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What changed in AWARE INC /MA/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of AWARE INC /MA/'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+112 added−126 removedSource: 10-K (2025-03-13) vs 10-K (2024-03-15)

Top changes in AWARE INC /MA/'s 2024 10-K

112 paragraphs added · 126 removed · 98 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeCompetitive Business Conditions A significant number of established companies have developed or are developing and marketing software and hardware for biometrics products and applications that currently compete with or will compete directly with our offerings. We believe that additional competitors will enter the biometrics market and become significant long-term 6 competitors, and that, as a result, competition will increase.
Biggest changeAs of December 31, 2024, two customers combined represented 34% of our net accounts receivable and unbilled receivables, and as of December 31, 2023, one customer represented 16%, of our net accounts receivable and unbilled receivables. 6 Competitive Business Conditions A significant number of established companies have developed or are developing and marketing software and hardware for biometrics products and applications that currently compete with or will compete directly with our offerings.
Aware’s algorithms are based on diverse data sets from around the world and can be tailored to the unique security and requirements of each customer.
Aware’s algorithms are based on diverse data sets from around the world and can be tailored to the unique security requirements of each customer.
We sell our biometrics software products and services globally through a multifaceted distribution strategy using systems integrators, original equipment manufacturers (“OEMs”), value added resellers (“VARs”), partners, and directly to end user customers. Aware was incorporated in Massachusetts in 1986. We are headquartered at 76 Blanchard Road in Burlington, Massachusetts, and our telephone number at this address is (781) 687-0300.
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 select end user customers. Aware was incorporated in Massachusetts in 1986. We are headquartered at 76 Blanchard Road in Burlington, Massachusetts, and our telephone number at this address is (781) 687-0300.
The SEC also maintains a website, www.sec.gov, that contains reports and other information regarding issuers that file electronically with the SEC. 7 Copies of our (i) Corporate Governance Principles, (ii) charters for the Audit Committee, Compensation Committee, and Nominating Committee, and (iii) Code of Ethics are available in the Investor Relations section of our website at www.aware.com.
The SEC also maintains a website, www.sec.gov, that contains reports and other information regarding issuers that file electronically with the SEC. Copies of our (i) Corporate Governance Principles, (ii) charters for the Audit Committee, Compensation Committee, and Nominating Committee, and (iii) Code of Ethics are available in the Investor Relations section of our website at www.aware.com.
Historically, we sold our software products under perpetual or fixed-term licenses. With the introduction of AwareID, we have incorporated SaaS offerings into our product line-up. While we did not recognize material revenues from our SaaS offerings during 2022 and 2023, we continue to invest in and we expect SaaS to become a significant product offering moving forward.
Historically, we sold our software products under perpetual or fixed-term licenses. With the introduction of AwareID, we have incorporated SaaS offerings into our product line-up. While we did not recognize material revenues from our SaaS offerings during 2024 and 2023, we continue to invest in and we expect SaaS to become a significant product offering moving forward.
ITEM 1. BUSINESS Company Overview Aware, Inc. (“Aware”, “we”, “us”, “our”, or the “Company”) is a leading, biometric identity platform company that validates and secures identities using proven and trusted adaptive biometrics. Aware’s software offerings address the growing challenges that government and commercial enterprises face in knowing, authenticating and securing individuals through frictionless and highly secure user experiences.
ITEM 1. BUSINESS Company Overview Aware, Inc. (“Aware”, “we”, “us”, “our”, or the “Company”) is a leading, biometric identification company that validates and secures identities using proven and trusted biometrics. Aware’s software offerings address the growing challenges that government and commercial enterprises face in knowing, authenticating and securing individuals through frictionless and highly secure user experiences.
Our patents have expiration dates ranging from 2024 to 2041. Although we have patented certain aspects of our technology, we rely primarily on trade secrets to protect our intellectual property. We attempt to protect our trade secrets and other proprietary information through agreements with our customers, suppliers, employees and consultants, and through security measures.
Our patents have expiration dates ranging from 2026 to 2042. Although we have patented certain aspects of our technology, we rely primarily on trade secrets to protect our intellectual property. We attempt to protect our trade secrets and other proprietary information through agreements with our customers, suppliers, employees and consultants, and through security measures.
As of December 31, 2023, we had 76 U.S. patents and 4 foreign patents and approximately 7 pending patent applications. Our patents and patent applications pertain primarily to biometrics and imaging compression. We have let certain patents expire that are not aligned with our business and are not relevant to our current or future activities.
As of December 31, 2024, we had 68 U.S. patents, 4 foreign patents and 7 pending patent applications. Our patents and patent applications pertain primarily to biometrics and imaging compression. We have let certain patents expire that are not aligned with our business and are not relevant to our current or future activities.
Of these employees, 54 were based in Massachusetts and 19 were based outside of Massachusetts. None of our employees are represented by a labor union. We consider our employee relations to be good.
Of these employees, 47 were based in Massachusetts and 17 were based outside of Massachusetts. None of our employees are represented by a labor union. We consider our employee relations to be good.
Major Customers All of our revenue in 2023 and 2022 was derived from unaffiliated customers. One customer represented 17% of total revenue in 2023 and no customer represented 10% or more of total revenue in 2022.
Major Customers All of our revenue in 2024 and 2023 was derived from unaffiliated customers. No customer represented 10% or more of total revenue in 2024, and one customer represented 18% of total revenue in 2023.
If we were found to have infringed any third party’s patents, we could be subject to substantial damages or an injunction preventing us from conducting our business. Employees As of December 31, 2023, we employed 73 people, all based in the U.S. including 39 in engineering and research, 22 in sales and marketing, and 12 in finance and administration.
If we were found to have infringed any third party’s patents, we could be subject to substantial damages or an injunction preventing us from conducting our business. Employees As of December 31, 2024, we employed 64 people, all based in the U.S., including 33 in engineering and research, 20 in sales and marketing, and 11 in finance and administration.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge on or through our website at www.aware.com as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission (“the SEC”).
We cannot guarantee that we will be able to retain our key managers and employees or that we will be able to attract and retain additional highly qualified personnel in the future. 7 Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge on or through our website at www.aware.com as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission (“the SEC”).
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.
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.
Many current and potential competitors have substantially greater financial, marketing, and research resources than we have. Moreover, low-cost foreign competitors have demonstrated a willingness to sell their products at significantly reduced prices.
