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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.41pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.72pp
Lean +
Net-tone change vs last year's 10-K.
MD&A
+0.10pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
fraud+4
loss+3
negative+3
harm+2
breach+2
Positive rising
profitability+3
benefit+2
positive+2
favorable+2
effective+1
Risk Factors (Item 1A)
4,934 words
Item 1A. Risk Factors
RISK FACTORS
Risks Related to Our Business and Industry (All dollar amounts are rounded to thousands, except per share data)
Although we achievedprofitability for the fiscal year ended December 31, 2025, we have a history of operating losses, and we cannot provide assurance that we will maintain profitability.
We reported net income of $1,273 for the fiscal year ended December 31, 2025, compared to a net loss of $(918) for the fiscal year ended December 31, 2024. Despite this recent profitability, we have an accumulated deficit of $(133,210) as of December 31, 2025. We expect to continue incurring significant operating expenses as we invest in product development, specifically regarding our AI and fraud detection capabilities, and expand our sales operations. These investments may increase our costs faster than our revenue grows. Accordingly, we may not be able to maintain in subsequent periods, which could result in a in the value of our securities .
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
losses+4
negative+4
against+2
loss+1
overcome+1
Positive rising
positive+3
effective+1
benefit+1
profitability+1
distinction+1
MD&A (Item 7)
3,217 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (All dollar amounts are rounded to thousands, except per share data)
Overview
We are a prominent technology company engaged in developing, integrating and marketing identity verification solutions to address challenges that include commercial retail and banking fraudprevention. 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 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.
Our proprietary software relies on reference data provided by government and quasi-government agencies. If these governmental and quasi-government agencies were to stop sharing data with us, the utility of our proprietary software would be diminished in those jurisdictions and our business would be damaged.
Currently, every U.S. state, ten Canadian provinces and the District of Columbia, in most instances, conform to the guidelines established by certain organizations responsible for implementing industry standards and cooperate with us by providing sample identification cards so that we may modify all our hardware and software products to read and analyze the encoded information found on such jurisdiction’s identification cards. If one or more of these jurisdictions do not continue to provide this reference data, the utility of our proprietary software may be diminished in those jurisdictions.
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Disruptions at federal governmental agencies that we interact with, due to a reduction in workforce and/or inadequate funding, could prevent such agencies from performing normal functions on which our business relies, which could negatively impact our business.
Changes in federal spending priorities, prolonged government shutdowns, constraints on agency budgets and staffing levels, or shifts in policy priorities could reduce the ability of certain governmental agencies to perform their responsibilities, including issuing and updating identification standards and sharing reference data with us, which could have a material adverse effect on our business.
Our business strategy exposes us to long sales and implementation cycles for our products.
Our target customers in the commercial fraud protection, financial services, retail, access control and age verification industry sectors include banks and credit card issuers, large retailers and to a lesser extent, government agencies, which typically require longer sales and implementation cycles for our products than do our potential customer base solely interested in age verification, such as restaurant, bar and convenience store operators. The longer sales and implementation cycles for larger retail companies continue to have an adverse impact on the timing of realizing our revenues. In addition, budgetary constraints and potential economic slowdowns or inflationary pressures also may continue to delay purchasing decisions by these prospective customers.
The industry for our systems and software is evolving and its growth is uncertain.
Demand and industry acceptance for recently introduced and existing systems, and software and sales from such systems, are subject to a high level of uncertainty and risk. Changes in government budgets, and slowly evolving government standards on use of identity products have impacted the development of our business serving the government sector. The commercial sector can develop faster than the government sector, but it subject to a higher level of uncertainty because of potential uncertainty in the continued financial health of our commercial customers, as well as long sales cycles. Our business may suffer if the industry demand develops more slowly than anticipated and does not sustain industry acceptance.
Failure to manage our operations if they expand could impair our future growth.
If we expand our operations, particularly through multiple sales to large retailers and government agencies in the document verification industry, the expansion will place significant strain on our management, financial controls, operating systems, personnel and other resources. Our ability to manage future growth, should it occur, will depend upon several factors, including our ability to do the following:
■ build and train our sales force;
■ establish and maintain relationships with distributors;
■ develop customer support systems;
■ develop expanded internal management and financial controls adequate to keep pace with growth in personnel and sales, if they occur; and
■ manage the use of third-party manufacturers and suppliers.
