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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

Amendment No. 1

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

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.: 001-15465

Intellicheck, Inc.

(Exact name of Registrant as specified in its charter)

Delaware |  | 11-3234779
(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

| 200 Broadhollow Road, Suite 207, Melville, NY 11747 |
| (Address of Principal Executive Offices) (Zip Code) |

Registrant’s telephone number, including area code: (516) 992-1900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ |  | Accelerated filer ☐ |  | Non-accelerated filer ☐ (Do not check if a smaller reporting company) |  | Smaller reporting company ☒ |  | Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares outstanding of the issuer’s Common Stock:

Class |  | Outstanding at November 12, 2021
Common Stock, $.001 par value |  | 18,652,134

EXPLANATORY NOTE

References throughout this Amendment No. 1 to the Quarterly Report on Form 10-Q/A to “we,” “us,” the “Company” or “our company” are to Intellicheck, Inc. unless otherwise noted or the context otherwise indicates.

We are filing this Amendment No. 1 (“Form 10-Q/A”) to our Form 10-Q for the fiscal quarters ended September 30, 2021 and 2020, which were originally filed (“Original Filing”) on November 12, 2021 and 2020, respectively, to restate our financial statements as of and for the three and nine months ended September 30, 2021 and 2020, and to amend related disclosures, including controls and procedures.

As described in more detail in Note 2 to the financial statements, we determined that we improperly accounted for certain option awards issued to employees commencing in the quarter ended September 30, 2020. Specifically, awards previously accounted for as equity awards should have been recorded as liability awards commencing at the date of exercise and adjusted to fair value at the end of each reporting period. In addition, the Company failed to sell shares surrendered by employees upon exercise and remit the equivalent amount of funds to the taxing authorities. These errors have caused our previously issued financial statements to understate the amount of liabilities on our balance sheets and overstate/understate our net income/loss on our statement of operations as of and for the periods affected. To correct these errors, we determined that we must restate our financial statements as of and for each of the three and nine months ended September 30, 2021 and 2020. We also are amending our unaudited financial statements for each of the quarterly periods ended June 30, 2021, and March 31, 2021, as well as the years ended December 31, 2021 and 2020. The amended quarterly financial information will be included in our amendments on Form 10-Q/A, to be filed by the Company concurrent with the filing of this Form 10-Q/A, and the amended annual financial information included in our amendment on Form 10-K/A.

Internal Control Considerations

In light of the Restatement discussed above, the Company has reassessed the effectiveness of its internal controls over financial reporting as of September 30, 2021 and has concluded that a material weakness in its internal control over financial reporting existed as of September 30, 2021 and 2020. Specifically, the Company did not maintain a complement of accounting personnel with sufficient knowledge, experience, and training in the application of U.S. GAAP as it relates to the accounting and reporting for equity compensation. This material weakness contributed to a failure to maintain effective controls over the accounting and reporting for stock options. The effects of the material weakness are discussed in more detail in Item 4, Controls and Procedures.

Items Amended in this Form 10-Q/A

For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety; however, this Form 10-Q/A amends and restates only the following items of the Original Filing with respect to the matters affected by this restatement and the matters discussed above:

Part I:

| ● | Item 1 – Financial Statements
| ● | Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
| ● | Item 4 – Controls and Procedures

Part II:

| ● | Item 6 – Exhibits

We are also filing currently dated signatures from our Directors and currently dated Certifications as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, from our Chief Executive Officer and Chief Financial Officer and Chief Operating Officer as exhibits 31.1, 31.2 and 32.

Except as provided above, this Form 10-Q/A does not reflect events occurring after the filing of the Original Filing and does not amend or otherwise update any information in the Original Filing. Accordingly, this Form 10-Q/A should be read in conjunction with our filings with the SEC subsequent to the date on which we filed the Original Filing with the SEC. For more information about the restatement and related disclosures, please see Intellicheck’s Current Report on Form 8-K (Item 4.02) filed May 20, 2022.

INTELLICHECK, INC.

Index

|  | Page
PART I – FINANCIAL INFORMATION | 3
Item 1. | Financial Statements | 3
| Balance Sheets – September 30, 2021 (Unaudited) and December 31, 2020 | 3
| Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (Unaudited) | 4
| Statements of Stockholders’ Equity for the three months ended September 30, 2021 and 2020 (Unaudited) | 5
| Statements of Stockholders’ Equity for the nine months ended September 30, 2021 and 2020 (Unaudited) | 6
| Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited) | 7
| NOTES TO FINANCIAL STATEMENTS | 8
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 27
Item 4. | Controls and Procedures | 27
Part II – OTHER INFORMATION | 28
Item 1. | Legal Proceedings | 28
Item 1A. | Risk Factors | 28
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29
Item 3. | Defaults Upon Senior Securities | 29
Item 4. | Mine Safety Disclosures | 29
Item 5. | Other Information | 29
Item 6. | Exhibits | 29
Signatures | 30

Exhibits
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 |  | Inline XBRL Instance Document
101.SCH |  | Inline XBRL Taxonomy Extension Schema
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase
104 |  | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

2

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

INTELLICHECK, INC.

BALANCE SHEETS

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
|  | (Unaudited) (As Restated) |  |  |  |
ASSETS |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |
Cash |  | $ | 13,266,031 |  |  | $ | 13,121,392 |
Accounts receivable, net of allowance of $0 and $42,974 at September 30, 2021 and December 31, 2020, respectively |  |  | 2,777,222 |  |  |  | 2,119,861 |
Other current assets |  |  | 869,583 |  |  |  | 340,718 |
Total current assets |  |  | 16,912,836 |  |  |  | 15,581,971 |
PROPERTY AND EQUIPMENT, net |  |  | 430,341 |  |  |  | 138,870 |
GOODWILL |  |  | 8,101,661 |  |  |  | 8,101,661 |
INTANGIBLE ASSETS, net |  |  | 403,856 |  |  |  | 482,591 |
OPERATING LEASE RIGHT-OF-USE ASSET |  |  | - |  |  |  | 31,131 |
OTHER ASSETS |  |  | 8,500 |  |  |  | 4,250 |
Total assets |  | $ | 25,857,194 |  |  | $ | 24,340,474 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 231,780 |  |  | $ | 46,171 |
Accrued expenses |  |  | 2,445,534 |  |  |  | 1,638,798 |
Operating lease liability, current portion |  |  | - |  |  |  | 32,620 |
Equity awards liability |  |  | 782,834 |  |  |  | - |
Liability for shares withheld |  |  | 1,244,458 |  |  |  | - |
Deferred revenue, current portion |  |  | 1,372,311 |  |  |  | 402,782 |
Total current liabilities |  |  | 6,076,917 |  |  |  | 2,120,371 |
NONCURRENT LIABILITIES: |  |  |  |  |  |  |  |
Deferred revenue, long-term portion |  |  | 9,737 |  |  |  | 8,662 |
Total liabilities |  |  | 6,086,654 |  |  |  | 2,129,033 |
COMMITMENTS AND CONTINGENCIES (Note 10) |  |  | - |  |  |  |  |
STOCKHOLDERS’ EQUITY: |  |  |  |  |  |  |  |
Common stock - $.001 par value; 40,000,000 shares authorized; 18,643,281 and 18,410,458 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively |  |  | 18,644 |  |  |  | 18,410 |
Additional paid-in capital |  |  | 145,657,327 |  |  |  | 141,612,140 |
Accumulated deficit |  |  | (125,905,431 | ) |  |  | (119,419,109 | )
Total stockholders’ equity |  |  | 19,770,540 |  |  |  | 22,211,441 |
Total liabilities and stockholders’ equity |  | $ | 25,857,194 |  |  | $ | 24,340,474 |

See accompanying notes to financial statements.

