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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023

OR

 

 

 

 

 

 

 

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to _________

 

Commission file number 000-21129

 

AWARE, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Massachusetts

 

04-2911026

(State or Other Jurisdiction of

 

(I.R.S. Employer Identification No.)

Incorporation or Organization)

 

 

 

 

 

 

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:

 

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value per share

 

AWRE

 

The Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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.:

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 24, 2023 was 20,991,726.

 

 

 


 

AWARE, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

PART I

 

FINANCIAL INFORMATION

3

 

 

 

 

Item 1.

 

Unaudited Consolidated Financial Statements

3

 

 

Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

3

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and September 30, 2022

4

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and September 30, 2022

5

 

 

Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and September 30, 2022

6

 

 

Notes to Consolidated Financial Statements

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 4.

 

Controls and Procedures

24

 

 

 

 

PART II

 

OTHER INFORMATION

25

Item 1.

 

Legal Proceedings

25

Item 1A.

 

Risk Factors

25

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 6.

 

Exhibits

27

 

 

Signatures

28

 

2


 

PART 1. FINANCIAL INFORMATION

ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS

AWARE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

 

 

September 30,
2023

 

 

December 31,
2022

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,683

 

 

$

11,749

 

Marketable securities

 

 

21,839

 

 

 

17,229

 

Accounts receivable, net

 

 

6,519

 

 

 

3,317

 

Unbilled receivables

 

 

1,772

 

 

 

2,929

 

Tax receivable

 

 

 

 

 

1,362

 

Prepaid expenses and other current assets

 

 

989

 

 

 

693

 

Total current assets

 

 

36,802

 

 

 

37,279

 

 

 

 

 

 

 

Property and equipment, net

 

 

616

 

 

 

726

 

Intangible assets, net

 

 

2,495

 

 

 

2,806

 

Goodwill

 

 

3,120

 

 

 

3,120

 

Note receivable

 

 

2,695

 

 

 

2,601

 

Right of use asset

 

 

4,332

 

 

 

4,538

 

Other long-term assets

 

 

122

 

 

 

122

 

Total assets

 

$

50,182

 

 

$

51,192

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

231

 

 

$

639

 

Accrued expenses

 

 

1,646

 

 

 

1,282

 

Current portion of operating lease liabilities

 

 

632

 

 

 

470

 

Deferred revenue

 

 

5,349

 

 

 

3,411

 

Total current liabilities

 

 

7,858

 

 

 

5,802

 

 

 

 

 

 

 

 

Long-term deferred revenue

 

 

563

 

 

 

322

 

Long-term operating lease liabilities

 

 

3,896

 

 

 

4,047

 

Long-term portion of contingent acquisition payment

 

 

 

 

 

812

 

Total long-term liabilities

 

 

4,459

 

 

 

5,181

 

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 21,014,256 as of September 30, 2023 and 21,093,447 as of December 31, 2022

 

 

210

 

 

 

211

 

Additional paid-in capital

 

 

98,976

 

 

 

98,306

 

Accumulated deficit

 

 

(61,273

)

 

 

(58,198

)

Accumulated other comprehensive loss

 

 

(48

)

 

 

(110

)

Total stockholders’ equity

 

 

37,865

 

 

 

40,209

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

50,182

 

 

$

51,192

 

 

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)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Software licenses

 

$

4,391

 

 

$

814

 

 

$

7,535

 

 

$

5,459

 

Software maintenance

 

 

1,889

 

 

 

1,786

 

 

 

5,491

 

 

 

5,267

 

Services and other

 

 

101

 

 

 

415

 

 

 

844

 

 

 

1,219

 

Total revenue

 

 

6,381

 

 

 

3,015

 

 

 

13,870

 

 

 

11,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and other revenue

 

 

410

 

 

 

282

 

 

 

1,033

 

 

 

920

 

Research and development

 

 

2,264

 

 

 

2,279

 

 

 

6,909

 

 

 

6,932

 

Selling and marketing

 

 

2,171

 

 

 

1,874

 

 

 

6,118

 

 

 

5,067

 

General and administrative

 

 

1,601

 

 

 

1,808

 

 

 

4,679

 

 

 

4,895

 

Fair value adjustment to contingent acquisition payment

 

 

(812

)

 

 

 

 

 

(812

)

 

 

 

Gain on sale of fixed assets

 

 

 

 

 

(5,672

)

 

 

 

 

 

(5,672

)

Total costs and expenses

 

 

5,634

 

 

 

571

 

 

 

17,927

 

 

 

12,142

 

