UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File No.: 000-50296 Delaware 11-3234779 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Em ...

Intellicheck, Inc (NASDAQ:IDN) Q3 2019 Results Earnings Conference Call November 7, 2019 4:30 PM ET Company Participants Gar Jackson - IR Bryan Lewis - CEO Bill White - CFO Conference Call Participants Mike Grondahl - Northland Capital Markets Roger Liddell - Clear Harbor Asset Management Scott Buck - B. Riley Amy Norflus - Neuberger Berman Jeff Kobylarz - Diamond Bridge Capital Operator Greetings. Welcome to the Intellicheck's Third Quarter 2019 Earnings Call. [Operator Instructions] Please note that this ...

[PART I – Financial Information](index=4&type=section&id=PART%20I%20%E2%80%93%20Financial%20Information) This section presents Intellicheck, Inc.'s unaudited consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2019 [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Intellicheck, Inc.'s unaudited consolidated financial statements, including balance sheets, operations, equity, cash flows, and notes, highlighting revenue growth and a narrowed net loss [Balance Sheets](index=4&type=section&id=Balance%20Sheets) The balance sheet as of June 30, 2019, shows a decrease in total assets to $13.4 million from $14.5 million, primarily due to reduced cash, alongside increased liabilities and decreased equity Balance Sheet Summary (Unaudited) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $3,061,041 | $4,376,017 | | Total current assets | $4,655,191 | $5,749,203 | | Goodwill | $8,101,661 | $8,101,661 | | Total assets | $13,435,794 | $14,460,781 | | **Liabilities & Equity** | | | | Total current liabilities | $1,770,937 | $1,504,788 | | Total liabilities | $1,892,443 | $1,541,076 | | Total stockholders' equity | $11,543,351 | $12,919,705 | [Statements of Operations](index=5&type=section&id=Statements%20of%20Operations) For Q2 2019, revenues increased 55.6% to $1.56 million, with a narrowed net loss of $0.87 million, while six-month revenues grew 37.5% to $2.84 million Statements of Operations Highlights (Unaudited) | Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,557,991 | $1,001,418 | $2,836,985 | $2,063,480 | | Gross Profit | $1,339,003 | $919,025 | $2,425,700 | $1,880,618 | | Loss from Operations | ($919,742) | ($1,143,596) | ($2,138,752) | ($2,225,423) | | Net Loss | ($873,677) | ($1,100,375) | ($2,086,668) | ($2,168,332) | | Loss per Share (Basic/Diluted) | ($0.06) | ($0.07) | ($0.13) | ($0.14) | [Statements of Stockholders' Equity](index=6&type=section&id=Statements%20of%20Stockholders%27%20Equity) Stockholders' equity decreased from $12.9 million to $11.5 million due to the net loss, partially offset by stock option exercises and compensation expense - For the six months ended June 30, 2019, total stockholders' equity decreased by approximately **$1.4 million**, from **$12,919,705** to **$11,543,351**[16](index=16&type=chunk) - Key changes in equity during the first six months of 2019 included a net loss of **$2,086,668**, stock-based compensation of **$442,781**, and proceeds from stock option and warrant exercises totaling **$267,533**[16](index=16&type=chunk) [Statements of Cash Flows](index=8&type=section&id=Statements%20of%20Cash%20Flows) Net cash used in operating activities for the six months ended June 30, 2019, was $1.60 million, leading to a $1.31 million decrease in the cash balance Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,596,830) | ($2,127,580) | | Net cash provided by (used in) investing activities | $14,321 | ($107,471) | | Net cash provided by financing activities | $267,533 | $687,521 | | **Net decrease in cash** | **($1,314,976)** | **($1,547,530)** | | Cash, end of period | $3,061,041 | $6,462,631 | [Notes to Financial Statements](index=9&type=section&id=Notes%20to%20Financial%20Statements) These notes detail the company's identity authentication business, liquidity, accounting policies, revenue recognition, and significant customer concentration - The company develops and markets identity authentication solutions like Retail ID®, Age ID®, Law ID®, and Defense ID®[20](index=20&type=chunk) - As of June 30, 2019, the company had cash of **$3.1 million** and working capital of **$2.9 million**; management expects to have sufficient working capital for at least the next 12 months[22](index=22&type=chunk) - The company adopted the new lease accounting standard ASU 2016-02 on January 1, 2019, resulting in the recognition of a right-to-use asset of approximately **$266,000** and an operating lease liability of **$274,000**[31](index=31&type=chunk) Revenue Disaggregation (Six