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

Cambridge Telcom Report, Jan 31, 2000

Aware, Inc. (NASDAQ:AWRE), a worldwide leader in DSL (digital subscriber line) technology for high-speed Internet access over existing telephone networks, Thursday reported record financial results for its fourth quarter and full year ended December 31, 1999.

Fourth quarter 1999 revenue increased 52 percent to $6.1 million, compared to $4.0 million for the quarter ended December 31, 1998. Net income for the quarter was $1.9 million, or 8 cents per diluted share, which compares to net income of $575,000, or 3 cents per diluted share for the same quarter last year.

For the year ended December 31, 1999, revenue increased 74 percent to $20.5 million, compared to $11.8 million in 1998. Net income for 1999 was $4.9 million, or 21 cents per diluted share, which compares to a net loss of $2.2 million, or minus 11 cents per diluted share, for 1998.

Commenting on Aware's financial performance, Michael Tzannes, president and chief executive officer, said: "1999 was a momentous year for Aware capped off by a record fourth quarter. The company exceeded financial expectations as earnings increased from a loss of 11 cents per share in 1998 to a profit of 21 cents in 1999, which translates into a positive earnings swing of more than $7.1 million. Our results reflect the inexorable march of the DSL market towards mass deployment and the strength of our business."

Tzannes added: "During the past three months, industry events continued to signal the advancement of wide-scale deployment of DSL services. Some of these events include: ramping deployment of DSL services by domestic and international service providers, a positive ruling by the FCC opening up incumbent telco networks to new DSL service providers, the Consumer Electronics Show which began to demonstrate how the consumer electronics industry will play an important role in DSL, and the AOL/Time Warner merger announcement which further highlighted the importance of increased bandwidth in the new world order created by the Internet. The industry as a whole also made good progress improving interoperability between vendor solutions."

"As for our own business," Tzannes continued, "we are encouraged by the success of our customers' products, which utilize Aware's DSL technology. In particular, Analog Devices announced that it had sold its one millionth ADSL chipset, that the world's single largest deployment of ADSL at Korea Telecom would be based on ADI's chipset, and that ADI was unveiling a multi-port ADSL chipset. In January 2000, Lucent announced that Hewlett Packard, along with Compaq, Dell, Zoom and other personal computer manufacturers, had selected the Wildwire DSL chipset. In addition to these customers who have chipsets on the market, development projects with other customers, including Intel, continue on schedule."

He concluded: "In January, we announced the broadening of our DSL technology offerings with solutions for fast retrain, optimized multiport chipsets, and ADSL over ISDN. We are pleased with our ability to continue to execute on the engineering and sales fronts. Further, we believe we have the correct business model for the DSL industry and remain bullish about our business."

Aware, Inc. designs, develops, licenses and markets DSL technology that enables broadband communications 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

                                      December 31,    December 31,
                                         1999             1998
   ASSETS
Current assets:
 Cash, cash equivalents and
  short-term investments             $ 36,265,577    $ 26,566,959
 Accounts receivable, net               5,705,914       2,901,724
 Other assets                             891,213         372,961

     Total current assets              42,862,704      29,841,644

 Property and equipment, net           11,619,761      10,320,581

Total assets                         $ 54,482,465    $ 40,162,225

LIABILITIES AND STOCKHOLDERS' EQUITY

Total current liabilities            $  1,513,668    $  1,028,399

Stockholders' equity:
 Common stock                             219,181         209,114
 Additional paid-in capital            64,865,465      55,938,189
 Accumulated deficit                  (12,115,849)    (17,013,477)

 Total stockholders' equity            52,968,797      39,133,826

Total liabilities and
 stockholders' equity                $ 54,482,465    $ 40,162,225

                          AWARE, INC.
             CONSOLIDATED STATEMENTS OF OPERATIONS

                    Three Months Ended           Year Ended
                        December 31,             December 31,
                     1999         1998        1999        1998

Revenue:
 Product sales    $1,637,536    $921,715   $5,534,465  $3,093,294
 Contract revenue  2,587,000   2,890,373   10,594,211   8,285,364
 Royalties         1,878,452     202,029    4,398,438     417,672

 Total revenue     6,102,988   4,014,117   20,527,114  11,796,330

Costs and expenses:
Cost of product sales406,041     258,330    1,363,272   1,393,941
 Cost of contract
  revenue          1,841,058   1,803,343    7,053,119   5,431,136
 Research and
  development      1,263,983     646,093    3,635,829   3,886,935
Selling and marketing598,160     579,903    2,574,549   2,829,596
 General and
  administrative     618,515     565,601    2,579,806   2,205,951

     Total costs and
  expenses         4,727,757   3,853,270   17,206,575  15,747,559

Income (loss) from
 operations        1,375,231     160,847    3,320,539  (3,951,229)
Other income
 and expense            --       104,180       18,300     404,930
Interest income      502,075     309,739    1,558,789   1,296,878

Income (loss) before
 provision for
 income taxes      1,877,306     574,766    4,897,628  (2,249,421)
Provision for
 income taxes             --          --           --          --

Net income (loss) $1,877,306    $574,766   $4,897,628 ($2,249,421)

Net income (loss)
 per share - basic     $0.09       $0.03        $0.23      ($0.11)
Net income (loss)
 per share - diluted   $0.08       $0.03        $0.21      ($0.11)

Weighted average
 shares - basic   21,828,368  20,790,629   21,496,864  20,343,339
Weighted average
 shares - diluted 23,495,998  22,089,258   23,584,688  20,343,339