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What changed in Intellicheck, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Intellicheck, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+130 added−121 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-28)

Top changes in Intellicheck, Inc.'s 2023 10-K

130 paragraphs added · 121 removed · 93 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn October 2002 and July 2005, we were granted additional patents that are a continuation of our patents relating to our document authentication and age verification technology. Upon our acquisition of the assets of IDentiScan, we received equitable ownership and sole ownership rights to its intellectual property, including other patents and patent applications relating to age verification technology.
Biggest changeUpon our acquisition of the assets of IDentiScan, we received equitable ownership and sole ownership rights to its intellectual property, including other patents and patent applications relating to age verification technology. During 2010, we were granted two additional patents. The first patent was for a software key control for mobile devices.
Our Intellicheck Platform can quickly determine if: • the format of the document is valid; • the document has been altered or is fake, by displaying the parsed, encoded data for comparison with the printed information; • the document has expired; or • the encoded data contains a date of birth equal to or greater than the legal age to purchase age restricted products, such as alcohol, vaping, cannabis and tobacco.
Our Intellicheck Platform can quickly determine if: • the format of the document is valid; • the document has been altered or is fake, by displaying the parsed, encoded data for comparison with the printed information; • the document has expired; or • the encoded data contains a date of birth equal to or greater than the legal age to purchase age restricted products, such as alcohol, vaping products, cannabis and tobacco.
Productivity Enhancement ■ Mass merchandisers and retailers ■ Auto dealerships and rental car agencies ■ Banks and other financial institutions ■ Casinos for enrollment of guests ■ Credit unions ■ Hospital patient admissions 8 Table of Contents ■ Credit card issuers ■ Lodging Industry ■ Check cashing services ■ Airlines Commercial fraud protection ■ Mass merchandisers and retailers ■ Auto dealerships and rental car agencies ■ Banks and other financial institutions ■ Casino cage operations ■ Credit unions ■ Hospitals, medical facilities and health plans ■ Credit card issuers ■ Lodging Industry ■ Check cashing services ■ Pharmacies Access control ■ Airports and airlines ■ Prisons ■ Departments of Motor Vehicles ■ Law enforcement agencies ■ Notable buildings ■ Military establishments ■ Court houses ■ College campuses ■ Nuclear facilities ■ Department of Homeland Security ■ Oil refineries and storage facilities ■ Bus, rail and port facilities Age verification ■ Bars and night clubs ■ Stadiums and arenas ■ Convenience stores ■ Casinos and gaming establishments ■ Grocery chains ■ Law Enforcement ■ Restaurants ■ Firearm dealers ■ Cannabis Industry Law Enforcement/Government ■ FBI ■ Drug Enforcement Administration ■ State & Local Police ■ Local Sheriffs ■ Bureau of Alcohol, Tobacco, Firearms, and Explosives ■ Intelligence Agencies ■ Customs ■ Department of Transportation ■ Department of Homeland Security ■ Border Patrol 9 Table of Contents MARKETING AND DISTRIBUTION Commercial Identity Systems Our objective is to become a leading developer and distributor of document and age verification software.
Productivity Enhancement ■ Mass merchandisers and retailers ■ Auto dealerships and rental car agencies ■ Banks and other financial institutions ■ Casinos for enrollment of guests ■ Credit unions ■ Hospital patient admissions ■ Credit card issuers ■ Lodging Industry 8 Table of Contents ■ Check cashing services ■ Airlines Commercial fraud protection ■ Mass merchandisers and retailers ■ Auto dealerships and rental car agencies ■ Banks and other financial institutions ■ Casino cage operations ■ Credit unions ■ Hospitals, medical facilities and health plans ■ Credit card issuers ■ Lodging Industry ■ Check cashing services ■ Pharmacies Access control ■ Airports and airlines ■ Prisons ■ Departments of Motor Vehicles ■ Law enforcement agencies ■ Notable buildings ■ Military establishments ■ Court houses ■ College campuses ■ Nuclear facilities ■ Department of Homeland Security ■ Oil refineries and storage facilities ■ Bus, rail and port facilities Age verification ■ Bars and night clubs ■ Stadiums and arenas ■ Convenience stores ■ Casinos and gaming establishments ■ Grocery chains ■ Law Enforcement ■ Restaurants ■ Firearm dealers ■ Cannabis Industry Law Enforcement/Government ■ FBI ■ Drug Enforcement Administration ■ State & Local Police ■ Local Sheriffs ■ Bureau of Alcohol, Tobacco, Firearms, and Explosives ■ Intelligence Agencies ■ Customs ■ Department of Transportation ■ Department of Homeland Security ■ Border Patrol 9 Table of Contents MARKETING AND DISTRIBUTION Commercial Identity Systems Our objective is to become a leading developer and distributor of document and age verification software.
To date, our marketing efforts have been through direct sales by our sales and marketing personnel, through resellers and license agreements. W e are marketing our products through direct marketing approaches such as web marketing, a small number of select trade shows and well-known public interest and trade associations.
To date, our marketing efforts have been through direct sales by our sales and marketing personnel, through resellers through license agreements. W e are marketing our products through direct marketing approaches such as web marketing, a small number of select trade shows and well-known public interest and trade associations.
Our proprietary Intellicheck Platform software can add functionality to virtually any given software application to automatically populate fields within a given form, when a government-issued photo ID is presented. Our ability to correctly read and authenticate all U.S. jurisdictions, coupled with our proprietary technology, is a key differentiator from our competitors.
Our proprietary Intellicheck Platform software can add functionality to virtually any given software application to automatically populate fields within a given form, when a government-issued photo ID is presented. Our ability to correctly read and authenticate in all U.S. jurisdictions, coupled with our proprietary technology, is a key differentiator from our competitors.
Our software solutions can be used through a mobile device, a browser, or a retail point-of-sale scanner. We plan to expand our business in the near term by pursuing a strategy designed to increase market share in our existing markets and expand into new product markets that are expected to benefit from fraud prevention and identity validation.
Our software solutions can be used through a mobile device, a browser, or a retail point-of-sale scanner. We plan to expand our business in the near term by continuing to pursue a strategy designed to increase market share in our existing markets and expand into new product markets that are expected to benefit from fraud prevention and identity validation.
We generate revenues from the licensing of our software and to a much lesser extent the selling of bundled solutions that contain hardware and software. Depending on the specific needs of our clients, we tailor the right solution for them.
We generate revenues from the licensing of our software and to a much lesser extent the selling of bundled solutions that contain hardware and software. Depending on the specific needs of our clients, we tailor the appropriate solution for them.
In response to the COVID-19 pandemic, we implemented and have continued significant changes that we determined were in the best interest of our employees, as well as the community in which we operate, and which comply with government regulations, including working in a remote environment where appropriate or required. 12 Table of Contents
In response to the COVID-19 pandemic, we implemented and have continued significant changes that we determined were in the best interest of our employees, as well as the community in which we operate, and which comply with government regulations, including working in a remote environment where appropriate or required.