This group of competitors includes companies such as FaceTec, iProov, and Innovatrics. We expect competition to intensify in the near term in the biometrics market. Many current and potential competitors have substantially greater financial, marketing, and research resources than we have. Moreover, low-cost foreign competitors have demonstrated a willingness to sell their products at significantly reduced prices.
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 We have been engaged in this business since 1993.
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, password-less 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 services.
This group of competitors includes companies such as Idemia, Thales, and NEC. • Component providers that offer biometrics software and hardware components for fingerprint, facial, iris and voice biometric identification. This group of competitors includes companies such as FaceTec, iProov, and Innovatrics. We expect competition to intensify in the near term in the biometrics market.
Our current principal competitors include: • Diversified technology providers that offer integrated biometrics solutions to governments, law enforcement agencies and other commercial organizations. This group of competitors includes companies such as Idemia, Thales, and NEC. • Component providers that offer biometrics software and hardware components for fingerprint, facial, iris and voice biometric identification.
Some projects are followed by subsequent follow-on projects that serve to change or extend the features and functionality of the initial system.
Some projects are followed by subsequent follow-on projects that serve to change or extend the features and functionality of the initial system. Distribution Methods We sell our solutions and services predominantly through three principal channels of distribution: i) Partner sales – This category includes resellers that market and sell Aware-branded solutions to end users.
Companies competing with us may introduce solutions that are competitively priced, have increased performance or functionality or incorporate technological advances we have not yet developed or implemented. Our current principal competitors include: • Diversified technology providers that offer integrated biometrics solutions to governments, law enforcement agencies and other organizations.
We believe that additional competitors will enter the biometrics market and become significant long-term competitors, and that, as a result, competition will increase. Companies competing with us may introduce solutions that are competitively priced, have increased performance or functionality or incorporate technological advances we have not yet developed or implemented.
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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.
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Additionally, this category includes system integrators, consulting partners, independent software vendors (ISVs), distributors, and managed service providers (MSPs) that market, sell, deploy, and support our solutions.
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Distribution Methods We sell our products, solutions and services through three principal channels of distribution: i) Systems integrator channel – we sell to systems integrators that incorporate our software products and solutions into biometric systems that are delivered primarily to government end users. ii) Direct channel – we sell directly to government and as well as commercial customers. iii) OEM and VAR channel – we sell to hardware and software solution providers that incorporate our software products into their products for resale or use in their solution offerings or integrated software products.
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It also includes referral partners who identify opportunities but do not resell or directly deliver solutions. ii) Direct channel – We sell directly to federal, state, and local government agencies, as well as large enterprise customers in both the public and commercial sectors. iii) OEM partnerships – System integrators, ISVs, MSPs, and hardware vendors that integrate our biometric components and SDKs into their platforms or applications, which are then sold independently.
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As of December 31, 2023, one customer represented 16% of our net accounts receivable and unbilled receivables and as of December 31, 2022, two customers combined for 37%, of our net accounts receivable and unbilled receivables.
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We cannot guarantee that we will be able to retain our key managers and employees or that we will be able to attract and retain additional highly qualified personnel in the future.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe biometrics industry is characterized by rapid technological change and evolving industry standards, which could render our existing products obsolete. Our future success will depend upon our ability to develop and introduce a variety of new capabilities and enhancements to our existing products in order to address the changing and sophisticated needs of the marketplace.
Biggest changeOur future success will depend upon our ability to develop and introduce a variety of new capabilities and enhancements to our existing products in order to address the changing and sophisticated needs of the marketplace. Frequently, technical development programs in the biometrics industry require assessments to be made of the future direction of technology, which is inherently difficult to predict.
Unfavorable changes in economic conditions, including recessions, inflation, turmoil in financial markets, changes caused by global crisis such as a pandemic, the ongoing conflict between Russia and Ukraine and resulting economic sanctions, conflicts in the Middle East, or other changes in economic conditions, could harm our business, results of operations, and financial conditions as a result of: • reduced demand for our products; • increased risk of order cancellations or delays; • increased pressure on the prices for our products; • greater difficulty in collecting accounts receivable; • risks to our liquidity, including the possibility that we might not have access to our cash when needed; and • rising interest rates, recessionary cycles, and inflationary pressures, that could make our products more expensive or could increase our costs. • health epidemics, impacting the markets and communities in which we, our partners and clients operate.
Unfavorable changes in economic conditions, including recessions, inflation, turmoil in financial markets, changes caused by global crisis such as a pandemic, the ongoing conflict between Russia and Ukraine and resulting economic sanctions, conflicts in the Middle East, or other changes in economic conditions, could harm our business, results of operations, and financial conditions as a result of: • reduced demand for our products; • increased risk of order cancellations or delays; • increased pressure on the prices for our products; • greater difficulty in collecting accounts receivable; • risks to our liquidity, including the possibility that we might not have access to our cash when needed; and • rising interest rates, recessionary cycles, and inflationary pressures, that could make our products more expensive or could increase our costs. 13 • health epidemics, impacting the markets and communities in which we, our partners and clients operate.
The expansion of the biometrics market and the market for our biometrics products and services depends on a number of factors, such as: 9 • the cost, performance and reliability of our products and services and the products and services offered by our competitors; • the continued growth in demand for biometrics solutions within the government and law enforcement markets, as well as the development and growth of demand for biometric solutions in markets outside of government and law enforcement; • customers’ perceptions regarding the benefits of biometrics solutions; • public perceptions regarding the intrusiveness of these solutions and the manner in which organizations use the biometric information collected; • public perceptions regarding the confidentiality of private information; • proposed or enacted legislation related to privacy of biometric information; • customers’ satisfaction with biometrics solutions; and • marketing efforts and publicity regarding biometrics solutions.
The expansion of the biometrics market and the market for our biometrics products and services depends on a number of factors, such as: • the cost, performance and reliability of our products and services and the products and services offered by our competitors; • the continued growth in demand for biometrics solutions within the government and law enforcement markets, as well as the development and growth of demand for biometric solutions in markets outside of government and law enforcement; • customers’ perceptions regarding the benefits of biometrics solutions; • public perceptions regarding the intrusiveness of these solutions and the manner in which organizations use the biometric information collected; • public perceptions regarding the confidentiality of private information; • proposed or enacted legislation related to privacy of biometric information; • customers’ satisfaction with biometrics solutions; and • marketing efforts and publicity regarding biometrics solutions.
