----

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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 | 19,927,982 shares            |

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| PART I         | FINANCIAL INFORMATION                                                                                    | Page   |
|----------------|----------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                     |   |
| Item 1.        | Unaudited Consolidated Financial Statements                                                              |   |
|           |                                                                                                     |   |
|           | Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009                               | 3      |
|           |                                                                                                     |   |
|           | Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and June 30, 2009 | 4      |
|           |                                                                                                     |   |
|           | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and June 30, 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                                          | 19     |
|           |                                                                                                     |   |
| Item 4.   | Controls and Procedures                                                                             | 19     |
|           |                                                                                                     |   |
| PART II        | OTHER INFORMATION                                                                                        |   |
|           |                                                                                                     |   |
| Item 1.        | Legal Proceedings                                                                                   | 20     |
|           |                                                                                                     |   |
| Item 1A.  | Risk Factors                                                                                             | 20     |
|           |                                                                                                     |   |
| Item 6.        | Exhibits                                                                                                 | 21     |
|           |                                                                                                     |   |
|           | Signatures                                                                                               | 21     |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | June 30,2010 |       |   | December 31,2009 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|------------------|--------|
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |         |       |   |             |   |
| Current assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |         |       |   |             |   |
|      Cash and cash equivalents                                                                                                                                                                                                                                        |   | $            | 39,129     |   |             | $      | 39,669 |   |
|      Accounts receivable, net                                                                                                                                                                                                                                         |   |         | 4,533      |   |             |   | 3,565 |   |
|      Inventories                                                                                                                                                                                                                                                      |   |         | 1,334      |   |             |   | 1,113 |   |
|      Prepaid expenses and other current assets                                                                                                                                                                                                                        |   |         | 333        |   |             |   | 363 |   |
|            Total current assets                                                                                                                                                                                                         |   |         | 45,329     |   |             |   | 44,710 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |         |       |   |             |   |   |   |
| Property and equipment, net                                                                                                                                                                                                                                                                    |   |         | 6,555      |   |             |   | 6,744 |   |
| Other assets, net                                                                                                                                                                                                                                                                              |   |         | 33         |   |             |   | - |   |
|            Total assets                                                                                                                                                                                                                 |   | $            | 51,917     |   |             | $      | 51,454 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |         |       |   |             |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |         |       |   |             |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |         |       |   |             |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |         |       |   |             |   |   |   |
|      Accounts payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $            | 642        |   |             | $      | 327 |   |
|      Accrued expenses                                                                                                                                                                                                                                                 |   |         | 75         |   |             |   | 127 |   |
|      Accrued compensation                                                                                                                                                                                                                                             |   |         | 1,020      |   |             |   | 1,202 |   |
|      Accrued professional                                                                                                                                                                                                                                             |   |         | 309        |   |             |   | 282 |   |
|      Deferred revenue                                                                                                                                                                                                                                                 |   |         | 712        |   |             |   | 563 |   |
|              Total current liabilities                                                                                                                                                                                        |   |         | 2,758      |   |             |   | 2,501 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |         |       |   |             |   |   |   |
| Long-term deferred revenue                                                                                                                                                                                                                                                                     |   |         | 536        |   |             |   | 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; issued             and outstanding 19,927,982 as of June 30, 2010 and 19,809,315             as of December 31, 2009                                                                                                                                                                                                                                                                                                                                                                                                                          |   |         |   199 |   |             |   |   198 |   |
|       Additional paid-in capital                                                                                                                                                                                                                                 |   |         | 76,420     |   |             |   | 76,032 |   |
|       Accumulated deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |         | (27,996    | )      |             |   | (27,870 | ) |
|              Total stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |         | 48,623     |   |             |   | 48,360 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |         |       |   |             |   |   |   |
|              Total liabilities and stockholders’ equity                                                                                                                                                                 |   | $            | 51,917     |   |             | $      | 51,454 |   |