3

INTELLICHECK, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

|  | Three months ended September 30, |  |  | Nine months ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
|  | (As Restated) |  |  | (As Restated) |  |  | (As Restated) |  |  | (As Restated) |
REVENUES |  | $ | 4,831,229 |  |  | $ | 2,698,975 |  |  | $ | 12,490,911 |  |  | $ | 7,656,442 |
COST OF REVENUES |  |  | (1,510,590 | ) |  |  | (293,699 | ) |  |  | (3,199,834 | ) |  |  | (1,196,528 | )
Gross profit |  |  | 3,320,639 |  |  |  | 2,405,276 |  |  |  | 9,291,077 |  |  |  | 6,459,914 |
OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative |  |  | 2,930,273 |  |  |  | 4,514,488 |  |  |  | 11,688,208 |  |  |  | 7,384,379 |
Research and development |  |  | 1,415,666 |  |  |  | 907,763 |  |  |  | 4,104,531 |  |  |  | 2,837,374 |
Total operating expenses |  |  | 4,345,939 |  |  |  | 5,422,251 |  |  |  | 15,792,739 |  |  |  | 10,221,753 |
Loss from operations |  |  | (1,025,300 | ) |  |  | (3,016,975 | ) |  |  | (6,501,662 | ) |  |  | (3,761,839 | )
OTHER INCOME (EXPENSE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain on forgiveness of unsecured promissory note |  |  | - |  |  |  | - |  |  |  | 10,000 |  |  |  | - |
Interest and other income (expense), net |  |  | (412 | ) |  |  | 6,993 |  |  |  | 5,340 |  |  |  | 18,186 |
Total other income (expense) |  |  | (412 | ) |  |  | 6,993 |  |  |  | 15,340 |  |  |  | 18,186 |
Net loss |  | $ | (1,025,712 | ) |  | $ | (3,009,982 | ) |  | $ | (6,486,322 | ) |  | $ | (3,743,653 | )
PER SHARE INFORMATION |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss per common share - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.06 | ) |  | $ | (0.16 | ) |  | $ | (0.35 | ) |  | $ | (0.22 | )
Diluted |  | $ | (0.06 | ) |  | $ | (0.16 | ) |  | $ | (0.35 | ) |  | $ | (0.22 | )
Weighted average common shares used in computing per share amounts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,642,463 |  |  |  | 18,336,107 |  |  |  | 18,580,012 |  |  |  | 16,960,770 |
Diluted |  |  | 18,642,463 |  |  |  | 18,336,107 |  |  |  | 18,580,012 |  |  |  | 16,960,770 |

See accompanying notes to financial statements.

4

INTELLICHECK, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

|  | Three months ended September 30, 2021 (As Restated) |
|  |  |  |  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Common Stock |  |  | Paid-in |  |  | Accumulated |  |  | Stockholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Equity |
BALANCE, June 30, 2021 |  |  | 18,634,918 |  |  | $ | 18,636 |  |  | $ | 145,018,746 |  |  | $ | (124,879,719 | ) |  | $ | 20,157,663 |
Equity compensation |  |  | - |  |  |  | - |  |  |  | 638,589 |  |  |  | - |  |  |  | 638,589 |
Issuance of common stock, net of costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Issuance of common stock, net of costs, shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options, net of cashless exercise of 82,161 shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options, net of cashless exercise of 82,161 shares, shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options, net of cashless exercise of 58,122 shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options, net of cashless exercise of 58,122 shares, shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options, net of cashless exercise of 93,570 shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options, net of cashless exercise of 93,570 shares,shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of warrants |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of warrants, shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Issuance of shares for restricted stock grants |  |  | 8,363 |  |  |  | 8 |  |  |  | (8 | ) |  |  | - |  |  |  | - |
Shares withheld for withholding taxes |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Shares withheld for withholding taxes, shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Settlement of executive bonuses with issuance of restricted stock units |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Settlement of executive bonuses with issuance of restricted stock units, shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of liability awards |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,025,712 | ) |  |  | (1,025,712 | )
BALANCE, September 30, 2021 |  |  | 18,643,281 |  |  | $ | 18,644 |  |  | $ | 145,657,327 |  |  | $ | (125,905,431 | ) |  | $ | 19,770,540 |

|  | Three months ended September 30, 2020 (As Restated) |
|  |  |  |  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Common Stock |  |  | Paid-in |  |  | Accumulated |  |  | Stockholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Equity |
BALANCE, June 30, 2020 |  |  | 18,028,282 |  |  | $ | 18,028 |  |  |  | 139,715,197 |  |  | $ | (117,668,783 | ) |  | $ | 22,064,442 |
Equity compensation |  |  | - |  |  |  | - |  |  |  | 97,157 |  |  |  | - |  |  |  | 97,157 |
Exercise of warrants |  |  | 750 |  |  |  | 1 |  |  |  | 1,649 |  |  |  | - |  |  |  | 1,650 |
Shares withheld for withholding taxes |  |  | (178,832 | ) |  |  | (179 | ) |  |  | (1,462,415 | ) |  |  | - |  |  |  | (1,462,594 | )
Exercise of stock options, net of cashless exercise of 82,161 shares |  |  | 527,214 |  |  |  | 527 |  |  |  | 28,823 |  |  |  | - |  |  |  | 29,350 |
Issuance of shares for restricted stock grants |  |  | 7,284 |  |  |  | 7 |  |  |  | (7 | ) |  |  | - |  |  |  | - |
Settlement of executive bonuses with issuance of restricted stock units |  |  | 5,531 |  |  |  | 6 |  |  |  | 31,245 |  |  |  | - |  |  |  | 31,251 |
Exercise of liability awards |  |  | - |  |  |  | - |  |  |  | 3,042,394 |  |  |  | - |  |  |  | 3,042,394 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (3,009,982 | ) |  |  | (3,009,982 | )
BALANCE, September 30, 2020 |  |  | 18,390,229 |  |  | $ | 18,390 |  |  |  | 141,454,043 |  |  | $ | (120,678,765 | ) |  | $ | 20,793,668 |

See accompanying notes to financial statements.

5

INTELLICHECK, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

|  | Nine months ended September 30, 2021 (As Restated) |
|  |  |  |  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Common Stock |  |  | Paid-in |  |  | Accumulated |  |  | Stockholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Equity |
BALANCE, December 31, 2020 |  |  | 18,410,458 |  |  | $ | 18,410 |  |  | $ | 141,612,140 |  |  | $ | (119,419,109 | ) |  | $ | 22,211,441 |
Equity compensation |  |  | - |  |  |  | - |  |  |  | 2,270,205 |  |  |  | - |  |  |  | 2,270,205 |
Exercise of warrants |  |  | 9,000 |  |  |  | 9 |  |  |  | 19,791 |  |  |  | - |  |  |  | 19,800 |
Exercise of stock options, net of cashless exercise of 58,122 shares and 92,634 shares withheld |  |  | 206,545 |  |  |  | 207 |  |  |  | 1,755,209 |  |  |  | - |  |  |  | 1,755,416 |
Issuance of shares for restricted stock grants |  |  | 17,278 |  |  |  | 18 |  |  |  | (18 | ) |  |  | - |  |  |  | - |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (6,486,322 | ) |  |  | (6,486,322 | )
BALANCE, September 30, 2021 |  |  | 18,643,281 |  |  | $ | 18,644 |  |  | $ | 145,657,327 |  |  | $ | (125,905,431 | ) |  | $ | 19,770,540 |

|  | Nine months ended September 30, 2020 (As Restated) |
|  |  |  |  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Common Stock |  |  | Paid-in |  |  | Accumulated |  |  | Stockholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Equity |
BALANCE, December 31, 2019 |  |  | 16,041,650 |  |  | $ | 16,042 |  |  |  | 128,668,583 |  |  | $ | (116,935,112 | ) |  | $ | 11,749,513 |
Equity compensation |  |  | - |  |  |  | - |  |  |  | 286,909 |  |  |  | - |  |  |  | 286,909 |
Issuance of common stock, net of costs |  |  | 1,769,230 |  |  |  | 1,769 |  |  |  | 10,567,698 |  |  |  | - |  |  |  | 10,569,467 |
Exercise of warrants |  |  | 50,750 |  |  |  | 51 |  |  |  | 111,599 |  |  |  | - |  |  |  | 111,650 |
Exercise of stock options, net of cashless exercise of 93,570 shares |  |  | 674,171 |  |  |  | 674 |  |  |  | 167,934 |  |  |  | - |  |  |  | 168,608 |
Shares withheld for withholding taxes |  |  | (180,844 | ) |  |  | (181 | ) |  |  | (1,475,750 | ) |  |  | - |  |  |  | (1,475,931 | )
Exercise of stock options, net of cashless exercise of shares |  |  | 674,171 |  |  |  | 674 |  |  |  | 167,934 |  |  |  | - |  |  |  | 168,608 |
Exercise of liability awards |  |  | - |  |  |  | - |  |  |  | 3,042,394 |  |  |  | - |  |  |  | 3,042,394 |
Issuance of shares for restricted stock grants |  |  | 20,279 |  |  |  | 20 |  |  |  | (20 | ) |  |  | - |  |  |  | - |
Settlement of executive bonuses with issuance of restricted stock units |  |  | 14,993 |  |  |  | 15 |  |  |  | 84,696 |  |  |  | - |  |  |  | 84,711 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (3,743,653 | ) |  |  | (3,743,653 | )
BALANCE, September 30, 2020 |  |  | 18,390,229 |  |  | $ | 18,390 |  |  |  | 141,454,043 |  |  | $ | (120,678,765 | ) |  | $ | 20,793,668 |

See accompanying notes to financial statements.

