What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-31 compared with 2026-05-01 · 56 added, 31 removed, 106 unchanged (45% of the section changed)

24 unchanged sentences

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.

Revenue and operating loss for the three months ended June 30, 2026 were $3.3 million and $2.7 million, respectively.

These results compared to revenue of $3.9 million and operating loss of $2.0 million for the three months ended June 30, 2025.

The decrease in revenue and increase in operating loss was primarily due to lower software license revenue.

Revenue and operating loss for the six months ended June 30, 2026 were $6.6 million and $6.4 million, respectively.

These results compared to revenue of $7.5 million and operating loss of $3.8 million for the six months ended June 30, 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.

The increase in operating loss was primarily due to lower revenue, one-time severance costs in the current period 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 period as part of our efforts to align our cost structure with current business conditions.

We expect to realize incremental cost savings from these actions throughout the remainder of 2026.

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 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 revenue decreased 33% from $1.4 million in the three months ended June 30, 2025 to $1.0 million for the three months ended June 30, 2026.

As a percentage of total revenue, software license revenue decreased from 36% in the second quarter of 2025 to 29% in the current year quarter.

The $0.4 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 revenue decreased 27% from $2.7 million in the six months ended June 30, 2025 to $2.0 million for the six months ended June 30, 2026.

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

The $0.7 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 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 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.

Software maintenance decreased 7% from $2.1 million in the three months ended June 30, 2025 to $2.0 million for the three months ended June 30, 2026.

As a percentage of total revenue, software maintenance revenue increased from 55% in the second quarter of 2025 to 61% in the current year period.

Software maintenance decreased 4% from $4.3 million in the six months ended June 30, 2025 to $4.1 million for the six months ended June 30, 2026.

As a percentage of total revenue, software maintenance revenue increased from 57% in the six months ended June 30, 2025 to 61% in the current year period.

The slight decrease in software maintenance was primarily due to the non-renewal of maintenance contracts by certain customers.

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

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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.

Services and other revenue was $0.3 million in the three months ended June 30, 2025 and 2026.

As a percentage of total revenue, services and other revenue increased from 8% in the three months ended June 30, 2025 to 9% in the current year period.

Services and other revenue increased from $0.5 million in the six months ended June 30, 2025 to $0.6 million in the six months ended June 30, 2026.

As a percentage of total revenue, services and other revenue increased from 7% in the six months ended June 30, 2025 to 9% in the current year period.

The increase was primarily due to growth in SaaS revenue, which increased from $0.1 million in the six months ended June 30, 2025 to $0.3 million in the current year period and was partially offset by lower services revenue.

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

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and iv) hardware costs.

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.

Cost of revenue increased 95% from $0.3 million in the three months ended June 30, 2025 to $0.5 million in the three months ended June 30, 2026.

Cost of revenue as a percentage of total revenue increased from 7% in the second quarter of 2025 to 16% in the current year second quarter.

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

Cost of revenue increased 97% from $0.4 million in the six months ended June 30, 2025 to $0.9 million in the six months ended June 30, 2026.

Cost of revenue as a percentage of total revenue increased from 6% in the six months ended June 30, 2025 to 13% in the current year period.

The $0.5 million increase was the result of increased software license costs.

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

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Three Months Ended

Six Months Ended

Research and development expense

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Total engineering costs

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.

Total engineering costs increased 28% from $2.1 million in the three months ended June 30, 2025 to $2.6 million in the three months ended June 30, 2026.

As a percentage of total revenue, total engineering costs increased from 53% in the three months ended June 30, 2025 to 81% in the same current year quarter.

The spending increase for the three months ended June 30, 2026 compared to the same prior year period was primarily due to salary related costs in relation to additional headcount hired in 2025.

Total engineering costs increased 45% from $4.0 million in the six months ended June 30, 2025 to $5.9 million in the six months ended June 30, 2026.

As a percentage of total revenue, total engineering costs increased from 54% in the six months ended June 30, 2025 to 89% in the same current year period.

The spending increase for the six months ended June 30, 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 a $1.3 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.

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and ii) advertising and promotion expenses.

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.

Selling and marketing expense decreased 29% from $2.0 million in the three months ended June 30, 2025 to $1.4 million in the same three month period of 2026.

As a percentage of total revenue, selling and marketing expense decreased from 50% in the second quarter of 2025 to 42% in the corresponding period in 2026.

Selling and marketing expense decreased 11% from $3.6 million in the six months ended June 30, 2025 to $3.2 million in the same six month period of 2026.

As a percentage of total revenue, selling and marketing expense was 48% in the six months ended June 30, 2025 and 2026.

The decrease in selling and marketing expense for the three and six months ended June 30, 2026, compared to the same periods in the prior year, was primarily due to lower personnel-related costs resulting from the cost saving plan implemented in March 2026 to better align the Company's cost structure with current business needs.

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 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.

General and administrative expense decreased 7% from $1.7 million in the three months ended June 30, 2025 to $1.6 million in the three months ended June 30, 2026.

As a percentage of total revenue, general and administrative expense increased from 43% in the three months ended June 30, 2025 to 47% in the corresponding period of 2026.

General and administrative expense decreased 5% from $3.4 million in the six months ended June 30, 2025 to $3.2 million in the same six month period of 2026.

As a percentage of total revenue, general and administrative expense increased from 45% in six months ended June 30, 2025 to 48% in the corresponding period of 2026.

The decrease in general and administrative expense for the three and six months ended June 30, 2026, compared to the same periods in the prior year, was primarily due to lower personnel-related costs resulting from the cost saving plan implemented in March 2026 to better align the Company's cost structure with current business needs.

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

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Interest Income.

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.

Interest income was $0.2 million in the three months ended June 30, 2026 and 2025.

Interest income was $0.4 million and $0.5 million in the six months ended June 30, 2026 and 2025, respectively.

The decrease in interest income in the six months ended June 30, 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 $8 thousand and $7 thousand for the three months ended March 31, 2026 and 2025, respectively.

Total income tax expense was $1 thousand and $26 thousand for the three months ended June 30, 2026 and 2025, respectively.

The income tax expense relates to state income taxes.

Total income tax expense was $9 thousand and $34 thousand for the six months ended June 30, 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 March 31, 2026 and December 31, 2025, we recorded a full valuation allowance against our net deferred tax assets.

As a result, as of June 30, 2026 and December 31, 2025, we recorded a full valuation allowance against our net deferred tax assets.

Liquidity and Capital Resources

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.

At June 30, 2026, we had cash, cash equivalents and marketable securities of $16.8 million, which represented a decrease of $5.5 million from December 31, 2025.

The decrease in cash, cash equivalents and marketable securities was primarily due to the impact of $5.4 million of cash used in operating activities.

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

Cash provided by investing activities was $1.0 million in the first six months of 2026, which primarily consisted of net sales of marketable securities.

Cash provided by financing activities was $47 thousand in the first six months of 2026, which primarily consisted of proceeds from issuances of common stock.

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