What changed in this filing

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Item 1. Business

2025-03-13 compared with 2024-03-15 · 38 added, 36 removed, 394 unchanged (16% of the section changed)

Company Overview

(“Aware”, “we”, “us”, “our”, or the “Company”) is a leading, biometric identity platform company that validates and secures identities using proven and trusted adaptive biometrics.

(“Aware”, “we”, “us”, “our”, or the “Company”) is a leading, biometric identification company that validates and secures identities using proven and trusted biometrics.

Aware’s software offerings address the growing challenges that government and commercial enterprises face in knowing, authenticating and securing individuals through frictionless and highly secure user experiences.

Aware’s algorithms are based on diverse data sets from around the world and can be tailored to the unique security and requirements of each customer.

Aware’s algorithms are based on diverse data sets from around the world and can be tailored to the unique security requirements of each customer.

Our portfolio enables government agencies and commercial entities to enroll, identify, authenticate and enable using biometrics, which comprise physiological characteristics, such as fingerprints, faces, irises and voices.

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• Authenticate:

Provide frictionless, multi-factor, passwordless access to secured accounts and databases with biometric verification

Provide frictionless, multi-factor, password-less access to secured accounts and databases with biometric verification

Manage the lifecycle of secure identities through optimized biometric interchanges

We have been engaged in this business since 1993.

Our comprehensive portfolio of biometric solutions is based on innovative, robust products designed explicitly for ease of integration, including customer-managed and integration ready biometric frameworks, platforms, software development kits (“SDKs”) and services.

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For large deployments, we may provide project management and software engineering services.

We sell our biometrics software products and services globally through a multifaceted distribution strategy using systems integrators, original equipment manufacturers (“OEMs”), value added resellers (“VARs”), partners, and directly to end user customers.

Aware was incorporated in Massachusetts in 1986.

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Distribution Methods

We sell our products, solutions and services through three principal channels of distribution:

i) Systems integrator channel – we sell to systems integrators that incorporate our software products and solutions into biometric systems that are delivered primarily to government end users.

ii) Direct channel – we sell directly to government and as well as commercial customers.

iii) OEM and VAR channel – we sell to hardware and software solution providers that incorporate our software products into their products for resale or use in their solution offerings or integrated software products.

We sell our solutions and services predominantly through three principal channels of distribution:

i) Partner sales – This category includes resellers that market and sell Aware-branded solutions to end users.

Additionally, this category includes system integrators, consulting partners, independent software vendors (ISVs), distributors, and managed service providers (MSPs) that market, sell, deploy, and support our solutions.

It also includes referral partners who identify opportunities but do not resell or directly deliver solutions.

ii) Direct channel – We sell directly to federal, state, and local government agencies, as well as large enterprise customers in both the public and commercial sectors.

iii) OEM partnerships – System integrators, ISVs, MSPs, and hardware vendors that integrate our biometric components and SDKs into their platforms or applications, which are then sold independently.

Major Customers

All of our revenue in 2024 and 2023 was derived from unaffiliated customers.

One customer represented 17% of total revenue in 2023 and no customer represented 10% or more of total revenue in 2022.

As of December 31, 2023, one customer represented 16% of our net accounts receivable and unbilled receivables and as of December 31, 2022, two customers combined for 37%, of our net accounts receivable and unbilled receivables.

No customer represented 10% or more of total revenue in 2024, and one customer represented 18% of total revenue in 2023.

As of December 31, 2024, two customers combined represented 34% of our net accounts receivable and unbilled receivables, and as of December 31, 2023, one customer represented 16%, of our net accounts receivable and unbilled receivables.

Competitive Business Conditions

A significant number of established companies have developed or are developing and marketing software and hardware for biometrics products and applications that currently compete with or will compete directly with our offerings.

We believe that additional competitors will enter the biometrics market and become significant long-term

competitors, and that, as a result, competition will increase.

We believe that additional competitors will enter the biometrics market and become significant long-term competitors, and that, as a result, competition will increase.

Companies competing with us may introduce solutions that are competitively priced, have increased performance or functionality or incorporate technological advances we have not yet developed or implemented.

