Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

INTELLICHECK, INC.

CONDENSED STATEMENTS OF OPERATIONS

(In thousands except shares and per share amounts)

(Unaudited)

INTELLICHECK, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands except number of shares)

(Unaudited)

INTELLICHECK, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

INTELLICHECK, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 ("Point of Sale") integration or other electronic devices. Intellicheck continues to develop and release innovative products based upon its rich patent portfolio consisting of seventeen (17)eighteen (18) U.S. and one Canadian patents, as well as twothree U.S. patents pending.

Liquidity

For the ninethree months ended September 30, 2022,March 31, 2023, the Company incurred a net loss of $3,290$(1,316) and usedgenerated cash infrom operations of $1,711.$233. As of September 30, 2022,March 31, 2023, the Company had cash and cash equivalents of $11,775,$5,355, short-term investments of $4,881, working capital (defined as current assets minus current liabilities) of $9,153$8,752 and an accumulated deficit of $130,187.$(132,064). Based on the Company’s business plan and cash resources, Intellicheck expects its existing 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.

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 generally accepted accounting principles in the United States of America 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 September 30, 2022March 31, 2023 and the results of operations, stockholders’ equity and cash flows for the ninethree months ended September 30, 2022March 31, 2023 and 2021.2022. 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 nine-monththree-month period ended September 30, 2022,March 31, 2023, are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2022.

The balance sheet as of December 31, 20212022 has been derived from the audited financial statements at that date but does not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.

References in this Quarterly Report on Form 10-Q to “authoritative guidance” is to the Accounting Standards Codification 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/A10-K for the year ended December 31, 2021.

Recent Accounting Pronouncements

future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. The guidance is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. The Company does not expectconcluded that the adoption of this standard willdid not have a material impact on its financial statements because of the short-term nature of it's outstanding accounts receivable.receivable and there have been no significant forward-looking economic conditions identified by the company that would impact its short-term investments.

Use of Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America 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, allowance for doubtful accounts, revenue recognition (including breakage revenue) 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. ASC 718 establishes fair value as the measurement objective in accounting for equity payment arrangements and requires all companies to apply a fair-value based measurement method in accounting for all equity payment transactions with employees.

Research and Development

The Company’s research and development efforts are mainly concentrated in the area of identify verification. Research and development expenses are expensed as incurred and consist primarily of employeeemployee-related expenses (such as salaries, taxes, benefits bonuses, and stock-based compensation. Researchcompensation), allocated overhead costs and outside services costs related to the development expenses also include consulting fees, software and subscription services, and third-party cloud infrastructure expenses incurred in maintaining our platform.

Allowance for Doubtful Accounts

Cash and Cash Equivalents

We classify as cash equivalents time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase. Our cash and cash equivalents consist primarily of cash on deposits with banks and is maintained with major financial institutions in the United States. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000, however amounts may exceed FDIC insured limits.

Property and Equipment

Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations. Pursuant to ASC 350, 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 assessed qualitative factors to determine whether it was 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 decrease in share price.

The Company performed its annual impairment test of goodwill in the fourth quarter for the year ended December 31, 2021.2022. For the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, the Company determined no triggering events existed and as such no impairment charge was required.

Intangible Assets

Intangible assets include patents, copyrights, and developed technology. The Company amortizes these assets on a straight-line basis over their estimated useful lives, as it represents the pattern of economic benefits consumed. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable in accordance with ASC 360. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows without interest charges, will be less than the carrying amount of the assets. There were no impairment charges recognized during the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022.

Advertising Costs

Advertising costs, which are charged to expense as incurred, were $545$199 and $486 for the nine months ended September 30, 2022 and 2021, respectively. Advertising costs were $155 and $245$149 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. These costs are recorded as a component of selling, general and administrative expenses on the Statements of Operations.

Retirement Plan

The Company has a retirement savings 401(k) plan.plan ("Retirement Plan"). The planRetirement 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 $90 and $73 for the nine months ended September 30, 2022 and 2021,

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 on the Statements of Operations.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, “Accounting for Income“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 enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company has recorded a full valuation allowance for its net deferred tax assets as of September 30, 2022March 31, 2023 and December 31, 2021,2022, 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 September 30, 2022March 31, 2023 and December 31, 2021,2022, the carrying value of the Company’s financial instruments approximated fair value, due to their short-term nature. Financial Accounting Standards Board (“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).

