Aware Inc. (AWRE, Financial) filed Quarterly Report for the period ended 2009-03-31.
Aware is a leading technology supplier for the telecommunications industries. For more than ten years Aware has pioneered innovations at telecommunications standards-setting organizations and continues to develop and market DSL silicon intellectual property and test and diagnostics products. Its StratiPHY IP product line supports DSL standards including ADSL2+ and VDSL2 and has been broadly licensed to leading semiconductor companies. Telecom equipment vendors and phone companies use Aware's DSL test and diagnostics modules and Dr. DSL software to help provision DSL circuits globally. Aware is also a veteran of the biometrics industry providing biometric and imaging software components used in government systems worldwide. Aware's interoperable standard-compliant field-proven imaging products are used in a number of applications from border management to criminal justice to medical imaging Aware Inc. has a market cap of $53.6 million; its shares were traded at around $2.3 with a P/E ratio of 28.8 and P/S ratio of 1.8.
Contract revenue decreased 16% from $1.5 million in the first quarter of 2008 to $1.3 million in the current year quarter. As a percentage of total revenue, contract revenue increased from 26% in the first quarter of 2008 to 28% in the current year quarter. The dollar decrease was primarily due to lower contract revenue from biometrics technology contracts, which was partially offset by a slight increase in contract revenue from DSL technology contracts. Revenue from biometrics technology contracts was lower in the current year quarter primarily because revenue from a large project that commenced in late 2007 was lower in the current quarter.
Cost of Product Sales. Since the cost of software product sales is minimal, cost of product sales consists primarily of the cost of hardware product sales. Cost of product sales decreased 38% from $824,000 in the first quarter of 2008 to $513,000 in the current year quarter. As a percentage of product sales, cost of product sales decreased from 21% in the first quarter of 2008 to 18% in the current year quarter, which means that product gross margins increased from 79% to 82%. The cost of product sales dollar decrease was primarily due to lower sales of test and diagnostics hardware. The increase in product gross margins was primarily due to a greater proportion of software sales in product sales in the current quarter versus the year ago quarter.
Cost of contract revenue decreased 11% from $1.0 million in the first quarter of 2008 to $0.9 million in the current year quarter. Cost of contract revenue as a percentage of contract revenue, was 67% in the first quarter of 2008 and 71% in the current quarter, which means that the gross margins on contract revenue decreased from 33% to 29%. The dollar decrease in cost of contract revenue was primarily a function of lower biometrics contract revenue in the current quarter, which decreased the amount we charged to cost of contract revenue. Lower cost of contract revenue from biometrics contracts was partially offset by increased cost of contract revenue from DSL contracts.
General and Administrative Expense. General and administrative expense consists primarily of compensation costs for administrative personnel, facility costs, bad debt, audit, legal, stock exchange and insurance expenses. General and administrative expenses increased 2% from slightly less than $1.2 million in the first quarter of 2008 to slightly more than $1.2 million in the current year quarter. As a percentage of total revenue, general and administrative expense increased from 20% in the first quarter of 2008 to 27% in the current year quarter. The slight dollar increase was mainly attributable to higher stock-based compensation expenses, which were partially offset by lower legal fees.
Due to the limited number of customers to which we can license and/or sell our DSL technology and patents and our DSL hardware and software products, we derive a significant amount of revenue from a small number of customers. In 2008, we derived approximately 28% and 12% of our total revenue from Daphimo and Infineon, respectively. In 2007, we derived approximately 19%, 16%, and 10% of our total revenue from Infineon, Spirent, and Alcatel, respectively. In 2006, we derived approximately 26% and 20% of our total revenue from Infineon and ADI/Ikanos, respectively. On February 17, 2006 ADI sold its ADSL business relating to Aware technology to Ikanos and Ikanos replaced ADI as an Aware customer.
