Company: AWRE
Filing Date: 2025-03-13
Form Type: 10-K
Source: 0000950170-25-038714
Chunk: 87

Company: AWARE INC /MA/
Filing Date: 2025-03-13
Form: 10-K
Item: Item 7
Chunk 87
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 the projects; ii) the level of engineering difficulty and labor hours required to complete project tasks; and iii) how much we were able to charge.  Gross margins in these years reflect the profitability mix of customer projects. We expect that gross margins on services and other revenue will continue to fluctuate in future periods based on the nature, complexity, and pricing of future projects.

19

Research and Development Expense

Research and development expense consists of costs for: i) engineering personnel, including salaries, stock-based compensation, fringe benefits, and facilities; ii) engineering consultants and contractors, and iii) other engineering expenses such as supplies, equipment depreciation, dues and memberships and travel.  Engineering costs incurred to develop our technology and products are classified as research and development expense. As described in the cost of services section, engineering costs incurred to provide engineering services for customer projects are classified as cost of services and are not included in research and development expense.

The classification of total engineering costs to research and development expense and cost of services for the years ended December 31, 2024 and 2023 was (in thousands):

    Years endedDecember 31,

    2024

    2023

    Research and development expense
     
    $
    7,757

    $
    9,124

    Cost of services and other

    1,132

    1,273

    Total engineering costs
     
    $
    8,889

    $
    10,397

Total engineering costs decreased 15% from $10.4 million in 2023 to $8.9 million in 2024.  As a percentage of total revenue, total engineering costs decreased from 57% in 2023 to 51% in 2024.

Our engineering headcount decreased from 42 in 2023 to 33 in 2024.  The decrease in engineering costs is primarily a result of reducing our engineering headcount by approximately 10% in 2023 and 20% in 2024.  The reduction was driven by strategic initiatives to optimize resources, improve operational efficiency, and align our engineering capabilities with current business priorities. We believe our current engineering organization is adequately staffed to support our product roadmap, customer commitments, and innovation efforts.

As we described in the Part I—Business of this Form 10-K, we intend to introduce new products that will allow us to offer more complete biometrics solutions. We believe this strategy will allow us to sell more software into