Rank One Computing Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial position as of March 31, 2026 and the results of our operations for the three months ended March 31, 2026 should be read in conjunction with other information, including the unaudited Condensed Consolidated Financial Statements and notes included in this Quarterly Report on Form 10-Q, the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 31, 2026, and the information contained under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025. Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Overview Founded in 2015, ROC is a consistently top-tier rated U.S.-built, U.S.-owned, and U.S.-operated provider of advanced biometric, facial recognition, and Vision AI solutions. We develop and deploy innovative technologies that enhance safety, security, and convenience globally, while upholding principles of fairness and privacy. Our solutions are trusted by U.S. and international military branches, law enforcement agencies, financial technology firms, and commercial enterprises, with our multimodal capabilities consistently demonstrating robust performance in rigorous government evaluations and in over 300 million annual identity verification transactions for major financial institutions. We believe our customer-centric approach and superior algorithms allow us to displace foreign incumbents and offer a transparent alternative to address the growing threat of “Poison AI” as discussed below. Factors and Trends Affecting Our Business and Results of Operations Several factors and trends affect our business and results of operations. These include the increasing importance of identity solutions, the evolving nature of biometric technologies, and our strategic approach to market opportunities. Financial Considerations and Strategic Investments We are making strategic investments to capitalize on market opportunities. ROC’s expenses reflect these investments, which are aimed at driving future growth and enabling us to provide a platform that supports a wide range of identity-related needs. Government Policy and Geopolitical Factors We believe ROC is also well-positioned to benefit from U.S. federal government policies focused on greater efficiency through technology, and our unique placement as a U.S.-based provider. Additionally, there is a general aversion to Chinese and Russian technology around the globe, which creates opportunities for ROC. We believe ROC is particularly well-positioned for winning automated biometric identification system (“ABIS”) contracts around the world, where there are clear indications of aversion to legacy Western players, primarily due to a history of vendor lock-in and poor service. The Growing Importance of Identity Solutions Identity is becoming a critical global currency, with increasing recognition that robust identity management is essential for security, efficiency, and trust. The increasing focus on digital identity initiatives highlights the growing significance of effective and comprehensive identity management systems. This trend increases the demand for effective and comprehensive identity management systems. Evolution of Biometric Technologies While specific biometric modalities are becoming more commoditized, the focus is shifting towards efficiency, plug-and-play capabilities, and multi-biometric systems. The differentiators around specific accuracy algorithms are becoming less important, with efficiency and the ability to integrate various technologies becoming key. This shift favors companies like us that offer versatile, data-agnostic, and privacy-protecting solutions. We believe that our ability to provide a “Swiss Army knife” of identity solutions, capable of addressing diverse use cases, positions us for success in this evolving market. 1 Poison AI “Poison AI” is a shorthand term that refers to the practice of data poisoning, a type of machine learning attack where malicious data is deliberately introduced into an AI model’s training dataset to manipulate its behavior or outputs, causing it to malfunction or become biased. An illustrative example of Poison AI is the Nightshade tool offered by the University of Chicago (https://nightshade.cs.uchicago.edu/whatis.html). Nightshade allows creators to prevent their digital artwork from being fed into generative AI models without consent by “turn[ing] any image into a data sample that is unsuitable for model training. More precisely, Nightshade transforms images into “poison” samples, so that models training on them without consent will see their models learn unpredictable behaviors that deviate from expected norms.” In the national security field, we believe Poison AI poses a serious and growing risk wherein adversarial state actors seek to intentionally create security vulnerabilities in AI models that are used in critical U.S. national security missions. As a solution provider to the U.S. national security community, we believe that our ability to closely manage our training data to prevent the introduction of “poison” samples would mitigate the risk of Poison AI and differentiate our offerings for our prospective government customers. Our Strategic Response