Some of these companies have included Lenel, AMAG Technology, Inc., in the defense industry; Zebra Technologies hardware manufacturers; and Idemia Identity & Security USA, facial biometrics companies Ipsidy and Applied Recognition. We are an associate member of AAMVA and a member of AAMVA’s Industry Advisory Board.
Some of these companies have included Lenel, 7 Table of Contents AMAG Technology, Inc., in the defense industry; hardware manufacturers Zebra Technologies; Idemia Identity & Security USA; and facial biometrics companies Ipsidy and Applied Recognition. We are an associate member of AAMVA and a member of AAMVA’s Industry Advisory Board.
We were granted two patents in 2019 that were a continuation of earlier filed applications. The first patent is related to checking the validity of identification documents using a remote database. The second patent related to identification scanning in compliance with jurisdictional or other rules. In 2020, we were granted two patents that were a continuation of earlier filed applications.
The first patent is related to checking the validity of identification documents using a remote database. The second patent related to identification scanning in compliance with jurisdictional or other rules. In 2022, we were granted two patents that were a continuation of earlier filed applications.
Our technologies address problems such as: ■ Commercial Fraud and Risk Management – which may lead to economic losses to financial institutions and merchants from check cashing, debit and credit card transactions, account take overs, e-commerce as well as other types of fraud such as identity theft that principally use fraudulent identification documents as proof of identity; ■ Instant Credit Card Approval – retail stores and financial institutions use our technology to scan a driver license at a kiosk or at the Point of Sale (POS) to confirm that an applicant is who they claim to be with additional certainty.
Our technologies address problems such as: ■ Commercial Fraud – financial institutions and merchants use our technology to prevent economic losses from check cashing, debit and credit card transactions, account take overs, e-commerce as well as other types of fraud such as identity theft that principally use fraudulent identification documents as proof of identity; ■ Instant Credit Card Approval – retail stores and financial institutions use our technology to scan a driver license at a kiosk or at the Point of Sale (POS) to confirm that an applicant is who they claim to be with additional certainty.
Additionally, Portal+ offers global document validation, retail POS integration, additional data for analytics and analysis and online validation among other features. • IDN-Direct • IDN-Direct provides the capabilities of the Intellicheck platform within the users own apps and integrated with their systems. IDN-Direct is accessible through the Intellicheck API to aid integration into customer applications and systems.
Additionally, Portal+ also adds global document validation, retail POS integration, additional data for analytics and analysis and online validation among other features. • IDN-Direct • IDN-Direct provides the capabilities of the Intellicheck platform within user's own apps and integrated with their systems. IDN-Direct is accessible through the Intellicheck API to aid integration into customer applications and systems.
MAJOR CUSTOMERS Although the composition of our largest customers has changed from year to year, a significant portion of our revenues have been attributable to a limited number of major customers. In 2022, our top ten customers accounted for approximately 72% of total revenues. In 2021, our top ten customers accounted for approximately 79% of total revenues.
MAJOR CUSTOMERS Although the composition of our largest customers has changed from year to year, a significant portion of our revenues have been attributable to a limited number of major customers. In 2023, our top ten customers accounted for approximately 71% of total revenues. In 2022, our top ten customers accounted for approximately 72% of total revenues.
We have entered strategic alliances to utilize our systems and software as the proposed or potential enrollment application for their technologies and to jointly 7 Table of Contents market these security applications with multiple biometric companies.
We have entered strategic alliances to utilize our systems and software as the proposed or potential enrollment application for their technologies and to jointly market these security applications with multiple biometric companies.
We also market our products to opportunities where our Intellicheck Platform technology can be used to enhance productivity. We have made significant progress in the sectors for the retail issuance of instant credit. We believe there are financial benefits and compelling business models for customers in this sector to utilize our technology.
We also market our products to businesses where there are opportunities for our Intellicheck Platform technology to enhance productivity. We have made significant progress in the sectors for the retail issuance of instant credit. We believe there are financial benefits and compelling business models for customers in the below sectors to utilize our technology.
IDN-Portal provides the flexibility to allow the Intellicheck customer or their customer to perform the scan and enables the Intellicheck customer to manage their application online using the PC. • IDN-Portal+ • IDN-Portal+ starts with all the features of IDN-Portal in addition to the ability to perform a facial biometrics test to match the picture on the ID to a selfie of the user presenting the ID.
IDN-Portal provides the flexibility to allow the Intellicheck customer or their customer to perform the scan and enables the Intellicheck customer to manage their application online using the PC. • IDN-Portal+ • IDN-Portal+ has all the features of IDN-Portal and additionally includes the ability to perform a facial biometrics test to match the picture on the ID to a selfie of the user presenting the ID.
These solutions include our commercial identity systems focusing on workflow, productivity enhancement, fraud protection and risk management segments. Key elements of our strategy are as follows: Commercial Systems Productivity Enhancement. We market our technology as a key productivity enhancement tool.
STRATEGY Our objective is to be a leading identity verification company providing world class solutions in the identity sector. These solutions include our commercial identity systems focusing on workflow, productivity enhancement, fraud protection and risk management segments. Key elements of our strategy are as follows: Commercial Systems Productivity Enhancement. We market our technology as a key productivity enhancement tool.
If approved, the applicant is granted instant credit which can then be used to make purchases. Upgrade Capability Our Intellicheck Platform products and related databases are constantly updated to stay current with identification formats and new forms of ID. STRATEGY Our objective is to be a leading identity verification company providing world class solutions in the identity sector.
If approved, the applicant is granted instant credit which can then be used to make purchases. Upgrade Capability Our Intellicheck Platform products and related databases are constantly updated to stay current with identification formats, new forms of ID and government regulations guiding use of digital information.
The Mobile Key Manager communicates with the mobile device, reading its ID, and then requests a registration key specific for that ID from Intellicheck's server.
It is used to get a registration key for the parser that is based on the unique internal ID of one mobile device. The Mobile Key Manager communicates with the mobile device, reading its ID, and then requests a registration key specific for that ID from Intellicheck's server.
In 2016 we were granted one patent in Canada that was a continuation of an earlier filed application and is related to identity matching in response to threat levels. In 2018, we were granted one patent that was also a continuation of an earlier filed application to a document comparison that compares information contained in multiple documents.
In 2016 we were granted one patent in Canada that was a continuation of an earlier filed application and is related to identity matching in response to threat levels. 11 Table of Contents We were granted two patents in 2019 that were a continuation of earlier filed applications.
Four are engaged in executive management such as our Chief Executive Officer, Chief Financial Officer and Chief Technology Officer, twenty-five in information technology including those participating in our research and development efforts, fourteen in sales and marketing, four in customer and support integration, and six in administration.
