AWARE INC /MA/

Note 1 – Description of the Company and Basis of Presentation

Description of the Company

We are a leading biometric identity platform company that validates and secures identities using proven and trusted biometrics solutions. Our portfolio enables government agencies and commercial entities to enroll, identify, authenticate and enable using biometrics, which comprise physiological characteristics, such as fingerprints, faces, irises and voices.

•

Enroll: Register biometric identities into an organization’s secure database

•

Identify: 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

•

Enable: Manage the lifecycle of secure identities through optimized biometric interchanges

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 orchestration 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.

Certain amounts in the consolidated financial statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include all information and notes necessary for a complete presentation of our financial position, results of operations and cash flows, in conformity with generally accepted accounting principles. We filed audited financial statements which included all information and notes necessary for such presentation for the two years ended December 31, 2025 in conjunction with our 2025 Annual Report on Form 10-K. This Form 10-Q should be read in conjunction with that Form 10-K.

The accompanying unaudited consolidated balance sheets, statements of operations and comprehensive loss, statements of cash flows, and statements of stockholders’ equity reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of financial position at June 30, 2026, and of operations and cash flows for the interim periods ended June 30, 2026 and 2025.

The results of operations for the interim periods ended June 30, 2026 are not necessarily indicative of the results to be expected for the year.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. Beginning in the quarter ended March 31, 2026, the Company revised the presentation of subscription-based SaaS revenue to classify it within services and other revenue rather than software maintenance revenue. Accordingly, $50 thousand and $98 thousand of revenue for the three and six months ended June 30, 2025, respectively, have been reclassified to conform to the current period presentation.

In addition, $0.1 million and $0.2 million of amortization expense related to acquired intangible assets has been reclassified from cost of revenue to general and administrative expense for the three and six months ended June 30, 2025, respectively.

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

Principles of Consolidation

The consolidated financial statements include the accounts of Aware, Inc. and its subsidiaries, Aware Security Corporation and Fortr3ss, Inc. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Estimates used in these financial statements include but are not limited to, revenue recognition, goodwill and long-lived asset impairment, stock-based compensation, income taxes, and allowance for credit losses.

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 was effective for the Company’s fiscal year ended December 31, 2025 and has been adopted in these consolidated financial statements. The adoption did not have a material impact on the Company’s consolidated financial statements.

In 2025, the FASB issued ASU No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which amends existing guidance related to the accounting for internal-use software costs. The amendments are intended to improve the relevance of information provided to investors about a company’s investments in internal-use software and align the accounting for internal-use software costs with modern software development practices. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact that adoption of this ASU will have on the Company's consolidated financial statements.

Note 2 – Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, we apply the following five step model:

1. Identify the contract with the customer;

2. Identify the performance obligations in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligations in the contract; and

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

We categorize revenue as software licenses, software maintenance, or 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 (i.e., labor hours incurred as a percentage of total labor hours budgeted), provided all other revenue recognition criteria are met. Other revenue includes hardware sales that may be included in a software license and is recognized at a point in time upon delivery, provided all other revenue recognition criteria are met.

In addition to selling software licenses, software maintenance and software services on a standalone basis, a significant portion of our contracts include multiple performance obligations, which require an allocation of the transaction price to each distinct performance obligation based on a relative standalone selling price (“SSP”) basis. The SSP is the price at which we would sell a promised good or service separately to a customer. The best estimate of SSP is the observable price of a good or service when we sell that good or service separately. A contractually stated price or a list price for a good or service may be the SSP of that good or service. We use a range of selling prices to estimate SSP when we sell each of the goods and services separately and need to determine whether there is a discount that needs to be allocated based on the relative SSP of the various goods and services within multiple performance obligation arrangements. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we typically determine the SSP using an adjusted market assessment approach using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual goods and services due to the stratification of those goods and services by customer. In these instances, we may use information such as the nature of the customer and distribution channel in determining the SSP.

