----

----

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

| Class                                              | Number of Shares      Outstanding |
|----------------------------------------------------|-----------------------------------|
| Common Stock, par      value $0.01 per share  |  23,307,742      shares      |

----

----

----

|             |   |                                                                                                                      | Page     |   |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------|----------|--------|
| PART I           |   | FINANCIAL      INFORMATION                                                                                                |     |   |
|             |   |                                                                                                                      |     |   |
| Item    1.  |   | Unaudited      Consolidated Financial Statements                                                                          |     |   |
|             |   |                                                                                                                      |     |   |
|             |   | Consolidated Balance      Sheets as of September 30, 2008 and December 31, 2007                                      | 3        |   |
|             |   |                                                                                                                      |     |   |
|             |   | Consolidated      Statements of Operations for the Three and Nine Months Ended September 30,      2008                    |     |   |
|             |   | and September 30,      2007                                                                                               | 4        |   |
|             |   |                                                                                                                      |     |   |
|             |   | Consolidated      Statements of Cash Flows for the Nine Months Ended September 30, 2008 and      September 30, 2007  | 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                                                          |  29 |   |
|             |   |                                                                                                                      |     |   |
| Item 6.          |   | Exhibits                                                                                                                  |  30 |   |
|             |   |                                                                                                                      |     |   |
|             |   | Signatures                                                                                                                |  30 |   |
|             |   |                                                                                                                      |     |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | September      30,2008 |       |   | December      31,2007 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|--------|-----------------------|--------|
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |       |   |                  |   |
| Current      assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   |       |   |                  |   |
|      Cash      and cash      equivalents                                                                                                                                                                      |   | $                      | 37,809     |   |                  | $      | 1,806 |   |
|      Short-term      investments                                                                                                                                                                              |   |                   | -          |   |                  |   | 36,249 |   |
|      Accounts      receivable,      net                                                                                                                                                                       |   |                   | 4,366      |   |                  |   | 7,661 |   |
|      Inventories                                                                                                                                                                                              |   |                   | 1,776      |   |                  |   | 1,424 |   |
|      Prepaid      expenses and other current      assets                                                                                                                                                      |   |                   | 631        |   |                  |   | 708 |   |
|            Total      current      assets                                                                                                                                       |   |                   | 44,582     |   |                  |   | 47,848 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   |       |   |                  |   |   |   |
| Property      and equipment,      net                                                                                                                                                                                                  |   |                   | 7,621      |   |                  |   | 7,872 |   |
| Investments                                                                                                                                                                                                                            |   |                   | -          |   |                  |   | 494 |   |
| Other      assets,      net                                                                                                                                                                                                            |   |                   | 118        |   |                  |   | 169 |   |
|            Total      assets                                                                                                                                                    |   | $                      | 52,321     |   |                  | $      | 56,383 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   |       |   |                  |   |   |   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                   |       |   |                  |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   |       |   |                  |   |   |   |
| Current      liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                   |       |   |                  |   |   |   |
|      Accounts      payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $                      | 645        |   |                  | $      | 939 |   |
|      Accrued      expenses                                                                                                                                                                                    |   |                   | 149        |   |                  |   | 174 |   |
|      Accrued      compensation                                                                                                                                                                                |   |                   | 1,384      |   |                  |   | 1,135 |   |
|      Accrued      professional                                                                                                                                                                                |   |                   | 321        |   |                  |   | 156 |   |
|      Deferred      revenue                                                                                                                                                                                    |   |                   | 274        |   |                  |   | 413 |   |
|              Total      current      liabilities                                                                                                                      |   |                   | 2,773      |   |                  |   | 2,817 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   |       |   |                  |   |   |   |
| Long-term      deferred      revenue                                                                                                                                                                                                   |   |                   | 330        |   |                  |   | 330 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   |       |   |                  |   |   |   |
| 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, 23,307,742 as of September 30, 2008             and      23,854,708 as of December 31, 2007                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |   233 |   |                  |   |   239 |   |
|       Additional      paid-in      capital                                                                                                                                                               |   |                   | 82,816     |   |                  |   | 83,626 |   |
|       Accumulated      deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                   | (33,831    | )      |                  |   | (30,629 | ) |
|              Total      stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                   | 49,218     |   |                  |   | 53,236 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   |       |   |                  |   |   |   |
|              Total      liabilities and stockholders’      equity                                                                                               |   | $                      | 52,321     |   |                  | $      | 56,383 |   |