We have twenty-five employees in information technology including those participating in our research and development efforts, eleven employees in sales and marketing, five employees in customer and support integration, and seven employees in administration.
INTELLECTUAL PROPERTY We currently hold eighteen (18) U.S. patents and one (1) Canadian patent. At present, we have three patent applications pending in the U.S. Patent and Trademark Office. These patents cover commercially important aspects of our capabilities relating to the authentication and verification of identification documents.
INTELLECTUAL PROPERTY We currently hold ten (10) U.S. patents and one (1) Canadian patent. These patents cover commercially important aspects of our capabilities relating to the authentication and verification of identification documents. We will continue to pursue patents for all our new technologies arising from our research and development efforts. In January 1999, the U.S.
As an example, a passport is compared to a boarding pass to determine if “like information” matches, for instance name and birthdate. 11 Table of Contents In 2014, we were granted one patent that was also a continuation of an earlier-filed application.
As an example, a passport is compared to a boarding pass to determine if “like information” matches, for instance name and birthdate.
EMPLOYEES AND HUMAN CAPITAL RESOURCES As of March 28, 2023, we had 53 full-time employees.
EMPLOYEES AND HUMAN CAPITAL RESOURCES As of April 1, 2024, we had 51 full-time employees. Three are engaged in executive management — our Chief Executive Officer, Chief Financial Officer and Chief Technology Officer.
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We will continue to pursue patents for all our new technologies arising from our research and development efforts. In January 1999, the U.S. Patent and Trademark Office granted us a patent on our ID Check ® software technology.
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Patent and Trademark Office granted us a patent on our ID Check ® software technology. In October 2002 and July 2005, we were granted additional patents that are a continuation of our patents relating to our document authentication and age verification technology.
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During 2010, we were granted two additional patents. The first patent was for a software key control for mobile devices. It is used to get a registration key for the parser that is based on the unique internal ID of one mobile device.
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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.
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The patent is related to a document comparison system that compares information contained in two documents to determine whether certain information is substantially identical on each document. The system provides a positive or negative indication as to whether portions of the two documents are substantially identical.
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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 current expectations and beliefs about future events.
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In 2015, we acquired an intellectual property portfolio that includes four patents involving technologies for checking the validity of identification documents using a remote database. Certain patents in this portfolio address the use of biometric information and identification credentials as part of the process to control access to a secured area.
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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. 12 Table of Contents
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The first patent is related to checking the validity of identification documents using a remote database. The second patent is related to document comparison that compares information contained in multiple documents. In 2022, we were granted two patents that were a continuation of earlier filed applications.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeDemand as well as industry acceptance for recently introduced and existing systems, and software and sales from such systems and software, are subject to a high level of uncertainty and risk. With changing administration in government, changes in government budgets, and slowly evolving government standards on use of identity products, the government sector is slowly developing.
Biggest changeThe industry for our systems and software is evolving and its growth is uncertain. Demand and industry acceptance for recently introduced and existing systems, and software and sales from such systems, are subject to a high level of uncertainty and risk.
Our loss of one or more significant customers could have a significant adverse impact on our business, financial condition, and results of operations. Risks Related to Our Common Stock and the Market for Our Common Stock Our share price may be volatile and could decline substantially.
The loss of one or more significant customers could have a significant adverse impact on our business, financial condition, and results of operations. Risks Related to Our Common Stock and the Market for Our Common Stock Our share price may be volatile and could decline substantially.
As a result, we would incur substantial costs, delays in product development, sales and shipments, and our revenues may decline substantially. Additionally, we may not be able to achieve the minimum necessary growth for our continued success. Failure to attract and retain management and other personnel may damage our operations and financial results and cause our stock price to decline.
As a result, we would incur substantial costs, delays in product development, sales and shipments, and our revenues may decline substantially. Additionally, we may not be able to achieve the growth necessary for our continued success. Failure to attract and retain management and other personnel may damage our operations and financial results and cause our stock price to decline.
Any future determination as to the declaration and payment of cash dividends will be at 17 Table of Contents the discretion of our Board of Directors and will depend on factors the Board of Directors deems relevant, including among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our credit facilities and other financing arrangements.
Any future determination as to the declaration and payment of cash dividends will be at the discretion of our Board of Directors and will depend on factors the Board of Directors deems relevant, including among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our credit facilities and other financing arrangements.
Decreases in the price of our common stock may also lead to de-listing of our common stock. Future capital requirements may require incurring debt or dilution of existing stockholders. Acquisition and development opportunities and other contingencies may arise, which could require us to raise additional capital or incur debt.
Decreases in the price of our common stock may also lead to de-listing of our common stock. 17 Table of Contents Future capital requirements may require incurring debt or dilution of existing stockholders. Acquisition and development opportunities and other contingencies may arise, which could require us to raise additional capital or incur debt.
If we are unable to successfully respond to these developments, or do not respond in a cost-effective manner, our business, financial condition, and results of operations will be materially adversely affected. 16 Table of Contents Our percentage of revenues and customer concentration is significant.
If we are unable to successfully respond to these developments, or do not respond in a cost-effective manner, our business, financial condition, and results of operations will be materially adversely affected. Our percentage of revenues and customer concentration is significant.
The failure of foreign laws or judicial systems to adequately protect our proprietary rights or intellectual property, including intellectual property developed on our behalf by foreign contractors or subcontractors, may have a material adverse effect on our business, operations, and financial results.
The failure of foreign laws or judicial systems to adequately protect our proprietary rights or intellectual property, including 14 Table of Contents intellectual property developed on our behalf by foreign contractors or subcontractors, may have a material adverse effect on our business, operations, and financial results.
Long lead times for the components used in certain products creates uncertainty in our supply chain and may prevent us from making required deliveries to our customers on time. We rely exclusively on commercial off-the-shelf technology in manufacturing our products. The lead-time for ordering certain components used in our products and the production of products can be lengthy.
Long lead times for the components used in certain products creates uncertainty in our supply chain and may prevent us from making required deliveries to our customers on time. We rely exclusively on COTS technology in manufacturing our products. The lead-time for ordering certain components used in our products and the production of products can be lengthy.
These processes include: ■ contractual arrangements providing for nondisclosure of proprietary information; ■ maintaining and enforcing issued patents and filing patent applications on innovative solutions to commercially important problems; ■ protecting trade secrets; ■ protecting copyrights and trademarks by registration and other appropriate means; ■ establishing internal processes for identifying and appropriately protecting new and innovative technologies; and ■ establishing practices for identifying unauthorized use of intellectual property.
These processes include: ■ including provisions for nondisclosure of proprietary information in our contractual arrangements; ■ maintaining and enforcing issued patents and filing patent applications on innovative solutions to commercially important problems; ■ protecting trade secrets; ■ protecting copyrights and trademarks by registration and other appropriate means; ■ establishing internal processes for identifying and appropriately protecting new and innovative technologies; and ■ establishing practices for identifying unauthorized use of intellectual property.
