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Item 7. Management’s Discussion and Analysis

2026-03-06 compared with 2025-03-13 · 256 added, 219 removed, 888 unchanged (35% of the section changed)

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Costs and expenses:

Cost of services and other

Cost of revenue

Research and development

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General and administrative

Loss on write-off of note receivable

Fair value adjustment to contingent acquisition payment

Total costs and expenses

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Summary of Financial Results

We used revenue and operating loss to summarize financial results over the past two years as we believe these measurements are the most meaningful way to understand our operating performance.

We used revenue and operating loss to summarize our financial results over the past two years, as we believe these measures provide the most meaningful understanding of our operating performance.

The comparisons below reflect certain reclassifications described in more detail in Note 2 to the consolidated financial statements

2025 compared to 2024

Revenue and operating loss in 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.

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

Software license revenue consists of revenue from the sale of biometrics and imaging software products.

Sales of software products depend on our ability to win proposals to supply software for biometrics systems projects either directly to end user customers or indirectly through channel partners.

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.

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

Lower revenue in 2025 as compared to 2024 was primarily due to decreases in revenue from our software licenses of $0.3 million, which were partially offset by an increase and services and other revenue of $0.1 million and an increase in revenue from software maintenance of $0.1 million.

Higher operating loss in 2025 as compared to 2024 was primarily due to a decrease in revenue of $0.1 million and increases in research and development expenses of $0.5 million, cost of revenue of $0.5 million and general and administrative expenses of $0.2 million, which were partially offset by a decrease in sales and marketing expense of $0.3 million.

Software Licenses Revenue

Software licenses revenue consists of revenue from the licensing of biometrics and imaging software products.

Licensing of software products depends on our ability to win proposals to supply software for biometric systems projects either directly to end user customers or indirectly through channel partners.

Software licenses revenue decreased 4% from $7.7 million in 2024 to $7.3 million in 2025.

As a percentage of total revenue, software licenses revenue decreased from 44% in 2024 to 42% in 2025.

The $0.4 million decrease in software licenses revenue was primarily due to a decrease in perpetual license sales, which can fluctuate from period to period.

Software Maintenance Revenue

Software maintenance revenue consists of revenue from the sale of software maintenance contracts.

Software maintenance revenue consists of revenue from software maintenance contracts and SaaS subscription arrangements.

Software maintenance contracts entitle customers to receive software support and software updates, if and when they become available, during the term of the contract.

SaaS revenue represents a relatively small portion of both software maintenance revenue and total revenue.

Software maintenance revenue increased 2% from $8.6 million in 2024 to $8.7 million in 2025.

As a percentage of total revenue, software maintenance revenue increased from 50% in 2024 to 51% in 2025.

The dollar increase in software maintenance revenue was primarily due to software maintenance related to perpetual license sales 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.

Since our software is used in active biometrics systems, many of our customers continue to renew their maintenance contracts in subsequent years while systems remain operational.

The dollar increase in software maintenance revenue was primarily due to software maintenance related to perpetual license sales.

A majority of our customers enter into software maintenance contracts when they initially license our software products.

Because our software is used in active biometrics systems, many customers continue to renew their maintenance contracts in subsequent years while those systems remain operational.

Services and Other Revenue

Services revenue consists of fees we charge to perform software development, integration, installation, and customization services.

Services and other revenue consists of fees we charge to perform software development, integration, installation, customization, and other professional services, as well as subscription-based SaaS offerings and hardware included with certain software licenses.

Similar to software license revenue, services revenue depends on our ability to win biometrics systems projects either directly with end user customers or in conjunction with channel partners.

Other revenue consists of hardware fees that are included with some of our software licenses.

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 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

Cost of services and other revenue consists primarily of engineering costs to perform customer services projects.

SaaS revenue reflects recurring subscription fees for access to our biometric software solutions.

Services and other revenue may fluctuate based on the timing of commencement and completion of customer projects, the mix of professional services and subscription-based arrangements, and the timing of hardware delivered in connection with software licenses.

Services and other revenue increased 9% from $1.2 million in 2024 to $1.3 million in 2025.

As a percentage of total revenue, services and other revenue was 7% in both 2024 and 2025.

The increase was primarily due to growth in SaaS revenue, which increased from $0.1 million in 2024 to $0.4 million in 2025, partially offset by a decrease in professional services revenue of $0.2 million.

The increase in SaaS revenue reflects expansion of subscription-based customer arrangements, while the decrease in professional services revenue was primarily due to lower project-based activity during 2025.

Cost of Revenue

Cost of revenue consists primarily of engineering costs to perform customer services projects, amortization of intangible technology assets related to acquisitions, and other third-party costs that are included with some of our software licenses.

Such costs primarily include:

i) engineering salaries, stock-based compensation, fringe benefits, and facilities;

i) engineering salaries, fringe benefits, and facilities;

ii) engineering consultants and contractors;

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and iv) hardware costs.

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:

Cost of revenue increased 58% from $0.8 million in 2024 to $1.3 million in 2025.

