v3.25.4

Income Taxes | 12 Months Ended
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Dec. 31, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | 7. INCOME TAXES The components of net loss before income tax expense are as follows (in thousands):
|  | Year ended December 31, |
|  | 2025 |  |  | 2024 |
Domestic |  |  | (5,616 | ) |  |  | (4,378 | )
Foreign |  |  | — |  |  |  | — |
Total |  | $ | (5,616 | ) |  | $ | (4,378 | )
We recorded a provision for income tax of $0.3 million and $53 thousand for the years ended December 31, 2025 and 2024, respectively. The components of the provision for income tax are as follows (in thousands):
|  | Year ended December 31, |
|  | 2025 |  |  | 2024 |
Current: |  |  |  |  |  |
Federal |  | $ | - |  |  | $ | - |
State |  |  | 14 |  |  |  | 31 |
Foreign |  |  | 243 |  |  |  | 22 |
Total |  |  | 257 |  |  |  | 53 |
Deferred expense: |  |  |  |  |  |
Federal |  | $ | - |  |  | $ | - |
State |  |  | — |  |  |  | — |
Foreign |  |  | — |  |  |  | — |
Total income tax expense |  | $ | 257 |  |  | $ | 53 |
The difference between the effective tax rate and the U.S. federal statutory rate in 2024 was driven primarily due to the changes in the valuation allowance of our deferred tax assets, state income taxes and impact of stock-based compensation to the deferred tax assets in 2024. A reconciliation of the U.S. federal statutory rate to the effective tax rate for 2024 is as follows:
|  | Year ended December 31, |
|  | 2024 |
Federal statutory rate |  |  | 21 | %
State rate, net of federal benefit |  |  | 2 |
Tax credits |  |  | 2 |
Change in valuation allowance |  |  | (16 | )
Stock compensation |  |  | (13 | )
Tax law change |  |  | 2 |
Other |  |  | 1 |
Effective tax rate |  |  | (1 | )%
The reconciliation of the Company's statutory tax rate and effective tax rate for 2025 is as follows (in thousands):
|  | Year Ended December 31, |
|  | 2025 |
|  | Amount |  |  | Percent |
Pretax loss |  | $ | (5,616 | ) |  |  |
US federal statutory tax rate |  |  | (1,179 | ) |  |  | 21 | %
State and local income taxes, net of fed benefit |  |  | 26 |  |  |  | (0.5 | )
Foreign tax effects: |  |  |  |  |  |
India |  |  |  |  |  |
Foreign withholding taxes |  |  | 232 |  |  |  | (4.1 | )
Tax credits |  |  |  |  |  |
Federal R&D credits |  |  | 359 |  |  |  | (6.4 | )
Change in valuation allowance |  |  | 775 |  |  |  | (13.8 | )
Nontaxable or nondeductible items: |  |  |  |  |  |
Other |  |  | 18 |  |  |  | (0.3 | )
Stock compensation |  |  | 42 |  |  |  | (0.7 | )
Other adjustments |  |  |  |  |  |
Other |  |  | (16 | ) |  |  | 0.3 |
Total |  | $ | 257 |  |  | (4.5%) |
The Company's effective tax rate includes the effects of state and local income taxes, net of the federal income tax benefit, which are primarily attributable to Massachusetts, where the Company has significant business activities. Massachusetts has higher effective tax rates compared to other jurisdictions where the Company operates, which accounts for more than half of the Company's total state tax expense. Deferred income taxes - We had net deferred tax assets of $0 as of December 31, 2025 and 2024. The principal components of deferred tax assets, net, were as follows at December 31 (in thousands):
|  | 2025 |  |  | 2024 |
Deferred tax assets |  |  |  |  |  |
Stock-based compensation |  | $ | 304 |  |  | $ | 215 |
Research and development credits |  |  | 6,387 |  |  |  | 6,662 |
Capitalized research expense |  |  | 2,859 |  |  |  | 3,846 |
Net operating loss |  |  | 4,976 |  |  |  | 2,655 |
Other |  |  | 48 |  |  |  | 249 |
Deferred revenue |  |  | 76 |  |  |  | — |
Lease liability |  |  | 1,013 |  |  |  | 1,047 |
Total deferred tax assets |  |  | 15,663 |  |  |  | 14,674 |
Valuation allowance |  |  | (14,302 | ) |  |  | (13,222 | )
Deferred tax liabilities |  |  |  |  |  | — |
Depreciation |  |  | (119 | ) |  |  | (113 | )
Intangibles |  |  | (313 | ) |  |  | (361 | )
ROU assets |  |  | (929 | ) |  |  | (978 | )
Total deferred tax liabilities |  |  | (1,361 | ) |  |  | (1,452 | )
Net deferred tax assets (liabilities) |  | $ | - |  |  | $ | - |
