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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
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☒
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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For the quarterly period ended September 30, 2022
OR
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☐
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Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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Securities Exchange Act of 1934
For the quarter ended
September 30, 2022
Commission file number
000-21129
AWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Massachusetts
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04-2911026
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(State or Other Jurisdiction of
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(I.R.S. Employer Identification No.)
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Incorporation or Organization)
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76 Blanchard Road in
Burlington,
Massachusetts,
01803
(Address of Principal Executive Offices)
(Zip Code)
(781)
276-4000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
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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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Common Stock, $0.01 par value per share
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AWRE
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The Nasdaq Global Market
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Indicate by check 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.
Yes
☒
No
☐
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).
Yes
☒
No
☐
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.:
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☒
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Emerging growth company
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☐
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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 October 19, 2022 was
21,655,905.
AWARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED September 30, 2022
TABLE OF CONTENTS
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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September 30,
2022
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December 31,
2021
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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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12,657
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$
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29,963
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Marketable securities
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18,315
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—
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Accounts receivable, net of allowance for doubtful accounts of
$295 and
$74 at
September 30, 2022 and December 31, 2021, respectively
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3,664
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3,763
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Unbilled receivables
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3,756
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3,087
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Tax receivable
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1,411
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1,411
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Prepaid expenses and other current assets
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1,438
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591
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Total current assets
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41,241
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38,815
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Property and equipment, net
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208
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3,216
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Intangible assets, net
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2,910
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3,222
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Goodwill
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3,120
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3,120
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Note receivable
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2,570
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—
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Total assets
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$
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50,049
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$
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48,373
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
|
|
$
|
988
|
|
|
$
|
283
|
|
|
Accrued expenses
|
|
|
1,688
|
|
|
|
1,909
|
|
|
Deferred revenue
|
|
|
3,398
|
|
|
|
3,549
|
|
|
Current portion of contingent acquisition payment
|
|
|
406
|
|
|
|
—
|
|
|
Total current liabilities
|
|
|
6,480
|
|
|
|
5,741
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred revenue
|
|
|
408
|
|
|
|
191
|
|
|
Long-term portion of contingent acquisition payment
|
|
|
513
|
|
|
|
919
|
|
|
Total long-term liabilities
|
|
|
921
|
|
|
|
1,110
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par
value;
1,000,000 shares
authorized,
none outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $.01 par
value;
70,000,000 shares
authorized; issued
and outstanding of
21,686,528 as
of September 30, 2022 and
21,613,982 as
of December 31, 2021
|
|
|
217
|
|
|
|
216
|
|
|
Additional paid-in capital
|
|
|
99,041
|
|
|
|
97,778
|
|
|
Accumulated deficit
|
|
|
(56,440
|
)
|
|
|
(56,472
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(170
|
)
|
|
|
—
|
|
|
Total stockholders’ equity
|
|
|
42,648
|
|
|
|
41,522
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
50,049
|
|
|
$
|
48,373
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
3
AWARE, INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS and COMPREHNSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
The accompanying notes are an integral part of the consolidated
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
814
|
|
|
$
|
2,197
|
|
|
$
|
5,459
|
|
|
$
|
6,287
|
|
|
Software maintenance
|
|
|
1,786
|
|
|
|
1,526
|
|
|
|
5,267
|
|
|
|
4,831
|
|
|
Services and other
|
|
|
415
|
|
|
|
452
|
|
|
|
1,219
|
|
|
|
1,739
|
|
|
Total revenue
|
|
|
3,015
|
|
|
|
4,175
|
|
|
|
11,945
|
|
|
|
12,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
282
|
|
|
|
243
|
|
|
|
920
|
|
|
|
933
|
|
|
Research and development
|
|
|
2,279
|
|
|
|
2,307
|
|
|
|
6,932
|
|
|
|
7,067
|
|
|
Selling and marketing
|
|
|
1,874
|
|
|
|
1,631
|
|
|
|
5,067
|
|
|
|
4,785
|
|
|
General and administrative