The three levels of the fair value hierarchy are as follows:

Revenue Recognition and Deferred Revenue

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

During 2021, the Company adopted an additional revenue model where customers purchase a predetermined number of transactions for the term of the contract. Revenue for these transactions is recognized on a per transaction basis. The Company estimates the numberamount of unused transactions that will be unused byat 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. Actual results could differ from estimates and as such differences may be material to the financial statements.

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) for hosted subscription services 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 our hosted subscription service but revenue is recognized each time the customer scans an identity document.

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. When sales of equipment occur, we recognize shipping and handling costs with the sales of equipment that are recognized as revenue.

Other Revenues, which historically have not been material, consist primarily of revenues from other subscription and support services, non-recurring 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

In the following tables, revenue is disaggregated by product and service and the timing of revenue recognition.

The current portion of deferred revenue at September 30,March 31, 2023, December 31, 2022 and December 31, 2021 was $2,027, $906 and December 31, 2020 was $1,730, $1,266, and $403, respectively, and primarily consists of revenue that is 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, 20212022 balance, $102 and $1,226$342 was recognized as revenue in the three and nine months ended September 30, 2022, respectively.March 31, 2023. The noncurrent deferred revenue balances were $2,$1, $1 and $8 and $9 as of September 30, 2022,March 31, 2023, December 31, 20212022 and December 31, 2020,2021, respectively.

Accounts Receivable, net of allowance for doubtful accounts, at September 30, 2022,March 31, 2023, December 31, 20212022 and January 1, 2020 was $2,635,$3,527, $2,637, and $2,192, and $1,633, respectively. The allowance for doubtful accounts at September 30,March 31, 2023, December 31, 2022 and December 31, 2021 was $30, $20 and January 1, 2020 was $9, $3, and $42, respectively.

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:

All consideration from contracts with customers is included in the amounts presented above.

Business Concentrations and Credit Risk

During the three and nine-month periodsthree-month period ended September 30, 2022,March 31, 2023, the Company made sales to three customers that accounted for approximately 51% and 52% and39% of total revenues, 16%, 13% and 10%, respectively. The revenue was primarily associated with commercial identity sales customers. These three customers in addition to two other customers, represented 70%54% of total accounts receivable at September 30, 2022.March 31, 2023, 28%, 16% and 10%, respectively. During the three and nine-month periodsthree-month period ended September 30, 2021,March 31, 2022, the Company made sales to twothree customers that accounted for approximately 60% and 58%53% of total revenues, 23%, 19% and 11%, respectively. These three customers, in addition to one other customer, represented 63% of total accounts receivable at March 31, 2022, 33%, 10%, 1% and 19%, respectively. That revenue was also associated with commercial identity sales customers.

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, warrants and restricted stock is reflected in diluted earnings

Property and equipment is summarized as follows:

Depreciation expense for the nine months ended September 30, 2022 and 2021 amounted to $130 and $47. Depreciation expense for the three months ended September 30,March 31, 2023 and 2022 and 2021 amounted to $44$43 and $16$42 respectively.

The changes in the carrying amount of intangible assets for the ninethree months ended September 30, 2022March 31, 2023 were as follows:

The following tables set forth the components of intangible assets as of September 30, 2022March 31, 2023 and December 31, 2021:2022:

The following summarizes amortization of intangible assets included in the accompanying statements of operations:

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 of Citi Personal Wealth Management’s Base Rate (7.75%(8.00% and 4.75%7.50% at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively) minus 2%. Interest is payable monthly and as of September 30, 2022March 31, 2023 and December 31, 2021,2022, 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.

Accrued expenses are comprised of the following:

Our available net operating loss (“NOL”) as of DecemberMarch 31, 20212023 was approximately $23.4$20.3 million, of which $10.9 million 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 will not expire.

The Company accounts for the issuance of stock-based awards to employees in accordance with ASC Topic 718, 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. All stock-based compensation is included in operating expenses as follows:

Stock Options

Stock option activity under the 2015 Stock Option Plan (the “Plan”) during the period indicated below wereis as follows:

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 September 30, 2022.March 31, 2023. This amount changes based upon the fair market value of the Company’s stock.

