What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-13 compared with 2024-03-15 · 189 added, 224 removed, 918 unchanged (31% of the section changed)

13 unchanged sentences

Fair value adjustment to contingent acquisition payment

Gain on sale of property and equipment

Total costs and expenses

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Revenue and operating loss in 2024 were $17.4 million and $5.5 million, respectively, which compared to revenue and operating loss in 2023 of $18.2 million and $8.5 million, respectively.

Higher revenue in 2023 as compared to 2022 was primarily due to increases in revenue from our perpetual software licenses of $1.4 million, software subscriptions of $0.7 million and software maintenance of $0.6 million, which was partially offset by a decrease in services and other revenue of $0.5 million.

Higher operating loss in 2023 as compared 2022 was primarily due to a $5.7 million gain we recorded related to the sale of our corporate office in 2022, a negative

adjustment of $2.7 million to a note receivable, and year over year increase in sales and marketing expense of $1.0 million, which was partially offset by increased revenue of $2.2 million and a 2023 fair value adjustment to contingent consideration of $0.8 million.

Lower revenue in 2024 as compared to 2023 was primarily due to decreases in revenue from our perpetual software licenses of $1.2 million and software subscriptions of $0.7 million, which were partially offset by an increase in revenue from software maintenance of $0.9 million.

Lower operating loss in 2024 as compared 2023 was primarily due a negative adjustment of $2.7 million to a note receivable in 2023 that did not recur in 2024 and a year-over-year

decrease in research and development expense of $1.4 million, which were partially offset by decreased revenue of $0.9 million and the impact of a 2023 fair value adjustment to contingent consideration of $0.8 million that did not recur in 2024.

Software License Revenue

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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.

Software license revenue increased 30% from $7.4 million in 2022 to $9.5 million in 2023.

As a percentage of total revenue, software license revenue increased from 46% in 2022 to 52% in 2023.

The $2.1 million increase in software license revenue was due primarily to an increase of $1.5 million in perpetual licenses sales and $0.7 million in subscription-based license sales.

For the years ended December 31, 2023 and 2022, we generated a de minimis amount of revenue from SaaS contracts.

With the introduction of AwareID, we have incorporated SaaS offerings into our product line-up.

While we did not recognize material revenues from our SaaS offerings during 2023 or 2022, we expect SaaS to become a significant product offering moving forward.

Software license revenue decreased 18% from $9.5 million in 2023 to $7.8 million in 2024.

As a percentage of total revenue, software license revenue decreased from 52% in 2023 to 45% in 2024.

The $1.7 million decrease in software license revenue was primarily due to a decrease in perpetual licenses sales, which can fluctuate from period to period.

With the introduction of AwareID, we have incorporated SaaS offering into our product line-up.

For the year ended December 31, 2024 we generated $0.1 million of revenue from SaaS contracts compared to a de minimis amount for the year ended December 31, 2023.

We expect SaaS revenue to continue to grow as a component of software license revenue going forward.

Software Maintenance Revenue

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Software maintenance revenue increased 12% from $7.7 million in 2023 to $8.6 million in 2024.

As a percentage of total revenue, software maintenance revenue decreased from 44% in 2022 to 42% in 2023.

The dollar increase in software maintenance revenue was primarily due to software maintenance related to perpetual license sales during the year ended December 31, 2023.

As a percentage of total revenue, software maintenance revenue increased from 42% in 2023 to 49% in 2024.

The dollar increase in software maintenance revenue was primarily due to software maintenance related to perpetual license sales during the second half of 2023 as well as for the year ended December 31, 2024.

A majority of our customers purchase software maintenance contracts when they initially purchase software licenses.

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Services and other revenue fluctuate when we commence new projects and/or when we complete projects that were started in previous periods.

Services and other revenue decreased 31% from $1.5 million in 2022 to $1.0 million in 2023.

As a percentage of total revenue, services and other revenue decreased from 9% in 2022 to 6% in 2023.

The dollar decrease in services and other revenue was primarily due to fewer active contracts with services during the period.

Services and other revenue was $1.0 million for the years ended December 2024 and 2023.

As a percentage of total revenue, services and other revenue was 6% in each of 2024 and 2023.

Cost of Services and Other Revenue

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and iv) hardware costs.

Cost of services and other revenue was $1.3 million in 2023 and 2022.

When compared to services and other revenue, cost of services and other revenue as a percentage increased from 83% in 2022 to 122% in 2023, which resulted in gross margins decreasing from 17% in 2022 to gross margin loss 22% in 2023.

The decrease in cost of services gross margins was primarily due to the profitability mix of customer projects.

Cost of services and other revenue decreased 11% from $1.3 million in 2023 to $1.1 million in 2024.

When compared to services and other revenue, cost of services and other revenue as a percentage decreased from 122% in 2023 to 110% in 2024, which resulted in reduced gross margin loss from 22% in 2023 to 10% gross margin loss in 2024.

The change in cost of services gross margin loss was primarily due to the profitability mix of customer projects.

Gross margins on services and other revenue are a function of:

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As a percentage of total revenue, total engineering costs decreased from 57% in 2023 to 51% in 2024.

Our engineering headcount decreased slightly from 46 in 2022 to 42 in 2023.

In addition, we recently took additional actions that reduced engineering headcount by approximately 10%.

We believe our engineering organization is adequately staffed.

Our engineering headcount decreased from 42 in 2023 to 33 in 2024.

The decrease in engineering costs is primarily a result of reducing our engineering headcount by approximately 10% in 2023 and 20% in 2024.

The reduction was driven by strategic initiatives to optimize resources, improve operational efficiency, and align our engineering capabilities with current business priorities.

We believe our current engineering organization is adequately staffed to support our product roadmap, customer commitments, and innovation efforts.

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.

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and ii) advertising and promotion expenses.