Further, the use of third-party hosting facilities requires us to rely on the functionality and availability of the third parties’ services, as well as their data security, which despite our due diligence, may be or become inadequate. Part of our future business is dependent on market demand for, and acceptance of, the cloud-based model for the use of software.
Further, the use of third-party hosting facilities requires us to rely on the functionality and availability of the third parties’ services, as well as their data security, which despite our due diligence, may be or become inadequate. 11 Part of our future business is dependent on market demand for, and acceptance of, the cloud-based model for the use of software.
The most significant estimates included in the financial statements pertain to revenue recognition, allowance for credit losses, valuation of acquired assets and assumed liabilities in business 14 combinations, valuation of contingent acquisition payments, valuation of investment in note receivable, goodwill and long-lived asset impairment and valuation allowance for deferred income tax assets. Actual results could differ from those estimates.
The most significant estimates included in the financial statements pertain to revenue recognition, allowance for credit losses, valuation of acquired assets and assumed liabilities in business combinations, valuation of contingent acquisition payments, valuation of investment in note receivable, goodwill and long-lived asset impairment and valuation allowance for deferred income tax assets. Actual results could differ from those estimates.
We may not have adequate resources available to us or may not adequately keep pace with appropriate requirements in order to effectively compete in the marketplace. 10 Our software products may have errors, defects or bugs, which could result in delayed or lost revenue, expensive correction, liability to our customers, and claims against us.
We may not have adequate resources available to us or may not adequately keep pace with appropriate requirements in order to effectively compete in the marketplace. Our software products may have errors, defects or bugs, which could result in delayed or lost revenue, expensive correction, liability to our customers, and claims against us.
We believe that the success and growth of our business will continue to depend on government customers purchasing our products and services either directly from us or indirectly through our channel partners. Changes in government contracting policies or government budgetary constraints may adversely affect our financial performance.
We believe that the success and growth of our business will continue to depend on government customers purchasing our products and services either directly from us or indirectly through our channel partners. 8 Changes in government contracting policies or government budgetary constraints may adversely affect our financial performance.
The risk and difficulties associated with acquiring and integrating companies and other assets include, among others, difficulties assimilating the operations and personnel of acquired companies, challenges in realizing the value of the acquired assets relative to the price paid, distraction of management from our ongoing businesses and potential product disruptions associated with 13 the sale of the acquired company’s products.
The risk and difficulties associated with acquiring and integrating companies and other assets include, among others, difficulties assimilating the operations and personnel of acquired companies, challenges in realizing the value of the acquired assets relative to the price paid, distraction of management from our ongoing businesses and potential product disruptions associated with the sale of the acquired company’s products.
Acceptance of biometrics as an alternative to such traditional methods depends upon a number of factors including: i) the performance and reliability of biometric solutions; ii) costs involved in adopting and integrating biometric solutions; iii) public concerns regarding privacy; and iv) potential privacy legislation.
Acceptance of biometrics as an alternative to such traditional methods depends upon a number of factors including: i) the performance and reliability of biometric 9 solutions; ii) costs involved in adopting and integrating biometric solutions; iii) public concerns regarding privacy; and iv) potential privacy legislation.
A large and increasing number of participants in the technology industry, including companies known as non-practicing entities, have applied for or obtained patents. Some of these patent holders have demonstrated a readiness to commence litigation based on allegations of patent infringement.
A large and increasing number of participants in the technology industry, including companies known as non-practicing entities, have applied for or obtained patents. Some of these patent holders have demonstrated a readiness to commence 12 litigation based on allegations of patent infringement.
Our employment 12 relationships are at-will and we have had key employees leave in the past. We cannot assure you that one or more key employees will not leave in the future.
Our employment relationships are at-will and we have had key employees leave in the past. We cannot assure you that one or more key employees will not leave in the future.
In addition, our business may also be adversely affected by: i) the imposition of tariffs, duties and other import restrictions on goods and services we purchase from non-domestic suppliers; or ii) the imposition of economic sanctions on existing or potential customers or suppliers, or iii) by the imposition of export restrictions on products we sell internationally.
In addition, our business may also be adversely affected by: i) the imposition of tariffs, duties and other import restrictions on goods and services we purchase from non-domestic suppliers; ii) the imposition of tariffs, duties or other restrictions on the goods and services we provide outside of the United States; iii) the imposition of economic sanctions on existing or potential customers or suppliers, or iv) by the imposition of export restrictions on products we sell internationally.
Our financial results may be negatively affected by a number of factors as well, including the following: • write-offs of investments in private companies; • any lack or reduction of government funding and the political, budgetary and purchasing constraints of government customers who purchase products and services directly or indirectly from us; • the terms of customer contracts that affect the timing of revenue recognition; • the size and timing of our receipt of customer orders; • significant fluctuations in demand for our products and services; • any loss of a key customer or one of its key customers; • new competitors entering our markets, or the introduction of enhanced solutions from new or existing competitors; • competitive pressures on selling prices; • any cancellations, or delays of orders or contract amendments by government customers; • higher than expected costs, asset write-offs, and other one-time financial charges; and • general economic trends and other factors.
Our financial results may be negatively affected by a number of factors as well, including the following: • any lack or reduction of government funding and the political, budgetary and purchasing constraints of government customers who purchase products and services directly or indirectly from us; • the terms of customer contracts that affect the timing of revenue recognition; • the size and timing of our receipt of customer orders; • significant fluctuations in demand for our products and services; • any loss of a key customer or one of its key customers; • new competitors entering our markets, or the introduction of enhanced solutions from new or existing competitors; • competitive pressures on selling prices; • any cancellations, or delays of orders or contract amendments by government customers; • higher than expected costs, asset write-offs, and other one-time financial charges; and • general economic trends and other factors. • write-offs of investments in private companies; As a result of these factors, we believe that period-to-period comparisons of our revenue levels and operating results are not necessarily meaningful.
To compete effectively in this environment, we must continually develop and market new and enhanced solutions and technologies at competitive prices and must have the resources available to invest in significant research and development activities. Our failure to compete successfully could cause our revenues and market share to decline.
To compete effectively in this environment, we must continually develop and market new and enhanced solutions and technologies at competitive prices and must have the resources available to invest in significant research and development activities.