|
|
|
1,808
|
|
|
|
1,574
|
|
|
|
4,895
|
|
|
|
4,644
|
|
|
Gain on sale of fixed assets
|
|
|
(5,672
|
)
|
|
|
—
|
|
|
|
(5,672
|
)
|
|
|
—
|
|
|
Total costs and expenses
|
|
|
571
|
|
|
|
5,755
|
|
|
|
12,142
|
|
|
|
17,429
|
|
|
Operating income (loss)
|
|
|
2,444
|
|
|
|
(1,580
|
)
|
|
|
(197
|
)
|
|
|
(4,572
|
)
|
|
Interest income
|
|
|
155
|
|
|
|
1
|
|
|
|
228
|
|
|
|
3
|
|
|
Net income (loss)
|
|
$
|
2,599
|
|
|
$
|
(1,579
|
)
|
|
$
|
31
|
|
|
$
|
(4,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic
|
|
$
|
0.12
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.21
|
)
|
|
Net income (loss) per share – diluted
|
|
$
|
0.12
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.21
|
)
|
|
Weighted-average shares – basic
|
|
|
21,725
|
|
|
|
21,532
|
|
|
|
21,674
|
|
|
|
21,508
|
|
|
Weighted-average shares – diluted
|
|
|
21,798
|
|
|
|
21,532
|
|
|
|
21,733
|
|
|
|
21,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available-for-sale securities
|
|
|
(170
|
)
|
|
|
—
|
|
|
|
(170
|
)
|
|
|
—
|
|
|
Comprehensive income (loss)
|
|
$
|
2,429
|
|
|
$
|
(1,579
|
)
|
|
$
|
(139
|
)
|
|
$
|
(4,569
|
)
|
4
AWARE, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31
|
|
|
$
|
(4,569
|
)
|
|
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
587
|
|
|
|
520
|
|
|
Gain on sale of fixed assets
|
|
|
(5,672
|
)
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
1,356
|
|
|
|
1,077
|
|
|
Interest receivable
|
|
|
(70
|
)
|
|
|
—
|
|
|
Bad debt provision
|
|
|
221
|
|
|
|
—
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(122
|
)
|
|
|
(849
|
)
|
|
Unbilled receivables
|
|
|
(669
|
)
|
|
|
(1,044
|
)
|
|
Prepaid expenses and other current assets
|
|
|
(776
|
)
|
|
|
(163
|
)
|
|
Accounts payable
|
|
|
706
|
|
|
|
71
|
|
|
Accrued expenses
|
|
|
(220
|
)
|
|
|
525
|
|
|
Deferred revenue
|
|
|
67
|
|
|
|
(786
|
)
|
|
Net cash used in operating activities
|
|
|
(4,561
|
)
|
|
|
(5,218
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(144
|
)
|
|
|
(21
|
)
|
|
Proceeds from sale of fixed assets
|
|
|
8,547
|
|
|
|
—
|
|
|
Purchases of marketable securities
|
|
|
(18,556
|
)
|
|
|
—
|
|
|
Investment in note receivable
|
|
|
(2,500
|
)
|
|
|
—
|
|
|
Net cash used in investing activities
|
|
|
(12,653
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
96
|
|
|
25
|
|
|
Payments made for taxes of employees who surrendered
shares related to unrestricted stock
|
|
|
(24
|
)
|
|
|
(54
|
)
|
|
Repurchase of common stock
|
|
|
(164
|
)
|
|
|
—
|
|
|
Net cash used in financing activities
|
|
|
(92
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(17,306
|
)
|
|
|
(5,268
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
29,963
|
|
|
|
38,565
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
12,657
|
|
|
$
|
33,297
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure: Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
5
AWARE, INC.
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
The accompanying notes are an integral part of the consolidated
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three and Nine Months Ended
|
|
|
|
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Equity
|
|
|
Balance at December 31, 2020
|
|
|
21,379
|
|
|
$
|
214
|
|
|
$
|
96,104
|
|
|
$
|
(50,648
|
)
|
|
$
|
45,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of unrestricted stock
|
|
|
131
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Shares surrendered by employees to
pay taxes related to unrestricted
stock
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
—
|
|
|
|
(54
|
)
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
197
|
|
|
|
—
|
|
|
|
197
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,448
|
)
|
|
|
(1,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021
|
|
|
21,494
|
|
|
$
|
215
|
|
|
$
|
96,246
|
|
|
$
|
(52,096
|
)
|
|
$
|
44,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under employee stock purchase
plan
|
|
|
7
|
|
|
|
—
|
|
|
|
25
|
|
|
|
—
|
|
|
|
25
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
439
|
|
|
|
—
|
|
|
|
439
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,542
|
)
|
|
|
(1,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
|
|
21,501
|
|
|
$
|
215
|
|
|
$
|
96,710
|
|
|
$
|
(53,638
|
)
|
|
$
|
43,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under employee stock purchase
plan
|
|
|
48
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
441
|
|
|
|
—
|
|
|
|
441
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,579
|
)
|
|
|
(1,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021
|
|
|
21,549
|
|
|
$
|
215
|
|
|
$
|
97,151
|
|
|
$
|
(55,217
|
)
|
|
$
|
42,149
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three and Nine Months Ended
|
|
|
|
|
September 30, 2022
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
(Accumulated Other
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Comprehensive Loss)
|
|
|
Equity
|
|
|
Balance at December 31, 2021
|
|
|
21,614
|
|
|
$
|
216
|
|
|
$
|
97,778
|
|
|
$
|
(56,472
|
)
|
|
$
|
-
|
|
|
$
|
41,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of unrestricted stock
|
|
|
28
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
430
|
|
|
|
—
|
|
|
|
—
|
|
|
|
430
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,278
|
)
|
|
|
—
|
|
|
|
(1,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2022
|
|
|
21,642
|
|
|
$
|
216
|
|
|
$
|
98,208
|
|
|
$
|
(57,750
|
)
|
|
$
|
-
|
|
|
$
|
40,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under employee stock purchase
plan
|
|
|
40
|
|
|
|
1
|
|
|
|
92
|
|
|
|
—
|
|
|
|
—
|
|
|
|
93
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
378
|
|
|
|
—
|
|
|
|
—
|
|
|
|
378
|
|
|
Repurchase of common stock
|
|
|
(1
|
)
|
|
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,289
|
)
|
|
|
—
|
|
|
|
(1,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2022
|
|
|
21,681
|
|
|
$
|
217
|
|
|
$
|
98,675
|
|
|
$
|
(59,039
|
)
|
|
$
|
-
|
|
|
$
|
39,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of unrestricted stock
|
|
|
91
|
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
Shares surrendered by employees to
pay taxes related to unrestricted
stock
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(24
|
)
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
548
|
|
|
|
—
|
|
|
|
—
|
|
|
|
548
|
|
|
Repurchase of common stock
|
|
|
(75
|
)
|
|
|
(1
|
)
|
|
|
(160
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(161
|
)
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(170
|
)
|
|
|
(170
|
)
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,599
|
|
|
|
—
|
|
|
|
2,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2022
|
|
|
21,687
|
|
|
$
|
217
|
|
|
$
|
99,041
|
|
|
$
|
(56,440
|
)
|
|
$
|
(170
|
)
|
|
$
|
42,648
|
|
7
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 leader in biometrics software offerings and
solutions. Our portfolio enables government agencies and commercial
entities to enroll, identify, authenticate and enable using
biometrics, which comprise physiological characteristics, such as
fingerprints, faces, irises and voices.