Selling and marketing expense increased 14% from $7.0 million in 2022 to $8.0 million in 2023.

Selling and marketing expense decreased 3% from $8.0 million in 2023 to $7.7 million in 2024.

As a percentage of total revenue, selling and marketing expense was 44% in both 2024 and 2023.

The dollar increase in selling and marketing expense was primarily due to increased bonus and commission expense of $0.6 million as a result of increased revenue, increased salary related expenses of $0.5 million, and increased software costs of $0.3 million, partially offset by a decrease in severance costs related to the termination of our Chief Commercial Officer position in 2022 of $0.2 million.

The dollar decrease in selling and marketing expense was primarily due to decreased bonus and commission expense of $0.2 million as a result of decreased revenue.

We expect to be strategic in expanding our sales and marketing force to pursue future opportunities.

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and iv) other administrative expenses, such as insurance costs and bad debt provisions.

General and administrative expense was $6.5 million in 2023 and 2022.

As a percentage of total revenue, general and administrative expense decreased from 41% in 2022 to 36% in 2023.

Fluctuations of general and administrative expenses are expected depending on specific activities in a period.

We expect general and administrative expenses to increase in absolute dollars, but to decrease as a percentage of total revenue.

General and administrative expense decreased 3% from $6.5 million in 2023 to $6.4 million in 2024.

As a percentage of total revenue, general and administrative expense increased from 36% in 2023 to 37% in 2024.

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 .

Fair value adjustment to note receivable

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We purchased $2.5 million of Omlis’ Note Receivable (“Note”) that accrues interest at 5% annually with a maturity date of March 11, 2026.

We recorded the fair value of the Note as $0 and $2.6 million as of December 31, 2023 and 2022, respectively.

The significant decrease of $2.6 million to $0 reflects our evaluation of the impact of Omlis's liquidity issues as of December 31, 2023 along with the collectability of the Note.

In addition, in January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process, adding to our uncertainty regarding the recoverability of the Note's carrying value.

We recorded the fair value of the Note as $0 as of both December 31, 2024 and 2023 as a result of our evaluation of the impact of Omlis's liquidity issues on the collectability of the Note.

In addition, in January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process, which remains ongoing, adding to our unlikely recoverability of the Note's carrying value.

Fair value adjustment to contingent acquisition payment

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The maximum contingent acquisition payments at the time of the acquisition were $4.0 million, which consisted of a cash payment of up to $2.0 million for the achievement of set revenue targets in 2022 and an additional $2.0 million cash payment for the achievement of set revenue targets in 2023.

No revenue targets were achieved in 2023 or 2022 and the earnout period was closed as of December 31, 2023.

We recorded fair value adjustments of $0.8 million and $0.1 million, for the years ended December 31, 2023 and 2022, respectively.

Gain on sale of fixed assets

In July 2022, we sold our corporate headquarters in Bedford, MA for total proceeds of $8.9 million less a brokerage commission of $0.3 million.

At the time of the sale, we disposed of all building and land related assets.

The net book value of all assets disposed of was $2.9 million.

We recorded a net gain on the sale of fixed assets of $5.7 million for the year ended December 31, 2022.

No revenue targets were achieved and the earnout period was closed as of December 31, 2023.

We recorded a fair value adjustment of $0.8 million to contingent acquisition payment for the year ended December 31, 2023.

Interest Income

Interest income increased from $0.5 million in 2022 to $1.3 million in 2023.

The dollar increase in interest income was primarily due to higher interest rates related to our marketable securities of U.S Treasury notes and bonds and corporate bonds as well as higher interest rates within our money market accounts.

Interest income decreased from $1.3 million in 2023 to $1.2 million in 2024.

The dollar decrease in interest income was primarily due to lower interest rates within our money market accounts.

We are subject to income taxes in the United States, and we use estimates in determining our provisions for income taxes.

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Year ended December 31, 2024.

Cash provided by operating activities was $1.8 million in 2023.

of Note, and $1.4 million related to a tax refund received as a result of our federal income tax carryback claim, which was partially offset by our $7.3 million net loss and a $0.8 million change in the fair value of contingent acquisition payments.

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.

Year ended December 31, 2023.

Cash used in operating activities was $5.0 million in 2022.

Cash used by operations was primarily the result of $1.7 million of net loss plus the impact of a $5.7 million gain on the sale of fixed assets, which was partially offset by the add back of $1.7 million of non-cash stock-based compensation and $0.8 million for non-cash depreciation and amortization.

Cash provided by operating activities was $1.8 million in 2023.

Cash provided by operations was primarily the result of a $2.4 million decrease in unbilled and accounts receivables, a $1.8 million increase in deferred revenue, add back of $1.5 million of non-cash stock-based compensation, $2.7 million write-off of Note, and $1.4 million related to a tax refund received as a result of our federal income tax carryback claim, which was partially offset by our $7.3 million net loss and a $0.8 million change in the fair value of contingent acquisition payments.

Cash flows from investing activities

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Year ended December 31, 2024.

Investing activity cash used of $3.1 million was primarily the result of net purchases of marketable securities.

Investing activity provided $6.3 million of cash, primarily as the result of net sales of marketable securities.

Year ended December 31, 2023.

Investing activity cash used of $12.0 million was primarily the result of $17.3 million of net purchases of marketable securities, a $2.5 million investment in the Note, and $0.7 million of purchases of property and equipment, which was partially offset by $8.5 million in proceeds from the sale of our former corporate headquarters.

Investing activity used of $3.1 million of cash, primarily as the result of net purchases of marketable securities.

Cash flows from financing activities

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Year ended December 31, 2023.

Financing activity cash used of $1.2 million was primarily the result of $1.3 million used to buy back stock under our stock repurchase program and $26 thousand used to pay income taxes for employees who surrendered shares of common stock in connection with stock grants, which were partially offset by $0.2 million of proceeds from the issuance of common stock from stock grants.

