Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following table sets forth, for the years indicated, certain line items from our consolidated statements of operations stated as a percentage of total revenue:

Summary of Operations

We are primarily engaged in the development and sale of biometrics products, solutions and services. Our software products are used in government and commercial systems and applications and fulfill a broad range of functions critical to secure biometric enrollment, authentication, identification and transactions. Principal government applications of biometrics systems include border control, visa applicant screening, law enforcement, national defense, intelligence, secure credentialing, access control, and background checks. Principal commercial applications include: i) user enrollment and authentication used for login to mobile devices, computers, networks, and software programs; ii) user authentication for financial transactions and purchases (online and in-person); iii) physical access control to buildings; and iv) identity proofing of prospective employees and customers. We sell our biometrics software products and services globally through a multifaceted distribution strategy using systems integrators, OEMs, VARs, partners, and directly to end user customers. 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.

Summary of Financial Results

We used revenue and operating loss to summarize our financial results over the past two years, as we believe these measures provide the most meaningful understanding of our operating performance. The comparisons below reflect certain reclassifications described in more detail in Note 2 to the consolidated financial statements

2025 compared to 2024

Revenue and operating loss in 2025 were $17.3 million and $6.6 million, respectively, compared to revenue and operating loss in 2024 of $17.4 million and $5.5 million, respectively.

Lower revenue in 2025 as compared to 2024 was primarily due to decreases in revenue from our software licenses of $0.3 million, which were partially offset by an increase and services and other revenue of $0.1 million and an increase in revenue from software maintenance of $0.1 million. Higher operating loss in 2025 as compared to 2024 was primarily due to a decrease in revenue of $0.1 million and increases in research and development expenses of $0.5 million, cost of revenue of $0.5 million and general and administrative expenses of $0.2 million, which were partially offset by a decrease in sales and marketing expense of $0.3 million.

Software Licenses Revenue

Software licenses revenue consists of revenue from the licensing of biometrics and imaging software products. Licensing of software products depends on our ability to win proposals to supply software for biometric systems projects either directly to end user customers or indirectly through channel partners.

Software licenses revenue decreased 4% from $7.7 million in 2024 to $7.3 million in 2025. As a percentage of total revenue, software licenses revenue decreased from 44% in 2024 to 42% in 2025. The $0.4 million decrease in software licenses revenue was primarily due to a decrease in perpetual license sales, which can fluctuate from period to period.

Software Maintenance Revenue

Software maintenance revenue consists of revenue from software maintenance contracts and SaaS subscription arrangements. Software maintenance contracts entitle customers to receive software support and software updates, if and when they become available, during the term of the contract. SaaS revenue represents a relatively small portion of both software maintenance revenue and total revenue.

Software maintenance revenue increased 2% from $8.6 million in 2024 to $8.7 million in 2025. As a percentage of total revenue, software maintenance revenue increased from 50% in 2024 to 51% in 2025. The dollar increase in software maintenance revenue was primarily due to software maintenance related to perpetual license sales.

A majority of our customers enter into software maintenance contracts when they initially license our software products. Because our software is used in active biometrics systems, many customers continue to renew their maintenance contracts in subsequent years while those systems remain operational.

Services and Other Revenue

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. 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 9% from $1.2 million in 2024 to $1.3 million in 2025. As a percentage of total revenue, services and other revenue was 7% in both 2024 and 2025. The increase was primarily due to growth in SaaS revenue, which increased from $0.1 million in 2024 to $0.4 million in 2025, partially offset by a decrease in professional services revenue of $0.2 million. The increase in SaaS revenue reflects expansion of subscription-based customer arrangements, while the decrease in professional services revenue was primarily due to lower project-based activity during 2025.

Cost of Revenue

Cost of revenue consists primarily of engineering costs to perform customer services projects, amortization of intangible technology assets related to acquisitions, and other third-party costs that are included with some of our software licenses. Such costs primarily include: i) engineering salaries, fringe benefits, and facilities; ii) engineering consultants and contractors; iii) software license fees; and iv) hardware costs.