6

INTELLICHECK, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

|  | Nine months ended September 30, |
|  | 2021 |  |  | 2020 |
|  | (As Restated) |  |  | (As Restated) |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |
Net loss |  | $ | (6,486,322 | ) |  | $ | (3,743,653 | )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 126,226 |  |  |  | 127,143 |
Equity compensation |  |  | 6,006,443 |  |  |  | 3,329,303 |
Forgiveness of unsecured promissory note |  |  | (10,000 | ) |  |  | - |
Changes in assets and liabilities: |  |  |  |  |  |  |  |
(Increase) in accounts receivable |  |  | (657,361 | ) |  |  | (64,228 | )
(Increase) in other current assets |  |  | (528,865 | ) |  |  | (192,103 | )
(Increase) in other assets |  |  | (4,250 | ) |  |  | - |
Increase in accounts payable and accrued expenses |  |  | 990,856 |  |  |  | 361,395 |
Increase (decrease) in deferred revenue |  |  | 970,604 |  |  |  | (128,779 | )
Net cash provided by (used in) operating activities |  |  | 407,331 |  |  |  | (310,922 | )
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Purchase of software license |  |  | - |  |  |  | (400,000 | )
Capital expenditures |  |  | (338,962 | ) |  |  | (36,520 | )
Collection of note receivable |  |  | - |  |  |  | 29,017 |
Net cash used in investing activities |  |  | (338,962 | ) |  |  | (407,503 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Return of repayment on unsecured promissory note |  |  | 10,000 |  |  |  | - |
Net proceeds from issuance of common stock |  |  | - |  |  |  | 10,569,467 |
Loan proceeds on unsecured promissory note |  |  | - |  |  |  | 806,100 |
Net proceeds from issuance of common stock from exercise of stock options |  |  | 46,470 |  |  |  | 168,608 |
Proceeds from issuance of common stock from exercise of warrants |  |  | 19,800 |  |  |  | 111,650 |
Withholding taxes paid on exercise of stock options and vesting of restricted stock units |  |  | - |  |  |  | (1,475,931 | )
Net cash provided by financing activities |  |  | 76,270 |  |  |  | 10,179,894 |
Net increase in cash |  |  | 144,639 |  |  |  | 9,461,469 |
CASH, beginning of period |  |  | 13,121,392 |  |  |  | 3,350,853 |
CASH, end of period |  | $ | 13,266,031 |  |  | $ | 12,812,322 |
Supplemental disclosure of noncash investing and financing activities: |  |  |  |  |  |  |  |
Reclassification of stock option awards |  | $ | 1,411,108 |  |  |  | - |
Settlement of executive bonuses with restricted stock units |  | $ | - |  |  | $ | 84,710 |

See accompanying notes to financial statements.

7

INTELLICHECK, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited) (As Restated)

1. NATURE OF BUSINESS

Business

Intellicheck, Inc. (the “Company” or “Intellicheck”) is a prominent technology company that is engaged in developing, integrating and marketing identity verification solutions to address challenges that include commercial retail and banking fraud prevention. Intellicheck’s products include ID Check®, a solution for preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices.

Intellicheck continues to develop and release innovative products based upon its rich patent portfolio consisting of nineteen issued patents and four pending patents.

Liquidity

For the nine months ended September 30, 2021, the Company incurred a net loss of $(6,486,322) and had cash provided by operating activities of $407,331. As of September 30, 2021, the Company had cash of $13,266,031, working capital (defined as current assets minus current liabilities) of $10,835,919 and an accumulated deficit of $125,905,431. Based on the Company’s business plan and cash resources, Intellicheck expects its existing and future resources and revenues generated from operations to satisfy its working capital requirements for at least the next 12 months.

As of the filing of this Form 10-Q, the COVID-19 pandemic, which first began affecting the Company in the first quarter of 2020, has impacted the Company’s business by a temporary decline in revenues from its customers. Though the Company has had an increase in SaaS revenues for the three and nine months ended September 30, 2021 over the respective periods in 2020, the COVID-19 pandemic may continue to impact its business directly and/or indirectly for the foreseeable future. The Company is further unable to accurately predict the full impact that the COVID-19 pandemic will have on its results of operations or financial condition due to numerous factors that are not within its control, including the duration and severity of the outbreak together with any potential statewide closures if cases increase, the spread of COVID-19 variants, including the Delta variant, and the widespread adoption of vaccination measures including recently approved booster regimens.

See Part II, Item 1A for more information.

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 three and nine months ended September 30, 2021 and 2020, 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 three and nine months ended September 30, 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.

8

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 (loss). 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 the individuals, which is expected to be completed during the quarter ending June 30, 2022.

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 three and nine months ended September 30, 2021 and 2020, as follows:

SCHEDULE OF ERRORS RESULTED IN MISSTATEMENTS

|  | As of September 30, 2021 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
BALANCE SHEET |  |  |  |  |  |  |  |  |  |  |  |
Equity awards liability |  | $ | - |  |  |  | 782,834 |  |  | $ | 782,834 |
Liability for shares withheld |  | $ | - |  |  |  | 1,244,458 |  |  | $ | 1,244,458 |
Total current liabilities |  | $ | 4,049,625 |  |  |  | 2,027,292 |  |  | $ | 6,076,917 |
Total liabilities |  | $ | 4,059,362 |  |  |  | 2,027,292 |  |  | $ | 6,086,654 |
Common stock (dollars) |  | $ | 18,736 |  |  |  | (92 | ) |  | $ | 18,644 |
Additional paid-in capital |  | $ | 140,905,895 |  |  |  | 4,751,432 |  |  | $ | 145,657,327 |
Accumulated deficit |  | $ | (119,126,799 | ) |  |  | (6,778,632 | ) |  | $ | (125,905,431 | )
Total stockholders’ equity |  | $ | 21,797,832 |  |  |  | (2,027,292 | ) |  | $ | 19,770,540 |
Common stock (shares) |  |  | 18,735,915 |  |  |  | (92,634 | ) |  |  | 18,643,281 |

|  | For the three months ended September 30, 2021 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
STATEMENT OF OPERATIONS |  |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  | $ | 2,856,794 |  |  |  | 73,479 |  |  | $ | 2,930,273 |
Total operating expenses |  | $ | 4,272,460 |  |  |  | 73,479 |  |  | $ | 4,345,939 |
Loss from operations |  | $ | (951,821 | ) |  |  | (73,479 | ) |  | $ | (1,025,300 | )
Net loss |  | $ | (952,233 | ) |  |  | (73,479 | ) |  | $ | (1,025,712 | )
PER SHARE INFORMATION |  |  |  |  |  |  |  |  |  |  |  |
Loss per common share |  |  |  |  |  |  |  |  |  |  |  |
Basic and Diluted |  | $ | (0.05 | ) |  |  | (0.01 | ) |  | $ | (0.06 | )
Weighted average common shares used in computing per share amounts -Basic and Diluted |  |  | 18,735,097 |  |  |  | (92,634 | ) |  |  | 18,642,463 |

|  | For the nine months ended September 30, 2021 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
STATEMENT OF OPERATIONS |  |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  | $ | 7,951,970 |  |  |  | 3,736,238 |  |  | $ | 11,688,208 |
Total operating expenses |  | $ | 12,056,501 |  |  |  | 3,736,238 |  |  | $ | 15,792,739 |
Loss from operations |  | $ | (2,765,424 | ) |  |  | (3,736,238 | ) |  | $ | (6,501,662 | )
Net loss |  | $ | (2,750,084 | ) |  |  | (3,736,238 | ) |  | $ | (6,486,322 | )
PER SHARE INFORMATION |  |  |  |  |  |  |  |  |  |  |  |
Loss per common share |  |  |  |  |  |  |  |  |  |  |  |
Basic and Diluted |  | $ | (0.15 | ) |  |  | (0.20 | ) |  | $ | (0.35 | )
Weighted average common shares used in computing per share amounts - Basic and Diluted |  |  | 18,653,823 |  |  |  | (73,811 | ) |  |  | 18,580,012 |

