Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995
Some of the information in this Quarterly Report on Form 10-Q contains
forwardlooking statements that involve substantial risks and uncertainties. You
can identify these statements by forwardlooking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," "continue" and similar words. You
should read statements that contain these words carefully because they: (1)
discuss our future expectations; (2) contain projections of our future operating
results or financial condition; or (3) state other "forwardlooking"
information. However, we may not be able to predict future events
accurately. The risk factors listed in this Quarterly Report on Form 10-Q and
our Annual Report on Form 10-K for the year ended
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.
Due to the COVID-19 pandemic we have been unable to: (i) conduct face-to-face
meetings with customers and prospective customers, (ii) present in-person
demonstrations of our software solutions, (iii) attend trade shows and
conferences which typically generate future sales opportunities or (iv) meet
with prospective strategic partners. We believe that these effects caused by the
COVID-19 pandemic adversely impacted our revenue in 2020 and the quarter ended
Summary of Financial Results
We use revenue and results of operations to summarize financial results as we believe these measurements are the most meaningful way to understand our operating performance.
Revenue and operating loss for the three months ended
These and all other financial results are discussed in more detail in the results of operations section that follows.
Results of Operations
Software licenses. Software licenses consist of revenue from the sale of biometrics and imaging software products. Sales of software products depend on our ability to win proposals to supply software for biometrics systems projects either directly to end user customers or indirectly through channel partners.
17
--------------------------------------------------------------------------------
Software license revenue increased 20% from
As described in the strategy section of our Form 10-K for the year ended
Software maintenance. Software maintenance consists of revenue from the sale of software maintenance contracts. Software maintenance contracts entitle customers to receive software support and software updates, if and when they become available, during the term of the contract.
Software maintenance revenue increased 13% from
For the three month period ended
Services and other revenue. Services consist of fees we charge to perform software development, integration, installation, and customization services. 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. Other revenue consists of hardware fees that are included with some of our software licenses. Services and other revenue will fluctuate when we commence new projects and/or when we complete projects that were started in previous periods.
Services and other revenue increased from
For the three month period ended
Cost of sales. Cost of sales consists of engineering costs to perform customer services projects and other third party costs that are include with some of our software licenses. Such costs primarily include: i) engineering salaries, stock-based compensation, fringe benefits, and facilities; ii) engineering consultants and contractors; iii) software license fees; and iv) hardware costs.
Cost of sales increased from
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 services section, engineering costs incurred to provide engineering services for customer projects are classified as cost of sales, and are not included in research and development expense.
18
--------------------------------------------------------------------------------
The classification of total engineering costs to research and development expense and cost of sales was (in thousands):
Three Months Ended March 31, 2021 2020 Research and development expense$ 2,396 $ 2,272 Cost of services 383 170 Total engineering costs$ 2,779 $ 2,442
Research and development expense increased 5% from
As the table immediately above indicates, total engineering costs in the first
quarter of 2021 increased by
We anticipate that we will continue to focus our future research and development activities on enhancing our existing products and developing new products with our growing internal resources.
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.
Sales and marketing expense increased 29% from
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.
General and administrative expense increased 26% from
Interest income. Interest income decreased 99% from
Income taxes. We had no income tax benefit for the three months ended
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed
into law on
19
--------------------------------------------------------------------------------
Separately, the enactment of the Tax Cut and Jobs Act in 2017 allowed taxpayers to claim a refund for federal tax credits over a period of years. The CARES Act enacted during the first quarter allows for the entire amount of the credit to be refunded.
We have reviewed the impact of the CARES Act enactment on the income tax provision and have determined that, as a result of the net operating loss carryback provision, we can obtain a tax benefit if we were to carry back the 2020 net operating loss to the five year carryback period.
The carryback of the loss would result in a refundable federal tax credit of
approximately
As of
We recorded a full valuation allowance against our net deferred tax assets as of
Liquidity and Capital Resources
At
Cash used in operations was
Cash used in financing activities was
While we cannot assure you that we will not require additional financing, or that such financing will be available to us, we believe that our cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months.
Recently Adopted Accounting Pronouncements
See Note 1 to our Consolidated Financial Statements in Item 1.
20
--------------------------------------------------------------------------------
© Edgar Online, source