Cost of revenue increased 58% from $0.8 million in 2024 to $1.3 million in 2025. Cost of revenue as a percentage of total revenue increased from 5% in 2024 to 8% in 2025. 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.

Gross margins on revenue are a function of: i) the nature of the projects; ii) the level of engineering difficulty and labor hours required to complete project tasks; iii) how much we were able to charge; and iv) product mix. We expect

that gross margins will continue to fluctuate in future periods based on the nature, complexity, and pricing of future projects and product mix.

Research and Development Expense

Research and development expense consists of costs for: i) engineering personnel, including salaries, stock-based compensation, fringe benefits, and facilities; ii) engineering consultants and contractors, and iii) other engineering expenses such as supplies, equipment depreciation, dues and memberships and travel. Engineering costs incurred to develop our technology and products are classified as 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.

Certain engineering personnel costs are allocated to cost of revenue based on the nature of the activities performed. Total engineering costs represent the combined amounts classified to research and development expense and cost of revenue.

The following table presents the classification of total engineering costs between research and development expense and cost of revenue and other for the years ended December 31, 2025 and 2024 (in thousands):

Total engineering costs increased 6% from $8.2 million in 2024 to $8.7 million in 2025. As a percentage of total revenue, total engineering costs increased from 47% in 2024 to 50% in 2025. Prior period amounts have been reclassified to conform to the current period presentation.

Our engineering headcount increased from 33 in 2024 to 45 in 2025. The increase in engineering costs is primarily a result of increasing our engineering headcount during the year. The increase was driven by strategic initiatives and to align our engineering capabilities with current business priorities. We expect engineering costs to increase in 2026 primarily due to the full-year impact of engineering personnel hired during 2025.

As we described in the Part I-Business of this Form 10-K, we intend to introduce new products that will allow us to offer more complete biometrics solutions. We believe this strategy will allow us to sell more software into biometrics systems projects in order to grow our revenue. Our preference is to develop such products internally, however to the extent we are unable to do that, we may purchase or license technologies from third parties. We anticipate that we will continue to focus our future research and development activities on enhancing existing products and developing new products. We expect research and development expenses to increase in absolute dollars and as a percentage of revenues in the next year.

Selling and Marketing Expense

Selling and marketing expense primarily consists of costs for: i) sales and marketing personnel, including salaries, sales commissions, stock-based compensation, fringe benefits, travel, and facilities; and ii) advertising and promotion expenses.

Selling and marketing expense decreased 5% from $7.7 million in 2024 to $7.3 million in 2025. As a percentage of total revenue, selling and marketing decreased from 44% in 2024 to 42% in 2025. The decrease in selling and marketing expense was primarily due to a $0.2 million decrease in travel expense, a $0.1 million decrease in bonus and commission expense and a $0.1 million decrease in trade show costs. We expect selling and marketing expense to increase primarily due to the full-year impact of sales and marketing personnel hired during 2025. We expect to be strategic in expanding our sales and marketing force to pursue future opportunities.

General and Administrative Expense

General and administrative expense consists primarily of costs for: i) officers, directors and administrative personnel, including salaries, bonuses, director compensation, stock-based compensation, fringe benefits, and facilities; ii)

professional fees, including legal and audit fees; iii) public company expenses; and iv) other administrative expenses, such as insurance costs and bad debt provisions.

In November 2025, we entered into a short-term bridge financing arrangement with Anonybit, Inc. ("Anonybit") in connection with a potential strategic transaction. Pursuant to this arrangement, we advanced $0.2 million to Anonybit under a secured promissory note. We also entered into a software license agreement with Anonybit; however, the broader contemplated transaction was not completed, and no additional amounts were funded under the note. During the fourth quarter of 2025, we determined that Anonybit was insolvent and unable to satisfy its obligations after we ceased further funding and called the note. As a result, we recorded a full write-off of the $0.2 million note receivable, which is included in general and administrative expense for the year ended December 31, 2025.

