<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                    FOR THE QUARTER ENDED SEPTEMBER 30, 1996

                        COMMISSION FILE NUMBER 000-21129


                                   AWARE, INC.
                                   -----------
             (Exact Name of Registrant as Specified in Its Charter)



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



                   ONE OAK PARK, BEDFORD, MASSACHUSETTS, 01730
                   -------------------------------------------
                    (Address of Principal Executive Offices)
                                   (Zip Code)


                                 (617) 276-4000
                                 --------------
              (Registrant's Telephone Number, Including Area Code)




Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                YES  X   NO
                                    ---     ---

Indicate the number of shares outstanding of the issuer's common stock as of
November 4, 1996:

               CLASS                          NUMBER OF SHARES OUTSTANDING
               -----                          ----------------------------
Common Stock, par value $0.01 per share             18,905,397 shares

================================================================================


<PAGE>   2


                                   AWARE, INC.
                                    FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1996


                                TABLE OF CONTENTS



                                                                          Page
                                                                          ----

PART I   FINANCIAL INFORMATION


Item 1.  Condensed Financial Statements

         Condensed Balance Sheets as of September 30, 1996
         and December 31, 1995 .......................................      3

         Condensed Statements of Operations for the
         Three and Nine Months Ended September 30, 1996
         and September 30, 1995 ......................................      4

         Condensed Statements of Cash Flows for the
         Nine Months Ended September 30, 1996 and
         and September 30, 1995 ......................................      5

         Notes to Condensed Financial Statements .....................      6


Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations .........................      7


PART II  OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K ............................     12

         Signatures ..................................................     12


                                       2


<PAGE>   3



                          PART I. FINANCIAL INFORMATION

                          ITEM 1: FINANCIAL STATEMENTS
                                   AWARE, INC.

<TABLE>
                                    CONDENSED BALANCE SHEETS
                                          (UNAUDITED)
<CAPTION>

                                                                                 SEPTEMBER 30,    DECEMBER 31,
                                                                                     1996             1995
                                                                                 -------------    ------------
<S>                                                                              <C>              <C>
                                    ASSETS
Current assets:
  Cash and cash equivalents .................................................    $ 31,483,407     $  2,153,681
  Short-term investments ....................................................       6,042,896               --
  Accounts receivable (less allowance for doubtful
     accounts of $15,300 in 1996 and $5,300 in 1995)  .......................       1,025,779          500,828
  Unbilled accounts receivable ..............................................         193,273          116,261
  Inventories ...............................................................         885,416           39,713
  Prepaid expenses ..........................................................          81,366           14,471
                                                                                 ------------     ------------
     Total current assets ...................................................      39,712,137        2,824,954


Property and equipment, net of accumulated depreciation and
  amortization of $1,674,875 in 1996 and $1,480,614 in 1995 .................         719,100          403,405
                                                                                 ------------     ------------

Total assets ................................................................    $ 40,431,237     $  3,228,359
                                                                                 ============     ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable ..........................................................    $    574,417     $    111,519
  Accrued expenses ..........................................................         144,317           65,404
  Accrued compensation ......................................................         159,358           67,887
  Accrued professional fees .................................................          33,451           14,000
  Deferred revenue ..........................................................          50,000           50,000
                                                                                 ------------     ------------
     Total current liabilities ..............................................         961,543          308,810


Stockholders' equity:
  Preferred stock, $1.00 par value; no shares authorized ....................              --               --
  Preferred stock, $1.00 par value:
     Series B convertible preferred stock, 15,875 shares authorized,
       15,875 issued and outstanding in 1995, none outstanding in 1996  .....              --           15,875
     Series C convertible preferred stock, 13,525 shares authorized,
       13,525 issued and outstanding in 1995, none outstanding in 1996 ......              --           13,525
     Series D convertible preferred stock, 74,800 shares authorized,
       69,166 issued and outstanding in 1995, none outstanding in 1996 ......              --           69,166
     Series E convertible preferred stock, 45,000 shares authorized,
       29,432 issued and outstanding in 1995, none outstanding in 1996 ......              --           29,432
  Common stock, $.01 par value; 30,000,000 shares authorized; issued
       and outstanding, 1,166,960 in 1995 and 18,905,397 in 1996  ...........         189,054           11,670
  Additional paid-in capital ................................................      49,957,203       13,807,945
  Accumulated deficit .......................................................     (10,223,601)     (10,575,102)
  Treasury stock ............................................................        (452,962)        (452,962)
                                                                                 ------------     ------------
       Total stockholders' equity ...........................................      39,469,694        2,919,549