Financing activity cash used of $0.4 million was primarily the result of $0.5 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, 2024, we had cash, cash equivalents, and marketable securities of $27.8 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 and cash equivalents 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.

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, 2023, our material cash requirements from known contractual and other obligations consisted of payments under the operating lease for our corporate headquarters, which we estimate will be approximately $0.7 million in each of 2024, 2025, 2026, and 2027, $0.8 million in 2028, and $3.5 million thereafter.

As of December 31, 2024, our material cash requirements from known contractual and other obligations consisted of payments under the operating lease for our corporate headquarters, which we estimate will be approximately $0.7 million in each of 2025, 2026, and 2027, approximately $0.8 million in 2028 and 2029, and $2.7 million thereafter.

See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information on our operating lease.

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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).

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.

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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.

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.

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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, 2023, we had $3.1 million of goodwill and $2.4 million of intangible assets.

As of December 31, 2024 and 2023, we had $3.1 million of goodwill.

As of December 31, 2024 and 2023, we had $2.0 million and $2.4 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.

Fair value of Note Receivable.

We accounted for the Note at fair value under ASC 825 - Financial Instruments, whereby it was recorded at fair value at the time of purchase, as well as on an ongoing basis each reporting period until the Note is settled.

The estimated fair value of the Note represents a Level 3 estimate in the fair value hierarchy due to the significant unobservable inputs used in determining the fair value.

As of December 31, 2023 and 2022, we had a fair value $0 and $2.6 million of the Note, respectively.

The significant decrease of $2.6 million to $0 reflects our evaluation of the impact of Omlis's liquidity issues as of

December 31, 2023, along with the collectability of the Note.

In addition, in January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process, adding to our uncertainty regarding the recoverability of the Note's carrying value.

Fair value of Contingent Acquisition Payments.

Our contingent acquisition payments are a result of our previous business acquisition of FortressID.

We determined the fair value of contingent acquisition payments as part of the initial purchase price allocation and on an ongoing basis each reporting period until the contingent acquisition payments period was settled.

The estimated contingent acquisition payments represent a Level 3 estimate in the fair value hierarchy due to the significant unobservable inputs used in determining the fair value.

As of December 31, 2023 and 2022, the contingent acquisition payments was $0 and $0.8 million, respectively.

The earnout period has closed as of December 31, 2023 with none of the targets being met.

Stock-Based Compensation.

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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 the fair value of the award.

This valuation model takes into account the exercise price of the award, as well as a variety of significant assumptions.

The assumptions used to estimate the fair value of stock options include the expected term, the expected volatility of our stock over the expected term, the risk-free interest rate over the expected term, and our expected annual dividend yield.

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 .

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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.

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.

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The Act contained specific relief and stimulus measures including allowing net operating losses originating in 2018 through 2020 to be carried back five years to offset taxable income in the carryback period.

Significant 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.

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:

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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.

As of December 31, 2023, we had a total of $13.0 million of deferred tax assets and $0.5 million of deferred tax liabilities for which we have recorded a $12.5 million valuation allowance.

We will continue to assess the level of valuation allowance required in future periods.

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2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires retrospective disclosure of significant segment expenses and other

segment items on an annual and interim basis.

Improvements to Reportable Segment Disclosures, which requires retrospective disclosure of significant segment expenses and other segment items on an annual and interim basis.

Additionally, it requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”).

This ASU will be effective for the Company’s fiscal December 31, 2024 year-end and interim periods beginning in fiscal 2025, with early adoption permitted.

We are assessing the impact of the standard on our consolidated financial statements.

This ASU is effective for the Company’s fiscal December 31, 2024 year-end and interim periods beginning in fiscal 2025, with early adoption permitted.

The Company adopted this standard as of January 1, 2024 and the adoption did not have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU No.

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We are assessing the impact of the standard on our consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016 - 13, “ Financial Instruments - Credit Losses (ASC 326):

Measurement of Credit Losses on Financial Instruments ,” which amends the guidance on the impairment of financial instruments.

The amendments in this update remove the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities.

Under current U.S.

GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred.

The guidance removes all current recognition thresholds and introduces the new current expected credit loss (“CECL”) model which will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument’s contractual life.

The new CECL model is based upon expected losses rather than incurred losses.

The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

The Company adopted this standard as of January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements.

FINANCIAL STATEME NTS AND SUPPLEMENTARY DATA

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We have audited the accompanying consolidated balance sheets of Aware, Inc.

and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

and its subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the auditing standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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Revenue allocated to software licenses is typically recognized at a point in time upon delivery and revenue allocated to the software maintenance and professional services is recognized over time, provided all other revenue recognition criteria are met.

Management applies significant judgment in determining the revenue recognition for these contracts including the identification of and accounting for all performance obligations and the calculation of the SSP for each identified performance obligation.

The Company’s identification of performance

obligations and estimate of SSP for each performance obligation identified within these customer contracts requires management to consider many factors, including:

Management applies significant judgment in determining the revenue recognition for these contracts including the identification of and accounting for all performance obligations and the

calculation of the SSP for each identified performance obligation.

The Company’s identification of performance obligations and estimate of SSP for each performance obligation identified within these customer contracts requires management to consider many factors, including:

• Determination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together, such as software maintenance or professional services that are sold with software licenses.