9

|  | For the three months ended September 30, 2020 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
STATEMENT OF OPERATIONS |  |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  | $ | 1,472,094 |  |  |  | 3,042,394 |  |  | $ | 4,514,488 |
Total operating expenses |  | $ | 2,379,857 |  |  |  | 3,042,394 |  |  | $ | 5,422,251 |
Income (loss) from operations |  | $ | 25,419 |  |  |  | (3,042,394 | ) |  | $ | (3,016,975 | )
Net income (loss) |  | $ | 32,412 |  |  |  | (3,042,394 | ) |  | $ | (3,009,982 | )
PER SHARE INFORMATION |  |  |  |  |  |  |  |  |  |  |  |
Income (loss) per common share |  |  |  |  |  |  |  |  |  |  |  |
Basic and Diluted |  | $ | 0.00 |  |  |  | (0.16 | ) |  | $ | (0.16 | )
Weighted average common shares used in computing per share amounts - |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,336,107 |  |  |  | - |  |  |  | 18,336,107 |
Diluted |  |  | 18,764,994 |  |  |  | (428,887 | ) |  |  | 18,336,107 |

|  | For the nine months ended September 30, 2020 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | /Restated |
STATEMENT OF OPERATIONS |  |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  | $ | 4,341,985 |  |  |  | 3,042,394 |  |  | $ | 7,384,379 |
Total operating expenses |  | $ | 7,179,359 |  |  |  | 3,042,394 |  |  | $ | 10,221,753 |
Loss from operations |  | $ | (719,445 | ) |  |  | (3,042,394 | ) |  | $ | (3,761,839 | )
Net loss |  | $ | (701,259 | ) |  |  | (3,042,394 | ) |  | $ | (3,743,653 | )
PER SHARE INFORMATION |  |  |  |  |  |  |  |  |  |  |  |
Loss per common share |  |  |  |  |  |  |  |  |  |  |  |
Basic and Diluted |  | $ | (0.04 | ) |  |  | (0.18 | ) |  | $ | (0.22 | )
Weighted average common shares used in computing per share amounts - |  |  |  |  |  |  |  |  |  |  |  |
Basic and Diluted |  |  | 16,960,770 |  |  |  | - |  |  |  | 16,960,770 |

|  | For the three months ended September 30, 2021 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
STATEMENT OF STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (952,233 | ) |  |  | (73,479 | ) |  | $ | (1,025,712 | )
Common stock (shares) |  |  | 18,735,915 |  |  |  | (92,634 | ) |  |  | 18,643,281 |
Common stock (dollars) |  | $ | 18,736 |  |  |  | (92 | ) |  | $ | 18,644 |
Additional paid-in capital |  | $ | 140,905,895 |  |  |  | 4,751,432 |  |  | $ | 145,657,327 |
Accumulated deficit |  | $ | (119,126,799 | ) |  |  | (6,778,632 | ) |  | $ | (125,905,431 | )
Total stockholders’ equity |  | $ | 21,797,832 |  |  |  | (2,027,292 | ) |  | $ | 19,770,540 |

10

|  | For the nine months ended September 30, 2021 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
STATEMENT OF STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options, net of cashless exercise of 58,122 shares and 92,634 shares withheld |  | $ | 46,470 |  |  |  | 1,708,946 |  |  | $ | 1,755,416 |
Net loss |  | $ | (2,750,084 | ) |  |  | (3,736,238 | ) |  | $ | (6,486,322 | )
Common stock (shares) |  |  | 18,735,915 |  |  |  | (92,634 | ) |  |  | 18,643,281 |
Common stock (dollars) |  | $ | 18,736 |  |  |  | (92 | ) |  | $ | 18,644 |
Additional paid-in capital |  | $ | 140,905,895 |  |  |  | 4,751,432 |  |  | $ | 145,657,327 |
Accumulated deficit |  | $ | (119,126,799 | ) |  |  | (6,778,632 | ) |  | $ | (125,905,431 | )
Total stockholders’ equity |  | $ | 21,797,832 |  |  |  | (2,027,292 | ) |  | $ | 19,770,540 |

|  | Three months ended September 30, 2020 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
STATEMENT OF STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Exercise of liability awards |  | $ | - |  |  |  | 3,042,394 |  |  | $ | 3,042,394 |
Net income (loss) |  | $ | 32,412 |  |  |  | (3,042,394 | ) |  | $ | (3,009,982 | )
Accumulated deficit |  | $ | (117,636,371 | ) |  |  | (3,042,394 | ) |  | $ | (120,678,765 | )
Additional paid-in capital |  | $ | 138,411,649 |  |  |  | 3,042,394 |  |  | $ | 141,454,043 |
Total stockholders’ equity |  | $ | 20,793,668 |  |  |  | - |  |  | $ | 20,793,668 |

|  | Nine months ended September 30, 2020 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
STATEMENT OF STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Exercise of liability awards |  | $ | - |  |  |  | 3,042,394 |  |  | $ | 3,042,394 |
Net loss |  | $ | (701,259 | ) |  |  | (3,042,394 | ) |  | $ | (3,743,653 | )
Accumulated deficit |  | $ | (117,636,371 | ) |  |  | (3,042,394 | ) |  | $ | (120,678,765 | )
Additional paid-in capital |  | $ | 138,411,649 |  |  |  | 3,042,394 |  |  | $ | 141,454,043 |
Total stockholders’ equity |  | $ | 20,793,668 |  |  |  | - |  |  | $ | 20,793,668 |

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|  | For the nine months ended September 30, 2021 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
STATEMENT OF CASH FLOWS |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (2,750,084 | ) |  |  | (3,736,238 | ) |  | $ | (6,486,322 | )
Equity compensation |  | $ | 2,270,205 |  |  |  | 3,736,238 |  |  | $ | 6,006,443 |
Supplemental disclosure of noncash investing and financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Reclassification of stock option awards |  | $ | - |  |  |  | 1,411,108 |  |  | $ | 1,411,108 |

|  | For the nine months ended September 30, 2020 |
|  | As Previously |  |  | Restatement |  |  | As |
|  | Reported |  |  | Adjustment |  |  | Restated |
STATEMENT OF CASH FLOWS |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (701,259 | ) |  |  | (3,042,394 | ) |  | $ | (3,743,653 | )
Equity compensation |  | $ | 286,909 |  |  |  | 3,042,394 |  |  | $ | 3,329,303 |

The correction of the errors had no effect on net cash used in operating activities for either period.

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 September 30, 2021 and the results of operations, stockholders’ equity and cash flows for the nine months ended September 30, 2021 and 2020. 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 nine-month period ended September 30, 2021, are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2021.

As noted in the Explanatory Note, the Company has filed this Form 10-Q/A to amend our Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2021, originally filed with the SEC on November 11, 2021 (the “Original Form 10-Q”), to restate our Financial Statements and related footnote disclosures as of and for the three and nine months ended September 30, 2021 and 2020.

The balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date, as restated, 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.

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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 for the year ended December 31, 2020.

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” as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and early adoption is permitted. The Company has adopted this standard and did not have a material impact on its financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments to measure credit losses on financial instruments, including trade receivables. The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. The guidance is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. The Company does not expect this standard will have a material impact on its financial statements.

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, 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.

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 $782,834 worth of Level 2 liabilities as of September 30, 2021 for liability classified stock options.
| ● | 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 September 30, 2021 and 2020.

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.

Goodwill

Goodwill represents the excess of acquisition cost over the fair value of net assets acquired in business combinations. Pursuant to ASC Topic 350, the Company tests goodwill for impairment on an annual basis in the fourth quarter (December 31, 2021), or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform the two-step 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. There were no impairment charges recognized during either of the nine months ended September 30, 2021 and 2020.

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Intangible Assets

Intangible assets include patents, copyrights, intellectual property rights and licensed software. The Company uses the straight-line method to amortize these assets 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 Topic 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 nine months ended September 30, 2021 and 2020.

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 September 30, 2021 and December 31, 2020, due to the uncertainty of the realizability of those assets.

Fair Value of Financial Instruments

The Company adheres to the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”. This pronouncement requires that the Company calculate the fair value of financial instruments and include this additional information in the notes to financial statements when the fair value is different than the book value of those financial instruments. The Company’s financial instruments include cash, accounts receivable, accounts payable and accrued expenses. As of September 30, 2021 and December 31, 2020, the carrying value of the Company’s financial instruments approximated fair value, due to their short-term nature.

