Aware, Inc. Reports Third Quarter 2007 Financial Results

BEDFORD, Mass., Nov. 1 /PRNewswire-FirstCall/ -- Aware, Inc. (NASDAQ: AWRE), a leading supplier of broadband technology and biometrics software, today reported financial results for its third quarter ended September 30, 2007.

Revenues for the third quarter of 2007 were $7.5 million, an increase of 12% compared to $6.7 million in the same quarter last year. For the nine months ended September 30, 2007, revenues increased 12% to $19.7 million, compared to $17.6 million in the same period a year ago.

The Company reports its net income and basic and diluted net income per share in accordance with U.S. generally accepted accounting principles (GAAP), and additionally, on a non-GAAP basis. Non-GAAP net income, where applicable, excludes the effect of stock-based compensation expense. The company uses the non-GAAP information internally to evaluate its operating performance and believes these non-GAAP measures are useful to investors as they provide additional insight into the underlying operating results. However, non-GAAP measures are not stated in accordance with, should not be considered in isolation from, and are not a substitute for, GAAP measures. A reconciliation of GAAP to non-GAAP results has been provided in the attached financial tables.

GAAP net income for the third quarter of 2007 was $1.0 million, or $0.04 per diluted share, which included $0.3 million of stock-based compensation charges in accordance with the provisions of FAS 123(R). This compared to GAAP net income of $0.8 million, or $0.03 per diluted share, for the same period a year ago. GAAP net loss for the nine months ended September 30, 2007 was $32,000, or $0.00 per share, compared to net income of $151,000, or $0.01 per diluted share, for the same period a year ago.

Non-GAAP net income for the third quarter of 2007, excluding the effect of stock-based compensation, was $1.3 million, or $0.05 per diluted share. For the nine months ended September 30, 2007, the company had non-GAAP net income, excluding the effect of stock-based compensation, of $0.8 million, or $0.03 per share.

Michael Tzannes, Aware's chief executive officer, said, "The DSL and biometrics markets are exhibiting healthy growth and our exposure to opportunities within these markets has improved. We have been able to leverage strong foundations in core technology and know-how into leadership technology and product positions which are providing us broad market exposure. Revenue and profitability this quarter represent the progress we have made in executing in these markets."

Note: Aware's conference call will be broadcast live over the Internet today, November 1, 2007 at 5:00 p.m. Eastern Time. To listen to the call, please go to The conference call may also be heard by calling (719) 325-4833 and referencing the confirmation number 4249041. A replay of the call will be archived on our website after the call.

About Aware

Aware is a leading technology supplier for the telecommunications industries. For more than ten years, Aware has pioneered innovations at telecommunications standards-setting organizations and continues to develop and market DSL silicon intellectual property and test and diagnostics products. Its StratiPHY(TM) IP product line supports DSL standards, including ADSL2+ and VDSL2, and has been broadly licensed to leading semiconductor companies. Telecom equipment vendors and phone companies use Aware's DSL test and diagnostics modules and Dr. DSL(R) software to help provision DSL circuits globally. Aware is also a veteran of the biometrics industry, providing biometric and imaging software components used in government systems worldwide since 1992. Aware's interoperable, standard-compliant, field-proven imaging products are used in a number of applications, from border management to criminal justice to medical imaging. Aware is a publicly held company (NASDAQ: AWRE) based in Bedford, Massachusetts.

Safe Harbor Warning

Portions of this release contain forward-looking statements regarding future events and are subject to risks and uncertainties, such as estimates or projections of future revenue and earnings and the growth of the DSL and biometrics markets. Aware wishes to caution you that there are factors that could cause actual results to differ materially from the results indicated by such statements. The DSL factors include, but are not limited to: we have a unique business model, our quarterly results are difficult to predict, we depend on a limited number of licensees, we derive a significant amount of revenue from a small number of customers, we depend on equipment companies to incorporate our technology into their products, we face intense competition from other DSL vendors, DSL technology competes with other technologies for broadband access, and our business is subject to rapid technological change. We refer you to the documents Aware files from time to time with the Securities and Exchange Commission, specifically the section titled Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2006 and other reports and filings made with the Securities and Exchange Commission.

    Aware, StratiPHY, and Dr. DSL are trademarks or registered trademarks of
Aware, Inc.