If we can grow our business but do not manage our growth successfully, we may experience increased operating expenses, loss of customers, distributors or suppliers and declining or slowed growth of revenues.
Failure to protect our proprietary technology may impair our competitive position.
We continue to allocate significant resources to developing new and innovative technologies that are utilized in our products and systems. Because our continued success depends on, to a significant degree, our ability to offer products providing superior functionality and performance to those offered by our competitors, we consider the protection of our technology from unauthorized use to be fundamental to our success. This is done by processes aimed at identifying and
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seeking appropriate protection for newly developed intellectual property, including patents, trade secrets, copyrights, and trademarks, as well as policies aimed at identifying unauthorized use of such property. These processes include:
■ including provisions for nondisclosure of proprietary information in our contractual arrangements;
■ maintaining and enforcing issued patents and filing patent applications on innovative solutions to commercially important problems;
■ protecting trade secrets, including software source code;
■ protecting trademarks by registration and other appropriate means;
■ establishing internal processes for identifying and appropriately protecting new and innovative technologies; and
■ establishing practices for identifying unauthorized use of intellectual property.
Litigation can be very costly and divert management’s attention. An adverse outcome in any litigation may have a severenegative effect on our financial results. To determine the priority of inventions, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office or oppositions in foreign patent and trademark offices, which could result in substantial cost and limitations on the scope or validity of our patents or trademarks.
Additionally, third parties, including our competitors or licensees, may seek to have our patents reviewed by the Patent Trial and Appeal Board of the United States Patent and Trademark Office in a post grant proceeding, such as post grant review or an inter parties review. Such proceedings, if instituted could cancel our patents or narrow the scope of our patent claims. We cannot predict the effect that such proceedings, if instituted, may have on our business or revenue received from licensing our patents.
In addition, foreign laws treat the protection of proprietary rights differently from laws in the United States. The failure of foreign laws or judicial systems to adequately protect our proprietary rights or intellectual property, including intellectual property developed on our behalf by foreign contractors or subcontractors, may have a material adverse effect on our business, operations, and financial results.
If our future products incorporate technologies that infringe the proprietary rights of third parties, and we do not secure licenses from them, we could be liable for substantial damages.
We are not aware of our current products infringing the intellectual property rights of any third parties. We also are not aware of any third-party intellectual property rights that may hamper our ability to provide future products and services. However, we recognize that the development of our services or products may require that we acquire intellectual property licenses from third parties to avoid infringement of those parties’ intellectual property rights. These licenses may not be available at all or may only be available on terms that are not commercially reasonable. If third parties make infringementclaimsagainst us, even if they are not upheld, such claims could:
■ consume substantial time and financial resources;
■ divert the attention of management from growing our business and managing operations; and
■ disrupt product sales and shipments.
If any third party prevails in an action against us for infringement of its proprietary rights, we could be required to pay damages and either enter costly licensing arrangements or redesign our products so as to exclude any infringing use. As a result, we would incur substantial costs, delays in product development, sales and shipments, and our revenues may decline substantially. Additionally, we may not be able to achieve the growth necessary for our continued success.
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Failure to attract and retain management and other personnel may damage our operations and financial results and cause our stock price to decline.
We depend, to a significant degree, on the skills, experience and efforts of our executive officers and other key management, technical, finance, sales and other personnel. Our failure to attract, integrate, motivate and retain existing or additional personnel could disrupt or otherwise harm our operations and financial results. We do not carry key man life insurance policies covering any employees. The loss of services of certain of our key employees, an inability to attract or retain qualified personnel in the future, or delays in hiring additional personnel could delay the development of our business and could cause our stock price to decline.
We incur significant accounting and other control costs that impact our financial condition.
As a publicly traded corporation, we incur certain costs to comply with regulatory requirements. If regulatory requirements were to become more stringent or if controls thought to be effective later fail, we may be forced to make additional expenditures, the amounts of which could be material. Some of our competitors are privately owned, so their accounting and control costs could create a competitive advantage over us. Should our sales decline or if we are unsuccessful at increasing prices to cover higher expenditures for internal controls and audits, our costs associated with regulatory compliance will rise as a percentage of sales.