----

|                                                    |   | Three      Months Ended |   |   | Nine      Months Ended |   |
|---------------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                                                    |   | September      30,      |   |   | September      30,     |   |
|                                                    |   | 2008                    |   |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
|                                                    |   |                    |   |   |                   |   |   |   |   |   |   |   |
| Revenue:                                                |   |                    |   |   |                   |   |   |   |   |   |   |   |
|     Product      sales              |   | $                       | 3,939  |   |                   | $      | 5,097 |   |   | $ | 11,811 |   |   | $ | 12,333 |   |
|     Contract      revenue           |   |                    | 2,014  |   |                   |   | 1,851 |   |   |   | 5,313 |   |   |   | 5,260 |   |
|     Royalties                       |   |                    | 437    |   |                   |   | 508 |   |   |   | 1,310 |   |   |   | 2,092 |   |
| Total revenue                                           |   |                    | 6,390  |   |                   |   | 7,456 |   |   |   | 18,434 |   |   |   | 19,685 |   |
|                                                    |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Costs      and expenses:                                |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|     Cost      of product sales      |   |                    | 528    |   |                   |   | 901 |   |   |   | 1,976 |   |   |   | 3,087 |   |
|     Cost      of contract revenue   |   |                    | 1,365  |   |                   |   | 1,553 |   |   |   | 3,512 |   |   |   | 4,315 |   |
|     Research      and development   |   |                    | 2,945  |   |                   |   | 2,528 |   |   |   | 9,984 |   |   |   | 7,735 |   |
|     Selling      and marketing      |   |                    | 1,141  |   |                   |   | 936 |   |   |   | 3,297 |   |   |   | 2,808 |   |
|     General      and administrative |   |                    | 1,315  |   |                   |   | 1,009 |   |   |   | 3,793 |   |   |   | 3,269 |   |
| Total costs and      expenses                           |   |                    | 7,294  |   |                   |   | 6,927 |   |   |   | 22,562 |   |   |   | 21,214 |   |
|                                                    |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Income/(loss)      from operations                      |   |                    | (904   | )      |                   |   | 529 |   |   |   | (4,128 | ) |   |   | (1,529 | ) |
| Interest      income                                    |   |                    | 244    |   |                   |   | 512 |   |   |   | 942 |   |   |   | 1,520 |   |
|                                                    |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Income/(loss)      before provision for income taxes    |   |                    | (660   | )      |                   |   | 1,041 |   |   |   | (3,186 | ) |   |   | (9 | ) |
| Provision      for income taxes                         |   |                    | 3      |   |                   |   | 6 |   |   |   | 16 |   |   |   | 23 |   |
|                                                    |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income/(loss)                                  |   | $                       | (663   | )      |                   | $      | 1,035 |   |   | $ | (3,202 | ) |   | $ | (32 | ) |
|                                                    |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income/(loss) per share – basic     |   | $                       | (0.03  | )      |                   | $      | 0.04 |   |   | $ | (0.13 | ) |   | $ | (0.00 | ) |
| Net      income/(loss) per share – diluted        |   | $                       | (0.03  | )      |                   | $      | 0.04 |   |   | $ | (0.13 | ) |   | $ | (0.00 | ) |
|                                                    |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average shares – basic              |   |                    | 23,510 |   |                   |   | 23,757 |   |   |   | 23,753 |   |   |   | 23,710 |   |
| Weighted      average shares - diluted                  |   |                    | 23,510 |   |                   |   | 24,996 |   |   |   | 23,753 |   |   |   | 23,710 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Nine      Months Ended |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | September      30,     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2008                   |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |   |   |   |   |
| Cash      flows from operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |   |   |   |   |
|    Net      loss                                                                                                                          |   | $                      | (3,202 | ) |   | $ | (32 | ) |
|    Adjustments      to reconcile net loss to net cash provided      by (used in) operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   |   |   |   |   |   |   |
| Depreciation      and      amortization                                                                                                                                      |   |                   | 688    |   |   |   | 652 |   |
| Stock      based      compensation                                                                                                                                           |   |                   | 1,115  |   |   |   | 792 |   |
| Provision      for doubtful      accounts                                                                                                                                    |   |                   | (25    | ) |   |   | - |   |
|              Increase (decrease) from changes in assets andliabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |   |   |   |   |   |   |
|          Accounts      receivable                                                                           |   |                   | 3,320  |   |   |   | (2,959 | ) |
|          Inventories                                                                                        |   |                   | (352   | ) |   |   | (604 | ) |
|          Prepaid      expenses                                                                              |   |                   | 77     |   |   |   | 177 |   |
|          Accounts      payable                                                                              |   |                   | (295   | ) |   |   | 454 |   |
|          Accrued      expenses                                                                              |   |                   | 390    |   |   |   | 389 |   |
|          Deferred      revenue                                                                              |   |                   | (139   | ) |   |   | (441 | ) |
|             Net      cash provided by (used in) operating activities                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   | 1,577  |   |   |   | (1,572 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |   |   |   |   |   |   |
|     Purchases      of property and      equipment                                                                                    |   |                   | (386   | ) |   |   | (500 | ) |
|     Sales      of      investments                                                                                                   |   |                   | 38,743 |   |   |   | 18,338 |   |
|     Purchases      of investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   | (2,000 | ) |   |   | (20,447 | ) |
|             Net      cash provided by (used in) investing activities                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   | 36,357 |   |   |   | (2,609 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |   |   |   |   |   |   |
|      Proceeds      from issuance of common      stock                                                                           |   |                   | 359    |   |   |   | 455 |   |
|      Repurchase      of common      stock                                                                                       |   |                   | (2,290 | ) |   |   | (38 | ) |
|             Net      cash provided by (used in) financing activities                                                                                                                                                                                                                                                                                                                                                                                                           |   |                   | (1,931 | ) |   |   | 417 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |   |   |   |   |   |   |
| Increase      (decrease) in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   | 36,003 |   |   |   | (3,764 | ) |
| Cash      and cash equivalents, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                   | 1,806  |   |   |   | 8,571 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |   |   |   |   |   |   |
| Cash      and cash equivalents, end of      period                                                                                                       |   | $                      | 37,809 |   |   | $ | 4,807 |   |