Total liabilities and stockholders' equity ..................................    $ 40,431,237     $  3,228,359
                                                                                 ============     ============

</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       3

<PAGE>   4


                                   AWARE, INC.

<TABLE>
                                    CONDENSED STATEMENTS OF OPERATIONS
                                               (UNAUDITED)
<CAPTION>



                                                   THREE MONTHS ENDED             NINE MONTHS ENDED
                                                       SEPTEMBER 30,                SEPTEMBER 30,
                                                --------------------------    --------------------------
                                                   1996           1995            1996           1995
                                                -----------    -----------    -----------     ----------
<S>                                             <C>            <C>            <C>             <C>
Revenue:
    Product ................................    $   379,926    $    99,720    $   529,945     $  324,521
    License and royalty ....................        782,047        349,729      2,221,652        742,240
    Research and development ...............        343,847        514,049        844,701      1,208,688
                                                -----------    -----------    -----------     ----------
        Total revenue ......................      1,505,820        963,498      3,596,298      2,275,449

Costs and expenses:
    Cost of product revenue ................        266,125         46,195        364,705        145,203
    Cost of research and development revenue        215,256        259,195        607,843        864,585
    Research and development ...............        593,570        236,960      1,383,067        944,876
    Selling and marketing ..................        178,568        101,282        509,117        303,880
    General and administrative .............        248,051        164,832        691,366        540,222
                                                -----------    -----------    -----------     ----------
         Total costs and expenses ..........      1,501,570        808,464      3,556,098      2,798,766

Income (loss) from operations ..............          4,250        155,034         40,200       (523,317)

Interest income ............................        257,433         24,931        311,301         85,787
                                                -----------    -----------    -----------     ----------

Net income (loss) ..........................    $   261,683    $   179,965    $   351,501     $ (437,530)
                                                ===========    ===========    ===========     ==========

Net income (loss) per share ................    $      0.01    $      0.01    $      0.02     $    (0.21)
                                                ===========    ===========    ===========     ==========

Weighted average common and common
 equivalent shares outstanding .............     19,071,834     15,077,312     17,544,989      2,043,593
                                                ===========    ===========    ===========     ==========

</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       4

<PAGE>   5
                                   AWARE, INC.

<TABLE>
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



                                                                        NINE MONTHS ENDED
                                                                          SEPTEMBER 30,
                                                                   ---------------------------
                                                                      1996             1995
                                                                   -----------      ----------
<S>                                                                <C>              <C> 
Cash flows from operating activities:
   Net income (loss) .........................................         351,501      $ (437,530)
   Depreciation and amortization .............................         194,720         150,282
   Increase (decrease) from changes in assets and liabilities:
      Accounts receivable ....................................        (524,951)         49,521
      Unbilled accounts receivable ...........................         (77,012)        265,400
      Inventories ............................................        (845,703)        (14,487)
      Prepaid expenses .......................................         (66,895)         39,998
      Accounts payable .......................................         462,898         (18,392)
      Accrued expenses .......................................         189,835        (348,597)
      Deferred revenue .......................................              --         (39,720)
                                                                   -----------      ----------
Net cash used in operating activities ........................        (315,607)       (353,525)

Cash flows from investing activities:
    Purchases of property and equipment ......................        (510,415)       (186,550)
    Net purchases of short-term investments ..................      (6,042,896)             --
                                                                   -----------      ----------
Net cash used in investing activities ........................      (6,553,311)       (186,550)

Cash flows from financing activities:
     Proceeds from issuance of common stock ..................      36,198,644          16,023
                                                                   -----------      ----------