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.

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.

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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 based on the usage of the hosted subscription services and licensed software, which can vary from month to month. The revenue is typically based either on a formula such as number of locations using the service in a given month multiplied by a fee per location or the number of actual scans in a given month multiplied by a set price per scan based on the contract with the customer.

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.

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.

15

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

|  | For the Three Months Ended September 30, |
|  | 2021 |  |  | 2020 |
Products and services |  |  |  |  |  |  |  |
Software as a Service (SaaS) |  | $ | 3,245,274 |  |  | $ | 2,451,381 |
Other subscription and support services |  |  | 3,282 |  |  |  | 36,346 |
Equipment |  |  | 1,470,333 |  |  |  | 176,061 |
Non-recurring services |  |  | 12,000 |  |  |  | 29,000 |
Extended warranties on equipment |  |  | 1,405 |  |  |  | 5,058 |
Other |  |  | 98,935 |  |  |  | 1,129 |
Revenues |  | $ | 4,831,229 |  |  | $ | 2,698,975 |
Timing of revenue recognition |  |  |  |  |  |  |  |
Products transferred at a point in time |  | $ | 1,569,268 |  |  | $ | 177,190 |
Services transferred over time |  |  | 3,261,961 |  |  |  | 2,521,785 |
Revenues |  | $ | 4,831,229 |  |  | $ | 2,698,975 |

|  | For the Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |
Products and services |  |  |  |  |  |  |  |
Software as a Service (SaaS) |  | $ | 9,254,591 |  |  | $ | 6,361,150 |
Other subscription and support services |  |  | 22,588 |  |  |  | 186,280 |
Equipment |  |  | 2,931,980 |  |  |  | 1,011,608 |
Non-recurring services |  |  | 65,200 |  |  |  | 70,450 |
Extended warranties on equipment |  |  | 7,009 |  |  |  | 17,232 |
Other |  |  | 209,543 |  |  |  | 9,722 |
|  | $ | 12,490,911 |  |  | $ | 7,656,442 |
Timing of revenue recognition |  |  |  |  |  |  |  |
Products transferred at a point in time |  | $ | 3,141,523 |  |  | $ | 1,021,330 |
Services transferred over time |  |  | 9,349,388 |  |  |  | 6,635,112 |
Revenues |  | $ | 12,490,911 |  |  | $ | 7,656,442 |

Contract balances

The current portion of deferred revenue at September 30, 2021 and December 31, 2020 was $1,372,311 and $402,782, 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. Of this balance, at December 31, 2020, $48,378 and $383,162 was recognized as revenue for the three and nine months ended September 30, 2021, respectively. The long-term portion of deferred revenue was $9,737 and $8,662 as of September 30, 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.

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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 |  |  |  |  |  |  |  |  |  |
|  | 2021 |  |  | 2022 |  |  | 2023 |  |  | Total |
Software as a Service (SaaS) |  | $ | 550,647 |  |  | $ | 812,288 |  |  | $ | 3,136 |  |  | $ | 1,366,071 |
Other subscription and support services |  |  | 3,086 |  |  |  | 5,649 |  |  |  | 2,602 |  |  |  | 11,337 |
Extended warranties on equipment |  |  | 1,097 |  |  |  | 2,324 |  |  |  | 1,219 |  |  |  | 4,640 |
|  | $ | 554,830 |  |  | $ | 820,261 |  |  | $ | 6,957 |  |  | $ | 1,382,048 |

All consideration from contracts with customers is included in the amounts presented above.

Business Concentrations and Credit Risk

During the three and nine-month periods ended September 30, 2021, the Company made sales to two customers that accounted for approximately 60% and 58% of total revenues, respectively. The revenue was associated with commercial identity sales customers. These customers represented 28% of total accounts receivable at September 30, 2021. During the three and nine month periods ended September 30, 2020, the Company made sales to two customers that accounted for approximately 46% and 37% of total revenues, respectively. 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 the periods of a net loss, all common stock equivalents are considered anti-dilutive.

SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Numerator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (1,025,712 | ) |  | $ | (3,009,982 | ) |  | $ | (6,486,322 | ) |  | $ | (3,743,653 | )
Denominator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares – Basic and Diluted |  |  | 18,642,463 |  |  |  | 18,336,107 |  |  |  | 18,580,012 |  |  |  | 16,960,770 |
Net loss per share – |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and Diluted |  | $ | (0.06 | ) |  | $ | (0.16 | ) |  | $ | (0.35 | ) |  | $ | (0.22 | )

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The following table summarizes the common stock equivalents excluded from loss per diluted share because their effect would be anti-dilutive to the net loss:

SUMMARY OF COMMON STOCK EQUIVALENTS EXCLUDED FROM LOSS PER DILUTED SHARE

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Stock options |  |  | 502,424 |  |  |  | 653,882 |  |  |  | 502,424 |  |  |  | 653,882 |
Warrants |  |  | - |  |  |  | 12,680 |  |  |  | - |  |  |  | 12,680 |
Restricted stock |  |  | 408,657 |  |  |  | 4,499 |  |  |  | 408,657 |  |  |  | 4,499 |
Performance stock units |  |  | 228,498 |  |  |  | 265,942 |  |  |  | 228,498 |  |  |  | 265,942 |
|  |  | 1,139,579 |  |  |  | 937,003 |  |  |  | 1,139,579 |  |  |  | 937,003 |

3. INTANGIBLE ASSETS

The changes in the carrying amount of intangible assets for the nine months ended September 30, 2021 were as follows:

SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS

Net balance at December 31, 2020 |  | $ | 482,591 |
Deduction: Amortization expense |  |  | (78,735 | )
Net balance at September 30, 2021 |  | $ | 403,856 |

The following summarizes amortization of intangible assets included in the accompanying statements of operations:

SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSE

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Cost of sales |  | $ | 23,676 |  |  | $ | 23,677 |  |  | $ | 71,029 |  |  | $ | 57,696 |
General and administrative |  |  | 2,569 |  |  |  | 2,568 |  |  |  | 7,706 |  |  |  | 7,705 |
Amortization of intangible assets |  | $ | 26,245 |  |  | $ | 26,245 |  |  | $ | 78,735 |  |  | $ | 65,401 |

4. DEBT

Promissory Note

On April 15, 2020, the Company received an advance of $10,000 from the U.S. Small Business Administration (“SBA”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company repaid this EIDL advance on December 7, 2020. The Company had not imputed interest on this advance as the rate was determined to be a below-market rate due to the scope exception in ASC 835-30-15-3(e) for government-mandated interest rates. On December 27, 2020, Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (“the Economic Aid Act”) which relieves companies of their obligations to repay EIDL advances. As a result of this ruling, the SBA returned this advance, plus interest to the Loan Servicer on February 18, 2021, which was immediately returned to the Company and included in Other Income on the Statements of Operations.

Revolving Line of Credit

On February 6, 2019, the Company entered into a revolving credit facility with Citibank that allows for borrowings up to the lesser of (i) $2,000,000 or (ii) the collateralized balance in the Company’s existing fixed income investment account with Citibank subject to certain limitations. The facility bears interest at a rate consistent of Citibank’s Base Rate (4.75% at September 30, 2021) minus 2%. Interest is payable monthly and as of September 30, 2021, there were no amounts outstanding and unused availability under this facility was $2,000,000.

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5. ACCRUED EXPENSES

Accrued expenses are comprised of the following:

SCHEDULE OF ACCRUED EXPENSES

|  | September 30, 2021 |  |  | December 31, 2020 |
Professional fees |  | $ | 144,050 |  |  | $ | 123,787 |
Payroll and related |  |  | 1,131,424 |  |  |  | 604,302 |
Incentive bonuses |  |  | 1,100,808 |  |  |  | 834,910 |
Other |  |  | 69,252 |  |  |  | 75,799 |
Accrued expenses |  | $ | 2,445,534 |  |  | $ | 1,638,798 |

6. INCOME TAXES

The Company’s available net operating loss (“NOL”) at December 31, 2020 was approximately $17 million. The federal and state NOLs are available to offset future taxable income and begin to expire in 2021.