Months Ended June 30, 2019) | Product/Service | Revenue 2019 | Revenue 2018 | | :--- | :--- | :--- | | Software as a Service (SaaS) | $1,981,907 | $1,219,384 | | Other subscription and support | $424,476 | $578,781 | | Equipment | $187,521 | $177,406 | | Total Revenue | $2,836,985 | $2,063,480 | - For the six months ended June 30, 2019, three customers accounted for approximately **33% of total revenues** and represented **35% of total accounts receivable**[55](index=55&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for the three and six months ended June 30, 2019, highlighting significant SaaS revenue growth, a narrowed net loss, and changes in gross margin and operating expenses [Results of Operations](index=22&type=section&id=Results%20of%20Operations) For Q2 2019, revenue increased 56% to $1.56 million, driven by a 79% increase in SaaS revenue, while the net loss for the six-month period improved to $2.09 million Q2 Performance Comparison (2019 vs 2018) | Metric | Q2 2019 | Q2 2018 | Change | | :--- | :--- | :--- | :--- | | Revenues | $1,558,000 | $1,001,000 | +56% | | SaaS Revenue | $1,121,000 | $625,000 | +79% | | Gross Profit | $1,339,000 | $919,000 | +46% | | Gross Margin % | 85.9% | 91.8% | -5.9 pts | | Net Loss | ($874,000) | ($1,100,000) | +20.5% | Six-Month Performance Comparison (2019 vs 2018) | Metric | H1 2019 | H1 2018 | Change | | :--- | :--- | :--- | :--- | | Revenues | $2,837,000 | $2,063,000 | +37% | | SaaS Revenue | $1,982,000 | $1,219,000 | +63% | | Gross Profit | $2,426,000 | $1,881,000 | +29% | | Gross Margin % | 85.5% | 91.1% | -5.6 pts | | Net Loss | ($2,087,000) | ($2,168,000) | +3.7% | - The increase in operating expenses for both the three and six-month periods was primarily due to increased headcount for development, legal fees, and a new annual executive bonus plan[101](index=101&type=chunk)[106](index=106&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2019, the company had $3.1 million in cash and $2.9 million in working capital, with a $2.0 million unused revolving credit facility, deemed sufficient for the next 12 months - The company had cash of **$3,061,000** and working capital of **$2,884,000** as of June 30, 2019[109](index=109&type=chunk) - In February 2019, the company entered into a **$2,000,000** revolving credit facility with Citibank, which was fully available and unused as of June 30, 2019[111](index=111&type=chunk) - Management believes current cash, expected cash from operations, and credit availability will be sufficient to fund operations for at least the next 12 months[112](index=112&type=chunk) [Adjusted EBITDA](index=24&type=section&id=Adjusted%20EBITDA) The company uses Adjusted EBITDA, a non-GAAP measure, reporting a loss of $0.79 million for Q2 2019 and $1.57 million for the six-month period, both improvements year-over-year Reconciliation of Net Loss to Adjusted EBITDA (Unaudited) | Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net loss | ($873,677) | ($1,100,375) | ($2,086,668) | ($2,168,332) | | **Adjusted EBITDA** | **($785,318)** | **($1,018,135)** | **($1,572,479)** | **($1,980,104)** | - Adjusted EBITDA is calculated by adding back interest, taxes, depreciation, amortization, and stock-based compensation expense to net loss[118](index=118&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is related to concentrations of credit risk, specifically from maintaining its cash balances at a single financial institution - The company's main market risk is credit risk concentration, as cash is held in one financial institution[123](index=123&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective, with no material changes in internal controls during Q2 2019 - Management, including the CEO and CFO, evaluated disclosure controls and procedures and found them to be effective as of June 30, 2019[124](index=124&type=chunk) - No material changes were made to the company's internal controls over financial reporting during the second quarter of 2019[127](index=127&type=chunk) [Part II – Other Information](index=26&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) This section covers legal proceedings, risk factors, and other standard disclosures including equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently involved in any legal proceedings expected to have a material effect on its business - The company reports no material legal proceedings[129](index=129&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) The company highlights that adverse economic conditions could lead to a decline in business and consumer spending, negatively impacting its financial performance - The company