| Significant Accounting Policies | 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited
consolidated 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 consolidated financial position at June
30, 2018 and the consolidated results of operations for the three and six months ended June 30, 2018 and 2017 and the consolidated
stockholders’ equity and cash flows for the six months ended June 30, 2018. All such adjustments are of a normal and recurring
nature. Interim consolidated financial statements are prepared on a basis consistent with the Company’s annual consolidated
financial statements. Results of operations for the six month period ended June 30, 2018, are not necessarily indicative of the
operating results that may be expected for the year ending December 31, 2018. The consolidated balance
sheet as of December 31, 2017 has been derived from the audited consolidated 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 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 for the year ended
December 31, 2017. Recent Accounting Pronouncements In May 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 , “Revenue
from Contracts with Customers On January 1, 2018, the
Company adopted ASC 606 using the modified retrospective method. Results for reporting periods beginning after January 1, 2018
are presented under ASC 606, while the comparative information will not be restated and will continue to be reported under the
accounting standards in effect for those periods. See the section “Revenue Recognition and Deferred Revenue” for a
detailed disclosure later in this footnote titled Significant Accounting Policies in these consolidated financial statements. In May 2017, the FASB issued
ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting In January 2017, the FASB
issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment In February 2016, the FASB
issued ASU No. 2016-02, Leases Use of Estimates The preparation of the
Company’s consolidated 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 consolidated
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,
and the fair value of stock options granted under the Company’s 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. Allowance for Doubtful Accounts The Company records its
allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the
age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions and other
factors that may affect customers’ ability to pay. Inventory Inventory is stated at
the lower of cost or market and cost is determined using the first-in, first-out method. Inventory is primarily comprised of finished
goods. As of June 30, 2018 and December 31, 2017, the majority of inventory is related to Government and Commercial Identity products
for intended near-term sales. Goodwill Goodwill represents the
excess of acquisition cost over the fair value of net assets acquired in business combinations. Pursuant to ASC Topic 350, the
Company tests goodwill for impairment on an annual basis in the fourth quarter, or between annual tests, in certain circumstances.
Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform the
two-step 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. There were no impairment charges recognized during the six months ended June 30, 2018 and 2017. Intangible Assets Intangible assets include
trade names, patents and non-contractual customer relationships. The Company uses the straight line method to amortize these assets
over their estimated useful lives. 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 Topic 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 six months ended June
30, 2018 and 2017. Income Taxes The Company accounts for
income taxes under in accordance with ASC Topic 740, “Accounting for 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. The Company has recorded a full valuation allowance for its net deferred tax assets as of June 30, 2018 and
December 31, 2017, due to the uncertainty of the realizability of those assets. Fair Value of Financial Instruments The Company adheres to
the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”. This pronouncement requires that the Company
calculate the fair value of financial instruments and include this additional information in the notes to financial statements
when the fair value is different than the book value of those financial instruments. The Company’s financial instruments
include cash, accounts receivable, note receivable, accounts payable and accrued expenses. As of June 30, 2018 and December 31,
2017, the carrying value of the Company’s financial instruments approximated fair value, due to their short-term nature. Revenue Recognition and Deferred Revenue General Effective January 1, 2018,
the Company adopted ASC 606. In accordance with ASC 606, the Company’s analysis indicated that there was no change to how
the Company records revenue and that the standard only impacted enhanced disclosure regarding revenue recognition, including disclosures
of revenue streams, performance obligations and the related judgments and estimates necessary to apply the new standard. ASC 606 was applied using
the modified retrospective method. There was no cumulative effect of the initial application to be recognized as an adjustment
to opening retained earnings at January 1, 2018. Accordingly, comparative periods have not been adjusted and continue to be reported
under FASB ASC Topic 605, Revenue Recognition The majority of license
fees and services revenue are generated from fixed-price contracts, which provide for licenses to software products and services
to customize such software to meet the customers’ use. In certain instances, customization services are determined to be
essential to the functionality of the delivered 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. Substantially all customer contracts provide that the Company
is compensated for services performed to date. Invoicing is based on schedules
established in customer contracts. Payment terms are generally established at 30 days from the invoice date. Product returns are
recorded as a reduction to revenue. Revenue is measured based
on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of
third parties. Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount
that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Furthermore, the
Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. 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: Hosted Subscription
Services Revenue 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, subscription revenue should be recognized
over time based on the usage of the hosted subscription services, which can vary from month to month. The revenue is typically
based on a formula such as number of stores using the service in a given month multiplied by a fee per store. License Revenue The Company also recognizes
revenues from licensing of its software to customers. The license allows customers to access a set of data for a predetermined
period of time. The licensed software requires 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 entity’s performance as the entity performs.
