Intellicheck(IDN) - 2019 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents Intellicheck, Inc.'s unaudited financial statements and management's discussion for the quarter ended March 31, 2019 Item 1. Financial Statements This section presents Intellicheck, Inc.'s unaudited financial statements for Q1 2019, reporting an increased net loss and shifts in assets, liabilities, and equity Balance Sheets This section details the company's financial position, showing assets, liabilities, and equity at March 31, 2019, and December 31, 2018 | Metric | March 31, 2019 ($) | December 31, 2018 ($) | | :-------------------------------- | :------------- | :---------------- | | Cash | $3,840,600 | $4,376,017 | | Accounts receivable, net | $796,834 | $1,019,434 | | Total current assets | $5,044,630 | $5,749,203 | | Total assets | $13,922,974 | $14,460,781 | | Total current liabilities | $1,688,003 | $1,504,788 | | Total liabilities | $1,846,521 | $1,541,076 | | Total stockholders' equity | $12,076,453 | $12,919,705 | - Total assets decreased by approximately $537,807 from December 31, 2018, to March 31, 2019, primarily due to a decrease in cash and accounts receivable[9] - Total liabilities increased by approximately $305,445, driven by increases in current operating lease liability and deferred revenue[9] Statements of Operations This section outlines the company's financial performance, including revenues, expenses, and net loss for the three months ended March 31, 2019 and 2018 | Metric | Three Months Ended March 31, 2019 ($) | Three Months Ended March 31, 2018 ($) | Change (YoY) (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Revenues | $1,278,994 | $1,062,062 | +20.4% | | Cost of Revenues | $(192,297) | $(100,469) | +91.4% | | Gross profit | $1,086,697 | $961,593 | +13.0% | | Total operating expenses | $2,305,707 | $2,043,420 | +12.8% | | Loss from operations | $(1,219,010) | $(1,081,827) | +12.7% | | Net loss | $(1,212,991) | $(1,067,957) | +13.6% | | Loss per common share - Basic/Diluted | $(0.08) | $(0.07) | -14.3% | - Revenues increased by 20.4% year-over-year, primarily driven by higher commercial revenues, particularly Software as a Service (SaaS) revenue, which grew by 45%[11][91] - Gross profit percentage decreased from 90.5% in Q1 2018 to 85.0% in Q1 2019, mainly due to increased hosting costs on SaaS revenue[11][92] Statement of Stockholders' Equity This section details changes in stockholders' equity, reflecting the impact of net loss and stock-based compensation for the period | Metric | December 31, 2018 ($) | March 31, 2019 ($) | | :-------------------------- | :---------------- | :------------- | | Total Stockholders' Equity | $12,919,705 | $12,076,453 | | Stock-based compensation | $369,739 | - | | Net loss | $(1,212,991) | - | - Total stockholders' equity decreased from $12,919,705 at December 31, 2018, to $12,076,453 at March 31, 2019, primarily due to the net loss incurred during the period, partially offset by stock-based compensation expense[13] Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2019 and 2018 | Cash Flow Activity | Three Months Ended March 31, 2019 ($) | Three Months Ended March 31, 2018 ($) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(542,249) | $(864,559) | | Net cash provided by (used in) investing activities | $6,832 | $(67,431) | | Net cash provided by financing activities | $- | $687,521 | | Net decrease in cash | $(535,417) | $(244,469) | | Cash, end of period | $3,840,600 | $7,765,692 | - Net cash used in operating activities decreased by $322,310, primarily due to the timing of collections on accounts receivable[15][97] - Investing activities shifted from cash used ($67,431) in Q1 2018 to cash provided ($6,832) in Q1 2019, mainly due to reduced purchases of property and equipment[15][97] - No cash was provided by financing activities in Q1 2019, compared to $687,521 in Q1 2018 from the exercise of stock options[15][97] Notes to Financial Statements This section provides detailed explanations and disclosures supporting the unaudited financial statements, covering accounting policies, assets, liabilities, and equity 1. Nature of Business This section describes Intellicheck, Inc.'s core business activities, products, and its financial outlook regarding working capital - Intellicheck, Inc. develops, integrates, and markets threat identification and identity authentication solutions for retail fraud prevention, law enforcement, and access control in government, military, and commercial markets[16] - Key products include Retail ID®, Age ID®, Law ID®, and Defense ID®[16] - The company expects existing resources and revenues to satisfy working capital requirements for at least the next 12 months, but may need additional financing if performance falls short or expenses exceed expectations[18][19] 2. Significant Accounting Policies This section outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and lease accounting - The company adopted ASU 2016-02, Leases, effective January 1, 2019, recognizing a right-to-use asset of approximately $266,000 and an operating lease liability of approximately $274,000, with no significant impact on the statement of operations[27] - Revenue from Software as a Service (SaaS) and other subscription/support services is recognized over time based on usage[40][41] - Revenue from equipment sales is recognized at a point in time when the customer obtains control[42] Revenue Disaggregation by Product and Service (Three Months Ended March 31) | Products and services | 2019 ($) | 2018 ($) | | :-------------------------- | :--------- | :--------- | | Software as a Service (SaaS) | $861,249 | $594,690 | | Other subscription and support services | $268,170 | $294,199 | | Equipment | $116,412 | $119,722 | | Non-recurring services | $7,143 | $17,248 | | Extended warranties on equipment | $20,678 | $33,851 | | Other | $5,342 | $2,352 | | Total Revenues | $1,278,994 | $1,062,062 | - Two customers accounted for approximately 26% of total revenues in Q1 2019 and 33% in Q1 2018, both associated with commercial identity sales[50] 3. Intangible Assets This section details the carrying amount and amortization expense related to the company's intangible assets Intangible Assets Carrying Amount and Amortization | Metric | Amount ($) | | :-------------------------- | :--------- | | Net balance at December 31, 2018 | $306,575 | | Amortization expense (Q1 2019) | $(39,252) | | Net balance at March 31, 2019 | $267,323 | - Amortization expense for intangible assets was $39,252 for the three months ended March 31, 2019, consistent with $39,251 in the prior year period[55] 4. Note Receivable This section reports the outstanding balance of the note receivable from the sale of wireless enterprise assets - The total note receivable from the sale of wireless enterprise assets was $60,765 at March 31, 2019, down from $71,137 at December 31, 2018[56] 5. Debt This section describes the company's revolving credit facility and its available borrowing capacity - The company entered into a revolving credit facility with Citibank on February 6, 2019, allowing borrowings up to $2,000,000. As of March 31, 2019, there were no outstanding amounts, and $2,000,000 was available[57] 6. Accrued Expenses This section provides a breakdown of accrued expenses, including professional fees, payroll, and severance payments Accrued Expenses Breakdown | Category | March 31, 2019 ($) | December 31, 2018 ($) | | :------------------ | :------------- | :---------------- | | Professional fees | $103,976 | $69,406 | | Payroll and related | $484,316 | $406,925 | | Severance payments | $79,203 | $158,406 | | Other | $69,239 | $92,181 | | Total | $736,734 | $726,918 | - Accrued expenses increased slightly to $736,734 at March 31, 2019, from $726,918 at December 31, 2018, driven by higher professional fees and payroll-related accruals, partially offset by a decrease in severance payments[58] 7. Income Taxes This section discusses the company's net operating loss carryforwards and the valuation allowance against deferred tax assets - The company had approximately $15 million in net operating loss (NOL) carryforwards at December 31, 2018, with varying expiration dates[59] - A full valuation allowance has been recorded against net deferred tax assets due to uncertainty regarding their realizability[59] 8. Share Based Compensation This section details the stock-based compensation expense, outstanding options, and unrecognized compensation costs Stock-Based Compensation Expense (Three Months Ended March 31) | Category | 2019 ($) | 2018 ($) | | :-------------------------- | :--------- | :--------- | | Selling, general & administrative | $366,523 | $54,434 | | Research & development | $3,216 | $6,274 | | Total Compensation Cost | $369,739 | $60,708 | - Total stock-based compensation expense significantly increased to $369,739 in Q1 2019 from $60,708 in Q1 2018[60] - Outstanding stock options increased to 1,516,495 shares at March 31, 2019, with a weighted average exercise price of $1.80 and an aggregate intrinsic value of $2,632,195[63] - As of March 31, 2019, there was $638,237 of unrecognized compensation cost related to unvested stock options and RSUs, expected to be recognized over approximately 3.56 years[66] 9. Common Stock This section provides information on the company's common stock, including details of a past public offering - On August 4, 2017, the company completed a public offering of 4,168,750 shares at $2.25 per share, generating approximately $8,670,000 in net proceeds[69] 10. Legal Proceedings This section confirms the company is not currently involved in any material legal or regulatory proceedings - The company is not currently involved in any legal or regulatory proceedings expected to have a material effect on its business[70] 11. Commitments and Contingencies This section outlines the company's lease obligations and remaining severance liabilities - The company leases offices in Melville, New York, with monthly payments of $10,334, expiring March 31, 2021. Rent and utilities expense for Q1 2019 was $31,404[71] - A severance liability of $79,203 remained at March 31, 2019, related to payments to a former CEO[72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Intellicheck's Q1 2019 financial performance, highlighting revenue growth, increased expenses, and liquidity, alongside critical accounting policies and Adjusted EBITDA Overview This section provides a general introduction to Intellicheck's business and recent corporate restructuring - Intellicheck is a technology company focused on threat identification and identity authentication solutions for retail fraud prevention, law enforcement, and access control in government, military, and commercial markets[76] - The company's wholly-owned subsidiaries, Mobilisa, Inc. and Positive Access Corporation, merged into Intellicheck on December 31, 2018[75] Critical Accounting Policies and the Use of Estimates This section outlines the key accounting policies requiring significant management judgment and estimates, including goodwill impairment testing - Critical accounting policies include revenue recognition, stock-based compensation, deferred taxes, and commitments and contingencies, which involve significant management judgments and estimates[78] - Goodwill, totaling $8,101,661 as of March 31, 2019, is tested annually for impairment, with no impairment identified in Q1 2019[79][82] Results of Operations This section analyzes the company's financial performance for the quarter, focusing on revenue growth, gross