Restricted Stock Units

The Company issues Restricted Stock Units (“RSUs”) which are equity-based instruments that may be settled in shares of common stock of the Company. During the ninethree months ended September 30, 2022,March 31, 2023, the Company issued RSUs to certain directors as compensation. RSU agreements can vest immediately or 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.

Performance Stock Units

On August 7, 2020, the Company issued 265,942 Performance Stock Units (PSUs) to its officers and certain employees as compensation.compensation ("PSU Plan"). 50% of the PSUs were to vest based on the Company’s market price and 50% were to vest based on the Company’s Adjusted EBITDA. Both the conditions were to occur over a specified time frame and were contingent on continued employment services.

On November 4, 2021, the Company amended its PSU Plan so that 100% of the PSUs will be subject to vestingvest based on the Company’s market price as the sole vesting criteria. As a result of this amendment, the adjustedAdjusted EBITDA performance metric from the previous plan is no longer a criteria performance metric.vesting criteria.

CompensationThe fair value of these awards with a market condition was estimated, at the date of grant, using the Monte Carlo Simulation model with compensation expense is based on a Geometric Brownian Motion valuation model basedbeing determined on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period. IfWith the Company determines that it is probableamendment mentioned above such that the performanceCompany's market price is the sole vesting criteria will be achieved, the amount offor these awards, compensation cost derived for this performance metric is amortized over the anticipated service period. Compensation expense is charged to operating expenses with a corresponding increase to additional paid-in capital.capital and is not reversed if the vesting criteria is not met. As of March 31, 2023, 50% of the outstanding PSUs as of December 31, 2022 met the vesting criteria and were considered to be earned and are expected to be settled in shares of common stock upon the Compensation Committee's of the Board of the Directors certification of achievement of the market-based performance

As of September 30, 2022,March 31, 2023, there was $2,573 of total unrecognized compensation cost was $2,775, net of estimated forfeitures,costs, related to all unvested stock options, RSUs and PSUs, which isPSUs. These costs are expected to be recognized as compensation expense over a weighted averageweighted-average period of approximately 1.641.89 years.

The Company had 1,239,387912,410 shares available for future grants under the PlanCompany's equity compensation plans at September 30, 2022.March 31, 2023.

The Company is not aware of any infringement by the Company’s products or technology on the proprietary rights of others.

The Company is not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material effect on its business.

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, loss from operations and cash flow. Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. 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 nine-monththree-month period ended September 30, 2022.March 31, 2023. 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/A10-K for the year ended December 31, 2021.2022.

We are a prominent technology company that is engaged in developing, integrating and marketing identity authentication and threat identificationverification solutions to address challenges that include bankcommercial retail and retailbanking fraud prevention, law enforcement threat identification, and mobile and handheld access control and securityprevention. Intellicheck’s products include solutions for the government, military and commercial markets.preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices.

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, allowance for doubtful accounts, 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 Financial Statements.

The excess of the purchase consideration over the fair value of the assets of acquired businesses is considered goodwill. Under authoritative guidance, purchased goodwill is not amortized, but rather it is periodically reviewed for impairment. We had goodwill of $8,102 as of September 30, 2022.March 31, 2023.

For the year ended December 31, 2021,2022, the Company performed its annual impairment test of goodwill in the fourth quarter on December 31st.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,

We determined that no events occurred or circumstances changed during the ninethree months ended September 30, 2022March 31, 2023 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 20222023 annual test for goodwill impairment in the fourth quarter, or at such time where an indicator of impairment appears to exist.

Our intangible assets consist of patents and a software license. We determined that no events occurred, or circumstances changed during the ninethree months ended September 30, 2022March 31, 2023 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 4,5, “Intangible Assets,” in the Notes to Financial Statements for details on the company’sCompany’s intangible assets.

SaaS fees and service revenues 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 our software. Under the fixed-price revenue model customers are charged a fixed monthly fee either per device or physical business location to access our software. In certain instances, customization services are determined to be essential to the functionality of the delivered software. Under Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” 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. We measure revenue based on the consideration specified in a customer arrangement, and revenue is recognized when the performance obligations in an arrangement are satisfied. The Company adopted an additional revenue model where customers purchase a predetermined number of transactions for the term of the contract, where revenue for these transactions is recognized on a per transaction basis. The Company estimates the number of transactions that will be unused by the end of each contract period and recognized a portion of that revenue as breakage revenue each reporting period. Reference Note 2, “Significant Accounting Policies,” in the Notes to Financial Statements for additional details on the company’sCompany’s recognized and deferred revenue.