Failure to maintain effective internal control over our financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could cause our financial reports to be inaccurate.
We are required pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to maintain internal control over financial reporting and to assess and report on the effectiveness of those controls. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.
We rely on third-party mobile operating systems and hardware ecosystems that are outside our control.
A significant portion of our revenue depends on our software running effectively on third-party mobile devices (iOS and Android) and Point-of-Sale ("POS") hardware. We do not control these platforms. If Apple, Google, or POS manufacturers alter their operating systems—for example, by restricting access to camera feeds or NFC (Near Field Communication) chips—our products could become non-functional. Furthermore, these platform providers may introduce competing native identity verification features (e.g., mobile IDs embedded directly in digital wallets) that could disintermediate third-party applications like ours.
We rely on third-party service providers and cloud infrastructure to host our platform and process data; a cybersecurity breach, supply chain attack, or service disruption at these third parties could expose us to significant liability and disrupt our business.
Our SaaS delivery model and internal operations depend heavily on third-party service providers, including cloud infrastructure services, data center operators, and software vendors. We also utilize third-party technology for some critical functions such as facial biometric matching and global document validation.
While we implement security measures for our own systems, we do not have direct control over the cybersecurity protocols of these third-party providers. Sophisticated cyber attackers increasingly target these "supply chain" vendors to gain access to downstream customers like us. If a third-party provider is compromised, attackers could infiltrate our systems, access sensitive personal information (PII) of our customers or their end-users or inject malicious code into our software updates.
Furthermore, any service outage, ransomware attack, or denial-of-service attack targeting our cloud providers could render our platform unavailable to customers, leading to immediate revenue loss and reputational damage. Under current laws and regulations, we may be held liable for the unauthorized disclosure of sensitive data even if the breach
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originates with a third-party vendor. Such an event could result in substantial fines, legal claims, termination of customer contracts, and a loss of confidence in our ability to protect sensitive identity data.
Under our current governance structure, our Board of Directors oversees cybersecurity risk management as a principal business risk. However, there is no guarantee that our oversight processes or the cybersecurity protocols of our third-party vendors will be sufficient to prevent a material breach. Any such incident would require us to disclose the event under Item 1.05 of Form 8-K, which could lead to immediate negative market reaction and long-term reputational harm.
We are subject to risks associated with product failure and technological flaws.
Our products are complex and may contain undetectederrors or result in failures when first introduced or when new versions are released. Despite vigorous product testing efforts and testing by current and potential customers, it is possible that errors will be found in a new product or enhancement after commercial shipments have commenced. The occurrence of product defects or errors could result in negative publicity, delays in product introduction and the diversion of resources to remedy defects and loss of or delay in industry acceptance or claims by customers against us and could cause us to incur additional costs, any one of which could adversely affect our business. Because of the risk of undetectederror, we may be compelled to accept liability provisions that vary from our preferred contracting model in certain critical transactions. There is a risk that in certain contracts and circumstances we may not be successful in adequately minimizing product and related liabilities or that the protections negotiated will not ultimately be deemed enforceable.
We carry product liability insurance, but existing coverage may not be adequate to cover potential claims. The failure of our products to perform as promised could result in increased costs, lower margins, liquidateddamage payment obligations and harm to our reputation.
We may not be able to keep up with rapid technological change.
The sectors for all our products are characterized by rapid technological advancements. Significant technological change could render existing technology obsolete. If we are unable to successfully respond to these developments, or do not respond in a cost-effective manner, our business, financial condition, and results of operations will be materially adversely affected.
A significant portion of our revenues is concentrated among a limited number of customers, and the loss or reduced usage of our products by one or more of these customers could materially adversely affect our results of operations.
For the fiscal years ended December 31, 2025 and 2024, our top ten customers accounted for approximately 77% and 71% of our total revenues, respectively. The loss of any one of these significant customers, or a reduction in their spending levels, could have a material adverse effect on our business, financial condition, and results of operations. Furthermore, these customers often have significant leverage in contract negotiations, which may result in pricing pressure or reduced margins. Our ability to replace these customers or comparable revenue streams is uncertain and could take significant time and investment.