Cost of revenue as a percentage of total revenue increased from 5% in 2024 to 8% in 2025.

The $0.5 million increase was the result of increased software license costs.

Prior period amounts have been reclassified to conform to the current period presentation.

Gross margins on revenue are a function of:

i) the nature of the projects;

ii) the level of engineering difficulty and labor hours required to complete project tasks;

and iii) how much we were able to charge.

Gross margins in these years reflect the profitability mix of customer projects.

We expect that gross margins on services and other revenue will continue to fluctuate in future periods based on the nature, complexity, and pricing of future projects.

iii) how much we were able to charge;

and iv) product mix.

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

Research and Development Expense

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Engineering costs incurred to develop our technology and products are classified as research and development expense.

As described in the cost of services section, engineering costs incurred to provide engineering services for customer projects are classified as cost of services and are not included in research and development expense.

The classification of total engineering costs to research and development expense and cost of services for the years ended December 31, 2024 and 2023 was (in thousands):

As described in the cost of revenue section, engineering costs incurred to provide engineering services for customer projects are classified as cost of revenue and are not included in research and development expense.

Certain engineering personnel costs are allocated to cost of revenue based on the nature of the activities performed.

Total engineering costs represent the combined amounts classified to research and development expense and cost of revenue.

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

Research and development expense

Cost of services and other

Engineering costs allocated to cost of revenue

Total engineering costs

Total engineering costs decreased 15% from $10.4 million in 2023 to $8.9 million in 2024.

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

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.

Total engineering costs increased 6% from $8.2 million in 2024 to $8.7 million in 2025.

As a percentage of total revenue, total engineering costs increased from 47% in 2024 to 50% in 2025.

Prior period amounts have been reclassified to conform to the current period presentation.

Our engineering headcount increased from 33 in 2024 to 45 in 2025.

The increase in engineering costs is primarily a result of increasing our engineering headcount during the year.

The increase was driven by strategic initiatives and to align our engineering capabilities with current business priorities.

We expect engineering costs to increase in 2026 primarily due to the full-year impact of engineering personnel hired during 2025.

As we described in the Part I—Business of this Form 10-K, we intend to introduce new products that will allow us to offer more complete biometrics solutions.

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We anticipate that we will continue to focus our future research and development activities on enhancing existing products and developing new products.

We expect research and development expenses to decrease in absolute dollars and as a percentage of revenues in the next year and then to increase in absolute dollars in proceeding years.

We expect research and development expenses to increase in absolute dollars and as a percentage of revenues in the next year.

Selling and Marketing Expense

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Selling and marketing expense decreased 5% from $7.7 million in 2024 to $7.3 million in 2025.

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

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.

As a percentage of total revenue, selling and marketing decreased from 44% in 2024 to 42% in 2025.

The decrease in selling and marketing expense was primarily due to a $0.2 million decrease in travel expense, a $0.1 million decrease in bonus and commission expense and a $0.1 million decrease in trade show costs.

We expect selling and marketing expense to increase primarily due to the full-year impact of sales and marketing personnel hired during 2025.

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

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i) officers, directors and administrative personnel, including salaries, bonuses, director compensation, stock-based compensation, fringe benefits, and facilities;

ii) professional fees, including legal and audit fees;

professional fees, including legal and audit fees;

iii) public company expenses;

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

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

In November 2025, we entered into a short-term bridge financing arrangement with Anonybit, Inc.

(“Anonybit”) in connection with a potential strategic transaction.

Pursuant to this arrangement, we advanced $0.2 million to Anonybit under a secured promissory note.

We also entered into a software license agreement with Anonybit;

however, the broader contemplated transaction was not completed, and no additional amounts were funded under the note.

During the fourth quarter of 2025, we determined that Anonybit was insolvent and unable to satisfy its obligations after we ceased further funding and called the note.

As a result, we recorded a full write-off of the $0.2 million note receivable, which is included in general and administrative expense for the year ended December 31, 2025.

General and administrative expense increased 3% from $6.7 million in 2024 to $6.9 million in 2025 primarily as a result of the write-off of the Anonybit note receivable.

As a percentage of total revenue, general and administrative expense increased from 39% in 2024 to 40% in 2025.

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Future trends will be influenced by our ability to scale operations efficiently and drive revenue expansion .

Fair value adjustment to note receivable

In March 2022, we entered into a subscription agreement with Omlis Limited, a limited company incorporated and registered in England and Wales and the parent of MIRACL (“Omlis”).

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 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

In December 2021, we acquired 100% of the outstanding shares and acquired all of the assets and liabilities of FortressID for a purchase price of $3.4 million, which consisted of $2.5 million of cash consideration and contingent acquisition payments which was fair valued at $0.9 million at the acquisition date.

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 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.

Prior period amounts have been reclassified to conform to the current period presentation.

Interest Income

Interest income decreased from $1.2 million in 2024 to $0.9 million in 2025.

