UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of The

Securities Exchange Act of 1934

For the fiscal year ended December 31, 2019

Commission file number 000-21129

AWARE, INC.

(Exact Name of Registrant as Specified in Its Charter)

40 Middlesex Turnpike, Bedford, Massachusetts 01730

(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:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes ¨ No x

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 x 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 x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 x        Smaller Reporting Company x       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 x

As of June 30, 2019 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based on the closing sale price as reported on the Nasdaq Global Market, was approximately $43,519,131.

The number of shares outstanding of the registrant’s common stock as of February 12, 2020 was 21,521,866.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement to be delivered to shareholders in connection with the registrant’s Annual Meeting of Shareholders to be held on May 20, 2020 are incorporated by reference into Part III of this Annual Report on Form 10-K.

AWARE, INC.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2019

TABLE OF CONTENTS

ITEM 1. BUSINESS

Company Overview

Aware, Inc. (“Aware”, “we”, “us”, “our”, or the “Company”) is an industry leading provider of biometrics software products, solutions and services to governments, system integrators, and commercial organizations and solution providers globally. We have been engaged in this business since 1993. Our comprehensive portfolio of biometric solutions are 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. Our software products are used in government and commercial systems and applications and fulfill a broad range of functions critical to secure biometric enrollment, authentication, identity and transactions. 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: i) user enrollment and authentication used for login to mobile devices, computers, networks, and software programs; ii) user authentication for financial transactions and purchases (online and in-person); iii) physical access control to buildings; and iv) identity proofing of prospective employees and customers.

Our solutions and products provide interoperable, standards-compliant, field-proven biometric functionality and 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. We provide a broad range of software products for fingerprint, facial, iris and voice modalities. We also offer a variety of program management and software engineering services, including: i) project planning and management; ii) system and architecture design; iii) software design, development, customization, configuration, and testing; and iv) software integration and installation. 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 40 Middlesex Turnpike in Bedford, Massachusetts, and our telephone number at this address is (781) 276-4000. Our website address is www.aware.com. The information on our website is not part of this Form 10-K, unless expressly noted. Our stock is traded on the Nasdaq Global Market under the symbol AWRE.

Industry Background

Biometrics is the measurement of unique, individual physiological characteristics, such as fingerprints, faces, irises and voices, that can be used to determine or verify an individual’s identity. The biometrics industry offers technology that digitally captures and encodes biometric characteristics and then compares those characteristics against previously encoded biometric data to determine or verify an individual’s identity, thereby enabling trusted transactions. Biometrics addresses the limitations inherent in traditional identification and authentication processes, such as biographic data, tokens, paper credentials, passwords, PIN codes, magnetic access cards, and multifactor authentication. Biometrics technology and products require algorithms for multiple distinct functions, such as feature finding, feature optimization, feature extraction, feature encoding, feature matching, and presentation attack detection (“PAD”), which is also referred to as liveness detection and spoof detection.

Application Areas: Identification and Authentication

Applications for biometrics typically fall into two primary areas: identification and authentication. Generally speaking, biometric identification attempts to answer the question “who are you?”, while biometric authentication attempts to answer the question “are you the person we know?”

Biometric Identification

Biometric identification involves the “one-to-many” comparison of a “probe” sample to thousands or even millions of biometric samples in a database, comprising a search to determine which samples, if any, are associated with the individual that belongs to the probe. Biometric identification systems typically operate in a client/server architecture, with some systems migrating to web-based, thin-client architectures. Enrollment workstations with peripheral capture devices are used to enroll individuals into biometrics systems. Enrollment involves the capture, processing, and formatting of “biometric samples.” A biometric sample consists of biometric data which may include: i) images of fingerprints, faces, or irises; ii) digital voice signals; or iii) some other electronic representation of a biometric characteristic. Examples of capture peripherals include: i) scanners for fingerprint images, ii) cameras for iris and facial images, iii) handheld devices for mobile capture of fingerprint, iris, and facial images, or iv) mobile phones and/or microphones for voice signals.

After biometric samples are captured, they are transported in digital form to centralized or distributed matching systems for identification. Equipment used to perform these functions includes: i) servers to process and transport biometric samples; and ii) mainframe computers and servers to store and match those samples. In addition, military applications may employ handheld devices that are capable of capturing samples and matching those samples against sample databases that reside on the devices.

“Identity proofing” is a term used to describe a process by which identity information provided by an individual, such as a prospective customer or job applicant, is corroborated between multiple identity sources. Biometric identification can be used as part of identity proofing.

