AWARE INC /MA/

Previous wording

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

Current wording

We used revenue and operating loss to summarize our financial results over the past two years, as we believe these measures provide the most meaningful understanding of our operating performance. The comparisons below reflect certain reclassifications described in more detail in Note 2 to the consolidated financial statements

Previous wording

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

Current wording

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

Previous wording

Lower revenue in 2024 as compared to 2023 was primarily due to decreases in revenue from our perpetual software licenses of $1.2 million and software subscriptions of $0.7 million, which were partially offset by an increase in revenue from software maintenance of $0.9 million. Lower operating loss in 2024 as compared 2023 was primarily due a negative adjustment of $2.7 million to a note receivable in 2023 that did not recur in 2024 and a year-over-year decrease in research and development expense of $1.4 million, which were partially offset by decreased revenue of $0.9 million and the impact of a 2023 fair value adjustment to contingent consideration of $0.8 million that did not recur in 2024.

Current wording

Lower revenue in 2025 as compared to 2024 was primarily due to decreases in revenue from our software licenses of $0.3 million, which were partially offset by an increase and services and other revenue of $0.1 million and an increase in revenue from software maintenance of $0.1 million. Higher operating loss in 2025 as compared to 2024 was primarily due to a decrease in revenue of $0.1 million and increases in research and development expenses of $0.5 million, cost of revenue of $0.5 million and general and administrative expenses of $0.2 million, which were partially offset by a decrease in sales and marketing expense of $0.3 million.

Previous wording

Software license revenue consists of revenue from the sale of biometrics and imaging software products. Sales of software products depend on our ability to win proposals to supply software for biometrics systems projects either directly to end user customers or indirectly through channel partners.

Current wording

Software licenses revenue consists of revenue from the licensing of biometrics and imaging software products. Licensing of software products depends on our ability to win proposals to supply software for biometric systems projects either directly to end user customers or indirectly through channel partners.

Previous wording

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

Current wording

Software maintenance revenue consists of revenue from software maintenance contracts and SaaS subscription arrangements. Software maintenance contracts entitle customers to receive software support and software updates, if and when they become available, during the term of the contract. SaaS revenue represents a relatively small portion of both software maintenance revenue and total revenue.

Previous wording

Software maintenance revenue increased 12% from $7.7 million in 2023 to $8.6 million in 2024. As a percentage of total revenue, software maintenance revenue increased from 42% in 2023 to 49% in 2024. The dollar increase in software maintenance revenue was primarily due to software maintenance related to perpetual license sales during the second half of 2023 as well as for the year ended December 31, 2024.

Current wording

Software maintenance revenue increased 2% from $8.6 million in 2024 to $8.7 million in 2025. As a percentage of total revenue, software maintenance revenue increased from 50% in 2024 to 51% in 2025. The dollar increase in software maintenance revenue was primarily due to software maintenance related to perpetual license sales.

Previous wording

A majority of our customers purchase software maintenance contracts when they initially purchase software licenses. Since our software is used in active biometrics systems, many of our customers continue to renew their maintenance contracts in subsequent years while systems remain operational.

Current wording

A majority of our customers enter into software maintenance contracts when they initially license our software products. Because our software is used in active biometrics systems, many customers continue to renew their maintenance contracts in subsequent years while those systems remain operational.

Previous wording

Services revenue consists of fees we charge to perform software development, integration, installation, and customization services. Similar to software license revenue, services revenue depends on our ability to win biometrics systems projects either directly with end user customers or in conjunction with channel partners. Other revenue consists of hardware fees that are included with some of our software licenses. Services and other revenue fluctuate when we commence new projects and/or when we complete projects that were started in previous periods.

Current wording

Services and other revenue consists of fees we charge to perform software development, integration, installation, customization, and other professional services, as well as subscription-based SaaS offerings and hardware included with certain software licenses. Similar to software license revenue, services revenue depends on our ability to win biometrics systems projects either directly with end user customers or in conjunction with channel partners. SaaS revenue reflects recurring subscription fees for access to our biometric software solutions.

Previous wording

Cost of services and other revenue consists primarily of engineering costs to perform customer services projects. Such costs primarily include: i) engineering salaries, stock-based compensation, fringe benefits, and facilities; ii) engineering consultants and contractors; iii) software license fees; and iv) hardware costs.

Current wording

Cost of revenue consists primarily of engineering costs to perform customer services projects, amortization of intangible technology assets related to acquisitions, and other third-party costs that are included with some of our software licenses. Such costs primarily include: i) engineering salaries, fringe benefits, and facilities; ii) engineering consultants and contractors; iii) software license fees; and iv) hardware costs.