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Unbilled receivables, net

Tax receivable

Prepaid expenses and other current assets

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Intangible assets, net

Note receivable

Right of use asset, net

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Long-term operating lease liabilities

Long-term contingent acquisition payments

Total long-term liabilities

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Accumulated deficit

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Total stockholders’ equity

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The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEM ENTS OF OPERATIONS and COMPREHNSIVE LOSS

CONSOLIDATED STATEM ENTS OF OPERATIONS and COMPREHENSIVE LOSS

(in thousands, except per share data)

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Fair value adjustment to contingent acquisition payment

Gain on sale of property and equipment

Total costs and expenses

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Provision for income taxes

Other comprehensive (loss) income

Unrealized gain on available for sale securities

Comprehensive loss

Net loss per share – basic

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Weighted-average shares – diluted

Other comprehensive income (loss)

Unrealized gain (loss) on available for sale securities

Comprehensive loss

The accompanying notes are an integral part of the consolidated financial statements.

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Adjustments to reconcile net loss to net cash

provided by (used in) operating activities:

(used in) provided by operating activities:

Depreciation and amortization

Gain on sale of fixed assets

Stock-based compensation

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Deferred revenue

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment

Proceeds from sale of fixed assets, net

Purchases of marketable securities

Sale of marketable securities

Investment in note receivable

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

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Net cash used in financing activities

Decrease in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

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Repurchase of common stock

Other comprehensive loss

Other comprehensive income

Balance at December 31, 2023

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1 NATURE O F BUSINESS

We are a leading biometric identity platform company that validates and secures identities using proven and trusted adaptive biometrics solutions.

We are a leading biometric identity platform company that validates and secures identities using proven and trusted biometrics solutions.

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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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.

Principal government applications of biometrics systems include border control, visa applicant screening, law enforcement, national defense, intelligence, secure credentialing, access control, and background checks.

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Use of Estimates – The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.

The most significant estimates included in the financial statements pertain to revenue recognition, goodwill and long-lived asset impairment, valuation of investment in note receivable, valuation of contingent acquisition payments, stock based compensation, income taxes, and allowance for credit losses.

Estimates used in these financial statements include but are not limited to, revenue recognition, goodwill and long-lived asset impairment, stock based compensation, income taxes, and allowance for credit losses.

Fair Value Measurements - The Financial Accounting Standards Board (“FASB”) Codification defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

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Marketable securities

Note receivable

As of December 31, 2023, our assets and liabilities that are measured at fair value on a recurring basis included the following (in thousands):

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Marketable securities

Note receivable

Contingent acquisition payments

Total liabilities

The fair value of our contingent acquisition payments was $ 0 and $ 0.8 million as of December 31, 2023 and 2022, respectively.

The fair value of our contingent acquisition payments was $ 0 as of December 31, 2023.

The $ 0.8 million decrease during the year ended December 31, 2023 was due to the end of the earnout period without the achievement of any earnout targets, resulting in no earnout payment being required.

The fair value as of December 31, 2022 was determined using a Monte Carlo simulation.

Investments in marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income (loss) in stockholders' equity.

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Treasury notes and bonds

Corporate bonds

December 31, 2023:

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Balance as of December 31, 2022

Investment in Note Receivable

Accrued interest

Balance as of December 31, 2022

Accrued interest

Write-off of Note Receivable

Balance as of December 31, 2023

The investment in the Note Receivable ("Note") with Omlis Limited ("Omlis"), a limited company incorporated and registered in England and Wales and the parent of MIRCAL Technologies Limited ("MIRACL"), was negotiated at an arm’s length basis and the total carrying value of the investment of $ 0 and $ 2.6 million is representative of the fair value of the investment as of December 31 2023 and 2022, respectively.

Balance as of December 31, 2024

The $ 2.7 million write off during the year ended December 31, 2023 was the result of the lack of recoverability of the Note due to liquidity concerns as of December 31, 2023.

In addition, i n January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process.

The deterioration of Omlis' liquidity, resulted in our uncertainty regarding the recoverability of the Note's carrying value.

During the year ended December 31, 2022, there were no changes in the underlying assumptions of the Note.

The change in fair value during the year ended December 31, 2022 was the result of accrued interest.

In addition, i n January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process, which is still ongoing.

The deterioration of Omlis' liquidity, resulted in our unlikely recoverability of the Note's carrying value.

Cash and Cash Equivalents – Cash and cash equivalents, which consist primarily of money market funds and demand deposits, are stated at fair value.

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Allowance for credit losses balance - end of year

In addition, for the years ended December 31, 2023 and 2022, the credit loss related to unbilled receivables was $ 0 and $ 230 thousand, respectively.

Property and Equipment – Property and equipment is stated at cost.

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Leases – We account for a contract as a lease when we have the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits.

We determine the initial classification and measurement of our operating right of use assets and lease liabilities at the lease commencement date and thereafter if modified.

We determine the initial classification and measurement of our operating lease right of use assets and lease liabilities at the lease commencement date and thereafter if modified.

Fixed lease costs are recognized on a straight-line basis over the lease term.

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As of December 31, 2024 and 2023, we had $ 3.1 million of goodwill.

We performed a quantitative analysis during the years ended December 31, 2023 and 2022 and determined there were no impairment losses and to date, there have been no impairments of goodwill.

There were no changes to the value of goodwill during the years ended December 31, 2023 and 2022.

We performed a quantitative analysis during the years ended December 31, 2024 and 2023 and determined there were no impairments of goodwill.

Long-Lived Assets – We review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

Each impairment test is based on a comparison of the undiscounted cash flows estimated to be generated by those assets over their estimated economic life to the related carrying value of those assets to determine if the assets are impaired.

Each impairment test is based on a comparison of the undiscounted cash flows estimated to be generated by those assets over their estimated economic life to the related carrying

value of those assets to determine if the assets are impaired.

If an impairment is indicated, the asset is written down to its estimated fair value.

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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.

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.

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Fees subject to the usage-based royalty exception are recognized when the subsequent usage occurs.

Also, with our acquisition of FortressID and adaption of our current products to be delivered in a hosted environment with AwareID, we expect to recognize revenue from our SaaS offerings ratably over the subscription period.