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

The dollar decrease in interest income was primarily due to lower average cash balances during the year and lower interest rates within our money market accounts.

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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Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates.

Total income tax expense for the years ended December 31, 2024 and 2023 was $65 thousand and $59 thousand, respectively.

The income tax expense for both years relates to limitations on the usage of net operating loss carryforwards generated in years beginning after December 31, 2017.

Total income tax expense for the years ended December 31, 2025 and 2024 was $0.3 million and $0.1 million, respectively.

The income tax expense was primarily attributable to foreign withholding taxes on international revenue of $0.2 million and $22 thousand for the years ended December 31, 2025 and 2024, respectively, reflecting increased revenue from certain international customers.

In addition, we had state income taxes of $14 thousand and $31 thousand for the years ended December 31, 2025 and 2024, respectively.

The Company did not incur U.S.

federal income tax expense in either period.

LIQUIDITY AND CAPITAL RESOURCES

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Year ended December 31, 2024.

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

Cash flows from investing activities

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

Year ended December 31, 2025.

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

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

Year ended December 31, 2024.

Investing activity used of $3.1 million of cash, primarily as 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.

Cash flows from financing activities

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

Year ended December 31, 2025.

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

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

Year ended December 31, 2024.

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If we require additional capital resources, we may utilize available funds or seek additional external financing.

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.

As of December 31, 2025, our material cash requirements from known contractual and other obligations consisted primarily of payments under the operating lease for our corporate headquarters.

We estimate lease payments will be approximately $0.7 million in each of 2026 and 2027, approximately $0.8 million in each of 2028, 2029 and 2030, and $1.9 million thereafter.

These amounts represent fixed contractual obligations under the lease agreement.

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

We enter into agreements in the ordinary course of business that require us:

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In accordance with Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods and services.

The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services.

The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these goods and services.

In addition, ASC 606 requires disclosures of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

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Recognize revenue when (or as) each performance obligation is satisfied.

We categorize revenue as software licenses, software maintenance, or services and other revenue.

We categorize revenue as software licenses, software maintenance, and services and other revenue, which includes SaaS subscription arrangements.

Revenue from software licenses is recognized at a point in time upon delivery, provided all other revenue recognition criteria are met.

We recognize software maintenance revenue over time on a straight-line basis over the contract period.

Services revenue is recognized over time as the services are delivered using an input method (i.e., labor hours incurred as a percentage of total labor hours budgeted), provided all other revenue recognition criteria are met.

We recognize software maintenance revenue and revenue from SaaS subscription arrangements, over time on a straight-line basis over the contract period.

Services revenue is recognized over time as the services are delivered using an input method, based on labor hours incurred as a percentage of total labor hours budgeted, provided all other revenue recognition criteria are met.

In addition to selling software licenses, software maintenance and software services on a standalone basis, a significant portion of our contracts include multiple performance obligations, which require an allocation of the transaction price to each distinct performance obligation based on a relative standalone selling price (“SSP”) basis.

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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.

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

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

Our arrangements can include variable fees, such as the option to purchase additional usage of a previously delivered software license.

We may also provide pricing concessions to clients, a business practice that also gives rise to variable fees in contracts.

For variable fees arising from the client’s purchase of additional usage of a previously delivered software license, we apply the sales and usage-based royalties guidance related to a license of intellectual property and recognizes the revenue in the period the underlying sale or usage occurs.

For variable fees arising from the client’s purchase of additional usage of a previously delivered

software license, we apply the sales and usage-based royalties guidance related to a license of intellectual property and recognize revenue in the period the underlying sale or usage occurs.

We include variable fees in the determination of total transaction price if it is not probable that a future significant reversal of revenue will occur.

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To assess if goodwill is impaired, we first review qualitative factors to determine whether further impairment testing is necessary.

If based on the qualitative assessment, we consider it more-likely-than-not that our reporting units fair value is less than its carrying amount, we perform a quantitative impairment test.

If based on the qualitative assessment, we consider it more-likely-than-not that our reporting unit's fair value is less than its carrying amount, we perform a quantitative impairment test.

An excess of carrying value over fair value would indicate that goodwill may be impaired.

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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.

The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020.

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.

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.

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and iii) temporary differences that result from differing treatment of certain items for tax and accounting purposes.

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, 2025, we had a total of $15.7 million of deferred tax assets and $1.4 million of deferred tax liabilities for which we have recorded a

$14.3 million valuation allowance.

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

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Recent Accounting Pronouncements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No.

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.

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

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.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires an annual tabular effective tax rate reconciliation disclosure including information for specified categories and jurisdiction levels, as well as disclosure of income taxes paid, net of refunds received, disaggregated by federal, state/local, and significant foreign jurisdiction.

This ASU will be effective for the Company’s fiscal December 31, 2025 year-end, 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 year ended December 31, 2025 and has been adopted in these consolidated financial statements on a prospective basis.

The adoption did not have a material impact on the Company’s consolidated financial statements.

In 2025, the FASB issued ASU No.

