Financial Analysis

Note 7 Equity and Stock-based compensation The following table presents stock-based compensation expenses included in our unaudited consolidated statements of operations and comprehensive loss (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Research and development 30 45 79 87 Selling and marketing 18 19 29 28 General and administrative 273 318 482 447 Stock-based compensation expense $ 321 $ 382 $ 590 $ 562 Stock Options - On January 17, 2024, our stockholders approved the Aware Inc. 2023 Equity and Incentive Plan (the 2023 Plan). Following approval of the 2023 Plan, we ceased making awards under our previous 2001 Nonqualified Stock Plan (as amended, the 2001 Plan). During the three and six months ended June 30, 2026, the Company granted stock options to purchase an aggregate of 0 and 10,000 shares of common stock under the 2023 Equity and Incentive Plan, respectively. The stock options granted in the six months ended June 30, 2026 were granted as incentive stock options. During the three and six months ended June 30, 2025, the Company granted stock options to purchase an aggregate of 0 and 1,165,197 shares of common stock, respectively, under the 2023 Equity and Incentive Plan. Of the total stock options granted in the three and six months ended June 30, 2025, 327,840 options were granted as incentive stock options and 837,357 as non-qualified stock options. No stock options were exercised in either period. The stock options granted …

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Note 3 Fair Value Measurements The FASB Codification defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy under the FASB Codification are: Level 1 valuations that are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date; Level 2 valuations that are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly; and Level 3 valuations that require inputs that are both significant to the fair value measurement and unobservable. Cash and cash equivalents, which primarily include money market mutual funds were $ 2.9 million and $ 7.3 million as of June 30, 2026 and December 31, 2025, respectively. Marketable securities, which consists of U.S. Treasuries, were $ 14.0 million and $ 15.0 million as of June 30, 2026 and December 31, 2025, respectively. Our assets and liabilities that are measured at fair value on a recurring basis included the following (in thousands): Fair Value Measurement at June 30, 2026 Using: Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total (Level 1) (Level 2) (Level 3) Assets Money market funds (included in cash and cash equivalents) $ 2,214 $ $ $ 2,214 Marketable securitie …

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Note 8 Income Taxes During the three months ended June 30, 2026 and 2025, we recorded an income tax provision of approximately $ 1 thousand and $ 26 thousand, respectively. During the six months ended June 30, 2026 and 2025, we recorded an income tax provision of approximately $ 9 thousand and $ 34 thousand, respectively. We have evaluated the positive and negative evidence bearing upon our ability to realize our deferred tax assets, which primarily consist of net operating loss carryforwards and research and development tax credits. We considered the history of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and we have concluded that it is more likely than not that we will not realize the benefits of our deferred tax assets. As a result, as of June 30, 2026 and December 31, 2025, we have a full valuation allowance recorded against our net deferred tax assets. …

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Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an annual tabular effective tax rate reconciliation disclosure including information for specified categories and jurisdiction levels, as well as disclosure of income taxes paid, net of refunds received, disaggregated by federal, state/local, and significant foreign jurisdiction. This ASU was effective for the Companys fiscal year ended December 31, 2025 and has been adopted in these consolidated financial statements. The adoption did not have a material impact on the Companys consolidated financial statements. In 2025, the FASB issued ASU No. 2025-06, IntangiblesGoodwill and OtherInternal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which amends existing guidance related to the accounting for internal-use software costs. The amendments are intended to improve the relevance of information provided to investors about a companys investments in internal-use software and align the accounting for internal-use software costs with modern software development practices. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact that adoption of this ASU will have …

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Note 5 Restructuring Charges In March 2026, we implemented a cost saving plan to better align our cost structure with current business needs. As a result, we recognized approximately $ 0.7 million of one-time severance during the three months ended March 31, 2026, consisting primarily of employee severance and related benefits. We did not record any separation costs during the three months ended June 30, 2026. As of June 30, 2026, approximately $ 0.3 million of separation costs remained unpaid, which are expected to be paid within the next nine months. …

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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, which includes SaaS subscription arrangements. 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 and revenue from SaaS subscription arrangements 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 and 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 …

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