----

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| Massachusetts                   | 04-2911026                           |
|---------------------------------|--------------------------------------|
| (State or Other Jurisdiction of | (I.R.S. Employer Identification No.) |
| Incorporation or Organization)  |                                 |

| Class                                   | Number of Shares Outstanding |
|-----------------------------------------|------------------------------|
| Common Stock, par value $0.01 per share | 19,926,970 shares            |

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|     |                                                                                               | Page   |
|----------|----------------------------------------------------------------------------------------------------|--------|
| PART I   | FINANCIAL INFORMATION                                                                              |   |
|     |                                                                                               |   |
| Item 1.  | Unaudited Consolidated Financial Statements                                                        |   |
|     |                                                                                               |   |
|     | Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009                             | 3      |
|     |                                                                                               |   |
|     | Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and March 31, 2009 | 4      |
|     |                                                                                               |   |
|     | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and March 31, 2009 | 5      |
|     |                                                                                               |   |
|     | Notes to Consolidated Financial Statements                                                         | 6      |
|     |                                                                                               |   |
| Item 2.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations        | 11     |
|     |                                                                                               |   |
| Item 3.  | Quantitative and Qualitative Disclosures about Market Risk                                         | 17     |
|     |                                                                                               |   |
| Item 4.  | Controls and Procedures                                                                            | 17     |
|     |                                                                                               |   |
| PART II  | OTHER INFORMATION                                                                                  |   |
|     |                                                                                               |   |
| Item 1.  | Legal Proceedings                                                                                  | 18     |
|     |                                                                                               |   |
| Item 1A. | Risk Factors                                                                                       | 18     |
|     |                                                                                               |   |
| Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                                        | 28     |
|     |                                                                                               |   |
| Item 6.  | Exhibits                                                                                           | 29     |
|     |                                                                                               |   |
|     | Signatures                                                                                         | 29     |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | March 31,2010 |       |   | December 31,2009 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|------------|--------|------------------|--------|
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |          |       |   |             |   |
| Current assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |          |       |   |             |   |
| Cash and cash equivalents                                                                                                                      |   | $             | 39,020     |   |             | $      | 39,669 |   |
| Accounts receivable, net                                                                                                                       |   |          | 4,197      |   |             |   | 3,565 |   |
| Inventories                                                                                                                                    |   |          | 1,090      |   |             |   | 1,113 |   |
| Prepaid expenses and other current assets                                                                                                      |   |          | 499        |   |             |   | 363 |   |
| Total current assets                                                                                                                           |   |          | 44,806     |   |             |   | 44,710 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |          |       |   |             |   |   |   |
| Property and equipment, net                                                                                                                    |   |          | 6,662      |   |             |   | 6,744 |   |
| Other assets, net                                                                                                                              |   |          | 38         |   |             |   | - |   |
| Total assets                                                                                                                                   |   | $             | 51,506     |   |             | $      | 51,454 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |          |       |   |             |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |          |       |   |             |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |          |       |   |             |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |          |       |   |             |   |   |   |
| Accounts payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $             | 611        |   |             | $      | 327 |   |
| Accrued expenses                                                                                                                               |   |          | 95         |   |             |   | 127 |   |
| Accrued compensation                                                                                                                           |   |          | 780        |   |             |   | 1,202 |   |
| Accrued professional                                                                                                                           |   |          | 191        |   |             |   | 282 |   |
| Deferred revenue                                                                                                                               |   |          | 679        |   |             |   | 563 |   |
| Total current liabilities                                                                                                                      |   |          | 2,356      |   |             |   | 2,501 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |          |       |   |             |   |   |   |
| Long-term deferred revenue                                                                                                                     |   |          | 585        |   |             |   | 593 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |          |       |   |             |   |   |   |
| Stockholders’ equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |          |       |   |             |   |   |   |
| Preferred stock, $1.00 par value; 1,000,000 shares authorized, none outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |          | -          |   |             |   | - |   |
| Common stock, $.01 par value; 70,000,000 shares authorized; issuedand outstanding 19,926,970 as of March 31, 2010 and 19,809,315 as of December 31, 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |          |   199 |   |             |   |   198 |   |
| Additional paid-in capital                                                                                                                     |   |          | 76,215     |   |             |   | 76,032 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |          | (27,849    | )      |             |   | (27,870 | ) |
| Total stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |          | 48,565     |   |             |   | 48,360 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |          |       |   |             |   |   |   |
| Total liabilities and stockholders’ equity                                                                                               |   | $             | 51,506     |   |             | $      | 51,454 |   |