profit, operating expenses, and net loss Key Financial Results (Three Months Ended March 31) | Metric | 2019 ($) | 2018 ($) | Change (YoY) (%) | | :-------------------------- | :--------- | :--------- | :----------- | | Revenues | $1,279,000 | $1,062,000 | +20% | | SaaS revenue | $861,000 | $595,000 | +45% | | Gross profit | $1,087,000 | $962,000 | +13% | | Gross profit margin | 85.0% | 90.5% | -5.5 pp | | Operating expenses | $2,306,000 | $2,043,000 | +13% | | Net loss | $(1,213,000) | $(1,068,000) | +14% | - The 20% increase in revenues was primarily driven by higher commercial revenues, with SaaS revenue increasing by 45%[91] - Operating expenses increased by 13% due to higher stock-based compensation costs and an increase in development personnel headcount[93] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term obligations, including cash position, working capital, and future financing plans Liquidity and Capital Resources (as of March 31, 2019) | Metric | Amount ($) | | :-------------------------- | :--------- | | Cash and cash equivalents | $3,841,000 | | Working capital | $3,357,000 | | Total assets | $13,923,000 | | Stockholders' equity | $12,076,000 | - Net cash used in operating activities decreased to $542,000 in Q1 2019 from $865,000 in Q1 2018, mainly due to improved accounts receivable collections[97] - The company anticipates its available cash, expected cash from operations, and a $2,000,000 revolving credit facility to be sufficient for working capital and capital expenditures for at least the next 12 months[99][100] - A universal shelf registration statement on Form S-3 allows the company to offer up to $25,000,000 in securities for future capital needs[102] Adjusted EBITDA This section defines and reconciles Adjusted EBITDA, a non-GAAP measure, to GAAP net loss, providing insight into operational performance - Adjusted EBITDA is a non-GAAP measure used by management and investors to evaluate operational strength, excluding non-cash charges and non-operating items[106][107] Reconciliation of GAAP Net Loss to Non-GAAP Adjusted EBITDA (Three Months Ended March 31) | Metric | 2019 ($) | 2018 ($) | | :-------------------------- | :------------- | :------------- | | Net loss | $(1,212,991) | $(1,067,957) | | Interest and other income | $(6,019) | $(13,870) | | Depreciation and amortization | $62,110 | $59,150 | | Stock-based compensation expense | $369,739 | $60,708 | | Adjusted EBITDA | $(787,161) | $(961,969) | - Adjusted EBITDA improved to $(787,161) in Q1 2019 from $(961,969) in Q1 2018, indicating a reduced operational loss when excluding certain non-cash and non-operating items[108] Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet financing arrangements or special purpose entities - The company has not entered into any off-balance sheet financing arrangements or established any special purpose entities[109] Forward Looking Statements This section advises that the report contains forward-looking statements subject to uncertainties, with no obligation for updates - The report contains forward-looking statements subject to inherent uncertainties and changes in circumstances, with no obligation to update them[110] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's exposure to market risks, primarily focusing on concentrations of credit risk related to its cash holdings - The company's primary market risk relates to concentrations of credit risk, specifically cash held in a single financial institution[111] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2019, and reports no material changes in internal controls over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2019[113] - No material changes in internal controls over financial reporting occurred during the period covered by the report[115] PART II - OTHER INFORMATION This section covers additional information not included in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section states that the company is not involved in any legal proceedings - The company is not currently involved in any legal proceedings[117] Item 1A. Risk Factors This section highlights potential risks to the company's business and financial performance, including adverse economic conditions and reliance on government business - Current economic conditions, such as a decline in business and consumer spending, could adversely affect the company's business and financial performance[118][119] - Operating results may be impacted by the overall health of the North American economy, despite a significant portion of business being with the U.S. government[119] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[121] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - No defaults upon senior securities to report[121] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[121] Item 5. Other Information This section states that there is no other information to report - No other information to report[122] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and XBRL documents List of Exhibits | Exhibit No. | Description | | :---------- | :------------------------------------------ | | 31.1 | Rule 13a-14(a) Certification of Chief Executive Officer | | 31.2 | Rule 13a-14(a) Certification of Chief Financial Officer | | 32 | 18 U.S.C. Section 1350 Certifications | | 101.INS | XBRL Instance Document | | 101.SCH | XBRL Taxonomy Extension Schema | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase | | 101.LAB | XBRL Taxonomy Extension Label Linkbase | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Signatures This section confirms the official signing of the report by the company's President, CEO, and CFO - The report is signed by Bryan Lewis, President and Chief Executive Officer, and Bill White, Chief Financial Officer, on May 10, 2019[125][126]