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | September      30,2008 |    |   | December      31,2007 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|--------|-----------------------|--------|
| Raw      materials                                                     Finished      goods                                                      |   | $                      | 1,75917 |   |                  | $      | 1,424- |   |
|         Total                                                                                                                                                                                                                                                                                                                                                                    |   | $                      | 1,776   |   |                  | $      | 1,424 |   |

|                                                                         |   | Three      Months EndedSeptember      30, |   |   | Nine      Months EndedSeptember      30, |   |
|------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                         |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
|                                                                         |   |                                      |   |   |                                     |   |   |   |   |   |   |   |
|    Net      income (loss)                                     |   | $                                         | (663   | )      |                                     | $      | 1,035 |   |   | $ | (3,202 | ) |   | $ | (32 | ) |
|                                                                         |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
|    Weighted      average common shares outstanding            |   |                                      | 23,510 |   |                                     |   | 23,757 |   |   |   | 23,753 |   |   |   | 23,710 |   |
|    Additional      dilutive common stock equivalents          |   |                                      | -      |   |                                     |   | 1,239 |   |   |   | - |   |   |   | - |   |
|    Diluted      shares outstanding                            |   |                                      | 23,510 |   |                                     |   | 24,996 |   |   |   | 23,753 |   |   |   | 23,710 |   |
|                                                                         |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
|    Net      income (loss) per share – basic and diluted |   | $                                         | (0.03  | )      |                                     | $      | 0.04 |   |   | $ | (0.13 | ) |   | $ | (0.00 | ) |

----

|                                  |   | Three      Months EndedSeptember      30, |   |   | Nine      Months EndedSeptember      30, |   |
|---------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                  |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
|                                  |   |                                      |   |   |                                     |   |   |   |   |   |   |   |
| Cost of product      sales            |   | $                                         | 3      |   |                                     | $      | 4 |   |   | $ | 9 |   |   | $ | 8 |   |
| Cost of contract      revenue         |   |                                      | 45     |   |                                     |   | 54 |   |   |   | 105 |   |   |   | 133 |   |
| Research and      development         |   |                                      | 136    |   |                                     |   | 127 |   |   |   | 463 |   |   |   | 311 |   |
| Selling and      marketing            |   |                                      | 52     |   |                                     |   | 32 |   |   |   | 133 |   |   |   | 78 |   |
| General and      administrative       |   |                                      | 161    |   |                                     |   | 88 |   |   |   | 405 |   |   |   | 262 |   |
| Stock-based compensation      expense |   | $                                         | 397    |   |                                     | $      | 305 |   |   | $ | 1,115 |   |   | $ | 792 |   |
|                                  |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                                                                                                                                                                                                                                                                |   | Three      Months Ended |   |   | Nine      Months Ended |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                |   | September      30,      |   |   | September      30,     |   |
|                                                                                                                                                                                                                                                                                                                                |   | 2008                    |   |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                |   |                    |   |   |                   |   |   |   |   |   |   |   |
|   United      States                                                      |   | $                       | 4,532  |   |                   | $      | 4,610 |   |   | $ | 13,431 |   |   | $ | 12,225 |   |
|   Germany                                                                 |   |                    | 1,406  |   |                   |   | 1,534 |   |   |   | 3,776 |   |   |   | 4,274 |   |
|   Rest      of      World                                                 |   |                    | 452    |   |                   |   | 1,312 |   |   |   | 1,227 |   |   |   | 3,186 |   |
|                                                                                                                                                                                                                                                                                                                                |   | $                       | 6,390  |   |                   | $      | 7,456 |   |   | $ | 18,434 |   |   | $ | 19,685 |   |