ROC’s strategy is aligned with these trends. We recognize that having a great algorithm alone is no longer sufficient. Customers demand a full stack of capabilities, the ability to turn features on and off, and accommodation of complex demands. Our approach involves: ● Full-Stack Capability : We are focused on owning the full stack of identity capabilities, offering comprehensive platforms that address a wide range of customer needs. This approach is evident in our development of products like ROC ABIS, ROC Watch, and ROC Enroll. ● Modularity and Configurability : We design our systems to be modular and configurable, allowing us to adapt to specific customer requirements and integrate seamlessly with other technologies. This is crucial in a market where identity solutions must be flexible and adaptable. ● Broad View of Identity : Unlike competitors who view identity narrowly as biometrics, we adopt a broader perspective that includes biometrics, license plates, person entities, and real-time video. This comprehensive view enables us to provide more holistic solutions and address a wider range of use cases. ● Platform Approach : We are building a platform that offers both comprehensive solutions and individual components, recognizing that customers have diverse needs and require varying levels of integration. This strategy allows us to compete effectively with “all or nothing” approaches. Revenue Our revenue primarily consists of sales of software licenses for our products (ROC SDK, ROC Watch, ROC ABIS, and ROC Enroll), which generally include post-contract customer support, sales of bundled security solutions that combine our software with cameras, hardware devices, and installation services, and research and development services performed under contracts predominantly with the U.S. Government and government-adjacent customers and with select commercial customers. Cost of Sales Cost of sales consists primarily of personnel-related costs (including salaries, benefits, and stock-based compensation) for employees who provide customer support and deliver research and development services under customer contracts, the cost of cameras, hardware devices, and installation services for our bundled security solutions, and technology infrastructure costs. 2 Operating Expenses Operating expenses consist of selling, general and administrative expenses, and research and development. Research and Development Research and development expenses consist primarily of personnel-related costs for our research and engineering personnel, fees paid to third-party contractors and consultants supporting our research and development activities, costs of research supplies and software development tools, and allocated facilities and information technology costs. Research and development costs are expensed as incurred, except for software development costs that qualify for capitalization under ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of personnel-related costs, including salaries, benefits and stock-based compensation expense, for our personnel in executive, finance and accounting, human resources, business operations and other administrative functions, investor relations activities, legal fees related to corporate matters, fees paid for accounting and tax services, consulting fees and facility-related costs. Recent Developments Initial Public Offering On February 19, 2026, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with The Benchmark Company, LLC, acting as the representative of the several underwriters (the “Representative”), for a firm commitment underwritten initial public offering (the “IPO”). Pursuant to the Underwriting Agreement, the Company agreed to sell to the Representative an aggregate of 4,000,000 shares of the Company’s common stock at an offering price of $6.00 per share. On February 23, 2026, the Company consummated the closing of our IPO, generating gross proceeds of approximately $24,000,000, before deducting underwriting discounts and offering expenses. On March 26, 2026, the Representative partially exercised the over-allotment option pursuant to the Underwriting Agreement. As a result of the partial exercise of the over-allotment option, the Company received additional gross proceeds of $350,862 for the offer and sale of 58,477 shares of common stock, before underwriting discounts, commissions, and offering expenses. Results of Operations Comparison of the three months ended March 31, 2026 and 2025 Revenue We define Product Revenue as the aggregate revenue recognized from our four commercial software product lines: ROC SDK, ROC Watch, ROC ABIS, and ROC Enroll. Product Revenue is derived directly from amounts presented in our consolidated statements of operations and excludes revenue from research and development contracts, which consist of customer-funded development services performed under U.S. Government and similar arrangements. Management uses Product Revenue as an indicator of the commercial adoption of our software offerings and to evaluate the performance of our go-to-market activities. Product Revenue isolates revenue generated from productized software from revenue earned under research and