----

|                                            |   | Three Months Ended |   |
|-------------------------------------------------|--------|--------------------|--------|
|                                            |   | March 31,          |   |
|                                            |   | 2010               |   |   | 2009 |   |
|                                            |   |               |   |   |   |   |
| Revenue:                                        |   |               |   |   |   |   |
| Product sales                                   |   | $                  | 4,651  |   |   | $ | 2,819 |   |
| Contract revenue                                |   |               | 209    |   |   |   | 1,277 |   |
| Royalties                                       |   |               | 756    |   |   |   | 477 |   |
| Total revenue                                   |   |               | 5,616  |   |   |   | 4,573 |   |
|                                            |   |               |   |   |   |   |   |   |
| Costs and expenses:                             |   |               |   |   |   |   |   |   |
| Cost of product sales                           |   |               | 1,036  |   |   |   | 513 |   |
| Cost of contract revenue                        |   |               | 72     |   |   |   | 908 |   |
| Research and development                        |   |               | 2,035  |   |   |   | 3,111 |   |
| Selling and marketing                           |   |               | 1,066  |   |   |   | 1,081 |   |
| General and administrative                      |   |               | 1,402  |   |   |   | 1,213 |   |
| Total costs and expenses                        |   |               | 5,611  |   |   |   | 6,826 |   |
|                                            |   |               |   |   |   |   |   |   |
| Income (loss) from operations                   |   |               | 5      |   |   |   | (2,253 | ) |
| Interest income                                 |   |               | 18     |   |   |   | 125 |   |
|                                            |   |               |   |   |   |   |   |   |
| Income (loss) before provision for income taxes |   |               | 23     |   |   |   | (2,128 | ) |
| Provision for income taxes                      |   |               | 1      |   |   |   | 3 |   |
|                                            |   |               |   |   |   |   |   |   |
| Net income (loss)                               |   | $                  | 22     |   |   | $ | (2,131 | ) |
|                                            |   |               |   |   |   |   |   |   |
| Net income (loss) per share – basic  |   | $                  | 0.00   |   |   | $ | (0.09 | ) |
| Net income (loss) per share – diluted     |   | $                  | 0.00   |   |   | $ | (0.09 | ) |
|                                            |   |               |   |   |   |   |   |   |
| Weighted average shares – basic           |   |               | 19,913 |   |   |   | 23,281 |   |
| Weighted average shares - diluted               |   |               | 19,923 |   |   |   | 23,281 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Three Months Ended |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | March 31,          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2010               |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |               |   |   |   |   |
| Cash flows from operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |   |   |
| Net income (loss)                                                                                                  |   | $                  | 22     |   |   | $ | (2,131 | ) |
| Adjustments to reconcile net income (loss) to net cash used in operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                 |   |               |   |   |   |   |   |   |
| Depreciation and amortization                                                                                                          |   |               | 129    |   |   |   | 227 |   |
| Stock-based compensation                                                                                                               |   |               | 345    |   |   |   | 391 |   |
| Increase (decrease) from changes in assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |
| Accounts receivable                                                                                                |   |               | (633   | ) |   |   | (1,215 | ) |
| Inventories                                                                                                        |   |               | 23     |   |   |   | 98 |   |
| Prepaid expenses                                                                                                   |   |               | (137   | ) |   |   | (294 | ) |
| Accounts payable                                                                                                   |   |               | 247    |   |   |   | 193 |   |
| Accrued expenses                                                                                                   |   |               | (445   | ) |   |   | (156 | ) |
| Deferred revenue                                                                                                   |   |               | 108    |   |   |   | (42 | ) |
| Net cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               | (341   | ) |   |   | (2,929 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |               |   |   |   |   |   |   |
| Cash flows from investing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |   |   |   |   |
| Purchases of property and equipment                                                                                |   |               | (47    | ) |   |   | (74 | ) |
| Expenses from sale of assets                                                                                       |   |               | (100   | ) |   |   | - |   |
| Net cash used in investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               | (147   | ) |   |   | (74 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |               |   |   |   |   |   |   |
| Cash flows from financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |   |   |   |   |
| Shares surrendered by employees to pay taxes related to unrestricted stock                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               | (161   | ) |   |   | - |   |
| Net cash used in financing activities                                                                              |   |               | (161   | ) |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |               |   |   |   |   |   |   |
| Decrease in cash and cash equivalents                                                                              |   |               | (649   | ) |   |   | (3,003 | ) |
| Cash and cash equivalents, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |               | 39,669 |   |   |   | 45,516 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |               |   |   |   |   |   |   |
| Cash and cash equivalents, end of period                                                                           |   | $                  | 39,020 |   |   | $ | 42,513 |   |