As a result, we must, from time to time, order products based on forecasted demand. If demand for products lags significantly behind forecasts, we 15 Table of Contents may purchase more product than we can sell. Conversely, if demand exceeds forecasts, we may not have enough products to meet our obligations to our customers.
As a result, we must, from time to time, order products based on forecasted demand. If demand for products lags significantly behind forecasts, we may purchase more product than we can sell. Conversely, if demand exceeds forecasts, we may not have enough products to meet our obligations to our customers.
Currently, the fifty states, ten Canadian provinces and the District of Columbia, in most instances, conform to the guidelines established by certain organizations responsible for implementing industry standards and, cooperate with us by providing sample identification cards so that we may modify all our hardware and software products to read and analyze the encoded information found on such jurisdiction’s identification cards.
Currently, every U.S. state, ten Canadian provinces and the District of Columbia, in most instances, conform to the guidelines established by certain organizations responsible for implementing industry standards and, cooperate with us by providing sample identification cards so that we may modify all our hardware and software products to read and analyze the encoded information found on such jurisdiction’s identification cards.
From January 1, 2002 to March 28, 2023, the intra-day trading price of our common stock has varied from a high of $145.52 to a low of $0.75 per share, as reported on The Nasdaq Stock Market.
From January 1, 2002 to April 1, 2024, the intra-day trading price of our common stock has varied from a high of $145.52 to a low of $0.75 per share, as reported on The Nasdaq Stock Market.
Failure to manage our operations if they expand could impair our future growth. If we can expand our operations, particularly through multiple sales to large retailers and government agencies in the document verification industry, the expansion will place significant strain on our management, financial controls, operating systems, personnel and other resources.
If we can expand our operations, particularly through multiple sales to large retailers and government agencies in the document verification industry, the expansion will place significant strain on our management, financial controls, operating systems, personnel and other resources.
In addition, the stock market experiences extreme fluctuations in price and volume, which was heightened as a result of the COVID-19 pandemic and the rise in interest rates, that particularly affect the market price of shares of technology companies, such as ours. These price and volume fluctuations are often unrelated or disproportionate to the operating performance of the affected companies.
In addition, the stock market experiences extreme fluctuations in price and volume, that particularly affect the market price of shares of technology companies, such as ours. These price and volume fluctuations are often unrelated or disproportionate to the operating performance of the affected companies.
The commercial sector can develop faster than the government sector, but it is also subject to a higher level of uncertainty because of potential uncertainty in the continued financial health of our commercial customers, as well as long sales cycles. Our business may suffer if the industry develops more slowly than anticipated and does not sustain industry acceptance.
The commercial sector can develop faster than the government sector, but it is also subject to a higher level of uncertainty because of potential uncertainty in the continued financial health of our commercial customers, as well as long sales cycles.
Revenues from our ten largest customers accounted for 72% of total revenues in 2022 and 79% of total revenues in 2021. Three customers accounted for 52% of revenues in 2022 and two customers accounted for 55% of revenues in 2021.
Revenues from our ten largest customers accounted for 71% of total revenues in 2023 and 72% of total revenues in 2022. Three customers accounted for 47% of revenues in 2023 and three customers accounted for 52% of revenues in 2022.
Patent and Trademark Office or oppositions in foreign patent and trademark offices, which could result in substantial cost and limitations on the scope or validity of our patents or trademarks. 14 Table of Contents Additionally, third parties, including our competitors or licensees, may seek to have our patents reviewed by the Patent Trial and Appeal Board of the United States Patent and Trademark Office in a post grant proceeding, such as post grant review or an inter parties review.
Additionally, third parties, including our competitors or licensees, may seek to have our patents reviewed by the Patent Trial and Appeal Board of the United States Patent and Trademark Office in a post grant proceeding, such as post grant review or an inter parties review.
We carry product liability insurance, but existing coverage may not be adequate to cover potential claims. The failure of our products to perform as promised could result in increased costs, lower margins, liquidated damage payment obligations and harm to our reputation. We may not be able to keep up with rapid technological change.
The failure of our products to perform as promised could result in increased costs, lower margins, liquidated damage payment obligations and harm to our reputation. We may not be able to keep up with rapid technological change. The sectors for all our products are characterized by rapid technological advancements. Significant technological change could render existing technology obsolete.
These initiatives have costs associated with them, and we cannot assure you that they ultimately will prove successful, or result in, an increase to our revenues or profitability. We could be negatively impacted by the ongoing coronavirus (COVID-19) pandemic. In December 2019, it was first reported that there had been an outbreak of a novel strain of COVID-19, in China.
These initiatives have costs associated with them, and we cannot assure you that they ultimately will prove successful, or result in, an increase to our revenues or profitability. We could be negatively impacted by COVID-19, or other similar pandemics.
We incurred net losses of $(3,851) and $(7,478) for the fiscal years ended December 31, 2022 and 2021, respectively. Our accumulated deficit was $(130,748) as of December 31, 2022.
We incurred net losses of $(1,980) and $(4,159) for the fiscal years ended December 31, 2023 and 2022, respectively. Our accumulated deficit was $(133,565) as of December 31, 2023.
Because of the risk of undetected error, we may be compelled to accept liability provisions that vary from our preferred contracting model in certain critical transactions. There is a risk that in certain contracts and circumstances we may not be successful in adequately minimizing product and related liabilities or that the protections negotiated will not ultimately be deemed enforceable.
There is a risk that in certain contracts and circumstances we may not be successful in adequately minimizing product and related liabilities or that the protections negotiated will not ultimately be deemed enforceable. We carry product liability insurance, but existing coverage may not be adequate to cover potential claims.
Declines in our stock price for any reason, as well as broad-based market fluctuations or fluctuations related to our financial results or other developments outside of our control such as market reactions to increasing inflation described above or to ongoing hostilities between Russia and the Ukraine, may adversely affect your ability to sell your shares at a price equal to or above the price at which you purchased them.
Declines in our stock price for any reason, fluctuations related to our financial results or due to macroeconomic conditions, including inflation and rising interest rates, capital market volatility and global conflicts, including the Russia-Ukraine war, the Israel-Hamas war and the conflict between China and Taiwan, may adversely affect your ability to sell your shares at a price equal to or above the price at which you purchased them.
While many of the original restrictions levied by governments in 2020 have been removed, additional variants, could emerge causing significant increases in cases which could cause governments to reinstitute some or all of the previously implemented restrictive measures in order to curtail the increase in the number of reported cases.
While many of the original restrictions levied by governments in 2020 have been removed, additional variants, or similar pandemics in the future, could cause governments to reinstitute some or all of the previously implemented restrictive measures. Such restrictions could lead to the cancellation of industry events which could limit our ability to meet with existing and potential new customers.
Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our stock. There is no guarantee that our stock will appreciate. Item 1B. Unresolved Staff Comments Not applicable.
Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our stock. There is no guarantee that our stock will appreciate. The Company's cash and cash equivalents could be adversely affected by bank failures or other events affecting financial institutions and could adversely affect our liquidity and financial performance.
Governments in affected regions have implemented and could re-implement safety precautions, including stay-at-home orders, travel restrictions, business closures, cancellations of public gatherings, and other measures.
As a result of the COVID-19 pandemic, or other similar pandemics, we may in the future experience disruptions that could severely impact our business, including government shutdowns, stay-at-home orders, travel restrictions, business closures, cancellations of public gatherings, and other measures.
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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. Since then, the pandemic has seen waves of increases and decreases of infections due to the emergence of variants to the original COVID-19 strain such as the Delta variant and Omicron variant.
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With changing administration in government, changes in government budgets, and slowly evolving government standards on use of identity products, the government sector is slowly developing.
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While we are hopeful that widespread vaccinations from COVID-19, together with increases in immunity within the population and an overall decrease in cases, will continue to usher in a new sense of normalcy, we are unable to accurately predict the full impact that the COVID-19 pandemic could 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 any future outbreak together with any additional statewide closures resulting from increases in cases nationwide, whether from COVID-19 or recently discovered or newly emerged variants.
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Our business may suffer if the industry develops more slowly than anticipated and does not sustain industry acceptance. 13 Table of Contents Failure to manage our operations if they expand could impair our future growth.
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Such additional restrictions could lead to the cancellation of industry events which could limit our ability to meet with existing and potential new customers. 13 Table of Contents The industry for our systems and software is evolving and its growth is uncertain.
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Patent and Trademark Office or oppositions in foreign patent and trademark offices, which could result in substantial cost and limitations on the scope or validity of our patents or trademarks.
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The sectors for all our products are characterized by rapid technological advancements. Significant technological change could render existing technology obsolete.
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Failure to maintain effective internal control over our financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could cause our financial reports to be inaccurate. We are required pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to maintain internal control over financial reporting and to assess and report on the effectiveness of those controls.
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This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities.
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If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation.
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Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements. 15 Table of Contents Our management has concluded that our internal controls over financial reporting were ineffective, as of December 31, 2023 as a result of the following: The Company did not design and maintain effective controls to periodically reassess whether Nexus was achieved in the states we do business.
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This caused us not to be able to collect sales tax from our customer and subsequently remitting those sales tax to the appropriate state tax agency. During our assessment in 2023, it was determined that we had prior period sales tax obligation on certain states, in which we failed to collect and remit the sales tax..
Added
While management intends to remediate the material weakness, there is no assurance that such changes, when economically feasible and sustainable, will remediate the identified material weaknesses or that the controls will prevent or detect future material weaknesses.
Added
If we are not able to maintain effective internal control over financial reporting, our financial statements, including related disclosures, may be inaccurate, which could have a material adverse effect on our business.
Added
Because of the risk of undetected error, we may be compelled to accept liability provisions that vary from our preferred contracting model in certain critical 16 Table of Contents transactions.
Added
We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks, in amounts which exceed the FDIC insurance limits.
Added
The failure or rumored failure of a bank, or events involving limited liquidity, defaults, non-performance, bankruptcy, receivership or other adverse developments in the financial or credit markets impacting financial institutions, may lead to disruptions in access to our bank deposits. These disruptions could impact our liquidity and financial performance.
Added
There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.
Added
As such, those funds in bank deposit accounts in excess of the standard FDIC insurance limits are uninsured and subject to the risk of bank failure. Currently, we have full access to all funds in deposit accounts or other money management arrangements.
Added
The failure of any bank in which we deposit our funds could reduce the amount of cash we have available for our operations or delay our ability to access such funds.
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In the event of such failure, we may experience delays or other issues in meeting our financial obligations, our ability to access our cash and cash equivalents may be threatened and could have a material adverse effect on our business and financial condition.
Added
Future adverse developments with respect to specific financial institutions or the broader financial services industry may also lead to market-wide liquidity shortages. Item 1B. Unresolved Staff Comments Not applicable.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLegal Proceedings 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. Item 4. Mine Safety Disclosures None 18 Table of Contents PART II
Biggest changeLegal Proceedings 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. Item 4. Mine Safety Disclosures None 19 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePlan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders (1) 1,512,824 $ 4.85 1,250,224 Equity compensation plans not approved by security holders N/A N/A Total 1,512,824 $ 4.85 1,250,224 (1) Represents 1,120,244 options, 214,892 restricted stock units and 177,688 performance stock units under the 2015 Omnibus Incentive Plan.
Biggest changePlan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders (1) 1,213,214 $ 3.13 1,138,925 Equity compensation plans not approved by security holders N/A N/A Total 1,213,214 $ 3.13 1,138,925 (1) Represents 1,152,714 options, 60,500 restricted stock units and zero performance stock units under the 2015 Omnibus Incentive Plan.
It is anticipated that cash dividends will not be paid to the holders of our common stock in the foreseeable future. (d) Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2022, with respect to the shares of our common stock that may be issued under our existing equity compensation plans.
It is anticipated that cash dividends will not be paid to the holders of our common stock in the foreseeable future. (d) Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2023, with respect to the shares of our common stock that may be issued under our existing equity compensation plans.
(c) No cash dividends or other cash distributions were made by us during the fiscal year ended December 31, 2022. Future dividend policy will be determined by our Board of Directors based on our earnings, financial condition, capital requirements and other then existing conditions.
(c) No cash dividends or other cash distributions were made by us during the fiscal year ended December 31, 2023. Future dividend policy will be determined by our Board of Directors based on our earnings, financial condition, capital requirements and other then existing conditions.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) Our common stock is traded on The Nasdaq Stock Market under the symbol “IDN.” (b) As of March 28, 2023, there were 29 shareholders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) Our common stock is traded on The Nasdaq Stock Market under the symbol “IDN.” (b) As of April 1, 2024, there were 28 shareholders of record of our common stock.
(e) Recent Sales of Unregistered Securities None. (f) Repurchases of Equity Securities There were no shares purchased during 2022. Item 6. [Reserved]
(e) Recent Sales of Unregistered Securities None. (f) Repurchases of Equity Securities There were no shares repurchased during 2023. Item 6. [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations (All dollar amounts are rounded to thousands, except per share data) Overview We are a prominent technology company that is engaged in developing, integrating and marketing identity authentication and threat identification solutions to address challenges that include bank and retail fraud prevention, law enforcement threat identification, and mobile and handheld access control and security for the government, military and commercial markets. 19 Table of Contents 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.
Biggest changeItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (All dollar amounts are rounded to thousands, except per share data) Overview We are a prominent technology company engaged in developing, integrating and marketing identity verification solutions to address challenges that include commercial retail and banking fraud prevention.