----

----

----

----

----

----

----

----

| —   | Cash      and cash equivalents, which consist of financial instruments with original      maturities of three months or less;and |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------|

| —   | Investments,      which consist of financial instruments that meet the high quality      standards specified in our investment policy.  This policy      dictates that all instruments mature in three years or less, and limits      the amount of credit exposure to any one issue, issuer, and type of      instrument. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  ●   | market      acceptance of broadband technologies we supply by semiconductor or      equipment companies;                       |
|---------------------------|--------------------------------------------------------------------------------------------------------------------------------|
|  ●   | the      extent and timing of new transactions with semiconductor      companies;                                              |
|  ●   | changes      in our and our customers’ development schedules and levels of expenditure      on research and development; |
|  ●   | the      loss of a strategic relationship or termination of a project by a      customer;                                      |
|  ●   | equipment      companies' acceptance of integrated circuits produced by our      customers;                                    |

----

| ●   | the      loss by a customer of a strategic relationship with an equipment company      customer; |
|---------------------|--------------------------------------------------------------------------------------------------|

| ●   | 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 ourtechnology; |
|---------------------|----------------------------------------------------------------------------------------------------------------------------|

| ●   | failures      or problems in our hardware or software  products; |
|---------------------|------------------------------------------------------------------|

| ●   | price      pressure in the biometrics or test and diagnostics markets from our      competitors; |
|---------------------|--------------------------------------------------------------------------------------------------|

| ●   | delays      in the adoption of new industry standards or changes in market perception      of the value of new or existingstandards; |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| ●   | competitive      pressures resulting in lower contract revenues or royalty      rates; |
|---------------------|----------------------------------------------------------------------------------------|

|  ●   | competitive      pressures resulting in lower software or hardware product      revenues; |
|---------------------------|-------------------------------------------------------------------------------------------|

| ●   | personnel      changes, particularly those involving engineering and technical      personnel; |
|---------------------|------------------------------------------------------------------------------------------------|

| ●   | costs      associated with protecting our intellectual  property; |
|---------------------|-------------------------------------------------------------------|

|  ●   | the      potential that customers could fail to make payments under their current      contracts; |
|---------------------------|---------------------------------------------------------------------------------------------------|

| ●   | ADSL      market-related issues, including lower ADSL chipset unit demand brought on      by excess channel inventory and lower average selling prices for ADSL      chipsets as a result of marketsurpluses; |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  ●   | VDSL      market-related issues, including lower VDSL chipset unit demand brought on      by excess channel inventory and lower average selling prices for VDSL      chipsets as a result of marketsurpluses; |
|---------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  ●   | hardware      manufacturing issues, including yield problems in our hardware platforms,      and inventory buildup andobsolescence; |
|---------------------------|-------------------------------------------------------------------------------------------------------------------------------------|

|  ●   | product      gross margin may be affected by various factors including, but not limited      to, product mix, product life cycle, and provision for excess and obsolete      inventory; |
|---------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  ●   | significant      fluctuations in demand for our hardware  products; |
|---------------------------|---------------------------------------------------------------------|

|  ●   | regulatory      developments; and |
|---------------------------|-----------------------------------|

| ●  | general      economic trends and other factors, including the effects of the recent      worldwide credit crisis. |
|---------------|-------------------------------------------------------------------------------------------------------------------|

| ●   | the      test and diagnostics, semiconductor, telecommunications or biometrics      markets decline; |
|---------------------|------------------------------------------------------------------------------------------------------|

| ●   | new      and/or existing customers do not choose to use our software or hardware      products; or |
|----------------|----------------------------------------------------------------------------------------------------|

|        ●   | new      and/or existing customers do not choose to use our intellectual property      for new chipset products or do not increase their revenues from sales of      chipsets with our technology. |
|---------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| ●   | we      must typically undergo a lengthy and expensive process of building a      relationship with a potential customer before there is any assurance of an      agreement with such party; |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●   | we      must persuade semiconductor and equipment manufacturers with significant      resources to rely on us for critical technology on an ongoing basis rather      than trying to develop similar technology  internally; |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●   | we      must persuade potential customers to bear development costs associated      with our technology applications and to make the necessary investment to      successfully manufacture chipsets and products using our technology;      and |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●   | we      must successfully transfer technical know-how to  customers. |
|---------------------|----------------------------------------------------------------------|