•
Enroll:
Register biometric identities into an organization’s secure
database
•
Identify:
Utilize an organization’s secure database to accurately identify
individuals using biometric data
•
Authenticate:
Provide frictionless multi-factor, passwordless access to secured
accounts and databases with biometric verification
•
Enable:
Manage the lifecycle of secure identities through optimized
biometric interchanges
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, 2021 in conjunction with our
2021 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 income (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 September 30, 2022, and of operations and
cash flows for the interim periods ended September 30, 2022 and
2021.
The results of operations for the interim periods ended September
30, 2022 are not necessarily indicative of the results to be
expected for the year.
8
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 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 doubtful accounts, valuation of acquired assets and assumed
liabilities in business combinations, valuation of earn-out
liability, 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 October 2021, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standard Update (“ASU”) No. 2021-08,
Business Combinations (Topic 805): Accounting for Contract Assets
and Contract Liabilities from Contracts with
Customers.
The ASU requires contract assets and contracts liabilities to be
accounted for as if they (“the acquirer”) entered into the original
contract at the same time and same date as the acquiree. The
guidance is effective for reporting periods beginning after
December 15, 2022, with early adoption permitted. We have elected
not to early adopt and we are continuing to assess the impact of
the standard on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses of Financial Instruments,
which changes the methodology for measuring credit losses on
financial instruments and the timing of when such losses are
recorded. This guidance was to be effective for reporting periods
beginning after December 15, 2019, with early adoption permitted.
In November 2019, the FASB issued ASU 2019-10,
Financial Instruments – Credit Losses (Topic 326), Derivatives and
Hedging (Topic 815), and Leases (Topic 842) Effective Dates,
which deferred the effective dates for us, as a smaller reporting
company, until fiscal year 2023. We are continuing to assess 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
9
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 practical expedient in the guidance. Our revenue
arrangements are typically accounted for under such expedient, as
payment is typically due within 30 to
60
days. As of September 30, 2022 and 2021, none of our contracts
contained a significant financing component.
Also, to the extent relevant in future periods with our acquisition
of FortressID and adaption 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 nine months ended September 30, 2022 and 2021 we did not
generate 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
10
services
to domestic and international customers.
Revenues generated from the following geographic regions for the
three and nine months ended September 30, 2022 and 2021 were (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
|
United States
|
|
$
|
2,129
|
|
|
$
|
2,177
|
|
|
$
|
6,439
|
|
|
$
|
6,844
|
|
|
United Kingdom
|
|
|
347
|
|
|
|
189
|
|
|
|
1,109
|
|
|
|
1,642
|
|
|
Brazil
|
|
|
129
|
|
|
|
687
|
|
|
|
487
|
|
|
|
1,333
|
|
|
Rest of World
|
|
|
410
|
|
|
|
1,122
|
|
|
|
3,910
|
|
|
|
3,038
|
|
|
|
|
$
|
3,015
|
|
|
$
|
4,175
|
|
|
$
|
11,945
|
|
|
$
|
12,857
|
|
Revenue by timing of transfer of goods or services for the three
and nine months ended September 30, 2022 and 2021 were (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
2022
|
|
|
2021
|
|
|
Goods or services transferred at a point in time
|
|
$
|
770
|
|
|
$
|
2,275
|
|
$
|
5,484
|
|
|
$
|
6,296
|
|
|
Goods or services transferred over time
|
|
|
2,245
|
|
|
|
1,900
|
|
|
6,461
|
|
|
|
6,561
|
|
|
|
|
$
|
3,015
|
|
|
$
|
4,175
|
|
$
|