2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software, which amends existing guidance related to the accounting for internal-use software costs.

The amendments are intended to improve the relevance of information provided to investors about a company’s investments in internal-use software and align the accounting for internal-use software costs with modern software development practices.

This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years, with early adoption permitted.

The Company is currently evaluating the impact that adoption of this ASU will have on the Company's consolidated financial statements.

FINANCIAL STATEME NTS AND SUPPLEMENTARY DATA

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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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Costs and expenses:

Cost of services and other

Cost of revenue

Research and development

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General and administrative

Loss on write-off of note receivable

Fair value adjustment to contingent acquisition payment

Total costs and expenses

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Other comprehensive (loss) income

Unrealized gain on available for sale securities

Unrealized (loss) gain on available for sale securities

Comprehensive loss

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Adjustments to reconcile net loss to net cash

(used in) provided by operating activities:

used in operating activities:

Depreciation and amortization

Stock-based compensation

Interest receivable

Non-cash lease expense

Loss on write-off of note receivable

Change in fair value of contingent acquisition payments

Credit losses (recoveries)

Credit (recoveries) losses, net

Increase (decrease) from changes in assets and liabilities:

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Deferred revenue

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

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Sale of marketable securities

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of unrestricted stock

Proceeds from sale of common stock

Payments made for taxes of employees who surrendered

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Net cash used in financing activities

Increase (decrease) in cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

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Balance at December 31, 2024

Exercise of common stock options

Issuance of unrestricted stock

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All significant intercompany transactions have been eliminated.

Reclassifications – Certain prior period amounts have been reclassified to conform to the current period presentation.

During the year ended December 31, 2025, the Company revised the presentation of subscription-based SaaS revenue to classify it within services and other revenue rather than software licenses revenue.

Accordingly, $ 0.1 million of revenue for the year ended December 31, 2024 has been reclassified to conform with presentation.

In addition, $ 0.3 million of amortization expense related to acquired intangible assets has been reclassified from cost of revenue to general and administrative expense for the year ended December 31, 2024.

These reclassifications had no impact on previously reported total revenue, loss from operations, net loss or loss per share and had no impact on the consolidated balance sheets, statements of cash flows, or changes in stockholders’ equity.

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.

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.

Estimates used in these financial statements include but are not limited to, revenue recognition, goodwill and long-lived asset impairment, 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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and iii) Level 3 – valuations that require inputs that are both significant to the fair value measurement and unobservable.

Cash and cash equivalents, which primarily include money market mutual funds, were $ 13.0 million and $ 10.0 million at December 31, 2024 and 2023, respectively.

Marketable securities, which primarily include U.S.

Treasuries and corporate bonds, were $ 14.8 million and $ 20.9 million as of December 31, 2024 and 2023, respectively.

Cash and cash equivalents, which consists of money market mutual funds, were $ 7.3 million and $ 13.0 million at December 31, 2025 and 2024, respectively.

Marketable securities, which consist solely of U.S.

Treasury notes and bonds, were $ 15.0 million and $ 14.8 million as of December 31, 2025 and 2024, respectively.

As of December 31, 2025, our assets that are measured at fair value on a recurring basis include the following (in thousands):

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Marketable securities

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.

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

Changes in note receivable consisted of the following (in thousands):

Balance as of December 31, 2022

Accrued interest

Write-off of Note Receivable

Balance as of December 31, 2023

Balance as of December 31, 2024

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 was $ 0 as of December 31 2024 and 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, 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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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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• whether there is an expectation that the asset will be sold or disposed of before the end of its originally estimated useful life.

We did not identify any events or changes in business circumstances that would indicate the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate during the years ended December 31, 2024 and 2023.

No impairment charges were recorded on our long-lived assets for the years ended December 31, 2025 and 2024.

Revenue recognition - The core principle of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

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In these arrangements, revenue from the usage-based royalty is recognized when the subsequent usage occurs.

The amount of consideration is not adjusted for a significant financing component if the time between payment and the transfer of the related good or service is expected to be one year or less under the practical expedient in ASC 606-10-32-18.

ASC 606-10-32-18.

Our revenue arrangements are typically accounted for under such expedient, as payment is typically due within 30 to 60 days.

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The Company also reviews contractual termination provisions in determining contractual term and total transaction price.

For variable fees arising from the client’s purchase of additional usage of a previously delivered software license, we apply the sales and usage-based royalties guidance related to a license of intellectual property and recognize revenue in the period the underlying sale or usage occurs.

We include variable fees in the determination of total transaction price if it is not probable that a future significant reversal of revenue will occur.

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Software licenses

Software licenses consist of revenue from the sale of software licenses for biometrics and imaging applications.

Software licenses consist of revenue from the licensing of software for biometrics and imaging applications.

Our software licenses are functional intellectual property and typically provide customers with the right to use our software on a term or perpetual basis as it exists when made available to the customer.

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

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

Software maintenance consists of revenue from the sale of software maintenance contracts for biometrics and imaging software.