development contracts, which are generally project-specific and non-recurring in nature. Product Revenue should be considered in conjunction with, and not as a substitute for, total revenue and other measures presented in accordance with U.S. GAAP. 3 The following table sets forth our financial results for the periods indicated. All information is derived from the statements of income for the three months ended March 31, 2026 and 2025. Three Months Ended March 31, Change 2026 2025 Amount % ROC SDK $ 1,322,301 $ 1,677,506 $ (355,205 ) (21 )% ROC Watch 889,480 502,648 386,832 77 % ROC ABIS 69,821 19,667 50,154 255 % ROC Enroll 41,896 237,645 (195,749 ) (82 )% Total Product Revenue 2,323,498 2,437,466 (113,968 ) (5 )% R&D Contracts 225,144 736,056 (510,912 ) (69 )% Total Revenue $ 2,548,642 $ 3,173,522 $ (624,880 ) (20 )% Cost of sales 542,994 659,738 (116,744 ) (18 )% Gross Profit $ 2,005,648 $ 2,513,784 $ (508,136 ) (20 )% Gross Margin 79 % 79 % Revenue decreased by $624,880, or 20%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Product revenues declined by $113,968, or 5%, compared to the prior year quarter, primarily reflecting lower revenues from ROC SDK and ROC Enroll, partially offset by growth in ROC Watch and ROC ABIS. R&D contract revenue decreased by $510,912, or 69%, primarily attributable to the completion of a significant prior-year R&D program, with new R&D contract activity in the current quarter occurring at a smaller scale. The pace of new contract awards and customer order placement during the quarter was also affected by lingering effects of the U.S. federal government funding lapse that occurred during the period from October 1, 2025 through November 12, 2025. Although the funding lapse ended prior to the start of the current quarter, it constrained federal procurement and contracting activity through late 2025, which delayed certain customer purchasing decisions, contract awards, and program authorizations that we believe would otherwise have advanced during the three months ended March 31, 2026. As discussed in the “Risk Factors” section of our 2025 Annual Report, the timing of our sales cycles is influenced by U.S. Government budgeting, appropriation, and procurement cycles, and disruptions to those cycles may delay customer purchasing decisions and the timing of revenue recognition. Despite these timing impacts, the Company experienced continued traction in ROC Watch sales, new pilot deployments, and increased customer engagements during the quarter. The Company also went live with multiple early-adopter pilot deployments of its ROC ABIS product offering, demonstrating directional traction in this emerging product area. These trends reflect continued underlying demand for the Company’s platform product offerings and support the progression of deployments into larger programs over time, consistent with the Company’s land-and-expand strategy. Operating Expenses The following table sets forth selected operating data for the periods indicated. All information is derived from the statements of income for the three months ended March 31, 2026 and March 31, 2025, and we provide additional explanation below. Three Months Ended March 31, Change 2026 2025 Amount % Selling, general and administrative $ 2,933,221 $ 1,976,717 $ 956,504 48 % Research and development 2,087,767 1,554,246 533,521 34 % Operating Expenses $ 5,020,988 $ 3,530,963 $ 1,490,025 42 % 4 Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $956,504, or 48%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The increase was primarily driven by higher personnel-related costs associated with continued investment in our business development and administrative functions to support the growth of our product offerings and markets served. The increase also reflects higher professional services expenses, including legal and accounting fees, and incremental costs associated with operating as a public company. These investments are aligned with our continued focus on operational execution and scaling the organization to support future growth. Research and Development Research and development expenses increased by $533,521, or 34%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was primarily driven by higher labor costs associated with growth in R&D headcount, reflecting continued investment in the development and enhancement of our platform and products. These investments are focused on expanding platform capabilities and functionality to address evolving customer requirements across our target markets. Other Income and Expenses Three months ended March 31, Change 2026 2025 Amount % Interest expense (19,418 ) (10,200 ) (9,218 ) 90 % Other expense (3,436 ) — (3,436 ) — Total Other Income (Expense) $ (22,854 ) $ (10,200 ) $ (12,654 ) 124 % Total other expense increased by $12,654 for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was primarily driven by higher interest expense, as well as additional other expense recognized during the current period. Income Tax Provision (Benefit) Income tax provision (benefit) for the three months ended March 31, 2026 was $0, reflecting an effective tax rate of 0%, compared to an income tax benefit of