Biometric Authentication

Biometric authentication involves a “one-to-one” biometric comparison that serves to verify that a live biometric sample belongs to the same individual associated with a trusted stored sample within a system of record. In this way, biometrics can be used to authenticate identity. Computing devices such as PCs, smartphones and tablets, are capable of: i) capturing biometric samples (e.g., fingerprints, facial and iris images, and voices); ii) processing and storing those samples in a secure area on a device, server, or secure identity credential (e.g. a driver’s license or passport), and/or printing the samples on the credential; and iii) matching new live samples against trusted stored or printed samples. Once a biometric match is achieved, the subsequent software functions are analogous to password-based authentication. Mobile authentication can be implemented in either a device- or server-centric architecture, with biometric data analysis, matching, and storage occurring either on the device or on a central server, respectively. “Tokens” are often used as an alternative or enhancement to passwords. An authentication token may be a hardware device that the user must have possession of to authenticate. Examples are a USB dongle, smart phone, or smart card. In the case of multifactor authentication, a device such as a smart phone or PC may be considered as a token providing the primary authentication factor, with biometric authentication serving as a second authentication factor. Mobile authentication can be incorporated into a mobile app such as a banking application as a password-free security mechanism. It may also be employed in an “out-of-band” fashion to secure access on a PC through a browser.

As biometric authentication is most typically an unattended process, some form of presentation attack detection (“PAD”) is an important feature of biometric authentication solutions. PAD features are designed to prevent “spoofing”, whereby a fraudster attempts to defeat a biometric security feature by impersonating the rightful user.

The rapid advance and adoption of mobile devices has had a substantial impact on the adoption of biometrics for authentication. Many leading mobile devices incorporate native biometric security sensors and technology, in which case third-party mobile applications are granted access to authentication results but not the raw biometric samples used to authenticate.

In contrast, third party application providers can incorporate authentication functionality that makes use of multipurpose sensors such as the camera, microphone, and touchscreen. There are use cases where it is desirable to implement biometric security features that are independent of those provided natively by the device. Advantages include more control over the security level, security features, and user experience, as well as uniform functionality across different device models. Biometric authentication implemented on a mobile device may be used to gain access to online networks, systems, services, or accounts.

User authentication enabled by smartphones continues to evolve, and we expect to see further advances in smartphone security features and functionality. In the past few years, the FIDO® (Fast IDentity Online) Alliance, an industry consortium, has emerged to take a leading role in authoring and promoting technical standards for password-free multifactor authentication on mobile devices and desktops. The FIDO Alliance has developed specifications that define an open, scalable, interoperable set of mechanisms that supplant reliance on passwords to securely authenticate users of online services. The new standard for devices and browser plugins will allow any website or cloud application to interface with a broad variety of existing and future FIDO-enabled devices that the user has for online security. The FIDO Alliance has also established processes for accreditation of independent labs that will be able to analyze and identify products as “FIDO® Certified” in terms of interoperability, biometric matching performance, and security level.

Market Sectors: Government and Commercial

The market for biometrics may be segmented into government and commercial sectors. Principal government biometrics applications include border control, visa applicant screening, law enforcement, national defense, intelligence, secure credentialing, access control, and background checks. Principal commercial applications include: i) user enrollment and authentication used for login to mobile devices, computers, networks, and software programs; ii) user authentication for financial transactions and purchases (online and in-person); iii) physical access control to buildings; and iv) identity proofing of prospective employees and customers.

We believe that government and commercial entities will continue to adopt and expand the use of biometrics-enabled solutions to address the limitations and vulnerabilities of traditional identification and authentication processes. We believe the following factors, among others, will contribute to the growth of biometrics solutions: i) government-mandated implementation of identification for employees, citizens, and foreign nationals to enhance national security; ii) military implementations for the identification of terrorists and other hostile persons; iii) increasing threats to personal security encountered in areas such as transportation; iv) increasing threats to government buildings and installations; v) government and commercial efforts to detect and reduce fraud and cybercrime on computer systems as well as the internet; vi) adoption of biometrics on mobile devices; and vii) the emergence and adoption of international biometrics standards.

There is commonality between how biometric technologies are used across government and commercial sectors. The primary consumers of biometric identification systems are government agencies, while the primary users of biometric authentication technology are consumers owning mobile devices. We believe that these sector-based distinctions are important to an understanding of Aware’s business as the vast majority of our revenue is currently derived from government customers.