----

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| A)     | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The accompanying unaudited consolidated balance sheet, statements of operations, and statements of cash flows reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of financial position at March 31, 2010, and of operations and cash flows for the interim periods ended March 31, 2010 and 2009.                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include all information and notes necessary for a complete presentation of our financial position, results of operations and cash flows, in conformity with generally accepted accounting principles.  We filed audited financial statements which included all information and notes necessary for such presentation for the three years ended December 31, 2009 in conjunction with our 2009 Annual Report on Form 10-K. This Form 10-Q should be read in conjunction with that Form 10-K.       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The results of operations for the interim period ended March 31, 2010 are not necessarily indicative of the results to be expected for the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| B)     | Fair Value Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The FASB issued authoritative guidance for fair value measurements in September 2006, which defines fair value, establishes a framework for measuring fair value, and expands disclosures assets and liabilities measured at fair value in financial statements. This guidance is set forth in FASB Accounting Standards Codification 820 (ASC 820). We adopted the provisions of ASC 820 as of January 1, 2008, for our financial instruments. Although the adoption of ASC 820 did not materially impact our financial condition, results of operations, or cash flow, we are now required to provide additional disclosures as part of our financial statements. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | For recognition purposes, on a recurring basis we are required to measure available for sale investments at fair value.  We had no available for sale investments as of March 31, 2010 or December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | Our cash and cash equivalents, including money market securities, were $39.0 million and $39.7 million as of March 31, 2010 and December 31, 2009, respectively. We classified our cash and cash equivalents within Level 1 of the fair value hierarchy because they are valued using quoted market prices.                                                                                                                                                                                                                                                                                                                                                         |

----

| C)     | Inventories                                                                                                                                                                                                                                                                                                      |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                             |
|   | Inventories are stated at the lower of cost or net realizable value with cost being determined by the first-in, first-out (“FIFO”) method.  Inventory reserves are established for estimated excess and obsolete inventory. Inventories consist primarily of the following (in thousands): |
|   |                                                                                                                                                                                                                                                                                                             |

|                                                                                                                                                                                                                                                                                                                                        |   | March 31,2010 |   |   | December 31,2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|--------|--------|------------------|--------|
| Raw materials                                                      |   | $             | 1,089  |   |             | $      | 1,112 |   |
| Finished goods                                                                                                                                                                                                                                                                                                                         |   |          | 1      |   |             |   |  1 |   |
| Total                                                              |   | $             | 1,090  |   |             | $      | 1,113 |   |