Software maintenance consists of revenue from the software maintenance contracts for biometrics and imaging software.

Software maintenance contracts entitle customers to receive software support and software updates, if and when they become available, during the term of the maintenance contract.

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Other revenue, which includes hardware sales that may be purchased with the software license, is recognized at a point in time upon delivery provided all other revenue recognition criteria are met.

Also, with the adaptation 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 years ended December 31, 2025 and 2024, we generated $ 0.4 million and $ 0.1 million of revenue from SaaS contracts, respectively.

Arrangements with multiple performance obligations

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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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Revenue allocated to the services is recognized over time using an input method.

In arrangements with both software licenses and services, the software license portion of the arrangement is classified as software license revenue and the services portion is classified as services revenue in our consolidated statements of operations and comprehensive loss.

In arrangements with both software licenses and services, the software license portion of the arrangement is classified as software licenses revenue and the services portion is classified as services revenue in our consolidated statements of operations and comprehensive loss.

• Perpetual software licenses, software maintenance and services:

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Revenue for the software maintenance is recognized over time on a straight-line basis over the contract period.

However, if the software services are significant customization engineering services, they are accounted for with the software licenses as a combined performance obligation, as stated above.

However, if the software services are significant

customization engineering services, they are accounted for with the software licenses as a combined performance obligation, as stated above.

Revenue for the combined performance obligation is recognized over time using an input method.

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We sell subscription-based software licenses for a fixed fee and/or a usage-based royalty fee, sometimes subject to a minimum guarantee.

When the amount is in the form of a fixed fee, including the guaranteed minimum in usage-based royalty, revenue is allocated to the software license recognized at a point in time upon delivery, provided all other revenue recognition criteria are met.

When the amount is in the form of a fixed fee, including the guaranteed minimum in usage-based royalty, revenue is 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.

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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, 2024 and 2023, because such costs were immaterial.

Although the Company continues to enhance and adapt certain existing software products for delivery in hosted and cloud-based environments, substantially all related development costs were expensed as incurred and no internal-use software costs were capitalized during the years ended December 31, 2025 and 2024, as 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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Concentration of credit risk with respect to net accounts receivable and unbilled receivables consisted of amounts owed by the following customers that comprised more than 10 % of net accounts receivable and unbilled receivables at December 31:

We had one customer in 2023 that represented 18 % of revenue.

No other customers represented over 10 % of revenue in 2024 or 2023.

No customers represented over 10 % of revenue in 2025 or 2024.

Stock-Based Compensation – We grant stock and stock options to our employees and directors.

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The Company expects to record amortization for the years ended December 31 as follows (in thousands):

SUBSCRIPTION AGREEMENT

On March 11, 2022, concurrently with our entry into a mutual reseller arrangement with MIRACL Technologies Limited ("MIRACL"), we entered into a subscription agreement with Omlis Limited, a limited company incorporated and registered in England and Wales and the parent of MIRACL ("Omlis").

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 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, 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.

The components of the provision for income taxes are as follows (in thousands):

Provision for income taxes

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.

NOTE RECEIVABLE

In November 2025, the Company entered into a short-term bridge financing arrangement with Anonybit, Inc.

in connection with a potential strategic transaction.

Pursuant to this arrangement, the Company advanced $ 0.2 million to Anonybit under a secured promissory note, which is secured by certain intellectual property and related assets of Anonybit..

The Company also entered into a software license agreement with Anonybit;

however, the broader contemplated transaction was not completed, and no additional amounts were funded under the note.

During the fourth quarter of 2025, the Company determined that Anonybit was insolvent and unable to satisfy its obligations after the Company ceased further funding and called the note.

As a result, the Company recorded a full write-off of the $ 0.2 million note receivable, which is included in general and administrative expenses for the year ended December 31, 2025.

As of December 31, 2025, the Company had no remaining carrying value related to this note.

may pursue recovery or enforcement actions;

however, any potential recoveries are not considered probable at this time.

The components of net loss before income tax expense are as follows (in thousands):

We recorded a provision for income tax of $ 0.3 million and $ 53 thousand for the years ended December 31, 2025 and 2024, respectively.

The components of the provision for income tax are as follows (in thousands):

Deferred expense:

Total income tax expense

The difference between the effective tax rate and the U.S.

federal statutory rate in 2024 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 2024.

A reconciliation of the U.S.

federal statutory rate to the effective tax rate is as follows:

federal statutory rate to the effective tax rate for 2024 is as follows:

Federal statutory rate

State rate, net of federal benefit

Permanent adjustments

Change in valuation allowance

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Effective tax rate

On October 4, 2023, Massachusetts enacted tax law changes which included the adoption of a single sales apportionment factor effective on January 1, 2025.

As required under ASC 740, Income Taxes, we have accounted for the deferred tax impacts of this tax law change in the period the tax law was enacted, which has the impact of reducing our state deferred tax assets.