Previous wording

Gross margins on services and other revenue are a function of: i) the nature of the projects; ii) the level of engineering difficulty and labor hours required to complete project tasks; and iii) how much we were able to charge. Gross margins in these years reflect the profitability mix of customer projects. We expect that gross margins on services and other revenue will continue to fluctuate in future periods based on the nature, complexity, and pricing of future projects.

Current wording

Gross margins on revenue are a function of: i) the nature of the projects; ii) the level of engineering difficulty and labor hours required to complete project tasks; iii) how much we were able to charge; and iv) product mix. We expect that gross margins will continue to fluctuate in future periods based on the nature, complexity, and pricing of future projects and product mix.

Previous wording

Research and development expense consists of costs for: i) engineering personnel, including salaries, stock-based compensation, fringe benefits, and facilities; ii) engineering consultants and contractors, and iii) other engineering expenses such as supplies, equipment depreciation, dues and memberships and travel. Engineering costs incurred to develop our technology and products are classified as research and development expense. As described in the cost of services section, engineering costs incurred to provide engineering services for customer projects are classified as cost of services and are not included in research and development expense.

Current wording

Research and development expense consists of costs for: i) engineering personnel, including salaries, stock-based compensation, fringe benefits, and facilities; ii) engineering consultants and contractors, and iii) other engineering expenses such as supplies, equipment depreciation, dues and memberships and travel. Engineering costs incurred to develop our technology and products are classified as research and development expense. As described in the cost of revenue section, engineering costs incurred to provide engineering services for customer projects are classified as cost of revenue and are not included in research and development expense.

Previous wording

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

Current wording

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

Previous wording

Our engineering headcount decreased from 42 in 2023 to 33 in 2024. The decrease in engineering costs is primarily a result of reducing our engineering headcount by approximately 10% in 2023 and 20% in 2024. The reduction was driven by strategic initiatives to optimize resources, improve operational efficiency, and align our engineering capabilities with current business priorities. We believe our current engineering organization is adequately staffed to support our product roadmap, customer commitments, and innovation efforts.

Current wording

Our engineering headcount increased from 33 in 2024 to 45 in 2025. The increase in engineering costs is primarily a result of increasing our engineering headcount during the year. The increase was driven by strategic initiatives and to align our engineering capabilities with current business priorities. We expect engineering costs to increase in 2026 primarily due to the full-year impact of engineering personnel hired during 2025.

Previous wording

As we described in the Part I—Business of this Form 10-K, we intend to introduce new products that will allow us to offer more complete biometrics solutions. We believe this strategy will allow us to sell more software into biometrics systems projects in order to grow our revenue. Our preference is to develop such products internally, however to the extent we are unable to do that, we may purchase or license technologies from third parties. We anticipate that we will continue to focus our future research and development activities on enhancing existing products and developing new products. We expect research and development expenses to decrease in absolute dollars and as a percentage of revenues in the next year and then to increase in absolute dollars in proceeding years.

Current wording

As we described in the Part I—Business of this Form 10-K, we intend to introduce new products that will allow us to offer more complete biometrics solutions. We believe this strategy will allow us to sell more software into biometrics systems projects in order to grow our revenue. Our preference is to develop such products internally, however to the extent we are unable to do that, we may purchase or license technologies from third parties. We anticipate that we will continue to focus our future research and development activities on enhancing existing products and developing new products. We expect research and development expenses to increase in absolute dollars and as a percentage of revenues in the next year.

Previous wording

Selling and marketing expense decreased 3% from $8.0 million in 2023 to $7.7 million in 2024. As a percentage of total revenue, selling and marketing expense was 44% in both 2024 and 2023. The dollar decrease in selling and marketing expense was primarily due to decreased bonus and commission expense of $0.2 million as a result of decreased revenue. We expect to be strategic in expanding our sales and marketing force to pursue future opportunities.

Current wording

Selling and marketing expense decreased 5% from $7.7 million in 2024 to $7.3 million in 2025. As a percentage of total revenue, selling and marketing decreased from 44% in 2024 to 42% in 2025. The decrease in selling and marketing expense was primarily due to a $0.2 million decrease in travel expense, a $0.1 million decrease in bonus and commission expense and a $0.1 million decrease in trade show costs. We expect selling and marketing expense to increase primarily due to the full-year impact of sales and marketing personnel hired during 2025. We expect to be strategic in expanding our sales and marketing force to pursue future opportunities.