General and administrative expense increased 3% from $6.7 million in 2024 to $6.9 million in 2025 primarily as a result of the write-off of the Anonybit note receivable. As a percentage of total revenue, general and administrative expense increased from 39% in 2024 to 40% in 2025. While we expect general and administrative expenses to increase in absolute terms as we continue to invest in our business, the trajectory of these costs as a percentage of total revenue will depend on revenue growth. Future trends will be influenced by our ability to scale operations efficiently and drive revenue expansion. Prior period amounts have been reclassified to conform to the current period presentation.

Interest Income

Interest income decreased from $1.2 million in 2024 to $0.9 million in 2025. The dollar decrease in interest income was primarily due to lower average cash balances during the year and lower interest rates within our money market accounts.

Income Taxes

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.

Total income tax expense for the years ended December 31, 2025 and 2024 was $0.3 million and $0.1 million, respectively. The income tax expense was primarily attributable to foreign withholding taxes on international revenue of $0.2 million and $22 thousand for the years ended December 31, 2025 and 2024, respectively, reflecting increased revenue from certain international customers. In addition, we had state income taxes of $14 thousand and $31 thousand for the years ended December 31, 2025 and 2024, respectively. The Company did not incur U.S. federal income tax expense in either period.

LIQUIDITY AND CAPITAL RESOURCES

In recent years, we have financed the company with our cash and cash equivalent balances. Cash flows from operating, investing and financing activities are described below.

Cash flows from operating activities

A discussion of cash flow from operating activities for each of the last two years is as follows:

Year ended December 31, 2025. Cash used in operating activities was $5.4 million in 2025, which was primarily the result of a $5.9 million net loss and $1.3 million of working capital adjustments, which was partially offset by $0.6 million of depreciation and amortization expense and $1.2 million of non-cash stock-based compensation.

Year ended December 31, 2024. Cash used in operating activities was $3.2 million in 2024, which was primarily the result of a $4.4 million net loss and $0.6 million of working capital adjustments, which was partially offset by $0.6 million of depreciation and amortization expense and $1.1 million of non-cash stock-based compensation.

Cash flows from investing activities

Year ended December 31, 2025. Investing activity used $0.3 million of cash, primarily as the result of purchases of equipment of $0.2 million and net purchases of marketable securities of $0.1 million.

Year ended December 31, 2024. Investing activity provided $6.3 million of cash, primarily as the result of net sales of marketable securities.

Cash flows from financing activities

Year ended December 31, 2025. Financing activity cash used of $31 thousand was primarily the result of $0.1 million used to buy back stock under our stock repurchase program, which was partially offset by $0.1 million of proceeds from the issuance of common stock from stock grants.

Year ended December 31, 2024. Financing activity cash used of $0.2 million was primarily the result of $0.2 million used to buy back stock under our stock repurchase program, which was partially offset by $0.1 million of proceeds from the issuance of common stock from stock grants.

At December 31, 2025, we had cash, cash equivalents, and marketable securities of $22.3 million. While we cannot assure you that we will not require additional financing, or that if needed such financing will be available to us, we believe that our cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next twelve months from the filing date of this Annual Report on Form 10-K and to meet our known long-term cash requirements including operating expenses, contractual obligations, and planned strategic investments. 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 seek additional external financing.

As of December 31, 2025, our material cash requirements from known contractual and other obligations consisted primarily of payments under the operating lease for our corporate headquarters. We estimate lease payments will be approximately $0.7 million in each of 2026 and 2027, approximately $0.8 million in each of 2028, 2029 and 2030, and $1.9 million thereafter. These amounts represent fixed contractual obligations under the lease agreement. See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding our operating lease.

We enter into agreements in the ordinary course of business that require us: i) to perform under the terms of the contracts, ii) to protect the confidentiality of our customers' intellectual property, and iii) to indemnify customers, including indemnification against third party claims alleging infringement of intellectual property rights. We also have agreements with each of our directors and executive officers to indemnify such directors or executive officers, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or officer of the Company.

Given the nature of the above obligations and agreements, we are unable to make a reasonable estimate of the maximum potential amount that we could be required to pay. Historically, we have not made any significant payments on the above guarantees and indemnifications and no amount has been accrued in the audited financial statements included elsewhere in this Annual Report on Form 10-K with respect to these guarantees and indemnifications.

