below and described in further detail in the Notes to Financial Statements.

These policies and our procedures related to these policies are summarized below and described in further detail in the Notes to condensed Financial Statements.

Recent Accounting Pronouncements

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Under authoritative guidance, goodwill is not amortized, but rather it is periodically reviewed for impairment.

We had goodwill of $8,102 as of June 30, 2024.

We had goodwill of $8,102 as of September 30, 2024.

For the year ended December 31, 2023, the Company performed its annual impairment test of goodwill in the fourth quarter of the fiscal year.

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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.

We determined that no events occurred or circumstances changed during the three and six-months ended June 30, 2024 that would more likely than not reduce the fair value of the Company below its carrying amounts.

We determined that no events occurred or circumstances changed during the three and nine-months ended September 30, 2024 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 for any potential indicators of impairment.

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Our intangible assets consist of patents, a software license, and capitalized software development costs.

We determined that no events occurred, or circumstances changed during the three months ended June 30, 2024 that would more likely than not reduce our intangible assets below our carrying amounts.

We determined that no events occurred, or circumstances changed during the three months ended September 30, 2024 that would more likely than not reduce our intangible assets below our carrying amounts.

We will, however, continue to monitor any potential indicators of impairment.

See Note 5, “Intangible Assets,” in the Notes to Financial Statements for details on the Company’s intangible assets.

See Note 5, “Intangible Assets,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s intangible assets.

Revenue Recognition and Deferred Revenue

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The Company's performance obligations are satisfied over time, and as a result, we may follow the right to invoice practical expedient meaning we recognize revenue monthly as invoiced based on our contract terms.

Reference Note 2, “Significant Accounting Policies,” in the Notes to Financial Statements for additional details on the Company’s recognized and deferred revenue.

Reference Note 2, “Significant Accounting Policies,” in the Notes to Unaudited Condensed Financial Statements for additional details on the Company’s recognized and deferred revenue.

Stock-Based Compensation

We account for the issuance of stock-based compensation awards to employees in accordance with ASC 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

value-based measurement method in accounting for all stock-based compensation payment transactions with employees.

Reference Note 9, “Stockholders' Equity,” in the Notes to Financial Statements for details on the Company’s stock-based compensation plans.

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 value-based measurement method in accounting for all stock-based compensation payment transactions with employees.

Reference Note 9, “Stockholders' Equity,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s stock-based compensation plans.

Deferred Income Taxes

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Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

We have recorded a full valuation allowance for our net deferred tax assets as of June 30, 2024, due to the uncertainty of our ability to realize those assets.

Reference Note 8, “Income Taxes,” in the Notes to Financial Statements for details on the Company’s income taxes.

We have recorded a full valuation allowance for our net deferred tax assets as of September 30, 2024, due to the uncertainty of our ability to realize those assets.

Reference Note 8, “Income Taxes,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s income taxes.

Commitments and Contingencies

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

COMPARISON OF THE THREE MONTHS ENDED June 30, 2024

TO THE THREE MONTHS ENDED June 30, 2023

Revenues for the three months ended June 30, 2024 decreased $44, or 1%, to approximately $4,672 compared to $4,716 for the same period of 2023.

The decrease in revenues is primarily the result of lower transaction volumes for SaaS for the current period.

SaaS revenue, which consists of software licensed as a service on a subscription basis, decreased $36 or 1% to $4,627 for the three months ended June 30, 2024 compared to $4,663 for the same period of 2023.

Gross profit decreased $136, or 3%, to $4,228 for three months ended June 30, 2024 from $4,364 for the same period of 2023.

Our gross profit, as a percentage of revenues, was 91% and 93% for the three months ended June 30, 2024 and 2023, respectively.

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $770, or 15%, to $4,443 for the three months ended June 30, 2024 compared to $5,213 for the same period of 2023.

This decrease was primarily driven by lower research and development costs, and more specifically headcount-related expenses.

As a result of the factors noted above, the Company had a net loss of $(127) for the three months ended June 30, 2024 as compared to a net loss of $(853) for the three months ended June 30, 2023.

COMPARISON OF THE SIX MONTHS ENDED June 30, 2024

TO THE SIX MONTHS ENDED June 30, 2023

Revenues for the six months ended June 30, 2024 increased $382, or 4%, to approximately $9,352 compared to $8,970 for the same period of 2023.

COMPARISON OF THE THREE MONTHS ENDED September 30, 2024

TO THE THREE MONTHS ENDED September 30, 2023

Revenues for the three months ended September 30, 2024 decreased $51, or 1%, to approximately $4,709 compared to $4,760 for the same period of 2023.

The decrease in revenues is primarily the result of lower Equipment revenues for the current period.

Equipment revenue, which consists of the sale of equipment is recognized at a point in time, decreased $93 or 88% to $13 for the three months ended September 30, 2024 compared to $106 for the same period of 2023.

SaaS revenue increased $26 or 1% to $4,661 for the three months ended September 30, 2024 compared to $4,635 for the same period of 2023.

Gross profit decreased $47, or 1%, to $4,285 for three months ended September 30, 2024 from $4,332 for the same period of 2023.

Our gross profit, as a percentage of revenues, was 91% for the three months ended September 30, 2024 and 2023, respectively.