Previous wording

General and administrative expense consists primarily of costs for: i) officers, directors and administrative personnel, including salaries, bonuses, director compensation, stock-based compensation, fringe benefits, and facilities; ii) professional fees, including legal and audit fees; iii) public company expenses; and iv) other administrative expenses, such as insurance costs and bad debt provisions.

Current wording

General and administrative expense consists primarily of costs for: i) officers, directors and administrative personnel, including salaries, bonuses, director compensation, stock-based compensation, fringe benefits, and facilities; ii)

Previous wording

General and administrative expense decreased 3% from $6.5 million in 2023 to $6.4 million in 2024. As a percentage of total revenue, general and administrative expense increased from 36% in 2023 to 37% in 2024. While we expect general and administrative expenses to increase in absolute terms as we continue to invest in our business, the trajectory of these costs as a percentage of total revenue will depend on revenue growth. Future trends will be influenced by our ability to scale operations efficiently and drive revenue expansion.

Current wording

General and administrative expense increased 3% from $6.7 million in 2024 to $6.9 million in 2025 primarily as a result of the write-off of the Anonybit note receivable. As a percentage of total revenue, general and administrative expense increased from 39% in 2024 to 40% in 2025. While we expect general and administrative expenses to increase in absolute terms as we continue to invest in our business, the trajectory of these costs as a percentage of total revenue will depend on revenue growth. Future trends will be influenced by our ability to scale operations efficiently and drive revenue expansion. Prior period amounts have been reclassified to conform to the current period presentation.

Previous wording

Interest income decreased from $1.3 million in 2023 to $1.2 million in 2024. The dollar decrease in interest income was primarily due to lower interest rates within our money market accounts.

Current wording

Interest income decreased from $1.2 million in 2024 to $0.9 million in 2025. The dollar decrease in interest income was primarily due to lower average cash balances during the year and lower interest rates within our money market accounts.

Previous wording

Year ended December 31, 2023. Investing activity used of $3.1 million of cash, primarily as the result of net purchases of marketable securities.

Current wording

Year ended December 31, 2025. Investing activity used $0.3 million of cash, primarily as the result of purchases of equipment of $0.2 million and net purchases of marketable securities of $0.1 million.

Previous wording

Year ended December 31, 2023. Financing activity cash used of $0.4 million was primarily the result of $0.5 million used to buy back stock under our stock repurchase program, which was partially offset by $0.1 million of proceeds from the issuance of common stock from stock grants.

Current wording

Year ended December 31, 2025. Financing activity cash used of $31 thousand was primarily the result of $0.1 million used to buy back stock under our stock repurchase program, which was partially offset by $0.1 million of proceeds from the issuance of common stock from stock grants.

Previous wording

At December 31, 2024, we had cash, cash equivalents, and marketable securities of $27.8 million. While we cannot assure you that we will not require additional financing, or that if needed such financing will be available to us, we believe that our cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next twelve months from the filing date of this Annual Report on Form 10-K and to meet our known long-term cash requirements including operating expenses, contractual obligations, and planned strategic investments. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. If we require additional capital resources, we may utilize available funds or seek additional external financing.

Current wording

At December 31, 2025, we had cash, cash equivalents, and marketable securities of $22.3 million. While we cannot assure you that we will not require additional financing, or that if needed such financing will be available to us, we believe that our cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next twelve months from the filing date of this Annual Report on Form 10-K and to meet our known long-term cash requirements including operating expenses, contractual obligations, and planned strategic investments. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. If we require additional capital resources, we may utilize available funds or seek additional external financing.

Previous wording

As of December 31, 2024, our material cash requirements from known contractual and other obligations consisted of payments under the operating lease for our corporate headquarters, which we estimate will be approximately $0.7 million in each of 2025, 2026, and 2027, approximately $0.8 million in 2028 and 2029, and $2.7 million thereafter. See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information on our operating lease.

Current wording

As of December 31, 2025, our material cash requirements from known contractual and other obligations consisted primarily of payments under the operating lease for our corporate headquarters. We estimate lease payments will be approximately $0.7 million in each of 2026 and 2027, approximately $0.8 million in each of 2028, 2029 and 2030, and $1.9 million thereafter. These amounts represent fixed contractual obligations under the lease agreement. See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding our operating lease.

Previous wording

Revenue recognition. In accordance with Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods and services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. In addition, ASC 606 requires disclosures of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

Current wording

Revenue recognition. In accordance with Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods and services. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these goods and services. In addition, ASC 606 requires disclosures of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

Previous wording

We categorize revenue as software licenses, software maintenance, or services and other revenue. Revenue from software licenses is recognized at a point in time upon delivery, provided all other revenue recognition criteria are met. We recognize software maintenance revenue over time on a straight-line basis over the contract period. Services revenue is recognized over time as the services are delivered using an input method (i.e., labor hours incurred as a percentage of total labor hours budgeted), provided all other revenue recognition criteria are met.