Government Sector

Local, state, and national governments throughout the world were early adopters of biometrics technology and continue to be the largest consumers of the technology. At the local and state level, biometrics technology is used in the following applications:

At the national level, biometrics technology is used in the following applications:

National governments throughout the world have mandated increased spending on security measures, implemented new regulations and placed greater emphasis on technology to address growing security concerns. Immigration and border control agencies have taken steps to improve security in response to heightened concerns over public safety from the threat of terrorism. They use biometrics to help establish the identity of visitors upon application for a visa or upon arrival at border checkpoints. For example, the U.S. Office of Biometric Identity Management currently requires foreign visitors entering the United States to have their ten fingers scanned and a facial photograph taken to determine if they are present on a watch list. The European Union now mandates that e-passports include fingerprint data in addition to a digital photograph.

Within military organizations, key applications of biometrics include: i) background checks of military personnel and contractors; ii) access control to physical and digital assets; and iii) identification of unknown and potentially hostile persons by a comparison of their biometric sample against a watch list.

Law enforcement agencies perform background checks that use biometrics to help confirm the identity of individuals who might be present in a biometric database. Background checks might also be provided as a service to other agencies within the government.

Governments also use biometrics for physical access control by storing biometric data on a digital ID card or smart phone and performing a match to verify that the holder of the card is the same person who was issued the card. Biometrics are also used for securing access to digital assets, where a biometric match might be required in addition to or in place of a password to gain access to a computer system.

Due to the nature of government applications, particularly those involving security and defense, government biometrics systems must be capable of accurately and rapidly searching large databases of stored samples. The ability to accurately and rapidly match samples against databases of millions of samples is critical because incorrect or delayed results could have severe adverse consequences. These requirements are an important distinguishing characteristic of the government market as compared to the commercial market.

Commercial Sector

The principal applications of biometrics in commercial markets are user enrollment and user authentication, with identity proofing also emerging as an application. The types of users that may need to be authenticated or identified in commercial applications include customers, employees, contractors, visitors, healthcare patients, or other parties wishing to establish their identity towards gaining access to information, systems, bank accounts, credit card accounts, events, devices, or buildings or performing trusted transactions.

In commercial markets, biometrics-based solutions compete with more traditional security methods including keys, cards, tokens, passwords, personal identification numbers (“PINs”) and security personnel. The adoption of biometrics by leading vendors of smartphones and other popular consumer products has increased users’ confidence and comfort with biometrics as a convenient and secure means of authentication in place of or in addition to passwords. Biometrics solutions are also being used in commercial markets as a means to enhance identity proofing, sometimes referred to “know-your-customer” (“KYC”) and “know-your-employee” (“KYE”) efforts. KYC and KYE processes are designed to corroborate the identity data claimed by prospective customers and employees with multiple independent sources.

An example of biometrics being used in a KYC process is where a prospective customer uses their mobile phone to apply for a new account. As part of the process, a mobile app or browser is used to collect an image of their face along with an image of their driver’s license (or some other trusted credential). The facial image is analyzed for liveness to detect spoof attempts, and the driver’s license is authenticated to be genuine. The facial image is biometrically matched against the facial image on the driver’s license to corroborate the identity data in the application with that on the trusted credential. The facial image might also be searched against a central biometric database, such as one containing biometric facial images of known fraudsters. It could also be searched against the database of existing account holders. In this way, biometrics can be used to enhance the effectiveness of a KYC process by verifying that the applicant is: i) a live person; ii) the true owner of a trusted, valid credential; iii) not a known fraudster; and iv) not an existing account holder (with either the same or different identity data).

The commercial market for biometrics technology remains nascent. The rate of adoption of biometrics in commercial markets depends upon a number of factors, including: i) performance and introduced levels of friction; ii) reliability of biometric solutions; iii) costs involved in adopting and integrating biometric solutions; iv) public concerns regarding privacy, including potential privacy legislation; and v) standardization efforts by various industry consortia and standards bodies.

Examples of commercial market applications include:

Market Segments: Consumer-Facing and Employee-Facing

The biometrics market may be further segmented into: i) a consumer-facing segment; and ii) an employee-facing segment.

Consumer-Facing segment – The primary applications in the consumer-facing segment are biometric identity proofing and authentication for the purpose of enrollment, onboarding and authentication of customers of commercial organizations, and also for citizens by governments. Adoption of biometrics is stronger where the convenience of a password-free user experience is valued but there is also risk of fraud. Industries that fall into this category include financial services, retail, and healthcare. Healthcare organizations use biometrics in a safety context to prevent patient misidentification and care delivery errors. Government agencies similarly employ citizen-facing biometric identity proofing and authentication solutions in situations where there is potential risk of fraud, such as benefits disbursement and voting.