| D)     | Computation of Earnings per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Basic earnings per share is computed by dividing net income or loss by the weighted average number of common shares outstanding.  Diluted earnings per share is computed by dividing net income or loss by the weighted average number of common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued.  For the purposes of this calculation, stock options are considered common stock equivalents in periods in which they have a dilutive effect.  Stock options that are anti-dilutive are excluded from the calculation. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Net income (loss) per share is calculated as follows (in thousands, except per share data):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|                                         |   | Three Months EndedMarch 31, |   |
|----------------------------------------------|--------|-----------------------------|--------|
|                                         |   | 2010                        |   |   | 2009 |   |
|                                         |   |                        |   |   |   |   |
| Net income (loss)                            |   | $                           | 22     |   |   | $ | (2,131 | ) |
|                                         |   |                        |   |   |   |   |   |   |
| Weighted average common shares outstanding   |   | 19,913                      |   |   |   | 23,281 |   |
| Additional dilutive common stock equivalents |   | 10                          |   |   |   | - |   |
| Diluted shares outstanding                   |   |                        | 19,923 |   |   |   | 23,281 |   |
|                                         |   |                        |   |   |   |   |   |   |
| Net income (loss) per share – basic    |   | $                           | 0.00   |   |   | $ | (0.09 | ) |
| Net income (loss) per share – diluted  |   | $                           | 0.00   |   |   | $ | (0.09 | ) |
|                                         |   |                        |   |   |   |   |   |   |

|   | For the three month period ended March 31, 2009, potential common stock equivalents of 195 were not included in the per share calculation for diluted EPS, because we had a net loss and the effect of their inclusion would be anti-dilutive.                                                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                              |
|   | For the three month periods ended March 31, 2010 and 2009, options to purchase 4,958,841 and 7,499,993 shares of common stock, respectively, were outstanding, but were not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common stock and thus would be anti-dilutive. |

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| E)     | Stock-Based Compensation                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                    |
|   | The following table presents stock-based employee compensation expenses included in our unaudited consolidated statements of operations (in thousands): |

|                                   |   | Three Months EndedMarch 31, |   |
|----------------------------------------|--------|-----------------------------|--------|
|                                   |   | 2010                        |   |   | 2009 |   |
|                                   |   |                        |   |   |   |   |
| Cost of product sales                  |   | $                           | 2      |   |   | $ | 3 |   |
| Cost of contract revenue               |   |                        | 6      |   |   |   | 32 |   |
| Research and development               |   |                        | 114    |   |   |   | 146 |   |
| Selling and marketing                  |   |                        | 38     |   |   |   | 52 |   |
| General and administrative             |   |                        | 185    |   |   |   | 158 |   |
| Stock-based compensation expense  |   | $                           | 345    |   |   | $ | 391 |   |

|   | We estimate the fair value of stock options using the Black-Scholes valuation model. This valuation model takes into account the exercise price of the award, as well as a variety of significant assumptions. These assumptions used to estimate the fair value of stock options include the expected term, the expected volatility of our stock over the expected term, the risk-free interest rate over the expected term, and our expected annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted in the three months ended March 31, 2009. No options were granted in the three months ended March 31, 2010. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | In January 2010, we completed an employee option exchange program. Under the terms of the program, eligible rank and file employees had the right to exchange eligible vested and unvested stock options outstanding for shares of common stock. Exchange ratios for each eligible stock option were determined using the fair values of stock options and Aware’s common stock immediately prior to the initiation of the program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | When the program ended on January 12, 2010, eligible employees had exchanged 820,481 stock options for 178,314 shares of common stock.  Participating employees were allowed to surrender a portion of their common stock in return for the Company paying withholding taxes related to their stock grants.  As a result of this provision, employees surrendered 60,659 shares of common stock and the Company paid approximately $161,000 of withholding taxes on their behalf. After the common stock share surrender, 117,655 net shares of common stock were issued to participating employees.                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | A portion of the 820,481 stock options that were exchanged were not fully vested as of the exchange date.  We expensed approximately $102,000 of unamortized stock-based compensation related to such unvested stock options in the three months ended March 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