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 December 31, 2022 and 2021, due to the uncertainty of the realizability of those assets.
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 December 31, 2023 and 2022, due to the uncertainty of the realizability of those assets.
Reference Note 2, “Significant Accounting Policies”; Note 4, “Property and Equipment”; and Note 5, “Goodwill and Intangible Assets” in the Notes to Financial Statements for details on the Company’s valuations of our long-lived assets. Revenue Recognition and Deferred Revenue Most license fees and service revenues are generated from a combination of fixed-price and per-scan contracts.
Reference Note 2, “Significant Accounting Policies”; Note 4, “Property and Equipment”; and Note 5, “Goodwill and Intangible Assets” in the Notes to Financial Statements for details on the Company’s valuations of our long-lived assets. Revenue Recognition and Deferred Revenue SaaS fees and service revenues are generated from a combination of fixed-price and per-scan contracts.
Reference Note 9, “Stockholders’ Equity,” in the Notes to Financial Statements for details on the Company’s equity compensation plans. 20 Table of Contents 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.
Reference Note 9, “Stockholders' Equity,” in the Notes to Financial Statements for details on the Company’s stock-based compensation plans. 21 Table of Contents 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.
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.
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 23 Table of Contents not be considered in isolation or as a substitute for net loss presented in accordance with GAAP.
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.
This pronouncement establishes fair value as the measurement objective in accounting for stock-based compensation payment arrangements and requires all companies to apply a fair value-based measurement method in accounting for all stock-based compensation payment transactions with employees.
Adjusted EBITDA as defined by us may not be comparable with similarly named measures provided by other entities.
Adjusted EBITDA as defined by us may not be comparable with similarly named measures provided by other companies.
Significant estimates and assumptions that affect amounts reported in the financial statements include impairment consideration and valuation of goodwill and intangible assets, deferred tax valuation allowances, allowance for doubtful accounts, revenue recognition (including breakage revenue), and the fair value of stock options granted under our stock-based compensation plans.
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 credit losses, revenue recognition (including breakage revenue), and the fair value of stock options under our stock-based compensation plans.
By excluding non-cash charges such as gains on debt forgiveness, impairments of long-lived assets and goodwill, amortization, depreciation and stock-based compensation, as well as non-operating charges for interest and provisions for income taxes, investors can evaluate our operations and can compare the results on a more consistent basis to the results of other companies.
By excluding non-cash charges such as impairments of long-lived assets and goodwill, sales tax accrual, amortization, depreciation and stock-based compensation, as well as non-operating charges for interest and provisions for income taxes, investors can evaluate our operations and can compare the results on a more consistent basis to the results of other companies.
Valuation of long-lived assets Our long-lived assets include property and equipment, goodwill, and intangible assets. As of December 31, 2022, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization and impairments, were $749, $8,102 and $273, respectively.
As of December 31, 2022, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization and impairments, were $749, $8,102 and $273, respectively.
However, there are significant limitations to the use of Adjusted EBITDA since it excludes gains on debt forgiveness, provisions for income taxes, interest and other (expense) income, impairments of long-lived assets and goodwill, stock-based compensation expense, all of which impact our profitability, as well as depreciation and amortization related to the use of long-term assets which benefit multiple periods.
However, there are significant limitations to the use of Adjusted EBITDA since it excludes non-restructuring severance expenses, sales tax accrual, provisions for income taxes, interest and other (expense) income, impairments of long-lived assets and goodwill, stock-based compensation expense, all of which impact our profitability, as well as depreciation and amortization related to the use of long-term assets which benefit multiple periods.
In certain instances, customization services are determined to be essential to the functionality of the delivered software. Under Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” 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.
Under Accounting Standards Codification (“ASC”) 606, “ Revenue from Contracts with Customers, ” 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 do not expect this standard will have a material impact on our financial statements. Off-Balance Sheet Arrangements We have never entered any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered any options on non-financial assets.
Off-Balance Sheet Arrangements We have never entered any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered any options on non-financial assets.
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.
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.
As of December 31, 2021, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization and impairments, were $737, $8,102 and $378, respectively.
Valuation of long-lived assets Our long-lived assets include property and equipment, goodwill, and intangible assets. As of December 31, 2023, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization and impairments, were $666, $8,102 and $575, respectively.
The reconciliation of GAAP net loss to Non-GAAP Adjusted EBITDA is as follows: Year Ended December 31, 2022 2021 Net loss $ (3,851) $ (7,478) Reconciling items: Non-restructuring severance expenses 58 — Provision for income taxes 124 — Gain on forgiveness of unsecured promissory note — (10) Interest and other expense (income) 5 (5) Depreciation and amortization 285 169 Stock-based compensation including liability classified awards 2,455 6,400 Adjusted EBITDA $ (924) $ (924) Net Operating Loss Carry Forwards Our available net operating loss (“NOL”) as of December 31, 2022 was approximately $20.8 million, of which $10.9 million expires between 2035 and 2037.
The reconciliation of GAAP net loss to Non-GAAP Adjusted EBITDA is as follows: Year Ended December 31, 2023 2022 Net loss $ (1,980) $ (4,159) Reconciling items: Non-restructuring severance expenses 548 58 Provision for income taxes (62) 124 Sales tax accrual 227 308 Interest and other expense (income) (234) 5 Depreciation and amortization 282 285 Stock-based compensation including liability classified awards 1,596 2,455 Adjusted EBITDA $ 377 $ (924) Net Operating Loss Carry Forwards Our available net operating loss (“NOL”) as of December 31, 2023 was approximately $26.3 million, of which $10.9 million expires between 2035 and 2037.
Reference Note 2, “Significant Accounting Policies,” in the Notes to Financial Statements for details on the Company’s recognized and deferred revenue. Stock-based Compensation We account for the issuance of equity awards to employees in accordance with ASC 718, “Compensation – Stock Compensation”, which requires that the cost resulting from all equity payment transactions be recognized in the financial statements.
Stock-based Compensation We account for the issuance of stock-based compensation awards to employees in accordance with ASC 718, “ Compensation – Stock Compensation ”, which requires that the cost resulting from all stock-based compensation payment transactions be recognized in the financial statements.
NOLs arising in a tax year ending after 2017 will not expire. 23 Table of Contents Recently Issued Accounting Pronouncements Except as discussed below, we do not expect the impact of the future adoption of recently issued accounting pronouncements to have a material impact on our financial statements.
Recently Issued Accounting Pronouncements Except as discussed below, we do not expect the impact of the future adoption of recently issued accounting pronouncements to have a material impact on our financial statements.
Interest expense was $(5) for the year ended December 31, 2022, compared to interest income of $5 during the year ended December 31, 2021. INCOME TAXES .