7. EQUITY COMPENSATION

The Company accounts for the issuance of equity awards to employees in accordance with ASC Topic 718, 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 is included in operating expenses for the periods as follows:

SCHEDULE OF STOCK BASED COMPENSATION

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Compensation cost recognized: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling, general & administrative |  | $ | 613,667 |  |  | $ | 3,130,905 |  |  | $ | 5,536,418 |  |  | $ | 3,307,152 |
Research & development |  |  | 98,401 |  |  |  | 8,646 |  |  |  | 470,025 |  |  |  | 22,151 |
Share-based compensation expenses |  | $ | 712,068 |  |  | $ | 3,139,551 |  |  | $ | 6,006,443 |  |  | $ | 3,329,303 |

Stock Options

The Company uses the Black-Scholes option pricing model to value the options on the grant date. For the awards which were modified and are no longer classified as equity awards, the Company uses the share price as of each reporting period to calculate the fair value of the options. The table below presents the weighted average expected life of the options in years. The expected life computation is based on the time to option expiration. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

As discussed above, certain option awards no longer qualify as equity awards and instead are classified as liability awards. The fair values of these awards are determined at each reporting period utilizing a Black Scholes option pricing model, and the associated compensation expense for the reporting period is recorded. The Company recorded $3,736,238 of additional compensation expense in the nine months ended September 30, 2021 as a result of this award reclassification.

Stock option activity under the 2015 Stock Option Plan (the “Plan”) during the period indicated below were as follows:

SCHEDULE OF STOCK OPTION ACTIVITY

|  | Number of Shares Subject to Issuance |  |  | Weighted-average Exercise Price |  |  | Weighted-average Remaining Contractual Term |  |  | Aggregate Intrinsic Value |
Outstanding at December 31, 2020 |  |  | 637,882 |  |  | $ | 2.50 |  |  |  | 2.55 years |  |  | $ | 5,686,421 |
Granted |  |  | 221,843 |  |  |  | 10.38 |  |  |  |  |  |  |  |  |
Exercised |  |  | (357,301 | ) |  |  | 2.34 |  |  |  |  |  |  |  |  |
Outstanding at September 30, 2021 |  |  | 502,424 |  |  | $ | 6.09 |  |  |  | 3.25 years |  |  | $ | 1,548,558 |
Exercisable at September 30, 2021 |  |  | 135,859 |  |  | $ | 2.72 |  |  |  | 2.14 years |  |  | $ | 743,173 |

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The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on September 30, 2021. This amount changes based upon the fair market value of the Company’s stock.

Restricted Stock Units

The Company issues Restricted Stock Units (“RSUs”) which are equity-based instruments that may be settled in shares of common stock of the Company. During the nine months ended September 30, 2021, the Company issued RSUs to its officers and certain employees and to certain directors as compensation. RSU agreements can vest immediately or with the passage of time. The vesting of all RSUs is contingent on continued board and employment services.

The compensation expense incurred by the Company for RSUs is based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period and charged to general and administrative expense with a corresponding increase to additional paid-in capital.

SCHEDULE OF RESTRICTED STOCK UNITS OUTSTANDING

|  | Number of Shares |  |  | Weighted Average Grant Date Fair Value |  |  | Aggregate Intrinsic Value |
Outstanding at December 31, 2020 |  |  | 1,754 |  |  | $ | 11.40 |  |  | $ | - |
Granted |  |  | 428,831 |  |  |  | 10.49 |  |  |  |  |
Vested and settled in shares |  |  | (17,278 | ) |  |  | 8.68 |  |  |  |  |
Forfeited |  |  | (4,650 | ) |  |  | 11.50 |  |  |  |  |
Outstanding at September 30, 2021 |  |  | 408,657 |  |  | $ | 10.56 |  |  | $ | 7,905 |

Performance Stock Units

On August 7, 2020, the Company issued 265,942 Performance Stock Units (PSUs) to its officers and certain employees as compensation. For these PSU agreements, 50% vest based on the Company’s market price and 50% vest based on its Adjusted EBITDA performance metric. Both the conditions are to occur over a passage of a specified time and is contingent on continued employment services.

For the market condition, compensation expense is based on a Geometric Brownian Motion valuation model based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite period. For the performance condition, the Company reviews the probability of achieving this goal on a periodic basis. If the Company determines that it is probable that the performance criteria will be achieved, the amount of compensation cost derived for this performance metric is amortized over the anticipated service period. If these criteria are not met, no compensation cost is recognized and any previously recognized compensation cost would be reversed. For both conditions, compensation expense is charged to selling, general and administrative and research and development expense with a corresponding increase to additional paid-in capital.

SCHEDULE OF PERFORMANCE STOCK UNITS

|  | Number of Shares |  |  | Weighted Average Grant Date Fair Value |  |  | Aggregate Intrinsic Value |
Outstanding at December 31, 2020 |  |  | 265,942 |  |  | $ | 7.91 |  |  | $ | - |
Forfeited |  |  | (37,444 | ) |  |  | 7.91 |  |  |  |  |
Outstanding at September 30, 2021 |  |  | 228,498 |  |  | $ | 7.91 |  |  | $ | - |

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As of September 30, 2021, there was $4,712,464 of total unrecognized compensation cost, net of estimated forfeitures, related to all unvested stock options, RSUs and PSUs, which is expected to be recognized over a weighted average period of approximately 2.25 years.

The Company had 1,467,554 shares available for future grants under the Plan at September 30, 2021.

Warrants

All previously granted warrants were issued with an exercise price that was equal to or above the fair market value of the Company’s common stock on the date of grant. As of September 30, 2021, the Company had no remaining warrants available to exercise. During the nine months ended September 30, 2021, there were 9,000 warrants exercised at an exercise price of $2.20 per share.

8. COMMON STOCK

On June 23, 2020, the Company completed a public offering of 1,769,230 shares of its common stock, offered to the public at $6.50 per share. Net proceeds to the Company from this offering were approximately $10,710,000 after deducting underwriting discounts and commissions paid by the Company. Direct offering costs totaling approximately $141,000 were recorded as a reduction to the net proceeds and included in additional paid-in-capital on the statement of stockholders’ equity.

9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is not aware of any infringement by the Company’s products or technology on the proprietary rights of others.

The Company is not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material effect on its business.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References made in this Quarterly Report on Form 10-Q/A to “we,” “our,” “us,” “Intellicheck,” or the “Company,” refer to Intellicheck, Inc.

The following discussion and analysis of our financial condition and results of operations constitutes management’s review of the factors that affected our financial and operating performance for the nine-month period ended September 30, 2021. This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2020.

Overview

We are a prominent technology company that is engaged in developing, integrating and marketing identity verification solutions to address challenges that include commercial retail and banking fraud prevention. Our products include ID Check®, a solution for preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices.

We continue to develop and release innovative products based upon our rich patent portfolio consisting of nineteen issued patents and four pending patents. We also continue to expand our customer base as we completed 21 customer implementations for the nine months ended September 30, 2021.

Critical Accounting Policies and the Use of Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our 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 and the fair value of stock options granted under the Company’s equity compensation plans. Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates.

We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management’s judgments and estimates. These significant accounting policies relate to revenue recognition, equity compensation, deferred taxes goodwill and intangible asset valuation and impairment, and commitments and contingencies. These policies and our procedures related to these policies are described in detail below.

Goodwill

The excess of the purchase consideration over the fair value of the assets of acquired businesses is considered goodwill. Under authoritative guidance, purchased goodwill is not amortized, but rather it is periodically reviewed for impairment. We had goodwill of $8,101,661 as of September 30, 2021. This goodwill resulted from the acquisitions of Mobilisa, Inc. and Positive Access Corporation. These entities were merged into one company under Intellicheck on December 31, 2018.

For the year ended December 31, 2020, we performed our annual impairment test of goodwill in the fourth quarter. Under authoritative guidance, we can use industry and Company specific qualitative factors to determine whether it is more likely than not that impairment exists, before using a two-step quantitative analysis. 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. We performed the first step of the goodwill impairment test in order to identify potential impairment by comparing our fair value of the Company to our carrying amount, including goodwill. The fair value was determined using the weighting of certain valuation techniques, including both income and market approaches which include a discounted cash flow analysis, similar public company financial comparisons, along with market capitalization. The market capitalization is sensitive to the volatility of our stock price. Although we believe that the factors considered in the impairment analysis are reasonable, changes in any one of the assumptions used could have produced a different result which may have led to an impairment charge. Any future impairment loss could have a material adverse effect on our long-term assets and operating expenses in the period in which impairment is determined to exist.

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For the year ended December 31, 2020, we determined that the fair value was more than our carrying amount and therefore the second step of the goodwill impairment test was not required.

