| SIGNIFICANT ACCOUNTING POLICIES | 2. SIGNIFICANT
ACCOUNTING POLICIES Restatement
of Previously Issued Financial Statements On
May 16, 2022, management in concurrence with the Company’s Audit Committee of our Board of Directors (the “Audit Committee”),
concluded that that the financial statements previously issued as of and for the three and six months period ended June 30, 2021, should
no longer be relied upon due to errors in accounting for certain option awards. Accordingly, we are restating our
Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity, Statements of Cash Flows and the related notes as
of and for the three and six months ended June 30, 2021. Specifically, the Company determined that a cashless
withholding to satisfy personal income tax obligations from certain option awards exercised commencing in the third quarter of 2020 and
the first quarter of 2021, caused the underlying options to no longer qualify as equity awards and should have instead been classified
as liability awards commencing on the date of exercise. The change in the classification of the awards
to liability classified awards requires the Company to remeasure the fair value of the awards at the end of each reporting period they
remain outstanding, with the increase or decrease in fair value correspondingly charged or credited to selling, general and administrative
expenses in arriving at net income (loss). Furthermore, the Company, due to an administrative error, failed to sell the shares withheld
in 2021 and did not remit the equivalent amount of funds to the tax authorities. To date, the Company has not returned the shares or
otherwise reimbursed the effected individuals for the shares surrendered. The Company is
currently in the process of arranging payment to the individuals, which is expected to be completed during the quarter ending June 30,
2022. These errors resulted in misstatements to our
Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity, and Statements of Cash Flows as of and for the three
and six months ended June 30, 2021 as follows: SCHEDULE
OF ERRORS RESULTED IN MISSTATEMENTS
As of June 30, 2021
As Restatement As
Reported Adjustment Restated
BALANCE SHEET
Equity awards liability $ - 709,355 $ 709,355
Liability for shares withheld $ - 1,244,458 $ 1,244,458
Total current liabilities $ 3,267,936 1,953,813 $ 5,221,749
Total liabilities $ 3,274,534 1,953,813 $ 5,228,347
Common stock (dollars) $ 18,728 (92 ) $ 18,636
Additional paid-in capital $ 140,267,314 4,751,432 $ 145,018,746
Accumulated deficit $ (118,174,566 ) (6,705,153 ) $ (124,879,719 )
Total stockholders’ equity $ 22,111,476 (1,953,813 ) $ 20,157,663
Common stock (shares) 18,727,552 (92,634 ) 18,634,918
For the three months ended June 30, 2021
As Previously Restatement As Restated
STATEMENT OF OPERATIONS
Selling, general and administrative expenses $ 2,714,396 98,377 $ 2,812,773
Total operating expenses $ 4,067,020 98,377 $ 4,165,397
Loss from operations $ (738,395 ) (98,377 ) $ (836,772 )
Net loss $ (737,785 ) (98,377 ) $ (836,162 )
PER SHARE INFORMATION
Loss per common share
Basic and Diluted $ (0.04 ) 0.00 $ (0.04 )
Weighted average common shares used in computing per share amounts - Basic and Diluted $ 18,708,409 (92,634 ) $ 18,615,775
For the six months ended June 30, 2021
As Previously Restatement As Restated
STATEMENT OF OPERATIONS
Selling, general and administrative expenses $ 5,095,176 3,662,759 $ 8,757,935
Total operating expenses $ 7,784,041 3,662,759 $ 11,446,800
Loss from operations $ (1,813,603 ) (3,662,759 ) $ (5,476,362 )
Net loss $ (1,797,851 ) (3,662,759 ) $ (5,460,610 )
PER SHARE INFORMATION
Loss per common share
Basic and Diluted $ (0.10 ) $ (0.19 ) $ (0.29 )
Weighted average common shares used in computing per share amounts -
Basic and Diluted 18,612,512 (64,170 ) 18,548,342
For the three months ended June 30, 2021
As Previously
Reported Restatement Adjustment As Restated
STATEMENT OF STOCKHOLDERS’ EQUITY
Net loss $ (737,785 ) (98,377 ) $ (836,162 )
Common stock (shares) 18,727,552 (92,634 ) 18,634,918
Common stock (dollars) $ 18,728 (92 ) $ 18,636
Additional paid-in capital $ 140,267,314 4,751,432 $ 145,018,746
Accumulated deficit $ (118,174,566 ) (6,705,153 ) $ (124,879,719 )
Total stockholders’ equity $ 22,111,476 (1,953,813 ) $ 20,157,663
For
the six months ended June 30, 2021
As
Previously Restatement As
Restated
STATEMENT
OF STOCKHOLDERS’ EQUITY
Exercise of
stock options, net of cashless exercise of 58,122 92,634 $ 46,470 1,708,946 $ 1,755,416
Net loss $ (1,797,851 ) (3,662,759 ) $ (5,460,610 )
Common stock (shares) 18,727,552 (92,634 ) 18,634,918
Common
stock (dollars) $ 18,728 (92 ) $ 18,636
Additional
paid-in capital $ 140,267,314 4,751,432 $ 145,018,746
Accumulated
deficit $ (118,174,566 ) (6,705,153 ) $ (124,879,719 )
Total
stockholders’ equity $ 22,111,476 (1,953,813 ) $ 20,157,663
For the six months ended June 30, 2021
As Previously Restatement As Restated
STATEMENT OF CASH FLOWS
Net loss $ (1,797,851 ) (3,662,759 ) $ (5,460,610 )
Equity compensation $ 1,631,616 (3,662,759 ) $ 5,294,375
Supplemental disclosure of noncash investing and financing activities:
Reclassification of stock option awards $ - 1,411,108 $ 1,411,108 The correction of these errors had no net effect on net cash used in
operating activities. 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 June 30, 2021 and the results of operations, stockholders’
equity and cash flows for the six months ended June 30, 2021 and 2020. 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 six-month period ended June 30, 2021, are not necessarily indicative of the operating results that may be expected for the year ending
December 31, 2021. As noted in the Explanatory
