Aware, Inc. Reports Record Revenue and Profitability for Second Quarter 1999 - Company Financial Information

Cambridge Telcom Report, August 2, 1999

Aware, Inc. (NASDAQ:AWRE), a worldwide leader in DSL (digital subscriber line) technology for high-speed Internet access over existing telephone networks, has reported financial results for its second quarter ended June 30, 1999.

Second quarter 1999 revenue increased 94 percent to $4.7 million, compared to $2.4 million for the quarter ended June 30, 1998. Net income for the quarter was $919,000, or 4 cents per diluted share, which compares to a net loss of $1.3 million, or minus 6 cents per diluted share for the same quarter last year.

For the six months ended June 30, 1999, revenue increased 103 percent to $9.0 million, compared to $4.4 million in the same period last year. Net income for the first six months of 1999 was $1.6 million, or 7 cents per share, which compares to a net loss of $2.7 million, or minus 14 cents per share, for the first six months of 1998.

Commenting on the company's second quarter results, President and Chief Executive Officer Michael A. Tzannes stated: "Record revenue and profitability this quarter are due to the combination of a rapidly growing DSL market, Aware's technology leadership position within the industry, and our intellectual property licensing business model. We are encouraged with how the industry and Aware are progressing."

Focusing on the DSL market, he noted: "Telephone companies and service providers from around the world are rolling out high-speed DSL services driven by tremendous consumer demand, global standards, and equipment interoperability. Current industry estimates are that DSL will be available to tens of millions of subscribers by the end of this year. The industry reached a significant milestone this June when the International Telecommunication Union approved both the G.992.2 G.Lite standard and the G.991.1 full-rate ADSL standard. This was a terrific accomplishment for the industry and Internet users have already begun to see the positive effects of these standards."

Turning to Aware's accomplishments this quarter, he said: "Our success within the industry is clearly attributable to our technology leadership. Because of this leadership, we continue to be first in market share, interoperability and semiconductor customer relationships. We also continued to expand our customer base this quarter by entering into a license agreement with NEC Corporation to offer Aware's G.992.2 technology and software on their recently launched full-rate ADSL chipset as well as within their world-class system-on-a-chip solutions."

Aware, Inc. designs, develops, licenses and markets DSL technology that enables high-speed Internet access over existing telephone networks. The company licenses its intellectual property and software to semiconductor manufacturers and equipment manufacturers who sell products incorporating Aware technology. Aware also markets to systems companies to encourage them to design its technology into their products, and to service providers to encourage them to deploy new broadband services based on its technology. More information about Aware can be found at http://www.aware.com.

AWARE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)

                                       June 30,     December 31,
                                         1999            1998
ASSETS
Current assets:
Cash and cash equivalents            $ 27,560,384    $ 23,512,242
Short-term investments                  4,059,679       3,054,717
Accounts receivable                     4,545,012       2,901,724
Inventories                               181,049         120,911
Prepaid expenses and other assets         361,343         252,050

Total current assets                   36,707,467      29,841,644

Property and equipment, net            10,005,001      10,320,581

Total assets                         $ 46,712,468    $ 40,162,225

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable                     $    533,631    $    479,705
Accrued expenses                          100,500         127,525
Accrued compensation                      330,211         324,669
Accrued professional                       73,377          84,000
Deferred revenue                               --          12,500

Total current liabilities               1,037,719       1,028,399

Stockholders' equity:
Common stock                              215,089         209,114
Additional paid-in capital             60,877,196      55,938,189
Accumulated deficit                   (15,417,536)    (17,013,477)

Total stockholders' equity             45,674,749      39,133,826

Total liabilities and stockholders'
equity                               $ 46,712,468    $ 40,162,225

AWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

                    Three Months Ended       Six Months Ended
                         June 30,                 June 30,
                     1999         1998         1999        1998

Revenue:
Product sales   $1,431,126     $725,813   $2,655,831  $1,467,271
Contract revenue 2,498,950    1,651,822    5,060,211   2,851,199
Royalties          780,723       53,869    1,301,025     117,050

Total revenue    4,710,799    2,431,504    9,017,067   4,435,520

Costs and expenses:
Cost of product
sales              343,243      456,629      589,250     833,762
Cost of contract
revenue          1,625,033    1,107,459    3,384,092   2,206,534
Research and
development        775,056    1,188,128    1,557,785   2,285,484
Selling and
marketing          711,944      861,864    1,298,740   1,629,471
General and
administrative     681,387      532,963    1,274,522   1,088,934

Total costs and
expenses         4,136,663    4,147,043    8,104,389   8,044,185

Income (loss) from
operations         574,136   (1,715,539)     912,678  (3,608,665)
Other income, net       --       99,000       18,300     198,000
Interest income    344,841      325,561      664,962     664,250

Net income (loss) before
provision for
income taxes       918,977   (1,290,978)   1,595,940  (2,746,415)
Provision for income
taxes                   --           --           --          --

Net income (loss) $918,977  ($1,290,978)  $1,595,940 ($2,746,415)

Net income (loss)
per share - basic    $0.04       ($0.06)       $0.08      ($0.14)
Net income (loss)
per share - diluted  $0.04       ($0.06)       $0.07      ($0.14)

Weighted average
shares - basic   21,407,811   20,212,309   21,253,747  19,966,936
Weighted average
shares - diluted 23,760,248   20,212,309   23,593,016  19,966,936