Employee-Facing segment – The primary applications in the employee-facing segment are enrollment and identity proofing and authentication of employees as a means for screening of new employees, and for user authentication towards securing access for employees and contractors to digital assets against a breach. Applications for employee-facing biometrics are found in both the government and commercial sectors.

Delivery Models: Tools and Services, Solutions, Software as a Service

As with other technology products and services, there are different models for product and service delivery in the biometrics arena, including tools and services, solutions, and Software as a Service.

Biometrics Industry Participants

There are a large number of vendors that serve government and commercial biometrics markets. In order to provide an understanding of the biometrics industry and our role in it, we have categorized industry participants into categories that have been defined by us. While we believe our categorization is a reasonable representation of the industry, we acknowledge that: i) knowledgeable industry participants may define categories differently or classify vendors differently; and ii) not all companies involved in the industry were included. Accordingly, the classification that follows represents our perspective on the industry.

We believe that biometrics industry participants may be classified into the following categories:

Category descriptions and companies that offer products and services in each category are provided below. It should be noted that some companies appear in multiple categories.

Core biometrics technology includes hardware and software products that enable: i) traditional biometrics systems used by government and commercial customers; ii) new biometric service offerings; and iii) biometrically-enabled functionality embedded in other products and solutions. Core biometrics technology includes three types of products: i) sensor products, ii) biometric capture devices, and iii) software products.

Sensor products

Biometrics sensors are primarily silicon-based devices that capture biometrics samples, such as fingerprints. Sensors are typically embedded in other devices, such as smartphones or biometric capture devices.

Examples of companies that offer biometric sensor products include: 1) Qualcomm Technologies, Inc.; 2) Sonavation, Inc.; 3) Synaptics, Inc.; 4) Fingerprint Cards AB; 5) Integrated Biometrics, LLC; 6) Next Biometrics AS and 7) Idemia.

Biometric capture devices

Biometric capture devices are designed to capture and process biometric samples as their primary function. These products may be strictly hardware products or hardware products that also incorporate biometrics software.

Examples of companies that offer biometric capture devices include: 1) Cross Match Technologies, Inc. which was acquired by HID Global Corporation in 2018; 2) Suprema, Inc.; 3) Iris ID Systems, Inc. (“Iris ID”); 4) Precise Biometrics AB (“Precise Biometrics”); 5) Credence ID, LLC; 6) SecuGen Corporation; 7) IrisGuard, Inc. (“IrisGuard”); 8) Aurora Biometrics, Inc. (“Aurora Biometrics”); 9) EyeLock LLC (“EyeLock”); 10) Tascent, Inc.; 11) Idemia; and 12) Iritech, Inc. (“Iritech”).

Software products

Biometrics software products provide functionality that captures, formats, stores, processes, or matches samples of fingerprints, faces, iris, voices and other modalities. Biometrics software is capable of operating on a variety of equipment platforms, including personal computers, smartphones, biometric capture devices, hand-held devices, servers, and mainframe computers.

Examples of companies that offer biometrics software products include: 1) Aware, Inc.; 2) Idemia; 3) Thales Group (“Thales”); 4) NEC Corporation (“NEC”); 5) Cognitec Systems GmbH (“Cognitec”); 6) Neurotechnology; 7) Iritech; 8) Innovatrics s.r.o. (“Innovatrics”); 9) Nuance Communications, Inc.; 10) Precise Biometrics; 11) VoiceTrust GmbH.; 12) Eyelock; 13) BIO-key International, Inc.; 14) Zoloz (formerly known as EyeVerify, Inc.); 15) Iris ID; 16) Dermalog Identification Systems GmbH (“Dermalog”); 17) FacePhi Biometria; and 18) Sensory, Inc.

System integrators purchase hardware and software technology and solutions from core biometrics technology vendors and incorporate those components into customized and optimized biometrics systems that they deliver to end-user customers. Historically those end-user customers have been governments, but in recent years system integrators have begun to serve commercial enterprise customers as well. System integrators include large multinationals with a broad range of expertise and the capacity to execute very large projects, as well as smaller system integrators that have more focused expertise on a particular market sector, technology, or geography. Some system integrators have developed their own biometric technologies that they deliver as part of their solutions.

Examples of companies that offer systems integration services and act as a prime contractor include: 1) Northrop Grumman Corporation; 2) Science Applications International Corporation; 3) Hewlett-Packard Enterprise Services; 4) International Business Machines Corporation; 5) Fujitsu Limited; 6) Accenture plc; 7) Unisys Corporation; 8) Leidos, Inc.; and 9) ManTech International Corporation.

