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Aware (NASDAQ:AWRE) is a small technology company with a market cap just over $100 million. The company offers software and services that focus on biometrics, which is the identification of humans by their unique characteristics, such as fingerprints or the iris of a person's eye. Aware has contracted with customers ranging from the healthcare industry to law enforcement, and even the FBI.

It offers products that assist in gathering and processing biometric data to deliver solutions in areas such as electronic passports and border security. It offers products as diverse as web based biometric analysis to fingerprint matching mobile apps. In addition, it also supports biometric integration into background checks, identification cards and medical imaging. The company has also had legacy business operations in areas as varied as DSL (Digital Subscriber Line) monitoring software to image compression and storage.

In fact, Aware has shown a drop in annual revenue because it discontinued its DSL Service Assurance business line. Management was willing to take a one time hit to focus on its faster growing biometrics divisions. This appears to be a sound decision, as DSL had been steadily declining anyway and negatively impacting earnings. Freed from this drag, Aware's biometrics division has grown revenue 44% and 35% for the last 3 and 6 months, respectively, compared to the same periods last year.

While revenue declined somewhat from the first quarter this year, according to the latest quarterly report this was "primarily due to the timing of the receipt of customer orders." This lumpiness should even out over the remainder of the year and is expected to continue to show strong year over year gains, especially as the company transitions to a more biometric focused business model.

Fueled by this focus on the faster growing segment, total revenue should begin to grow again and should easily top $20 million this year even as the legacy DSL revenue declines to zero, even if the biometrics division can continue to grow revenue at just the 20% annual growth rate it has averaged the past several years. This could be accelerated by the higher year over year growth rates the company has achieved since the renewed focus on biometrics, as evidenced by the recent biometrics growth rate closer to double this compared to last year.

Aware has a very strong balance sheet, with over $75 million in cash, mostly resulting from the 2012 sale of patents for $71.2 million. This works out to $3.15/share of net cash, even after subtracting the company's liabilities, or over 60% of the company's current stock price. Since the company only monetized patents related to wireless technology and its shuttered DSL business, Aware continues to hold a vast portfolio of patents related to biometrics, whose value is not currently reflected on the balance sheet.

According to the most recent annual report, "As of December 31, 2012, we had approximately 103 U.S. and foreign patents, and approximately 88 pending patent applications pertaining to communications and signal processing technologies, including DSL service assurance, biometrics imaging and medical imaging compression." A search of Google patents also shows some additional biometric patents that have been granted since then.

With the release of Apple's (NASDAQ:AAPL) latest iPhone with its much ballyhooed fingerprint scanner, the arena of biometrics should begin to garter more investor attention, especially since the origin of that technology was through Apple's own purchase of another small biometrics company, AuthenTec. Apple acquired AuthenTec in 2012 for $356 million, or about 4.4 times its estimated annual 2012 revenues of $81 million. According to the SEC filing, Apple also had to shell out an additional $115 million for the rest of AuthenTec's patents. Aware currently trades at a slightly higher price/sales ratio of above 5 and holds about half as many patents, but is much more profitable and again also holds $75 million in cash. Combined with the inferred value of its patents, Aware might be expected to bring a price of at least twice its current market cap in a similar deal.

While a competitor to Apple could be enticed by Aware's cash position and patent portfolios and offer a buyout at a premium, I would rather see the company continue to execute their focus on biometrics as this area becomes more mainstream. Patient shareholders should reap the rewards of this innovative company for years to come. I view Aware as fairly low risk due to its strong cash position and valuable patent portfolio, with tremendous upside exposure to the burgeoning field of biometrics. I strongly recommend investors consider accumulating shares around the recent $5 price, as I have recently done, before the rest of the market catches on and rightly sends the shares higher.

Source: Investors Should Be Aware Of This Obscure Biometrics Company