Among the factors that could adversely affect our business are: • changes in fiscal policies or decreases in available government funding, • changes in government funding priorities; • changes in government programs or applicable requirements; 8 • the adoption of new laws or regulations or changes to existing laws or regulations relating to the provision of biometrics services or the use of biometric data; • changes in political or social attitudes with respect to security and defense issues; • changes in audit policies and procedures of government entities; • potential delays or changes in the government appropriations process; and • delays in the payment of our invoices by government payment offices.
Department of Government Efficiency, intended to reduce the size of the federal government and federal spending, • other changes in fiscal policies or decreases in available government funding, • changes in government funding priorities; • changes in government programs or applicable requirements; • the adoption of new laws or regulations or changes to existing laws or regulations relating to the provision of biometrics services or the use of biometric data; • changes in political or social attitudes with respect to security and defense issues; • changes in audit policies and procedures of government entities; • potential delays or changes in the government appropriations process; and • delays in the payment of our invoices by government payment offices.
If we are unable to maintain effective internal controls over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decline in the price of our common stock.
If we were the subject of such litigation, it could result in substantial costs and divert management's attention and resources. 14 If we are unable to maintain effective internal controls over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decline in the price of our common stock.
We are subject to income taxes in the United States. Significant judgments are required in determining our provisions for income taxes. In the course of preparing our tax provisions and returns, we must make calculations where the ultimate tax determination may be uncertain. Our tax returns are subject to examination by the Internal Revenue Service (“IRS”) and state tax authorities.
In the course of preparing our tax provisions and returns, we must make calculations where the ultimate tax determination may be uncertain. Our tax returns are subject to examination by the Internal Revenue Service (“IRS”) and state tax authorities. There can be no assurance as to the outcome of these examinations.
We expect to derive a growing percentage of our revenue from the sale of cloud-based services. As a result, widespread acceptance and use of the cloud-based business model is critical to our future growth and success. Under the perpetual or fixed term license model for software procurement, users of the software typically run applications on their hardware.
We expect to derive a growing percentage of our revenue from the sale of cloud-based services. As a result, widespread acceptance and use of the cloud-based business model is critical to our future growth and success.
We derive a significant portion of our revenue directly or indirectly from government customers, and our business may be adversely affected by changes in the contracting or fiscal policies of those governmental entities. We derive a significant portion of our revenue directly or indirectly from federal, international, state and local governments.
You should not rely on our quarterly or annual revenue and operating results to predict our future performance. We derive a significant portion of our revenue directly or indirectly from government customers, and our business may be adversely affected by changes in the contracting or fiscal policies of those governmental entities.
If the market for cloud-based, software solutions ceases to grow or grows slower than we currently anticipate, demand for our services could be negatively affected. 11 Our operational systems, networks and products are subject to continually evolving cybersecurity or other technological risks, which could result in the disclosure of our or our customers' confidential information, damage to our reputation, additional costs, regulatory penalties and financial losses.
Our operational systems, networks and products are subject to continually evolving cybersecurity or other technological risks, which could result in the disclosure of our or our customers' confidential information, damage to our reputation, additional costs, regulatory penalties and financial losses.
Moreover, companies that have experienced volatility in the market price of their stock often are subject to securities class action litigation. If we were the subject of such litigation, it could result in substantial costs and divert management's attention and resources.
Moreover, companies that have experienced volatility in the market price of their stock often are subject to securities class action litigation.
These arrangements can impact or restrict integration of acquired businesses and can result in disputes, including litigation. In addition, there is uncertainty regarding the realizability of investments in private companies. Additionally, regardless of the form of consideration we pay, acquisitions and investments could negatively impact our operations and earnings per share. We may have additional tax liabilities.
These arrangements can impact or restrict integration of acquired businesses and can result in disputes, including litigation. In addition, there is uncertainty regarding the realizability of investments in private companies, such as our investment in Omlis Limited that was written down to $0 in 2023.
There can be no assurance as to the outcome of these examinations. If the ultimate determination of taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected.
If the ultimate determination of taxes owed—including income taxes, value-added tax (“VAT”), goods and services tax (“GST”), or other foreign tax obligations—exceeds amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected.
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As a result of these factors, we believe that period-to-period comparisons of our revenue levels and operating results are not necessarily meaningful. You should not rely on our quarterly or annual revenue and operating results to predict our future performance.
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We derive a significant portion of our revenue directly or indirectly from federal, international, state and local governments.
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Frequently, technical development programs in the biometrics industry require assessments to be made of the future direction of technology, which is inherently difficult to predict.
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Among the factors that could adversely affect our business are: • the impact of actions, such as those recently announced by the U.S.
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Because companies are generally predisposed to maintaining control of their IT systems and infrastructure, there may be resistance to the concept of accessing the functionality that software provides as a service through a third party.
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Our failure to compete successfully could cause our revenues and market share to decline. 10 The biometrics industry is characterized by rapid technological change and evolving industry standards, which could render our existing products obsolete.
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While cloud-based solutions are widely adopted across many software sub-sectors, certain industries, such as security and government, have been slower to transition due to concerns over data control, privacy, and regulatory compliance. Under the perpetual or fixed-term license model for software procurement, users typically run applications on their own infrastructure, maintaining direct control over their IT environment.
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Government agencies and security-conscious enterprises may be particularly resistant to shifting mission-critical applications and sensitive data to cloud-based environments due to stringent security requirements, compliance mandates, and perceived risks associated with third-party hosting.
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If the adoption of cloud-based solutions in these sectors grows more slowly than anticipated or fails to gain traction, demand for our services could be negatively affected, which may, in turn, impact our future growth.
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Additionally, regardless of the form of consideration we pay, acquisitions and investments could negatively impact our operations and earnings per share. We may have additional tax liabilities. We are subject to income taxes in the United States and, in certain cases, in foreign jurisdictions. Significant judgments are required in determining our provisions for income taxes.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeRisk Factors” for more information on the Company’s cybersecurity-related risks. Governance The Board of Directors, primarily through its Audit Committee, oversees the Company’s cybersecurity program. Management regularly reports to the Audit Committee on the current state of the Company’s cybersecurity program, including the current threat landscape, cybersecurity risks, and any significant incidents.
Biggest changeAlthough the Company did not experience a material cybersecurity incident during the year ended December 31, 2024, the scope and impact of any future incident cannot be predicted. See “Item 1A. Risk Factors” for more information on the Company’s cybersecurity-related risks. Governance The Board of Directors, primarily through its Audit Committee, oversees the Company’s cybersecurity program.