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 8, “Stock-based Compensation,9, “Stockholders' Equity,” in the Notes to Financial Statements for details on the company’sCompany’s stock-based compensation plans.

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, 2022,March 31, 2023, due to the uncertainty of our ability to realize those assets. Reference Note 7,8, “Income Taxes,” in the Notes to Financial Statements for details on the company’sCompany’s income taxes.

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.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

Results of Operations

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

Revenues for the three months ended September 30, 2022 decreased $819,March 31, 2023 increased $859, or 17%25%, to $4,012$4,254 compared to $4,831$3,395 for the same period of 2021.2022. The decreaseincrease in revenues is primarily the result of lower equipment revenues inhigher SaaS revenue growth for the current period. Excluding equipment sales, revenues for the three months ended September 30, 2022 increased $612, or 18%, compared to the same period of 2021. SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $725$875 or 22%26% to $3,970$4,228 for the three months ended September 30, 2022March 31, 2023 compared to $3,245$3,353 for the same period of 2021.2022.

Gross profit increased $333,$843, or 10%27%, to $3,654$3,922 for three months ended September 30, 2022March 31, 2023 from $3,321$3,079 for the same period of 2021.2022. Our gross profit, as a percentage of revenues, was 91%92% and 69%91% for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The increase in gross profit percentage is primarily due to lower equipmentwas driven by a higher concentration of SaaS revenues, a nominal decrease in the current period. Excluding equipment sales, our gross profithardware revenue, as a percentage of revenues were 92% and 93% for the quarters ended September 30, 2022 and 2021, respectively.well as an improved cloud cost structure.

Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $32,$685, or 1%15%, to $4,378$5,232 for the three months ended September 30, 2022March 31, 2023 compared to $4,346$4,547 for the same period of 2021. The2022. This increase in operating expenses was primarily driven by higher personnelgeneral and administrative costs, specifically headcount related expenses, as well as higher accounting and professional fees and marketing expenses.fees.

As a result of the factors noted above, the Company had a net loss of $724$(1,316) for the three months ended September 30, 2022March 31, 2023 as compared to a net loss of $1,026$(1,468) for the three months ended September 30, 2021.

As of September 30, 2022,March 31, 2023, we had cash and cash equivalents of $11,775,$5,355, short-term investments of $4,881, working capital (defined as current assets minus current liabilities) of $9,153,$8,752, total assets of $24,058$23,595 and stockholders’ equity of $18,332.$17,830.

During the ninethree months ended September 30, 2022,March 31, 2023, we usedgenerated net cash of $1,711 in$233 from operating activities as compared to net cash provided of $407used in $(2,397) in the ninethree months ended September 30, 2021.March 31, 2022. Cash used in investing activities was $165$(17) for the ninethree months ended September 30, 2022March 31, 2023 compared to cash used in investing activities of $339$(131) for the ninethree months ended September 30, 2021.March 31, 2022. Cash generated byused in financing activities was zero$(57) for the ninethree months ended September 30, 2022 compared to cash generated by financing activities of $76 for the nine months ended September 30, 2021.March 31, 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 5,6, “Debt,” in the Notes to 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. There can be no assurance that we will be able to secure the additional funds when needed or obtain such on terms satisfactory to us, if at all.

The specific terms of any future offering, including the prices and use of proceeds, will be determined at the time of any such offering and will be described in detail in a prospectus supplement which will be filed with the SEC at the time of the offering.

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

Our available net operating loss ("NOL") as of DecemberMarch 31, 20212023 was approximately $23.4$20.3 million, of which $10.9 million 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 will not expire.Our available net operating loss (“NOL”) at December 31, 2021 was approximately $18.0 million. The federal and state NOLs are available to offset future taxable income and begin to expire in 2021.expire.

We use Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by adjusting net loss for certain itemsreductions such gains on debt forgivenessas interest and other income (expense) and certain addbacks such as provisions for income taxes, depreciation, amortization and stock-based compensation expenses.expense. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing our financial results with other companies that also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as gains on debt forgiveness, 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.

We consider Adjusted EBITDA to be an important indicator of our operational strength and performance of our business and a useful measure of our historical operating trends. However, there are significant limitations to the use of

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