When software licenses and significant customization engineering services are sold together, they are accounted for as a combined performance obligation, as the software licenses are generally highly dependent on, and interrelated with, the associated customization services and therefore are not distinct performance obligations. Revenue for the combined performance obligation is recognized over time as the services are delivered using an input method (i.e., labor hours incurred as a percentage of total labor hours budgeted).

When subscription-based software is sold, the subscription-based software and software maintenance are generally considered distinct performance obligations. The transaction price is allocated to subscription-based software and the software maintenance based on the relative SSP of each performance obligation. We sell subscription-based software for a fixed fee and/or a usage-based royalty fee, sometimes subject to a minimum guarantee. When the amount is in the form of a fixed fee, including the guaranteed minimum in subscription-based royalties, revenue is allocated to the subscription-based software and recognized at a point in time upon delivery, provided all other revenue recognition criteria are met. Revenue allocated to the software maintenance is recognized over the contract term on a straight-line basis. Any subscription-based software fees earned not subject to the guaranteed minimum or earned in excess of the minimum amount are recognized as revenue when the subsequent usage occurs.

Our contracts 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. 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.

The amount of consideration is typically not adjusted for a significant financing component if the time between payment and the transfer of the related good or service is one year or less under thepractical expedient in the guidance. Our revenue arrangements are typically accounted for under such expedient, as payment is typically due within 30 to 60 days. During the three and six month periods ended June 30, 2026 and 2025, none of our contracts contained a significant financing component.

Revenue from Software as a Service (“SaaS”) contracts is recognized ratably over the subscription period in accordance with the terms of the customer agreement. For the three months ended June 30, 2026 and 2025, we recognized $129 thousand and $50 thousand, respectively, in SaaS revenue. For the six months ended June 30, 2026 and 2025, we recognized $0.3 million and $0.1 million, respectively, in SaaS revenue. SaaS revenue is included in services and other revenue in the consolidated statements of operations.

Cost of revenue associated with each category of revenue may include internal engineering labor, third-party contractors, software license fees, and hardware costs.

Disaggregation of Revenues

We organize ourselves into a single segment that reports to the Chief Executive Officer, who is our CODM. We conduct our operations in the United States and sell our products and services to domestic and international customers. Revenue generated from the following geographic regions was (in thousands):

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

Revenue by contract type was (in thousands):

Revenue from subscription-based contracts includes revenue that may be recognized at a point in time or over time and be part of a fixed fee and or minimum guaranteed fee as well as fees earned and allocated to software maintenance.

Contract Balances

When the timing of our delivery of goods or services is different from the timing of payments made by customers, we recognize either a contract asset (performance precedes customer billing) or a contract liability (customer payment precedes performance). Customers that prepay are represented by the deferred revenue below until the performance obligation is satisfied.

Our contract assets consist of unbilled receivables. Our contract liabilities consist of deferred (unearned) revenue, which is generally related to software maintenance contracts. We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize revenue.

The following tables present changes in our contract assets and liabilities during the three and six months ended June 30, 2026 and 2025 (in thousands):

Remaining Performance Obligations

Remaining performance obligations represent the transaction prices from contracts for which work has not been performed or for which goods and services have not been delivered. We expect to recognize revenue on approximately 95% of the remaining deferred revenue over the next 12 months, with the remainder recognized thereafter. As of June 30, 2026, the aggregate amount of the transaction prices allocated to remaining performance obligations for contracts with a duration greater than one year was $0.2 million.

Note 3 – Fair Value Measurements

The FASB Codification defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy under the FASB Codification are: Level 1 – valuations that are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date; Level 2 – valuations that are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly; and Level 3 – valuations that require inputs that are both significant to the fair value measurement and unobservable.