approximately $290,813 and an effective tax rate of approximately 28.3% for the three months ended March 31, 2025. The decrease in income tax benefit of approximately $290,813 was primarily attributable to the establishment of a full valuation allowance against our U.S. federal and state deferred tax assets during 2025. As a result, no income tax benefit was recognized on our pre-tax loss for the three months ended March 31, 2026, as any benefit that would otherwise have been recognized was offset by a corresponding increase in the valuation allowance. Our effective tax rate for the three months ended March 31, 2026 differed from the U.S. federal statutory rate of 21% primarily due to the impact of the full valuation allowance recorded against our deferred tax assets. We expect to continue to maintain a full valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the realization of some or all of these deferred tax assets. For additional information, refer to Note 9 of our condensed consolidated financial statements included elsewhere in this Quarterly Report and Note 9 of our consolidated financial statements included in our 2025 Annual Report. 5 Net Loss Attributable to Common Stockholders Net loss attributable to common stockholders was $3,038,194 and $736,566 for the three months ended March 31, 2026 and 2025, respectively. The increase in net loss was primarily attributable to the items discussed above, including higher operating expenses associated with continued investment in personnel and product development, as well as incremental costs associated with operating as a public company. Net Loss per Share Basic and diluted net loss per share was $0.18 for the three months ended March 31, 2026, compared to $0.05 for the three months ended March 31, 2025. The change reflects both the increase in net loss and the increase in the weighted-average number of common shares outstanding to 16,624,897 from 14,985,411 primarily as a result of the issuance of 4,058,477 shares in our initial public offering in February 2026, including the partial exercise of the underwriters’ over-allotment option. Because we reported a net loss in both periods, all potentially dilutive securities, including outstanding stock options, warrants, and unvested restricted stock units, were excluded from the calculation of diluted net loss per share as their inclusion would have been anti-dilutive. For additional information, refer to Note 2 of our condensed consolidated financial statements included elsewhere in this Quarterly Report. Liquidity and Capital Resources As of March 31, 2026, we had cash of approximately $16.6 million and working capital of $16.5 million. In February 2026, we completed our initial public offering, resulting in net proceeds to the Company of approximately $21.5 million, including net proceeds from the partial exercise of the underwriters’ over-allotment option, after deducting underwriting discounts, commissions, and offering expenses. Our revenue is concentrated among a limited number of U.S. Government and government-adjacent customers, and the timing of customer billings, collections, and contract awards is influenced by federal budgeting and appropriation cycles. As a result, our quarterly cash flow from operations may vary significantly based on the timing of contract awards and customer payments. We monitor working capital, days sales outstanding, and our concentrated receivable balances on a regular basis. Based on management’s evaluation as of March 31, 2026, including consideration of our cash, available borrowing capacity under our revolving line of credit, expected cash flows from operations, and our forecasted operating plan, management concluded that no conditions or events exist that raise substantial doubt about our ability to continue as a going concern for at least twelve months from the date these condensed consolidated financial statements are issued. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of our product development and sales and marketing activities, the pace of customer acquisition, and general market conditions. We may seek additional equity or debt financing in the future to fund our growth strategy, though there can be no assurance that such financing will be available on acceptable terms, or at all. Material Cash Requirements Our material cash requirements as of March 31, 2026 consist primarily of the following: Operating lease obligations: We lease office space under non-cancelable operating leases for our offices in Denver, Colorado, Morgantown, West Virginia, and Grand Rapids, Michigan. As of March 31, 2026, the total undiscounted future minimum lease payments under these leases were approximately $1.3 million, of which approximately $0.3 million is payable within the next twelve months. For additional information regarding our lease obligations, including the remaining lease term and discount rate used to measure the related lease liability, refer to Note 6 of our condensed consolidated financial statements included elsewhere in this Quarterly Report and Note 6 of our consolidated financial statements included in our 2025 Annual Report. 