For the years ended December 31, 2023 and 2022, we generated a de minimis amount of revenue from SaaS contracts.

Also, with the adaption of our current products to be delivered in a hosted environment with AwareID, we recognize revenue from our SaaS offerings ratably over the subscription period.

For the year ended December 31, 2024, we generated $ 0.1 million of revenue from SaaS contracts, which is included in license revenue.

In 2023, we generated a de minimis amount of revenue from SaaS contracts.

Software maintenance

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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 software licenses and standard implementation or consulting-type services are sold together, they are generally considered distinct performance obligations, as the software licenses are not dependent on or interrelated with the associated services.

When software licenses and standard implementation or

consulting-type services are sold together, they are generally considered distinct performance obligations, as the software licenses are not dependent on or interrelated with the associated services.

The transaction price in these arrangements is allocated to the software licenses and services based on relative SSP.

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Contract Costs

We recognize an other asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year.

We recognize other long-term assets for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year.

We have determined that certain sales commissions meet the requirements to be capitalized, and we amortize these costs on a consistent basis with the pattern of transfer of the goods and services in the contract.

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The Company amortizes capitalized software costs generally over three to five years , commencing on the date the software is placed into service.

No software costs were capitalized during the years ended December 31, 2023 and 2022, because such costs incurred after attainment of technological feasibility but before product release were immaterial.

No software costs were capitalized during the years ended December 31, 2024 and 2023, because such costs were immaterial.

Research and Development Costs – Costs incurred in the research and development of our products are expensed as incurred.

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We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize stock-based compensation expense on a straight-line basis over the requisite service period of the award.

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 option valuation model to estimate the fair value of the award.

This valuation model takes into account the exercise price of the award, as well as a variety of significant assumptions.

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.

Computation of Earnings per Share – Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding.

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Stock options that are antidilutive are excluded from the calculation.

Fair Value of Financial Instruments – The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of their short-term nature.

Segments – We organize ourselves into a single segment reporting to the chief operating decision maker, who we have designated as our Chief Executive Officer.

Fair Value of Financial Instruments – The carrying amounts of cash and cash equivalents, accounts receivable, unbilled receivables, accounts payable and accrued expenses approximate fair value because of their short-term nature.

Segments – We have determined that we operate as a single reportable segment, as our Chief Executive Officer, who serves as our chief operating decision maker (CODM) , evaluates financial performance and allocates resources on a consolidated basis.

In making operating decisions, management and the Board receive regular reporting on revenue, cost of revenue, operating expenses, and profitability metrics.

The primary financial measures used to assess performance include revenue growth, gross margin, adjusted EBITDA, and operating income.

Significant expense categories reviewed by our CODM for our single operating segment include research and development, selling and marketing, and general and administrative expenses, as presented in our consolidated statement of operations.

To determine our single reportable segment, we evaluated factors such as the nature of our products and services, customer base, distribution methods, and how the business is managed.

Given that we provide a unified suite of biometric and identity solutions, serve a common customer base, and operate under a single management team with an integrated resource allocation strategy, we concluded that a single operating segment best represents how we manage the business.

We do not allocate assets to individual business units or product lines for internal reporting purposes.

Our CODM reviews the company’s assets on a consolidated basis, and as a result, we do not present segment asset information separately in our financial statements

We conduct our operations in the United States and sell our products and services to domestic and international customers.

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Subscription-based contracts

Revenue by product group consists of all associated revenue within the contract, including license revenue, maintenance revenue, and services and other revenue.

Revenue by product group may be recognized at a point in time or over-time.

These revenues are attributable to both contracts with fixed fees and guaranteed minimums.

Revenue by product group consists of all revenue associated with a contract, including license revenue, maintenance revenue, and services and other revenue.

Revenue may be recognized at a point in time or over time, depending on the nature of the underlying performance obligations.

These revenues are attributable to contracts with fixed fees and those with guaranteed minimums.

License and service contracts include revenue recognized from perpetual software licenses, professional services, and associated maintenance contracts.

Subscription-based contracts include revenue from term licenses and their associated maintenance contracts, as well as SaaS-based revenue and other recurring subscription services.

Revenue by timing of transfer of goods or services was (in thousands):

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Property and equipment, net

Depreciation expense was $ 0.2 million and $ 0.3 million for the years ended December 31, 2023 and 2022, respectively.

GAIN ON SALE OF PROPERTY AND EQUIPMENT

On July 15, 2022, we completed the sale of our former corporate headquarters to FDS Bedford, LLC located at 40 Middlesex Turnpike, Bedford, Massachusetts for total proceeds of $ 8.9 million less a brokerage commission of $ 0.3 million.

During the year ended December 31, 2022, we recorded a gain of $ 5.7 million on the sale and disposed of gross assets of $ 11.5 million and net book value of $ 2.9 million, of which $ 1.8 million was property and equipment and $ 1.1 million was land.

Depreciation expense was $ 0.2 million for each of the years ended December 31, 2024 and 2023.

INTANGIBLE ASSETS

The carrying value of intangible assets and their estimated useful live as of December 31, 2023 are as follows (dollars in thousands):

The carrying value of intangible assets and their estimated useful life as of December 31, 2024 are as follows (dollars in thousands):

Customer relationships

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3 and 7 years

The carrying value of intangible assets and their estimated useful live as of December 31, 2022 are as follows (dollars in thousands):

The carrying value of intangible assets and their estimated useful life as of December 31, 2023 are as follows (dollars in thousands):

Customer relationships

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We purchased $ 2.5 million of Omlis’ note receivable ("Note") that accrues interest at 5 % annually with a maturity date of March 11, 2026 .

Prior to maturity, we have the right to convert the Note into the securities issued in a future financing at a 20 % discount from the price per share paid by the investors in that financing.

