UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
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Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period from _________ to _________
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of |
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Incorporation or Organization) |
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(Address of Principal Executive Offices)
(Zip Code)
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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Trading Symbol |
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Name of Each Exchange on Which Registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ___
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding of the registrant’s common stock as of July 31, 2024 was
AWARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2024
TABLE OF CONTENTS
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Page |
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PART I |
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3 |
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Item 1. |
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Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 |
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4 |
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and June 30, 2023 |
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6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4. |
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PART II |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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23 |
2
PART 1. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
AWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
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June 30, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Accounts receivable, net |
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Unbilled receivables, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Right of use asset |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Current portion of operating lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Long-term deferred revenue |
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Long-term operating lease liabilities |
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Total long-term liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
3
AWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHNSIVE LOSS
(in thousands, except per share data)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue: |
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Software licenses |
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$ |
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$ |
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$ |
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$ |
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Software maintenance |
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Services and other |
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Total revenue |
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Costs and expenses: |
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Cost of services and other revenue |
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Research and development |
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Selling and marketing |
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General and administrative |
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Total costs and expenses |
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Operating loss |
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Interest income |
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Loss before provision for income taxes |
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Provision for income taxes |
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— |
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— |
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Net loss |
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Net loss per share – basic |
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Net loss per share – diluted |
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Weighted-average shares – basic |
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Weighted-average shares – diluted |
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Other comprehensive income (loss), net of tax: |
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Unrealized (loss) gain on available-for-sale securities |
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Comprehensive loss |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
4
AWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six Months Ended |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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Adjustments to reconcile net loss to net cash |
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Depreciation and amortization |
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Stock-based compensation |
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Interest on note receivable |
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— |
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Allowance for credit losses |
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Non-cash lease expense |
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Changes in assets and liabilities: |
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Accounts receivable |
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Unbilled receivables |
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Prepaid expenses and other current assets |
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Tax receivable |
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— |
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Accounts payable |
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Accrued expenses |
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Deferred revenue |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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Purchase of marketable securities |
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Sale of marketable securities |
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Net cash provided by (used in) investing activities |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
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Payments made for taxes of employees who surrendered |
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— |
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Repurchase of common stock |
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— |
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Net cash provided by (used in) financing activities |
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Increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental disclosure: Cash paid for income taxes |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
5
AWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
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For the Three and Six Months Ended |
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June 30, 2024 |
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Accumulated Other |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Comprehensive Income (Loss) |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of unrestricted stock |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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Net loss |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock under employee stock purchase plan |
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— |
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Stock-based compensation expense |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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( |
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Net loss |
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— |
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— |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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For the Three and Six Months Ended |
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June 30, 2023 |
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Accumulated Other |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Comprehensive Income (Loss) |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of unrestricted stock |
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— |
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— |
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Shares surrendered by employees to pay taxes related to unrestricted stock |
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— |
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— |
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— |
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Repurchase of common stock |
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( |
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( |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of common stock under employee stock purchase plan |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
6
AWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 – Description of the Company and Basis of Presentation
Description of the Company
We are a global biometric platform company that uses data science, machine learning, and artificial intelligence to tackle everyday business and identity challenges through biometric 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.
We have been engaged in this business since 1993. 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.
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, 2023 in conjunction with our 2023 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, 2024, and of operations and cash flows for the interim periods ended June 30, 2024 and 2023.
The results of operations for the interim periods ended June 30, 2024 are not necessarily indicative of the results to be expected for the year.
7
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. The most significant estimates included in the financial statements pertain to revenue recognition, reserves for credit losses, valuation of the investment in the note receivable, goodwill and long-lived asset impairment and valuation allowance for deferred income tax assets. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires retrospective disclosure of significant segment expenses and other segment items on an annual and interim basis. Additionally, it requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”). This ASU will be effective for our fiscal year ending on December 31, 2024 and interim periods beginning in fiscal 2025, with early adoption permitted. We are assessing the impact of the standard on our consolidated financial statements.
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 our fiscal year ending on December 31, 2025, with early adoption permitted. We are assessing the impact of the standard on our 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 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. Other revenue includes hardware sales that may be included in a software license, 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
8
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 not adjusted for a significant financing component if the time between payment and the transfer of the related good or service is expected to be one year or less under the
Also, to the extent relevant in future periods with the adoption of our current products to be delivered in a hosted environment with AwareID, we expect to recognize revenue from our SaaS offerings in future periods. SaaS offerings will be recognized ratably over the subscription period. For the three and six months ended June 30, 2024 and 2023, we generated a de minimis amount of revenue from SaaS contracts.
Disaggregation of Revenues
We organize ourselves into a single segment that reports to the Chief Executive Officer who is our chief operating decision maker. We conduct our operations in the United States and sell our products and
9
services to domestic and international customers.
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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United States |
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$ |
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$ |
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$ |
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$ |
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United Kingdom |
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Rest of World |
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$ |
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$ |
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$ |
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$ |
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Revenue by timing of transfer of goods or services was (in thousands):
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Goods or services transferred at a point in time |
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$ |
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$ |
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$ |
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$ |
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Goods or services transferred over time |
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$ |
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$ |
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$ |
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$ |
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Revenue by product group was (in thousands):
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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License and service contracts |
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$ |
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$ |
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$ |
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$ |
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Subscription-based contracts |
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$ |
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$ |
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$ |
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Revenue from subscription-based contracts include revenue that may be recognized at a point in time or over time and be part of a fixed fee and or minimum guarantee 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 contractual due date) 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.
10
The following tables present changes in our contract assets and liabilities during the three and six months ended June 30, 2024 and 2023 (in thousands):
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Balance at |
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Revenue |
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Three months ended June 30, 2024 |
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Contract assets: |
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Unbilled receivables |
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$ |
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$ |
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$ |
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Three months ended June 30, 2023 |
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Contract assets: |
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Unbilled receivables |
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Balance at |
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Three months ended June 30, 2024 |
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Contract liabilities: |
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Deferred revenue |
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$ |
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$ |
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Three months ended June 30, 2023 |
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Contract liabilities: |
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Deferred revenue |
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$ |
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Balance at Beginning of Period |
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Revenue Recognized In |
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Billings |
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Six months ended June 30, 2024 |
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Contract assets: |
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Unbilled receivables |
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$ |
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$ |
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Six months ended June 30, 2023 |
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Contract assets: |
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Unbilled receivables |
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Balance at Beginning of Period |
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Revenue Recognized |
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Six months ended June 30, 2024 |
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Contract liabilities: |
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Deferred revenue |
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$ |
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Six months ended June 30, 2023 |
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Contract liabilities: |
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Deferred revenue |
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$ |
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) |
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$ |
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11
Remaining Performance Obligations
Remaining performance obligations represent the transaction prices from contracts for which work has not been performed or goods and services have not been delivered. We expect to recognize revenue on approximately
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 $
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Fair Value Measurement at June 30, 2024 Using: |
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Quoted |
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Significant |
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Significant |
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Total |
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