| 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 years ended December 31, 2021 and 2020, and included
in the Company’s annual report on Form 10-K for the year ended December 31, 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 years ended December 31, 2021
and 2020. 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. Furthermore, the Company, due to an administrative error, failed to sell the shares surrendered 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 withheld. The Company is currently in the process of arranging payment to individuals, which is
expected to be completed during the quarter ending June 30, 2022. INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data 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 years ended December 31, 2021 and 2020, as follows: SCHEDULE
OF ERRORS RESULTED IN MISSTATEMENTS
As of December 31, 2021
As Previously Restatement As
Reported Adjustment Restated
BALANCE SHEET
Equity awards liability $ - 378 $ 378
Liability for shares withheld $ - 1,244 $ 1,244
Total current liabilities $ 4,504 1,622 $ 6,126
Total liabilities $ 4,512 1,622 $ 6,134
Additional paid-in capital $ 141,703 4,752 $ 146,455
Accumulated deficit $ (120,523 ) (6,374 ) $ (126,897 )
Total stockholders’ equity $ 21,199 (1,622 ) $ 19,577
Common stock (shares) 18,753,003 (92,634 ) 18,660,369
As of December 31, 2020
As
Previously Reported Restatement Adjustment As Restated
BALANCE SHEET
Additional paid-in capital $ 138,570 3,042 $ 141,612
Accumulated deficit $ (116,377 ) (3,042 ) $ (119,419 )
Total stockholders’ equity $ 22,211 - $ 22,211
For the Year Ended December 31, 2021
As Previously Reported Restatement Adjustment As Restated
STATEMENT OF OPERATIONS
Selling, general and administrative expenses $ 11,564 3,331 $ 14,895
Total operating expenses $ 17,044 3,331 $ 20,375
Loss from operations $ (4,162 ) (3,331 ) $ (7,493 )
Interest and other income $ 6 (1 ) $ 5
Total other income $ 16 (1 ) $ 15
Net loss $ (4,146 ) (3,332 ) $ (7,478 )
PER SHARE INFORMATION
Loss per common share
Basic and Diluted $ (0.22 ) (0.18 ) $ (0.40 )
Weighted average common shares used in computing per share amounts (Basic and Diluted) 18,676,965 (78,555 ) 18,598,410 INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data
For the year ended December 31, 2020
As Previously Reported Restatement Adjustment As Restated
STATEMENT OF OPERATIONS
Selling, general and administrative expenses $ 5,894 3,042 $ 8,936
Total operating expenses $ 9,569 3,042 $ 12,611
Loss from operations $ (260 ) (3,042 ) $ (3,302 )
Net income (loss) $ 558 (3,042 ) $ (2,484 )
PER SHARE INFORMATION
Loss per common share
Basic and Diluted $ 0.03 (0.17 ) $ (0.14 )
Weighted average common shares used in computing per share amounts
Basic 17,324,150 - 17,324,150
Diluted 18,020,866 (696,716 ) 17,324,150
For the year ended December 31,
2021
As Previously Restatement As
Reported
Adjustment Restated
STATEMENT OF STOCKHOLDERS’ EQUITY
Exercise of stock options, net of cashless exercise of 58,926 92,634 $ 47 1,710 $ 1,757
Net loss $ (4,146 ) (3,332 ) $ (7,478 )
Accumulated deficit $ (120,523 ) (6,374 ) $ (126,897 )
Additional paid-in capital $ 141,703 4,752 $ 146,455
Total Stockholders’ Equity $ 21,199 (1,622 ) $ 19,577
Common stock (shares) 18,753,003 (92,634 ) $ 18,660,369 INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data
For the year ended December 31,
2020
As Previously
Restatement As
Reported Adjustment Restated
STATEMENT OF STOCKHOLDERS’ EQUITY
Exercise of liability awards $ - 3,042 $ 3,042
Net income (loss) $ 558 (3,042 ) $ (2,484 )
Accumulated deficit $ (116,377 ) (3,042 ) $ (119,419 )
Additional paid-in capital $ 138,570 3,042 $ 141,612
Ending balance, value $ 138,570 3,042 $ 141,612
For the year ended December 31,
2021
As Previously Restatement As
Reported Adjustment Restated
STATEMENT OF CASH FLOWS
Net loss $ (4,146 ) (3,332 ) $ (7,478 )
Equity compensation $ 3,068 3,332 $ 6,400
Supplemental disclosure of noncash investing and financing activities:
Reclassification of stock option awards $ - 1,411 $ 1,411
For the year ended December 31,
2020
As Previously
Restatement As
Reported Adjustment Restated
STATEMENT OF CASH FLOWS
Net income (loss) $ 558 (3,042 ) $ (2,484 )
Equity compensation $ 409 3,042 $ 3,451 The correction of the errors had no effect on
net cash provided by (used in) operating activities for either period. 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 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. INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data 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 $ 378
● 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. Long-Lived
Assets and Impairment of Long-Lived Assets The
Company’s long-lived assets include property and equipment, goodwill, and intangible assets. INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data 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 Accounting Standards Codification (“ASC”) 350 (“Intangibles
– Goodwill and Other”) and ASC 360 (“Property, Plant and Equipment”) 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. Impairment is measured at fair value. Property
and Equipment Property
and equipment are recorded at cost and are depreciated over their estimated useful lives ranging from three to ten-years using the straight-line
method. Leasehold improvements are amortized utilizing the straight-line method over the lesser of the term of the lease or estimated
useful life of the asset. See Note 3. 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, 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 years ended December 31, 2021 and 2020. For the
years ended December 31, 2021 and 2020, the Company determined no 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 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. INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data 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 are recognized on a per transaction basis. The Company estimates the amount of unused transactions
at 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. 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. 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, under the fixed pricing model, based on the usage of