Interest income was $234 for the year ended December 31, 2023, compared to interest expense of $(5) during the year ended December 31, 2022. INCOME TAXES . Our provision (benefit) for income taxes was $(62) for the year ended December 31, 2023, compared to a provision for income taxes of $124 during the year ended December 31, 2022.
Cash provided by financing activities was $97 for the year ended December 31, 2022 as compared to cash provided by financing activities of $76 for the year ended December 31, 2021.
Cash used in investing activities for the year ended December 31, 2023 was $(414) compared to $(5,072) for the year ended December 31, 2022. Cash used in financing activities was $(155) for the year ended December 31, 2023 as compared to cash provided by financing activities of $97 for the year ended December 31, 2022.
Cash used in operating activities was $(3,480) for the year ended December 31, 2022 as compared to cash provided by operating activities of $1,116 for the year ended December 31, 2021. Cash used in investing activities for the year ended December 31, 2022 was $(5,072) compared to $(662) for the year ended December 31, 2021.
For the year ended December 31, 2023, our cash decreased by $1,216. Cash used in operating activities was $(647) for the year ended December 31, 2023 as compared to cash used in operating activities of $(3,480) for the year ended December 31, 2022.
Operating expenses, which consist of selling, general and administrative expenses and research and development expenses, decreased by $1,962, or 10% to $18,413 for the year ended December 31, 2022 from $20,375 for the year ended December 31, 2021.
Operating expenses, which consist of selling, general and administrative expenses and research and development expenses, increased by $1,086, or 6% to $19,807 for the year ended December 31, 2023 from $18,721 for the year ended December 31, 2022.
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.
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.
Gross profit increased by $1,809, or 14%, to $14,691 for the year ended December 31, 2022 from $12,882 in the year ended December 31, 2021. Our gross profit, as a percentage of revenues, was 92.0% and 78.6% for the years ended December 31, 2022 and 2021, respectively.
Gross profit increased by $2,840 or 19%, to $17,531 for the year ended December 31, 2023, compared to $14,691 in the year ended December 31, 2022. Our gross profit, as a percentage of revenues, was 92.7% and 92.0% for the years ended December 31, 2023 and 2022, respectively. OPERATING EXPENSES.
The facility bears interest at a rate consistent of Citi Personal Wealth Management’s Base Rate (7.50% at December 31, 2022) minus 2% subject to certain limitations. Interest is payable monthly and as of December 31, 2022, there were no amounts outstanding under this facility and unused availability under this facility was $2,000.
The facility bears interest at a rate consistent of Citi Personal Wealth Management’s Base Rate (8.50% and 7.50% at December 31, 2023 and December 31, 2022) minus 2% subject to certain limitations.
The decrease in 2022 revenues is primarily the result of lower non-recurring equipment revenues in the current period. SaaS revenues, which consists of software licensed on a subscription basis, increased $2,758 or 21% to $15,728 for the year ended December 31, 2022 compared to $12,970 for the year ended December 31, 2021. GROSS PROFIT .
SaaS revenues, which consists of software licensed on a subscription basis, increased $2,867 or 18% to $18,595 for the year ended December 31, 2023 compared to $15,728 for the year ended December 31, 2022. GROSS PROFIT .
Research and development expenses increased $534, or 10%, to $6,014 for the year ended December 31, 2022 from $5,480 for the year ended December 31, 2021. This increase is primarily due to higher personnel costs and their related stock-compensation expenses. INTEREST (EXPENSE) AND OTHER (EXPENSE) INCOME .
Research and development expenses decreased $1,334, or 22%, to $4,680 for the year ended December 31, 2023, compared to $6,014 for the year ended December 31, 2022. This decrease was primarily due to the capitalization of certain software development expenses, as well as lower personnel costs and their related stock-compensation expenses. INTEREST INCOME (EXPENSE) AND OTHER INCOME (EXPENSE) .
Adjusted EBITDA is calculated by adjusting net loss for certain reductions such as gains on debt forgiveness and interest and other income (expense) and certain addbacks such as provisions for income taxes, impairments of long-lived assets and goodwill, depreciation, amortization and stock-based compensation expense.
Adjusted EBITDA is calculated by adjusting net loss for certain reductions such as interest and other income (expense) and certain addbacks such as non-restructuring severance expenses, sales tax accrual, provisions for income taxes, depreciation, amortization and stock-based compensation expense. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP.
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.
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. The Company adopted an additional revenue model where customers purchase a predetermined number of transactions for the term of the contract, where revenue for these transactions is recognized on a per transaction basis.
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. We have filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”), which became effective June 4, 2020.
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. Adjusted EBITDA and Use as a Non-GAAP Measure We use Adjusted EBITDA as a non-GAAP financial performance measurement.
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.
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. We adopted the new standard on January 1, 2023 and was applied prospectively.
Liquidity and Capital Resources As of December 31, 2022, we had cash and cash equivalents of $5,196, short-term investments of $4,880, working capital (defined as current assets minus current liabilities) of $9,373, total assets of $22,453 and stockholders’ equity of $18,504. For the year ended December 31, 2022, our cash decreased by $8,455.
As a result of the factors noted above, we had net losses of $(1,980), or $(0.10) per share, for the year ended December 31, 2023 as compared to a net loss of $(4,159), or $(0.22) per share, for the year ended December 31, 2022. 22 Table of Contents Liquidity and Capital Resources As of December 31, 2023, we had cash and cash equivalents of $3,980 short-term investments of $5,000, working capital (defined as current assets minus current liabilities) of $7,843, total assets of $23,808 and stockholders’ equity of $17,276.
Reference Note 8, “Income Taxes,” in the Notes to Financial Statements for details on the Company’s deferred income taxes. 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.
Reference Note 8, “Income Taxes,” in the Notes to Financial Statements for details on the Company’s deferred income taxes. Commitments and Contingencies From time to time, the Company may be involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business.
On June 17, 2022 we entered a financing arrangement related to insurance premiums totaling $319 with an interest rate of 4.05%. The monthly loan payments of $32 are paid to HUB International New England for a total of 10 months.
In February 2023, the Company entered into a financing arrangement related to insurance premiums totaling $49 with an interest rate of 9.47%. The monthly loan payments of $5 were to be paid to a financing company over a period of 11 months.
Reference Note 10, “Commitments and Contingencies,” in the Notes to Financial Statements for details on the Company’s commitments and contingencies. The above listing is not intended to be a comprehensive list of all our accounting policies.
Reference Note 10, “Commitments and Contingencies,” in the Notes to Financial Statements for details on the Company’s commitments and contingencies. As of December 31, 2023, we determined we have a historical state sales and use tax liability related to prior years. The Company is subject to sales and use taxes in jurisdictions where it has economic nexus.
Results of Operations COMPARISON OF THE YEAR ENDED DECEMBER 31, 2022 TO THE YEAR ENDED DECEMBER 31, 2021 REVENUES . Revenues for the year ended December 31, 2022 decreased $427, or 3% to $15,966 compared to $16,393 for the year ended December 31, 2021.