The Policy includes requirements for incident disclosure and reporting, protocols for incident evaluation, including the use of third-party service providers and partners, and processes for notification and internal escalation of information to the Company’s senior management, incident response team, and Board of Directors (the "Board") and appropriate Board committees. The Policy also addresses requirements for the Company’s external reporting obligations.
The Policy includes requirements for incident disclosure and reporting, protocols for incident 15 evaluation, including the use of third-party service providers and partners, and processes for notification and internal escalation of information to the Company’s senior management, incident response team, and Board of Directors (the "Board") and appropriate Board committees.
The Audit 15 Committee may provide updates to the Board on the substance of these reports and any recommendations for improvements that the Audit Committee deems appropriate.
Management regularly reports to the Audit Committee on the current state of the Company’s cybersecurity program, including the current threat landscape, cybersecurity risks, and any significant incidents. The Audit Committee may provide updates to the Board on the substance of these reports and any recommendations for improvements that the Audit Committee deems appropriate.
The Plan is reviewed and updated, as necessary but no less frequently than once a year, under the leadership of the Company’s Chief Security Officer (“CSO”). Although the Company did not experience a material cybersecurity incident during the year ended December 31, 2023, the scope and impact of any future incident cannot be predicted. See “Item 1A.
The Policy also addresses requirements for the Company’s external reporting obligations. The Plan is reviewed and updated, as necessary but no less frequently than once a year, under the leadership of the Company’s Chief Security Officer (“CSO”).

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeShare repurchase activity during the three months ended December 31, 2023 was as follows: Issuer Purchases of Equity Securities Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (d) Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs October 1 through 31, 2023 22,530 $ 1.49 22,530 $ 8,224,068 November 1 through 30, 2023 5,259 $ 1.55 5,259 $ 8,182,412 December 1 through 31, 2023 — $ — — $ 8,182,412 Total 27,789 $ 1.50 27,789 (1) All reported purchases were made pursuant to a repurchase plan announced by the Company on March 22, 2022 (the “2022 Repurchase Plan”).
Biggest changeShare repurchase activity during the three months ended December 31, 2024 was as follows: Issuer Purchases of Equity Securities Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (d) Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs October 1 through 31, 2024 — $ — — $ 8,182,358 November 1 through 30, 2024 80,093 $ 1.50 80,093 $ 8,062,219 December 1 through 31, 2024 56,958 $ 1.53 56,958 $ 7,975,073 Total 137,051 $ 1.51 137,051 (1) All reported purchases were made pursuant to a repurchase plan announced by the Company on March 22, 2022 (the “2022 Repurchase Plan”).
This number does not include shareholders who hold our shares in a “nominee” or “street” name. We paid no dividends in 2023 or 2022. We anticipate that we will continue to reinvest any earnings to finance our future operations although we may also pay special cash dividends if our Board of Directors deems it appropriate.
This number does not include shareholders who hold our shares in a “nominee” or “street” name. We paid no dividends in 2024 or 2023. We anticipate that we will continue to reinvest any earnings to finance our future operations although we may also pay special cash dividends if our Board of Directors deems it appropriate.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is the only class of stock we have outstanding, and it trades on the Nasdaq Global Market under the symbol AWRE. As of March 1, 2024, we had approximately 64 shareholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is the only class of stock we have outstanding, and it trades on the Nasdaq Global Market under the symbol AWRE. As of March 1, 2025, we had 60 shareholders of record.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe dollar increase in selling and marketing expense was primarily due to increased bonus and commission expense of $0.6 million as a result of increased revenue, increased salary related expenses of $0.5 million, and increased software costs of $0.3 million, partially offset by a decrease in severance costs related to the termination of our Chief Commercial Officer position in 2022 of $0.2 million.
Biggest changeAs 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.
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 25 segment items on an annual and interim basis. Additionally, it requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”).
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”).
Historically, we have not made any significant payments on the above guarantees and indemnifications and no amount has been accrued in the audited financial statements included elsewhere in this Annual Report on Form 10-K with respect to these guarantees and indemnifications. 22 To date, inflation has not had a material impact on our financial results.
Historically, we have not made any significant payments on the above guarantees and indemnifications and no amount has been accrued in the audited financial statements included elsewhere in this Annual Report on Form 10-K with respect to these guarantees and indemnifications. To date, inflation has not had a material impact on our financial results.
Revenue for the 23 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 software license and software maintenance are generally considered 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 software license and software maintenance are generally considered distinct performance obligations.
Accordingly, we are not exposed to any financing, liquidity, market or credit risk. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included elsewhere in this Annual Report.
Accordingly, we are not exposed to any financing, liquidity, market or credit risk. 22 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included elsewhere in this Annual Report.
Any royalties not subject to the guaranteed minimum or earned in excess of the minimum amount are recognized as revenue when the subsequent usage occurs. Revenue allocated to the software maintenance is recognized over the contract term.
Any royalties not subject to the guaranteed 23 minimum or earned in excess of the minimum amount are recognized as revenue when the subsequent usage occurs. Revenue allocated to the software maintenance is recognized over the contract term.
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.
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. 25
Our revenue arrangements are typically accounted for under such expedient, as payment is typically due within 30 to 60 days. As of December 31, 2023 and 2022, none of our contracts contained a significant financing component. Goodwill and intangible assets impairment. Our goodwill and intangible assets result from our previous business acquisitions.
Our revenue arrangements are typically accounted for under such expedient, as payment is typically due within 30 to 60 days. As of December 31, 2024 and 2023, none of our contracts contained a significant financing component. Goodwill and intangible assets impairment. Our goodwill and intangible assets result from our previous business acquisitions.
Cash flows from financing activities A discussion of cash flow from financing activities for each of the last two years is as follows: Year ended December 31, 2023.
Cash flows from financing activities A discussion of cash flow from financing activities for each of the last two years is as follows: Year ended December 31, 2024.
Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. Total income tax expense for the years ended December 31, 2023 and 2022 was $59 thousand and $49 thousand, respectively.
Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. Total income tax expense for the years ended December 31, 2024 and 2023 was $65 thousand and $59 thousand, respectively.
As of December 31, 2023, 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 2024, 2025, 2026, and 2027, $0.8 million in 2028, and $3.5 million thereafter.
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.
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. Year ended December 31, 2022.