Increase (decrease) in cash and cash equivalents .............      29,329,726        (524,052)
Cash and cash equivalents, beginning of period ...............       2,153,681       2,566,128
                                                                   -----------      ----------
Cash and cash equivalents, end of period .....................     $31,483,407      $2,042,076
                                                                   ===========      ==========



SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest ....................................     $       820      $      668

SUPPLEMENTAL NONCASH DISCLOSURES:
   Conversion of preferred stock to common stock .............     $   127,998              --
    Repurchase of Series D preferred shares for
        cancellation of notes ................................              --      $  457,062
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       5

<PAGE>   6
                                   AWARE, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)


A) BASIS OF PRESENTATION

   The accompanying unaudited condensed balance sheets, statements of
   operations, and statements of cash flows reflect all adjustments (consisting
   only of normal recurring items) which are, in the opinion of management,
   necessary for a fair presentation of financial position at September 30,
   1996, and of operations and cash flows for the interim periods ended
   September 30, 1996 and 1995.

   The accompanying unaudited condensed financial statements have been prepared
   in accordance with the instructions for Form 10-Q and therefore do not
   include all information and footnotes necessary for a complete presentation
   of operations, the financial position, and cash flows of the Company, in
   conformity with generally accepted accounting principles. The Company filed
   audited financial statements which included all information and footnotes
   necessary for such presentation for the years ended December 31, 1995 and
   December 31, 1994 in conjunction with a Registration Statement on Form S-1
   (SEC File No. 333-6807), as declared effective on August 8, 1996.

   The results of operations for the interim period ended September 30, 1996 are
   not necessarily indicative of the results to be expected for the year.

B) INVENTORY

<TABLE>
   Inventory consists primarily of the following:
<CAPTION>
                                                   SEPTEMBER 30,    DECEMBER 31,
                                                      1996             1995
                                                   -------------    ------------
        <S>                                           <C>             <C>
        Raw materials .............................   $516,516        $39,713
        Finished goods ............................    368,900             --
                                                      --------        -------
               Total ..............................   $885,416        $39,713
                                                      ========        =======
</TABLE>


C) NET INCOME (LOSS) PER SHARE

   Net income (loss) per share is based on the weighted average number of common
   and dilutive common equivalent shares (common stock options and convertible
   preferred stock) outstanding. Common equivalent shares are not included in
   the per share calculations for the nine months ended September 30, 1995,
   because the effect of their inclusion would be antidilutive, except in
   accordance with Securities and Exchange Commission Staff Accounting Bulletin
   No. 83. The Bulletin requires all common shares issued and options to
   purchase shares of common stock granted by the Company during the
   twelve-month period prior to the filing of a proposed initial public offering
   to be included in the calculation as if they were outstanding for all
   periods.

                                       6

<PAGE>   7



 
                                    ITEM 2:

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

     The statements contained in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical are "forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements represent the
Company's present expectations or beliefs concerning future events, however the
Company cautions that such statements are qualified by important factors. Such
factors, which are identified under the heading "Risk Factors" below, could
cause actual results to differ materially from those indicated in Management's
Discussion and Analysis of Financial Condition and Results of Operations.


RESULTS OF OPERATIONS

     Product Revenue. Product revenue consists primarily of revenue from the
sale of tangible products, such as Asymmetric Digital Subscriber Line ("ADSL")
modems and video editing chipset products, which are manufactured by the Company
or third party suppliers. Product revenue increased by 281% from $99,720 in the
third quarter of 1995 to $379,926 in the current year quarter. Product revenue
as a percentage of total revenue was 25% in the third quarter of 1996 as
compared to 10% in the corresponding quarter of 1995. The dollar increase, as
well as the increase as a percentage of total revenue, is primarily due to the
following reasons. Revenue in the third quarter of 1995 consisted primarily of
revenue from the sale of video editing chipset products, which the Company
discontinued in the fourth quarter of 1995. Revenue in the third quarter of 1996
consisted primarily of revenue from the sale of ADSL modems, which the Company
began shipping in the first quarter of 1996. Accordingly, a comparison of
product revenue on a year over year basis is not particularly meaningful due to
differences in the composition of product revenue.

