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Item 1. Business

2021-02-17 compared with 2020-02-18 · 137 added, 913 removed, 42 unchanged (96% of the section changed)

Company Overview

“we”, “us”, “our”, or the “Company”) is an industry leading provider of biometrics

software products, solutions and services to governments, system integrators, and commercial organizations and solution providers

(“Aware”, “we”, “us”, “our”, or the “Company”) is a global leader in biometrics software offerings and 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.

Utilize an organization’s secure database to accurately identify individuals using biometric data

Authenticate:

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

Manage the lifecycle of secure identities through optimized biometric interchanges

We have been engaged in this business since 1993.

Our comprehensive portfolio of biometric solutions are 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.

Our software products are used in government and commercial systems and

applications and fulfill a broad range of functions critical to secure biometric enrollment, authentication, identity and transactions.

Principal government applications of biometrics systems include border control, visa applicant screening, law enforcement, national

defense, intelligence, secure credentialing, access control, and background checks.

Principal commercial applications include:

i) user enrollment and authentication used for login to mobile devices, computers, networks, and software programs;

ii) user authentication

for financial transactions and purchases (online and in-person);

iii) physical access control to buildings;

and iv) identity proofing

of prospective employees and customers.

solutions and products provide interoperable, standards-compliant, field-proven biometric functionality and are used to capture,

verify, format, compress and decompress biometric images as well as aggregate, analyze, process, match and transport those images

and templates within biometric systems.

We provide a broad range of software products for fingerprint, facial, iris and voice modalities.

We also offer a variety of program management and software engineering services, including:

i) project planning and management;

ii) system and architecture design;

iii) software design, development, customization, configuration, and testing;

and iv) software

integration and installation.

We sell our biometrics software products and services globally through a multifaceted distribution

strategy using systems integrators, original equipment manufacturers (OEMs), value added resellers (VARs), partners, and directly

to end user customers.

Aware was incorporated in Massachusetts

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.

Principal commercial applications include mobile enrollment, user authentication, identity proofing, and secure transaction enablement.

Our products span multiple biometric modalities, including fingerprint, face, iris and voice, and provide interoperable, standards-compliant, field-proven biometric functionality.

Our products are used to capture, verify, format, compress and decompress biometric images as well as aggregate, analyze, process, match and transport those images and templates within biometric systems.

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

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

Aware was incorporated in Massachusetts in 1986.

We are headquartered at 40 Middlesex Turnpike in Bedford, Massachusetts, and our telephone number at this address is (781) 276-4000.

Our website address is www.aware.com.

The information on our website is not part of this Form 10-K, unless

expressly noted.

The information on our website is not part of this Form 10-K, unless expressly noted.

Our stock is traded on the Nasdaq Global Market under the symbol AWRE.

Industry Background

Biometrics is the measurement of unique,

individual physiological characteristics, such as fingerprints, faces, irises and voices, that can be used to determine or verify

an individual’s identity.

The biometrics industry offers technology that digitally captures and encodes biometric characteristics

and then compares those characteristics against previously encoded biometric data to determine or verify an individual’s

identity, thereby enabling trusted transactions.

Biometrics addresses the limitations inherent in traditional identification and

authentication processes, such as biographic data, tokens, paper credentials, passwords, PIN codes, magnetic access cards, and

multifactor authentication.

Biometrics technology and products require algorithms for multiple distinct functions, such as feature

finding, feature optimization, feature extraction, feature encoding, feature matching, and presentation attack detection (“PAD”),

which is also referred to as liveness detection and spoof detection.

Application Areas:

Identification and

Authentication

Applications for biometrics typically fall

into two primary areas:

identification and authentication.

Generally speaking, biometric identification attempts to answer the

question “who are you?”, while biometric authentication attempts to answer the question “are you the person we

Biometric Identification

Biometric identification involves the “one-to-many”

comparison of a “probe” sample to thousands or even millions of biometric samples in a database, comprising a search

to determine which samples, if any, are associated with the individual that belongs to the probe.

Biometric identification systems

typically operate in a client/server architecture, with some systems migrating to web-based, thin-client architectures.

workstations with peripheral capture devices are used to enroll individuals into biometrics systems.

Enrollment involves the capture,

processing, and formatting of “biometric samples.” A biometric sample consists of biometric data which may include:

i) images of fingerprints, faces, or irises;

ii) digital voice signals;

or iii) some other electronic representation of a biometric

characteristic.

Examples of capture peripherals include:

i) scanners for fingerprint images, ii) cameras for iris and facial images,

iii) handheld devices for mobile capture of fingerprint, iris, and facial images, or iv) mobile phones and/or microphones for voice

After biometric samples are captured, they

are transported in digital form to centralized or distributed matching systems for identification.

Equipment used to perform these

functions includes:

i) servers to process and transport biometric samples;

and ii) mainframe computers and servers to store and

match those samples.

In addition, military applications may employ handheld devices that are capable of capturing samples and matching

those samples against sample databases that reside on the devices.

“Identity proofing” is a term

used to describe a process by which identity information provided by an individual, such as a prospective customer or job applicant,

is corroborated between multiple identity sources.

Biometric identification can be used as part of identity proofing.

Biometric Authentication

Biometric authentication involves a

“one-to-one” biometric comparison that serves to verify that a live biometric sample belongs to the same

individual associated with a trusted stored sample within a system of record.

In this way, biometrics can be used to

authenticate identity.

Computing devices such as PCs, smartphones and tablets, are capable of:

i) capturing biometric samples

(e.g., fingerprints, facial and iris images, and voices);

ii) processing and storing those samples in a secure area on a

device, server, or secure identity credential (e.g.

a driver’s license or passport), and/or printing the samples on the

and iii) matching new live samples against trusted stored or printed samples.

Once a biometric match is achieved,

the subsequent software functions are analogous to password-based authentication.

Mobile authentication can be implemented in

either a device- or server-centric architecture, with biometric data analysis, matching, and storage occurring either on the

device or on a central server, respectively.

“Tokens” are often used as an alternative or enhancement to

An authentication token may be a hardware device that the user must have possession of to authenticate.

are a USB dongle, smart phone, or smart card.

In the case of multifactor authentication, a device such as a smart phone or PC

may be considered as a token providing the primary authentication factor, with biometric authentication serving as a second

authentication factor.

Mobile authentication can be incorporated into a mobile app such as a banking application as a

password-free security mechanism.

It may also be employed in an “out-of-band” fashion to secure access on a PC

through a browser.

As biometric authentication is most typically

an unattended process, some form of presentation attack detection (“PAD”) is an important feature of biometric authentication

PAD features are designed to prevent “spoofing”, whereby a fraudster attempts to defeat a biometric security

feature by impersonating the rightful user.

The rapid advance and adoption of mobile

devices has had a substantial impact on the adoption of biometrics for authentication.

Many leading mobile devices incorporate

native biometric security sensors and technology, in which case third-party mobile applications are granted access to authentication

results but not the raw biometric samples used to authenticate.

In contrast, third party application providers

can incorporate authentication functionality that makes use of multipurpose sensors such as the camera, microphone, and touchscreen.