We are subject to risks related to data privacy and the storage of biometric information.
With the growing use of biometric data in identity verification, Intellicheck faces increased risks related to the usage and protection of this highly sensitive information. Biometric data, such as facial recognition patterns, are uniquely vulnerable as they cannot be changed if compromised. The company must implement robust security measures to protect this data from breaches, as any leak could lead to severe reputational damage, legal consequences, and loss of customer trust. Additionally, evolving privacy laws and regulations specifically targeting biometric data could impose new compliance burdens on the company. Additionally, regulators are increasingly scrutinizing AI models for "algorithmic bias." If our fraud detection algorithms are found to perform differentially across demographic groups, we could face
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regulatory fines, reputational harm, and requirements to alter our technology under laws like federal non-discrimination statutes.
We are subject to regulation and other legal obligations relating to data privacy and protection. Compliance with these requirements is complex and costly. The actual or perceived failure to comply with such obligations could materially harm our business .
We are or may become subject to numerous state, federal and foreign laws, requirements and regulations governing the collection, use, access to, confidentiality, disclosure, storage, processing, retention and security of personal information. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminalpenalties and private litigation. As an example, the California Privacy Rights Act (the “CCPA”) requires covered businesses that process the personal information of California residents to, among other things: provide certain disclosures to California residents regarding the business’s collection, use, and disclosure of their personal information; receive and respond to requests from California residents to access, delete, and correct their personal information, or to opt out of certain disclosures of their personal information; and enter into specific contractual provisions with service providers that process California resident personal information on the business’s behalf. Similar laws have been passed in other states and are continuing to be proposed at the state and the federal level, reflecting a trend toward more stringent privacy legislation in the United States. The CCPA and other domestic privacy and data protection laws and regulations may increase our compliance costs and potential liability.
Although we work to comply with applicable laws, regulations and standards, as well as our contractual obligations and other legal obligations, relating to data privacy and security, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction and/or organization to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators, or other third parties to comply with such requirements or adequately address privacy data and security concerns, even if unfounded, could result in additional costs, claims by and liability to third parties, government investigations and enforcement actions, damage to our reputation, and other adverse effects on our business, financial condition and results of operations.
Rapid advancements in generative artificial intelligence ("AI") and "deepfake" technology could render our identity verification solutions less effective.
The identity verification industry is characterized by a "technological arms race." Bad actors increasingly are utilizing generative AI to create highly realistic synthetic identities and "deepfakes" capable of spoofing facial recognition systems. If our technology fails to detect these sophisticated AI-driven falsifications, or if we are unable to develop countermeasures faster than fraudsters develop evasion techniques (such as camera injection attacks), our customers may lose confidence in our platform. Furthermore, the shift toward 'digital-only' onboarding has increased our exposure to Synthetic Identity Fraud, where bad actors combine real and fabricated data to create entirely new, credible personas that do not have a history of prior fraud, making them significantly harder for traditional algorithms to detect. This could result in increased liability, customer churn, and material adverse effects on our business.
Our significant deferred tax assets are subject to a full valuation allowance, and changes in our assessment could materially affect our reported results.
As of December 31, 2025, we had gross deferred tax assets of approximately $7,145, which were fully offset by a valuation allowance. These deferred tax assets consist primarily of federal and state net operating loss carryforwards of approximately $30,520 at the federal level and $3,670 at the state level.
We evaluate the realizability of our deferred tax assets on a quarterly basis in accordance with ASC 740, weighing both positive and negative evidence. Significant factors in this assessment include our cumulative results over the most recent three-year period, projected future taxable income, the nature and timing of reversals of existing temporary differences, and available tax planning strategies. As of December 31, 2025, we were in a three-year cumulative loss position, which represents significant negative evidence under ASC 740, and accordingly we concluded that a full valuation allowance was required. Changes in our future earnings would result in a release of the valuation allowance and recognized in the period which the assessments change, as deemed appropriate under ASC 740.