identifies potential adverse effects from poor economic conditions, such as reduced business and consumer spending, as a key risk factor[130](index=130&type=chunk)[131](index=131&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=26&type=section&id=Other%20Items%20%28Items%202%2C%203%2C%204%2C%205%2C%206%29) This section covers several standard disclosure items, including no unregistered sales of equity securities, no defaults, and a list of filed exhibits - Item 2: No unregistered sales of equity securities[133](index=133&type=chunk) - Item 3: No defaults upon senior securities[133](index=133&type=chunk) - Item 4: Mine safety disclosures are not applicable[133](index=133&type=chunk) - Item 6: A list of exhibits filed with the report is provided, including incentive plans, executive bonus plans, and CEO/CFO certifications[134](index=134&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q2 2019 grew 57% to $1.558 million compared to $1.001 million for the same period last year [48] - SaaS revenue was approximately $1.121 million for Q2 2019, representing a 79% increase from $625,000 in Q2 2018 and a 30% sequential increase from approximately $861,000 in Q1 2019 [48] - Gross profit as a percentage of revenue was 85.9% for Q2 2019, down from 91.8% in Q2 2018 [49] - The company reported a net loss of $874,000 for Q2 2019, an improvement from a net loss of $1.1 million in Q2 2018 [50] Business Line Data and Key Metrics Changes - SaaS revenue increased significantly, indicating a shift in focus towards financial services as the primary target market [9][10] - The company onboarded 86 new clients in the age-restricted product market, representing a 10% increase in sales over Q1 2019 [42] Market Data and Key Metrics Changes - Total scan volumes for financial services were up 13% sequentially comparing Q2 2019 to Q1 2019, and there was an 8% year-over-year increase comparing Q2 2019 to Q2 2018 [41] - The company has signed four of the top 10 banks as clients, indicating strong market penetration [25] Company Strategy and Development Direction - The company has shifted its focus to financial services to combat identity theft, which is seen as a significant pain point for financial institutions [10][11] - A new pricing model based on a per-scan approach has been implemented to better align with the transactional nature of banking [21][22] - The company aims to expand its technology into bank branches and mobile apps, indicating a broader application of its services [44][45] Management's Comments on Operating Environment and Future Outlook - Management believes the market is increasingly recognizing the need for authentication solutions due to rising identity theft incidents [11][12] - The company anticipates that changes in legislation regarding age-restricted products could lead to significant growth opportunities [42][43] - Management expressed confidence in the company's ability to capitalize on the growing demand for fraud prevention solutions [45] Other Important Information - The company has a revolving credit facility with Citibank allowing for maximum borrowings of $2 million, which is currently untapped [53] - As of June 30, 2019, the company had cash of $3.1 million and total assets of $13.4 million [51] Q&A Session Summary Question: Clarification on the implementation pipeline - Management confirmed that the listed clients are committed to the system and are at various stages of implementation [56] Question: One-time payment amount for implementation - The one-time payment for implementation was confirmed to be approximately $185,000 [57] Question: Customer retention rate - Management stated that customer retention remains at nearly 100%, with losses only occurring if a client goes out of business [60] Question: Potential revenue ranking of banks - Management indicated that it is difficult to rank banks by potential revenue without analyzing their specific programs [61] Question: Impact of data breaches on business - Management noted that data breaches create a heightened demand for their services, as they make identity theft easier [67][69] Question: Future use of driver's license verification - Management acknowledged that there is potential for increased use of driver's license verification in securing data [71] Question: Timeline for FDA-related opportunities - Management believes that legislation requiring authentication could happen soon, as discussions are ongoing [82]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File No.: 000-50296 Intellicheck, Inc. (Exact name of Registrant as specified in its charter) Delaware 11-3234779 (State or Other Ju ...