Financing activity cash used of $0.2 million was primarily the result of $0.2 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. Year ended December 31, 2023.
Summary of Financial Results 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. 2023 compared to 2022 Revenue and operating loss in 2023 were $18.2 million and $8.5 million, respectively, which compared to revenue and operating loss in 2022 of $16.0 million and $2.2 million, respectively.
Summary of Financial Results 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. 2024 compared to 2023 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.
Selling and Marketing Expense Selling and marketing expense primarily consists of costs for: i) sales and marketing personnel, including salaries, sales commissions, stock-based compensation, fringe benefits, travel, and facilities; and ii) advertising and promotion expenses. Selling and marketing expense increased 14% from $7.0 million in 2022 to $8.0 million in 2023.
Selling and Marketing Expense Selling and marketing expense primarily consists of costs for: i) sales and marketing personnel, including salaries, sales commissions, stock-based compensation, fringe benefits, travel, and facilities; and ii) advertising and promotion expenses. Selling and marketing expense decreased 3% from $8.0 million in 2023 to $7.7 million in 2024.
We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the applicable vesting period of the award on a straight-line basis.
Stock-Based Compensation. We grant stock and stock options to our employees and directors. We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the applicable vesting period of the award on a straight-line basis.
As of December 31, 2023, we had $3.1 million of goodwill and $2.4 million of intangible assets. 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. Fair value of Note Receivable.
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.
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 and cash equivalents 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.
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the years indicated, certain line items from our consolidated statements of operations stated as a percentage of total revenue: Year ended December 31, Revenue: 2023 2022 Software licenses 52 % 46 % Software maintenance 42 45 Services and other 6 9 Total revenue 100 100 Costs and expenses: Cost of services and other 7 8 Research and development 50 57 Selling and marketing 43 43 General and administrative 36 40 Loss on write-off of note receivable 15 - Fair value adjustment to contingent acquisition payment (4 ) (1 ) Gain on sale of property and equipment - (35 ) Total costs and expenses 147 112 Operating loss (47 ) (12 ) Interest and other income 7 3 Loss before provision for income taxes (40 ) (9 ) Provision for income taxes - - Net loss (40 %) (9 %) Summary of Operations We are primarily engaged in the development and sale of biometrics products, solutions and services.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the years indicated, certain line items from our consolidated statements of operations stated as a percentage of total revenue: Year ended December 31, Revenue: 2024 2023 Software licenses 44 % 52 % Software maintenance 50 42 Services and other 6 6 Total revenue 100 100 Costs and expenses: Cost of services and other 7 7 Research and development 45 50 Selling and marketing 44 43 General and administrative 37 36 Loss on write-off of note receivable - 15 Fair value adjustment to contingent acquisition payment - (4 ) Total costs and expenses 133 147 Operating loss (33 ) (47 ) Interest and other income 7 7 Loss before provision for income taxes (26 ) (40 ) Provision for income taxes 1 - Net loss (25 %) (40 %) Summary of Operations We are primarily engaged in the development and sale of biometrics products, solutions and services.
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. Cost of services and other revenue was $1.3 million in 2023 and 2022.
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. Cost of services and other revenue decreased 11% from $1.3 million in 2023 to $1.1 million in 2024.
For stock awards, we determine the fair value of the award by using 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. For stock options, we use the Black-Scholes valuation model to estimate the fair value of the award.
For stock awards, we determine the fair value of the award by using 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. For stock options, we use the Black-Scholes valuation model to estimate fair value. This model considers both observable inputs and assumptions.
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.
The change in cost of services gross margin loss was primarily due to the profitability mix of customer projects. 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.
Cash provided by operations was primarily the result of a $2.4 million decrease in unbilled and accounts receivables, a $1.8 million increase in deferred revenue, add back of $1.5 million of non-cash stock-based compensation, $2.7 million write-off 21 of Note, and $1.4 million related to a tax refund received as a result of our federal income tax carryback claim, which was partially offset by our $7.3 million net loss and a $0.8 million change in the fair value of contingent acquisition payments.
Cash provided by operations was primarily the result of a $2.4 million decrease in unbilled and accounts receivables, a $1.8 million increase in deferred revenue, add back of $1.5 million of non-cash stock-based compensation, $2.7 million write-off of Note, and $1.4 million related to a tax refund received as a result of our federal income tax carryback claim, which was partially offset by our $7.3 million net loss and a $0.8 million change in the fair value of contingent acquisition payments. 21 Cash flows from investing activities A discussion of cash flow from investing activities for each of the last two years is as follows: Year ended December 31, 2024.
Income taxes . As part of the process of preparing our consolidated financial statements we are required to estimate our actual current tax expense. We must also estimate temporary and permanent differences that result from differing treatment of certain items for tax and accounting purposes.
As part of the process of preparing our consolidated financial statements we are required to estimate our actual current tax expense. We must also estimate temporary and permanent differences that result from differing treatment of certain items for tax and accounting purposes. These differences result in deferred tax assets and 24 liabilities, which are included in our consolidated balance sheet.
The classification of total engineering costs to research and development expense and cost of services for the years ended December 31, 2023 and 2022 was (in thousands): Years ended December 31, 2023 2022 Research and development expense $ 9,124 $ 9,234 Cost of services and other 1,273 1,260 Total engineering costs $ 10,397 $ 10,494 Total engineering costs decreased 1% from $10.5 million in 2022 to $10.4 million in 2023.
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): Years ended December 31, 2024 2023 Research and development expense $ 7,757 $ 9,124 Cost of services and other 1,132 1,273 Total engineering costs $ 8,889 $ 10,397 Total engineering costs decreased 15% from $10.4 million in 2023 to $8.9 million in 2024.
Cash flows from operating activities A discussion of cash flow from operating activities for each of the last two years is as follows: Year ended December 31, 2023. Cash provided by operating activities was $1.8 million in 2023.
Cash flows from operating activities A discussion of cash flow from operating activities for each of the last two years is as follows: Year ended December 31, 2024.
We purchased $2.5 million of Omlis’ Note Receivable (“Note”) that accrues interest at 5% annually with a maturity date of March 11, 2026. We recorded the fair value of the Note as $0 and $2.6 million as of December 31, 2023 and 2022, respectively.
We purchased $2.5 million of Omlis’ Note Receivable (“Note”) that accrues interest at 5% annually with a maturity date of March 11, 2026. We recorded the fair value of the Note as $0 as of both December 31, 2024 and 2023 as a result of our evaluation of the impact of Omlis's liquidity issues on the collectability of the Note.
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 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.
Software maintenance contracts entitle customers to receive software support and software updates, if and when they become available, during the term of the contract. Software maintenance revenue increased 8% from $7.1 million in 2022 to $7.7 million in 2023. As a percentage of total revenue, software maintenance revenue decreased from 44% in 2022 to 42% in 2023.
Software Maintenance Revenue 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. Software maintenance revenue increased 12% from $7.7 million in 2023 to $8.6 million in 2024.
Income Taxes We are subject to income taxes in the United States, and we use estimates in determining our provisions for income taxes. We account for income taxes using the asset and liability method for accounting and reporting income taxes.
The dollar decrease in interest income was primarily due to lower interest rates within our money market accounts. Income Taxes We are subject to income taxes in the United States, and we use estimates in determining our provisions for income taxes. We account for income taxes using the asset and liability method for accounting and reporting income taxes.
This ASU will be effective for the Company’s fiscal December 31, 2024 year-end and interim periods beginning in fiscal 2025, with early adoption permitted. We are assessing the impact of the standard on our consolidated financial statements.
This ASU is effective for the Company’s fiscal December 31, 2024 year-end and interim periods beginning in fiscal 2025, with early adoption permitted. The Company adopted this standard as of January 1, 2024 and the adoption did not have a material impact on the Company’s consolidated financial statements.
Higher revenue in 2023 as compared to 2022 was primarily due to increases in revenue from our perpetual software licenses of $1.4 million, software subscriptions of $0.7 million and software maintenance of $0.6 million, which was partially offset by a decrease in services and other revenue of $0.5 million.
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.
No revenue targets were achieved in 2023 or 2022 and the earnout period was closed as of December 31, 2023. We recorded fair value adjustments of $0.8 million and $0.1 million, for the years ended December 31, 2023 and 2022, respectively.
No revenue targets were achieved and the earnout period was closed as of December 31, 2023. We recorded a fair value adjustment of $0.8 million to contingent acquisition payment for the year ended December 31, 2023. Interest Income Interest income decreased from $1.3 million in 2023 to $1.2 million in 2024.
Higher operating loss in 2023 as compared 2022 was primarily due to a $5.7 million gain we recorded related to the sale of our corporate office in 2022, a negative 18 adjustment of $2.7 million to a note receivable, and year over year increase in sales and marketing expense of $1.0 million, which was partially offset by increased revenue of $2.2 million and a 2023 fair value adjustment to contingent consideration of $0.8 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 18 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.
We expect general and administrative expenses to increase in absolute dollars, but to decrease as a percentage of total revenue. 20 Fair value adjustment to note receivable In March 2022, we entered into a subscription agreement with Omlis Limited, a limited company incorporated and registered in England and Wales and the parent of MIRACL (“Omlis”).
Future trends will be influenced by our ability to scale operations efficiently and drive revenue expansion . 20 Fair value adjustment to note receivable In March 2022, we entered into a subscription agreement with Omlis Limited, a limited company incorporated and registered in England and Wales and the parent of MIRACL (“Omlis”).
Cash flows from investing activities A discussion of cash flow from investing activities for each of the last two years is as follows: Year ended December 31, 2023. Investing activity cash used of $3.1 million was primarily the result of net purchases of marketable securities. Year ended December 31, 2022.
Investing activity provided $6.3 million of cash, primarily as the result of net sales of marketable securities. Year ended December 31, 2023. Investing activity used of $3.1 million of cash, primarily as the result of net purchases of marketable securities.
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. Services and Other Revenue Services revenue consists of fees we charge to perform software development, integration, installation, and customization services.
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.
General and administrative expense was $6.5 million in 2023 and 2022. As a percentage of total revenue, general and administrative expense decreased from 41% in 2022 to 36% in 2023. Fluctuations of general and administrative expenses are expected depending on specific activities in a period.
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.
These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe recovery is not likely, we must establish a valuation allowance.
We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe recovery is not likely, we must establish a valuation allowance. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020.
When compared to services and other revenue, cost of services and other revenue as a percentage increased from 83% in 2022 to 122% in 2023, which resulted in gross margins decreasing from 17% in 2022 to gross margin loss 22% in 2023. The decrease in cost of services gross margins was primarily due to the profitability mix of customer projects.
When compared to services and other revenue, cost of services and other revenue as a percentage decreased from 122% in 2023 to 110% in 2024, which resulted in reduced gross margin loss from 22% in 2023 to 10% gross margin loss in 2024.
The dollar increase in software maintenance revenue was primarily due to software maintenance related to perpetual license sales during the year ended December 31, 2023. A majority of our customers purchase software maintenance contracts when they initially purchase software licenses.
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.
This valuation model takes into account the exercise price of the award, as well as a variety of significant assumptions. The assumptions used to estimate the fair value of stock options include the expected term, the expected volatility of our stock over the expected term, the risk-free interest rate over the expected term, and our expected annual dividend yield.
Observable inputs include the exercise price of the award and the risk-free interest rate over the expected term. Assumptions used in the valuation include the expected term of the option, the expected volatility of our stock over the expected term, and our expected annual dividend yield. Income taxes .
Financing activity cash used of $1.2 million was primarily the result of $1.3 million used to buy back stock under our stock repurchase program and $26 thousand used to pay income taxes for employees who surrendered shares of common stock in connection with stock grants, which were partially offset by $0.2 million of proceeds from the issuance of common stock from stock grants.
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. At December 31, 2024, we had cash, cash equivalents, and marketable securities of $27.8 million.
The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The Act contained specific relief and stimulus measures including allowing net operating losses originating in 2018 through 2020 to be carried back five years to offset taxable income in the carryback period.
The Act contained specific relief and stimulus measures including allowing net operating losses originating in 2018 through 2020 to be carried back five years to offset taxable income in the carryback period. 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.
The dollar decrease in services and other revenue was primarily due to fewer active contracts with services during the period. Cost of Services and Other Revenue Cost of services and other revenue consists primarily of engineering costs to perform customer services projects.
As a percentage of total revenue, services and other revenue was 6% in each of 2024 and 2023. Cost of Services and Other Revenue Cost of services and other revenue consists primarily of engineering costs to perform customer services projects.