Fully integrated solutions suppliers are similar to systems integrators in that they deliver customized and optimized biometrics systems to government and commercial enterprise end-user customers. They differ from system integrators in that they use and consume core hardware and software technologies that they developed in-house or acquired from others. Vendors in this category may purchase additional third-party software, but we believe such purchases represent a minor component of the overall systems they deliver.

There are three large global suppliers of fully integrated biometric solutions, including: 1) Idemia; 2) Thales; and 3) NEC. We believe these companies supply a large percentage of the biometric systems that are delivered to government customers around the world.

In addition to these three large suppliers, we would categorize Dermalog and Daon as fully integrated solution providers, but ones that operate on a smaller scale. Aware also has a product and solution portfolio and services capability that enables us to deliver fully integrated solutions. We have acted in this capacity on a limited basis in the past and an element of our strategy is to grow this part of our business in the future.

Biometrics service providers have begun to offer a pay-per-transaction biometrics service offering. This service allows organizations to biometrically identify or verify employees, customers, or other individuals relevant to their business. A pay-per-transaction model may be more financially attractive for some organizations as compared to the cost of purchasing, installing and maintaining internal biometrics systems.

Examples of companies offering biometrics services include: 1) Certibio Identidade Biometrica, a wholly-owned subsidiary of Certisign Certificadora Digital S.A. (“Certisign”); 2) Idemia; 3) RightPatient, Inc.; 4) Microsoft Corporation; 5) SkyBiometry (a spin-off from Neurotechnology); 6) BioID GmbH; 7) VoiceIt Technologies, LLC; and 8) Jumio.

Vendors of biometrically-enabled solutions provide products that are not principally marketed as biometrics products but include biometric functionality. Biometrics capability is a feature, but not the chief function of these products. Such vendors represent a potential opportunity for core biometrics technology providers as some of them do not own core biometrics technology.

Examples of companies that offer biometrically-enabled smartphone products include: 1) Apple, Inc.; 2) Samsung Electronics Co., Ltd.; and 3) Google, Inc.

Examples of companies that offer secure identification/access solutions that incorporate biometrically-enabled components include: 1) Thales; 2) HID; 3) Entrust Datacard Corporation; and 4) Idemia.

Examples of companies that offer physical access control solutions that may incorporate biometrics include: 1) Honeywell International, Inc.; 2) Tyco International Ltd.; 3) LenelS2 (formed by combination of Lenel and S2 Security both of which were acquired by United Technologies Corp.); 4) Stanley Security Limited; 5) Johnson Controls International Plc; and 6) HID.

Solutions, Services and Products

We sell a broad range of biometrics software products and solutions that perform functions to address our customers’ desired use cases where they are addressing improved security, data protection compliance, improved ROI and efficiencies including:

Our biometrics software solutions are built upon robust componentized products that are customer configurable to give them control so they can uniquely address their specific customers’ expectations. These solutions and services facilitate customers with an opportunity for a faster go-to-market process to help reduce their development times and exposure to software support and maintenance risks. Our Solutions and Services are described below.

1a. Knomi® Mobile Framework

In 2017, we introduced Knomi, a mobile biometric authentication framework offering face, voice and keystroke dynamics. The Knomi mobile biometric authentication framework is built on our hardened biometric component SDK, which is optimized to operate or run on mobile devices, and a server that together enable strong, multi-factor, password-free authentication from a mobile device using biometrics. Knomi offers multiple biometric modality options, including facial recognition, keystroke dynamics, and voice authentication as means to enroll, onboard or authenticate. Banks or any other commercial enterprise can deploy Knomi to enhance their password-based authentication mechanisms, making login to their mobile applications more secure and convenient for their customers and employees. Knomi software components can be used in different combinations and configurations to enable either a server-centric architecture or a device-centric, FIDO® Certified implementation. Knomi is provided as a solution that is available as: 1) a license for a fixed term and price; 2) a subscription-based solution that is available as an enterprise-based, user-based or transaction-based solution or 3) as part of our Indigo™ services solution.