In future periods, if we determine that sufficient positive evidence exists to conclude that it is more likely than not that some or all of our deferred tax assets will be realized, we would reduce or eliminate the valuation allowance, resulting in a non-cash income tax benefit that could be material to our results of operations in the period of release. Any such benefit would not represent a change in cash flows or operating performance. Conversely, if we incur additional losses or
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determine that the expected future taxable income is insufficient to support the realization of our deferred tax assets, we could be required to increase the valuation allowance, which would result in additional income tax expense.
Our federal net operating loss carryforwards include approximately $10,892 generated prior to 2018 that will expire if unused between 2035 and 2037, and approximately $19,628 generated after 2017 that may be carried forward indefinitely but are limited to offsetting 80% of taxable income in any given year. Our ability to utilize these carryforwards could be limited or eliminated by future changes in tax law or by an ownership change as defined under Section 382 of the Internal Revenue Code. We have not completed a formal analysis to determine whether any ownership changes have occurred that could limit our ability to utilize our net operating loss and tax credit carryforwards. If such a change has occurred, or occurs in the future, the annual amount of our carryforwards available to offset taxable income could be materially limited, which could result in a significant increase in our future income tax liability.
Risks Related to Our Common Stock and the Market for Our Common Stock
Our share price may be volatile and could decline substantially.
The market price of our common stock, like the price of shares of technology companies generally, has been and may continue to be volatile. From January 1, 2024 to March 19, 2026, the intra-day trading price of our common stock has varied from a high of $7.48 to a low of $1.65 per share, as reported on The Nasdaq Stock Market. Many factors may cause the market price for our common stock to decline, including:
■ shortfalls in revenues, cash flows, cash balances or continued losses from operations;
■ delays in development or roll-out of any of our products;
■ unfavorable outcomes from outstanding litigation;
■ overall decrease of US stock prices as a result of rising inflation experienced in the United States, the accompanying increases in the benchmark lending rate by the Federal Reserve, and each of their effects on the economy;
■ short selling or other market manipulation activities; and
■ announcements by one or more competitors of new product acquisitions or technological innovations.
In addition, the stock market experiences extreme fluctuations in price and volume that particularly affect the market price of shares of technology companies, such as ours. These price and volume fluctuations often are unrelated or disproportionate to the operating performance of the affected companies. Because of this volatility, we may fail to meet the expectations of our stockholders or of securities analysts and our stock price could decline as a result. Furthermore, the trading price of our common stock may be adversely affected by third-parties trying to drive down the market price. Short sellers and others, some of whom post anonymously on social media, may be positioned to profit if our stock declines and their activities can negatively affect our stock price. These broad market and industry factors may seriouslyharm the market price of our common stock, regardless of our operating performance. Declines in our stock price for any reason, fluctuations related to our financial results or due to macroeconomic conditions, including inflation and rising interest rates, capital market volatility and global conflicts, including the Russia-Ukraine war, the recent military action against Iran, the Israel-Hamas war and the conflict between China and Taiwan, may adversely affect your ability to sell your shares at a price equal to or above the price at which you purchased them. Decreases in the price of our common stock also may lead to de-listing of our common stock.
We may need to raise additional capital in the future, which may not be available to us on terms that are favorable to us, or at all, and could cause dilution to our existing stockholders
We had cash and cash equivalents of $9,650 and working capital of $10,123 as of December 31, 2025. Our ability to fund our operations and execute our business strategy depends on our generating sufficient cash flows from operations and, when necessary, accessing capital markets or other financing sources. Additionally, acquisition and development opportunities and other contingencies may arise, which could also require us to raise additional capital through accessing capital markets or other financing sources. We may not be able to raise capital when the need arises on terms favorable to
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us, or at all. Further, adverse developments in the financial services industry, including bank failures, liquidity constraints, or significant volatility in equity markets, could limit our access to capital, increase our cost of capital, or reduce the amount of cash we can access on deposit with financial institutions, any of which could have a material adverse effect on our business, financial condition, and results of operations. Even if we are successful in raising additional capital, if we do so through the sale of equity, including preferred stock, or convertible debt securities, the percentage ownership of our then existing stockholders will be diluted. In August 2025, we filed an S-3, also know as a Shelf Registration, that would allow us to sell shares in the market if the need arises.
