Company: AWRE
Filing Date: 2025-03-13
Form Type: 10-K
Source: 0000950170-25-038714
Chunk: 67

Company: AWARE INC /MA/
Filing Date: 2025-03-13
Form: 10-K
Item: Item 5
Chunk 67
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 those NOLs can be carried forward indefinitely and the remaining $0.6 million expire in 2037.  As of December 31, 2024, we had State NOL carryforwards of $26.5 million, which expire at various dates though 2044.  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 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 $13.2 million and $12.5 million at December 31, 2024 and 2023, respectively.  During the year ended December 31, 2024, we increased the valuation allowance by $0.7 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.”