There are use cases where it is desirable to implement biometric security features that are independent of those provided natively

by the device.

Advantages include more control over the security level, security features, and user experience, as well as uniform

functionality across different device models.

Biometric authentication implemented on a mobile device may be used to gain access

to online networks, systems, services, or accounts.

User authentication enabled by smartphones

continues to evolve, and we expect to see further advances in smartphone security features and functionality.

In the past few years,

the FIDO®

(Fast IDentity Online) Alliance, an industry consortium, has emerged to take a leading role in authoring and promoting

technical standards for password-free multifactor authentication on mobile devices and desktops.

The FIDO Alliance has developed

specifications that define an open, scalable, interoperable set of mechanisms that supplant reliance on passwords to securely authenticate

users of online services.

The new standard for devices and browser plugins will allow any website or cloud application to interface

with a broad variety of existing and future FIDO-enabled devices that the user has for online security.

The FIDO Alliance has also

established processes for accreditation of independent labs that will be able to analyze and identify products as “FIDO®

Certified” in terms of interoperability, biometric matching performance, and security level.

Market Sectors:

Government and Commercial

The market for biometrics may be segmented

into government and commercial sectors.

Principal government biometrics applications include border control, visa applicant screening,

law enforcement, national defense, intelligence, secure credentialing, access control, and background checks.

Principal commercial

applications include:

i) user enrollment and authentication used for login to mobile devices, computers, networks, and software

ii) user authentication for financial transactions and purchases (online and in-person);

iii) physical access control

to buildings;

and iv) identity proofing of prospective employees and customers.

We believe that government and commercial

entities will continue to adopt and expand the use of biometrics-enabled solutions to address the limitations and vulnerabilities

of traditional identification and authentication processes.

We believe the following factors, among others, will contribute to

the growth of biometrics solutions:

i) government-mandated implementation of identification for employees, citizens, and foreign

nationals to enhance national security;

ii) military implementations for the identification of terrorists and other hostile persons;

iii) increasing threats to personal security encountered in areas such as transportation;

iv) increasing threats to government

buildings and installations;

v) government and commercial efforts to detect and reduce fraud and cybercrime on computer systems

as well as the internet;

vi) adoption of biometrics on mobile devices;

and vii) the emergence and adoption of international biometrics

There is commonality between how biometric

technologies are used across government and commercial sectors.

The primary consumers of biometric identification systems are government

agencies, while the primary users of biometric authentication technology are consumers owning mobile devices.

We believe that these

sector-based distinctions are important to an understanding of Aware’s business as the vast majority of our revenue is currently

derived from government customers.

Government Sector

Local, state, and national governments

throughout the world were early adopters of biometrics technology and continue to be the largest consumers of the technology.

the local and state level, biometrics technology is used in the following applications:

Law enforcement applications that enable officers in the field to correctly identify potential

suspects more reliably and efficiently by submitting live (suspect is known) or latent (suspect is unknown) biometrics samples

to state or federal biometric search services;

Background checks for employment screening;

Driver’s licenses and identification cards;

Benefits issuance.

At the national level, biometrics technology

is used in the following applications:

Border control

National governments throughout

the world have mandated increased spending on security measures, implemented new regulations and placed greater emphasis on technology

to address growing security concerns.

Immigration and border control agencies have taken steps to improve security in response

to heightened concerns over public safety from the threat of terrorism.

They use biometrics to help establish the identity of visitors

upon application for a visa or upon arrival at border checkpoints.

For example, the U.S.

Office of Biometric Identity Management

currently requires foreign visitors entering the United States to have their ten fingers scanned and a facial photograph taken

to determine if they are present on a watch list.

The European Union now mandates that e-passports include fingerprint data in

addition to a digital photograph.

Within military organizations,

key applications of biometrics include:

i) background checks of military personnel and contractors;

ii) access control to physical

and digital assets;

and iii) identification of unknown and potentially hostile persons by a comparison of their biometric sample

against a watch list.

Law enforcement and background checks

Law enforcement agencies perform

background checks that use biometrics to help confirm the identity of individuals who might be present in a biometric database.

Background checks might also be provided as a service to other agencies within the government.

Access control

Governments also use biometrics

for physical access control by storing biometric data on a digital ID card or smart phone and performing a match to verify that

the holder of the card is the same person who was issued the card.

Biometrics are also used for securing access to digital assets,

where a biometric match might be required in addition to or in place of a password to gain access to a computer system.

Due to the nature of government applications,

particularly those involving security and defense, government biometrics systems must be capable of accurately and rapidly searching

large databases of stored samples.

The ability to accurately and rapidly match samples against databases of millions of samples

is critical because incorrect or delayed results could have severe adverse consequences.

These requirements are an important distinguishing

characteristic of the government market as compared to the commercial market.

Commercial Sector

The principal applications of biometrics in commercial

markets are user enrollment and user authentication, with identity proofing also emerging as an application.

The types of users

that may need to be authenticated or identified in commercial applications include customers, employees, contractors, visitors,

healthcare patients, or other parties wishing to establish their identity towards gaining access to information, systems, bank

accounts, credit card accounts, events, devices, or buildings or performing trusted transactions.

In commercial markets, biometrics-based

solutions compete with more traditional security methods including keys, cards, tokens, passwords, personal identification numbers

(“PINs”) and security personnel.

The adoption of biometrics by leading vendors of smartphones and other popular consumer

products has increased users’ confidence and comfort with biometrics as a convenient and secure means of authentication in

place of or in addition to passwords.

Biometrics solutions are also being used in commercial markets as a means to enhance identity

proofing, sometimes referred to “know-your-customer” (“KYC”) and “know-your-employee” (“KYE”)

KYC and KYE processes are designed to corroborate the identity data claimed by prospective customers and employees with

multiple independent sources.

An example of biometrics being used in

a KYC process is where a prospective customer uses their mobile phone to apply for a new account.

As part of the process, a mobile

app or browser is used to collect an image of their face along with an image of their driver’s license (or some other trusted

The facial image is analyzed for liveness to detect spoof attempts, and the driver’s license is authenticated

to be genuine.

The facial image is biometrically matched against the facial image on the driver’s license to corroborate

the identity data in the application with that on the trusted credential.

The facial image might also be searched against a central

biometric database, such as one containing biometric facial images of known fraudsters.

It could also be searched against the database

of existing account holders.

In this way, biometrics can be used to enhance the effectiveness of a KYC process by verifying that

the applicant is:

i) a live person;

ii) the true owner of a trusted, valid credential;

iii) not a known fraudster;

an existing account holder (with either the same or different identity data).

The commercial market for biometrics technology

remains nascent.

The rate of adoption of biometrics in commercial markets depends upon a number of factors, including:

i) performance

and introduced levels of friction;

ii) reliability of biometric solutions;

iii) costs involved in adopting and integrating biometric

iv) public concerns regarding privacy, including potential privacy legislation;

and v) standardization efforts by various

industry consortia and standards bodies.

Examples of commercial market applications

Trusted enrollment and authentication processes.