the hosted subscription services and licensed software, which can vary from month to month. 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. INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data 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
2021 2020
For the Years Ended December 31,
2021 2020
Products and services
Software as a Service (SaaS) $ 12,970 $ 9,373
Other subscription and support services 35 199
Equipment 3,056 1,045
Non-recurring services 114 78
Extended warranties on equipment 8 21
Other 210 19
Revenues $ 16,393 $ 10,735
Timing of revenue recognition
Products transferred at a point in time $ 3,266 $ 1,064
Services transferred over time 13,127 9,671
Revenues $ 16,393 $ 10,735 Contract
balances The
current portion of deferred revenue at December 31, 2021 and December 31, 2020 was $ 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 the satisfaction or partial satisfaction of these contracts. The entire December 31, 2020,
current deferred revenue balance was recognized as revenue in the year ended December 31, 2021. The noncurrent deferred revenue balances
were $ 8 and
$ 9 as
of December 31, 2021, and December 31, 2020, 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: SCHEDULE OF REVENUE PERFORMANCE OBLIGATION
2022 2023 2024 Total
Software as a Service (SaaS) $ 1,256 $ 3 $ - $ 1,259
Other subscription and support services 8 3 1 12
Extended warranties on equipment 2 1 - 3
$ 1,266 $ 7 $ 1 $ 1,274 All
consideration from contracts with customers is included in the amounts presented above. INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data Advertising
Costs. Advertising
costs, which are charged to expense as incurred, were $ 745 227 Shipping
Costs The
Company’s shipping and handling costs are included in cost of revenues for all periods presented. Income
Taxes The
Company accounts for income taxes in accordance with ASC 740, “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. Deferred
tax assets are recognized subject to management’s judgment that realization is more likely than not. The Company has recorded a
full valuation allowance for its net deferred tax assets as of December 31, 2021 and 2020, due to the uncertainty of the realizability
of those assets. See Note 7. 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, accounts receivable, other current
assets, accounts payable and accrued expenses. At December 31, 2021 and 2020, the carrying value of the Company’s financial instruments
approximated fair value, due to their short-term nature. All of the Company’s financial instruments are categorized as Level 1
within the fair value hierarchy. Business
Concentration and Credit Risk Financial
instruments, which subject the Company to concentrations of credit risk, consist primarily of cash. The Company maintains cash with two
financial institutions. The Company performs periodic evaluations of the relative credit standing of these institutions. The
Company’s sales are principally made to large retail customers, financial institutions concentrated in the United States of America
and to U.S. government entities. The Company performs ongoing credit evaluations, generally does not require collateral, and establishes
an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends, and other information. During
the year ended December 31, 2021, the Company made sales to two customers that accounted for approximately 55 65 41 52 INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data As
of December 31, 2021, the Company had four suppliers to produce its input devices. The Company has modified its software to operate in
windows-based systems and can integrate with different hardware platforms that are readily available in the marketplace. The Company
does not maintain a manufacturing facility of its own and is not dependent on maintaining its production relationships due to the flexibility
of its software to run on multiple existing platforms. Net
Income (Loss) Per Share Basic
net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (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 these common stock equivalents comprising 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 income (loss) per share excludes all anti-dilutive
shares. In a period of net loss, all common stock equivalents are considered anti-dilutive. SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED
2021 2020
Years Ended
December 31,
2021 2020
Numerator:
Net Loss $ (7,478 ) $ (2,484 )
Denominator:
Weighted average common shares –
Basic 18,598,410 17,324,150
Weighted average common shares -
Diluted 18,598,410 17,324,150
Net Loss per share –
Basic $ (0.40 ) $ (0.14 )
Diluted $ (0.40 ) $ (0.14 ) The
following table summarizes the common stock equivalents excluded from the 2021 loss per diluted share because their effect would be anti-dilutive: SUMMARY OF COMMON STOCK EQUIVALENTS EXCLUDED FROM LOSS PER DILUTED SHARE
2021 2020
Stock options 496,424 637,882
Restricted stock 408,376 1,754
Performance stock units 228,498 265,942
Total 1,133,298 905,578 Equity
Compensation The
Company accounts for the issuance of equity awards to employees in accordance ASC 718 (“Stock Compensation”) and ASC 505
(“Equity”), which requires that the cost resulting from all equity payment transactions be recognized in the financial
statements. This pronouncement 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. All equity compensation expenses are included in operating expenses. The Company recognizes compensation expense related to
stock option grants on a straight-line basis over the vesting period. See Note 8. INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data Comprehensive
Loss The
Company’s comprehensive loss is equal to its net loss for the years ended December 31, 2021 and 2020. Segment
Information The
Company adheres to the provisions of ASC 280 (“Segment Reporting”), which establishes standards for the way public business
enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected
information about operating segments in financial statements issued to shareholders. Management has determined that it has only one reporting
segment. 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” Financial Instruments – Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments INTELLICHECK,
INC. NOTES
TO FINANCIAL STATEMENTS ( All
dollar amounts are rounded to thousands, except share data |