The significant decrease of $2.6 million to $0 reflects our evaluation of the impact of Omlis's liquidity issues as of December 31, 2023 along with the collectability of the Note. In addition, in January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process, adding to our uncertainty regarding the recoverability of the Note's carrying value.
In addition, in January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process, which remains ongoing, adding to our unlikely recoverability of the Note's carrying value.
As a percentage of total revenue, total engineering costs decreased from 66% in 2022 to 57% in 2023. Our engineering headcount decreased slightly from 46 in 2022 to 42 in 2023. In addition, we recently took additional actions that reduced engineering headcount by approximately 10%. We believe our engineering organization is adequately staffed.
As a percentage of total revenue, total engineering costs decreased from 57% in 2023 to 51% in 2024. 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.
Services and other revenue fluctuate when we commence new projects and/or when we complete projects that were started in previous periods. Services and other revenue decreased 31% from $1.5 million in 2022 to $1.0 million in 2023. As a percentage of total revenue, services and other revenue decreased from 9% in 2022 to 6% in 2023.
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. Services and other revenue was $1.0 million for the years ended December 2024 and 2023.
Cash used by operations was primarily the result of $1.7 million of net loss plus the impact of a $5.7 million gain on the sale of fixed assets, which was partially offset by the add back of $1.7 million of non-cash stock-based compensation and $0.8 million for non-cash depreciation and amortization.
Cash used in operating activities was $3.2 million in 2024, which was primarily the result of a $4.4 million net loss and $0.6 million of working capital adjustments, which was partially offset by $0.6 million of depreciation and amortization expense and $1.1 million of non-cash stock-based compensation. Year ended December 31, 2023.
Software license revenue increased 30% from $7.4 million in 2022 to $9.5 million in 2023. As a percentage of total revenue, software license revenue increased from 46% in 2022 to 52% in 2023.
Software license revenue decreased 18% from $9.5 million in 2023 to $7.8 million in 2024. As a percentage of total revenue, software license revenue decreased from 52% in 2023 to 45% in 2024. The $1.7 million decrease in software license revenue was primarily due to a decrease in perpetual licenses sales, which can fluctuate from period to period.
With the introduction of AwareID, we have incorporated SaaS offerings into our product line-up. While we did not recognize material revenues from our SaaS offerings during 2023 or 2022, we expect SaaS to become a significant product offering moving forward. Software Maintenance Revenue Software maintenance revenue consists of revenue from the sale of software maintenance contracts.
With the introduction of AwareID, we have incorporated SaaS offering into our product line-up. For the year ended December 31, 2024 we generated $0.1 million of revenue from SaaS contracts compared to a de minimis amount for the year ended December 31, 2023. We expect SaaS revenue to continue to grow as a component of software license revenue going forward.
Removed
The $2.1 million increase in software license revenue was due primarily to an increase of $1.5 million in perpetual licenses sales and $0.7 million in subscription-based license sales. For the years ended December 31, 2023 and 2022, we generated a de minimis amount of revenue from SaaS contracts.
Added
Gross margins in these years reflect the profitability mix of customer projects.
Removed
As a percentage of total revenue, selling and marketing expense was 43% in both 2023 and 2022.
Added
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.
Removed
We expect to be strategic in expanding our sales and marketing force to pursue future opportunities.
Added
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.
Removed
Gain on sale of fixed assets In July 2022, we sold our corporate headquarters in Bedford, MA for total proceeds of $8.9 million less a brokerage commission of $0.3 million. At the time of the sale, we disposed of all building and land related assets. The net book value of all assets disposed of was $2.9 million.
Added
Cash provided by operating activities was $1.8 million in 2023.
Removed
We recorded a net gain on the sale of fixed assets of $5.7 million for the year ended December 31, 2022. Interest Income Interest income increased from $0.5 million in 2022 to $1.3 million in 2023.
Added
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.
Removed
The dollar increase in interest income was primarily due to higher interest rates related to our marketable securities of U.S Treasury notes and bonds and corporate bonds as well as higher interest rates within our money market accounts.
Removed
Year ended December 31, 2022. Cash used in operating activities was $5.0 million in 2022.
Removed
Investing activity cash used of $12.0 million was primarily the result of $17.3 million of net purchases of marketable securities, a $2.5 million investment in the Note, and $0.7 million of purchases of property and equipment, which was partially offset by $8.5 million in proceeds from the sale of our former corporate headquarters.
Removed
At December 31, 2023, we had cash, cash equivalents, and marketable securities of $30.9 million.
Removed
We accounted for the Note at fair value under ASC 825 - Financial Instruments, whereby it was recorded at fair value at the time of purchase, as well as on an ongoing basis each reporting period until the Note is settled.
Removed
The estimated fair value of the Note represents a Level 3 estimate in the fair value hierarchy due to the significant unobservable inputs used in determining the fair value. As of December 31, 2023 and 2022, we had a fair value $0 and $2.6 million of the Note, respectively.
Removed
The significant decrease of $2.6 million to $0 reflects our evaluation of the impact of Omlis's liquidity issues as of 24 December 31, 2023, along with the collectability of the Note. In addition, in January 2024, Omlis and MIRACL petitioned to enter the United Kingdom administration process, adding to our uncertainty regarding the recoverability of the Note's carrying value.
Removed
Fair value of Contingent Acquisition Payments. Our contingent acquisition payments are a result of our previous business acquisition of FortressID. We determined the fair value of contingent acquisition payments as part of the initial purchase price allocation and on an ongoing basis each reporting period until the contingent acquisition payments period was settled.
Removed
The estimated contingent acquisition payments represent a Level 3 estimate in the fair value hierarchy due to the significant unobservable inputs used in determining the fair value. As of December 31, 2023 and 2022, the contingent acquisition payments was $0 and $0.8 million, respectively.
Removed
The earnout period has closed as of December 31, 2023 with none of the targets being met. Stock-Based Compensation. We grant stock and stock options to our employees and directors.
Removed
Significant 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.
Removed
In June 2016, the FASB issued ASU No. 2016 - 13, “ Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments ,” which amends the guidance on the impairment of financial instruments.
Removed
The amendments in this update remove the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred.
Removed
The guidance removes all current recognition thresholds and introduces the new current expected credit loss (“CECL”) model which will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument’s contractual life.
Removed
The new CECL model is based upon expected losses rather than incurred losses. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.
Removed
The Company adopted this standard as of January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements. 26

Other AWRE 10-K year-over-year comparisons