To date, inflation has not had a material impact on our financial results. There can be no assurance, however, that inflation will not adversely affect our financial results in the future.

OFF-BALANCE SHEET ARRANGEMENTS

We do not currently have any arrangements with unconsolidated entities, such as entities often referred to as structured finance, special purpose entities, or variable interest entities which are often established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, we are not exposed to any financing, liquidity, market or credit risk.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements included elsewhere in this Annual Report. We have identified the following as our significant accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.

Revenue recognition. In accordance with Accounting Standards Codification ("ASC"), Topic 606, Revenue from Contracts with Customers ("ASC 606"), revenue is recognized when a customer obtains control of promised goods and services. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these goods and services. In addition, ASC 606 requires disclosures of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve that core principle, we apply the following five step model:

We categorize revenue as software licenses, software maintenance, and services and other revenue, which includes SaaS subscription arrangements. Revenue from software licenses is recognized at a point in time upon delivery, provided all other revenue recognition criteria are met. We recognize software maintenance revenue and revenue from SaaS subscription arrangements, over time on a straight-line basis over the contract period. Services revenue is recognized over time as the services are delivered using an input method, based on labor hours incurred as a percentage of total labor hours budgeted, provided all other revenue recognition criteria are met.

In addition to selling software licenses, software maintenance and software services on a standalone basis, a significant portion of our contracts include multiple performance obligations, which require an allocation of the transaction price to each distinct performance obligation based on a relative standalone selling price ("SSP") basis. The SSP is the price at which we would sell a promised good or service separately to a customer. The best estimate of SSP is the observable price of a good or service when we sell that good or service separately. A contractually stated price or a list price for a good or service may be the SSP of that good or service. We use a range of amounts to estimate SSP when we sell each of the goods and services separately and need to determine whether there is a discount that needs to be allocated based on the relative SSP of the various goods and services. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we typically determine the SSP using an adjusted market assessment approach using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual goods and services due to the stratification of those goods and services by customers and circumstances. In these instances, we may use information such as the nature of the customer and distribution channel in determining the SSP.

When software licenses and significant customization engineering services are sold together, they are accounted for as a combined performance obligation, as the software licenses are generally highly dependent on, and interrelated with, the associated customization services and therefore are not distinct performance obligations. Revenue for the combined performance obligation is recognized over time as the services are delivered using an input method (i.e., labor hours incurred as a percentage of total labor hours budgeted).

When subscription-based software is sold, the software license and software maintenance are generally considered distinct performance obligations. The transaction price is allocated to the software license and the software maintenance based on relative SSP. We sell our software subscription license for a fixed fee or a subscription-based royalty fee, sometimes subject to a minimum guarantee. When the amount is in the form of a fixed fee, including the guaranteed minimum usage-based royalty, revenue allocated to the software license is recognized at a point in time upon delivery, provided all other revenue recognition criteria are met. Any royalties not subject to the guaranteed minimum or earned in excess of the minimum amount are recognized as revenue when the subsequent usage occurs. Revenue allocated to the software maintenance is recognized over the contract term.

Also, with the delivery of certain products in a hosted environment through AwareID, we recognize revenue from our SaaS arrangements ratably over the subscription period.

Our arrangements can include variable fees, such as the option to purchase additional usage of a previously delivered software license. We may also provide pricing concessions to clients, a business practice that also gives rise to variable fees in contracts. For variable fees arising from the client's purchase of additional usage of a previously delivered

software license, we apply the sales and usage-based royalties guidance related to a license of intellectual property and recognize revenue in the period the underlying sale or usage occurs. We include variable fees in the determination of total transaction price if it is not probable that a future significant reversal of revenue will occur. We use the expected value or most likely value amount, whichever is more appropriate for specific circumstances, to estimate variable consideration, and the estimates are based on the level of historical price concessions offered to clients.

The amount of consideration is not adjusted for a significant financing component if the time between payment and the transfer of the related good or service is expected to be one year or less under the practical expedient in ASC 606-10-32-18. Our revenue arrangements are typically accounted for under such expedient, as payment is typically due within 30 to 60 days. As of December 31, 2025 and 2024, none of our contracts contained a significant financing component.

