What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2024-11-14 · 63 added, 72 removed, 70 unchanged (66% of the section changed)

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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 September 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, 2024.

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The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our 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.

Significant estimates and assumptions that affect amounts reported in the financial statements include impairment consideration and valuation of goodwill and intangible assets including software development costs, revenue recognition (including breakage revenue), and the fair value of stock options under our stock-based compensation plans.

Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates.

We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management’s judgments and estimates.

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 condensed Financial Statements.

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 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.

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The Company is currently evaluating the impact of this ASU on its financial statements.

The excess of the purchase consideration over the fair value of the assets of acquired businesses is considered goodwill.

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

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.

Under authoritative guidance, the Company can use industry and Company specific qualitative factors to determine whether it is more likely than not that impairment exists before performing 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.

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.

We will conduct the 2024 annual test for goodwill impairment in the fourth quarter, or at such time where an indicator of impairment appears to exist.

Intangible Assets

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 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 Unaudited Condensed Financial Statements for details on the Company’s intangible assets.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

The amendment requires new financial statement disclosures to provide disaggregated information for certain types of expenses, including employee compensation, depreciation, and amortization in commonly presented expense captions such as cost of revenue, sales and marketing, and general and administrative expenses.

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

The Company is in the process of evaluating the effect that the adoption of these standards will have on its financial statements.

Revenue Recognition and Deferred Revenue

Most license fees and services revenue are generated from a combination of fixed-price and per-scan contracts.

SaaS fees and service 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.

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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.

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

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 carry forwards.

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 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

We are not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material adverse effect on our business.

Valuation of long-lived assets

Our long-lived assets include property and equipment, goodwill, and intangible assets.

As of March 31, 2025, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization, were $497, $8,102 and $2,434, respectively.

As of December 31, 2024, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization, were $536, $8,102 and 2,374, respectively.

Reference Note 2, “Significant Accounting Policies”;

Note 4, “Property and Equipment”;

and Note 5, “Goodwill and Intangible Assets” in the Notes to Financial Statements for details on the Company’s valuations of our long-lived assets.

Internal Use Capitalized Software

We capitalize certain costs related to the development of our platform and other software applications for internal use.

In accordance with authoritative guidance, we begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended.

We stop capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant testing.

These costs are amortized on a straight-line basis over the estimated useful life of the related asset.

We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements.

Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within research and development expenses in the statements of operations.

We exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized.

The above listing is not intended to be a comprehensive list of all of our accounting policies.

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

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 $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.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2025

TO THE THREE MONTHS ENDED MARCH 31, 2024

Revenues for the three months ended March 31, 2025 increased $214, or 5%, to approximately $4,894 compared to $4,680 for the same period of 2024.

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

SaaS revenue, which consists of software licensed on a subscription basis, increased $259 or 6% to $4,867 for the three months ended March 31, 2025 compared to $4,609 for the same period of 2024.

Gross profit increased $147, or 3%, to $4,391 for three months ended March 31, 2025 from $4,245 for the same period of 2024.

Our gross profit, as a percentage of revenues, was 90% and 91% for the three months ended March 31, 2025 and 2024, respectively.

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $28, or 0.6%, to $4,740 for the three months ended March 31, 2025 compared to $4,768 for the same period of 2024.

As a result of the factors noted above, the Company had a net loss of $(318) for the three months ended March 31, 2025 as compared to a net loss of $(442) for the three months ended March 31, 2024.

Liquidity and Capital Resources

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.

As of March 31, 2025, we had cash and cash equivalents of $5,148, working capital (defined as current assets minus current liabilities) of $6,574, total assets of $24,561 and stockholders’ equity of $17,608.

During the three months ended March 31, 2025, we generated cash of $750 in operating activities as compared to net cash of $869 generated by operating activities in the three months ended March 31, 2024.

Cash used in investing activities was $(173) for the three months ended March 31, 2025 compared to cash provided by investing activities of $4,390 for the three months ended March 31, 2024.

Cash used in financing activities was $(95) for the three months ended March 31, 2025 compared to net cash of $0 used in financing activities for the three months ended March 31, 2024.

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.

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

Adjusted EBITDA and Use of a Non-GAAP Measure

Use of Non-GAAP Measures

Adjusted Gross Profit

We use Adjusted Gross Profit as a non-GAAP financial performance measurement.

Adjusted Gross Profit is calculated by adjusting gross profit for the reduction of amortization expense.

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

We believe Adjusted Gross Profit is important because it focuses on the current operating performance, as amortization expense does not accurately reflect the current costs required to maintain the operational usage of our service.

Rather, amortization expense reflects the allocation of historical software development costs over their estimated useful lives.

As an indicator of our operating performance, Adjusted Gross Profit should not be considered an alternative to, or more meaningful than, gross profit as determined in accordance with GAAP.

Our Adjusted Gross Profit may not be comparable to a similarly titled measure of another company because other entities may not calculate Adjusted Gross Profit in the same manner.

The reconciliation of GAAP gross profit to Non-GAAP Adjusted Gross Profit is as follows:

Three Months Ended March 31

Revenue $ 4,894 $ 4,680

Cost of revenue, exclusive of amortization $ 399 $ 411

Amortization allocable to cost of revenues 103 24

Gross Profit 4,392 4,245

Amortization allocable to cost of revenues 103 24

Adjusted Gross Profit 4,495 4,269

Gross profit as a percentage of revenues 89.7 % 90.7 %

Adjusted Gross Profit as a percentage of revenues 91.8 % 91.2 %

Adjusted EBITDA

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

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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.

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

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We 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.

Consequently, Adjusted EBITDA should not be considered in

isolation or as a substitute for net loss presented in accordance with GAAP.

Adjusted EBITDA as defined by us may not be comparable with similarly named measures provided by other companies.

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

Three Months Ended September 30 Nine Months Ended September 30

2024 2023 2024 2023

Three Months Ended March 31

Net loss $ (318) $ (442)

Reconciling items:

Restructuring severance expenses 376 131 376 548

Provision for income taxes — 2

Interest and other income (73) (179) (230) (181)

Sales tax accrual — 80 — 227

Other income and expense, net (30) (83)

Depreciation and amortization 154 72

Stock-based compensation, including liability

classified awards 237 342 642 1,347

Stock-based compensation, including liability classified awards 177 334

Adjusted EBITDA $ (17) $ (117)

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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