Our current principal competitors include:

• Diversified technology providers that offer integrated biometrics solutions to governments, law enforcement agencies and other organizations.

• Diversified technology providers that offer integrated biometrics solutions to governments, law enforcement agencies and other commercial organizations.

This group of competitors includes companies such as Idemia, Thales, and NEC.

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As of December 31, 2024, we had 68 U.S.

patents and 4 foreign patents and approximately 7 pending patent applications.

patents, 4 foreign patents and 7 pending patent applications.

Our patents and patent applications pertain primarily to biometrics and imaging compression.

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If we were found to have infringed any third party’s patents, we could be subject to substantial damages or an injunction preventing us from conducting our business.

As of December 31, 2023, we employed 73 people, all based in the U.S.

including 39 in engineering and research, 22 in sales and marketing, and 12 in finance and administration.

As of December 31, 2024, we employed 64 people, all based in the U.S., including 33 in engineering and research, 20 in sales and marketing, and 11 in finance and administration.

Of these employees, 47 were based in Massachusetts and 17 were based outside of Massachusetts.

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Our financial results may be negatively affected by a number of factors as well, including the following:

• write-offs of investments in private companies;

• any lack or reduction of government funding and the political, budgetary and purchasing constraints of government customers who purchase products and services directly or indirectly from us;

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• general economic trends and other factors.

• write-offs of investments in private companies;

As a result of these factors, we believe that period-to-period comparisons of our revenue levels and operating results are not necessarily meaningful.

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Among the factors that could adversely affect our business are:

• changes in fiscal policies or decreases in available government funding,

• the impact of actions, such as those recently announced by the U.S.

Department of Government Efficiency, intended to reduce the size of the federal government and federal spending,

• other changes in fiscal policies or decreases in available government funding,

• changes in government funding priorities;

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Acceptance of biometrics as an alternative to such traditional methods depends upon a number of factors including:

i) the performance and reliability of biometric solutions;

i) the performance and reliability of biometric

ii) costs involved in adopting and integrating biometric solutions;

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As a result, widespread acceptance and use of the cloud-based business model is critical to our future growth and success.

Under the perpetual or fixed term license model for software procurement, users of the software typically run applications on their hardware.

Because companies are generally predisposed to maintaining control of their IT systems and infrastructure, there may be resistance to the concept of accessing the functionality that software provides as a service through a third party.

If the market for cloud-based, software solutions ceases to grow or grows slower than we currently anticipate, demand for our services could be negatively affected.

While cloud-based solutions are widely adopted across many software sub-sectors, certain industries, such as security and government, have been slower to transition due to concerns over data control, privacy, and regulatory compliance.

Under the perpetual or fixed-term license model for software procurement, users typically run applications on their own infrastructure, maintaining direct control over their IT environment.

Government agencies and security-conscious enterprises may be particularly resistant to shifting mission-critical applications and sensitive data to cloud-based environments due to stringent security requirements, compliance mandates, and perceived risks associated with third-party hosting.

If the adoption of cloud-based solutions in these sectors grows more slowly than anticipated or fails to gain traction, demand for our services could be negatively affected, which may, in turn, impact our future growth.

Our operational systems, networks and products are subject to continually evolving cybersecurity or other technological risks, which could result in the disclosure of our or our customers' confidential information, damage to our reputation, additional costs, regulatory penalties and financial losses.

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A large and increasing number of participants in the technology industry, including companies known as non-practicing entities, have applied for or obtained patents.

Some of these patent holders have demonstrated a readiness to commence litigation based on allegations of patent infringement.

Some of these patent holders have demonstrated a readiness to commence

litigation based on allegations of patent infringement.

Third parties have asserted against us in the past and may assert against us in the future patent, copyright and other intellectual property rights to technologies that are important to our business.

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If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience.

Our employment

relationships are at-will and we have had key employees leave in the past.

Our employment relationships are at-will and we have had key employees leave in the past.

We cannot assure you that one or more key employees will not leave in the future.