We determined that no events occurred or circumstances changed during the nine months ended September 30, 2021 that would more likely than not reduce the fair value of the Company below its carrying amounts. We will, however, continue to monitor our stock price and operations for any potential indicators of impairment. We will conduct the 2021 annual test for goodwill impairment in the fourth quarter, or at such time where an indicator of impairment appears to exist.

Intangible Assets

Our intangible assets consist of patents and a software license. We determined that no events occurred or circumstances changed during the nine months ended September 30, 2021 that would more likely than not reduce our intangible assets below our carrying amounts. We will, however, continue to monitor any potential indicators of impairment.

Revenue Recognition and Deferred Revenue

Most license fees and services revenue are generated from a combination of fixed-price and per-transaction contracts. Under the per-transaction revenue model, customers are charged a fee each time the customer scans an identity document, such as a driver’s license, with our software. Under the fixed-price revenue model customers are charged a fixed monthly fee either per device or physical business location to access our software. In certain instances, customization services are determined to be essential to the functionality of the delivered 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. We measure 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 our services as they are performed. Substantially all customer contracts provide that we are compensated for services performed to date.

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.

Equity Compensation

We account for the issuance of equity awards to employees in accordance with ASC Topic 718, 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.

Deferred 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 carry forwards. 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. We have recorded a full valuation allowance for our net deferred tax assets as of September 30, 2021, due to the uncertainty of our ability to realize those assets.

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Commitments and Contingencies

We are not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material adverse effect on our business.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

Results of Operations (All figures have been rounded to the nearest $1,000)

Comparison of the three months ended September 30, 2021 to the three months ended September 30, 2020

Revenues for the three months ended September 30, 2021 increased $2,132,000, or 79%, to $4,831,000 compared to $2,699,000 for the previous year. The increase in revenues in the three months ended September 30, 2021 is primarily the result of higher commercial SaaS revenues as well as higher equipment sales. Software as a Service (“SaaS”) revenue, which consists of software licensed on a subscription basis, increased $794,000 or 32% to $3,245,000 for the three months ended September 30, 2021 compared to $2,451,000 for the three months ended September 30, 2020.

Gross profit increased by $916,000, or 38.1%, to $3,321,000 for three months ended September 30, 2021 from $2,405,000 for the three months ended September 30, 2020. Our gross profit, as a percentage of revenues, was 68.7% and 89.1% for the three months ended September 30, 2021 and 2020, respectively. The decrease in percentage is primarily due to an increase in hardware sales which contain lower margins. Excluding hardware sales and related costs, our gross profit as a percentage was 93.0% and 92.6% for the three months ended September 30, 2021 and 2020, respectively. The increase in percentage is primarily due to continued growth of our SaaS revenue.

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $1,076,000, or 20%, to $4,346,000 for the three months ended September 30, 2021 compared to $5,442,000 for the three months ended September 30, 2020. Included within the operating expenses for the three months ended September 30, 2020 is $3,042,000 of additional equity compensation costs resulting from the liability award treatment described in Note 2 to the Financial Statements.

Interest and other income (expense) was insignificant in the three month periods ended September 30, 2021 and 2020.

We have incurred net losses to date; therefore, we have paid nominal income taxes.

As a result of the factors noted above, the Company generated a net loss of $1,026,000 for the three months ended September 30, 2021 compared to net loss of $3,010,000 for the three months ended September 30, 2020.

Comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2020

Revenues for the nine months ended September 30, 2021 increased $4,835,000, or 63%, to $12,491,000 compared to $7,656,000 for the previous year. The increase in revenues during the nine months ended September 30, 2021 is primarily the result of higher commercial SaaS revenues and higher hardware sales. SaaS revenue increased $2,894,000 or 46% to $9,255,000 for the nine months ended September 30, 2021 compared to $6,361,000 for the nine months ended September 30, 2020.

Gross profit increased by $2,831,000, or 44%, to $9,291,000 for nine months ended September 30, 2021 from $6,460,000 for the nine months ended September 30, 2020. Our gross profit, as a percentage of revenues, was 74.4% and 84.4% for the nine months ended September 30, 2021 and 2020, respectively. The decrease in percentage is primarily due to an increase in hardware sales which contain lower margins. Excluding hardware sales and related costs, our gross profit as a percentage was 93.1% and 91.6% for the nine months ended September 30, 2021 and 2020, respectively. The increase in percentage is primarily due to continued growth of our SaaS revenue.

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Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $5,571,000 or 55%, to $15,793,000 for the nine months ended September 30, 2021 compared to $10,222,000 for the nine months ended September 30, 2020. This increase is primarily due to higher equity compensation costs, increased headcount, and related accrued incentives along with expanded marketing costs. Included within the operating expenses for the nine months ended September 30, 2021 and 2020 are $3,736,000 and $3,042,000 respectively, of additional equity compensation costs resulting from the liability award stock option compensation adjustment described in Note 2 to the Financial Statements.

Interest and other income was insignificant in the nine month periods ended September 30, 2021 and 2020.

We have incurred net losses to date; therefore, we have paid nominal income taxes.

As a result of the factors noted above, the Company generated a net loss of $6,486,000 for the nine months ended September 30, 2021 compared to a net loss of $3,744,000 for the nine months ended September 30, 2020.

Liquidity and Capital Resources (All figures have been rounded to the nearest $1,000)

As of September 30, 2021, we had cash of $13,266,000, working capital (defined as current assets minus current liabilities) of $10,836,000, total assets of $25,857,000 and stockholders’ equity of $19,771,000.

During the nine months ended September 30, 2021, net cash provided by operating activities was $407,000 compared to net cash used in operating activities of $311,000 in the nine months ended September 30, 2020. Cash used in investing activities was $339,000 for the nine months ended September 30, 2021 compared to cash used in investing activities was $408,000 for the nine months ended September 30, 2020. Cash provided by financing activities was $76,000 for the nine months ended September 30, 2021 compared to cash provided by financing activities of $10,180,000 for the nine months ended September 30, 2020.

On April 15, 2020, we received an advance of $10,000 from the U.S. Small Business Administration (“SBA”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). We repaid this EIDL advance on December 7, 2020. We did not impute interest on this advance as the rate was determined to be a below-market rate due to the scope exception in ASC 835-30-15-3(e) for government-mandated interest rates. On December 27, 2020, Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (“the Economic Aid Act”) which relieves companies of their obligations to repay EIDL advances. As a result of this ruling, the SBA returned this advance, plus interest to the Loan Servicer on February 18, 2021, which was immediately returned to us and included in Other Income on the Statements of Operations.

On June 23, 2020, we completed a public offering of 1,769,230 shares of our common stock, offered to the public at $6.50 per share. Our net proceeds from this offering were approximately $10,710,000 after deducting underwriting discounts and commissions paid by us. Direct offering costs totaling approximately $141,000 were recorded as a reduction to the net proceeds and included in additional paid-in-capital on the statement of stockholders’ equity.

On February 6, 2019, we entered into a revolving credit facility with Citibank that allows for borrowings up to the lesser of (i) $2,000,000 or (ii) the collateralized balance in our existing fixed income investment account with Citibank subject to certain limitations. The facility bears interest at a rate consistent of Citibank’s Base Rate (4.75% at September 30, 2021) minus 2%. Interest is payable monthly and as of September 30, 2021, there were no amounts outstanding and unused availability under this facility was $2,000,000.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and including how it may impact our customers, employees and vendors. While we have had an increase in SaaS revenues from our customers for the three and nine months ended September 30, 2021 compared to the respective three and nine months ended September 30, 2020, we are unable to predict the impact that ongoing effects of the pandemic will have on us going forward, including our financial position, results of operations and cash flows, the impact on our customers and the related demand for our services due to numerous uncertainties including the effect on the pandemic of variants of the original COVID-19 strain, such as the Delta variant, coupled with the speed, adoption and effectiveness of the ongoing vaccination roll out including recently approved booster regimens. Such factors continue to be beyond our control.

We currently anticipate that our available cash, expected cash from operations and availability under the revolving credit agreement, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months from the date of filing.

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We keep the option open to raise additional funds to respond to business contingencies which may include the need to fund more rapid expansion, fund additional marketing expenditures, develop new markets for our technology, enhance our operating infrastructure, respond to competitive pressures, or acquire complementary businesses or necessary technologies. There can be no assurance that we will be able to secure the additional funds when needed or obtain such on terms satisfactory to us, if at all.