Operating income (loss)

 

 

747

 

 

 

2,444

 

 

 

(4,057

)

 

 

(197

)

Interest income

 

 

397

 

 

 

155

 

 

 

982

 

 

 

228

 

Net income (loss)

 

$

1,144

 

 

$

2,599

 

 

$

(3,075

)

 

$

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share – basic

 

$

0.05

 

 

$

0.12

 

 

$

(0.15

)

 

$

0.00

 

Net income (loss) per share – diluted

 

$

0.05

 

 

$

0.12

 

 

$

(0.15

)

 

$

0.00

 

Weighted-average shares – basic

 

 

21,049

 

 

 

21,725

 

 

 

21,017

 

 

 

21,674

 

Weighted-average shares – diluted

 

 

21,131

 

 

 

21,798

 

 

 

21,017

 

 

 

21,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

43

 

 

 

(170

)

 

 

62

 

 

 

(170

)

Comprehensive income (loss)

 

$

1,187

 

 

$

2,429

 

 

$

(3,013

)

 

$

(139

)

 

The accompanying notes are an integral part of the consolidated financial statements.

4


 

AWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(3,075

)

 

$

31

 

Adjustments to reconcile net income (loss) to net cash
   used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

437

 

 

 

587

 

Gain on sale of fixed assets

 

 

 

 

 

(5,672

)

Stock-based compensation

 

 

1,097

 

 

 

1,356

 

Interest on note receivable

 

 

(93

)

 

 

(70

)

Bad debt provision

 

 

 

 

 

221

 

Non-cash lease expense

 

 

218

 

 

 

 

Change in fair value of contingent acquisition payment

 

 

(812

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(3,432

)

 

 

(122

)

Unbilled receivables

 

 

1,387

 

 

 

(669

)

Prepaid expenses and other current assets

 

 

(459

)

 

 

(776

)

Tax receivable

 

 

1,355

 

 

 

 

Accounts payable

 

 

(408

)

 

 

706

 

Accrued expenses

 

 

363

 

 

 

(220

)

Deferred revenue

 

 

2,180

 

 

 

67

 

Net cash used in operating activities

 

 

(1,242

)

 

 

(4,561

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(16

)

 

 

(144

)

Proceeds from sale of fixed assets

 

 

 

 

 

8,547

 

Purchase of marketable securities

 

 

(9,128

)

 

 

(18,556

)

Sale of marketable securities

 

 

4,750

 

 

 

 

Investment in note receivable

 

 

 

 

 

(2,500

)

Net cash used in investing activities

 

 

(4,394

)

 

 

(12,653

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

52

 

 

 

96

 

Payments made for taxes of employees who surrendered
   shares related to unrestricted stock

 

 

(15

)

 

 

(24

)

Repurchase of common stock

 

 

(467

)

 

 

(164

)

Net cash used in financing activities

 

 

(430

)

 

 

(92

)

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

 

(6,066

)

 

 

(17,306

)

Cash and cash equivalents, beginning of period

 

 

11,749

 

 

 

29,963

 

Cash and cash equivalents, end of period

 

$

5,683

 

 

$

12,657

 

 

 

 

 

 

 

 

Supplemental disclosure: Cash paid for income taxes

 

$

136

 

 

$

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

5


 

AWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

 

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 common stock under employee stock purchase plan

 

 

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

 

 

 

 

 

 

 

 

0

 

 

 

 

 

 

(170

)

 

 

(170

)

Net income

 

 

 

 

 

 

 

 

 

 

 

2,599

 

 

 

 

 

 

2,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2022

 

 

21,687

 

 

$

217

 

 

$

99,041

 

 

$

(56,440

)

 

$

(170

)

 

$

42,648

 

 

 

6


 

 

 

For the Three and Nine Months Ended

 

 

 

September 30, 2023

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Accumulated Other

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Comprehensive Income (Loss)

 

 

Equity

 

Balance at December 31, 2022

 

 

21,093

 

 

$

211

 

 

$

98,306

 

 

$

(58,198

)

 

$

(110

)

 

$

40,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of unrestricted stock

 

 

62

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Shares surrendered by employees to pay taxes related to unrestricted stock

 

 

(9

)

 

 

 

 

 

(15

)

 

 

 

 

 

 

 

 

(15

)

Repurchase of common stock

 

 

(191

)

 

 

(2

)

 

 

(339

)

 

 

 

 

 

 

 

 

(341

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

335

 

 

 

 

 

 

 

 

 

335

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

147

 

 

 

147

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,568

)