User authentication for login and access to mobile devices, mobile apps, desktop computers, networks,

and web-based software programs.

User authentication for financial transactions in the financial services industry.

User authentication for in-person or online purchases in the retail industry.

User authentication for physical access to secured buildings and perimeters.

User authentication of employees to access private patient information in the healthcare industry.

Identity verification of patients in hospital and surgical settings.

Identity verification of test takers in the educational testing industry.

Identity proofing of prospective customers in the financial services industry.

Identity proofing of candidates for pre-employment screening and background checks.

Identification of undesirable customers in the gaming industry.

Market Segments:

Consumer-Facing and

Employee-Facing

The biometrics market may be further segmented

i) a consumer-facing segment;

and ii) an employee-facing segment.

Consumer-Facing

segment – The primary applications in the consumer-facing segment are biometric identity proofing and authentication

for the purpose of enrollment, onboarding and authentication of customers of commercial organizations, and also for citizens by

Adoption of biometrics is stronger where the convenience of a password-free user experience is valued but there is

also risk of fraud.

Industries that fall into this category include financial services, retail, and healthcare.

Healthcare organizations

use biometrics in a safety context to prevent patient misidentification and care delivery errors.

Government agencies similarly

employ citizen-facing biometric identity proofing and authentication solutions in situations where there is potential risk of fraud,

such as benefits disbursement and voting.

Employee-Facing

segment – The primary applications in the employee-facing segment are enrollment and identity proofing and authentication

of employees as a means for screening of new employees, and for user authentication towards securing access for employees and contractors

to digital assets against a breach.

Applications for employee-facing biometrics are found in both the government and commercial

Delivery Models:

Tools and Services,

Solutions, Software as a Service

As with other technology products and services,

there are different models for product and service delivery in the biometrics arena, including tools and services, solutions, and

Software as a Service.

Tools and Services – Customers can choose to build their own biometric system using off-the-shelf

subcomponents purchased a la carte and used to design, develop, and operate their own bespoke system.

In doing so, a customer may

or may not decide to also receive services to help with that process.

Those services might come from a software provider or a third-party

system integrator.

These customers tend to have highly specific requirements and the scale to justify the cost of acquiring a custom-configured

biometric system.

Government agencies tend to be an example of this class of customer.

Solutions – Some organizations prefer a more complete and comprehensive solution that sources

most or all system capability and services from a single supplier and requires less customization.

Companies that offer identification/access

solutions or biometric smart cards tend to be an example of this class of customer.

Software as a Service – Advances in cloud computing and browser technology have made Software

as a Service, or “SaaS” an increasingly common delivery model of enterprise software.

Benefits derived include lower

up-front costs as well as lower maintenance and support risk.

Biometric solutions can be provided as SaaS.

Commercial enterprises

tend to be an example of this class of customer.

Biometrics Industry Participants

There are a large number of vendors that

serve government and commercial biometrics markets.

In order to provide an understanding of the biometrics industry and our role

in it, we have categorized industry participants into categories that have been defined by us.

While we believe our categorization

is a reasonable representation of the industry, we acknowledge that:

i) knowledgeable industry participants may define categories

differently or classify vendors differently;

and ii) not all companies involved in the industry were included.

Accordingly, the

classification that follows represents our perspective on the industry.

We believe that biometrics industry participants

may be classified into the following categories:

1) Core technology suppliers

2) System integrators

3) Fully integrated solution suppliers

4) Biometrics-as-a-service providers

5) Vendors of biometrically-enabled solutions

Category descriptions and companies that

offer products and services in each category are provided below.

It should be noted that some companies appear in multiple categories.

1) Core technology suppliers

Core biometrics technology includes

hardware and software products that enable:

i) traditional biometrics systems used by government and commercial customers;

new biometric service offerings;

and iii) biometrically-enabled functionality embedded in other products and solutions.

Core biometrics

technology includes three types of products:

i) sensor products, ii) biometric capture devices, and iii) software products.

Sensor products

Biometrics sensors are primarily

silicon-based devices that capture biometrics samples, such as fingerprints.

Sensors are typically embedded in other devices, such

as smartphones or biometric capture devices.

Examples of companies that offer

biometric sensor products include:

1) Qualcomm Technologies, Inc.;

2) Sonavation, Inc.;

3) Synaptics, Inc.;

4) Fingerprint

5) Integrated Biometrics, LLC;

6) Next Biometrics AS and 7) Idemia.

Biometric capture devices

Biometric capture devices are

designed to capture and process biometric samples as their primary function.

These products may be strictly hardware products or

hardware products that also incorporate biometrics software.

Examples of companies that offer

biometric capture devices include:

1) Cross Match Technologies, Inc.

which was acquired by HID Global Corporation in 2018;

2) Suprema, Inc.;

3) Iris ID Systems, Inc.

4) Precise Biometrics AB (“Precise Biometrics”);

5) Credence ID, LLC;

6) SecuGen Corporation;

7) IrisGuard, Inc.

(“IrisGuard”);

8) Aurora Biometrics, Inc.

(“Aurora Biometrics”);

9) EyeLock LLC (“EyeLock”);

10) Tascent, Inc.;

and 12) Iritech, Inc.

Software products

Biometrics software products

provide functionality that captures, formats, stores, processes, or matches samples of fingerprints, faces, iris, voices and other

Biometrics software is capable of operating on a variety of equipment platforms, including personal computers, smartphones,

biometric capture devices, hand-held devices, servers, and mainframe computers.

Examples of companies that offer

biometrics software products include:

1) Aware, Inc.;

3) Thales Group (“Thales”);

4) NEC Corporation

5) Cognitec Systems GmbH (“Cognitec”);

6) Neurotechnology;

8) Innovatrics s.r.o.

(“Innovatrics”);

9) Nuance Communications, Inc.;

10) Precise Biometrics;

11) VoiceTrust GmbH.;

13) BIO-key International, Inc.;

14) Zoloz (formerly known as EyeVerify, Inc.);

16) Dermalog Identification Systems GmbH (“Dermalog”);

17) FacePhi Biometria;

and 18) Sensory, Inc.

2) System integrators

System integrators purchase

hardware and software technology and solutions from core biometrics technology vendors and incorporate those components into customized

and optimized biometrics systems that they deliver to end-user customers.

Historically those end-user customers have been governments,

but in recent years system integrators have begun to serve commercial enterprise customers as well.

System integrators include

large multinationals with a broad range of expertise and the capacity to execute very large projects, as well as smaller system

integrators that have more focused expertise on a particular market sector, technology, or geography.

Some system integrators have

developed their own biometric technologies that they deliver as part of their solutions.

Examples of companies that offer

systems integration services and act as a prime contractor include:

1) Northrop Grumman Corporation;

2) Science Applications International

3) Hewlett-Packard Enterprise Services;

4) International Business Machines Corporation;

5) Fujitsu Limited;

7) Unisys Corporation;

8) Leidos, Inc.;

and 9) ManTech International Corporation.

3) Fully integrated solutions suppliers

Fully integrated solutions suppliers

are similar to systems integrators in that they deliver customized and optimized biometrics systems to government and commercial

enterprise end-user customers.