Current wording

We categorize revenue as software licenses, software maintenance, and services and other revenue, which includes SaaS subscription arrangements. Revenue from software licenses is recognized at a point in time upon delivery, provided all other revenue recognition criteria are met. We recognize software maintenance revenue and revenue from SaaS subscription arrangements, over time on a straight-line basis over the contract period. Services revenue is recognized over time as the services are delivered using an input method, based on labor hours incurred as a percentage of total labor hours budgeted, provided all other revenue recognition criteria are met.

Previous wording

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

Current wording

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

Previous wording

Our arrangements can include variable fees, such as the option to purchase additional usage of a previously delivered software license. We may also provide pricing concessions to clients, a business practice that also gives rise to variable fees in contracts. For variable fees arising from the client’s purchase of additional usage of a previously delivered software license, we apply the sales and usage-based royalties guidance related to a license of intellectual property and recognizes the revenue in the period the underlying sale or usage occurs. We include variable fees in the determination of total transaction price if it is not probable that a future significant reversal of revenue will occur. We use the expected value or most likely value amount, whichever is more appropriate for specific circumstances, to estimate variable consideration, and the estimates are based on the level of historical price concessions offered to clients.

Current wording

Our arrangements can include variable fees, such as the option to purchase additional usage of a previously delivered software license. We may also provide pricing concessions to clients, a business practice that also gives rise to variable fees in contracts. For variable fees arising from the client’s purchase of additional usage of a previously delivered software license, we apply the sales and usage-based royalties guidance related to a license of intellectual property and recognize revenue in the period the underlying sale or usage occurs. We include variable fees in the determination of total transaction price if it is not probable that a future significant reversal of revenue will occur. We use the expected value or most likely value amount, whichever is more appropriate for specific circumstances, to estimate variable consideration, and the estimates are based on the level of historical price concessions offered to clients.

Previous wording

As of December 31, 2024 and 2023, we had $3.1 million of goodwill. As of December 31, 2024 and 2023, we had $2.0 million and $2.4 million of intangible assets, respectively. Impairment in the valuation of long-lived assets could materially impact our operating results and financial position. To date, there have been no impairments of goodwill or intangible assets.

Current wording

As of December 31, 2025 and 2024, we had $3.1 million of goodwill. As of December 31, 2025 and 2024, we had $1.6 million and $2.0 million of intangible assets, respectively. Impairment in the valuation of long-lived assets could materially impact our operating results and financial position. To date, there have been no impairments of goodwill or intangible assets.

Previous wording

Management judgment is required in determining our provision for income taxes, our deferred tax assets, and any valuation allowance recorded against our net deferred tax assets. Our deferred tax assets primarily relate to: i) research and development tax credit carryforwards; ii) net operating loss carryforwards; and iii) temporary differences that result from differing treatment of certain items for tax and accounting purposes. As of December 31, 2024, we had a total of $13.7 million of deferred tax assets and $0.5 million of deferred tax liabilities for which we have recorded a $13.2 million valuation allowance. As of December 31, 2023, we had a total of $13.0 million of deferred tax assets and $0.5 million of deferred tax liabilities for which we have recorded a $12.5 million valuation allowance.

Current wording

Management judgment is required in determining our provision for income taxes, our deferred tax assets, and any valuation allowance recorded against our net deferred tax assets. Our deferred tax assets primarily relate to: i) research and development tax credit carryforwards; ii) net operating loss carryforwards; and iii) temporary differences that result from differing treatment of certain items for tax and accounting purposes. As of December 31, 2025, we had a total of $15.7 million of deferred tax assets and $1.4 million of deferred tax liabilities for which we have recorded a

Previous wording

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an annual tabular effective tax rate reconciliation disclosure including information for specified categories and jurisdiction levels, as well as, disclosure of income taxes paid, net of refunds received, disaggregated by federal, state/local, and significant foreign jurisdiction. This ASU will be effective for the Company’s fiscal December 31, 2025 year-end, with early adoption permitted. We are assessing the impact of the standard on our consolidated financial statements.

Current wording

Recent Accounting Pronouncements. In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an annual tabular effective tax rate reconciliation disclosure including information for specified categories and jurisdiction levels, as well as disclosure of income taxes paid, net of refunds received, disaggregated by federal, state/local, and significant foreign jurisdiction. This ASU is effective for the Company’s fiscal year ended December 31, 2025 and has been adopted in these consolidated financial statements on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements.