| SIGNIFICANT ACCOUNTING POLICIES | 2.
SIGNIFICANT ACCOUNTING POLICIES 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 March 31, 2022 and the results of operations,
stockholders’ equity and cash flows for the three months ended March 31, 2022 and 2021. 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 three-month period ended March 31, 2022, 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, 2021 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/A
for the year ended December 31, 2021. Equity
Compensation Accounting 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 for the third quarter of 2020, for each quarter ended 2021 and for the years ended
December 31, 2021 and 2020 should no longer be relied upon due to errors in accounting for certain option awards. Accordingly, we have
restated our Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity, Statements of Cash Flows and the related
notes for the third quarter of 2020, for each quarter ended 2021, and 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 2022. Recent
Accounting Pronouncements 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, allowance for doubtful accounts, revenue
recognition (including breakage revenue) and the fair value of stock options 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. 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. Property
and Equipment Property
and equipment are recorded at cost and are depreciated over their estimated useful lives ranging from three ten 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 year ended December 31, 2021. For the three
months ended March 31, 2022 and 2021, the Company determined 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 either of the three months ended March 31, 2022 and 2021. Advertising
Costs Advertising
costs, which are charged to expense as incurred, were $ 149 93 as a component of selling, general and administrative expenses on the
Statement of Operations. Retirement
Plan The
Company has a retirement savings 401(k) plan. The plan permits eligible employees to make voluntary contributions to a trust, up to a
maximum of 35 The Company has elected to contribute a matching contribution equal to
50 6 29 20 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 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 March 31, 2022
and December 31, 2021, 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, accounts receivable, other current
assets, accounts payable and accrued expenses. At March 31, 2022 and December 31, 2021, 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. 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 $ 141 378
● 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 Level 3 assets or liabilities as of March 31, 2022 and 2021. 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. 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 amount of transactions
that will be unused by 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. Revenue
is measured based on the 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, under the fixed pricing model, based on the usage of the hosted
subscription services and licensed software, which can vary from month to month. Under the per-scan revenue model, revenue is recognized
each time the customer scans an identity document. 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. Other
Revenue Other
Revenues 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 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. 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 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. SCHEDULE OF DISAGGREGATION OF REVENUE
For
the Three Months Ended March
31,
2022 2021
Products and services
Software as a Service (SaaS) $ 3,353 $ 2,776
Equipment 36 36
Other 6 51
$ 3,395 $ 2,863
Timing of revenue recognition
Products transferred at a point in time $ 40 $ 47
Services transferred over time 3,355 2,816
$ 3,395 $ 2,863 Contract
balances The
current portion of deferred revenue at March 31, 2022 and December 31, 2021 was $ 1,032 1,266 811 6 8 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
2022 2023 2024 Total
Software as a Service (SaaS) $ 965 $ 2 $ - $ 967
Equipment 61 - - 61
Other 6 3 1 10
$ 1,032 $ 5 $ 1 $ 1,038 All
consideration from contracts with customers is included in the amounts presented above. Business
Concentrations and Credit Risk During
the three-month period ended March 31, 2022, the Company made sales to three customers that accounted for approximately 53 %
of total revenues. The revenue was primarily associated
with commercial identity sales customers. These three customers, in addition to another customer, represented 63 %
of total accounts receivable at March 31, 2022. During the three-month period ended March 31, 2021, the Company made sales to three customers
that accounted for approximately 59 %
of total revenues. The revenue was 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 per share by application of the treasury stock method. The calculation
of diluted net loss per share excludes all anti-dilutive shares. In periods of a net loss, all common stock equivalents are considered
anti-dilutive. SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED
2022 2021
Three
Months Ended
March
31,
2022 2021
Numerator:
Net
loss $ (1,468 ) $ (4,624 )
Denominator:
Weighted
average common shares – Basic and Diluted 18,674,493 18,480,013
Net loss per
share –
Basic
and Diluted $ (0.08 ) $ (0.25 ) The
following table summarizes the common stock equivalents excluded from loss per diluted share because their effect would be anti-dilutive: SUMMARY OF COMMON STOCK EQUIVALENTS EXCLUDED FROM LOSS PER DILUTED SHARE
2022 2021
Three Months
Ended
March
31,
2022 2021
Stock options 496,424 527,424
Warrants - 12,680
Restricted stock 424,942 405,576
Performance stock units 228,498 265,942
Antidilutive
securities excluded from computation of earnings per share amount 1,149,684 1,211,622 |