     For the nine months ended September 30, product revenue increased by 63%
from $324,521 in 1995 to $529,945 in 1996. Product revenue as a percentage of
total revenue was 15% for the first nine months of 1996 as compared to 14% in
the corresponding period in 1995. A comparison of product revenue on a nine
month period over period basis is not particularly meaningful due to differences
in the composition of product revenue.

     License and Royalty Revenue. License and royalty revenue consists primarily
of revenue from the sale of intellectual property, such as hardware and software
technology licenses, compression software licenses, and royalties from the sale
of chipsets by customers who have licensed the Company's technology. As such
revenue has only a nominal cost of sale associated with it, the Company does not
report a separate cost of license and royalty revenue line in its Statements of
Operations.

                                       7


<PAGE>   8
License and royalty revenue increased by 124% from $349,729 in the third quarter
of 1995 to $782,047 in the current year quarter. License and royalty revenue as
a percentage of total revenue was 52% in the third quarter of 1996 as compared
to 36% in the corresponding quarter of 1995. For the nine months ended September
30, license and royalty revenue increased by 199% from $742,240 in 1995 to
$2,221,652 in 1996. License and royalty revenue as a percentage of total revenue
was 62% for the first nine months of 1996 as compared to 33% in the
corresponding period of 1995. The dollar increase as well as the increase as a
percentage of total revenue, in both the three and nine month periods, is
primarily due to an increase in the sale of ADSL and other broadband technology
licenses to telephone company equipment suppliers, and sales of compression
software licenses.

     Research and Development Revenue. Research and development revenue consists
primarily of revenue from commercial contract engineering and development, and
government research contracts. Research and development revenue decreased by 33%
from $514,049 in the third quarter of 1995 to $343,847 in the current year
quarter. Research and development revenue as a percentage of total revenue was
23% in the third quarter of 1996 as compared to 53% in the corresponding quarter
of 1995. The dollar decrease is primarily due to lower revenue from commercial
research and development contracts, as well as lower revenue from U.S.
government research contracts.

For the nine months ended September 30, research and development revenue
decreased by 30% from $1,208,688 in 1995 to $844,701 in 1996. Research and
development revenue as a percentage of total revenue was 24% for the first nine
months of 1996 as compared to 53% in the corresponding period of 1995. The
dollar decrease is primarily due to lower revenue from commercial research and
development contracts.

For both the three and nine month periods, the decrease in research and
development revenue as a percentage of total revenue was driven by the Company's
decision to shift its business away from contract research activities toward the
sale of commercial technology licenses, which resulted in lower research and
development revenue and higher product and license and royalty revenue.

     Cost of Product Revenue. Cost of product revenue consists primarily of
direct material, direct labor and overhead costs to produce the Company's
products, and cost of goods for purchases of finished goods inventory from third
party suppliers. Cost of product revenue as a percentage of product revenue was
70% in the third quarter of 1996 as compared to 46% in the prior year quarter.
Cost of product revenue as a percentage of product revenue was 69% for the first
nine months of 1996 as compared to 45% in the corresponding 1995 period. In the
three and nine month periods in 1996, the percentages primarily reflect the cost
of modem revenue. In the three and nine month periods in 1995, the percentages
primarily reflect the cost of video editing chipset revenue. Accordingly, a
comparison of cost of product revenue on a year over year basis is not
particularly meaningful due to differences in the composition of product
revenue.

     Cost of Research and Development Revenue. Cost of research and development
revenue consists primarily of direct labor, direct material and travel expenses
associated with commercial contract engineering and development, and government
research contracts. As a percentage of research and development revenue, related
costs increased from 50% in the third quarter of 1995 to 63% in the current year
quarter. The increase in cost as a percentage of research and 

                                       8



<PAGE>   9
development revenue is primarily attributable to the mix of commercial and U.S.
government research contracts, and the profitability of individual contracts.
The cost of research and development revenue as a percentage of research and
development revenue was unchanged at 72% for the nine month periods in 1995 and
1996.

