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Aware, Inc. Reports Fourth Quarter and 2008 Financial Results

BEDFORD, Mass., Feb. 11 /PRNewswire-FirstCall/ -- Aware, Inc. (Nasdaq: AWRE), a leading supplier of broadband technology and biometrics software, today reported financial results for its fourth quarter and year ended December 31, 2008.

Revenues for the fourth quarter of 2008 were $12.1 million, an increase of 79% compared to $6.8 million in the same quarter last year. For the year ended December 31, 2008, revenues increased 15% to $30.5 million, compared to $26.4 million in 2007.

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 fourth quarter of 2008 was $5.0 million, or $0.21 per diluted share, which included $0.4 million of stock-based compensation charges in accordance with the provisions of FAS 123(R). This compared to GAAP net income of $0.2 million, or $0.01 per diluted share, for the same period a year ago. GAAP net income for the year ended December 31, 2008 was $1.8 million, or $0.07 per diluted share, compared to net income of $0.2 million, or $0.01 per diluted share, for 2007.

Non-GAAP net income for the fourth quarter of 2008, excluding the effect of stock-based compensation, was $5.4 million, or $0.23 per diluted share. For the year ended December 31, 2008, the company had non-GAAP net income, excluding the effect of $1.5 million of stock-based compensation, of $3.3 million, or $0.14 per share.

Michael Tzannes, Aware's chief executive officer, said, "Overall, 2008 was encouraging in many respects. We are pleased that annual revenues grew for the third year in a row and that we were profitable. Biometrics revenues grew nearly 60% and maintained strong operating metrics. We expanded our DSL test and diagnostics product offerings and are positioned to capitalize on test infrastructure deployments by phone companies. We also executed a significant contract relating to a portion of our patent portfolio, validating the market opportunity for high-quality patents.

However, the slowing economy has had a negative impact on us and is likely to continue to do so. We saw revenues trend down in most of our traditional product offerings in the fourth quarter. While we have a strong cash position, we are closely monitoring expenses across all elements of our business.

We remain optimistic that despite the current challenging market conditions, we continue to make progress towards achieving our long term goal of generating shareholder value by leveraging a strong technology base into innovative product and service offerings."

Note: Aware's conference call will be broadcast live over the Internet today, February 11, 2009 at 5:00 p.m. Eastern Time. To listen to the call, please go to The conference call may also be heard by calling 719-325-4832 and referencing the confirmation number 5947596. A replay of the call will be archived on our website after the call.

About Aware

Aware is a leading technology and software supplier for the telecommunications and biometrics 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, our DSL licensing and DSL test and diagnostic businesses depend upon a limited number of customers, 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, our business could be harmed if our test and diagnostic hardware and software products have quality problems, we depend on a single source contract manufacturer for the manufacture of our DSL hardware products, our manufacturing systems may not be adequate for our DSL test and diagnostics hardware products, we depend on single source suppliers for components in our DSL hardware products, and our business is subject to rapid technological change. The biometric factors include, but are not limited to: market acceptance of our biometric products, changes in contracting practices of government or law enforcement agencies, announcements or introductions of new products by our competitors, delays, failures or problems in our biometric products, problems in our biometrics services business, delays in the adoption of new industry biometric standards, and competitive pressures resulting in lower software product revenues. 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, 2007 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         Year Ended
                                  December 31,            December 31,
                                2008        2007        2008        2007

       Product sales           $2,210      $5,158     $14,022     $17,491
       Contract revenue         9,346       1,077      14,658       6,337
       Royalties                  527         518       1,837       2,609
          Total revenue        12,083       6,753      30,517      26,437

    Costs and expenses:
       Cost of product sales (1)  613         912       2,589       3,998
       Cost of contract
        revenue (1)               667       1,110       4,180       5,425
       Research and
        development (1)         3,187       3,134      13,171      10,869
       Selling and
        marketing (1)           1,443         930       4,739       3,738
       General and
        administrative (1)      1,416         967       5,209       4,237
          Total costs and
           expenses             7,326       7,053      29,888      28,267

    Net income (loss)
     from operations            4,757        (300)        629      (1,830)
    Interest income               222         496       1,163       2,016

    Net income before
     provision for
     income taxes               4,979         196       1,792         186
    Provision for income taxes     (1)         (3)        (16)        (26)

    Net income                 $4,978        $193      $1,776        $160

    Net income per share
     - basic                    $0.21       $0.01       $0.08       $0.01
    Net income per share
     - diluted                  $0.21       $0.01       $0.07       $0.01

    Weighted average
     shares - basic        23,290,502  23,818,467  23,637,950  23,737,715
    Weighted average
     shares - diluted      23,292,639  24,917,360  23,696,519  25,083,700

    (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      Year Ended
                                          December 31,        December 31,
                                        2008      2007      2008      2007
    Cost of product sales                 $3        $5       $11       $13
    Cost of contract revenue              29        43       135       176
    Research and development             148       172       611       483
    Sales and marketing                   52        41       186       119
    General and administrative           158        85       562       347
    Total stock-based compensation
     costs                              $390      $346    $1,505    $1,138

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

                                     Three Months Ended      Year Ended
                                         December 31,        December 31,
                                        2008      2007      2008      2007
    GAAP net income                   $4,978      $193    $1,776      $160
    Stock-based compensation             390       346     1,505     1,138
    Non-GAAP net income               $5,368      $539    $3,281    $1,298

                                     Three Months Ended      Year Ended
                                         December 31,        December 31,
                                        2008      2007      2008      2007
    GAAP diluted net income per share  $0.21     $0.01     $0.07     $0.01
    Stock-based compensation per share  0.02      0.01      0.07      0.04
    Non-GAAP diluted net income per
     share                             $0.23     $0.02     $0.14     $0.05

                                      AWARE, INC.
                                    (In thousands)

                                                    December 31, December 31,
                                                        2008         2007

         Cash and investments                          $45,516      $38,549
         Accounts receivable, net                        2,211        7,661
         Inventories, net                                1,656        1,424
         Property and equipment, net                     7,463        7,872
         Other assets, net                                 700          877

         Total assets                                  $57,546      $56,383


         Total current liabilities                      $2,693       $2,817

         Long-term deferred revenue                        330          330

         Total stockholders' equity                     54,523       53,236

         Total liabilities and stockholders' equity    $57,546      $56,383

SOURCE Aware, Inc.
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