Note, the Company has filed this Form 10-Q/A to amend our Quarterly Report on Form 10-Q for the three and six month periods ended June
30, 2021, originally filed with the SEC on August 11, 2021 (the “Original Form 10-Q”), to restate our Financial Statements
and related footnote disclosures as of and for the three and six months ended June 30, 2021. The balance sheet as of December
31, 2020 has been derived from the audited financial statements at that date, as restated, 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 for
the year ended December 31, 2020. Recent
Accounting Pronouncements In
December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes” In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments 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, and the fair value of stock options
granted under the Company’s Equity compensation plan. Due to the inherent uncertainties involved in making estimates, actual results
reported in future periods may be different from those estimates. As discussed above, certain option awards no longer qualify as equity
awards and instead are being classified as liability awards. 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. The company determined the fair value of these awards utilizing a Black-Scholes option pricing model. 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:
● Level
1—Unadjusted quoted prices in active markets for identical assets or liabilities that
the reporting entity has the ability to access at the measurement date. Level 1 primarily
consists of financial instruments whose value is based on quoted market prices such as exchange-traded
instruments and listed equities.
● Level
2—Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly (e.g., quoted prices of similar assets
or liabilities in active markets, or quoted prices for identical or similar assets or
liabilities in markets that are not active). Level 2 includes financial instruments that
are valued using models or other valuation methodologies. The Company had $ 709,355
● Level
3—Unobservable inputs for the asset or liability. Financial instruments are considered
Level 3 when the fair values are determined using pricing models, discounted cash flows or
similar techniques and at least one significant model assumption or input is unobservable.
The Company had no 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. 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 (December 31, 2021), 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 Intangible
Assets Intangible
assets include patents, copyrights, intellectual property rights and licensed software. 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 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, 2021 and
December 31, 2020, 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, accounts payable and accrued expenses. As of June 30, 2021 and December 31, 2020, the carrying value
of the Company’s financial instruments approximated fair value, due to their short-term nature. Revenue
Recognition and Deferred Revenue General Most
license fees and services revenue are generated from a combination of fixed-price and per-scan contracts. Under the per-scan revenue
model, customers are charged a fee each time the customer scans an identity document, such as a driver’s license, with the Company’s
software. Under the fixed-price revenue model customers are charged a fixed monthly fee either per device or physical business location
to access the Company’s software. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services
in an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company measures revenue
based on the consideration specified in a customer arrangement, and revenue is recognized when the performance obligations in an arrangement
are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price
of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit
of the performance obligation. Customers typically receive the benefit of the Company’s services as they are performed. 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 from 30 to 60 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: Software
as a Service (SaaS) Software
as a service (SaaS) for hosted subscription services and licensed software 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 based on the usage of the hosted subscription services and licensed
software, which can vary from month to month. The revenue is typically based either on a formula such as number of locations using the
service in a given month multiplied by a fee per location or the number of actual scans in a given month multiplied by a set price per
scan based on the contract with the customer. Other
Subscription and Support Services The
Company also recognizes revenues from other subscription and support services, which includes jurisdictional updates to certain commercial
customers and support services particularly to its Defense ID® customers. These subscriptions require continuing service or post
contractual customer support and performance. As the customer obtains access at a point in time but continues to have access for the
remainder of the subscription period, the customer is considered to simultaneously receive and consume the benefits provided by the 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 locations in a given month multiplied by a fee per location. 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 are generated when a warranty is provided to the customer separately of other performance obligations when the equipment
is sold. As the customer obtains access at a point in time and continues to have access for the remainder of the warranty term, the customer
is considered to simultaneously receive and consume the benefits provided by the Company’s performance as the Company performs.