     Research and Development Expense. Research and development expense consists
primarily of employee and consultant costs, supplies and allocated facilities
costs related to the development and enhancement of the Company's products and
technology. Research and development expense increased by 151% from $236,960 in
the third quarter of 1995 to $593,570 in the current year quarter. For the nine
month period ended September 30, research and development expense increased 46%
from $944,876 in 1995 to $1,383,067 in 1996. For the three and nine month
periods, the increase in research and development expense is primarily
attributable to higher spending on projects to develop, enhance, and
commercialize the Company's ADSL and Hybrid Fiber Coaxial technology. Higher
spending on these projects was partially offset by lower spending as a result of
the discontinuance of research involving audio compression technology and lower
facilities costs as a result of the relocation of the Company's facilities in
June 1995.

     Selling and Marketing Expense. Selling and marketing expense consists
primarily of salaries for sales and marketing personnel, travel, product
advertising, and allocated facilities expense. Selling and marketing expense
increased 76% from $101,282 in the third quarter of 1995 to $178,568 in the
current year quarter. For the nine month period ended September 30, sales and
marketing expense increased 68% from $303,880 in 1995 to $509,117 in 1996. For
the three and nine month periods, the increase is primarily due to the addition
of sales personnel and increased product advertising related to the introduction
of the Company's ADSL modem.

     General and Administrative Expense. General and administrative expense
consists primarily of salaries for administrative officers and support
personnel, allocated facilities costs, and professional services, such as legal
and audit expenses. General and administrative expense increased by 51% from
$164,832 in the third quarter of 1995 to $248,051 in the current year quarter.
For the nine month period ended September 30, general and administrative expense
increased 28% from $540,222 in 1995 to $691,366 in 1996. For the three and nine
month periods, the increase is primarily due to additions to the Company's
management team, legal expenses, and, with respect to the three month period,
expenses associated with becoming a public company.

     Interest Income. Interest income increased from $24,931 in the third
quarter of 1995 to $257,433 in the current year quarter, primarily as a result
of higher cash balances due to the investment of net proceeds from the Company's
initial public offering ("IPO"). For the nine months ended September 30,
interest income increased from $85,787 in 1995 to $311,301 in 1996, also
primarily as a result interest earned on the IPO proceeds.

     Income Taxes. The Company has not provided for income taxes as it has a
history of net losses, which has resulted in tax loss carryforwards. As of
December 31, 1995, the Company had net operating loss carryforwards of
approximately $9,700,000 and approximately $576,000 of research and development
tax credit carryforwards to offset future federal taxable income. To the extent
not utilized, the net operating loss and tax credit carryforwards expire between
2003 and 2010.

                                       9

<PAGE>   10

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments increased by $35,372,622 to
$37,526,303 at September 30, 1996. The primary source of cash flow in the first
nine months of 1996 was approximately $36,199,000 of net proceeds from the
issuance of common stock. In the third quarter of 1996, the Company completed an
initial public offering of its common stock. The Company sold 3,910,000 shares
and realized net proceeds of approximately $35,162,000. The Company also
realized approximately $1,000,000 of proceeds from the issuance of common stock
in connection with its stock option plans. Net proceeds from the sale of common
stock were offset by $315,607 of cash used in operations, and $510,415 of cash
invested in property and equipment.

Funds used in operations were principally attributable to an increase in
inventory. The Company purchased raw materials to manufacture ADSL modems in
anticipation of increased sales from such products. The increase in property and
equipment was primarily related to purchases of computer and other equipment
used in research and development activities.

While there can be no assurance that the Company will not require additional
financing, or that such financing will be available to the Company, the Company
believes that its financial resources are adequate to meet its liquidity
requirements over the next twelve months.


RISK FACTORS

The Company believes that the occurrence of any one or some combination of the
following risk factors could have a material adverse effect on the Company's
business, financial condition and results of operations.

