Intellicheck(IDN) - 2019 Q2 - Quarterly Report

PART I – Financial Information 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 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 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 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 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] - 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] Statements of Cash Flows 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 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] - 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] - 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] 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][106] Liquidity and Capital Resources 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] - 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] - 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] Adjusted EBITDA 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - No material changes were made to the company's internal controls over financial reporting during the second quarter of 2019[127] Part II – Other Information This section covers legal proceedings, risk factors, and other standard disclosures including equity sales, defaults, and exhibits Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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][131] Other Items (Items 2, 3, 4, 5, 6) 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] - Item 3: No defaults upon senior securities[133] - Item 4: Mine safety disclosures are not applicable[133] - Item 6: A list of exhibits filed with the report is provided, including incentive plans, executive bonus plans, and CEO/CFO certifications[134]