1b. AwareABIS™ Platform

AwareABIS is an Automated Biometric Identification System (“ABIS”) used for large-scale biometric identification and deduplication using fingerprint, face, and iris recognition. It is a highly scalable platform that performs one-to-many search or one-to-one match against large stores of biometrics and other identity data. It does so by deploying biometric data and matching algorithms across a cluster of multiple computing nodes. Extremely large biometric databases (tens of millions of records) cannot be effectively stored or efficiently searched on a single computer. Distributing the data and biometric comparison tasks across multiple machines enables even extremely large databases to be searched in only seconds. AwareABIS enables not only massive biometric search tasks but complex filter, search, match, and link operations critical to data preparation and quality assurance functions such as identity resolution and data deduplication. AwareABIS is built upon several mature, high-performance, field-proven applications, platforms, and algorithms from Aware. AwareABIS is provided as a solution that is available as: 1) a license for a fixed term and price; 2) a subscription-based solution that is available as an enterprise-based, user-based or transaction-based solution; or 3) as part of our Indigo™ services solution.

1c. BioSP™ - Biometric Services Platform

Our Biometric Services Platform solution is called BioSP. BioSP is a service-oriented platform used to enable a biometric system with advanced biometric data processing and management functionality in a web services architecture. It provides workflow, data management and formatting, and other important utilities for large-scale fingerprint recognition, face recognition, and iris recognition systems. BioSP is well suited for applications that require the collection of biometrics throughout a distributed network, and subsequent aggregation, analysis, processing, distribution, matching, and sharing of data with other system components. BioSP is modular, programmable, scalable, and secure, capable of managing all aspects of transaction workflow including messaging, submissions, responses, and logging. BioSP makes extensive use of open-source components and is J2EE-compliant. BioSP is provided as a solution that is available as: 1) a license for a fixed term and price; 2) a subscription-based solutions that is available as an enterprise-based, user-based or transaction-based solution; or 3) as part of our Indigo™ services solution.

1ci. BioSP™ Biometric Services Platform - WebEnroll

WebEnroll is a browser-based biometric enrollment and data management solution available as an enhanced version of BioSP™ (Biometric Services Platform) that utilizes BioComponents for capture of biographic data, fingerprints and facial images in a browser. Each BioComponent performs advanced biometric image autocapture as well as capture device hardware abstraction. Once images are captured, they are submitted to BioSP, where configurable workflows and modular software applications are used for processing, routing, and storage of each transaction. Biometric verification or identification can be added with Nexa or one of several third-party matchers integrated with BioSP, or an external matching service.

1d. Astra™ - Cluster-Based Matching Platform

Our cluster-based matching platform product offering is called Astra. Astra is used for large-scale fingerprint recognition, face recognition, iris recognition, and text-based name matching and identity resolution. It is a highly scalable biometric identification and authentication platform that performs one-to-many search or one-to-one match against large stores of biometrics and other identity data. It does so by deploying biometric and text data and matching algorithms across a cluster of multiple computing nodes ASTRA is available as a subcomponent to the AwareABIS or BioSP platforms.

1e. Indigo™

Indigo™ is Aware’s family of cloud-based biometric application programming interfaces (APIs) and turnkey services, each provided as a subscription-based software-as-a-service (SaaS). Indigo|API provides biometric face and fingerprint image analysis, matching, and enrollment functionality; all as granular REST services that can enhance identity systems with biometric functionality. These functions include quality scoring, liveness detection, enrollment, verification, comparison and matching, and searching for fingerprint and face modalities. Indigo turnkey solutions deliver biometric capabilities accessible from a browser on a subscription basis. Indigo is provided as a subscription-based solution that is available as an enterprise-based, user-based or transaction-based solution.

Software products

We additionally sell a broad range of biometrics software products that enable important functions in biometrics systems, including:

Our biometrics software products range from discrete “building blocks”, such as SDKs, APIs and applications that customers can use to develop their own systems to more complete solutions that customers can use to reduce or eliminate their development times and exposure to software support and maintenance risks. Our products are described below.

2a. Biometric Search & Matching SDKs

Our SDKs consist of: i) multiple software libraries; ii) sample applications that show customers how to use the libraries; and iii) documentation. Customers use our SDKs to design and develop biometrics applications. Our line of biometric search and match SDKs is called Nexa™ and it includes Nexa|Fingerprint™, Nexa|Face™, Nexa|Iris™ and Nexa|Voice™. These products provide high-performance biometric algorithms for fingerprint, facial, iris and voice identification or authentication. The algorithms in these products convert images into biometric templates, which can then be compared to templates stored in databases to find matches.

Each Nexa SDK can be deployed on a workstation or a server, either as a standalone biometric search/match API, or in combination with our other SDKs, applications, BioSP, or Astra products. Our SequenceCheck, PreFace, and IrisCheck SDKs may be used in concert with Nexa libraries to perform optional quality assurance and preprocessing for enhanced fingerprint, face, and iris search and match functionality.