----

| F)     | Business Segments                                                                                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                  |
|   | We organize our self as one segment and conduct our operations in the United States.                                                                                  |
|   |                                                                                                                                                                  |
|   | We sell our products and technology to domestic and international customers.  Revenues were generated from the following geographic regions (in thousands): |

|          |   | Three Months Ended |   |
|---------------|--------|--------------------|--------|
|          |   | March 31,          |   |
|          |   | 2010               |   |   | 2009 |   |
|          |   |               |   |   |   |   |
| United States |   | $                  | 3,452  |   |   | $ | 2,525 |   |
| Germany       |   |               | 644    |   |   |   | 1,034 |   |
| Rest of World |   |               | 1,520  |   |   |   | 1,014 |   |
|          |   | $                  | 5,616  |   |   | $ | 4,573 |   |

| G)     | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | As of December 31, 2009, we had federal net operating loss (“NOLs”) and research and experimentation credit carryforwards of approximately $47.6 million and $13.4 million respectively, which may be available to offset future federal income tax liabilities and expire at various dates from 2010 through 2029.  In addition, at December 31, 2009, we had approximately $10.3 million and $7.1 million of state net operating losses and state research and development and investment tax carryforwards, respectively, which expire at various dates from 2010 through 2024.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | Based on an analysis that we performed under Internal Revenue Code Section 382 on our NOLs generated for the period 1997 through 2009, we have not experienced a change in ownership as defined by Section 382, and, therefore, the NOLs are not currently under any Section 382 limitation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| H)     | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and a higher level of disaggregation for the different types of financial instruments. For the reconciliation of Level 3 fair value measurements, information about purchases, sales, issuances and settlements are presented separately. This standard is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of revised Level 3 disclosure requirements which are effective for interim and annual reporting periods beginning after December 15, 2010. Comparative disclosures are not required in the year of adoption. We adopted the provisions of the standard on January 1, 2010, which did not have a material impact on our financial statements. |

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| I)     | Share Repurchase Program                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | On March 5, 2009, we announced a modified Dutch auction self-tender offer to purchase up to 3,500,000 shares, or approximately 15%, of our outstanding common stock (including the associated preferred share purchase rights), at a price in the range of $2.20 to $2.60 per share, for a maximum aggregate purchase price of approximately $9.1 million.  The terms of the tender offer also provided the right for us to purchase up to an additional 2% of our shares if the offer was oversubscribed. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The tender offer closed on April 17, 2009, and on April 23, 2009 we repurchased 3,500,252 shares at $2.50 per share for a total cost of $9.0 million, including expenses.                                                                                                                                                                                                                                                                                                                                            |

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|                       |   | Three Months Ended |   |
|----------------------------|--------|--------------------|--------|
|                       |   | March 31,          |   |
|                       |   | 2010               |   |   | 2009 |   |
| GAAP net income (loss)     |   | $                  | 22     |   |   | $ | (2,131 | ) |
| Stock-based compensation   |   |               | 345    |   |   |   | 391 |   |
| Non-GAAP net income (loss) |   | $                  | 367    |   |   | $ | (1,740 | ) |

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|                                         |   | Three Months Ended |   |
|----------------------------------------------|--------|--------------------|--------|
|                                         |   | March 31,          |   |
|                                         |   | 2010               |   |   | 2009 |   |
| GAAP net income (loss) per diluted share     |   | $                  | 0.00   |   |   | $ | (0.09 | ) |
| Stock-based compensation per diluted share   |   |               | 0.02   |   |   |   | 0.02 |   |
| Non-GAAP net income (loss) per diluted share |   | $                  | 0.02   |   |   | $ | (0.07 | ) |

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|   | ● | Cash and cash equivalents, which consist of financial instruments with original maturities of three months or less;    |
|--------|---------|------------------------------------------------------------------------------------------------------------------------|
|   | ● | Short-term investments, which consist of financial instruments with remaining maturities of twelve months or less; and |
|   | ● | Investments, which consist of financial instruments that mature in three years or less.                                |

