Aware, Inc. Reports 2006 First Quarter Financial Results

BEDFORD, Mass., May 4 /PRNewswire-FirstCall/ -- Aware, Inc. (NASDAQ: AWRE), a worldwide leader and innovator of broadband intellectual property, today reported financial results for its first quarter ended March 31, 2006.

Revenues for the first quarter of 2006 were $6.1 million compared to $4.2 million for the same period last year.

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 first quarter of 2006 was $0.5 million, or $0.02 per share, which included $0.5 million of stock-based compensation charges, as this was the Company's first quarter subject to the provisions of FAS 123(R). This compared to a GAAP net loss of $0.3 million, or $0.01 per share, for the year-ago period. GAAP results prior to 2006 do not include a charge for stock-based compensation.

Non-GAAP net income for the first quarter of 2006, excluding the effect of stock-based compensation, was $1.0 million, or $0.04 per share.

Michael Tzannes, Aware's chief executive officer, said, "This quarter was a solid one from every perspective. Revenues were up because of the level of demand for our technology and products. New product developments are underway in all areas to continue to enhance the value we deliver to our customers. We have a clear leadership position in VDSL2 and are encouraged by the trend that has emerged to use VDSL2 for infrastructure upgrades involving fiber and DSL to deliver IPTV and triple play services. We are on track with our strategy to develop profitable product lines in DSL licensing, biometrics and DSL test and diagnostics."

Tzannes added, "From the conclusion of today's conference call until Friday, May 5, 2006 at 5:00 p.m., we invite stakeholders to submit questions via email to Email Contact. We will post questions and answers next week on our website."

Note: Aware's conference call will be broadcast live over the Internet today, May 4, 2006 at 5:00 p.m. Eastern Time. To listen to the call, please go to, and click on "Investor Relations." The conference call may also be heard by calling (913) 312-1300 and referencing the confirmation number 2443711 (please note the dial-in number change from our previous announcement). A replay of the call will be archived on our website after the call.

About Aware

Aware, Inc. designs, develops, licenses and markets DSL technologies that enable broadband communications over existing telephone networks. Its solutions, including splitterless G.lite, full-rate ADSL, ADSL2, ADSL2+, VDSL2, Bonded ADSL2+, Dr. DSL(R), StratiPHY(TM), StratiPHY-Bonded(TM), StratiPHY2+(TM), StratiPHY3(TM) and G.SHDSL, address central office as well as customer premise requirements. Aware is also a leading provider of standards-based biometric transaction and image compression software toolkits. More information can be found at

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 market. Aware wishes to caution you that there are factors that could cause actual results to differ materially from the results indicated by such statements. These 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, 2005 and other reports and filings made with the Securities and Exchange Commission.

Dr. DSL, StratiPHY, StratiPHY2+, StratiPHY3, and StratiPHY-Bonded are trademarks or registered trademarks of Aware, Inc.

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

                                                        Three Months Ended
                                                              March 31,
                                                        2006           2005

      Product sales                                   $1,718           $961
      Contract revenue                                 3,692          2,163
      Royalties                                          724          1,100
        Total revenue                                  6,134          4,224

    Costs and expenses:
      Cost of product sales (1)                          152             60
      Cost of contract revenue (1)                     1,246            840
      Research and development (1)                                          2,790                    2,553
            Selling  and  marketing  (1)                                                    814                        633
            General  and  administrative  (1)                                      1,004                        669
                Total  costs  and  expenses                                              6,006                    4,755

        Net  income  (loss)  from  operations                                        128                      (531)
        Interest  income                                                                            394                        217

        Net  income  (loss)  before  provision  for
          income  taxes                                                                                522                      (314)
        Provision  for  income  taxes                                                          -                            -

        Net  income  (loss)                                                                      $522                    ($314)

        Net  income  (loss)  per  share  -  basic                                $0.02                  ($0.01)
        Net  income  (loss)  per  share  -  diluted                            $0.02                  ($0.01)

        Weighted  average  shares  -  basic                                      23,307                  22,943
        Weighted  average  shares  -  diluted                                  24,840                  22,943

        (1)  Effective  January  1,  2006  the  Company  adopted  Statement  of  Financial
                Accounting  Standard  No.  123  (Revised),  "Share-Based  Payment"  (SFAS
                123(R)).  Accordingly,  for  the  three  months  ended  March  31,  2006,
                stock-based  compensation  was  accounted  under  SFAS  123(R)  while,  for
                the  three  months  March  31,  2005,  stock-based  compensation  was
                accounted  for  under  APB  No.  25  "Accounting  for  Stock  Issued  to
                Employees."    The  amounts  in  the  tables  above  include  stock-based
                compensation  as  follows  (in  thousands):

                                                                                                                  Three  Months  Ended
                                                                                                                          March  31,
                                                                                                              2006                        2005

        Cost  of  product  sales                                                            $      3                          $-
        Cost  of  contract  revenue                                                            64                            -
        Research  and  development                                                          149                            -
        Sales  and  marketing                                                                      68                            -
        General  and  administrative                                                      213                            -
        Total  stock  based  compensation  costs                              $  497                          $-

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

                                                                                                  Three  Months        Three  Months
                                                                                                          Ended                    Ended
                                                                                                March  31,  2006    March  31,  2005

        GAAP  net  income                                                                    $      522                ($  314)
            Stock  based  compensation                                                      497                          -
        Non-GAAP  net  income                                                            $  1,019                ($  314)

                                                                                                    Three  Months        Three  Months
                                                                                                          Ended                      Ended
                                                                                              March  31,  2006    March  31,  2005

        GAAP  basic  and  diluted  net  income
          per  share                                                                                  $  .02                ($  .01)
            Stock  based  compensation                                                      .02                          -
        Non-GAAP  basic  and  diluted  net  income
            per  share                                                                                $  .04                ($  .01)

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

                                                                                                            March  31,      December  31,
                                                                                                                2006                      2005


            Cash  and  investments                                                          $38,735                $36,763
            Accounts  receivable,  net                                                      3,250                    3,749
            Property  and  equipment,  net                                                8,011                    8,075
            Other  assets,  net                                                                    1,178                    1,154

            Total  assets                                                                          $51,174                $49,741


        Total  current  liabilities                                                      $2,388                  $2,238

        Total  stockholders'  equity                                                    48,786                  47,503

        Total  liabilities  and  stockholders'
          equity                                                                                        $51,174                $49,741


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