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Aware is a leading technology supplier for the telecommunications industries. For more than ten years Aware has pioneered innovations at telecommunications standards-setting organizations and continues to develop and market DSL silicon intellectual property and test and diagnostics products. Its StratiPHY IP product line supports DSL standards including ADSL2+ and VDSL2 and has been broadly licensed to leading semiconductor companies. Telecom equipment vendors and phone companies use Aware's DSL test and diagnostics modules and Dr. DSL software to help provision DSL circuits globally. Aware is also a veteran of the biometrics industry providing biometric and imaging software components used in government systems worldwide. Aware's interoperable standard-compliant field-proven imaging products are used in a number of applications from border management to criminal justice to medical imaging Aware Inc. has a market cap of $53.6 million; its shares were traded at around $2.3 with a P/E ratio of 28.8 and P/S ratio of 1.8.
Highlight of Business Operations:
Product sales decreased 28% from $3.9 million in the first quarter of 2008 to $2.8 million in the current year quarter. As a percentage of total revenue, product sales decreased from 67% in the first quarter of 2008 to 62% in the current year quarter. The dollar decrease was primarily due to lower sales of biometric software and test and diagnostics hardware, which was partially offset by increased sales of test and diagnostics software.Contract revenue decreased 16% from $1.5 million in the first quarter of 2008 to $1.3 million in the current year quarter. As a percentage of total revenue, contract revenue increased from 26% in the first quarter of 2008 to 28% in the current year quarter. The dollar decrease was primarily due to lower contract revenue from biometrics technology contracts, which was partially offset by a slight increase in contract revenue from DSL technology contracts. Revenue from biometrics technology contracts was lower in the current year quarter primarily because revenue from a large project that commenced in late 2007 was lower in the current quarter.
Cost of Product Sales. Since the cost of software product sales is minimal, cost of product sales consists primarily of the cost of hardware product sales. Cost of product sales decreased 38% from $824,000 in the first quarter of 2008 to $513,000 in the current year quarter. As a percentage of product sales, cost of product sales decreased from 21% in the first quarter of 2008 to 18% in the current year quarter, which means that product gross margins increased from 79% to 82%. The cost of product sales dollar decrease was primarily due to lower sales of test and diagnostics hardware. The increase in product gross margins was primarily due to a greater proportion of software sales in product sales in the current quarter versus the year ago quarter.
Cost of contract revenue decreased 11% from $1.0 million in the first quarter of 2008 to $0.9 million in the current year quarter. Cost of contract revenue as a percentage of contract revenue, was 67% in the first quarter of 2008 and 71% in the current quarter, which means that the gross margins on contract revenue decreased from 33% to 29%. The dollar decrease in cost of contract revenue was primarily a function of lower biometrics contract revenue in the current quarter, which decreased the amount we charged to cost of contract revenue. Lower cost of contract revenue from biometrics contracts was partially offset by increased cost of contract revenue from DSL contracts.
General and Administrative Expense. General and administrative expense consists primarily of compensation costs for administrative personnel, facility costs, bad debt, audit, legal, stock exchange and insurance expenses. General and administrative expenses increased 2% from slightly less than $1.2 million in the first quarter of 2008 to slightly more than $1.2 million in the current year quarter. As a percentage of total revenue, general and administrative expense increased from 20% in the first quarter of 2008 to 27% in the current year quarter. The slight dollar increase was mainly attributable to higher stock-based compensation expenses, which were partially offset by lower legal fees.
Due to the limited number of customers to which we can license and/or sell our DSL technology and patents and our DSL hardware and software products, we derive a significant amount of revenue from a small number of customers. In 2008, we derived approximately 28% and 12% of our total revenue from Daphimo and Infineon, respectively. In 2007, we derived approximately 19%, 16%, and 10% of our total revenue from Infineon, Spirent, and Alcatel, respectively. In 2006, we derived approximately 26% and 20% of our total revenue from Infineon and ADI/Ikanos, respectively. On February 17, 2006 ADI sold its ADSL business relating to Aware technology to Ikanos and Ikanos replaced ADI as an Aware customer.
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