What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-01 compared with 2025-10-31 · 49 added, 72 removed, 88 unchanged (58% of the section changed)

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We also derive a portion of our revenue from the sale of imaging software licenses to OEMs and systems integrators that incorporate our software into medical imaging products and medical systems.

On October 30, 2024, we announced that Robert Eckel, our Chief Executive Officer and a member of our Board of Directors, would resign from these positions effective December 31, 2024.

Following this announcement, we retained an executive search firm and conducted an extensive search for his successor.

As a result of that process, on February 3, 2025, Ajay Amlani was appointed Chief Executive Officer and a member of our Board of Directors.

Summary of Financial Results

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 September 30, 2025 were $5.1 million and $1.3 million, respectively.

These results compared to revenue of $3.8 million and operating loss of $1.5 million for the three months ended September 30, 2024.

The increase in revenue was primarily due to a $1.4 million increase in software license revenue, which was partially offset by a $0.2 million decrease in services and other revenue.

The decrease in operating loss was primarily due to the $1.3 million increase in revenue and partial offset by $0.4 million in operating expenses resulting from additional headcount in 2025.

Revenue and operating loss for the nine months ended September 30, 2025 were $12.6 million and $5.1 million, respectively.

These results compared to revenue of $12.6 million and operating loss of $4.1 million for the nine months ended September 30, 2024.

The changes to revenue was primarily due to a $0.2 million increase in software license revenue, $0.1 million increase in software maintenance and partially offset by $0.3 million decrease in services and other revenue.

The decrease in operating loss was primarily due to $1.0 million increase in operating expenses resulting from additional headcount in 2025.

The comparisons below reflect certain reclassifications described in more detail in Note 1 to the consolidated financial statements

Revenue and operating loss for the three months ended March 31, 2026 were $3.4 million and $3.7 million, respectively.

These results compared to revenue of $3.6 million and operating loss of $1.9 million for the three months ended March 31, 2025.

The decrease in revenue was primarily due to lower software license revenue.

The increase in operating loss was primarily due to lower revenue, one-time severance costs in the current quarter of $0.7 million and a $0.6 million increase in salary-related expenses resulting from additional headcount hired in 2025.

These severance costs relate to workforce reduction actions taken during the quarter as part of our efforts to align our cost structure with current business conditions.

These actions are expected to reduce operating expenses in future periods.

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 increased 115% from $1.2 million in the three months ended September 30, 2024 to $2.5 million for the three months ended September 30, 2025.

As a percentage of total revenue, software license revenue increased from 31% in the third quarter of 2024 to 49% in the current year quarter.

The $1.4 million increase in software license revenue was due primarily to an increase in perpetual licenses sales due to an increase in one-time license deals in the current quarter.

Software license revenue increased 2% from $5.1 million in the nine months ended September 30, 2024 to $5.3 million for the nine months ended September 30, 2025.

As a percentage of total revenue, software license revenue increased from 41% in the nine months ended September 30, 2024 to 42% in the nine months ended September 30, 2025.

The $0.2 million increase in software license revenue was due primarily to an increase in perpetual licenses sales.

Software license revenue decreased 22% from $1.3 million in the three months ended March 31, 2025 to $1.0 million for the three months ended March 31, 2026.

As a percentage of total revenue, software license revenue decreased from 36% in the first quarter of 2025 to 30% in the current year quarter.

The $0.3 million decrease

in software license revenue was due primarily to a decrease in perpetual licenses sales due to a decrease in one-time license deals in the current quarter.

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 increased 5% from $2.3 million in the three months ended September 30, 2024 to $2.4 million in the three months ended September 30, 2025 and 2024.

As a percentage of total revenue, software maintenance revenue decreased from 59% in the third quarter of 2024 to 46% in the current year third quarter.

Software maintenance revenue increased 2% from $6.6 million in the nine months ended September 30, 2024 to $6.7 million for the nine months ended September 30, 2025.

As a percentage of total revenue, software maintenance revenue increased from 52% in the nine months ended September 30, 2024 to 53% in the current year period.

Software maintenance was $2.1 million in each of the three months ended March 31, 2026 and 2025.

As a percentage of total revenue, software maintenance revenue increased from 58% in the first quarter of 2025 to 61% in the current year first quarter.

Prior period amounts have been reclassified to conform to the current period presentation.

See Note 1 to the consolidated financial statements for additional information regarding these reclassifications.

Services and other revenue .

Services revenue consists of fees we charge to perform software development, integration, installation, and customization services.

Services and other revenue consists of fees we charge to perform software development, integration, installation, customization, and other professional services, as well as subscription-based SaaS offerings and hardware included with certain software licenses.

Similar to software license revenue, services revenue depends on our ability to win biometrics systems projects either directly with end user customers or in conjunction with channel partners.

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

Services and other revenue decreased 45% from $0.4 million in the three months ended September 30, 2024 to $0.2 million in the three months ended September 30, 2025.

As a percentage of total revenue, services and other revenue decreased from 11% in the three months ended September 30, 2024 to 5% in the current year period.

Services and other revenue decreased 27% from $0.9 million in the nine months ended September 30, 2024 to $0.6 million in the nine months ended September 30, 2025.

