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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-04-01 · 51 added, 66 removed, 73 unchanged (62% of the section changed)

1 unchanged sentence

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.

Our products include solutions for preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices.

Our products include solutions

for preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices.

Critical Accounting Policies and the Use of Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes.

Significant estimates and assumptions that affect amounts reported in the financial statements include impairment consideration and valuation of goodwill and intangible assets, deferred tax valuation allowances, allowance for credit losses, revenue recognition (including breakage revenue), and the fair value of stock options 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 including software development costs, revenue recognition (including breakage revenue), and the fair value of stock options under our stock-based compensation plans.

Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates.

We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management’s judgments and estimates.

These significant accounting policies relate to revenue recognition, stock-based compensation, deferred taxes, goodwill and intangible asset valuation and impairment, and commitments and contingencies.

These policies and our procedures related to these policies are summarized below and described in further detail in the Notes to Financial Statements.

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.

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.

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

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Reference Note 9, “Stockholders' Equity,” in the Notes to Financial Statements for details on the Company’s stock-based compensation plans.

Deferred Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carry forwards.

Deferred tax assets and liabilities are measured using expected tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

We have recorded a full valuation allowance for our net deferred tax assets as of December 31, 2023 and 2022, due to the uncertainty of the realizability of those assets.

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.

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.

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.

The estimated liability was $1.1 million as of December 31, 2023.

See Note 12 in the Notes to Financial Statements for more details.

Valuation of long-lived assets

Our long-lived assets include property and equipment, goodwill, and intangible assets.

As of December 31, 2024, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization, were $536, $8,102 and $2,374, respectively.

As of December 31, 2023, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization, were $666, $8,102 and $575, respectively.

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.

Internal Use Capitalized Software

We capitalize certain costs related to the development of our platform and other software applications for internal use.

In accordance with authoritative guidance, we begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended.

We stop capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant testing.

These costs are amortized on a straight-line basis over the estimated useful life of the related asset.

capitalize costs related to specific upgrades and enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements.

Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within research and development expenses in the statements of operations.

We exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized.

Results of Operations

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OPERATING EXPENSES .

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.

Operating expenses, which consist of selling, general and administrative expenses and research and development expenses, decreased by $(473), or (2.4)% to $19,334 for the year ended December 31, 2024 from $19,807 for the year ended December 31, 2023.

Selling, general and administrative expenses increased by $350, or 2%, to $15,477 for the year ended December 31, 2024, compared to $15,127 for the year ended December 31, 2023.

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.

This increase was primarily driven by higher general and administrative costs, specifically headcount-related expenses tied to severance expenses.

Research and development expenses decreased $823, or 18%, to $3,857 for the year ended December 31, 2024, compared to $4,680 for the year ended December 31, 2023.

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) .

Interest income was $234 for the year ended December 31, 2023, compared to interest expense of $(5) during the year ended December 31, 2022.

INTEREST AND OTHER INCOME .

Interest income was $283 for the year ended December 31, 2024, compared to interest income of $234 during the year ended December 31, 2023.

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.

Our provision for income taxes was $33 for the year ended December 31, 2024, compared to a benefit from income taxes of $(62) during the year ended December 31, 2023.

As a result of the factors noted above, we had net losses of $(918), or $(0.05) per share, for the year ended December 31, 2024 as compared to a net loss of $(1,980), or $(0.10) per share, for the year ended December 31, 2023.

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.

For the year ended December 31, 2023, our cash decreased by $1,216.

As of December 31, 2024, we had cash and cash equivalents of $4,666, working capital (defined as current assets minus current liabilities) of $6,726, total assets of $20,933 and stockholders’ equity of $17,747.

For the year ended December 31, 2024, our cash increased by $686.

Cash used in operating activities was $(2,694) for the year ended December 31, 2024 as compared to cash used in operating activities of $(647) for the year ended December 31, 2023.

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 provided by investing activities for the year ended December 31, 2024 was $2,895 as compared to cash used in investing activities of $(414) for the year ended December 31, 2023.

Cash provided by financing activities was $485 for the year ended December 31, 2024 as compared to cash used in financing activities of $(155) for the year ended December 31, 2023.

On February 6, 2019, we entered a revolving credit facility with Citi Personal Wealth Management that allows for borrowings up to the lesser of (i) $2,000 or (ii) the collateralized balance in our existing fixed income investment account with Citi Personal Wealth Management.

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.

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.

The facility bears interest at a rate consistent of Citi Personal Wealth Management’s Base Rate (9.00% and 8.50% at December 31, 2024 and December 31, 2023, respectively) minus 2% subject to certain limitations.

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.

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.

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.

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

We keep the option open to raise additional funds to respond to business contingencies which may include the need to fund more rapid expansion, fund additional marketing expenditures, develop new markets for our technology, enhance our operating infrastructure, respond to competitive pressures, or acquire complementary businesses or necessary technologies.

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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.

Consequently, Adjusted EBITDA should not be considered in isolation or as a substitute for net loss presented in accordance with GAAP.

Adjusted EBITDA as defined by us may not be comparable with similarly named measures provided by other companies.

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Reconciling items:

Non-restructuring severance expenses 548 58

Restructuring severance expenses 376 548

Provision for income taxes 33 (62)

Sales tax accrual — 227

Interest and other expense (income) (234) 5

Interest income

Depreciation and amortization 436 282

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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.

Our available net operating loss (“NOL”) as of December 31, 2024 was approximately $28,500, of which $10,900 expires between 2035 and 2037.

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.

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.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments to measure credit losses on financial instruments, including trade receivables.

The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments.

The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses.

Under the previous guidance, an entity only considered past events and current conditions.

We adopted the new standard on January 1, 2023 and was applied prospectively.

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.

NOLs arising in a tax year ending after 2017 in the amount of $17,600 will not expire, but are subject to 80% limitation on utilization.

In addition to the NOLs, the Company has approximately $700 of research and development credits.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

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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.

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.

The Company adopted this standard effective January 1, 2024 and was applied retrospectively.

The adoption of this new standard did not have a material impact on the Company's consolidated 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.

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.

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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

effective date.

This change will apply on a prospective basis to annual financial statements for periods beginning after the 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.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

The amendment requires new financial statement disclosures to provide disaggregated information for certain types of expenses, including employee compensation, depreciation, and amortization in commonly presented expense captions such as cost of revenue, sales and marketing, and general and administrative expenses.

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

The Company is in the process of evaluating the effect that the adoption of these standards will have on its 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.

We have never entered into 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 nor entered into any option agreements on non-financial assets.

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-K

Item 7. Management’s Discussion and Analysis