Intellicheck, Inc. (NYSEMKT:IDN) Q1 2019 Earnings Conference Call May 1, 2019 4:30 PM ET Company Participants Gar Jackson - Investor Relations Bryan Lewis - Chief Executive Officer Bill White - Chief Financial Officer Conference Call Participants Yi Fu Lee - Oppenheimer Roger Liddell - Clear Harbor Asset Management Michael Samuels - Berthel Fisher Amy Norflus - Neuberger Berman Operator Greetings, and welcome to the Intellicheck’s First Quarter 2019 Earnings Conference Call. At this time, all participants a ...

Intellicheck, Inc. (NASDAQ:IDN) Q4 2018 Earnings Conference Call March 21, 2019 4:30 PM ET Company Participants Gar Jackson - IR Bryan Lewis - CEO Bill White - CFO Conference Call Participants Mike Pochucha - Northland Capital Markets Yi Fu Lee - Oppenheimer Roger Liddell - Clear Harbor Asset Management Ashok Kumar - ThinkEquity Amy Norflus - Neuberger Berman Operator Greetings, and welcome to Intellicheck Fourth Quarter and Year-End 2018 Earnings Call. At this time, all participants are in listen-only mode ...

PART I [Business](index=4&type=section&id=Item%201.%20Business) Intellicheck, Inc. develops threat identification and identity authentication solutions for commercial and government sectors, primarily through SaaS offerings [Overview](index=4&type=section&id=Overview) - Intellicheck develops and markets threat identification and identity authentication solutions for retail fraud prevention, law enforcement, and government/military access control[12](index=12&type=chunk) - Key products include Retail ID® (fraud prevention), Age ID® (age verification), Law ID® (law enforcement), and Defense ID® (government/military access control)[12](index=12&type=chunk) - The company plans to expand by increasing market share, entering new markets, and enhancing products with features like online applications and biometrics[13](index=13&type=chunk) [Our Products and Services](index=6&type=section&id=Our%20Products%20and%20Services) - Products are generally sold as Software as a Service (SaaS), where customers pay for a cloud-based service[21](index=21&type=chunk) - The core technology, ID Check®, is embedded in product lines like Retail ID®, Law ID®, and Age ID®, and is capable of reading and verifying encoded information on driver licenses and military IDs from the US and Canada[23](index=23&type=chunk)[25](index=25&type=chunk) - Commercial products focus on fraud reduction (Retail ID®), age verification (Age ID®), and workflow efficiency (Guest ID®, Instant Credit Application Kiosks)[28](index=28&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk)[39](index=39&type=chunk) - Government products include Defense ID® for facility protection, Law ID® for officer safety via real-time database queries, and PORT ID for securing ports[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) [Strategy](index=9&type=section&id=Strategy) - The company's objective is to be a leading security company in the identity sector, focusing on both commercial and government systems[46](index=46&type=chunk) - Key commercial strategies include marketing technology for productivity enhancement, developing strategic alliances (e.g., with Lenel, AMAG, Zebra), strengthening sales with a focus on SaaS licenses, and protecting intellectual property[46](index=46&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[51](index=51&type=chunk) - Key government strategies involve enhancing products like Defense ID for new sectors (law enforcement, port security), providing TWIC® reader applications, and increasing access to multiple law enforcement and government databases[52](index=52&type=chunk)[53](index=53&type=chunk)[55](index=55&type=chunk) [Major Customers](index=13&type=section&id=Major%20Customers) Top 10 Customers' % of Total Revenue | Year | Top 10 Customers' % of Total Revenue | | :--- | :--- | | 2018 | 52% | | 2017 | 57% | - The company has a significant concentration of revenue from a limited number of major customers, although it anticipates the customer base will expand and reduce this dependency in the future[72](index=72&type=chunk) [Competition](index=13&type=section&id=Competition) - The company operates in an intensely competitive and rapidly changing industry[74](index=74&type=chunk) - Competitors in the government identity sector include Idemia USA, HID Global, and U.S. government systems like DBIDS and AIE[75](index=75&type=chunk) - Zebra and Honeywell offer embedded driver's license reading solutions, but these are noted to simply read the barcode rather than authenticating it[75](index=75&type=chunk) [Research and