Revenues for the year ended December 31, 2023 increased $2,940 or 18% to $18,906 compared to $15,966 for the year ended December 31, 2022. The increase in revenues is primarily the result of higher SaaS revenue for the current period.
Removed
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.
Added
Our products include solutions for preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices. 20 Table of Contents 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.
Removed
In many cases, the accounting treatment of a 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.
Added
In certain instances, customization services are determined to be essential to the functionality of the delivered software.
Removed
The increase in gross profit percentage over the prior year is primarily due to the continued growth of our SaaS revenue and the absence of the non-recurring hardware revenue of 2021, which contained lower margins.
Added
The Company estimates the number of transactions that will be unused by the end of each contract period and recognized a portion of that revenue as breakage revenue each reporting period. Reference Note 2, “Significant Accounting Policies,” in the Notes to Financial Statements for additional details on the Company’s recognized and deferred revenue.
Removed
Excluding hardware sales and related costs, our gross profit as a percentage of revenues was 92.9% and 93.2% for the years ended December 31, 2022 and 2021, respectively. OPERATING EXPENSES.
Added
We have reviewed nexus in the various states, along with having conversations with state taxing authorities, and legal counsel in assessing our historical tax obligation. During the year ended December 31, 2023, the Company determined that a sales tax liability related to the periods of 2018 through 2023 was probable and determined an estimated liability.
Removed
Selling, general and administrative expenses decreased by $2,496, or 17%, to $12,399 for the year ended December 31, 2022 from $14,895 for the year ended December 31, 2021. The decrease in selling, general and administrative expenses was primarily attributed to lower stock-based compensation and headcount-related expenses, offset by an increased focus on investment in growing SaaS-related revenues.
Added
The estimated liability was $1.1 million as of December 31, 2023. See Note 12 in the Notes to Financial Statements for more details. Results of Operations COMPARISON OF THE YEAR ENDED DECEMBER 31, 2023 TO THE YEAR ENDED DECEMBER 31, 2022 REVENUES .
Removed
We had taxable income in some state jurisdictions for the year ended December 31, 2022 where there were not sufficient net operating losses to offset the taxable income resulting in a tax expense of $124. Tax losses for the year ended December 31, 2021 resulted in nominal income taxes paid. 21 Table of Contents NET LOSS .
Added
Selling, general and administrative expenses increased by $2,420, or 19%, to $15,127 for the year ended December 31, 2023, compared to $12,707 for the year ended December 31, 2022. This increase was primarily driven by higher general and administrative costs, specifically a sales tax accrual that the company evaluated as well as headcount-related expenses tied to non-restructuring severance expenses.
Removed
As a result of the factors noted above, we had net losses of $(3,851), or $(0.20) per share, for the year ended December 31, 2022 as compared to a net loss of $(7,478), or $(0.40) per share, for the year ended December 31, 2021.
Added
Interest is payable monthly and as of December 31, 2023, there were no amounts outstanding under this facility and unused availability under this facility was $2,000.The Company is not subject to any financial covenants related to this revolving line of credit. This line will remain open as long as the Company keeps a depository relationship with the financial institution.
Removed
This was primarily due to the purchase of short-term investments, specifically "held-to-maturity" U.S. Treasury notes. These U.S. Treasury notes have a maturity of July 31, 2023 and therefore do not qualify as a cash equivalent. While not considered a cash equivalent, the Company does not have any concerns in funding the short-term operations of the business.
Added
As of December 31, 2023, the Company had no remaining commitments related to this financing arrangement.The Company was not subject to any financial covenants related to this insurance financing arrangement.
Removed
As of December 31, 2022, we had a remaining commitment of $97 which is expected to be paid by March 17, 2023. 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.
Added
We have included any severance-related expenses for terminated positions that will not be replaced as "non-restructuring severance expenses" within Adjusted EBITDA. In addition, Adjusted EBITDA is one of the primary measures management uses to monitor and evaluate financial and operating results.
Removed
We did incur disruptions during the year ended December 31, 2021 from COVID-19, though in the year ended December 31, 2022, such disruptions were not as severe, and we are unable to predict the impact that this 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.
Added
In accordance with the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), U.S. NOLs arising in a tax year ending after 2017 in the amount of $15.4 million will not expire, but are subject to 80% limitation on utilization. In addition to the NOLs, the Company has approximately $700 thousand of research and development credits.
Removed
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 its obligation to repay its EIDL advance. Prior to the passing of the Economic Aid Act, we repaid the $10 advance in December 2020.
Added
We reviewed our business processes and controls to support the recognition and disclosure as required under the new standard. The adoption of this new standard did not have a material impact on our consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances reporting requirements under Topic 280.
Removed
As a result of this ruling, the SBA returned this advance, plus interest, to the Loan Servicer in February 2021, which was immediately returned to us and included in Other Income on the Statement of Operations.
Added
The enhanced disclosure requirements include: title and position of the Chief Operating Decision Maker (CODM), significant segment expenses provided to the CODM, extending certain annual disclosures to interim periods, clarifying single reportable segment entities must apply ASC 280 in its entirety, and permitting more than one measure of segment profit or loss to be reported under certain circumstances.
Removed
Under the shelf registration statement, we may offer and sell, from time to time in the future in one or more public offerings, our common stock, preferred stock, warrants, and units. 22 Table of Contents 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.
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This change is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. This change will apply retrospectively to all periods presented. The Company is currently evaluating the impact of this ASU on its financial statements.
Removed
The shelf registration statement is designed to give us the flexibility to access additional capital at some point in the future when market conditions are appropriate. Adjusted EBITDA and Use as a Non-GAAP Measure We use Adjusted EBITDA as a non-GAAP financial performance measurement.
Added
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The new guidance requires consistent categorization and greater disaggregation of information in the rate reconciliation, as well as further disaggregation of income taxes paid.
Removed
In accordance with the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), U.S.
Added
This change is effective for annual periods beginning after December 15, 2024. This change will apply on a prospective basis to annual financial statements for periods beginning after the 24 Table of Contents effective date. However, retrospective application in all prior periods presented is permitted. The Company is currently evaluating the impact of this ASU on its financial statements.
Removed
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.
Removed
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.
Removed
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 current expectations and beliefs about future events.
Removed
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 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of December 31, 2022, we had cash and cash equivalents of $5,196 and $4,880 in short-term investments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs, and the fiduciary control of cash and investments.
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of December 31, 2023, we had cash and cash equivalents of $3,980 and $5,000 in short-term investments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs, and the fiduciary control of cash and investments.
We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, the effect of a hypothetical 100 basis point change in interest rates would not have an effect on the fair market value of our portfolio as of December 31, 2022.
We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, the effect of a hypothetical 100 basis point change in interest rates would not have an effect on the fair market value of our portfolio as of December 31, 2023.

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