If the Note remains outstanding on the maturity date, the Note shall, at the option of the holders of a majority of the outstanding Note, (i) be converted into the most senior shares in Omlis, (ii) be redeemed for payment in cash of the Note and all accrued but unpaid interest or (iii) remain outstanding.

In connection with the sale of the Note, Omlis granted us a right of first refusal for 18 months with respect to any proposed sale by Omlis of equity securities constituting 20% or more of the outstanding voting power of Omlis or all or substantially all of the assets of Omlis or any of its material subsidiaries.

Also, in connection with the purchase of the Note, Omlis issued the Company a warrant that expired on September 11, 2023 , which allowed us to purchase up to 8 % of the total equity shares in Omlis at a price per share of $ 33.91 .

We recorded the Note at fair value in accordance with ASC 825, Financial Instruments, which was $ 0 and $ 2.6 million as of December 31, 2023 and 2022, respectively.

The accrued interest of $ 0.1 million as of December 31, 2022, was included in the fair value of the Note.

We recorded the Note at fair value in accordance with ASC 825, Financial Instruments, which was $ 0 as of December 31, 2024 and 2023.

For the year ended December 31, 2023 we recorded a fair value adjustment of $ 2.7 million, which included $ 0.2 million of accrued interest, to adjust the fair value to $ 0 as of December 31, 2023.

The $ 2.7 million write off during the year ended December 31, 2023 was the result of the lack of recoverability of the Note due to liquidity concerns as of December 31, 2023.

In addition, in January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process.

The deterioration of Omlis' liquidity resulted in our uncertainty regarding the recoverability of the Note's carrying value and the unlikelihood of a payout as an unsecured creditor from the administration process.

In addition, in January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process, which is still ongoing.

deterioration of Omlis' liquidity resulted in our unlikely recoverability of the Note's carrying value and the unlikelihood of a payout as an unsecured creditor from the administration process.

We recorded a provision for income tax of $ 53 thousand and $ 59 thousand for the years ended December 31, 2024 and 2023, respectively.

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Provision for income taxes

The difference between the effective tax rate and the U.S federal statutory rates was driven primarily due to the change in valuation allowance of our deferred tax assets, state income taxes and stock-based compensation to

the deferred tax assets in both 2023 and 2022.

The difference between the effective tax rate and the U.S federal statutory rate was driven primarily due to the changes in the valuation allowance of our deferred tax assets, state income taxes and impact of stock-based compensation to the deferred tax assets in both 2024 and 2023.

A reconciliation of the U.S.

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The change in the deferred tax asset balance related to this was offset by a corresponding decrease in the valuation allowance.

Deferred income taxes - We had net deferred tax assets of $ 0.5 million and $ .07 million as of December 31, 2023 and 2022, respectively.

Deferred income taxes - We had net deferred tax assets of $ 0 as of December 31, 2024 and 2023.

The principal components of deferred tax assets, net, were as follows at December 31 (in thousands):

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The deferred tax assets are composed principally of net operating loss carryforwards, capitalized research costs and research and development credits.

As part of this analysis, we gave more weight to recent, historical evidence than future

projections as we consider the past more objective.

As part of this analysis, we gave more weight to recent, historical evidence than future projections as we consider the past more objective.

Under the applicable accounting standards, we considered our history of losses and concluded that is more likely that we will not recognize the benefits of federal and state deferred tax assets.

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EQUITY AND STOCK COMPENSATION PLANS

Stock Option Plan – During the year ended December 31, 2023.

we had one active fixed stock option plan which was our 2001 Nonqualified Stock Plan (“2001 Plan”).

We were authorized to grant nonqualified stock options, stock appreciation rights and stock awards to our employees and directors for up to 8,000,000 shares of common stock under this plan.

Stock Option Plan – During the year ended December 31, 2023, we had one active fixed stock option plan, the 2001 Nonqualified Stock Plan (the “2001 Plan”), under which we were authorized to grant nonqualified stock options, stock appreciation rights, and stock awards to employees and directors for up to 8,000,000 shares of common stock.

As of December 31, 2023, there were 1,577,130 shares available for grant under the 2001 Plan.

Subsequent to December 31, 2023, our shareholders approved the Aware, Inc.

2023 Equity and Incentive Plan, which replaced the 2001 Plan.

See Note 13, Subsequent Events, for more information regarding the 2023 Equity and Incentive Plan.

On January 17, 2024, our shareholders approved the Aware, Inc.

2023 Equity and Incentive Plan (the “2023 Plan”), which replaced the 2001 Plan.

The 2023 Plan provides for the grant of various equity-based awards, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, dividend equivalent rights, and cash awards.

The 2023 Plan authorizes the issuance of an aggregate of 1,277,130 shares of common stock, plus an additional number of shares equal to the number of shares subject to outstanding awards under the 2001 Plan that are forfeited, expire unexercised, or are repurchased or withheld to cover taxes or exercise prices, up to a maximum of 2,590,000 shares.

As of December 31, 2024, there were 2,175,211 shares available for grant under the 2023 Plan.

Options are granted with exercise prices as determined by the Board of Directors and have a maximum term of ten years .

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Ended December 31,

Cost of services and other

Research and development

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Stock Option Grants.

During the years ended December 31, 2023 and 2022, we did no t grant any stock options.

During the year ended December 31, 2024, we granted 640,000 common stock options to purchase our common stock under the 2023 plan.

We did no t grant any stock options during the year ended December 31, 2023.

We estimate the fair value of stock options using the Black-Scholes valuation model.

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Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

On January 17, 2024, our stockholders approved a stock option exchange program (the “Exchange Offer”) pursuant to which eligible employees, primarily consisting of our executive officers and senior management, were able to exchange certain stock options (the “Eligible Options”) for replacement stock options with modified terms (the “New Options”) as described below.

We commenced the Exchange Offer on January 19, 2024.