6 Line of credit: We maintain a revolving line of credit, and during the three months ended March 31, 2026, we repaid $3,709,907 of outstanding borrowings under the line of credit. As of March 31, 2026, $237,812 of borrowings were outstanding, and approximately $2.3 million of borrowing capacity remained available under the facility, subject to the terms and conditions of the credit agreement, including covenant requirements. We currently expect to maintain the facility as a source of supplemental liquidity. For additional information, refer to Note 7 of our condensed consolidated financial statements included elsewhere in this Quarterly Report. Purchase obligations: In the ordinary course of business, we enter into agreements with vendors and service providers, including for cloud infrastructure, software, and professional services. As of March 31, 2026, we had approximately $1.3 million of non-cancelable purchase commitments for equipment to expand our computing infrastructure. Other than as described above, we do not have any material non-cancelable purchase obligations as of March 31, 2026. Off-balance sheet arrangements: We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. We expect to fund these obligations from our existing cash, cash generated from operations, and, if necessary, borrowings under our line of credit. Cash flow activity below is a vital financial metric that represents the net amount of cash moving into and out of a business. The table below provides details about cash flow performance for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Three months ended March 31, Change 2026 2025 Amount % Net cash (used in) provided by: Operating activities $ (2,878,872 ) $ (423,755 ) $ (2,455,117 ) 579 % Investing activities (622,199 ) (206,250 ) (415,949 ) 202 % Financing activities 19,847,363 108,481 19,738,882 18,196 % Net increase (decrease) in cash $ 16,346,292 $ (521,524 ) $ 16,867,816 Operating Activities Net cash used in operating activities was $2,878,872 and $423,755 for the three months ended March 31, 2026 and 2025, respectively. The increase in cash used in operations was primarily driven by a higher net loss, partially offset by favorable changes in working capital and non-cash items. The higher net loss reflects continued investment in personnel and product development to support growth, including expansion of the Company’s research and development and business development functions, as well as incremental costs associated with operating as a public reporting company. These factors were partially offset by lower cost of sales compared to the prior-year period. Investing Activities Net cash used in investing activities was $622,199 and $206,250 for the three months ended March 31, 2026 and 2025, respectively. The increase in cash used in investing activities was primarily driven by higher spending on capitalized software development and purchases of fixed assets during the three months ended March 31, 2026 compared to the prior-year period. Capitalized software costs reflect ongoing investment in the development and enhancement of certain of the Company’s product offerings. 7 Financing Activities Net cash provided by financing activities was $19,847,363 and $108,481 for the three months ended March 31, 2026 and 2025, respectively. The increase in cash provided by financing activities was primarily attributable to net proceeds of approximately $21.5 million from the Company’s initial public offering, including proceeds from the partial exercise of the underwriters’ over-allotment option, partially offset by repayments on the Company’s line of credit during the period. Emerging Growth Company and Smaller Reporting Company Status We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and a “smaller reporting company” as defined in Rule 12b-2 under the Securities Exchange Act of 1934. As an emerging growth company, we are eligible to take advantage of certain reduced reporting and other requirements otherwise applicable to public companies, including, but not limited to, an exemption from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Section 102(b)(1) of the JOBS Act permits emerging growth companies to delay adoption of new or revised financial accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period, and this election is irrevocable. As a result, our consolidated financial statements may not be comparable to those of public companies that comply with new or revised financial accounting standards as of the effective dates applicable to non-emerging growth companies. There have been no changes to our status as an emerging growth company or smaller reporting company, or to our election to use the extended transition period, since the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Critical Accounting Policies and Estimates There has been no material change in our significant accounting policies and estimates disclosed in Note 1 of the Notes to Consolidated Financial Statements and in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2025. Recent Accounting Pronouncements See Note 2 of the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company”, we are not required to provide the information required by this Item.