Cash and cash equivalents, which primarily include money market mutual funds were $2.9 million and $7.3 million as of June 30, 2026 and December 31, 2025, respectively. Marketable securities, which consists of U.S. Treasuries, were $14.0 million and $15.0 millionas of June 30, 2026 and December 31,

2025, respectively. Our assets and liabilities that are measured at fair value on a recurring basis included the following (in thousands):

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

Marketable securities by security type consisted of the following (in thousands):

Note 4 – Goodwill and Intangible Assets

Intangible assets and their estimated useful lives as of June 30, 2026 are as follows (dollars in thousands):

During each of the three and six months ended June 30, 2026 and 2025, we recorded $0.1 million and $0.2 million of intangible assets amortization expense, respectively. We expect to record amortization expense for the remainder of 2026 and each subsequent year and thereafter as follows (in thousands):

As of June 30, 2026, we had $3.1 million of goodwill. During the three months ended March 31, 2026, we identified a triggering event due to a decline in market capitalization and continued operating losses and, as a result, performed an interim quantitative goodwill impairment test. Based on this analysis, we determined that the fair value of the reporting unit exceeded its carrying value and no impairment of goodwill was recorded as of March 31, 2026. During the three and six months ended June 30, 2026, we did not identify any additional triggering events or indicators of impairment, and therefore no additional interim goodwill impairment test was performed. No impairment of goodwill was recorded during the three and six months ended June 30, 2026.

Note 5 – Restructuring Charges

In March 2026, we implemented a cost saving plan to better align our cost structure with current business needs. As a result, we recognized approximately $0.7 million of one-time severance during the three months ended March 31, 2026, consisting primarily of employee severance and related benefits.

We did not record any separation costs during the three months ended June 30, 2026. As of June 30, 2026, approximately $0.3 million of separation costs remained unpaid, which are expected to be paid within the next nine months.

Note 6 – Computation of Earnings per Share

Basic earnings per share is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income or loss by the weighted average number of common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued. For the purposes of this calculation, stock options are considered common stock equivalents in periods in which they have a dilutive effect. Stock options that are anti-dilutive are excluded from the calculation. All outstanding common stock equivalents were not included in the per share calculation for diluted earnings per share where we had a net loss, and the effect of their inclusion would be anti-dilutive.

Note 7 – Equity and Stock-based compensation

The following table presents stock-based compensation expenses included in our unaudited consolidated statements of operations and comprehensive loss (in thousands):

Stock Options -On January 17, 2024, our stockholders approved the Aware Inc. 2023 Equity and Incentive Plan (the “2023 Plan”). Following approval of the 2023 Plan, we ceased making awards under our previous 2001 Nonqualified Stock Plan (as amended, the “2001 Plan”).

During the three and six months ended June 30, 2026, the Company granted stock options to purchase an aggregate of 0 and 10,000 shares of common stock under the 2023 Equity and Incentive Plan, respectively. The stock options granted in the six months ended June 30, 2026 were granted as incentive stock options.

During the three and six months ended June 30, 2025, the Company granted stock options to purchase an aggregate of 0 and 1,165,197 shares of common stock, respectively, under the 2023 Equity and Incentive Plan. Of the total stock options granted in the three and six months ended June 30, 2025,327,840 options were granted as incentive stock options and 837,357 as non-qualified stock options.

No stock options were exercised in either period.

The stock options granted during the three months ended March 31, 2025 included 105,000 incentive stock options to a hired executive officer and 1,060,197 options, comprising both incentive and non-qualified options granted to Ajay Amlani, in connection with his appointment as the Company’s Chief Executive Officer. Within the grant to Mr. Amlani,848,157 options were subject to time-based vesting, with 25 percent vested on the one-year anniversary of the grant date and the remaining 75 percent vesting in 36 equal monthly installments thereafter, subject to Mr. Amlani's continued service. The remaining 212,040 options granted to Mr. Amlani were performance-based and divided equally between two tranches. The first tranche was eligible to vest if certain minimum thresholds for bookings growth for 2025 were achieved, with incremental vesting for higher levels of growth up to a maximum threshold. The second tranche is subject to similar performance conditions based on year-over-year bookings growth in 2026. In both cases, Mr. Amlani must remain in service through December 31 of the applicable performance year for any shares to vest. Expense recognition for the option grant is based on the fair value on the grant date and reflects management’s assessment of the probability of achieving the specified performance conditions. Expense is recognized over the requisite service period and is adjusted for changes in the probability of achievement, as necessary. During 2025, the performance condition for the 2025 tranche was not achieved and the related performance-based options were cancelled. Any compensation expense previously recognized for that tranche was reversed during 2025. Compensation expense related to the 2026 tranche, will be recognized over the applicable service period in 2026 if performance conditions are met.