As of December 31, 2025, $6.4 million of our deferred tax assets relate to research and development credit carryforwards. Further, a significant portion of our deferred tax assets relates to federal and state research and development credits. These credits may only offset 75% of the tax liability after net operating loss carryforwards are utilized and thus, we have the risk that the credits could expire before utilization if sufficient taxable income in the carryforward periods doesn’t exist. As of December 31, 2025, we had a federal net operating loss carryforward of $17.1 million, which may be available to offset future income tax liabilities. $16.5 million of those NOLs can be carried forward indefinitely and the remaining $0.6 million expire in 2037. As of December 31, 2025, we had State NOL carryforwards of $19.8 million, which expire at various dates though 2045. As of December 31, 2025, the Company had $5.8 million of U.S. federal research and development tax credits that begin to expire in 2025. As of December 31, 2025, the Company had $1.5 million of state research and development tax credits that begin to expire at various dates from 2033 through 2039. We evaluated and considered all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets was needed. The deferred tax assets are composed principally of net operating loss carryforwards, capitalized research costs and research and development credits. As part of this analysis, we gave more weight to recent, historical evidence than future projections as we consider the past more objective. Under the applicable accounting standards, we considered our history of losses and concluded that it is more likely that we will not recognize the benefits of federal and state deferred tax assets. Therefore, we have recorded a full valuation allowance of $14.3 million and $13.2 million at December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, we increased the valuation allowance by $1.1 million from the prior year end. We will continue to monitor the evidence and the realizability of our deferred tax assets in future periods. Should evidence regarding the realizability of our deferred tax assets change at a future point in time, we will adjust the valuation allowance as required. Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. In connection with our acquisition of FortressID during 2021, the historical NOL carryforwards of $3.5 million from FortressID are likely limited under Section 382 due to a change in ownership triggered by the acquisition, however, we do not expect the limitation to result in any of the NOL carryforwards to expire unused. We have not completed a study at the Aware, Inc. level to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change.” In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to us. Uncertain tax benefits - As of December 31, 2025 and 2024, we had $0.7 million of uncertain tax positions that were primarily related to our research and development tax credits. There were no changes to this amount during each of the years ended December 31, 2025 and 2024. The uncertain tax positions will impact our effective tax rate if realized. Tax examinations – The Company files US federal and various state income tax returns and is subject to examination by the respective taxing authorities. The statute of limitations for US federal and most state income tax returns is generally three years from the date the return is filed. However, because the Company has tax attribute carryforwards generated in earlier years, the taxing authorities may examine tax years outside the normal three year statute to the extent such years generated tax attributes that are utilized in open tax years. As a result, although the Company’s federal and most state income tax returns for periods prior to 2021 are generally closed to routine examination, those earlier tax years remain subject to adjustment for purposes of determining the correct amount of NOL and tax credit carryforwards available to offset taxable income or tax liability in subsequent years. The Company is not currently under federal or state income tax examination for any period. The following table summarizes the Company's income taxes (net of refunds received) for the total unrecognized tax benefits:
|  | Year ended December 31, |
|  | 2025 |
Federal |  | $ | — |
State |  |  | 2 |
Foreign |  |  | 73 |
Total |  | $ | 75 |
The following summarizes the jurisdictions that exceeded 5% of the Company's total income taxes paid (net of refunds) for the years presented below (in thousands):
|  | Year ended December 31, |
|  | 2025 |
State |  |  |
Massachusetts |  | $ | (4 | )
Foreign |  |  |
India |  | $ | 73 |

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