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|   | ● | market acceptance of our hardware and software products;                                                    |
|--------|---------|-------------------------------------------------------------------------------------------------------------|
|   | ● | fluctuations in the demand for our hardware and software products;                                          |
|   | ● | competitive pressures resulting in lower software or hardware product revenues;                             |
|   | ● | the loss of a significant OEM relationship or termination of a professional services project by a customer; |
|   | ● | the loss by an OEM customer of a strategic relationship with an equipment company customer;                 |

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|   | ● | announcements or introductions of new technologies or products by us or our competitors;                                                                                   |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | delays or problems in the introduction or performance of enhancements or of future generations of our technology;                                                          |
|   | ● | failures or problems in our hardware or software products;                                                                                                                 |
|   | ● | pricing pressure from our competitors in the markets in which we compete;                                                                                                  |
|   | ● | delays in the adoption of new industry standards or changes in market perception of the value of new or existing standards;                                                |
|   | ● | personnel changes, particularly those involving engineering, technical, sales and marketing personnel;                                                                     |
|   | ● | costs associated with protecting our intellectual property;                                                                                                                |
|   | ● | the potential that customers could fail to make payments under their agreements with us;                                                                                   |
|   | ● | hardware manufacturing issues, including yield problems in our hardware platforms, and inventory buildup and obsolescence;                                                 |
|   | ● | product gross margins may be affected by various factors including, but not limited to, product mix, product life cycle, and provisions for excess and obsolete inventory; |
|   | ● | new laws, changes to existing laws, or regulatory developments; and                                                                                                        |
|   | ● | general economic trends and other factors.                                                                                                                                 |

|   | ● | the test and diagnostics or biometrics markets decline;                                  |
|--------|---------|------------------------------------------------------------------------------------------|
|   | ● | new and/or existing customers do not choose to use our software or hardware products; or |
|   | ● | customers do not choose to license and/or buy our patents.                               |

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|   | ● | reduced demand for our products or our customers’ products that incorporate our technology;                   |
|--------|---------|---------------------------------------------------------------------------------------------------------------------|
|   | ● | increased risk of order cancellations or delays;                                                                    |
|   | ● | increased pressure on the prices for our products or our customers’ products that incorporate our technology; |
|   | ● | greater difficulty in collecting accounts receivable; and                                                           |
|   | ● | risks to our liquidity, including the possibility that we might not have access to our cash when needed.            |

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|   | ● | quarterly fluctuations in our operating results;                                                                                                                                                  |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | changes in future financial guidance that we may provide to investors and public market analysts;                                                                                                 |
|   | ● | changes in our relationships with our customers;                                                                                                                                                  |
|   | ● | announcements of technological innovations or new products by us, our customers or our competitors;                                                                                               |
|   | ● | changes in DSL or biometrics market growth rates as well as investor perceptions regarding the investment opportunity that companies participating in the DSL or biometrics industry afford them; |
|   | ● | changes in earnings estimates by public market analysts;                                                                                                                                          |
|   | ● | key personnel losses;                                                                                                                                                                             |
|   | ● | sales of our common stock;                                                                                                                                                                        |
|   | ● | our stock repurchase activities; and                                                                                                                                                              |
|   | ● | developments or announcements with respect to industry standards, patents or proprietary rights.                                                                                                  |

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|   | ● | The competitiveness of DSL chipsets offered by Lantiq and Ikanos and the willingness of their customers to purchase DSL chipsets from them;                                                                                     |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | The promotional and marketing efforts of Lantiq and Ikanos; and                                                                                                                                                                 |
|   | ● | DSL market risks in general, including: i) industry wide chipset demand; and ii) competitive pressures and cyclical demand for DSL chipsets, which may result in reduced average selling prices and channel inventory build-up. |