The Exchange Offer expired on February 20, 2024.

Pursuant to the Exchange Offer, nine employees elected to exchange their Eligible Options, and we accepted for cancellation Eligible Options to purchase an aggregate of 2,180,000 shares of common stock, representing approximately 96 % of the total shares of common stock underlying the Eligible Options.

Following the expiration of the Exchange Offer, on February 20, 2024, we granted New Options to purchase 933,073 shares of Common Stock, pursuant to the terms of the Exchange Offer and our 2023 Plan.

The exercise price per share of the New Options granted pursuant to the Exchange Offer was $ 2.21 per share.

Each New Option will vest and become exercisable, with respect to 50 % of the shares of common stock underlying such New Option on the first anniversary of the grant date and, with respect to the remaining shares of common stock underlying such New Option, in twelve equal monthly installments thereafter, subject to the continuous service of the holder.

The other terms and conditions of the New Options will be governed by the terms and conditions of the 2023 Plan and the nonstatutory stock option agreements entered into thereunder.

There was no incremental expense for the New Options as calculated using the Black-Scholes option pricing model.

The unamortized expense remaining on the Eligible Options, as of the modification date, will be recognized over the new vesting schedule.

During the year ended December 31, 2024 we expensed an incremental $ 0.3 million in stock based compensation expense related to the accelerated vesting of stock options of our former Chief Executive Officer.

Specific assumptions used to determine the fair value of options granted during the year ended December 31, 2024, using the Black-Scholes valuation model were as follows:

Expected term (1)

Expected volatility factor (2)

Risk-free interest rate (3)

Expected annual dividend yield

(1) The expected term for each grant was determined based on the simplified method.

(2) The expected volatility for each grant is estimated based on an average of historical volatility over the expected term of the stock options.

(3) The risk-free interest rate for each grant is based on the U.S.

Treasury yield curve in effect at the time of grant for a period equal to the expected term of the stock option.

Restricted Stock Units.

The 2023 Plan permits us to grant restricted stock units to our directors, officers, and employees.

Upon vesting, each restricted stock unit entitles the recipient to receive a number of shares of common stock as set forth in the relevant restricted stock unit agreement.

Stock-based compensation expense for restricted stock units is determined based on 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.

We granted 284,814 restricted stock units to directors, officers, and employees during the year ended December 31, 2024.

Of the restricted stock units granted in 2024, 70,406 vested shortly after June 30, 2024 and 70,408 vested shortly after December 31, 2024.

Of the remaining 144,000 restricted stock units, 15,000 vested in November 2024, 6,000 vested in December 2024 and 18,000 are scheduled to vest in June 2025, 2026 and 2027 in 6,000 increments.

The remaining 105,000 restricted stock units were forfeited in 2024 as a result of employee terminations.

Unrestricted Stock Grants .

Our 2001 Plan permits us to grant shares of unrestricted stock to our directors, officers, and employees.

Our 2001 Plan, which was replaced by our 2023 Plan, permitted us to grant shares of unrestricted stock to our directors, officers, and employees.

Stock-based compensation expense for stock grants is determined based on 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.

We granted 134,211 and 167,921 shares of unrestricted stock to directors, officers, and employees during the years ended December 31, 2023 and 2022, respectively.

Of the shares granted in 2023, 67,104 were issued shortly after June 30, 2023 and 67,107 were issued shortly after December 31, 2023.

Of the shares granted in 2022, 61,460 were issued shortly after June 30, 2022 and 46,461 were issued shortly after December 31, 2022.

The remaining 60,000 shares of unrestricted stock granted to an officer is to be issued in four equal installments in February 2023, and August of 2023, 2024, and 2025.

We granted 134,211 shares of unrestricted stock to directors, officers, and employees during the year ended December 31, 2023.

Of these shares granted in 2023, 67,104 were issued shortly after June 30, 2023 and 67,107 were issued shortly after December 31, 2023.

15,000 shares were issued in August 2024 related to a grant in August 2022 and the remaining 15,000 unrestricted stock grants were forfeited in September 2024 as a result of employee termination.

Stock Options.

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Exercisable at year end

(1) Includes 933,073 options granted and 2,180,000 cancelled pursuant to the Exchange Offer.

At December 31, 2024, the weighted average remaining contractual term for total options outstanding and total options exercisable was approximately 6.02 and 0.25 years, respectively.

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The lease provides for an aggregate of $ 8.2 million of rent payments over the lease term and also provides a renewal option for up to two additional terms of five years each.

The components of lease expense included in the consolidated statement of operations and comprehensive loss are as follows (in thousands):

The components of lease expense included in the consolidated statements of operations and comprehensive loss are as follows (in thousands):

For the Year Ended December 31,

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Our contributions to the 401K Plan are at the discretion of the Board of Directors.

Our contributions were $ 0.4 million in 2023 and 2022.

Our contributions were $ 0.3 million and $ 0.4 million in 2024 and 2023, respectively.

NET LOSS PER SHARE

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Net loss per share - diluted

SUBSEQUENT EVENTS

2023 Equity and Incentive Plan - On January 17, 2024, our shareholders approved the Aware, Inc.

2023 Equity and Incentive Plan (the “2023 Plan”), which replaced our 2001 Plan.

The 2023 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, dividend equivalent rights, and cash awards.

An aggregate of 1,277,130 shares of our common stock is authorized for issuance pursuant to awards under the 2023 Plan, plus an additional number of shares equal to the number of shares of our common stock subject to awards granted under the 2001 Plan that expire or terminate without having been exercised, are forfeited or otherwise repurchased by us at the grantee’s original purchase price, or are withheld in payment of the exercise price of an option under the 2001 Plan or to satisfy tax withholding obligations with respect to such exercise, up to a maximum of 2,590,000 shares.