History of Operating Losses

     The Company has incurred net losses in every fiscal year since inception.
Substantial additional research and development expenses to enhance the
performance and reduce the manufacturing costs of the Company's products will be
required before market acceptance can be determined. There can be no assurance
that the Company will achieve profitable operations in any future period.

Dependence on Acceptance of ADSL Technology

     The Company's future success is substantially dependent upon whether ADSL
technology gains widespread commercial acceptance by the telephone companies
("telcos") and end users of telco services. The Company has invested substantial
resources in the development of ADSL technology implemented through the Discrete
Multi-Tone ("DMT") modulation technique. Telcos have only begun evaluating
DMT-based ADSL technology, and there can be no assurance that the telcos will
pursue the deployment of such ADSL technology.

                                       10


<PAGE>   11
Reliance on Telcos; Dependence on a Limited Number of Customers

     Even if telcos adopt policies favoring full-scale implementation of ADSL
technology, there can be no assurance that sales of the Company's ADSL products
will become significant. The Company's customers, including Regional Bell
Operating Companies ("RBOCs"), OEMs and other telcos, are relatively few in
number and have significantly greater resources than that of the Company. The
Company has limited ability to influence or control decisions made by these
customers. There can be no assurance that these customers will not use their
size and bargaining power to demand unfavorable terms and conditions (including
price), seek alternative suppliers, or undertake internal development of
products comparable to those of the Company's.

Substantial Dependence on Analog Devices, Inc.

     The Company and Analog Devices, Inc. ("ADI") have entered into a series of
agreements to develop integrated chipsets based on the Company's technology. The
inability or refusal of ADI to manufacture, market and sell such chipsets in
substantial quantities would prevent telcos from adopting the Company's
technology and would have a material adverse effect on the Company's business.
There can be no assurance that ADI will succeed or, in the event that ADI is not
successful, that the Company would be able to find a substitute chipset
manufacturer without significant delays.

Proprietary Technology; Risk of Third Party Claims of Infringement

     The Company's ability to compete effectively will depend to a significant
extent on its ability to protect it proprietary information and to operate
without infringing the intellectual property rights of others. Despite the
precautions the Company has taken to protect its intellectual property, there
can be no assurance that such steps will be adequate to prevent the
misappropriation of its technology. In addition, third parties may assert
exclusive patent, copyright and other intellectual property rights to
technologies that are important to the Company. There can be no assurance that
other third parties will not assert such claims against the Company in the
future.

Rapid Technological Change; Dependence on New Products

     The markets for the Company's products are characterized by rapid
technological advances, evolving industry standards, changes in end-user
requirements, frequent new product introductions, and evolving telco offerings.
The Company's business will be materially adversely affected if technologies or
standards on which Company's products are based become obsolete, or if the
Company is unable to develop and introduce new products in a timely manner in
response to changing market conditions.

Competition

     The markets for the Company's products are intensely competitive and the
Company expects competition to increase in the immediate future. Many of the
Company's competitors and potential competitors, including the RBOCs and AT&T
Paradyne Corporation, have significantly greater financial, technological,
manufacturing, marketing and personnel resources than the Company. There can be
no assurance that the Company will be able to compete successfully or that
competition will not adversely affect the Company's business.

                                       11

<PAGE>   12
Manufacturing

     The Company has limited experience in manufacturing or in supervising the
manufacture of its products, including its ADSL Internet Access Modem. There can
be no assurance that the Company will not encounter significant difficulties in
manufacturing or controlling the quality of its products, or that its products
will be reliable in the field.

                                       12


<PAGE>   13



 
                          PART II. OTHER INFORMATION

                                     ITEM 6:
                        EXHIBITS AND REPORTS ON FORM 8-K


(A) EXHIBITS

      Exhibit 11.1*  - Computation of Net Income (Loss) per Share


(B) REPORTS ON 8-K

      None.


- --------------------

*filed herewith




                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


     Date: November 8, 1996                  AWARE, INC.