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

The reconciliation of the Company's statutory tax rate and effective tax rate for 2025 is as follows (in thousands):

Year Ended December 31,

US federal statutory tax rate

State and local income taxes, net of fed benefit

Foreign tax effects:

Foreign withholding taxes

Federal R&D credits

Change in valuation allowance

Nontaxable or nondeductible items:

Stock compensation

Other adjustments

The Company's effective tax rate includes the effects of state and local income taxes, net of the federal income tax benefit, which are primarily attributable to Massachusetts, where the Company has significant business activities.

Massachusetts has higher effective tax rates compared to other jurisdictions where the Company operates, which accounts for more than half of the Company's total state tax expense.

Deferred income taxes - We had net deferred tax assets of $ 0 as of December 31, 2025 and 2024.

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

Deferred tax assets

Stock-based compensation

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Net operating loss

Loss on note receivable

Total deferred tax assts

Deferred revenue

Lease liability

Total deferred tax assets

Valuation allowance

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As of December 31, 2025, we had State NOL carryforwards of $ 19.8 million, which expire at various dates though 2045 .

As of December 31, 2025, the Company had $ 5.8 million of U.S.

federal research and development tax credits that begin to expire in 2025 .

As of December 31, 2025, the Company had $ 1.5 million of state research and development tax credits that begin to expire at various dates from 2033 through 2039 .

We evaluated and considered all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets was needed.

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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.

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

Therefore, we have recorded a full valuation allowance of $ 14.3 million and $ 13.2 million at December 31, 2025 and 2024, respectively.

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The uncertain tax positions will impact our effective tax rate if realized.

Tax examinations – We file tax returns as prescribed by the tax laws of the jurisdictions in which we operate.

In the normal course of business, we are subject to examination by federal and state jurisdictions, where applicable.

The earliest tax years that remain subject to examination by jurisdiction is 2019 for both federal and Massachusetts.

However, to the extent the Company utilizes net operating losses or credits from years prior to 2019, the statute remains open to the extent of the net operating losses or other credits are utilized.

Tax examinations – The Company files US federal and various state income tax returns and is subject to examination by the respective taxing authorities.

The statute of limitations for US federal and most state income tax returns is generally three years from the date the return is filed.

However, because the Company has tax attribute carryforwards generated in earlier years, the taxing authorities may examine tax years outside the normal three year statute to the extent such years generated tax attributes that are utilized in open tax years.

As a result, although the Company’s federal and most state income tax returns for periods prior to 2021 are generally closed to routine examination, those earlier tax years remain subject to adjustment for purposes of determining the correct amount of NOL and tax credit carryforwards available to offset taxable income or tax liability in subsequent years.

The Company is not currently under federal or state income tax examination for any period.

The following table summarizes the Company's income taxes (net of refunds received) for the total unrecognized tax benefits:

The following summarizes the jurisdictions that exceeded 5% of the Company's total income taxes paid (net of refunds) for the years presented below (in thousands):

Massachusetts

EQUITY AND STOCK COMPENSATION PLANS

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.

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

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

Stock Option Plan – On January 17, 2024, our shareholders approved the Aware, Inc.

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

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Stock Option Grants.

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.

During the years ended December 31, 2025 and 2024, we granted 1,613,322 and 640,000 common stock options to purchase our common stock under the 2023 plan, respectively.

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.

Included in the stock options granted during the year ended December 31, 2025 were 212,040 performance-based stock options awarded to Mr.

Amlani, divided equally into two tranches based on bookings growth thresholds for fiscal years 2025 and 2026.

In each case, vesting was contingent upon continued service through December 31 of the applicable performance year.

Expense recognition for these awards is based on the grant-date fair value and reflects management’s assessment of the probability of achieving the specified performance conditions.

During 2025, the performance condition for the 2025 tranche was not achieved and the related options were cancelled.

Any compensation expense previously recognized for that tranche was reversed during 2025.

Compensation expense related to the 2026 tranche, if any, will be recognized over the applicable service period in 2026.

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.

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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:

Specific assumptions used to determine the fair value of options granted using the Black-Scholes valuation model were as follows:

Expected term (1)

3.75 - 6.08 years

Expected volatility factor (2)

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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, and the related expense is recognized over the requisite service period as the awards vest.

Total restricted stock units outstanding at December 31, 2025 and 2024 were as follows:

Unvested at beginning of the year

Forfeited or canceled

Unvested at year end

We granted 771,184 restricted stock units to directors and officers during the year ended December 31, 2025.

The aggregate grant-date fair value of these awards was $ 1.3 million, which will be recognized as stock-based compensation expense over the applicable vesting periods.

Of these restricted stock units, 122,818 shares vested shortly after June 30, 2025 and 127,537 vested shortly after December 31, 2025.

166,229 restricted stock units were granted on March 13, 2025 to Mr.

Amlani in connection with an amendment to his employment agreement, all of which vested during 2025.

Also, 354,600 restricted stock units were granted on June 13, 2025 to Mr.

Amlani in connection with a further amendment to his employment agreement.

The March 13, 2025 amendment provided that 80 % of Mr.