The specific terms of any future offering, including the prices and use of proceeds, will be determined at the time of any such offering and will be described in detail in a prospectus supplement which will be filed with the SEC at the time of the offering.

We are not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material effect on our business.

Net Operating Loss Carry Forwards

Our available net operating loss (“NOL”) at December 31, 2020 was approximately $17 million. The federal and state NOLs are available to offset future taxable income and begin to expire in 2021.

Adjusted EBITDA

We use Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by adjusting net loss for certain reductions such gains on debt forgiveness and interest and other income (expense) and certain addbacks such as income taxes, impairments of long-lived assets and goodwill, depreciation, amortization and equity compensation expense. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing our financial results with other companies that also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as impairments of long-lived assets and goodwill, amortization, depreciation and equity compensation, as well as non-operating charges for interest and income taxes, investors can evaluate our operations and can compare the results on a more consistent basis to the results of other companies. In addition, Adjusted EBITDA is one of the primary measures management uses to monitor and evaluate financial and operating results.

We consider Adjusted EBITDA to be an important indicator of our operational strength and performance of our business and a useful measure of our historical operating trends. However, there are significant limitations to the use of Adjusted EBITDA since it excludes gains on debt forgiveness, interest and other income (expense), impairments of long-lived assets and goodwill, equity compensation, all of which impact our profitability, as well as depreciation and amortization related to the use of long-term assets which benefit multiple periods. We believe that these limitations are compensated by providing Adjusted EBITDA only with GAAP net loss and clearly identifying the difference between the two measures. Consequently, Adjusted EBITDA should not be considered in isolation or as a substitute for net loss presented in accordance with GAAP. Adjusted EBITDA as defined by us may not be comparable with similarly named measures provided by other entities.

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A reconciliation of GAAP net loss to Non-GAAP Adjusted EBITDA follows:

|  | (Unaudited) |
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Net loss |  | $ | (1,026,000 | ) |  | $ | (3,010,000 | ) |  | $ | (6,486,000 | ) |  | $ | (3,744,000 | )
Reconciling items: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain on forgiveness of unsecured promissory note |  |  | - |  |  |  | - |  |  |  | (10,000 | ) |  |  | - |
Interest and other expense, net |  |  | - |  |  |  | (7,000 | ) |  |  | (5,000 | ) |  |  | (18,000 | )
Depreciation and amortization |  |  | 42,000 |  |  |  | 46,000 |  |  |  | 126,000 |  |  |  | 127,000 |
Equity compensation including liability classified awards |  |  | 712,000 |  |  |  | 3,140,000 |  |  |  | 6,006,000 |  |  |  | 3,329,000 |
Adjusted EBITDA |  | $ | (272,000 | ) |  | $ | 169,000 |  |  | $ | (369,000 | ) |  | $ | (306,000 | )

Off-Balance Sheet Arrangements

We have never entered into any off-balance sheet financing arrangements and have not established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Forward Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, loss from operations and cash flow. Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s 1 current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Financial instruments, which subject us to concentrations of credit risk, consist primarily of cash. We maintain cash in two financial institutions. We perform periodic evaluations of the relative credit standing of these institutions.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer, concluded that, as of September 30, 2021, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed in the reports required to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company. Management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of September 31, 2021 and 2020, based on the framework and criteria established in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

At the time of our Original Filing, management, including our Chief Executive Officer and our Chief Financial Officer, initially concluded that our internal control over financial reporting was effective as of September 30, 2021 and 2020. As a result of the restatement of the Company’s financial statements and the filing of this Form 10-Q/A, our management has reconsidered its assessment and now concludes that we did not maintain effective internal control over financial reporting as of September 30, 2021 and 2020, due to the material weakness in internal control over financial reporting described below that existed as of September 30, 2021 and 2020.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified the following material weaknesses in our internal control over financial reporting related to its accounting for equity compensation. Specifically, the Company did not maintain a compliment of accounting personnel with sufficient knowledge, experience and training in the application of U.S. GAAP as it relates to accounting and reporting for equity compensation. This material weakness contributed to a failure to maintain effective controls over the accounting and reporting for stock options.

Remediation Plan

Historically, the Company managed the administration and recordkeeping of the Company’s equity compensation in-house. Managing this complex process was unduly burdensome and directly contributed to the material weakness.

Beginning in the second quarter of 2022, the Company will no longer maintain the administration and recordkeeping of its equity compensation plans internally but will rather outsource this function to an outside brokerage firm specializing in these tasks. This specialization will improve the accuracy of reporting and the Company’s legal and regulatory compliance around equity compensation.

The Company has also engaged a professional services firm to oversee the implementation of a global broker-dealer firm specializing in equity compensation platforms, as well as provide recommendations on best practices, processes, and internal controls going forward.

Changes in Internal Controls over Financial Reporting

Except for the identification of the material weakness described above, there was no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2020 covered by this Quarterly Report on Form 10-Q/A that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

There was no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2021 covered by this Quarterly Report on Form 10-Q/A that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Part II - Other Information

Item 1. LEGAL PROCEEDINGS

None.

Item 1A. Risk Factors

Current economic conditions including the ongoing COVID-19 pandemic may cause a decline in business and consumer spending which could adversely affect our business and financial performance.

Our operating results may be impacted by the overall health of the North American economy. Our business and financial performance, including collection of our accounts receivable and recoverability of assets, may be adversely affected by current and future economic conditions, such as a reduction in the availability of credit, financial market volatility, recession, etc.

In December 2019, it was first reported that there had been an outbreak of a novel strain of COVID-19, in China. Since then, COVID-19 has continued to spread outside of China, including throughout the United States and other parts of the world, becoming a global pandemic. For the period covered by this Form 10-Q, the COVID-19 pandemic has impacted our business and will likely continue to impact our business directly and/or indirectly for the foreseeable future. While we are hopeful that widespread vaccinations from COVID-19 will usher a new sense of normalcy, we are unable to accurately predict the full impact that the COVID-19 pandemic will have on our results of operations or financial condition due to numerous factors that are not within our control, including the duration and severity of the outbreak together with any additional statewide closures resulting from increases in cases nationwide, whether from COVID-19 or variants to COVID-19, such as the Delta variant, which may be more contagious and may or may not be preventable by the currently available vaccines, including recently approved booster regimens.

Governments in affected regions have implemented and may continue to implement safety precautions, including stay-at-home orders, travel restrictions, business closures, cancellations of public gatherings, and other measures. Other organizations and individuals are taking additional steps to avoid or reduce infection, including limiting travel and having employees work remotely. These measures have disrupted normal business operations both in and outside of affected areas. While many of the original restrictions levied by governments have been removed, given the recent rise in cases, it is possible that local governments may reinstitute some or all of the previously implemented restrictive measures in order to curtail the increase in the number of reported cases. We continue to monitor our operations and government recommendations and have made appropriate modifications to our operations because of COVID-19, including transitioning to a remote work environment, substantial reductions in employee travel, virtualization or cancellation of customer and employee events, and remote sales, implementation, and support activities, among other modifications. These decisions may delay or reduce sales and harm productivity and collaboration. The cancellation of industry events nationwide reduces our ability to meet with existing and potential new customers. Our customers’ businesses could be disrupted or they could seek to limit technology spending, either of which could foreclose future business opportunities, could negatively impact the willingness of our customers to enter into or renew contracts with us, and ultimately adversely affect our revenues. Although we are unable to predict the precise impact of COVID-19 on our business, our business depends to a large extent on the willingness of customers to enter into or renew contracts with us.

In addition, while the long-term economic impact and the duration of the COVID-19 pandemic may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which could reduce our ability to access capital and could negatively affect our liquidity and the liquidity and stability of markets for our common stock.

Our operations and financial results are subject to various other risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of our common stock. Please refer to our annual report on Form 10-K/A for fiscal years ended December 31, 2021 and 2020 filed June 9, 2022.

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None

Item 6. Exhibits

(a) The following exhibits are filed as part of the Quarterly Report on Form 10-Q:

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 |  | Inline XBRL Instance Document
101.SCH |  | Inline XBRL Taxonomy Extension Schema
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase
104 |  | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: June 9, 2022 | Intellicheck, Inc.
| By: | /s/ Bryan Lewis
|  | Bryan Lewis
|  | Chief Executive Officer
|  | (Principal Executive Officer)
| By: | /s/ Jeffrey Ishmael
|  | Jeffrey Ishmael
|  | Chief Financial Officer, Chief Operating Officer

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