|                                               |   | Three Months Ended |   |   | Six Months Ended |   |
|----------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                               |   | June 30,           |   |   | June 30,         |   |
|                                               |   | 2010               |   |   | 2009             |   |   | 2010 |   |   | 2009 |   |
|                                               |   |               |   |   |             |   |   |   |   |   |   |   |
| Revenue:                                           |   |               |   |   |             |   |   |   |   |   |   |   |
|     Product sales              |   | $                  | 3,911  |   |             | $      | 3,852 |   |   | $ | 8,562 |   |   | $ | 6,671 |   |
|     Contract revenue           |   |               | 346    |   |             |   | 1,442 |   |   |   | 555 |   |   |   | 2,719 |   |
|     Royalties                  |   |               | 714    |   |             |   | 470 |   |   |   | 1,470 |   |   |   | 947 |   |
| Total revenue                                      |   |               | 4,971  |   |             |   | 5,764 |   |   |   | 10,587 |   |   |   | 10,337 |   |
|                                               |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Costs and expenses:                                |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
|     Cost of product sales      |   |               | 840    |   |             |   | 1,043 |   |   |   | 1,877 |   |   |   | 1,556 |   |
|     Cost of contract revenue   |   |               | 74     |   |             |   | 909 |   |   |   | 145 |   |   |   | 1,817 |   |
|     Research and development   |   |               | 2,082  |   |             |   | 3,058 |   |   |   | 4,117 |   |   |   | 6,170 |   |
|     Selling and marketing      |   |               | 1,053  |   |             |   | 1,184 |   |   |   | 2,119 |   |   |   | 2,265 |   |
|     General and administrative |   |               | 1,416  |   |             |   | 1,216 |   |   |   | 2,818 |   |   |   | 2,429 |   |
| Total costs and expenses                           |   |               | 5,465  |   |             |   | 7,410 |   |   |   | 11,076 |   |   |   | 14,237 |   |
|                                               |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Loss from operations                               |   |               | (494   | )      |             |   | (1,646 | ) |   |   | (489 | ) |   |   | (3,900 | ) |
| Other incomeInterest income                        |   |               | 32521  |   |             |   | -61 |   |   |   | 32539 |   |   |   | -186 |   |
|                                               |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Loss before provision for income taxes             |   |               | (148   | )      |             |   | (1,585 | ) |   |   | (125 | ) |   |   | (3,714 | ) |
| Provision for income taxes                         |   |               | -      |   |             |   | 1 |   |   |   | 1 |   |   |   | 4 |   |
|                                               |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                           |   | $                  | (148   | )      |             | $      | (1,586 | ) |   | $ | (126 | ) |   | $ | (3,718 | ) |
|                                               |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per share – basic              |   | $                  | (0.01  | )      |             | $      | (0.08 | ) |   | $ | (0.01 | ) |   | $ | (0.17 | ) |
| Net loss per share – diluted                 |   | $                  | (0.01  | )      |             | $      | (0.08 | ) |   | $ | (0.01 | ) |   | $ | (0.17 | ) |
|                                               |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares – basic              |   |               | 19,927 |   |             |   | 20,666 |   |   |   | 19,920 |   |   |   | 21,974 |   |
| Weighted average shares - diluted                  |   |               | 19,927 |   |             |   | 20,666 |   |   |   | 19,920 |   |   |   | 21,974 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Six Months Ended |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | June 30,         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010             |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |
| Cash flows from operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |   |   |   |   |
|    Net loss                                                                                                                                                                                                  |   | $                | (126   | ) |   | $ | (3,718 | ) |
|    Adjustments to reconcile net loss to net cash   used in operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |             |   |   |   |   |   |   |
| Depreciation and amortization                                                                                                                                                                                                                   |   |             | 260    |   |   |   | 448 |   |
| Stock based compensation                                                                                                                                                                                                                        |   |             | 548    |   |   |   | 800 |   |
|       Increase (decrease) from changes in assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |             |   |   |   |   |   |   |
|          Accounts receivable                                                                                                                                                   |   |             | (968   | ) |   |   | (2,424 | ) |
|          Inventories                                                                                                                                                           |   |             | (220   | ) |   |   | 528 |   |
|          Prepaid expenses                                                                                                                                                      |   |             | 30     |   |   |   | (241 | ) |
|          Accounts payable                                                                                                                                                      |   |             | 337    |   |   |   | 69 |   |
|          Accrued expenses                                                                                                                                                      |   |             | (107   | ) |   |   | (285 | ) |
|          Deferred revenue                                                                                                                                                      |   |             | 92     |   |   |   | 230 |   |
|             Net cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |             | (154   | ) |   |   | (4,593 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |
| Cash flows from investing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |   |   |   |   |   |   |
|     Purchases of property and equipment                                                                                                                                                                 |   |             | (67    | ) |   |   | (116 | ) |
|     Expenses from sale of assets                                                                                                                                                                        |   |             | (100   | ) |   |   | - |   |
|     Purchases of other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |             | (60    | ) |   |   | - |   |
|             Net cash used in investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |             | (227   | ) |   |   | (116 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |
| Cash flows from financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |   |   |   |   |   |   |
|      Proceeds from issuance of common stock                                                                                                                                                        |   |             | 2      |   |   |   | 3 |   |
|      Shares surrendered by employees to pay taxes related to       unrestricted stock                                                                           |   |             | (161   | ) |   |   | - |   |
|      Repurchase of common stock                                                                                                                                                                    |   |             | -      |   |   |   | (8,950 | ) |
|             Net cash used in financing activities                                                                                                               |   |             | (159   | ) |   |   | (8,947 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |
| Decrease in cash and cash equivalents                                                                                                                                                                                       |   |             | (540   | ) |   |   | (13,656 | ) |
| Cash and cash equivalents, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |             | 39,669 |   |   |   | 45,516 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |
| Cash and cash equivalents, end of period                                                                                                                                                                                    |   | $                | 39,129 |   |   | $ | 31,860 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | June 30,2010 |   |   | December 31,2009 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------|------------------|--------|
| Raw materials                                                     Finished goods                                                      |   | $            | 1,334- |   |             | $      | 1,1121 |   |
|         Total                                                                                                                                                                                                                                                                                                                                                          |   | $            | 1,334  |   |             | $      | 1,113 |   |