Restricted Stock Units - The 2023 Plan permits us to grant restricted stock units to our directors, officers, and employees. Upon vesting, each restricted stock unit entitles the recipient to receive a number of shares of common stock as set forth in the relevant restricted stock unit agreement. Stock-based compensation expense for restricted stock units is determined based on the fair market value of our stock on the date of grant, provided the number of shares in the grant is fixed on the grant date.

We granted 0 and 217,354 restricted stock units to directors, officers, and employees during the three and sixmonths ended June 30, 2026. Of the 217,354 restricted stock units granted during the six months ended

June 30, 2026,108,677 vested shortly after June 30, 2026 and the remaining are scheduled to vest shortly after December 31, 2026. No restricted stock units were forfeited during the three or six months ended June 30, 2026

During the three and six months ended June 30, 2025 we granted 359,317 and 771,184 restricted stock units, respectively, to directors, officers, and employees. Of these,250,355 restricted stock units are vested in two installments of 122,818 and 127,537 shares shortly after June 30, 2025 and December 31, 2025, respectively. In addition,166,229 restricted stock units were granted on March 13, 2025 to Mr. Amlani in connection with an amendment to his employment agreement. The amendment provided that 80% of Mr. Amlani's CEO’s base salary for the period from March 16, 2025 through December 31, 2025 will be paid in restricted stock units. The award represented the right to receive 166,229 shares and vested in nine equal monthly installments beginning on April 16, 2025 and continuing on the 16th of each month through December 16, 2025. All awards were subject to Mr. Amlani's continued service through the applicable vesting dates.

In addition,354,600 restricted stock units were granted on June 13, 2025 to Mr. Amlani in connection with a further amendment to his employment agreement. The amendment provides that 75% of Mr. Amlani's CEO’s base salary for the period from January 1, 2026 through December 31, 2027 will be paid in restricted stock units. The award represents the right to receive 354,600 shares and will vest in twenty four equal monthly installments beginning on January 16, 2026 and continuing on the 16th of each month through December 16, 2027. All awards are subject to Mr. Amlani's continued service through the applicable vesting dates. No restricted stock units were forfeited during the three or six months ended June 30, 2025.

Share Purchases -On March 1, 2022, our Board of Directors authorized a new stock repurchase program pursuant to which we may purchase up to $10.0 million of our common stock. On November 30, 2023, our Board of Directors extended the program through December 31, 2025. As of June 30, 2025 we had repurchased $2.1 million of our common stock pursuant to this program. During the three and six months ended June 30, 2025 we purchased 41,020 and 75,457 shares of common stock, respectively. The program did not obligate us to acquire any particular amount of common stock. As of December 31, 2025 the plan expired. We didnot repurchase any shares of our common stock during the three and six months ended June 30, 2026.

Note 8 – Income Taxes

During the three months ended June 30, 2026 and 2025, we recorded an income tax provision of approximately $1 thousand and $26 thousand, respectively. During the six months ended June 30, 2026 and 2025, we recorded an income tax provision of approximately $9 thousand and $34 thousand, respectively.

We have evaluated the positive and negative evidence bearing upon our ability to realize our deferred tax assets, which primarily consist of net operating loss carryforwards and research and development tax credits. We considered the history of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and we have concluded that it is more likely than not that we will not realize the benefits of our deferred tax assets. As a result, as of June 30, 2026 and December 31, 2025, we have a full valuation allowance recorded against our net deferred tax assets.