They differ from system integrators in that they use and consume core hardware and software technologies

that they developed in-house or acquired from others.

Vendors in this category may purchase additional third-party software, but

we believe such purchases represent a minor component of the overall systems they deliver.

There are three large global

suppliers of fully integrated biometric solutions, including:

We believe these companies supply

a large percentage of the biometric systems that are delivered to government customers around the world.

In addition to these three large

suppliers, we would categorize Dermalog and Daon as fully integrated solution providers, but ones that operate on a smaller scale.

Aware also has a product and solution portfolio and services capability that enables us to deliver fully integrated solutions.

We have acted in this capacity on a limited basis in the past and an element of our strategy is to grow this part of our business

in the future.

4) Biometrics-as-a-service providers

Biometrics service providers

have begun to offer a pay-per-transaction biometrics service offering.

This service allows organizations to biometrically identify

or verify employees, customers, or other individuals relevant to their business.

A pay-per-transaction model may be more financially

attractive for some organizations as compared to the cost of purchasing, installing and maintaining internal biometrics systems.

Examples of companies offering

biometrics services include:

1) Certibio Identidade Biometrica, a wholly-owned subsidiary of Certisign Certificadora Digital S.A.

(“Certisign”);

3) RightPatient, Inc.;

4) Microsoft Corporation;

5) SkyBiometry (a spin-off from Neurotechnology);

6) BioID GmbH;

7) VoiceIt Technologies, LLC;

and 8) Jumio.

5) Vendors of biometrically-enabled solutions

Vendors of biometrically-enabled

solutions provide products that are not principally marketed as biometrics products but include biometric functionality.

capability is a feature, but not the chief function of these products.

Such vendors represent a potential opportunity for core

biometrics technology providers as some of them do not own core biometrics technology.

Examples of companies that offer

biometrically-enabled smartphone products include:

1) Apple, Inc.;

2) Samsung Electronics Co., Ltd.;

and 3) Google, Inc.

Examples of companies that offer

secure identification/access solutions that incorporate biometrically-enabled components include:

Datacard Corporation;

and 4) Idemia.

Examples of companies that offer

physical access control solutions that may incorporate biometrics include:

1) Honeywell International, Inc.;

2) Tyco International

3) LenelS2 (formed by combination of Lenel and S2 Security both of which were acquired by United Technologies Corp.);

Stanley Security Limited;

5) Johnson Controls International Plc;

Solutions, Services and Products

sell a broad range of biometrics software products and solutions that perform functions to address our customers’

desired use cases where they are addressing improved security, data protection compliance, improved ROI and efficiencies including:

Worldwide Coronavirus Pandemic (“COVID-19”)

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide.

Governor Charlie Baker of Massachusetts ordered all businesses and organizations that do not provide “COVID-19 Essential Services” to close their physical workplaces and facilities to workers, customers and the public as of noon on March 24, 2020.

At that time, we took the necessary steps to enable an all-remote workforce.

Many of our clients worldwide were similarly impacted.

Over time, the restrictions in the state of Massachusetts were eased, or re-tightened, in line with the trends of the pandemic.

As of December 31, 2020, we were in a hybrid model with some employees coming into the office and others continuing to work remotely.

The global outbreak of COVID-19 continues to evolve, and the extent to which COVID-19 may have long-term impact on our business and the markets we serve, will depend on future developments—which are highly uncertain and cannot be predicted with confidence, such as the pace of ongoing vaccination efforts in the United States and the rest of the world, the duration of the outbreak, travel restrictions and social distancing measures in the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

We are continuing to monitor the situation with our primary focus on the health and safety of our employees and clients.

Principal Products & Services

We sell a broad range of biometrics software products and solutions that perform functions to address our customers’ desired use cases where they are addressing improved security, data protection compliance and improved ROI and efficiencies including:

Enrollment of their workforce for benefits and background checks

3 unchanged sentences

Trusted transactions and access control

Our biometrics software solutions are built

upon robust componentized products that are customer configurable to give them control so they can uniquely address their specific

customers’ expectations.

These solutions and services facilitate customers with an opportunity for a faster go-to-market

process to help reduce their development times and exposure to software support and maintenance risks.

Our Solutions and Services

are described below.

Our biometrics software solutions are built upon robust componentized products that are customer configurable to give them control so they can uniquely address their specific customers’ expectations.

These solutions and services facilitate customers with an opportunity for a faster go-to-market process to help reduce their development times and exposure to software support and maintenance risks.

Our solutions and services are described below.

Integrated Framework and Platform Solutions and Services

Mobile Framework

In 2017, we introduced Knomi,

a mobile biometric authentication framework offering face, voice and keystroke dynamics.

The Knomi mobile biometric authentication

framework is built on our hardened biometric component SDK, which is optimized to operate or run on mobile devices, and a server

that together enable strong, multi-factor, password-free authentication from a mobile device using biometrics.

Knomi offers multiple

biometric modality options, including facial recognition, keystroke dynamics, and voice authentication as means to enroll, onboard

or authenticate.

Banks or any other commercial enterprise can deploy Knomi to enhance their password-based authentication mechanisms,

making login to their mobile applications more secure and convenient for their customers and employees.

Knomi software components

can be used in different combinations and configurations to enable either a server-centric architecture or a device-centric, FIDO®

Certified implementation.

Knomi is provided as a solution that is available as:

1) a license for a fixed term and price;

2) a subscription-based

solution that is available as an enterprise-based, user-based or transaction-based solution or 3) as part of our Indigo™

services solution.

AwareABIS is an Automated Biometric

Identification System (“ABIS”) used for large-scale biometric identification and deduplication using fingerprint, face,

and iris recognition.

It is a highly scalable platform that performs one-to-many search or one-to-one match against large stores

of biometrics and other identity data.

It does so by deploying biometric data and matching algorithms across a cluster of multiple

computing nodes.

Extremely large biometric databases (tens of millions of records) cannot be effectively stored or efficiently

searched on a single computer.

Distributing the data and biometric comparison tasks across multiple machines enables even extremely

large databases to be searched in only seconds.

AwareABIS enables not only massive biometric search tasks but complex filter, search,

match, and link operations critical to data preparation and quality assurance functions such as identity resolution and data deduplication.

AwareABIS is built upon several mature, high-performance, field-proven applications, platforms, and algorithms from Aware.

is provided as a solution that is available as:

1) a license for a fixed term and price;

2) a subscription-based solution that

is available as an enterprise-based, user-based or transaction-based solution;

or 3) as part of our Indigo™ services solution.

BioSP™ - Biometric

Services Platform

Biometric Services Platform solution is called BioSP.

BioSP is a service-oriented platform used to enable a biometric system

with advanced biometric data processing and management functionality in a web services architecture.

It provides workflow, data

management and formatting, and other important utilities for large-scale fingerprint recognition, face recognition, and iris recognition

Knomi® Mobile Framework

The Knomi mobile biometric authentication framework is built on our hardened biometric SDK component , which are optimized to operate on mobile devices, and a server that together enable strong, multi-factor, password-free authentication from a mobile device using biometrics.