                                             By: /s/ James C. Bender
                                                 -------------------
                                                 James C. Bender, Chief
                                                 Executive Officer and President


     Date: November 8, 1996                  /s/ Richard P. Moberg
                                             ---------------------
                                             Richard P. Moberg, Vice President
                                             and Chief Financial Officer 
                                             (Principal Financial and Accounting
                                             Officer)

                                       13






<PAGE>   1
                                                                    EXHIBIT 11.1

                                   AWARE, INC.

<TABLE>
                    COMPUTATION OF PRIMARY AND FULLY DILUTED
                           NET INCOME (LOSS) PER SHARE


                                                                            THREE MONTHS ENDED
                                                                               SEPTEMBER 30,
                                                                        --------------------------
                                                                           1996           1995
                                                                        -----------    -----------
<S>                                                                     <C>            <C>
Net income .........................................................    $   261,683    $   179,965
                                                                        ===========    ===========

Weighted average number of common and common stock equivalent shares
   outstanding:
      Common stock .................................................     15,014,883      1,166,927
      Convertible preferred common stock equivalents ...............      2,058,232     12,799,775
      Option common stock equivalent shares ........................      1,998,719        228,321
      Effect of SAB 83 .............................................             --        882,289
                                                                        -----------    -----------
          Common and common stock equivalent shares outstanding for
              purpose of calculating primary net income per share ..     19,071,834     15,077,312
      Incremental shares to reflect full dilution ..................        335,411             --
                                                                        -----------    -----------
          Total shares for purpose of calculating fully diluted net
              income per share .....................................     19,407,245     15,077,312
                                                                        ===========    ===========

Primary net income per share .......................................    $      0.01    $      0.01
                                                                        ===========    ===========
Fully diluted net income per share .................................    $      0.01    $      0.01
                                                                        ===========    ===========

<CAPTION>
                                                                            NINE MONTHS ENDED
                                                                              SEPTEMBER 30,
                                                                        --------------------------
                                                                           1996            1995
                                                                        -----------     ----------
<S>                                                                     <C>             <C>
Net income (loss) ..................................................    $   351,501     $ (437,530)
                                                                        ===========     ==========
Weighted average number of common and common stock equivalent shares
   outstanding:
      Common stock .................................................      8,145,160      1,161,304
      Convertible preferred common stock equivalents ...............      7,289,474             --
      Option common stock equivalent shares ........................      1,710,345             --
      Effect of SAB 83 .............................................        400,010        882,289
                                                                        -----------     ----------
          Common and common stock equivalent shares outstanding for
              purpose of calculating
 primary net income (loss) per 
              share ................................................     17,544,989      2,043,593
      Incremental shares to reflect full dilution ..................        614,609             --
                                                                        -----------     ----------
          Total shares for purpose of calculating fully diluted net
              income (loss) per share ..............................     18,159,598      2,043,593
                                                                        ===========     ==========

Primary net income (loss) per share ................................    $      0.02     $    (0.21)
                                                                        ===========     ==========
Fully diluted net income (loss) per share ..........................    $      0.02     $    (0.21)
                                                                        ===========     ==========
</TABLE>





<TABLE> <S> <C>

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               SEP-30-1996
<EXCHANGE-RATE>                                      1
<CASH>                                          37,526
<SECURITIES>                                         0
<RECEIVABLES>                                    1,234
<ALLOWANCES>                                        15
<INVENTORY>                                        885
<CURRENT-ASSETS>                                39,712
<PP&E>                                           2,394
<DEPRECIATION>                                   1,675
<TOTAL-ASSETS>                                  40,431
<CURRENT-LIABILITIES>                              962
<BONDS>                                              0
<COMMON>                                           189
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<OTHER-SE>                                      39,281
<TOTAL-LIABILITY-AND-EQUITY>                    40,431
<SALES>                                            530
<TOTAL-REVENUES>                                 3,596
<CGS>                                              365
<TOTAL-COSTS>                                      973
<OTHER-EXPENSES>                                 2,583
<LOSS-PROVISION>                                    10
<INTEREST-EXPENSE>                                   1
<INCOME-PRETAX>                                    352
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                       352
<EPS-PRIMARY>                                      .02
<EPS-DILUTED>                                      .02
        

</TABLE>