Amlani's base salary for his service as our chief executive officer for the period from March 16, 2025 through December 31, 2025 was paid in restricted stock units.

The award represented the right to receive 166,229 shares and vested in nine equal monthly installments beginning on April 16, 2025 and continuing on the 16th of each month through December 16, 2025.

The June 13, 2025 amendment provides that 75 % of Mr.

Amlani's base salary for his service as our chief executive officer for the period from January 1, 2026 through December 31, 2027 will be paid in restricted stock units.

The award represents the right to receive 354,600 shares and will vest in twenty four equal monthly installments beginning on January 16, 2026 and continuing on the 16th of each month through December 16, 2027.

All awards are subject to Mr.

Amlani's continued service through the applicable vesting dates.

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

The aggregate grant-date fair value of these awards was $ 0.5 million, which will be recognized as stock-based compensation expense over the applicable vesting periods.

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.

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

As of December 31, 2025, unrecognized compensation cost related to restricted stock units was approximately $ 0.6 million which is expected to be recognized over a weighted-average period of approximately 0.6 years.

Unrestricted Stock Grants .

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provided the number of shares in the grant is fixed on the grant date.

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.

(1) Includes 933,073 options granted and 2,180,000 cancelled pursuant to the Exchange Offer during the year ended 2024.

At December 31, 2025, the weighted average remaining contractual term for total options outstanding and total options exercisable was approximately 7.90 and 7.64 years, respectively.

At December 31, 2024, the aggregate intrinsic value of options outstanding and exercisable was $ 0 .

At December 31, 2025, the aggregate intrinsic value of options outstanding and exercisable was $ 0.2 million.

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

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On November 30, 2023, our Board of Directors extended the program through December 31, 2025.

The stock repurchase program expired on December 31, 2025 and was not extended.

As of December 31, 2025 we have repurchased $ 2.1 million of our common stock pursuant to this program.

During the years ended December 31, 2025 and 2024 we repurchased 75,457 and 137,086 shares of our common stock, respectively.

The program does not obligate us to acquire any particular amount of common stock and the program may be modified or suspended at any time at our Board of Directors discretion.

Dividends – We did not pay dividends in the years ended December 31, 2024 and 2023.

The program did not obligate us to acquire any particular amount of common stock.

Dividends – We did no t pay dividends in the years ended December 31, 2025 and 2024.

We lease 20,730 rentable square feet at 76 Blanchard Road in Burlington, Massachusetts (the “Leased Space”) which has a term of ten years and six months , which includes a one-time termination right after seven years and six months .

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Operating lease costs

Supplemental cash flow information related to the Company’s operating lease was as follows:

cash paid for amounts included in the measurement of operating lease liabilities was $ 0.7 million for both the years ended December 31, 2025 and 2024.

The Company did no t obtain any right-of-use assets in exchange for lease liabilities during 2025 or 2024.

Supplemental balance sheet information related to the Company's operating lease was as follows (in thousands):

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Net loss per share - diluted

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.

SUBSEQENT EVENTS

The Company has evaluated subsequent events through March 6, 2026, the date the consolidated financial statements were issued.

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

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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.

In February 2025, we hired a new Chief Executive Officer, and the Interim Chief Executive Officer stepped down from that role while continuing in 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.

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DIRECTORS, EXECUTIVE OF FICERS AND CORPORATE GOVERNANCE

The information required by Item 10 of Form 10-K is incorporated by reference from the information contained in the sections captioned “Directors and Executive Officers”, “Corporate Governance ” and “Section 16(a ) Beneficial Ownership Reporting Compliance” in the Proxy Statement that will be delivered to our shareholders in connection with our June 11, 2025 Annual Meeting of Shareholders.

EXECUT IVE COMPENSATION

The information required by Item 11 of Form 10-K is incorporated by reference from the information contained in the section captioned “Executive Compensation” in the Proxy Statement that will be delivered to our shareholders in connection with our June 11, 2025 Annual Meeting of Shareholders.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL O WNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the section captioned “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in the Proxy Statement that will be delivered to our shareholders in connection with our June 11, 2025 Annual Meeting of Shareholders.

CERTAIN RELATIONSHIPS AND RELATE D TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information, if any, required by Item 13 of Form 10-K is incorporated by reference from the information contained in the sections captioned “Corporate Governance” and “Certain Relationships and Related Transactions” in the Proxy Statement that will be delivered to our shareholders in connection with our June 11, 2025 Annual Meeting of Shareholders.

PRINCIPAL ACCOU NTANT FEES AND SERVICES

The information required by Item 14 of Form 10-K is incorporated by reference from the information contained in the section captioned “Independent Accountants” in the Proxy Statement that will be delivered to our shareholders in connection with our June 11, 2025 Annual Meeting of Shareholders.

EXHIBITS AND FIN ANCIAL STATEMENT SCHEDULE

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Description of Exhibit

Amended and Restated Articles of Organization, as amended (filed as Exhibit 3.1 to the Company’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).