As a percentage of total revenue, services and other revenue decreased from 7% in the nine months ended September 30, 2024 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.

SaaS revenue reflects recurring subscription fees for access to our biometric software solutions.

Services and other revenue may fluctuate based on the timing of commencement and completion of customer projects, the mix of professional services and subscription-based arrangements, and the timing of hardware delivered in connection with software licenses.

Services and other revenue increased 54% from $0.2 million in the three months ended March 31, 2025 to $0.3 million in the three months ended March 31, 2026.

As a percentage of total revenue, services and other revenue increased from 5% in the three months ended March 31, 2025 to 8% in the current year period.

The increase was primarily due to growth in SaaS revenue, which increased from $47 thousand in the three months ended March 31, 2025 to $0.1 million in the current year first quarter.

The increase in SaaS revenue reflects expansion of subscription-based customer arrangements.

Prior period amounts have been reclassified to conform to the current period presentation.

See Note 1 to the consolidated financial statements for additional information regarding these reclassifications.

Cost of revenue.

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and iv) hardware costs.

Cost of revenue increased 71% from $0.3 million in the three months ended September 30, 2024 to $0.5 million in the three months ended September 30, 2025.

Cost revenue as a percentage of total revenue increased from 7% in the third quarter of 2024 to 10% in the current year third quarter.

The $0.2 million increase was the result of increased software license costs.

Cost of revenue increased 28% from $0.8 million in the nine months ended September 30, 2024 to $1.1 million in the nine months ended September 30, 2025.

Cost of revenue as a percentage of total revenue increased from 6% in the nine months ended September 30, 2024 to 9% in the current year period.

Cost of revenue increased 93% from $0.2 million in the three months ended March 31, 2025 to $0.3 million in the three months ended March 31, 2026.

Cost revenue as a percentage of total revenue increased from 5% in the first quarter of 2025 to 10% in the current year first quarter.

The $0.1 million increase was the result of increased software license costs.

For the three months ended September 30, 2025 cost of revenue was composed of $0.3 million for software license and hardware costs, $0.1 million of engineering costs to perform customer services, and $0.1 million of amortization of intangible assets.

For the nine months ended September 30, 2025 cost of revenue was composed of $0.5 million for software license and hardware costs, $0.3 million of engineering costs to perform customer services, and $0.3 million of amortization of intangible assets.

Prior period amounts have been reclassified to conform to the current period presentation.

See Note 1 to the consolidated financial statements for additional information regarding these reclassifications.

Gross margins on revenue are a function of:

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Engineering costs incurred to develop our technology and products are classified as research and development expense.

As described in the cost of services section, engineering costs incurred to provide engineering services for customer projects are classified as cost of services and other revenue, and are not included in research and development expense.

As described in the cost of revenue section, engineering costs incurred to provide engineering services for customer projects are classified as cost of revenue, and are not included in research and development expense.

The classification of total engineering costs to research and development expense and engineering costs to perform customer services included in cost of revenue was (in thousands):

Three Months Ended

September 30,

For the Nine Months

Ended September 30,

Research and development expense

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Total engineering costs

Total engineering costs increased 13% from $2.0 million in the three months ended September 30, 2024 to $2.2 million in the three months ended September 30, 2025.

As a percentage of total revenue, total engineering costs decreased from 51% in the three months ended September 30, 2024 to 43% in the same current year quarter.

Total engineering costs increased 1% from $6.2 million in the nine months ended September 30, 2024 to $6.3 million in the nine months ended September 30, 2025.

As a percentage of total revenue, total engineering costs decreased from 50% in the nine months ended September 30, 2024 to 49% in the same current year period.

The spending increase for the three and nine ended September 30, 2025 compared to the same prior year period was primarily due to increased headcount 2025.

We anticipate engineering expenses to increase during the remainder of 2025 as we ramp up investment to support strategic product development initiatives.

Total engineering costs increased 62% from $2.0 million in the three months ended March 31, 2025 to $3.3 million in the three months ended March 31, 2026.

As a percentage of total revenue, total engineering costs increased from 56% in the three months ended March 31, 2025 to 97% in the same current year quarter.

The spending increase for the three months ended March 31, 2026 compared to the same prior year period was primarily due to one-time severance costs of $0.6 million including the termination of our chief technology officer and $0.7 million increase in salary related costs in relation to additional headcount hired in 2025.

We anticipate engineering expenses to decrease during the remainder of 2026 as we focus on strategic product development initiatives.

Selling and marketing expense.

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and ii) advertising and promotion expenses.

Selling and marketing expense increased 13% from $1.9 million in the three months ended September 30, 2024 to $2.1 million in the same three month period of 2025.

As a percentage of total revenue, selling and marketing expense decreased from 48% in the third quarter of 2024 to 41% in the corresponding period in 2025.

Selling and marketing expense decreased 2% from $5.9 million in the nine months ended September 30, 2024 to $5.7 million in the same nine month period of 2025.

As a percentage of total revenue, selling and marketing expense decreased from 46% in the nine months ended September 30, 2024 to 45% in the corresponding period in 2025.