                                 AWARE, INC.
                    (In thousands, except per share data)

                                    Three Months Ended     Nine Months Ended
                                       September 30,          September 30,
                                     2007        2006        2007       2006
      Product sales                 $5,097      $1,736     $12,333     $4,973
      Contract revenue               1,851       3,990       5,260      9,924
      Royalties                        508         956       2,092      2,710
        Total Revenue                7,456       6,682      19,685     17,607

    Costs and expenses:
      Cost of product sales (1)        901         286       3,087        615
      Cost of contract revenue (1)   1,553       1,363       4,315      3,759
      Research and development (1)   2,528       2,602       7,735      8,200
      Selling and marketing (1)         936                  784              2,808            2,518
            General  and  administrative  (1)  1,009                  967              3,269            3,376
                Total  costs  and  expenses          6,927              6,002            21,214          18,468

        Net  income  (loss)  from  operations    529                  680            (1,529)            (861)
        Interest  income                                        512                  490              1,520            1,342

        Net  income  (loss)  before
          provision  for  income  taxes            1,041              1,170                    (9)              481
        Provision  for  income  taxes                      6                  330                    23                330

        Net  income  (loss)                              $1,035                $840                ($32)            $151

        Net  income  (loss)  per
          share  -  basic                                      $0.04              $0.04            ($0.00)          $0.01
        Net  income  (loss)  per
          share  -  diluted                                  $0.04              $0.03            ($0.00)          $0.01

        Weighted  average  shares
          -  basic                                        23,757,485    23,552,397    23,710,456  23,432,642
        Weighted  average  shares
          -  diluted                                    24,996,069    24,987,373    23,710,456  24,975,648

        (1)  Effective  January  1,  2006  the  Company  adopted  Statement  of  Financial
                Accounting  Standard  No.  123  (Revised),  "Share-Based  Payment"  (FAS
                123(R)).  The  amounts  in  the  tables  above  include  stock-based
                compensation  as  follows  (in  thousands):

                                                                                Three  Months  Ended      Nine  Months  Ended
                                                                                      September  30,                  September  30,
                                                                                    2007            2006                2007            2006

        Cost  of  product  sales                                      $4                $4                    $8              $12
        Cost  of  contract  revenue                                54                13                  133                98
        Research  and  development                              127              241                  311              786
        Sales  and  marketing                                          32                88                    78              266
        General  and  administrative                            88              106                  262              532
        Total  stock-based  compensation  costs    $305            $452                $792        $1,694

                                                                  AWARE,  INC.
                                Non-GAAP  Financial  Measures  and  Reconciliation
                                        (In  thousands,  except  per  share  data)

                                                                            Three  Months  Ended        Nine  Months  Ended
                                                                                    September  30,              September  30,
                                                                                  2007          2006              2007            2006

        GAAP  net  income  (loss)                          $1,035          $840              ($32)          $151
            Stock-based  compensation                        305            452                792          1,694
        Non-GAAP  net  income                                $1,340      $1,292              $760        $1,845

                                                                            Three  Months  Ended        Nine  Months  Ended
                                                                                    September  30,                September  30,
                                                                                  2007          2006              2007            2006

        GAAP  net  income  (loss)  per  share        $0.04        $0.03          ($0.00)        $0.01
            Stock-based  compensation  per
              share                                                          0.01          0.02              0.03            0.06
        Non-GAAP  net  income  per  share              $0.05        $0.05            $0.03          $0.07

                                                                  AWARE,  INC.
                                        CONDENSED  CONSOLIDATED  BALANCE  SHEETS
                                                                (In  thousands)

                                                                                                    September  30,      December  31,
                                                                                                            2007                      2006

            Cash  and  investments                                                    $38,147                $39,802
            Accounts  receivable,  net                                                7,697                    4,738
            Property  and  equipment,  net                                          8,022                    8,123
            Other  assets,  net                                                              2,299                    1,923

            Total  assets                                                                    $56,165                $54,586

            Total  current  liabilities                                            $3,288                  $2,886
            Long-term  deferred  revenue                                                330                        330
            Total  stockholders'  equity                                          52,547                  51,370
            Total  liabilities  and  stockholders'  equity        $56,165                $54,586

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