Amended and Restated By-Laws (filed as Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 10, 2007 and incorporated herein by reference).

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (filed as Exhibit 4.1 to the Company’s Form 10-K for the year ended December 31, 2019 and incorporated herein by reference)

Amended and Restated Articles of Organization, as amended (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).

Amended and Restated By-Laws (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 10, 2007 and incorporated herein by reference).

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (filed as Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference)

2021 Employee Stock Purchase Plan, (filed as Annex A to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 9, 2021 and incorporated herein by reference).

Form of Indemnification Agreement for Directors and Officers of Aware, Inc.

(filed as Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on February 22, 2011 and incorporated herein by reference).

(filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 22, 2011 and incorporated herein by reference).

2001 Nonqualified Stock Plan (filed as Exhibit 99(d)(4) to the Company’s Schedule TO filed with the Securities and Exchange Commission on March 3, 2003 and incorporated herein by reference).

Form of Nonqualified Stock Option Agreement under the 2001 Nonqualified Stock Plan for options granted to executive officers and directors prior to May 21, 2008 (filed as Exhibit 10.6 to Company’s Form 10-K for the year ended December 31, 2006 and incorporated herein by reference).

Form of Nonqualified Stock Option Agreement under the 2001 Nonqualified Stock Plan for options granted to executive officers and directors prior to May 21, 2008 (filed as Exhibit 10.6 to Company’s Annual Report on Form 10-K for the year ended December 31, 2006 and incorporated herein by reference).

Form of Nonqualified Stock Option Agreement under the 2001 Nonqualified Stock Plan for options granted to executive officers and directors from and after May 21, 2008 (filed as Exhibit 10.8 to Company’s Form 8-K on May 22, 2008 and incorporated herein by reference)

Form of Unrestricted Stock Award for outside directors of Aware under the 2001 Nonqualified Stock Plan (filed as Exhibit 10.1 to Company's Form 8-K filed with the Securities and Exchange Commission on July 28, 2010 and incorporated herein by reference).

Form of Unrestricted Stock Award for officers of Aware under the 2001 Nonqualified Stock Plan (filed as Exhibit 10.2 to Company's Form 8-K filed with the Securities and Exchange Commission on July 28, 2010 and incorporated herein by reference).

Form of Unrestricted Stock Award for outside directors of Aware under the 2001 Nonqualified Stock Plan (filed as Exhibit 10.1 to Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2010 and incorporated herein by reference).

Form of Unrestricted Stock Award for officers of Aware under the 2001 Nonqualified Stock Plan (filed as Exhibit 10.2 to Company's Form Current Report on 8-K filed with the Securities and Exchange Commission on July 28, 2010 and incorporated herein by reference).

Form of Unrestricted Stock Award for executive officers and directors of Aware, Inc.

under the 2001 Nonqualified Plan (filed as Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 4, 2013 and incorporated herein by reference).

under the 2001 Nonqualified Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2013 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).

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 April 10, 2024 and incorporated herein by reference).

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

2025 Executive Bonus Plan (incorporated by reference to Item 5.02 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 9, 2025 and incorporated herein by reference).

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

(filed as Exhibit 10.20 to Aware Inc.

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).

(filed as Exhibit 10.20 to the Company's 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).

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).

3 unchanged sentences

2023 Equity and Incentive Plan (filed as Exhibit 10.3 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).

Form of Restricted Stock Unit Aware Agreement under the Aware, Inc.

Form of Restricted Stock Unit Award Agreement under the Aware, Inc.

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).

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).

and David Traverse dated June 1, 2024 filed as Exhibit 10.16 to the Company’s Annual Report on Form 10K filed with the Securities and Exchange Commission on March 13, 2025 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).

Employment Agreement between Aware, Inc.

and Brian Krause dated March 5,2025 filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10Q filed with the Securities and Exchange Commission on May 2, 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.

2023 Equity and Incentive Plan.(filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission and incorporated herein by reference) .

Amendment to Employment Agreement dated as of March 13, 2025 by and between Aware, Inc.

Amlani (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 17, 2025 and incorporated herein by reference).

Employment Agreement dated as of May 12, 2025 by and between Aware, Inc.

and Lona Therrien filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10Q filed with the Securities and Exchange Commission on August 1, 2025 and incorporated herein by reference).

Amendment to employment Agreement dated as of June 13, 2025 by and between Aware, Inc.

Amlani (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 16, 2025 and incorporated herein by reference).

Amended and Restated Insider Trading Policy (filed as Exhibit 19.1to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission and incorporated herein by reference).

Subsidiaries of Registrant.

6 unchanged sentences

(i) Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024;

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

December 31, 2023;

(ii) Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2025 and December 31, 2024;

(iii) Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and December 31, 2024;

11 unchanged sentences

(Principal Financial Officer)

/s/ Gary Evee

Chairman of the Board & Director

1 unchanged sentence

Stafford, III

/s/ Gary Evee

/s/ Peter Faubert

1 unchanged sentence

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