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|   | ● | market acceptance of our biometric technologies and products;                                                                         |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | changes in contracting practices of government or law enforcement agencies;                                                           |
|   | ● | the failure of the biometrics market to experience continued growth;                                                                  |
|   | ● | delays or problems in the introduction or performance of enhancements or of future generations of our technology;                     |
|   | ● | failures or problems in our biometric software products;                                                                              |
|   | ● | delays in the adoption of new industry biometric standards or changes in market perception of the value of new or existing standards; |
|   | ● | growth of proprietary biometric systems which do not conform to industry standards;                                                   |
|   | ● | competitive pressures resulting in lower software product revenues;                                                                   |
|   | ● | personnel changes, particularly those involving engineering, technical and sales and marketing personnel;                             |
|   | ● | costs associated with protecting our intellectual property;                                                                           |
|   | ● | litigation by third parties for alleged infringement of their proprietary rights;                                                     |
|   | ● | the potential that customers could fail to make payments under their current contracts;                                               |
|   | ● | new laws, changes to existing laws, or regulatory developments; and                                                                   |
|   | ● | general economic trends and other factors.                                                                                            |

|   | ● | our ability to structure and price technology contracts in a manner that is consistent with our business model;                                          |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | our ability to structure ourselves to successfully bid on U.S. government contracts and meet the requirements of U.S. contracting rules and regulations; |
|   | ● | our ability to deliver contract milestones: i) in a timely and cost efficient manner, and ii) in a form and condition acceptable to customers;           |
|   | ● | the risk that customers could terminate projects;                                                                                                        |
|   | ● | the risk that we rely substantially on third party contractors and consultants to deliver certain contract milestones; and                               |
|   | ● | the potential that customers could fail to make payments under their contracts.                                                                          |

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|   | ● | the willingness and ability of OEM customers to design, build and sell automated test heads, hand-held testers, and DSLAMs that incorporate or work with our products; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | our ability to market and sell to service providers; and                                                                                                               |
|   | ● | our ability to provide effective sales, marketing, and customer service to our customers.                                                                              |

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| Period                                                    |   | (a)Total Number ofShares Purchased |   | (b)Average PricePaid per Share |   | (c)Total Number of SharesPurchased as Part ofPublicly Announced Plansor Programs |   | (d)Maximum Number (orApproximate DollarValue) of Shares thatMay Yet Be PurchasedUnder the Plansor Programs |
|-----------------------------------------------------------|--------|------------------------------------|--------|--------------------------------|--------|----------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|
|                                                      |   |                               |   |                           |   |                                                                             |   |                                                                                                       |
| January 1, 2010 to January  31,  2010 |   | 60,659(1)                          |   | $2.66(1)                       |   | -                                                                                |   | $-                                                                                                         |
| February 1, 2010 to February 28, 2010                     |   | -                                  |   | -                              |   | -                                                                                |   | $-                                                                                                         |
| March 1, 2010 to March 31, 2010                           |   | -                                  |   | -                              |   | -                                                                                |   | $-                                                                                                         |

| (1) | During January 2010, we accepted 60,659 shares of our common stock as a tax withholding from certain of our employees, in connection with the issuance of unrestricted stock awards that occurred during the period, at a share price of $2.66. |   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

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|   | Exhibit 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                             |
|--------|--------------|---------------------------------------------------------------------------------------------------------------------------------|
|   |         |                                                                                                                            |
|   | Exhibit 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                             |
|   |         |                                                                                                                            |
|   | Exhibit 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

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|   |                 | AWARE, INC. |                               |
|--------|----------------------|-------------|------------------------------------|
|   |                 |        |                               |   |
|   |                 |        |                               |   |
|   | Date: April 29, 2010 | By:         | /s/ Edmund C. Reiter               |   |
|   |                 |        | Edmund C. Reiter, President &  |
|   |                 |        | Chief Executive Officer            |
|   |                 |        |                               |   |
|   |                 |        |                               |   |
|   | Date: April 29, 2010 | By:         | /s/ Richard P. Moberg              |   |
|   |                 |        | Richard P. Moberg, Chief Financial |
|   |                 |        | Officer (Principal Financial and   |
|   |                 |        | Accounting Officer)                |