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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-03 · 49 added, 27 removed, 88 unchanged (46% of the section changed)

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We use revenue and results of operations to summarize financial results as we believe these measurements are the most meaningful way to understand our operating performance.

Revenue and operating loss for the three months ended March 31, 2024 were $4.4 million and $1.3 million, respectively.

These results compared to revenue of $4.3 million and operating loss of $1.9 million for the three months ended March 31, 2023.

The decrease in operating loss in the current three month period was primarily due to a $0.5 million decrease in operating expenses resulting from cost-control measures we implemented in the second half of 2023 and the first quarter of 2024, including a reduction of approximately ten percent of our headcount across all departments.

Revenue and operating loss for the three months ended June 30 2024 were $4.3 million and $1.4 million, respectively.

These results compared to revenue of $3.2 million and operating loss of $2.9 million for the three months ended June 30, 2023.

The decrease in operating loss in the current three month period was primarily due to a $1.3 million increase in revenue and $0.5 million decrease in operating expenses resulting from cost-control measures we implemented in the second half of 2023 and the first quarter of 2024, including a reduction of approximately ten percent of our headcount across all departments.

Revenue and operating loss for the six months ended June 30 2024 were $8.7 million and $2.6 million, respectively.

These results compared to revenue of $7.5 million and operating loss of $4.8 million for the six months ended June 30, 2023.

The decrease in operating loss in the current six month period was primarily due to a $1.2 million increase in revenue and a $0.9 million decrease in operating expenses resulting from cost-control measures we implemented in the second half of 2023 and the first quarter of 2024, including a reduction of approximately ten percent of our headcount across all departments.

These and all other financial results are discussed in more detail in the results of operations section that follows.

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Sales of software products depend on our ability to win proposals to supply software for biometrics systems projects either directly to end user customers or indirectly through channel partners.

Software license revenue was $2.1 million in the three months ended March 31, 2024 and 2023.

As a percentage of total revenue, software license revenue was 49% in the first quarter of 2024 and 2023.

Software license revenue increased 75% from $1.0 million in the three months ended June 30, 2023 to $1.8 million for the three months ended June 30, 2024.

As a percentage of total revenue, software license revenue increased from 33% in the second quarter of 2023 to 42% in the current year quarter.

Software license revenue increased 26% from $3.1 million in the six months ended June 30, 2023 to $4.0 million for the six months ended June 30, 2024.

As a percentage of total revenue, software license revenue increased from 42% in the six months ended June 30, 2023 to 45% in the current year period.

Software license sales have historically fluctuated, and we expect software license revenue to continue to fluctuate since these sales are based on the timing of projects with our customers and partners.

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Software maintenance contracts entitle customers to receive software support and software updates, if and when they become available, during the term of the contract.

Software maintenance revenue increased 18% from $1.8 million in the three months ended March 31, 2023 to $2.2 million in the three months ended March 31, 2024.

As a percentage of total revenue, software maintenance revenue increased from 43% in the first quarter of 2023 to 49% in the current year quarter.

For the three month period ended March 31, 2024, the increase in software maintenance revenue was primarily due to software maintenance related to our sales of perpetual software licenses.

Software maintenance revenue increased 22% from $1.8 million in the three months ended June 30, 2023 to $2.2 million in the three months ended June 30, 2024.

As a percentage of total revenue, software maintenance revenue decreased from 55% in the second quarter of 2023 to 50% in the current year second quarter.

For the three month period ended June 30, 2024, the increase in software maintenance revenue was primarily due to software maintenance related to our sales of perpetual software licenses.

Software maintenance revenue increased 20% from $3.6 million in the six months ended June 30, 2023 to $4.3 million in the in the six month period ended June 30, 2024.

As a percentage of total revenue, software maintenance revenue increased from 48% in the first six months of 2023 to 49% in the current year period.

For the six month period ended June 30, 2024, the increase in software maintenance revenue was primarily due to software maintenance related to our sales of perpetual software licenses.

Services and other revenue .

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Other revenue consists of hardware fees that are included with some of our software licenses.

Services and other revenue decreased 69% from $0.4 million in the three months ended March 31, 2023 to $0.1 million in the three months ended March 31, 2024.

As a percentage of total revenue, services and other revenue decreased from 8% in the first quarter of 2023 to 3% in the current year quarter.

Services and other revenue was $0.4 million in each of the three month periods ended June 30, 2024 and 2023.

As a percentage of total revenue, services and other revenue decreased from 12% in the second quarter of 2023 to 8% in the current year quarter.

Services and other revenue decreased 37% from $0.7 million in the six months ended June 30, 2023 to $0.5 million in the six months ended June 30, 2024.

As a percentage of total revenue, services and other revenue decreased from 10% in the six months ended June 30, 2023 to 5% in the current year period.

Services and other revenue fluctuate dependent on when we commence new projects and when we complete projects that were started in previous periods.

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and iv) hardware costs.

Cost of services and other revenue was $0.3 million in the three months ended March 31, 2023 and 2024.

Cost of services and other revenue as a percentage of services and other revenue increased from 82% in the first quarter of 2023 to 242% in the current year quarter.

The increase in cost of services and other revenue as a percentage of services and other revenue for the three months ended March 31, 2024 was primarily due to additional hours required that exceed our fixed fee services contracts.

Cost of services and other revenue was $0.3 million in each of the three month periods ended June 30, 2024 and 2023.

Cost of services and other revenue as a percentage of services and other revenue decreased from 86% in the second quarter of 2023 to 76% in the current year second quarter.

Cost of services and other revenue decreased 12% from $0.6 million in the six months ended June 30, 2023 to $0.5 million in the current year period.