Because we do not intend to pay dividends on our Common Stock, stockholders will benefit from an investment in our stock only if it appreciates in value.
We have never declared or paid any cash dividends on our shares of stock. We currently intend to retain all future earnings, if any, for use in the operations and expansion of the business. As a result, we do not anticipate paying cash dividends in the foreseeable future. Any future determination as to the declaration and payment of cash dividends will be at the discretion of our Board of Directors and will depend on factors the Board of Directors deems relevant, including among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our credit facilities and other financing arrangements. Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our stock. There is no guarantee that our stock will appreciate.
The Company's cash and cash equivalents could be adversely affected by bank failures or other events affecting financial institutions and could adversely affect our liquidity and financial performance.
We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks, in amounts that exceed the FDIC insurance limits. The failure or rumored failure of a bank, or events involving limited liquidity, defaults, non-performance, bankruptcy, receivership or other adverse developments in the financial or credit markets impacting financial institutions, may lead to disruptions in access to our bank deposits. These disruptions could impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis. As such, those funds in bank deposit accounts in excess of the standard FDIC insurance limits are uninsured and subject to the risk of bank failure.
Currently, we have full access to all funds in deposit accounts or other money management arrangements. The failure of any bank in which we deposit our funds could reduce the amount of cash we have available for our operations or delay our ability to access such funds. In the event of such failure, we may experience delays or other issues in meeting our financial obligations, our ability to access our cash and cash equivalents may be threatened and could have a material adverse effect on our business and financial condition.
Future adverse developments with respect to specific financial institutions or the broader financial services industry may also lead to market-wide liquidity shortages.
Revenue Recognition and Deferred Revenue
SaaS fees and service revenues are generated from a combination of fixed-price and per-scan contracts. Under the per-scan revenue model, customers are charged a fee each time the customer scans an identity document, such as a driver’s license, with our software. Under the fixed-price revenue model customers are charged a fixed monthly fee either per device or physical business location to access our software. In certain instances, customization services are determined to be essential to the functionality of the delivered software. Under Accounting Standards Codification (“ASC”) 606,
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“ Revenue from Contracts with Customers, ” revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration expected to be received in exchange for those goods or services. We measure revenue based on the consideration specified in a customer arrangement, and revenue is recognized when the performance obligations in an arrangement are satisfied. The Company adopted an additional revenue model where customers purchase a predetermined number of transactions for the term of the contract, where revenue for these transactions is recognized on a per transaction basis. The Company estimates the number of transactions that will be unused by the end of each contract period and recognized a portion of that revenue as breakage revenue each reporting period. Reference Note 2, “Significant Accounting Policies,” in the Notes to Financial Statements for additional details on the Company’s recognized and deferred revenue. The Company also has a revenue model where customers purchase access to the Company's platform that includes a fixed, non-refundable annual access fee associated with a spend commitment that grants the customers stand-ready access to the platform. Revenue for this access is recognized ratably over the contract term, consistent with the nature of the stand-ready service.
Stock-based Compensation
We account for the issuance of stock-based compensation awards to employees in accordance with ASC 718, “ Compensation – Stock Compensation ”, which requires that the cost resulting from all stock-based compensation payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for stock-based compensation payment arrangements and requires all companies to apply a fair value-based measurement method in accounting for all stock-based compensation payment transactions with employees. Reference Note 9, “Stockholders' Equity,” in the Notes to Financial Statements for details on the Company’s stock-based compensation plans.
Valuation of long-lived assets
Our long-lived assets include property and equipment, goodwill, and intangible assets. As of December 31, 2025, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization, were $394, $8,102 and $2,077, respectively. 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. 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 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. We also 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.
Income Taxes and Valuation Allowance
We account for income taxes in accordance with ASC 740, Income Taxes. Under this standard, 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, as well as for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
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We establish a valuation allowance against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In making this determination, we consider all available positive and negative evidence, including:
• Our cumulative results for the most recent three-year period, adjusted for permanent differences between book and taxable income;
• The nature, frequency, and magnitude of current and cumulative financial reporting income and losses;
• Our forecasts of future taxable income, considering the predictability and sustainability of recent operating trends;
• The length of time net operating loss and tax credit carryforwards remain available, including the distinction between carryforwards with definite expiration dates and those that carry forward indefinitely;
• The nature and timing of reversals of existing taxable and deductible temporary differences; and
• Available tax planning strategies that could be implemented, if necessary, to accelerate taxable income.