Knomi offers multiple biometric modality options, including facial recognition, and voice authentication as means to enroll, onboard or authenticate.

Knomi software components can be used in different combinations and configurations to enable either a server-centric architecture, a web-based or a device-centric implementation.

Knomi has primarily been sold as a perpetual license and is also available as a fixed term license that is priced based on a usage-based model.

AwareABIS™ Platform

AwareABIS is an Automated Biometric Identification System (“ABIS”) used for large-scale biometric identification and deduplication using fingerprint, face, and iris recognition.

Leveraging Aware’s Astra™ and BioSP™ products, AwareABIS is a highly scalable platform that performs one-to-many search or one-to-one match against large stores of biometrics and other identity data.

Utilizing highly distributed computing, AwareABIS also enables complex filtering, and linking operations critical to data preparation and quality assurance functions, such as identity resolution and data deduplication of massive biometric databases (tens of millions of records).

The platform is built upon several mature, high-performance, field-proven applications and algorithms from Aware.

AwareABIS has primarily been sold as perpetual license and is also available as a fixed term license that is priced based on a usage-based model or the size of the biometric system.

AFIX Suite of Products

Aware’s recently acquired AFIX suite of products is used for small-scale law enforcement focused biometric identification.

AFIX Tracker™ supports fingerprint, palmprint and latent print identification, designed to serve between 15,000 and 2 million identities.

AFIX Tracker is ideal for crime scene investigation applications in low to moderate sized community populations.

The product provides minutiae-based search capability and can be configured as either a standalone system, or for use with centralized, server-based data stores.

AFIX Tracker has primarily been sold as a perpetual license and is also available as a fixed term license that is priced based on a usage-based model or the size of the biometric system.

BioSP™ - Biometric Services Platform

BioSP is a service-oriented platform used to enable a biometric system with advanced biometric data processing and management functionality in a web services architecture.

It provides workflow, data management and formatting, and other important utilities for large-scale fingerprint recognition, face recognition, and iris recognition systems.

BioSP is well suited for applications that require the collection of biometrics throughout a distributed network, and

subsequent aggregation, analysis, processing, distribution, matching, and sharing of data with other system components.

modular, programmable, scalable, and secure, capable of managing all aspects of transaction workflow including messaging, submissions,

responses, and logging.

BioSP makes extensive use of open-source components and is J2EE-compliant.

BioSP is provided as a solution

that is available as:

1) a license for a fixed term and price;

2) a subscription-based solutions that is available as an enterprise-based,

user-based or transaction-based solution;

or 3) as part of our Indigo™ services solution.

Biometric Services Platform - WebEnroll

WebEnroll is a browser-based

biometric enrollment and data management solution available as an enhanced version of BioSP™ (Biometric Services Platform)

that utilizes BioComponents for capture of biographic data, fingerprints and facial images in a browser.

Each BioComponent performs

advanced biometric image autocapture as well as capture device hardware abstraction.

Once images are captured, they are submitted

to BioSP, where configurable workflows and modular software applications are used for processing, routing, and storage of each

Biometric verification or identification can be added with Nexa or one of several third-party matchers integrated

with BioSP, or an external matching service.

- Cluster-Based Matching Platform

Our cluster-based matching platform

product offering is called Astra.

Astra is used for large-scale fingerprint recognition, face recognition, iris recognition, and

text-based name matching and identity resolution.

It is a highly scalable biometric identification and authentication platform

that performs one-to-many search or one-to-one match against large stores of biometrics and other identity data.

It does so by

deploying biometric and text data and matching algorithms across a cluster of multiple computing nodes ASTRA is available as a

subcomponent to the AwareABIS or BioSP platforms.

Indigo™ is Aware’s

family of cloud-based biometric application programming interfaces (APIs) and turnkey services, each provided as a subscription-based

software-as-a-service (SaaS).

BioSP is modular, programmable, scalable, and secure, capable of managing all aspects of transaction workflow , including messaging, submissions, responses, and logging.

BioSP has primarily been sold as a perpetual license and is also available as a fixed term lice nse that is priced based on users, transactions, or enterprise wide.

BioSP™ Biometric Services Platform - WebEnroll

WebEnroll is a browser-based biometric enrollment and data management solution available as an enhanced version of BioSP™ that utilizes BioComponents™ for capture of biographic data, fingerprints and facial images in a browser.

Each BioComponent performs advanced biometric image autocapture as well as capture device hardware abstraction.

Once images are captured, they are submitted to BioSP, where configurable workflows and modular software applications are used for processing, routing, and storage of each transaction.

Indigo™ is Aware’s family of cloud-based biometric application programming interfaces (APIs) and turnkey services, each provided as a subscription-based software-as-a-service (SaaS).

Indigo|API provides biometric face and fingerprint image analysis, matching, and enrollment functionality;

all as granular REST services that can enhance identity systems with biometric functionality.

These functions include quality scoring,

liveness detection, enrollment, verification, comparison and matching, and searching for fingerprint and face modalities.

turnkey solutions deliver biometric capabilities accessible from a browser on a subscription basis.

Indigo is provided as a subscription-based

solution that is available as an enterprise-based, user-based or transaction-based solution.

These functions include quality scoring, liveness detection, enrollment, verification, comparison and matching, and searching for fingerprint and face modalities.

Indigo turnkey solutions deliver biometric capabilities accessible from a browser.

Indigo is provided as a subscription-based solution that is available with enterprise-based, usage-based pricing.

Going forward, we plan to transition Indigo into a wider SaaS offering.

Software products

additionally sell a broad range of biometrics software products that enable important functions in biometrics systems, including:

Enrollment, analysis, and processing of biometric images and data on workstations or mobile devices.

Integration of peripheral biometric capture devices.

Centralized workflow, transaction processing, and subsystem integration.

Matching of biometric samples against biometric databases to authenticate or verify identities;

Analysis and processing of text-based identity data.

Our biometrics software products range

from discrete “building blocks”, such as SDKs, APIs and applications that customers can use to develop their own systems

to more complete solutions that customers can use to reduce or eliminate their development times and exposure to software support

and maintenance risks.

Our products are described below.

We sell a broad range of software components, or “building blocks”, such as SDKs, APIs, and applications that customers use to streamline or develop their systems into more effective solutions.

These building blocks enable important functions including:

Matching of biometric samples against biometric databases.

Enrollment, analysis, and processing of biometric images and identity data on workstations.

Image compression

BioComponents™ bundles our offerings as applications with a user interface.

We also license our software unbundled as building blocks and have primarily sold these offerings as a perpetual license.

Building Blocks:

SDKs, APIs, Applications, and Subsystems

Biometric Search &

Matching SDKs

SDKs consist of:

Biometric Search & Matching SDKs

Our SDKs consist of:

i) multiple software libraries;

ii) sample applications that show customers how to use the libraries;

documentation.

and iii) documentation.

Customers use our SDKs to design and develop biometrics applications.