Development](index=14&type=section&id=Research%20and%20Development) R&D Spending | Year | R&D Spending | | :--- | :--- | | 2018 | $2,904,166 | | 2017 | $1,916,107 | - R&D efforts are primarily focused on the identity sector, including modifying existing software for customers and developing new software solutions[79](index=79&type=chunk) [Intellectual Property](index=14&type=section&id=Intellectual%20Property) - As of the report date, the company holds **sixteen (16) U.S. patents**, **one (1) Canadian patent**, and **one (1) United Kingdom patent**, with **six additional applications pending**[80](index=80&type=chunk) - Patents cover key aspects of identification document authentication and verification, as well as Defense ID System technology[80](index=80&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including historical financial losses, customer concentration, long sales cycles, and technology-related vulnerabilities - The company has a history of financial losses, with a net loss of **$3.96 million** in 2018 and an accumulated deficit of **$114.4 million** as of December 31, 2018[97](index=97&type=chunk) - A significant business risk is the high customer concentration, with the **ten largest customers accounting for 52% of total net revenues in 2018**[132](index=132&type=chunk) - The business strategy targeting large retailers and government agencies exposes the company to long sales and implementation cycles, which can adversely impact the timing of revenue recognition[99](index=99&type=chunk)[100](index=100&type=chunk) - The company's proprietary software relies on data from government agencies; if access to this data is lost, the software's utility would be diminished[98](index=98&type=chunk) - Potential security breaches of the company's information systems could compromise sensitive data, leading to liability, reputational damage, and loss of customer confidence[123](index=123&type=chunk)[124](index=124&type=chunk) [Properties](index=22&type=section&id=Item%202.%20Properties) The company's Melville, New York headquarters occupies 5,400 square feet under a lease expiring March 31, 2021, deemed adequate for current needs - The corporate headquarters is located in Melville, New York[135](index=135&type=chunk) - The company leases approximately **5,400 square feet** of office space, with the lease set to expire on **March 31, 2021**[135](index=135&type=chunk) [Legal Proceedings](index=22&type=section&id=Item%203.%20Legal%20Proceedings) As of the report date, Intellicheck, Inc. is not involved in any legal or regulatory proceedings that are expected to have a material adverse effect on its business - The company is not currently involved in any legal proceedings expected to have a material adverse effect on the business[136](index=136&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=23&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Intellicheck's common stock trades on NYSE MKT under 'IDN', with no cash dividends paid or anticipated, and details on outstanding equity securities - The company's common stock is traded on the NYSE MKT Stock Exchange under the symbol **"IDN"**[139](index=139&type=chunk) Common Stock Price Range | Period | High Price | Low Price | | :--- | :--- | :--- | | **2018** | | | | Q1 | $2.87 | $1.60 | | Q2 | $2.36 | $1.74 | | Q3 | $2.75 | $1.91 | | Q4 | $2.63 | $1.96 | | **2017** | | | | Q1 | $3.10 | $1.98 | | Q2 | $4.20 | $2.78 | | Q3 | $3.84 | $2.42 | | Q4 | $3.05 | $2.11 | - No cash dividends were paid in fiscal year 2018, and none are anticipated in the foreseeable future[141](index=141&type=chunk) [Selected Financial Data](index=24&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents five years of selected financial data, highlighting 2018 revenues of **$4.43 million** and a net loss of **$3.96 million** Selected Financial Data (In thousands, except per share data) | (In thousands, except per share data) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Statement of Operations Data:** | | | | | | | Revenues | $4,433 | $3,598 | $3,839 | $7,015 | $6,613 | | Loss from operations | $(4,093) | $(6,080) | $(5,750) | $(5,480) | $(7,645) | | Net loss | $(3,964) | $(6,021) | $(5,735) | $(5,334) | $(7,644) | | Net loss per common share (Basic/Diluted) | $(0.26) | $(0.48) | $(0.58) | $(0.55) | $(1.59) | | **Balance Sheet Data (As of Dec 31):** | | | | | | | Cash | $4,376 | $8,010 | $3,092 | $5,953 | $2,966 | | Total assets | $14,461 | $17,882 | $14,534 | $18,473 | $15,814 | | Stockholders' equity | $12,920 | $16,009 | $12,935 | $16,326 | $13,148 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses 2018 financial