As of December 31, 2025, we maintained a full valuation allowance of approximately $6,677 against our net deferred tax assets. Our three-year cumulative result through December 31, 2025, after adjusting for permanent differences, remained in a loss position, which constitutes significant objective negative evidence under ASC 740. While we generated pre-tax income of approximately $1,331 during the year ended December 31, 2025, representing a meaningful improvement from prior-year losses of $2,042 in 2023 and $885 in 2024, we have not yet established a sustained pattern of profitability sufficient to overcome this negative evidence.
This assessment requires significant judgment. Should we continue to generate taxable income in future periods such that the three-year cumulative result transitions to a positive position, and should we conclude that the weight of positive evidence outweighs the negative evidence, we may determine that a partial or full release of the valuation allowance is appropriate. Any such release would be recorded as a non-cash deferred income tax benefit in the period the determination is made and could be material to our results of operations. Based on the gross deferred tax assets as of December 31, 2025, a full release of the valuation allowance would result in a tax benefit of approximately $6,677.
Results of Operations
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2025
TO THE YEAR ENDED DECEMBER 31, 2024
REVENUES . Revenues for the year ended December 31, 2025 increased $2,669 or 13% to $22,666 compared to $19,997 for the year ended December 31, 2024. The increase in revenues is primarily the result of higher SaaS revenue for the current period. SaaS revenues, which consists of software licensed on a subscription basis, increased $2,626 or 13% to $22,436 for the year ended December 31, 2025 compared to $19,810 for the year ended December 31, 2024.
GROSS PROFIT . Gross profit increased by $2,334 or 13%, to $20,500 for the year ended December 31, 2025, compared to $18,166 in the year ended December 31, 2024. Our gross profit, as a percentage of revenues, was 90.4% and 90.8% for the years ended December 31, 2025 and 2024, respectively.
OPERATING EXPENSES . Operating expenses, which consist of selling, general and administrative expenses and research and development expenses, increased by $80, or 0.4% to $19,414 for the year ended December 31, 2025 from $19,334 for the year ended December 31, 2024. Selling, general and administrative expenses decreased by $(1,377), or 9%, to $14,100 for the year ended December 31, 2025, compared to $15,477 for the year ended December 31, 2024. This decrease was primarily driven by lower general and administrative costs, specifically headcount-related expenses tied to severance expenses. Research and development expenses increased $1,457, or 38%, to $5,314 for the year ended December 31, 2025, compared to $3,857 for the year ended December 31, 2024. This increase was primarily due to less capitalization of certain software development expenses, as well as higher personnel costs and their related stock-compensation expenses.
OTHER INCOME AND EXPENSE . Interest and other income, net, was $245 for the year ended December 31, 2025, compared to interest income of $283 during the year ended December 31, 2024.
INCOME TAXES . Our provision for income taxes was $58 for the year ended December 31, 2025, compared to $33 during the year ended December 31, 2024.
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NET INCOME . As a result of the factors noted above, we had net income of $1,273, or $0.07 per share, for the year ended December 31, 2025 as compared to a net loss of $(918), or $(0.05) per share, for the year ended December 31, 2024.
Liquidity and Capital Resources
As of December 31, 2025, we had cash and cash equivalents of $9,650, working capital (defined as current assets minus current liabilities) of $10,123, total assets of $24,481 and stockholders’ equity of $20,697.
For the year ended December 31, 2025, our cash increased by $4,984. Cash provided by operating activities was $4,541 for the year ended December 31, 2025 as compared to cash used in operating activities of $(2,694) for the year ended December 31, 2024. Cash used in investing activities for the year ended December 31, 2025 was $(265) as compared to cash provided by investing activities of $2,895 for the year ended December 31, 2024. Cash provided by financing activities was $708 for the year ended December 31, 2025 as compared to cash provided by financing activities of $485 for the year ended December 31, 2024.