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i) the imposition of tariffs, duties and other import restrictions on goods and services we purchase from non-domestic suppliers;

or ii) the imposition of economic sanctions on existing or potential customers or suppliers, or iii) by the imposition of export restrictions on products we sell internationally.

ii) the imposition of tariffs, duties or other restrictions on the goods and services we provide outside of the United States;

iii) the imposition of economic sanctions on existing or potential customers or suppliers, or iv) by the imposition of export restrictions on products we sell internationally.

Changes in current or future laws or regulations, in the United States or elsewhere, could seriously harm our business.

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However, the acquisition and successful integration of independent businesses or assets is a complex, costly and time-consuming process, and the benefits we realize may not exceed the costs of the acquisition.

The risk and difficulties associated with acquiring and integrating companies and other assets include, among others, difficulties assimilating the operations and personnel of acquired companies, challenges in realizing the value of the acquired assets relative to the price paid, distraction of management from our ongoing businesses and potential product disruptions associated with

the sale of the acquired company’s products.

These factors could have a material adverse effect on our business, financial condition, operating results and cash flows.

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These arrangements can impact or restrict integration of acquired businesses and can result in disputes, including litigation.

In addition, there is uncertainty regarding the realizability of investments in private companies.

In addition, there is uncertainty regarding the realizability of investments in private companies, such as our investment in Omlis Limited that was written down to $0 in 2023.

Additionally, regardless of the form of consideration we pay, acquisitions and investments could negatively impact our operations and earnings per share.

We may have additional tax liabilities.

We are subject to income taxes in the United States.

We are subject to income taxes in the United States and, in certain cases, in foreign jurisdictions.

Significant judgments are required in determining our provisions for income taxes.

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There can be no assurance as to the outcome of these examinations.

If the ultimate determination of taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected.

If the ultimate determination of taxes owed—including income taxes, value-added tax (“VAT”), goods and services tax (“GST”), or other foreign tax obligations—exceeds amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected.

The market price of our common stock has been and may continue to be subject to wide fluctuations, and this may make it difficult for shareholders to resell the common stock when they want or at prices they find attractive.

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The application of these principles and policies requires us to make significant judgments and estimates.

The most significant estimates included in the financial statements pertain to revenue recognition, allowance for credit losses, valuation of acquired assets and assumed liabilities in business

combinations, valuation of contingent acquisition payments, valuation of investment in note receivable, goodwill and long-lived asset impairment and valuation allowance for deferred income tax assets.

The most significant estimates included in the financial statements pertain to revenue recognition, allowance for credit losses, valuation of acquired assets and assumed liabilities in business combinations, valuation of contingent acquisition payments, valuation of investment in note receivable, goodwill and long-lived asset impairment and valuation allowance for deferred income tax assets.

Actual results could differ from those estimates.

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The Company has implemented a Cybersecurity Policy (the “Policy”) that provides a framework for responding to cybersecurity incidents.

The Policy includes requirements for incident disclosure and reporting, protocols for incident evaluation, including the use of third-party service providers and partners, and processes for notification and internal escalation of information to the Company’s senior management, incident response team, and Board of Directors (the "Board") and appropriate Board committees.

The Policy includes requirements for incident disclosure and reporting, protocols for incident

evaluation, including the use of third-party service providers and partners, and processes for notification and internal escalation of information to the Company’s senior management, incident response team, and Board of Directors (the "Board") and appropriate Board committees.

The Policy also addresses requirements for the Company’s external reporting obligations.

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Management regularly reports to the Audit Committee on the current state of the Company’s cybersecurity program, including the current threat landscape, cybersecurity risks, and any significant incidents.

Committee may provide updates to the Board on the substance of these reports and any recommendations for improvements that the Audit Committee deems appropriate.

The Audit Committee may provide updates to the Board on the substance of these reports and any recommendations for improvements that the Audit Committee deems appropriate.

At the management level, the Company has established written policies and procedures to ensure that significant cybersecurity incidents are immediately investigated, addressed through the coordination of various internal departments, and publicly reported, to the extent required by applicable law.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business