Options exchange program - On February 20, 2024, we completed an options exchange program, pursuant to which current employees holding stock options to purchase approximately 2.2 million shares of our common

stock at weighted average exercise price of $ 4.88 per share (the “Old Options”), including stock options held by our executive officers to purchase approximately 2.2 million shares of our common stock, exchanged the Old Options for new stock options to purchase an aggregate 0.9 million shares of our common stock at an exercise price of $ 2.21 per share (the “New Options”).

Each New Options will vest and become exercisable (a) with respect to 50 % of the shares of common stock underlying such New Options on the first anniversary of the grant date and, (b) with respect to the remaining shares of common stock underlying such New Options, in twelve equal monthly installments thereafter, in each case subject to the continuous service of the employee holding such New Options.

We expect to record an incremental $ 0.1 million in stock based compensation expense over the vesting period of the New Options.

SUBSEQUENT EVENT

In October 2024, the Board of Directors of Aware, Inc.

initiated a CEO transition process.

Robert Eckel stepped down as CEO and President effective December 31, 2024.

On February 3, 2025, the Board appointed, Ajay K.

Amlani as the new Chief Executive Officer and President.

CHANGES IN AND DISAGREEMENTS WITH ACC OUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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Evaluation of Changes in Internal Control Over Financial Reporting

In October 2023, there was a significant change in our internal control over financial reporting resulting from the departure of our Chief Financial Officer and the subsequent promotion of our Controller to the position of Principal Financial Officer.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, we have concluded that the promotion of the Controller to the position of Principal Financial Officer has not materially affected the design or operation of our internal control over financial reporting.

We have updated our internal control documentation in light of this organizational change.

In December 2024, our Chief Executive Officer resigned, and our Chief Financial Officer assumed the role of Interim Chief Executive Officer while continuing to serve as Chief Financial Officer.

In February 2024, we hired a new Chief Executive Officer, and the Interim Chief Executive Officer returned to his role as Chief Financial Officer.

While these leadership transitions represent significant changes in our executive team, we have assessed their impact on our internal control over financial reporting and determined that these changes have not materially affected the design or operation of our internal controls.

We have updated our internal control documentation in light of these organizational changes.

We will continue to monitor and update our internal control processes as necessary to ensure their effectiveness.

Management’s Report on Internal Control Over Financial Reporting

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Employment Agreement between Aware, Inc.

and Robert A.

Eckel (filed as Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on September 19, 2019 and incorporated herein by reference).

Performance Share Award Agreement between Aware, Inc.

and Robert A.

Eckel (filed as Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on September 19, 2019 and incorporated herein by reference).

Employment Agreement between Aware, Inc.

and Robert M.

Mungovan (filed as Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 1, 2019 and incorporated herein by reference).

Amendment to Employment Agreement dated as of July 15, 2022, by and between Aware, Inc.

and Robert Mungovan (filed as Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on July 20, 2022 and incorporated herein by reference).

Employment Agreement between Aware, Inc.

and Mohamed Lazzouni (filed as Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on November 19, 2019 and incorporated herein by reference).

Employment Agreement between Aware, Inc.

Barcelo dated May 4, 2020 (filed as Exhibit 10.1 to Aware, Inc.

Current Report on Form 8-K filed with the Securities and Exchange Commission on May 4, 2020 and incorporated herein by reference).

2024 Executive Bonus Plan (incorporated by reference to Item 5.02 of the Aware, Inc.

Current Report on Form 8-K filed with the Securities and Exchange Commission on March 1, 2022 and incorporated herein by reference).

Amendment to Employment Agreement between Aware, Inc.

and Robert Eckel dated March 27, 2020 (filed as Exhibit 10.2 to Aware Inc.

Current Report on Form 8-K filed with the Securities and Exchange Commission on March 30, 2020 and incorporated herein by reference).

Current Report on Form 8-K filed with the Securities and Exchange Commission on April 10, 2024 and incorporated herein by reference).

Lease dated as of March 1, 2022 by and between 76/80 Burlington Group, LLC and Aware, Inc.

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Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission and incorporated herein by reference).

Employment Agreement between Aware, Inc.

and Craig Herman dated August 9, 2022.

(filed as Exhibit 10.18 to Aware Inc.

Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission and incorporated herein by reference).

2023 Equity and Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 18, 2024 and incorporated herein by reference).

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2023 Equity and Incentive Plan (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 18, 2024 and incorporated herein by reference).

Letter Agreement dated November 13, 2023 between Aware, Inc.

and David Barcelo (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2023 and incorporated herein by reference).

Employment Agreement between Aware, Inc.

and David Traverse dated June 1, 2024.

Letter Agreement dated October 30, 2024 between Aware, Inc.

and Robert A.

Eckel (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2024 and incorporated herein by reference).

Employment Agreement between Aware, Inc.

and Ajay Amlani dated February 3, 2025 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2025 and incorporated herein by reference).

Form of Performance-based Stock Option Agreement under the Aware, Inc.

2023 Equity and Incentive Plan.

Amended and Restated Insider Trading Policy.

Subsidiaries of Registrant.

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Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Compensation Recovery Policy .

Compensation Recovery Policy (filed as Exhibit 97.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and incorporated herein by reference).

The following financial statements from Aware, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2024, formatted in inline XBRL (eXtensible Business Reporting Language), as follows:

(i) Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023;

(ii) Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2023 and December 31, 2022;

(ii) Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2024 and

December 31, 2023;

(iii) Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and December 31, 2023;

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

/s/ Robert A.

Chief Executive Officer & President

Principal Financial Officer

Chief Financial Officer

March 13, 2025

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 14th day of March 2025.

/s/ Robert A.

Chief Executive Officer, President & Director

(Principal Executive Officer)

Principal Financial Officer

Chief Financial Officer

(Principal Financial Officer)

6 unchanged sentences

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 7. Management’s Discussion and Analysis