Accordingly, the revenue should be 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 stores in a given month multiplied by a fee per store. Royalties from the licensing of the
Company’s technology are recognized as revenues in the period they are earned. 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. Non-Recurring Services
Revenue The non-recurring services
include items such as training, installation, customization, and configuration. The Company recognizes revenue from non-recurring
services contracts ratably over the service contract period as the customer consumes the benefit as it is provided and the Company’s
performance obligation has been satisfied. Extended Warranty Extended warranty revenues
is 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 to
the Company’s standard warranty of usually one year that it receives from its vendor. Disaggregation of revenue In the following tables,
revenue is disaggregated by product and service and the timing of revenue recognition. The table also includes a reconciliation
of the disaggregated revenue.
For the Three Months Ended June 30,
2018 2017
Products and services
Hosted subscription services $ 221,096 $ 203,040
Licensing 679,863 392,139
Equipment 60,544 236,335
Non-recurring Services 27,288 109,598
Extended warranties on equipment 3,607 4,048
Other 9,020 6,174
$ 1,001,418 $ 951,334
Timing of revenue recognition
Products transferred at a point in time $ 69,564 $ 242,509
Services transferred over time 931,854 708,825
$ 1,001,418 $ 951,334
For the Six Months Ended June 30,
2018 2017
Products and services
Hosted subscription services $ 414,078 $ 414,752
Licensing 1,370,178 776,930
Equipment 182,457 304,845
Non-recurring Services 71,937 148,689
Extended warranties on equipment 7,107 8,354
Other 17,723 10,424
$ 2,063,480 $ 1,663,994
Timing of revenue recognition
Products transferred at a point in time $ 200,180 $ 315,269
Services transferred over time 1,863,300 1,348,725
$ 2,063,480 $ 1,663,994 Contract balances The current portion of
deferred revenue at June 30, 2018 and December 31, 2017 was $624,064 and $739,980, respectively, and primarily consists of revenue
that is recognized over time for one-year software license contracts and hosted subscription services. The changes in these balances
are related to the satisfaction or partial satisfaction of these contracts. Of this balance at December 31, 2017, $227,490 and
$536,873 was recognized as revenue for the three and six months ended June 30, 2018, respectively. The long-term portion of deferred
revenue is $48,751 and $87,736 as of June 30, 2018 and December 31, 2017, respectively. The Company did not recognize
any material revenue in the current reporting period for performance obligations that were fully satisfied in previous periods. 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:
2018 2019 Thereafter Total
Hosted subscription services $ 189,223 $ 83,432 $ 12,379 $ 285,034
Licensing $ 285,822 $ 74,533 $ 2,381 $ 362,736
Non-recurring services $ 391 - - $ 391
Extended warranties on equipment $ 6,252 $ 9,896 $ 8,506 $ 24,654 All consideration from contracts with customers is included in the
amounts presented above. Business Concentrations and Credit Risk
During the three and six
month periods ended June 30, 2018, the Company made sales to two customers that accounted for approximately 34% and 33% of total
revenues, respectively. The revenue was associated with commercial identity sales customers. These customers represented 36% of
total accounts receivable at June 30, 2018. During the three and six month periods ended June 30, 2017, the Company made sales
to two customers that accounted for approximately 28% and 24% of total revenues, respectively. The revenue was associated with
two commercial identity 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
and restricted stock is reflected in diluted earnings per share by application of the treasury stock method. The calculation of
diluted net loss per share excludes all anti-dilutive shares.
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Numerator:
Net Loss $ (1,100,375 ) $ (1,098,553 ) $ (2,168,332 ) $ (2,035,310 )
Denominator:
Weighted average common shares – Basic/Diluted 15,623,351 10,769,437 15,448,255 10,750,751
Net Loss per share – Basic/Diluted $ (0.07 ) $ (0.10 ) $ (0.14 ) $ (0.19 ) The following table summarizes
the common stock equivalents excluded from loss per diluted share because their effect would be anti-dilutive due to the net loss:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Stock options 1,074,332 1,652,920 1,074,332 1,652,920
Warrants 471,801 472,801 471,801 472,801
Restricted stock 6,957 28,025 6,957 28,025
1,553,090 2,153,746 1,553,090 2,153,746 |