The spending increases for the three months ended September 30, 2025, compared to the same prior year was primarily due to one time savings for the three months ended September 30, 2024 related to the reversal of accrued bonus expense as a result of the departure of our chief revenue officer in September 2024.

The spending decreases for the nine months ended June 30, 2025, compared to the same prior year period was primarily due to lower headcount including the departure of our chief revenue officer in 2024 who was not replaced until March 2025 and the departure of our chief product officer in 2024.

We expect selling and marketing expense to increase in future periods as we continue to invest in revenue-generating activities.

This includes plans to backfill the chief product officer position and additional hires across our sales organization to support pipeline growth and capitalize on market opportunities.

Selling and marketing expense increased 10% from $1.7 million in the three months ended March 31, 2025 to $1.8 million in the same three month period of 2026.

As a percentage of total revenue, selling and marketing expense increased from 45% in the first quarter of 2025 to 49% in the corresponding period in 2026.

The spending increases for the three months ended March 31, 2026, compared to the same period in the prior year was primarily due to one time severance cost of $0.1 million and $0.1 million related to higher headcount hired in 2025.

We expect selling and marketing expense to decrease during the remainder of 2026 as we focus on strategic product development initiatives.

General and administrative expense.

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

General and administrative expense increased 29% from $1.3 million for the three months ended September 30, 2024 to $1.7 million for the three months ended September 30, 2025.

As a percentage of total revenue, general and administrative expense was 34% in the third quarter of 2024 and 33% in the corresponding period of 2025.

General and administrative expense increased 20% from $4.1 million for the nine months ended September 30, 2024 to $4.9 million for the nine months ended September 30, 2025.

As a percentage of total revenue, general and administrative expense was 32% in the nine months ended September 30, 2024 and 40% in the corresponding period of 2025.

The expense increase for the three months ended September 30, 2025 compared to the same prior year period was primarily due to the impact of an increase in stock compensation expense of $0.1 million, an increase in payroll-related expense of $0.1 million, and an increase in professional services fees of $0.1 million.

The expense increase for the nine months ended September 30, 2025 compared to the same prior year period was primarily due to the impact of a $0.1 million signing bonus paid to Mr.

Amlani in connection with his appointment as our chief executive officer, an increase in compensation expense of $0.3 million, an increase in professional services fees of $0.2 million, and an increase in stock compensation expense of $0.2 million.

General and administrative expense was $1.7 million for each of the three months ended March 31, 2026 and 2025.

As a percentage of total revenue, general and administrative expense was 47% in the first quarter of 2025 and 49% in the corresponding period of 2026.

Prior period amounts have been reclassified to conform to the current period presentation.

See Note 1 to the consolidated financial statements for additional information regarding these reclassifications.

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

Interest Income.

Interest income was $0.2 million and $0.3 million in the three months ended September 30, 2025 and 2024, respectively.

Interest income was $0.7 million and $0.9 million in the nine months ended September 30, 2025 and 2024, respectively.

The decrease in interest income in each of the three and nine months ended September 30, 2025 was primarily the result of lower average cash balances during the current year periods.

We expect interest income to decrease slightly over the remainder of 2025 due to a lower projected average cash balance and lower interest rates.

Interest income was $0.2 million and $0.3 million in the three months ended March 31, 2026 and 2025, respectively.

The decrease in interest income in the three months ended March 31, 2026 was primarily the result of lower average cash balances during the current year period.

We expect interest income to decrease slightly over the remainder of 2026 due to a lower projected average cash balance.

Income taxes .

Total income tax expense was $5 thousand and $15 thousand for the three months ended September 30, 2025 and 2024, respectively.

Total income tax expense was $38 thousand and $54 thousand for

the nine months ended September 30, 2025 and 2024, respectively.

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

Total income tax expense was $8 thousand and $7 thousand for the three months ended March 31, 2026 and 2025, respectively.

The income tax expense relates to state income taxes.

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

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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 September 30, 2025 and December 31, 2024, we recorded a full valuation allowance against our net deferred tax assets.

As a result, as of March 31, 2026 and December 31, 2025, we recorded a full valuation allowance against our net deferred tax assets.

Liquidity and Capital Resources

At September 30, 2025, we had cash, cash equivalents and marketable securities of $22.5 million, which represented a decrease of $5.3 million from December 31, 2024.

At March 31, 2026, we had cash, cash equivalents and marketable securities of $19.6 million, which represented a decrease of $2.7 million from December 31, 2025.

The decrease in cash, cash equivalents and marketable securities was primarily due to the impact of $2.7 million of cash used in operating activities.

Cash used in investing activities was $0.2 million in the first nine months of 2025, which primarily consisted of $0.1 million of net purchases of marketable securities and $45 thousand used for the purchase of fixed assets.

Cash used by financing activities was $82 thousand in the first nine months of 2025, which primarily consisted of cash used to repurchase shares of our common stock.

Cash used in investing activities was sixteen thousand in the first three months of 2026, which primarily consisted of net purchases of marketable securities.

While we cannot assure you that we will not require additional financing, or that such financing will be available to us, we believe that our cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months from the date of this filing and to meet our known long-term cash requirements.

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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