In addition to the Nexa line of biometric search and match SDKs, we also offer AwareXM™, an interoperable fingerprint matching SDK. Aware XM is an SDK that provides MINEX-certified, INCITS 378-compliant fingerprint minutiae extraction, template generation, and fingerprint authentication.

2b. Biometric Enrollment SDKs and APIs

Our suite of enrollment SDKs and APIs performs a variety of functions that are critical to biometric enrollment, including image capture, image quality assurance, image formatting, image compression and liveness verification. Our enrollment SDK and API products include:

2c. Identity Text Analytics SDK - Inquire™

Inquire is a SDK that performs fuzzy text-based filtering, searching, matching, and linking functions towards discovery of useful information in identity data. Analysis of text-based identity data is naturally complementary to biometric verification and identification and Inquire is optimized for processing and analysis of data that includes biometrics.

2d. Biometric Applications

Our products in this category combine user interfaces with multiple Aware software products to create more complete applications that operate on client workstations or mobile devices.

Enrollment Applications

Our fingerprint card products include FormScannerSE™ and FormScannerMB™. The two products are independent applications that may be used for scanning and processing of inked fingerprint cards.

Forensic Workstations

Our forensic analysis and quality assurance products include WorkbenchSuite^TM. WorkbenchSuite is a family of .NET workstation applications that are designed to be used by an operator to analyze and repair or otherwise process digital records containing biometric images and data. Each targets a particular use case and implements workflow carefully designed to best assist analysts in their task. The suite comprises:

Application Components

This group of products consists of our BioComponents™ line of products. Our BioComponents products allow customers to develop biometric enrollment applications and solutions more quickly than if they purchased our SDKs. Each product in the group includes a user interface and one or more software libraries that perform a discrete set of functions, such as automated image capture, quality assurance, and capture hardware integration. BioComponents comprise modular, independent, self-contained software components that can operate either independently or in concert with one another. Specific BioComponents products and the functions they perform are:

In addition to our biometrics software products, we also sell products used in applications involving medical and advanced imaging. Our principal imaging product is Aware JPEG 2000, which is based on the JPEG2000 standard. The JPEG2000 standard is an image compression standard and coding system that was created by the Joint Photographic Experts Group committee in 2000. Our JPEG2000 product is used to compress, store, and display images. Those images are typically medical images.

Software maintenance

We also sell software maintenance to many of our customers who purchase our software products and solutions. Software maintenance has historically been made available by contracts that typically have a one-year term during which customers have the right to receive technical support and software updates, if and when they become available for a fixed fee. Software maintenance is also available as part of a subscription-based solution under which customers receive standard software maintenance plus access to upgrades and product enhancements.

Services

We offer a variety of program management and software engineering services, including: i) project planning and management; ii) system and architecture design; iii) software design, development, customization, configuration, and testing; and iv) software integration and installation. Services are typically, but not always, sold in conjunction with our products and solutions and are provided for a fixed fee or as part of a subscription-based fee.

Service engagement deliverables may include: i) complete customer software solutions; ii) one or more subsystems comprised of software products that are integrated within a larger system; iii) custom-configured versions of existing software products; or iv) custom-designed software products. In some cases, the software resulting from service engagements may form the basis for new or improved Aware software solutions and/or products.

Our customers for services include: i) government agencies; ii) large multinational systems integrators; iii) smaller systems integrators with a particular market, technology or geographic focus; and iv) commercial providers of products, solutions, and services for themselves or to their end customers. We provide services directly to end-users or indirectly to end-users through systems integrators or commercial entities. When we provide services to systems integrators, they are often engaged with the end-user as a prime contractor and are responsible for delivery of a complete solution, in which case we typically serve as a subcontractor assigned a subset of the total scope of work.

The scope of our services projects varies. A small project might involve configuration and testing of a single software product, taking a small team one month or less. A large project might involve delivery of a more complex solution comprised of multiple products and subsystems, requiring a larger team to conduct program and project management, system design, software customization and integration, and taking up to one year or more. Some projects are followed by subsequent follow-on projects that serve to change or extend the features and functionality of the initial system.

Sales and Marketing

As of December 31, 2019, we had a total of 13 employees in our sales and marketing organization. In addition to our employee sales staff, we also engage third party sales agents and representatives to sell our products and services in foreign countries.

We sell our products, solutions and services through three principal channels of distribution:

All of our revenue in 2019, and 2018 was derived from unaffiliated customers. In 2019, one customer represented 16% of total revenue. In 2018, two customers represented 20% and 13%, respectively, of total revenue. No other customer represented 10% or more of total revenue in any of those years.

Competition

The markets for our products, solutions and services are competitive and uncertain. We compete against: i) other companies that provide biometric software solutions; and ii) fully diversified companies that provide biometric software solutions and also act as systems integrators. We can give no assurance that: i) our products and services will succeed in the market; ii) that we will be able to compete effectively; or iii) that competitive pressures will not seriously harm our business.

Many of our competitors are larger than us and have significantly greater financial, technological, marketing and personnel resources than we do. At the other end of the competitive spectrum, we have seen increasing competition from smaller biometrics companies in foreign countries. These smaller foreign competitors have demonstrated a willingness to sell their biometrics software products at low prices.

We can give no assurance that our customers will continue to purchase products from us or that we will be able to compete effectively in obtaining new customers to maintain or grow our business.

Aware’s Strategy

Our strategy is to capitalize on our strong brand, technology, and expertise to sell biometrics software solutions, products and services into government and commercial markets. We intend to continue to offer a broad portfolio of high-quality, innovative biometrics software solutions, products and services that are coupled with expert technical support and services. We expect to continue to employ a multifaceted distribution strategy using systems integrators, OEMs, VAR’s, partners, and direct and indirect sales to reach end users. We expect to continue to market and sell our products globally.

Our strategy for growing our biometrics business may include one or more of the following elements:

Our strategy to offer complete solutions involves:

We believe the evolution of commercial markets over the past few years may present additional mobile authentication and enterprise opportunities. To that end, we have enhanced our solution and product portfolio to enable us to participate in these markets.

As we attempt to grow our biometrics business, we may make investments in growth initiatives, such as those described above, that may cause our profitability to decline in the near term.

Backlog

We had $5.1 million of backlog on December 31, 2019. We define backlog as revenue items in deferred revenue and undelivered orders in our backlog report. Total backlog of $5.1 million included: i) $4.6 million of software maintenance revenue of which approximately $3.2 million is expected to be recognized during 2020; ii) $0.1 million of software license revenue that we anticipate will be recognized during 2020 and iii) $0.4 million of services revenue of which approximately $0.2 million is expected to be recognized during 2020.

Research and Development

Our US-based research and development activities are focused on enhancing our existing products, solutions and services. Our engineering organization is based in Bedford, Massachusetts. As of December 31, 2019, we had an engineering and research staff of 46 employees, representing 65% of our total employee staff.

Patents and Intellectual Property

We rely on a combination of nondisclosure agreements and other contractual provisions, as well as patent, trademark, trade secret and copyright law to protect our proprietary rights. We have an active program to protect our proprietary technology through the filing of patents. As of December 31, 2019, we had approximately 104 U.S. and foreign patents and approximately 35 pending patent applications. Our patents and patent applications pertain primarily to biometrics and imaging compression.

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. Each of our employees is required to sign a non-disclosure agreement. Although we intend to protect our rights vigorously, we cannot assure you that these measures will be successful. In addition, effective intellectual property protection may be unavailable or limited in certain foreign countries.

Third parties may assert exclusive patent, copyright and other intellectual property rights to technologies that are important to us. From time to time, we receive claims from third parties suggesting that we may be obligated to license such intellectual property rights. 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.

Manufacturing & Systems Integration

We do not design or manufacture hardware products, however we have provided systems integration services for one U.S. government customer and are equipped to provide added value solutions to future customers. Our systems integration activities include: i) procuring hardware and software components from third party suppliers; ii) installing and integrating Aware and third-party software on the purchased or supplied hardware; and iii) testing products and solutions for quality assurance prior to shipment.

To the extent we receive any more orders for hardware or integrated systems or solutions revenue in the future, we expect to be dependent on suppliers for certain critical hardware and software components. Our dependence on potential single source suppliers involves several risks, including limited control over availability, quality, and delivery schedules. Any delays in delivery or shortages of such components could cause delays in the shipment of our products, which could harm our business.

Employees

At December 31, 2019, we employed 71 people, including 46 in engineering and research, 13 in sales and marketing, and 12 in finance and administration. Of these employees, 67 were based in Massachusetts. None of our employees are represented by a labor union. We consider our employee relations to be good.

We believe that our future success will depend in large part on the service of our technical, sales, marketing and senior management personnel and upon our ability to retain highly qualified technical, sales and marketing and managerial personnel. We cannot assure you 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.

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). 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.