Goodwill and intangible assets impairment. Our goodwill and intangible assets result from our previous business acquisitions. Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually or as circumstances indicate their value may no longer be recoverable. We do not carry any intangible assets with indefinite useful lives other than goodwill. We perform our annual goodwill impairment test in the fourth quarter. To assess if goodwill is impaired, we first review qualitative factors to determine whether further impairment testing is necessary. If based on the qualitative assessment, we consider it more-likely-than-not that our reporting unit's fair value is less than its carrying amount, we perform a quantitative impairment test. An excess of carrying value over fair value would indicate that goodwill may be impaired.

We periodically reevaluate our business and have determined that we have one operating segment and one reporting unit. If our assumptions change in the future, we may be required to record impairment charges to reduce our goodwill carrying value.

If indicators of impairment are present, we compare the estimated undiscounted cash flows that the asset is expected to generate to the carrying value. The key assumptions of the cash flow model involve significant subjectivity. If such assets are impaired, an impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value.

As of December 31, 2025 and 2024, we had $3.1 million of goodwill. As of December 31, 2025 and 2024, we had $1.6 million and $2.0 million of intangible assets, respectively. Impairment in the valuation of long-lived assets could materially impact our operating results and financial position. To date, there have been no impairments of goodwill or intangible assets.

Stock-Based Compensation. We grant stock and stock options to our employees and directors. We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the applicable vesting period of the award on a straight-line basis.

For stock awards, we determine the fair value of the award by using the fair market value of our stock on the date of grant; provided the number of shares in the grant is fixed on the grant date.

For stock options, we use the Black-Scholes valuation model to estimate fair value. This model considers both observable inputs and assumptions. Observable inputs include the exercise price of the award and the risk-free interest rate over the expected term. Assumptions used in the valuation include the expected term of the option, the expected volatility of our stock over the expected term, and our expected annual dividend yield.

Income taxes. As part of the process of preparing our consolidated financial statements we are required to estimate our actual current tax expense. We must also estimate temporary and permanent differences that result from differing treatment of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe recovery is not likely, we must establish a valuation allowance.

Management judgment is required in determining our provision for income taxes, our deferred tax assets, and any valuation allowance recorded against our net deferred tax assets. Our deferred tax assets primarily relate to: i) research and development tax credit carryforwards; ii) net operating loss carryforwards; and iii) temporary differences that result from differing treatment of certain items for tax and accounting purposes. As of December 31, 2025, we had a total of $15.7 million of deferred tax assets and $1.4 million of deferred tax liabilities for which we have recorded a

$14.3 million valuation allowance. As of December 31, 2024, we had a total of $13.7 million of deferred tax assets and $0.5 million of deferred tax liabilities for which we have recorded a $13.2 million valuation allowance.

We will continue to assess the level of valuation allowance required in future periods. Should evidence regarding the realizability of tax assets change at a future point in time, the valuation allowance will be adjusted accordingly.

Allowance for credit losses.We make judgments as to our ability to collect outstanding and unbilled receivables to reflect any estimated credit losses. The allowance is evaluated each quarter on a customer-by-customer basis and considers historical write-off experience with each customer, the number of days that any delinquent invoices are past due, and an evaluation of the potential risk of loss associated with any delinquent accounts. If the judgments we make to determine the allowance for credit losses do not reflect the future ability to collect outstanding receivables, additional provisions for credit losses may be required.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements. In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an annual tabular effective tax rate reconciliation disclosure including information for specified categories and jurisdiction levels, as well as disclosure of income taxes paid, net of refunds received, disaggregated by federal, state/local, and significant foreign jurisdiction. This ASU is effective for the Company's fiscal year ended December 31, 2025 and has been adopted in these consolidated financial statements on a prospective basis. The adoption did not have a material impact on the Company's consolidated financial statements.

In 2025, the FASB issued ASU No. 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which amends existing guidance related to the accounting for internal-use software costs. The amendments are intended to improve the relevance of information provided to investors about a company's investments in internal-use software and align the accounting for internal-use software costs with modern software development practices. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact that adoption of this ASU will have on the Company's consolidated financial statements.