Our line of biometric search and match

SDKs is called Nexa™ and it includes Nexa|Fingerprint™, Nexa|Face™, Nexa|Iris™ and Nexa|Voice™.

products provide high-performance biometric algorithms for fingerprint, facial, iris and voice identification or authentication.

The algorithms in these products convert images into biometric templates, which can then be compared to templates stored in databases

to find matches.

Each Nexa SDK can be deployed

on a workstation or a server, either as a standalone biometric search/match API, or in combination with our other SDKs, applications,

BioSP, or Astra products.

Our SequenceCheck, PreFace, and IrisCheck SDKs may be used in concert with Nexa libraries to perform

optional quality assurance and preprocessing for enhanced fingerprint, face, and iris search and match functionality.

In addition to the Nexa line

of biometric search and match SDKs, we also offer AwareXM™, an interoperable fingerprint matching SDK.

Aware XM is an SDK

that provides MINEX-certified, INCITS 378-compliant fingerprint minutiae extraction, template generation, and fingerprint

authentication.

Biometric Enrollment

SDKs and APIs

Our suite of enrollment SDKs

and APIs performs a variety of functions that are critical to biometric enrollment, including image capture, image quality assurance,

image formatting, image compression and liveness verification.

Our enrollment SDK and API products include:

Image Capture and Hardware Abstraction – This group of products includes:

LiveScan API;

ii) PreFace TM ;

iii) IrisCheck TM ;

and iv) SequenceCheck TM .

Mobile Enrollment and Matching – Aware offers versions of several of our Windows-based

products designed to operate on Android and iOS platforms.

Our family of mobile SDKs includes:

i) Nexa|Face™ Mobile;

Nexa|Fingerprint™ Mobile;

iii) PreFace™ Mobile;

iv) LiveScan API Mobile;

v) NISTPack Mobile;

vi) WSQ1000 Mobile;

AwareXM™ Mobile;

and viii) FIDO®

Suite is a family of products that are certified by the FIDO Alliance

and are interoperable with other FIDO-certified products.

Our FIDO Suite includes:

i) Aware FIDO®

Face Authenticator;

ii) Aware FIDO®

Face+Voice Authenticator;

iii) Aware FIDO®

and iv) Aware FIDO®

These products are available

for Android and iOS devices.

Data Formatting and Validation – This group of products includes:

ii) ICAOPack;

and iii) PIVPack TM .

Fingerprint Cards – This group of products includes:

i) AccuScan TM ;

and ii) AccuPrint TM , used for scanning and printing of fingerprint cards in accordance with FBI fingerprint image quality

Image Compression – This group of products includes:

i) Aware WSQ1000;

ii) Aware JPEG2000 for standards-compliant compression and decompression of biometric images.

Identity Text Analytics

SDK - Inquire™

Inquire is a SDK that performs

fuzzy text-based filtering, searching, matching, and linking functions towards discovery of useful information in identity data.

Analysis of text-based identity data is naturally complementary to biometric verification and identification and Inquire is optimized

for processing and analysis of data that includes biometrics.

Biometric Applications

Our products in this category

combine user interfaces with multiple Aware software products to create more complete applications that operate on client workstations

or mobile devices.

Enrollment Applications

Our enrollment application products include Universal Registration Client (“URC ™ ”).

URC is a configurable Windows-based enrollment application that performs a variety of biometric data capture, analysis, matching,

formatting, and hardware abstraction functions.

URC|Mobile™ is a software application for capturing fingerprint and facial images on an Android

smart phone or tablet using its onboard camera and a tethered fingerprint capture device.

It is designed to be used by an enrollment

attendant for rapid capture and quality assurance of biometric data and submission to a centralized biometric database for enrollment,

search, or authentication.

Our fingerprint card products

include FormScannerSE™ and FormScannerMB™.

The two products are independent applications that may be used for scanning

and processing of inked fingerprint cards.

FormScannerSE is designed for one-at-a-time, assisted “scan and entry” processing of

fingerprint cards, such as for manual data entry of previously scanned card batches.

It can also be used for manual “rework”

such as crop region adjustments.

FormScannerMB is designed for “multi-batch” scanning of large volumes of cards in an

automated fashion and provides features useful for high-volume processing such as support for automatic document feeding and real-time

image quality feedback.

Forensic Workstations

forensic analysis and quality assurance products include WorkbenchSuite TM .

WorkbenchSuite is a family of

.NET workstation applications that are designed to be used by an operator to analyze and repair or otherwise process digital records

containing biometric images and data.

Each targets a particular use case and implements workflow carefully designed to best assist

analysts in their task.

The suite comprises:

FingerprintWorkbench, which is used for forensic analysis, processing, and reporting of biometric

fingerprint evidence comparison and search results.

ForensicWorkbench, which is used for the categorization, processing, and standards-compliant formatting

of biometric images and demographic data.

SequenceWorkbench, which is used for the detection and assisted repair of fingerprint records containing

sequence errors.

CrosslinkWorkbench, which is used for assisting with identifying and repairing of crosslink errors

in ANSI/NIST ITL transactions.

Crosslinks are biometric records that erroneously contain data from different individuals.

FaceWorkbench, which enables an analyst to analyze and process candidates returned from a biometric

Application Components

This group of products consists

of our BioComponents™ line of products.

Our BioComponents products allow customers to develop biometric enrollment applications

and solutions more quickly than if they purchased our SDKs.

Each product in the group includes a user interface and one or more

software libraries that perform a discrete set of functions, such as automated image capture, quality assurance, and capture hardware

BioComponents comprise modular, independent, self-contained software components that can operate either independently

or in concert with one another.

Specific BioComponents products and the functions they perform are:

FingerprintComponent, which is used to capture, verify image quality, and compress fingerprint

PhotoComponent, which is used to capture, verify image quality, and manipulate facial images.

ScanningComponent, which is used to scan forms such as inked fingerprint cards.

PrintingComponent, which is used for printing FBI-quality fingerprint images on cards and forms.

NISTComponent, which is used for biographic and textual data entry and formatting, NIST compliance

checking, and submission.

Nexa™ is our line of biometric search and match SDKs, including Nexa|Fingerprint™, Nexa|Face™, Nexa|Iris™ and Nexa|Voice™.

These products provide high-performance biometric algorithms for fingerprint, facial, iris and voice identification or authentication.

The algorithms in these products convert images into biometric templates, which can then be compared to templates stored in databases to find matches.

In addition to the Nexa line, we also offer AwareXM™, an interoperable fingerprint matching SDK that provides MINEX-certified, INCITS 378-compliant fingerprint minutiae extraction, template generation, and fingerprint authentication.

Biometric Enrollment SDKs and APIs

Our suite of enrollment SDKs and APIs performs functions that are critical to biometric enrollment, including (i) image capture and hardware abstraction, (ii) image quality assurance, (iii) image compression, (iv) mobile enrollment, matching and liveness verification, and (v) fingerprint card processing.

Imaging products

addition to our biometrics software products, we also sell products used in applications involving medical and advanced imaging.

In addition to our biometrics software products, we also sell products used in applications involving medical and advanced imaging.

Our principal imaging product is Aware JPEG 2000, which is based on the JPEG2000 standard.

The JPEG2000 standard is an image compression

standard and coding system that was created by the Joint Photographic Experts Group committee in 2000.

Our JPEG2000 product is

used to compress, store, and display images.

The JPEG2000 standard is an image compression standard and coding system that was created by the Joint Photographic Experts Group committee in 2000.

Our JPEG2000 product is used to compress, store, and display images.

Those images are typically medical images.

Software maintenance

We also sell software maintenance to many

of our customers who purchase our software products and solutions.

Software maintenance has historically been made available by

contracts that typically have a one-year term during which customers have the right to receive technical support and software updates,

if and when they become available for a fixed fee.

Software maintenance is also available as part of a subscription-based solution

under which customers receive standard software maintenance plus access to upgrades and product enhancements.

We offer a variety of program management

and software engineering services, including:

We also provide and sell software maintenance to many of our customers who purchase our software products and solutions.

Software maintenance has historically been made available by contracts that typically have a one-year term during which customers have the right to receive technical support and software updates for a fixed fee, if and when they become available.

Software maintenance is also available as part of a subscription-based solution offering under which customers receive standard software maintenance plus access to upgrades and product enhancements.

We provide a variety of program management and software engineering services, including:

i) project planning and management;

ii) system and architecture design;

iii) software

design, development, customization, configuration, and testing;

iii) software design, development, customization, configuration, and testing;

and iv) software integration and installation.

Services are typically,

but not always, sold in conjunction with our products and solutions and are provided for a fixed fee or as part of a subscription-based

Services are sold in conjunction with our products and solutions and are provided for a fixed fee or as part of a subscription-based fee.

Service engagement deliverables may include:

i) complete customer software solutions;

ii) one or more subsystems comprised of software products that are integrated within a

larger system;

ii) one or more subsystems comprised of software products that are integrated within a larger system;

iii) custom-configured versions of existing software products;

or iv) custom-designed software products.

cases, the software resulting from service engagements may form the basis for new or improved Aware software solutions and/or products.

In some cases, the software resulting from service engagements may form the basis for new or improved Aware software solutions and/or products.

Our customers for services include:

government agencies;

i) government agencies;

ii) large multinational systems integrators;

iii) smaller systems integrators with a particular market, technology

or geographic focus;

and iv) commercial providers of products, solutions, and services for themselves or to their end customers.

We provide services directly to end-users or indirectly to end-users through systems integrators or commercial entities.

provide services to systems integrators, they are often engaged with the end-user as a prime contractor and are responsible for

delivery of a complete solution, in which case we typically serve as a subcontractor assigned a subset of the total scope of work.

iii) smaller systems integrators with a particular market, technology or geographic focus;

and iv) commercial partners or providers of products, solutions, and services for themselves or to their end customers.

We provide services directly to end-users or indirectly to end-users through systems integrators or commercial entities or partners.

When we provide services to systems integrators, they are often engaged with the end-user as a prime contractor and are responsible for delivery of a complete solution, in which case we typically serve as a subcontractor assigned a subset of the total scope of work.

The scope of our services projects varies.

A small project might involve configuration and testing of a single software product, taking a small team one month or less.

large project might involve delivery of a more complex solution comprised of multiple products and subsystems, requiring a larger

team to conduct program and project management, system design, software customization and integration, and taking up to one year

Some projects are followed by subsequent follow-on projects that serve to change or extend the features and functionality

of the initial system.

Sales and Marketing

As of December 31, 2019, we had a

total of 13 employees in our sales and marketing organization.

In addition to our employee sales staff, we also engage third party

sales agents and representatives to sell our products and services in foreign countries.

We sell our products, solutions and services through three principal

channels of distribution:

i) Systems integrator channel – we sell to systems integrators that incorporate our software

products and solutions into biometric systems that are delivered primarily to government end users.

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

iii) OEM and VAR channel – we sell to hardware and software solution providers that incorporate

our software products into their products for resale or use in their solution offerings.

All of our revenue in 2019, and 2018 was

derived from unaffiliated customers.

A large project might involve delivery of a more complex solution comprised of multiple products and subsystems, requiring a larger team to conduct program and project management, system design, software customization and integration, and taking up to one year or more.

Some projects are followed by subsequent follow-on projects that serve to change or extend the features and functionality of the initial system.

Distribution Methods

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

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

Direct channel – we sell directly to government, as well as commercial customers.

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

Major Customers

All of our revenue in 2020 and 2019 was derived from unaffiliated customers.

In 2019, one customer represented 16% of total revenue.

In 2018, two customers represented

20% and 13%, respectively, of total revenue.

No other customer represented 10% or more of total revenue in any of those years.

The markets for our products, solutions

and services are competitive and uncertain.

We compete against:

i) other companies that provide biometric software solutions;

ii) fully diversified companies that provide biometric software solutions and also act as systems integrators.

We can give no assurance

i) our products and services will succeed in the market;

ii) that we will be able to compete effectively;

or iii) that competitive

pressures will not seriously harm our business.

Many of our competitors are larger than

us and have significantly greater financial, technological, marketing and personnel resources than we do.

At the other end of the

competitive spectrum, we have seen increasing competition from smaller biometrics companies in foreign countries.

These smaller

foreign competitors have demonstrated a willingness to sell their biometrics software products at low prices.

We can give no assurance that our customers

will continue to purchase products from us or that we will be able to compete effectively in obtaining new customers to maintain

or grow our business.

Aware’s Strategy

Our strategy is to capitalize on our strong

brand, technology, and expertise to sell biometrics software solutions, products and services into government and commercial markets.

We intend to continue to offer a broad portfolio of high-quality, innovative biometrics software solutions, products and services

that are coupled with expert technical support and services.

We expect to continue to employ a multifaceted distribution strategy

using systems integrators, OEMs, VAR’s, partners, and direct and indirect sales to reach end users.

We expect to continue

to market and sell our products globally.

Our strategy for growing our biometrics

business may include one or more of the following elements:

i) Solutions and Products strategy – An important tenet of our strategy is to offer more

complete biometrics solutions.

We believe this strategy will allow us to sell more software and services into biometrics projects

with additional value add.

We recognized the need to make this transition several years ago and developed new products to enable

this strategy.

We intend to increase our focus on enabling partners and OEMs to utilize our more complete biometric solutions.

Our strategy to offer complete

solutions involves:

Product line expansion - We have developed solutions based on our robust and advanced components

and products.

Our aim is to expand our product portfolio by adding new products and increasing the functionality of existing products

using our internal engineering teams.

This means we may add resources to our engineering staff.

To the extent we are unable to

develop critical new technologies internally, we may purchase or license such technologies from third parties.

Alternatively, we

may also acquire biometrics companies if we believe the acquisition cost is reasonable relative to the estimated future revenue

and profits the acquired company may produce.

Engineering services – We believe that services are an important element of our strategy

to sell complete solutions into our customers’ environments.

We intend to have adequate engineering resources on hand to

ensure that we can staff projects with the technical expertise we need to win new projects.

ii) Market strategy – Our market strategy is to continue efforts on our legacy government

biometrics market and to expand further into new commercial biometrics markets.

Historically, our revenue has been primarily derived

from the federal government biometrics market.

We intend to increase our focus on state and local government opportunities within

the United States and internationally.

We are also seeing increasing opportunities in commercial markets including financial services

and retail globally, as well as other emerging opportunities in automotive, healthcare and network security.

We believe the evolution of commercial

markets over the past few years may present additional mobile authentication and enterprise opportunities.

To that end, we have

enhanced our solution and product portfolio to enable us to participate in these markets.

iii) Sales strategy

– While the United States remains a large market, we believe there are attractive growth opportunities in international markets.

We intend to continue our focus on international markets and pursue opportunities in those markets through our sales staff and

third-party sales agents and representatives.

As we attempt to grow our biometrics business,

we may make investments in growth initiatives, such as those described above, that may cause our profitability to decline in the

We had $5.1 million of backlog on December 31,

We define backlog as revenue items in deferred revenue and undelivered orders in our backlog report.

Total backlog of $5.1

million included:

i) $4.6 million of software maintenance revenue of which approximately $3.2 million is expected to be recognized

ii) $0.1 million of software license revenue that we anticipate will be recognized during 2020 and iii) $0.4 million

of services revenue of which approximately $0.2 million is expected to be recognized during 2020.

Research and Development

Our US-based research and development activities

are focused on enhancing our existing products, solutions and services.

Our engineering organization is based in Bedford, Massachusetts.

As of December 31, 2019, we had an engineering and research staff of 46 employees, representing 65% of our total employee

Patents and Intellectual Property

We rely on a combination of nondisclosure

agreements and other contractual provisions, as well as patent, trademark, trade secret and copyright law to protect our proprietary

No other customer represented 10% or more of total revenue in either 2020 or 2019.

Competitive Business Conditions

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

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

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

Our current principal competitors include:

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

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

Component providers that offer biometrics software and hardware components for fingerprint, facial, iris and voice biometric identification.

This group of competitors includes companies such as FaceTec, Dermalog, and Innovatrics.

We expect competition to intensify in the near term in the biometrics market.

Many current and potential competitors have substantially greater financial, marketing, and research resources than we have.

Moreover, low-cost foreign competitors have demonstrated a willingness to sell their products at significantly reduced prices.

To compete effectively in this environment, we must continually develop and market new and enhanced solutions and technologies at competitive prices and must have the resources available to invest in significant research and development activities.

Our failure to compete successfully could cause our revenues and market share to decline.

Intellectual Property

We rely on a combination of nondisclosure agreements and other contractual provisions, as well as patent, trademark, trade secret and copyright law to protect our proprietary rights.

We have an active program to protect our proprietary technology through the filing of patents.

As of December 31,

2019, we had approximately 104 U.S.

As of December 31, 2020, we had approximately 121 U.S.

and foreign patents and approximately 34 pending patent applications.

Our patents and patent

applications pertain primarily to biometrics and imaging compression.

Although we have patented certain aspects

of our technology, we rely primarily on trade secrets to protect our intellectual property.

We attempt to protect our trade secrets

and other proprietary information through agreements with our customers, suppliers, employees and consultants, and through security

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

Although we have patented certain aspects of our technology, we rely primarily on trade secrets to protect our intellectual property.

We attempt to protect our trade secrets and other proprietary information through agreements with our customers, suppliers, employees and consultants, and through security measures.

Each of our employees is required to sign a non-disclosure agreement.

Although we intend to protect our rights vigorously,

we cannot assure you that these measures will be successful.

In addition, effective intellectual property protection may be unavailable

or limited in certain foreign countries.

Third parties may assert exclusive patent,

From time to time, we receive claims

from third parties suggesting that we may be obligated to license such intellectual property rights.

If we were found to have infringed

any third party’s patents, we could be subject to substantial damages or an injunction preventing us from conducting our

Manufacturing & Systems Integration

We do not design or manufacture hardware

products, however we have provided systems integration services for one U.S.

government customer and are equipped to provide added

value solutions to future customers.

Our systems integration activities include:

i) procuring hardware and software components

from third party suppliers;

ii) installing and integrating Aware and third-party software on the purchased or supplied hardware;

and iii) testing products and solutions for quality assurance prior to shipment.

To the extent we receive any more orders

for hardware or integrated systems or solutions revenue in the future, we expect to be dependent on suppliers for certain critical

hardware and software components.

Our dependence on potential single source suppliers involves several risks, including limited

control over availability, quality, and delivery schedules.

Any delays in delivery or shortages of such components could cause

delays in the shipment of our products, which could harm our business.

At December 31, 2019, we employed

71 people, including 46 in engineering and research, 13 in sales and marketing, and 12 in finance and administration.

employees, 67 were based in Massachusetts.

Although we intend to protect our rights vigorously, we cannot guarantee that these measures will be successful.

In addition, effective intellectual property protection may be unavailable or limited in certain foreign countries.

Third parties may assert exclusive patent, copyright and other intellectual property rights to technologies that are important to us.

We may receive claims from third parties suggesting that we may be obligated to license such intellectual property rights.

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

As of December 31, 2020, we employed 90 people, including 52 in engineering and research, 25 in sales and marketing, and 13 in finance and administration.

Of these employees, 77 were based in Massachusetts and 13 were based outside of Massachusetts.

None of our employees are represented by a labor union.

We consider our employee relations

We believe that our future success will

depend in large part on the service of our technical, sales, marketing and senior management personnel and upon our ability to

retain highly qualified technical, sales and marketing and managerial personnel.

We cannot assure you that we will be able to retain

our key managers and employees or that we will be able to attract and retain additional highly qualified personnel in the future.

We consider our employee relations to be good.

We believe that our future success will depend in large part on the service of our technical, sales, marketing and senior management personnel and upon our ability to retain highly qualified technical, sales and marketing and managerial personnel.

We cannot guarantee that we will be able to retain our key managers and employees or that we will be able to attract and retain additional highly qualified personnel in the future.

Available Information

Our Annual Report on Form 10-K, Quarterly

Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to reports filed pursuant to Sections

13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge on or through our

website at www.aware.com as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities

and Exchange Commission (the SEC).

The SEC also maintains a website, www.sec.gov , that contains reports and other information

regarding issuers that file electronically with the SEC.

Copies of our (i) Corporate Governance

Principles, (ii) charters for the Audit Committee, Compensation Committee, and Nominating Committee, and (iii) Code of

Ethics are available in the Investor Relations section of our website at www.aware.com .

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as

amended, are made available free of charge on or through our website at w ww.aware.com as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission (the SEC).

The SEC also maintains a website, www.sec.gov, that contains reports and other information regarding issuer s that file electronically with the SEC.

Copies of our (i) Corporate Governance Principles, (ii) charters for the Audit Committee, Compensation Committee, and Nominating Committee, and (iii) Code of Ethics are available in the Investor Relations section of our website at www.aware.com.

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

What changed 10-K

Item 1. Business