----

----

|  ● | 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;                                              |
|  ● | announcements      or introductions of new technologies or products by our      competitors;                                |
|  ● | delays      or problems in the introduction or performance of enhancements or of      future generations of our technology; |
|  ● | failures      or problems in our biometric softwareproducts;                                                                |

----

|  ●   | the      risk that current or potential customers might decide to develop their own      software rather than buy it fromus; |
|---------------------------|------------------------------------------------------------------------------------------------------------------------------|

| ●   | 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; |
|---------------------|---------------------------------------------------------------------------------------------------|

| ●   | 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 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 terminateprojects; |
|---------------------|-------------------------------------------------------|

| ●   | the      risk that we rely substantially on third party contractors and consultants      to deliver contract milestones; and |
|---------------------|------------------------------------------------------------------------------------------------------------------------------|

| ●   | the      potential that customers could fail to make payments under their      contracts. |
|---------------------|-------------------------------------------------------------------------------------------|

----

Consistent with the Sarbanes-Oxley Act and the rules andregulations of the SEC, management's assessment of our internal controls overfinancial reporting and the audit opinion of our independent registeredaccounting firm as to the effectiveness of our controls is required inconnection with our filing of our Annual Report on Form 10-K. If we are unableto timely identify, implement and conclude that we have effective internalcontrols over financial reporting or if our independent auditors are unable toconclude that our internal controls over financial reporting are effective,investors could lose confidence in the reliability of our financial statements,which could result in a decrease in the value of our common stock. Ourassessment of our internal controls over financial reporting may also uncoverweaknesses or other issues with these controls that could also result in adverseinvestor reaction.

| ·   | quarterly      fluctuations in our operatingresults; |
|--------------------|------------------------------------------------------|

| ·   | changes      in future financial guidance that we may provide to investors and public      market analysts; |
|--------------------|-------------------------------------------------------------------------------------------------------------|

| ·   | changes      in our relationships with ourcustomers; |
|--------------------|------------------------------------------------------|

| ·   | 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 affordthem; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | changes      in earnings estimates by public marketanalysts; |
|--------------------|--------------------------------------------------------------|

| ·   | 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. |
|--------------------|------------------------------------------------------------------------------------------------------------|

----

----

| Period                                        |   | (a)Total NumberofShares      Purchased |   | (b)Average PricePaid per    Share |       | (c)Total Number of Shares Purchased      as Part of Publicly Announced Plansor      Programs(1) |    | (d)Maximum Number (or Approximate Dollar Value)      of Shares that May Yet Be PurchasedUnder thePlansor  Programs |
|-----------------------------------------------|--------|----------------------------------------|--------|-----------------------------------|------------|-------------------------------------------------------------------------------------------------|---------|-------------------------------------------------------------------------------------------------------------------------|
|                                          |   |                                   |   |                              |       |                                                                                            |    |                                                                                                                    |   |   |
| August 1, 2008, to August 31,    2008         |   | 413,444                                |   | $                                 | 3.24  |                                                                                            | 639,542 |                                                                                                                    |  $ | 2,840,930     |
| September 1, 2008, to September 30,      2008 |   |  52,689                           |   | $                                 | 3.22  |                                                                                            | 692,231 |                                                                                                                    |  $ | 2,671,143     |

----

|   | 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 of2002. |

----

|                              | AWARE, INC. |                                             |
|-----------------------------------|-------------|--------------------------------------------------|
|                              |        |                                             |   |
|                              |        |                                             |   |
| Date:      October 24, 2008  | By:         | /s/      Michael A. Tzannes                      |   |
|                              |        | Michael      A. Tzannes, Chief Executive Officer |   |

|                              |   |                                              |   |
|-----------------------------------|--------|---------------------------------------------------|--------|
| Date:      October 24, 2008  | By:    | /s/      Richard P. Moberg                        |   |
|                              |   | Richard      P. Moberg, Chief Financial Officer   |
|                              |   | (Principal      Financial and Accounting Officer) |   |