Aware, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This annual filing includes full-year results, not a standalone fourth-quarter report. Aware develops and sells biometric software, platforms and services for government and commercial customers.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $11.3 million | $12.2 million |
| Operating loss | $9.4 million | $4.2 million |
| Net loss | $7.6 million | $8.3 million |
| Net loss per diluted share | $0.35 | $0.39 |
| Cash used in operating activities | $5.3 million | $2.9 million |
| Cash and cash equivalents at year-end | $38.6 million | $47.7 million |
- Revenue fell about 7%; operating loss widened, while net loss narrowed largely alongside a change from a $5.2 million income tax provision in 2019 to a $1.6 million tax benefit in 2020.
- Revenue mix shifted: software licenses rose 9% to $5.0 million and maintenance increased 3% to $5.4 million; services fell 64% to $0.8 million. The services decline primarily reflected less work on a large systems-integrator project.
- Operating expenses increased to $20.7 million from $16.4 million. Research and development was $9.1 million, selling and marketing $5.4 million, and general and administrative $5.4 million.
- Services gross margin declined to 4% from 46%, as service costs were $0.8 million against $0.8 million of services revenue.
- Year-end current assets were $43.7 million and current liabilities $5.9 million. The balance sheet presents no debt line. Stockholders’ equity was $45.7 million.
- Investing activities used $2.9 million, including $2.4 million for the AFIX acquisition; financing activities used $1.0 million, mainly for share repurchases. Cash declined $9.2 million during the year.
Material changes and unusual items
- Aware acquired certain AFIX product-line assets and liabilities in November 2020 for approximately $2.4 million cash. The preliminary allocation included $1.7 million goodwill and $1.2 million intangible assets.
- COVID-19 disrupted in-person customer meetings, demonstrations, conferences and partner engagement. Management said the pandemic adversely affected 2020 results and could continue to affect results over the next several quarters; the extent and duration were uncertain.
- General and administrative expense included $0.7 million of severance and transition costs, $0.2 million of legal fees, $0.1 million of bad debt expense and $0.2 million related to remote work. Management also cited administrative staff turnover exceeding 50%.
- The CARES Act enabled carryback of current-year tax losses, contributing to the 2020 tax benefit. Aware maintained a full valuation allowance against $8.7 million of deferred tax assets.
- A $10 million share-repurchase authorization runs through December 31, 2021. Approximately $1.0 million had been used by year-end; no dividends were paid in 2020 or 2019.
Outlook, commentary and risks
- No quantified revenue or earnings guidance is provided. Management expects cash and cash equivalents to fund operations for at least 12 months from the filing date, while noting that additional financing could be needed and may not be available.
- Management plans to continue investing in research, product development and sales and marketing, and intends to expand subscription and cloud-based offerings, including transitioning Indigo toward a broader SaaS offering.
- Key risks include volatile order timing and operating results, reliance on government demand and channel partners, intensified competition, uncertain commercial and cloud adoption, COVID-19 effects, privacy and biometric-data regulation, cybersecurity threats, and the ability to retain key personnel and integrate acquisitions.
- Cash balances exceeded federal deposit-insurance limits by approximately $38.3 million. Aware reported no material pending litigation and no material capital-expenditure commitments.
- The independent auditor issued an unqualified opinion on the financial statements. Revenue recognition was identified as a critical audit matter; the auditor was not engaged to opine on internal-control effectiveness. Management concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Whether recurring license/subscription and maintenance revenue can offset declining services revenue and support improved operating performance.
- Whether planned product and sales investments produce growth, and whether the AFIX acquisition delivers expected benefits.
- Cash-burn trends and the assumptions behind management’s 12-month liquidity assessment.
- The durability of the tax benefit and the likelihood of realizing deferred tax assets currently fully reserved.
- Effects of COVID-19, government procurement timing, customer concentration in receivables, and evolving biometric privacy requirements.