performance, highlighting a **23% revenue increase** to **$4.4 million**, improved gross margin, and a narrowed net loss [Results of Operations (2018 vs 2017)](index=28&type=section&id=Results%20of%20Operations%20%282018%20vs%202017%29) Financial Performance (2018 vs 2017) | Metric | 2018 | 2017 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $4,433,000 | $3,598,000 | +$835,000 | +23% | | SaaS Revenue | $2,696,000 | $1,659,000 | +$1,037,000 | +63% | | Gross Profit | $4,047,000 | $3,076,000 | +$970,000 | +31.5% | | Gross Margin | 91% | 85% | +6 pts | - | | Operating Expenses | $8,140,000 | $9,157,000 | -$1,017,000 | -11% | | Net Loss | $(3,964,000) | $(6,021,000) | +$2,057,000 | -34.2% | - The increase in 2018 revenue was primarily driven by higher commercial revenues, specifically a **63% increase in Software as a Service (SaaS) revenue**[172](index=172&type=chunk) - Operating expenses decreased by **11%** in 2018, mainly because 2017 included a **$1.38 million impairment charge** on intangible assets and higher severance costs[174](index=174&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Key Financial Metrics (as of Dec 31, 2018) | Metric (as of Dec 31, 2018) | Amount | | :--- | :--- | | Cash | $4,376,000 | | Working Capital | $4,244,000 | | Total Assets | $14,461,000 | | Stockholders' Equity | $12,920,000 | - Cash decreased by **$3.6 million** during 2018, with **$4.2 million** used in operating activities[178](index=178&type=chunk) - In August 2017, the company raised approximately **$8.67 million** in net proceeds from a public offering of common stock[179](index=179&type=chunk) - The company maintains a **$2 million revolving credit facility**, which was unused as of December 31, 2018. Management anticipates that available cash and credit will be sufficient for at least the next 12 months[180](index=180&type=chunk)[182](index=182&type=chunk) [Adjusted EBITDA](index=29&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA (in thousands) | (in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | **Net loss** | **$(3,963,576)** | **$(6,020,505)** | | Interest and other | $(129,923) | $(59,841) | | Depreciation and amortization | $245,548 | $412,351 | | Stock-based compensation expense | $186,707 | $435,679 | | Impairment of intangible assets | - | $1,375,422 | | **Adjusted EBITDA** | **$(3,661,244)** | **$(3,856,894)** | - Adjusted EBITDA is a non-GAAP measure used by management to evaluate operational strength. The Adjusted EBITDA loss improved slightly to **$(3.66 million)** in 2018 from **$(3.86 million)** in 2017[187](index=187&type=chunk)[189](index=189&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 31, 2018, management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2018[206](index=206&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018, based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)[209](index=209&type=chunk) - No changes occurred in the company's internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[208](index=208&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=33&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding Directors, Executive Officers, and Corporate Governance is incorporated by reference from the 2019 Proxy Statement - Information regarding Directors, Executive Officers, and Corporate Governance is incorporated by reference from the 2019 Proxy Statement[212](index=212&type=chunk) [Executive Compensation](index=33&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding Executive Compensation is incorporated by reference from the 2019 Proxy Statement - Information regarding Executive Compensation is incorporated by reference from the 2019 Proxy Statement[213](index=213&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=33&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding Security Ownership and Equity Compensation Plan Information is incorporated by reference from the 2019 Proxy Statement - Information regarding Security Ownership and Equity Compensation Plan Information is incorporated by reference from the 2019 Proxy Statement[213](index=213&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=33&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding Certain Relationships, Related Transactions, and Director Independence is incorporated by reference from the 2019 Proxy Statement - Information regarding Certain Relationships, Related Transactions, and Director Independence is incorporated by reference from the 2019 Proxy Statement[214](index=214&type=chunk) [Principal Accounting Fees and Services](index=33&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding Principal Accounting Fees and Services is incorporated by reference from the 2019 Proxy Statement - Information regarding Principal Accounting Fees and Services is incorporated by reference from the 2019 Proxy Statement[214](index=214&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=33&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements and various exhibits filed as part of the Form 10-K report - This item includes the consolidated financial statements for the years ended December 31, 2018 and 2017[216](index=216&type=chunk) - A list of exhibits is provided, including the Certificate of Incorporation, By-laws, material contracts such as employment agreements, and certifications required by the Sarbanes-Oxley Act[217](index=217&type=chunk) Financial Statements [Consolidated Balance Sheets](index=39&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2018, total assets decreased to **$14.5 million** from **$17.9 million** in 2017, with stockholders' equity at **$12.9 million** Consolidated Balance Sheets (As of December 31) | (As of December 31) | 2018 | 2017 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $4,376,017 | $8,010,161 | | Total current assets | $5,749,203 | $8,966,944 | | Goodwill | $8,101,661 | $8,101,661 | | **Total assets** | **$14,460,781** | **$17,882,104** | | **Liabilities & Equity** | | | | Total current liabilities | $1,504,788 | $1,626,908 | | **Total liabilities** | **$1,541,076** | **$1,873,051** | | **Total stockholders' equity** | **$12,919,705** | **$16,009,053** | [Consolidated Statements of Operations](index=40&type=section&id=Consolidated%20Statements%20of%20Operations) For 2018, revenues were **$4.43 million** and gross profit **$4.05 million**, resulting in a net loss of **$3.96 million**, an improvement from 2017 Consolidated Statements of Operations (For the Year Ended December 31) | (For the Year Ended December 31) | 2018 | 2017 | | :--- | :--- | :--- | | Revenues | $4,433,454 | $3,598,296 | | Gross profit | $4,046,837 | $3,076,461 | | Total operating expenses | $8,140,336 | $9,156,807 | | Loss from operations | $(4,093,499) | $(6,080,346) | | **Net loss** | **$(3,963,576)** | **$(6,020,505)** | | Loss per common share (Basic/Diluted) | $(0.26) | $(0.48) | - The 2017 statement of operations includes an impairment charge of **$1.38 million** on intangible assets, which was not present in 2018 and contributed significantly to the higher net loss in 2017[237](index=237&type=chunk) [Consolidated Statements of Cash Flows](index=42&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In 2018, net cash used in operating activities was **$4.2 million**, leading to a **$3.6 million** net decrease in cash, ending the year with **$4.4 million** Consolidated Statements of Cash Flows (For the Year Ended December 31) | (For the Year Ended December 31) | 2018 | 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,220,611) | $(3,745,285) | | Net cash (used in) provided by investing activities | $(101,054) | $4,846 | | Net cash provided by financing activities | $687,521 | $8,658,428 | | **Net (decrease) increase in cash** | **$(3,634,144)** | **$4,917,989** | | Cash, beginning of year | $8,010,161 | $3,092,172 | | **Cash, end of year** | **$4,376,017** | **$8,010,161** | [Notes to Consolidated Financial Statements](index=43&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including ASC 606 adoption, a **$1.38 million** intangible asset impairment in 2017, and deferred tax asset valuation allowance - The company adopted revenue recognition standard ASC 606 on January 1, 2018, using the modified retrospective method, which did not result in a material change to how revenue is recorded but enhanced disclosures[259](index=259&type=chunk)[260](index=260&type=chunk) - In 2017, the company recorded an impairment charge of **$1.38 million** on intangible assets (tradenames, patents, and customer relationships) acquired in the Mobilisa acquisition due to a projected loss of revenue and a shift in marketing strategy. No impairment was recognized in 2018[256](index=256&type=chunk) - The company has a net operating loss (NOL) carryforward of approximately **$15 million** as of December 31, 2018, which is available to offset future taxable income. A full valuation allowance has been recorded against net deferred tax assets due to uncertainty of realization[315](index=315&type=chunk)[317](index=317&type=chunk) - Two customers accounted for **31% of revenue in 2018**, and two customers accounted for **26% of revenue in 2017**, indicating significant customer concentration[281](index=281&type=chunk)