|                                                           |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |
|----------------------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
|                                                           |   | 2010                       |   |   | 2009                     |   |   | 2009 |   |   | 2009 |   |
|                                                           |   |                       |   |   |                     |   |   |   |   |   |   |   |
|    Net loss                                     |   | $                          | (148   | )      |                     | $      | (1,586 | ) |   | $ | (126 | ) |   | $ | (3,718 | ) |
|                                                           |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|    Weighted average common shares outstanding   |   |                       | 19,927 |   |                     |   | 20,666 |   |   |   | 19,920 |   |   |   | 21,974 |   |
|    Additional dilutive common stock equivalents |   |                       | -      |   |                     |   | - |   |   |   | - |   |   |   | - |   |
|    Diluted shares outstanding                   |   |                       | 19,927 |   |                     |   | 20,666 |   |   |   | 19,920 |   |   |   | 21,974 |   |
|                                                           |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|    Net loss per share – basic and diluted |   | $                          | (0.01  | )      |                     | $      | (0.08 | ) |   | $ | (0.01 | ) |   | $ | (0.17 | ) |

|                                   |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |
|----------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
|                                   |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|                                   |   |                       |   |   |                     |   |   |   |   |   |   |   |
| Cost of product sales                  |   | $                          | 3      |   |                     | $      | 3 |   |   | $ | 5 |   |   | $ | 5 |   |
| Cost of contract revenue               |   |                       | 1      |   |                     |   | 36 |   |   |   | 7 |   |   |   | 68 |   |
| Research and development               |   |                       | 54     |   |                     |   | 138 |   |   |   | 169 |   |   |   | 285 |   |
| Selling and marketing                  |   |                       | 13     |   |                     |   | 57 |   |   |   | 51 |   |   |   | 109 |   |
| General and administrative             |   |                       | 132    |   |                     |   | 175 |   |   |   | 316 |   |   |   | 333 |   |
| Stock-based compensation expense  |   | $                          | 203    |   |                     | $      | 409 |   |   | $ | 548 |   |   | $ | 800 |   |
|                                   |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |

|                                                                                                                                                                                                                                                                                                                      |   | Three Months Ended |   |   | Six Months Ended |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                      |   | June 30,           |   |   | June 30,         |   |
|                                                                                                                                                                                                                                                                                                                      |   | 2010               |   |   | 2009             |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                      |   |               |   |   |             |   |   |   |   |   |   |   |
|   United States                                                 |   | $                  | 2,959  |   |             | $      | 3,578 |   |   | $ | 6,411 |   |   | $ | 6,103 |   |
|   Germany                                                       |   |               | 799    |   |             |   | 1,534 |   |   |   | 1,443 |   |   |   | 2,568 |   |
|   Rest of World                                                 |   |               | 1,213  |   |             |   | 652 |   |   |   | 2,733 |   |   |   | 1,666 |   |
|                                                                                                                                                                                                                                                                                                                      |   | $                  | 4,971  |   |             | $      | 5,764 |   |   | $ | 10,587 |   |   | $ | 10,337 |   |

|                                               |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |   |
|----------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|--------|
|                                               |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|     GAAP net loss              |   | $                          | (148   | )      |                     | $      | (1,586 | ) |   | $ | (126 | ) |   | $ | (3,718 | ) |
|     Stock-based compensation   |   |                       | 203    |   |                     |   | 409    |   |   |   | 548 |   |   |   | 800 |   |
|     Non-GAAP net income (loss) |   | $                          | 55     |   |                     | $      | (1,177 | ) |   | $ | 422 |   |   | $ | (2,918 | ) |

|                                                         |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |
|--------------------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
|                                                         |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|     GAAP net loss per share              |   | $                          | (0.01  | )      |                     | $      | (0.08 | ) |   | $ | (0.01 | ) |   | $ | (0.17 | ) |
|     Stock-based compensation             |   |                       | 0.01   |   |                     |   | 0.02 |   |   |   | 0.03 |   |   |   | 0.04 |   |
|     Non-GAAP net income (loss) per share |   | $                          | 0.00   |   |                     | $      | (0.06 | ) |   | $ | 0.02 |   |   | $ | (0.13 | ) |

| ●   | 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. |
|---------------------|-----------------------------------------------------------------------------------------|

|   | 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. |
|--------|--------------|---------------------------------------------------------------------------------------------------------------------------------|

----

|                      | AWARE, INC. |
|---------------------------|-------------|
|                      |        |   |
| Date: July 28, 2010  | By:    | /s/ Edmund C. Reiter  |
|                      |        | Edmund C. Reiter, President & |
|                      |        | Chief Executive Officer |
|                      |        |   |
| Date: July 28, 2010       | By:         | /s/ Richard P. Moberg |
|                      |        | Richard P. Moberg, Chief Financial |
|                      |        | Officer (Principal Financial and |
|                      |        | Accounting Officer) |