<PAGE> 1
================================================================================
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 JUNE 30, 1997
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
July 31, 1997:
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Common Stock, par value $0.01 per share 19,432,298 shares
================================================================================
<PAGE> 2
AWARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets as of June 30, 1997
and December 31, 1996............................................. 3
Consolidated Condensed Statements of Operations for the
Three and Six Months Ended June 30, 1997
and June 30, 1996................................................. 4
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1997
and June 30, 1996................................................. 5
Notes to Consolidated Condensed Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............... 15
Item 6. Exhibits and Reports on Form 8-K.................................. 16
Signatures........................................................ 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AWARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................... $ 30,574,916 $ 31,092,273
Short-term investments ............................................ 5,661,843 5,626,725
Accounts receivable (less allowance for doubtful
accounts of $50,000 in 1997 and $35,000 in 1996) ............... 1,804,594 1,654,980
Unbilled accounts receivable ...................................... 35,850 110,722
Inventories ....................................................... 246,508 447,534
Prepaid expenses .................................................. 346,000 23,426
------------ ------------
Total current assets ........................................ 38,669,711 38,955,660
Property and equipment, net of accumulated depreciation and
amortization of $906,438 in 1997 and $557,901 in 1996 ............. 2,000,589 1,166,928
------------ ------------
Total assets ........................................................... $ 40,670,300 $ 40,122,588
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 497,332 $ 337,339
Accrued expenses .................................................. 78,776 60,091
Accrued compensation .............................................. 126,363 173,692
Accrued professional fees ......................................... 40,692 65,000
Deferred revenue .................................................. 40,000 40,000
------------ ------------
Total current liabilities ................................. 783,163 676,122
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized,
none outstanding .......................................... -- --
Common stock, $.01 par value; 30,000,000 shares authorized; issued
and outstanding, 19,413,898 in 1997 and 18,959,897 in 1996 194,139 189,600
Additional paid-in capital ....................................... 51,013,380 50,025,548
Accumulated deficit .............................................. (10,867,420) (10,315,720)
Treasury stock ................................................... (452,962) (452,962)
------------ ------------
Total stockholders' equity ................................ 39,887,137 39,446,466
Total liabilities and stockholders' equity ............................. $ 40,670,300 $ 40,122,588
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
AWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
----------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Product .......................... $ 147,303 $ 144,894 $ 251,093 $ 150,019
License and royalty .............. 844,134 792,169 2,155,118 1,439,605
Research and development ......... 878,980 191,412 1,265,291 500,854
------------ ----------- ------------ -----------
Total revenue ................ 1,870,417 1,128,475 3,671,502 2,090,478
Costs and expenses:
Cost of product revenue ......... 210,501 94,460 492,058 98,580
Research and development ......... 1,433,433 582,845 2,866,212 1,182,084
Selling and marketing ............ 492,575 188,857 866,990 330,548
General and administrative ....... 482,051 244,013 918,971 443,315
------------ ----------- ------------ -----------
Total costs and expenses .... 2,618,560 1,110,175 5,144,231 2,054,527
Income (loss) from operations ........ (748,143) 18,300 (1,472,729) 35,951
Interest income ...................... 472,745 30,368 921,029 53,868
------------ ----------- ------------ -----------
Net income (loss) before provision for
income taxes ....................... (275,398) 48,668 (551,700) 89,819
Provision for income taxes ........... -- -- -- --
------------ ----------- ------------ -----------
Net income (loss) .................... $ (275,398) $ 48,668 $ (551,700) $ 89,819
============ =========== ============ ===========
Net income (loss) per share .......... $ (0.01) $ 0.00 $ (0.03) $ 0.01
============ =========== ============ ===========
Weighted average common and common
equivalent shares outstanding ....... 19,284,218 16,590,304 19,170,086 16,194,736
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
AWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ (551,700) $ 89,819
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization ....................... 348,537 114,514
Increase (decrease) from changes in assets and
liabilities:
Accounts receivable ................................ (149,614) (332,970)
Unbilled accounts receivable ....................... 74,872 6,613
Inventories ........................................ 201,026 (464,406)
Prepaid expenses ................................... (316,247) (17,627)
Deferred offering costs ............................ -- (371,240)
Accounts payable ................................... 159,993 665,696
Accrued expenses ................................... (52,952) 1,071
------------ -----------
Net cash used in operating activities ................... (286,085) (308,530)
Cash flows from investing activities:
Purchases of property and equipment .................. (1,188,525) (183,484)
Net purchases of short-term investments .............. (35,118) --
------------ -----------
Net cash used in investing activities ................... (1,223,643) (183,484)
Cash flows from financing activities:
Proceeds from issuance of common stock ............... 992,371 1,032,445
------------ -----------
Decrease in cash and cash equivalents ................... (517,357) 540,431
Cash and cash equivalents, beginning of period .......... 31,092,273 2,153,681
------------ -----------
Cash and cash equivalents, end of period ................ $ 30,574,916 $ 2,694,112
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ............................... -- $ 628
SUPPLEMENTAL NONCASH DISCLOSURES:
Conversion of preferred stock to common stock ........ -- $ 80,144
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
AWARE,INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A) BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 June 30, 1997, and of operations and cash flows for the interim
periods ended June 30, 1997 and 1996.
The accompanying unaudited consolidated 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, 1996 and December 31, 1995 in conjunction with its 1996
Annual Report on Form 10-K.
The results of operations for the interim period ended June 30, 1997 are
not necessarily indicative of the results to be expected for the year.
B) INVENTORY
Inventory consists primarily of the following:
JUNE 30, DECEMBER 31,
1997 1996
-------- --------
Raw materials............................... $213,508 $408,643
Work-in-process............................. 33,000 38,891
Finished goods.............................. -- --
-------- --------
Total................................ $246,508 $447,534
======== ========
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 for the
three months and six months ended June 30, 1996 includes the effect of
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
In accordance with the provisions of Statement of Financial Accounting
Standard No. 128, "Earnings per Share", the Company was not permitted to
early adopt SFAS No. 128 for the quarter ended June 30, 1997. Had SFAS No.
128 been effective for the three and six month periods ended June 30, 1997
and 1996, pro forma net income (loss) per common share amounts would have
been as follows:
Three Months Ended
June 30,
-------------------------------
1997 1996
-------------- -------------
Basic net income (loss) per share $(0.01) $0.01
Diluted net income (loss) per share $(0.01) $0.00
Six Months Ended
June 30,
-------------------------------
1997 1996
-------------- -------------
Basic net income (loss) per share $(0.03) $0.02
Diluted net income (loss) per share $(0.03) $0.01
D) SUBSEQUENT EVENT
On July 15, 1997, the Company completed the purchase of a 72,000 square
foot office building in Bedford, Massachusetts. The Company paid $6.7
million cash for the property. The Company intends to house its
headquarters and principal operations at this location.
7
<PAGE> 8
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 Asymmetric Digital Subscriber Line ("ADSL") modems. Product revenue
increased by 2% from $144,894 in the second quarter of 1996 to $147,303 in the
current year quarter. Product revenue as a percentage of total revenue was 8% in
the second quarter of 1997 as compared to 13% in the corresponding quarter of
1996. Product revenue was essentially unchanged in the current year period,
because the market for ADSL equipment remains in its early stages. Further, the
Company believes that volume deployment of ADSL technology and equipment will
not commence before the second half of 1998.
For the six months ended June 30, product revenue increased by 67% from
$150,019 in 1996 to $251,093 in 1997. Product revenue as a percentage of total
revenue was 7% for the first six months of 1997 as compared to 7% in the
corresponding period in 1996. The increase in dollar revenue is primarily due to
a nominal amount of revenue from the sale of ADSL modems in the first quarter of
1996, when the Company began shipping modems.
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.
License and royalty revenue increased by 7% from $792,169 in the second quarter
of 1996 to $844,134 in the current year quarter. License and royalty revenue as
a percentage of total revenue was 45% in the second quarter of 1997 as compared
to 70% in the corresponding quarter of 1996. The dollar increase is primarily
due to a significant compression software license sale, which was partially
offset by lower telecommunications license revenue.
8
<PAGE> 9
For the six months ended June 30, license and royalty revenue increased 50% from
$1,439,605 in 1996 to $2,155,118 in 1997. License and royalty revenue as a
percentage of total revenue was 59% for the first six months of 1997 as compared
to 69% in the corresponding period of 1996. The dollar increase is primarily due
to a significant ADSL license sale to U.S. Robotics Access Corp ("USR") in the
first quarter of 1997, as well as a significant compression software license
sale in the second quarter of 1997.
During the first quarter of 1997, the Company entered into a license agreement
with USR. Under the terms of the agreement, the Company agreed to license its
discrete multi-tone ("DMT") ADSL technology to USR on a non-exclusive basis. The
Company will receive license payments upon the achievement of certain
deliverables and milestones, as well as on-going royalty payments upon shipment
of USR products that incorporate the Company's DMT technology.
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 increased by
359% from $191,412 in the second quarter of 1996 to $878,980 in the current year
quarter. Research and development revenue as a percentage of total revenue was
47% in the second quarter of 1997 as compared to 17% in the corresponding
quarter of 1996. For the six months ended June 30, research and development
revenue increased by 153% from $500,854 in 1996 to $1,265,291 in 1997. Research
and development revenue as a percentage of total revenue was 34% for the first
six months of 1997 as compared to 24% in the corresponding period of 1996. The
dollar increase as well as the increase as a percentage of total revenue, in the
three and six month periods, is primarily due to an increase in non-recurring
engineering revenue. Such revenue is primarily related to agreements with
commercial telecommunication customers who have engaged the Company to assist
them with the integration of the Company's technology into their products.
Cost of Product Revenue. Cost of product revenue consists primarily of
direct material, direct labor and overhead costs to produce the Company's
products, as well as provisions for excess and obsolete inventory. Cost of
product revenue as a percentage of product revenue was 143% in the second
quarter of 1997 as compared to 65% in the prior year quarter. The cost of
product revenue as a percentage of product revenue in the second quarter of 1997
primarily reflects: (i) high fixed manufacturing costs relative to modem
shipments, and (ii) a $50,000 provision for excess and obsolete inventory.
Cost of product revenue as a percentage of product revenue was 196% for the
first six months of 1997 as compared to 66% in the corresponding 1996 period.
The cost of product revenue as a percentage of product revenue in the second
quarter of 1997 primarily reflects: (i) high fixed manufacturing costs relative
to modem shipments, and (ii) a $175,000 provision for excess and obsolete
inventory.
Research and Development Expense. Research and development expense consists
primarily of salaries for engineers, and expenses for consultants, recruiting,
supplies, equipment, depreciation and facilities related to the development and
enhancement of the Company's products and technology. Research and development
expense increased by 146% from $582,845 in the second quarter of 1996 to
$1,433,433 in the current year quarter. For the six month period ended June 30,
research and development expense increased 142% from $1,182,084 in 1996 to
$2,866,212 in 1996. For the three and six month periods, the increase in
research and development expense is primarily driven by projects to
commercialize and add hardware and
9
<PAGE> 10
software functionality to the Company's core broadband technology. The Company
anticipates that research and development spending will continue to grow
significantly in 1997.
Selling and Marketing Expense. Selling and marketing expense consists
primarily of salaries for sales and marketing personnel, travel, advertising and
promotion, recruiting, and allocated facilities expense. Selling and marketing
expense increased 161% from $188,857 in the second quarter of 1996 to $492,575
in the current year quarter. For the six month period ended June 30, sales and
marketing expense increased 162% from $330,548 in 1996 to $866,990 in 1997. For
the three and six month periods, the increase is primarily due to: (i) the
addition of sales staff to establish channels of distribution for the Company's
products and technology, and (ii) increased levels of advertising and promotion
to create awareness for the Company's products, including participation in major
industry tradeshows. The Company anticipates that selling and marketing spending
will continue to grow significantly in 1997.
General and Administrative Expense. General and administrative expense
consists primarily of salaries for administrative personnel, allocated
facilities costs, public company expenses and professional services, such as
legal and audit expenses. General and administrative expense increased by 98%
from $244,013 in the second quarter of 1996 to $482,051 in the current year
quarter. For the six month period ended June 30, general and administrative
expense increased 107% from $443,315 in 1996 to $918,971 in 1997. For the three
and six month periods, the increase is primarily due to: (i) additions to the
Company's finance, information systems and administrative organizations to
support organizational growth, and (ii) investor relations and public company
expenses.
Interest Income. Interest income increased from $30,368 in the second
quarter of 1996 to $472,745 in the current year quarter. For the six months
ended June 30, interest income increased from $53,868 in 1996 to $921,029 in
1997. The increase in both periods is primarily a result of higher cash balances
due to the investment of net proceeds from the Company's initial public
offering.
Income Taxes. The Company has made no provision for income taxes as it has
a history of net losses, which has resulted in tax loss carryforwards. As of
December 31, 1996, the Company had available federal net operating loss
carryforwards of approximately $9,773,000 which expire in 2004 through 2010, and
federal research and development credit carryforwards of approximately $493,000
which expire in 2003 through 2011. As of December 31, 1996, the Company also had
available state net operating loss carryforwards of approximately $5,448,000
which expire in 1997 through 2000 and state research and development and
investment tax credit carryforwards of approximately $268,000 which expire in
2006 and 2011.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash, cash equivalents and short-term
investments of $36,236,759, a decrease of $482,239 from December 31, 1996. This
decrease is primarily due to cash used in operations, and purchases of property
and equipment, which were partially offset by proceeds from the issuance of
common stock under the Company's stock option plans.
Cash used in operations was primarily attributable to a $250,000 deposit paid
under the terms of a pending purchase and sale agreement for a commercial office
building. Purchases of property and equipment were primarily related to the
acquisition of computers, software and other equipment used in research and
development activities.
10
<PAGE> 11
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", both of which will be effective for the Company in fiscal 1998.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. SFAS No. 131 establishes
standards for the way that public business enterprises report selected
information about operating segments in annual and interim financial reports.
SFAS No. 131 also established standards for related disclosures about products
and services, geographic areas, and major customers. The implementation of SFAS
No. 130 and 131 are not expected to have a material effect on the Company's
financial statements.
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 operating 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. Also, the Company
anticipates that substantial selling and marketing expenses will be required to
establish sales channels for the Company's products and technology. 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. The Company believes that volume
deployment of ADSL technology and equipment will not commence before the second
half of 1998.
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
11
<PAGE> 12
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 its 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. In such an environment, product cycles
tend to be short, and therefore, the Company may need to write-off excess and
obsolete inventory from time-to-time. In the fourth quarter of 1996 and the
first half of 1997, the Company recorded provisions for excess and obsolete
inventory of $350,000 and $175,000, respectively.
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 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.
12
<PAGE> 13
Manufacturing
The Company has limited experience in manufacturing or in supervising the
manufacture of its products, including its ADSL 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.
Dependence on Hiring and Retaining Personnel
The Company believes that its future success will depend significantly on
its ability to attract, motivate and retain additional highly skilled technical,
managerial and marketing personnel. During the first six months of 1997, the
Company experienced difficulty in hiring the additional engineers it
contemplated in its business plans. Competition for such personnel is intense,
and there can be no assurance that the Company will be successful in attracting,
assimilating and retaining the personnel required to grow and operate
profitably.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1:
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its properties are subject which, either individually
or in the aggregate, are expected by the Company to have a material adverse
effect in its business, financial position or results of operations.
14
<PAGE> 15
ITEM 4:
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 21, 1997, the Company held its Annual Meeting of Stockholders (the
"Annual Meeting").
Matters voted on and the results of those votes are set forth below:
(1) The votes cast to elect two Class I directors (terms expiring in 2000)
were:
Withheld
Name For Authority
- ----------------------------------------------------------------------------
James C. Bender 13,615,743 15,055
Jerald G. Fishman 13,615,743 15,055
In addition to the two Class I directors named above, the following directors
terms of office as directors of the Company continued after the Annual Meeting:
John K. Kerr (Class II director; term expiring in 1998); John S. Stafford, Jr.
(Class III director; term expiring in 1999); and Charles K. Stewart (Class III
director; term expiring in 1999).
15
<PAGE> 16
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 and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AWARE, INC.
Date: August 7, 1997 By: /s/ James C. Bender
-------------------
James C. Bender, Chief Executive
Officer and President
Date: August 7, 1997 By: /s/ Richard P. Moberg
---------------------
Richard P. Moberg, Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
<PAGE> 1
EXHIBIT 11.1
AWARE, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Net income (loss) ...................................................... $ (275,398) $ 48,668
============ ===========
Weighted average number of common and common stock equivalent shares
outstanding:
Common stock ..................................................... 19,284,218 7,248,575
Convertible preferred common stock equivalents ................... -- 7,473,518
Option common stock equivalent shares ............................ -- 985,922
Effect of SAB 83 ................................................. -- 882,289
------------ -----------
Common and common stock equivalent shares outstanding for
purpose of calculating primary net income (loss) per share 19,284,218 16,590,304
Incremental shares to reflect full dilution ...................... -- --
------------ -----------
Total shares for purpose of calculating fully diluted net
income (loss) per share ................................. 19,284,218 16,590,304
============ ===========
Primary net income (loss) per share .................................... $ (0.01) $ 0.00
============ ===========
Fully diluted net income (loss) per share .............................. $ (0.01) $ 0.00
============ ===========
SIX MONTHS ENDED
JUNE 30,
----------------------------------
1997 1996
--------------- --------------
Net income (loss) ...................................................... $ (551,700) $ 89,819
============ ===========
Weighted average number of common and common stock equivalent shares
outstanding:
Common stock ..................................................... 19,170,086 4,299,939
Convertible preferred common stock equivalents ................... -- 10,136,647
Option common stock equivalent shares ............................ -- 875,861
Effect of SAB 83 ................................................. -- 882,289
------------ -----------
Common and common stock equivalent shares outstanding for
purpose of calculating primary net income (loss) per share 19,170,086 16,194,736
Incremental shares to reflect full dilution ...................... -- 110,061
------------ -----------
Total shares for purpose of calculating fully diluted net
income (loss) per share ................................. 19,170,086 16,304,797
============ ===========
Primary net income (loss) per share .................................... $ (0.03) $ 0.01
============ ===========
Fully diluted net income (loss) per share .............................. $ (0.03) $ 0.01
============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 36237
<SECURITIES> 0
<RECEIVABLES> 1890
<ALLOWANCES> 50
<INVENTORY> 247
<CURRENT-ASSETS> 38670
<PP&E> 2907
<DEPRECIATION> 906
<TOTAL-ASSETS> 40670
<CURRENT-LIABILITIES> 783
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 39693
<TOTAL-LIABILITY-AND-EQUITY> 40670
<SALES> 251
<TOTAL-REVENUES> 3672
<CGS> 492
<TOTAL-COSTS> 492
<OTHER-EXPENSES> 4652
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (552)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (552)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