We currently anticipate that our available cash and expected cash from operations 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 of these financial statements.
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. In August 2025, we filed an S-3, also know as a Shelf Registration, that would allow us to sell shares in the market if the need arises. There can be no assurance that we will be able to secure the additional funds when needed or obtain such on terms satisfactory to us, if at all.
Use of Non-GAAP Measures
Adjusted Gross Profit
We use Adjusted Gross Profit as a non-GAAP financial performance measurement. Adjusted Gross Profit is calculated by adjusting gross profit for the reduction of amortization expense. Adjusted Gross Profit is provided to investors to supplement the results of operations reported in accordance with GAAP. We believe Adjusted Gross Profit is important because it focuses on the current operating performance, as amortization expense does not accurately reflect the current costs required to maintain the operational usage of our service. Rather, amortization expense reflects the allocation of historical software development costs over their estimated useful lives.
As an indicator of our operating performance, Adjusted Gross Profit should not be considered an alternative to, or more meaningful than, gross profit as determined in accordance with GAAP. Our Adjusted Gross Profit may not be
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comparable to a similarly titled measure of another company because other entities may not calculate Adjusted Gross Profit in the same manner.
Year Ended December 31,
Revenues
Cost of revenues, exclusive of amortization
Amortization allocable to cost of revenues
Gross profit
Add:
Amortization allocable to cost of revenues
Adjusted gross profit
Gross profit as a percentage of revenues
Adjusted gross profit as a percentage of revenues
Adjusted EBITDA
We use Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by adjusting net income (loss) for certain reductions such as restructuring severance expenses, interest and other income, provisions for income taxes, depreciation, amortization and stock-based compensation expense. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing our financial results with other companies that also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as amortization, depreciation and stock-based compensation, as well as non-operating charges for interest and provisions for income taxes, investors can evaluate our operations and can compare the results on a more consistent basis to the results of other companies. In addition, Adjusted EBITDA is one of the primary measures that management uses to monitor and evaluate financial and operating results.
We consider Adjusted EBITDA to be an important indicator of our operational strength and performance of our business and a useful measure of our historical operating trends. However, there are significant limitations to the use of Adjusted EBITDA since it excludes restructuring severance expenses, interest and other income, provisions for income taxes, stock-based compensation expense, all of which impact our profitability, as well as depreciation and amortization related to the use of long-term assets which benefit multiple periods. We believe that these limitations are compensated by providing Adjusted EBITDA only with GAAP net income (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 income (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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The reconciliation of GAAP net income (loss) to Non-GAAP Adjusted EBITDA is as follows:
Year Ended December 31,
Net income (loss)
Reconciling items:
Restructuring severance expenses
Provision for income taxes
Other income, net
Depreciation and amortization
Stock-based compensation
Adjusted EBITDA
Net Operating Loss Carry Forwards
Our available net operating loss (“NOL”) as of December 31, 2025 was approximately $30,520, of which $10,892 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 $19,628 will not expire, but are subject to 80% limitation on utilization. In addition to the NOLs, the Company has approximately $682 of research and development credits.
Recently Adopted Accounting Pronouncements
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. The new guidance requires consistent categorization and greater disaggregation of information in the rate reconciliation, as well as further disaggregation of income taxes paid. This change is effective for annual periods beginning after December 15, 2024. The Company adopted this standard effective January 1, 2025 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 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.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets . This standard allows entities to apply a practical expedient when estimating expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606, Revenue from Contracts with Customers. The standard is effective for all the entities for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted, and the standard is to be applied prospectively. The Company will adopt this ASU in the first quarter of 2026 and adoption is not expected to have a material impact on our consolidated financial statements.
In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software , which modernizes the accounting for internal-use software by replacing the previous stage-based model and aligning the capitalization process with current
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development practices, especially agile and iterative methods. ASU 2025-06 is effective for annual reporting periods beginning after December 15, 2027, and may be applied prospectively, retrospectively, or using a modified transition approach. The Company is in process of evaluating the impact of the adoption of this ASU on its financial statements.
Off-Balance Sheet Arrangements
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.