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $32, or 0.6%, to $5,195 for the three months ended September 30, 2024 compared to $5,227 for the same period of 2023.

As a result of the factors noted above, the Company had a net loss of $(837) for the three months ended September 30, 2024 as compared to a net loss of $(724) for the three months ended September 30, 2023.

COMPARISON OF THE NINE MONTHS ENDED September 30, 2024

TO THE NINE MONTHS ENDED September 30, 2023

Revenues for the nine months ended September 30, 2024 increased $330, or 2%, to approximately $14,060 compared to $13,730 for the same period of 2023.

The increase in revenues is primarily the result of higher transaction volumes for SaaS for the current period.

SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $345 or 4% to $9,236 for the six months ended June 30, 2024 compared to $8,891 for the same period of 2023.

Gross profit increased $187, or 2%, to $8,473 for six months ended June 30, 2024 from $8,286 for the same period of 2023.

Our gross profit, as a percentage of revenues, was 91% and 92% for the six months ended June 30, 2024 and 2023, respectively.

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $1,318, or 13%, to $9,197 for the six months ended June 30, 2024 compared to $10,515 for the same period of 2023.

This decrease was primarily driven by lower stock based compensation and severance expenses.

As a result of the factors noted above, the Company had a net loss of $(569) for the six months ended June 30, 2024 as compared to a net loss of $(2,240) for the six months ended June 30, 2023.

SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $370 or 2% to $13,896 for the nine months ended September 30, 2024 compared to $13,526 for the same period of 2023.

Gross profit increased $139, or 1%, to $12,757 for nine months ended September 30, 2024 from $12,618 for the same period of 2023.

Our gross profit, as a percentage of revenues, was 91% for the nine months ended September 30, 2024 and 2023, respectively.

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $1,352, or 9%, to $14,391 for the nine months ended September 30, 2024 compared to $15,743 for the same period of 2023.

This decrease was primarily driven by lower stock-based compensation.

As a result of the factors noted above, the Company had a net loss of $(1,406) for the nine months ended September 30, 2024 as compared to a net loss of $(2,964) for the nine months ended September 30, 2023.

Liquidity and Capital Resources

As of June 30, 2024, we had cash and cash equivalents of $7,260, working capital (defined as current assets minus current liabilities) of $6,611, total assets of $21,916 and stockholders’ equity of $17,307.

During the six months ended June 30, 2024, we used net cash of $(312) in operating activities as compared to net cash of $(856) used by operating activities in the six months ended June 30, 2023.

Cash provided by investing activities was $3,592 for the six months ended June 30, 2024 compared to cash used in investing activities of $(31) for the six months ended June 30, 2023.

Cash used in financing activities was zero for the six months ended June 30, 2024 compared to net cash of $(124) used in financing activities for the six months ended June 30, 2023.

As of September 30, 2024, we had cash and cash equivalents of $5,747, working capital (defined as current assets minus current liabilities) of $5,699, total assets of $20,682 and stockholders’ equity of $16,735.

During the nine months ended September 30, 2024, we used net cash of $(1,373) in operating activities as compared to net cash of $(1,114) used by operating activities in the nine months ended September 30, 2023.

Cash provided by investing activities was $3,120 for the nine months ended September 30, 2024 compared to cash provided by investing activities of $18 for the nine months ended September 30, 2023.

Cash provided by financing activities was $20 for the nine months ended September 30, 2024 compared to net cash of $(138) used in financing activities for the nine months ended September 30, 2023.

We currently anticipate that our available cash, expected cash from operations and availability under the revolving line of credit, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months from the date of filing.

Reference Note 6, “Debt,” in the Notes to Financial Statements for details on the Company’s revolving line of credit.

Reference Note 6, “Debt,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s revolving line of credit.

We keep the option open to raise additional funds to respond to business contingencies which may include the need to fund more rapid expansion, fund additional marketing expenditures, develop new markets for our technology, enhance our operating infrastructure, respond to competitive pressures, or acquire complementary businesses or necessary technologies.

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Net Operating Loss Carry Forwards

Our available net operating loss (“NOL”) as of December 31, 2023 was approximately $26.3 million, of which $10.9 million expires between 2035 and 2037.

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 $15.4 million will not expire, but are subject to 80% limitation on utilization.

In addition to the NOLs, the Company has approximately $708 thousand of research and development credits.

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.

Adjusted EBITDA and Use of a Non-GAAP Measure

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

By excluding non-cash charges such as impairments of long-lived assets and goodwill, amortization, depreciation and stock-based compensation, as well as non-operating charges for interest and provisions for income taxes, investors can evaluate our operations and can compare the results on a more consistent basis to the results of other companies.

basis to the results of other companies.

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

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

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2023 2024 2023

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Reconciling items:

Non-restructuring severance expenses — 417 — 417

Restructuring severance expenses 376 131 376 548

Provision for income taxes — 8 2 20

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Depreciation and amortization 130 71 275 210

Stock-based compensation including liability classified awards 72 323 405 1,005

Stock-based compensation, including liability

classified awards 237 342 642 1,347

Adjusted EBITDA $ (167) $ (271) $ (341) $ (793)

5 unchanged sentences

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