The related revenue is recognized ratably over the specified term of the warranty period. The extended warranty is separate 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. SCHEDULE
OF DISAGGREGATION OF REVENUE
For
the Three Months Ended June 30,
2021 2020
Products
and services
Software
as a Service (SaaS) $ 3,233,610 $ 1,671,350
Other
subscription and support services 3,510 70,703
Equipment 1,425,382 51,754
Non-recurring
services 32,200 41,450
Extended
warranties on equipment 2,448 5,845
Other 99,991 1,093
$ 4,797,141 $ 1,842,195
Timing
of revenue recognition
Products
transferred at a point in time $ 1,525,373 $ 52,847
Services
transferred over time 3,271,768 1,789,348
$ 4,797,141 $ 1,842,195
For
the Six Months Ended June 30,
2021 2020
Products
and services
Software
as a Service (SaaS) $ 6,009,317 $ 3,909,769
Other
subscription and support services 19,307 149,934
Equipment 1,461,648 835,547
Non-recurring
services 53,200 41,450
Extended
warranties on equipment 5,604 12,175
Other 110,606 8,592
$ 7,659,682 $ 4,957,467
Timing
of revenue recognition
Products
transferred at a point in time $ 1,572,253 $ 844,139
Services
transferred over time 6,087,429 4,113,328
Revenues $ 7,659,682 $ 4,957,467 Contract
balances The
current portion of deferred revenue at June 30, 2021 and December 31, 2020 was $ 539,328 402,782 242,738 334,929 6,598 8,662 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: SCHEDULE
OF REVENUE PERFORMANCE OBLIGATION
Remainder
2021 2022 2023 Total
Software
as a Service (SaaS) $ 414,351 $ 112,615 $ - $ 526,966
Other
subscription and support services 5,780 5,507 1,985 13,272
Extended
warranties on equipment 2,502 2,256 930 5,688
$ 422,633 $ 120,378 $ 2,915 $ 545,926 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, 2021, the Company made sales to two customers that accounted for approximately 62 57 70 44 54 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 per share by application of the treasury stock method. The calculation
of diluted net loss per share excludes all anti-dilutive shares. In the periods of a net loss, all common stock equivalents are considered
anti-dilutive. SCHEDULE
OF EARNINGS PER SHARE BASIC AND DILUTED
Three
Months Ended Six
Months Ended
June
30, June
30,
2021 2020 2021 2020
Numerator:
Net
loss $ (836,162 ) $ (760,273 ) $ (5,460,610 ) $ (733,671 )
Denominator:
Weighted
average common shares –
Basic/Diluted 18,615,775 16,377,539 18,548,342 16,265,544
Net
loss per share –
Basic/Diluted $ (0.04 ) $ (0.05 ) $ (0.29 ) $ (0.05 ) The
following table summarizes the common stock equivalents excluded from loss per diluted share because their effect would be anti-dilutive
to the net loss: SUMMARY
OF COMMON STOCK EQUIVALENTS EXCLUDED FROM LOSS PER DILUTED SHARE
Three
Months Ended Six
Months Ended
June
30, June
30,
2021 2020 2021 2020
Stock
options 502,424 1,263,257 502,424 1,263,257
Warrants - 13,430 - 13,430
Restricted
stock 409,765 7,284 409,765 7,284
Performance
stock units 233,848 - 233,848 -
Antidilutive
securities excluded from computation of earnings per share amount 1,146,037 1,283,971 1,146,037 1,283,971 |