Cost of services and other revenue as a percentage of services and other revenue increased from 84% in the six months ended June 30, 2023 to 117% in the current year period.

Gross margins on services and other revenue are a function of:

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Three Months Ended

Six Months Ended

Research and development expense

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Total engineering costs

Total engineering costs decreased 8% from $2.7 million in the three months ended March 31, 2023 to $2.5 million in the three months ended March 31, 2024.

As a percentage of total revenue, total engineering costs decreased from 62% in the three months ended March 31, 2023 to 57% in the same current year quarter in 2024.

The spending decrease for the three months ended March 31, 2024 compared to the same prior year period was primarily due to decreased headcount.

Total engineering costs decreased 17% from $2.6 million in the three months ended June 30, 2023 to $2.1 million in the three months ended June 30, 2024.

As a percentage of total revenue, total engineering costs decreased from 81% in the three months ended June 30, 2023 to 50% in the same current year quarter in 2024.

Total engineering costs decreased 13% from $5.3 million in the six months ended June 30, 2023 to $4.6 million in the six months ended June 30, 2024.

As a percentage of total revenue, total engineering costs decreased from 70% in the six months ended June 30, 2023 to 53% in the same current year period in 2024.

The spending decreases for the three and six months ended June 30, 2024 compared to the same prior year period were primarily due to decreased headcount.

We anticipate that we will continue to focus our future research and development activities on enhancing our existing products and developing new products with our growing internal resources.

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and ii) advertising and promotion expenses.

Selling and marketing expense decreased 5% from $2.0 million in the three months ended March 31, 2023 to $1.9 million in the same three month period of 2024.

As a percentage of total revenue, selling and marketing expense decreased from 46% in the first quarter of 2023 to 44% in the corresponding period in 2024.

The spending decrease for the three months ended March 31, 2024, compared to the same prior year period was primarily due to lower marketing spend.

Selling and marketing expense increased 7% from $2.0 million in the three months ended June 30, 2023 to $2.1 million in the same three month period of 2024.

As a percentage of total revenue, selling and marketing expense decreased from 61% in the second quarter of 2023 to 49% in the corresponding period in 2024.

Selling and marketing expense increased 1% from $3.9 million in the six months ended June 30, 2023 to $4.0 million in the same six month period of 2024.

As a percentage of total revenue, selling and marketing expense decreased from 53% in the second quarter of 2023 to 46% in the corresponding period in 2024.

The spending increases for the three and six months ended June 30, 2024, compared to the same prior year periods were primarily due to increased travel expense.

We may expand our sales force and marketing efforts to address additional opportunities.

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and iv) other administrative expenses, such as insurance costs and bad debt provisions.

General and administrative expense decreased 11% from $1.5 million for the three months ended March 31, 2023 to $1.3 million for the three months ended March 31, 2024.

As a percentage of total revenue, general and administrative was 35% in the first quarter of 2023 and 31% in the corresponding period of 2024.

The expense decrease for the three months ended March 31, 2024 compared to the same prior year periods was primarily due to the impact of lower headcount.

General and administrative expense decreased 9% from $1.6 million for the three months ended June 30, 2023 to $1.4 million for the three months ended June 30, 2024.

As a percentage of total revenue, general and administrative was 49% in the second quarter of 2023 and 33% in the corresponding period of 2024.

General and administrative expense decreased 10% from $3.1 million for the six months ended June 30, 2023 to $2.8 million for the six months ended June 30, 2024.

As a percentage of total revenue, general and administrative was 41% in the six months ended June 30, 2024 and 32% in the corresponding period of 2024.

The expense decreases for the three and six months ended June 30, 2024 compared to the same prior year periods were primarily due to the impact of lower headcount.

Fluctuations of general and administrative expenses are expected depending on specific activities in a period.

Interest Income.

Interest income was $0.3 million in the three months ended March 31, 2024 and 2023.

Interest income was $0.3 million in each of the three months ended June 30, 2024 and 2023 and $0.6 million in each of the six months ended June 30, 2024 and 2023.

Income taxes .

We had no income tax expense for the three months ended March 31, 2024 and 2023.

Total income tax expense was $39 thousand and $0 for the three months ended June 30, 2024 and 2023, respectively and $39 thousand and $0 for the six months ended June 30, 2024 and 2023, respectively.

The income tax expense relates to limitations on the usage of net operating loss carryforwards generated in years beginning after December 31, 2017.

We are subject to income taxes in the United States, and we use estimates in determining our provisions for income taxes.

We account for income taxes using the asset and liability method for accounting and reporting income taxes.

Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates.

We have evaluated the positive and negative evidence bearing upon our ability to realize our deferred tax assets, which primarily consist of net operating loss carryforwards and research and development tax credits.

We considered the history of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and we have concluded that it is more likely than not that we will not realize the benefits of our deferred tax assets.

As a result, as of March 31, 2024 and December 31, 2023, we recorded a full valuation allowance against our net deferred tax assets.

As a result, as of June 30, 2024 and December 31, 2023, we recorded a full valuation allowance against our net deferred tax assets.

Liquidity and Capital Resources

At March 31, 2024, we had cash, cash equivalents and marketable securities of $28.5 million, which represented a decrease of $2.4 million from December 31, 2023.

At June 30, 2024, we had cash, cash equivalents and marketable securities of $27.4 million, which represented a decrease of $3.5 million from December 31, 2023.

The decrease in cash, cash equivalents and marketable securities was primarily due to the impact of $3.5 million of cash used in operating activities.

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Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations.

If we require additional capital resources, we may utilize available funds or additional external financing.

If we require additional capital resources, we may utilize available funds or seek external financing, which may not be available on terms we find attractive or at all.

To date, inflation has not had a material impact on our financial results.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis