What changed in this filing

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Item 1A. Risk Factors

2022-03-15 compared with 2021-02-17 · 39 added, 36 removed, 185 unchanged (29% of the section changed)

While we expect the impacts of COVID-19 to have an adverse effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.

Due to the COVID-19 pandemic we have been unable to:

Due to the COVID-19 pandemic we have been limited in our ability to:

(i) conduct face-to-face meetings with customers and prospective customers, (ii) present in-person demonstrations of our software solutions, (iii) attend trade shows and conferences which typically generate future sales opportunities or (iv) meet with prospective strategic partners.

These effects caused by the COVID-19 pandemic adversely impacted our operating and financial results in 2020 and will likely have an adverse impact on our operating and financial results over the next several quarters.

These effects caused by the COVID-19 pandemic adversely impacted our operating and financial results in 2021 and 2020 and will likely have an adverse impact on our operating and financial results over at least the next several quarters.

The extent to which our operating and financial results will continue to be affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic;

the impact of the emergence of new variants of the virus that causes COVID-19;

additional actions by businesses and governments in response to the pandemic;

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We base our current and future expense levels on our internal operating plans and sales forecasts, and our operating costs are to a large extent fixed.

As a result, we may not be able to sufficiently reduce our costs in any quarter to adequately compensate for an unexpected near-term shortfall in revenues, and even a small shortfall could disproportionately and adversely affect financial results for that quarter.

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

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

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

the terms of customer contracts that affect the timing of revenue recognition;

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significant fluctuations in demand for our products and services;

the loss of a key customer or one of its key customers;

new competitors, or the introduction of enhanced solutions from new or existing competitors;

any loss of a key customer or one of its key customers;

new competitors entering our markets, or the introduction of enhanced solutions from new or existing competitors;

competitive pressures on selling prices;

cancellations, delays or contract amendments by government customers;

any cancellations, or delays of orders or contract amendments by government customers;

higher than expected costs, asset write-offs, and other one-time financial charges;

general economic trends and other factors, such as the COVID-19 pandemic.

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

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

You should not rely on our quarterly revenue and operating results to predict our future performance.

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We derive a significant portion of our revenue directly or indirectly from federal, international, state and local governments.

We believe that the success and growth of our business will continue to depend on government customers purchasing our products and services either directly through us or indirectly through our channel partners.

We believe that the success and growth of our business will continue to depend on government customers purchasing our products and services either directly from us or indirectly through our channel partners.

Changes in government contracting policies or government budgetary constraints may adversely affect our financial performance.

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changes in government programs or applicable requirements;

the adoption of new laws or regulations or changes to existing laws or regulations;

the adoption of new laws or regulations or changes to existing laws or regulations relating to the provision of biometrics services or the use of biometric data;

changes in political or social attitudes with respect to security and defense issues;

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A significant commercial market for biometrics technology may not develop, and, even if it does, there can be no assurance our biometrics technology will be successful.

A component of our strategy to grow revenue includes expansion into commercial markets.

To date, biometrics technology has received only limited acceptance and slow adoption in such markets.

Although the recent appearance of biometric readers on popular consumer products, such as smartphones, has increased interest in biometrics as a means of authenticating and/or identifying individuals, commercial markets for biometrics technology are still in the process of developing and evolving.

A component of our strategy to grow our revenue includes expansion into commercial markets.

To date, biometrics technology has received only limited acceptance and slow adoption in these markets.

Although the recent appearance

of biometric readers on popular consumer products, such as smartphones, has increased interest in biometrics as a means of authenticating and/or identifying individuals, commercial markets for biometrics technology are still in the process of developing and evolving.

Biometrics-based solutions compete with more traditional security methods including keys, cards, personal identification numbers , passwords and security personnel.

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Moreover, the activities of these third parties are not within our direct control.

The occurrence of any of the following events could have a material adverse eff ect on our business, financial condition and operating results:

The occurrence of any of the following events could have a material adverse effect on our business, financial condition and operating results:

a reduction in sales efforts by our partners;

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a reduction in technical capabilities or financial viability of our partners;

a misalignment of interest between us and them;

a misalignment of interest between us and any of our partners;

the termination of our relationship with a major systems integrator or OEM;

any adverse effect on a partner’s business related to competition, pricing and other factors.

any adverse effect on a partner’s business related to competition, pricing or other factors.

If the biometrics market does not experience significant growth or if our products do not achieve broad acceptance both domestically and internationally, we may not be able to grow our business.

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public perceptions regarding the confidentiality of private information;

proposed or enacted legislation related to privacy of information;

proposed or enacted legislation related to privacy of biometric information;

customers’ satisfaction with biometrics solutions;

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Even if biometrics solutions gain wide market acceptance, our solutions may not adequately address market requirements and may not continue to gain market acceptance.

If biometrics solutions generally or our solutions specifically do not gain wide market acceptance, we may not be able to achieve our anticipated level of growth and our revenues and results of operations would be adversely affected.

If biometrics solutions generally or our solutions specifically do not gain wide market acceptance, we may not be able to achieve our anticipated level of growth and our revenues, and our results of operations would be adversely affected.

We face intense competition from other biometrics solutions providers.

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

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

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

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, iProov, and Innovatrics.

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

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Our software products may have errors, defects or bugs, which could result in delayed or lost revenue, expensive correction, liability to our customers, and claims against us.

Complex software products such as ours may contain errors, defects or bugs.

Despite testing, complex software products such as ours may contain errors, defects, or bugs, which may only be discovered after they have been installed and used by our customers.

Defects in the products that we develop and sell to our customers could require expensive corrections and result in delayed or lost revenue, adverse customer reaction and negative publicity about us or our products and services.

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Many features we may wish to add to our products in the future may be available as open source software and our development team may wish to make use of this software to reduce development costs and speed up the development process.

While we carefully monitor the use of all open source software and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product, such use could inadvertently occur.

While we carefully monitor the use of all open

source software and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product, such use could inadvertently occur.

If we were required to make our software freely available, our business could be seriously harmed.

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Any errors or defects in third-party software could result in errors or a failure of our solutions, which could harm our business.

Part of our future business is dependent on market demand for, and acceptance of, the cloud-base d model for the use of software .

Part of our future business is dependent on market demand for, and acceptance of, the cloud-based model for the use of software.

We expect to derive a growing percentage of our revenue from the sale of cloud-based services.

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Our operational systems and networks and products may be subject to an increasing risk of continually evolving cybersecurity or other technological risks, which could result in the disclosure of company or customer confidential information, damage to Aware’s reputation, additional costs to Aware, regulatory penalties and financial losses.

The company's products, services and systems may be used in critical company, customer or third-party operations, or involve the storage, processing and transmission of sensitive data, including valuable intellectual property, other proprietary or confidential data, regulated data, and personal information of employees, customers and others.

Our products, services and systems may be used in critical company, customer or third-party operations, or involve the storage, processing and transmission of sensitive data, including valuable intellectual property, other proprietary or confidential data, regulated data, and personal information of employees, customers and others.

Successful breaches, employee malfeasance, or human or technological error could result in, for example, unauthorized access to, disclosure, modification, misuse, loss, or destruction of company, customer, or other third party data or systems;

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We rely on a combination of U.S.

and worldwide patent, trade secret, copyright, and trademark law as well as confidentiality agreements to protect our proprietary technology and cannot assure you that we will be able to enforce the patents we own against third parties.

and worldwide patent, trade secret, copyright, and trademark law as well as confidentiality agreements to protect our proprietary technology.

We cannot assure you that we will be able to enforce the patents we own against third parties.

Some foreign countries do not currently provide effective legal protection for intellectual property and our ability to prevent the unauthorized use of our products in those countries is therefore limited.

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We may be sued by third parties for alleged infringement of their proprietary rights .

Our technology and products may infringe the intellectual property rights of others.

We may be subject to claims that our technology and products infringe the intellectual property rights of others.

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

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Intellectual property rights can be uncertain and involve complex legal and factual questions.

Moreover, intellectual property claims, with or without merit, can be time-consuming and expensive to litigate or settle, and cou ld divert management attention away from the execution of our business plan.

Moreover, intellectual property claims, with or without merit, can be time-consuming and expensive to litigate or settle, and could divert management attention away from the execution of our business plan.

If we were found to have infringed the proprietary rights of others, we could be subject to substantial damages or an injunction preventing us from conducting our business.

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1493, Brazil’s General Data Protection Law (“LGPD”) and any other state, federal or foreign regulations governing the collection, use and storage of biometric data.

The potential costs of compliance with or imposed by new/existing regulations and policies that are applicable to us may affect the use of our products and services and could have a material adverse impact on our results of operations.

The potential costs of compliance with or imposed by new/existing regulations and policies that are applicable to us, or fines and penalties to which we may become subject if we fail to comply with those regulations and polices, may affect the use of our products and services and could have a material adverse impact on our results of operations.

In addition, our business may also be adversely affected by:

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

or ii) by the imposition of export restrictions on products we sell internationally.

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

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

Adverse economic conditions could harm our business.

Unfavorable changes in economic conditions, including recessions, inflation, turmoil in financial markets, changes caused by global crisis such as the COVID-19 pandemic or other changes in economic conditions, could harm our business, results of operations, and financial conditions as a result of:

Unfavorable changes in economic conditions, including recessions, inflation, turmoil in financial markets, changes caused by global crisis such as the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine and resulting economic sanctions, the Taliban’s takeover of Afghanistan, or other changes in economic conditions, could harm our business, results of operations, and financial conditions as a result of:

reduced demand for our products;

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We may not realize the anticipated benefits of our acquisitions.

We may make acquisitions of companies that offer complementary products, services and technologies such as our acquisition of AFIX in November of 2020.

We may make acquisitions of companies that offer complementary products, services, and technologies such as our acquisitions of FortressID in December of 2021 and AFIX in November of 2020.

The ultimate success of our acquisitions depends, in part, on our ability to realize the anticipated synergies, cost savings and growth opportunities from integrating acquired businesses or assets into our existing businesses.

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

the value of the acquired assets relative to the price paid, distraction of management from our ongoing businesses and potential product disruptions associated with the sale of the acquired company’s products.

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

Additionally, t he consideration we pay for any future acquisitions could include shares of our stock , which could cause dilution to existing shareholders and to ear nings per share .

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

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

Additionally, the consideration we pay for any future acquisitions could include shares of our stock, which could cause dilution to existing shareholders and to earnings per share.

We may have additional tax liabilities.

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Moreover, accounting standards have been subject to rapid change and evolving interpretations by accounting standards setting organizations over the past few years.

The implementation of new accounting standards requires us to interpret and apply them app ropriately.

The implementation of new accounting standards requires us to interpret and apply them appropriately.

If our current interpretations or applications are later found to be incorrect, we may have to restate our financial statements and the price of our stock could decline.

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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 1A. Risk Factors