Page numbered in accordance with Rule 0-3(b). Page 1 of 12.
There are no exhibits.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-10329
AW COMPUTER SYSTEMS, INC.
-------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1991981
---------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9000A Commerce Parkway, Mt. Laurel, New Jersey 08054
----------------------------------------------------
(Address of principal executive offices)
609-234-3939
------------
(Registrant's telephone number)
N/A
---
(Former name, address and former fiscal year, if changed since last report)
Check mark whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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_____
As of August 15, 1996, there were issued and outstanding 4,910,544 Class A
Common Shares of the Company.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 2 of 12.
PART I
FINANCIAL INFORMATION
Item 1. Interim Financial Statements - (Unaudited)
Contents:
Consolidated Statements of Operations for the three and six month
periods ended June 30, 1996 and June 30, 1995.
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995.
Consolidated Statements of Cash Flows for the six month period ended
June 30, 1996 and June 30, 1995.
Notes to Interim Consolidated Financial Statements.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 3 of 12.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
1996 1995 1996 1995
---- ---- ---- ----
<C> <C> <C> <C> <C>
$ 130,119 $ 1,279,353 Revenues $ 475,992 $ 2,253,448
592,202 731,269 Cost of revenues 988,099 1,439,735
------- ------- ------- ---------
( 462,083) 548,084 Gross profit (loss) ( 512,107) 813,713
---------- ------- ----------- --------
Selling, general and
583,809 809,221 administrative expenses 1,349,643 1,888,860
15,140 24,254 Development expense 83,472 57,088
20,016 27,731 Interest expense 38,431 58,324
( 9,804) ( 14,941) Other (income) - net ( 16,891) ( 30,009)
----------- ----------- ----------- ----------
609,161 846,265 1,454,655 1,974,263
------- ------- --------- ---------
(1,071,244) ( 298,181) Income (loss) before income tax ( 1,966,762) (1,160,550)
---------- ----------- ----------- ----------
0 ( 21,465) Income tax (benefit) 0 ( 319,759)
$(1,071,244) $( 276,716) Net income (loss) $(1,966,762) $( 840,791)
=========== ============ =========== ===========
Per share statistics:
$(0.22) $(0.07) Net income per share $(0.42) $(0.21)
4,840,869 3,989,957 Average shares outstanding 4,666,294 3,943,963
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 4 of 12.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 411,839 $ 848,560
Accounts and contracts receivable, less allowance
for doubtful accounts of $110,000 in 1996 and
$110,000 in 1995 195,005 604,957
Costs and estimated earnings in excess of billings on
uncompleted contracts 157,987 458,237
Inventories 457,316 514,791
Income taxes receivable 0 280,445
Prepaid and other current assets 61,722 101,558
------ -------
Total current assets 1,283,869 2,808,548
Property and equipment, net 609,410 669,194
Computer software, net 582,804 363,626
Other assets 53,478 52,885
------ ------
Total assets $ 2,529,561 $ 3,894,253
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of Credit $ 550,000 $ 550,000
Current portion of long-term debt 0 225,000
Current portion of lease obligations 5,613 6,918
Accounts payable 205,629 291,870
Accrued liabilities 168,499 134,515
Accrued contract costs 408,406 332,653
Other current liabilities 231,527 123,041
------- -------
Total current liabilities 1,569,674 1,663,997
Capitalized lease obligations 7,436 8,542
Pension benefit accrual 135,258 135,258
Shareholders' equity
Common shares:
Class A, $.01 par; authorized 10,000,000 shares; 4,865,044
and 4,467,544 issued and outstanding in 1996 and 1995 48,650 44,676
respectively
Additional paid-in capital 2,560,279 1,895,992
Retained earnings (1,785,408) 181,354
Deferred compensation ( 6,328) ( 35,566)
----------- ---- ------
Total shareholders' equity 817,193 2,086,456
------- ---------
Total liabilities and shareholders' equity $ 2,529,561 3,894,253
=========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 5 of 12.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
1996 1995
<S> <C> <C>
Cash flows, from operating activities:
Net income (loss): $(1,966,762) $( 840,791)
Adjustments to reconcile net
income to net cash provided
by/(used in) operating activities:
Depreciation and amortization 152,603 184,919
Amortization of unearned
compensation 29,238 20,800
Decrease (increase) in:
Accounts receivable 409,952 (1,132,375)
Costs and estimated earnings
on uncompleted contracts 300,250 517,600
Inventories 57,475 79,532
Income taxes receivable 280,445 325,678
Prepaid expenses 39,836 11,635
Other assets ( 593) 0
Increase (decrease) in:
Accounts payable ( 86,241) ( 145,300)
Accrued liabilities 33,984 54,275
Accrued cost 75,753 153,434
Billing in excess of costs
incurred and estimated
earnings on uncompleted
contracts 0 215,809
Other liabilities 108,486 20,987
------- ------
Net cash provided by (used in)
operating activities ( 565,574) ( 533,797)
----------- -----------
Cash flows, from investing activities:
Capital (expenditures)
disposals ( 92,819) ( 53,373)
Computer software capitalized ( 219,178) ( 163,573)
----------- -----------
Net cash (used in) investing ( 311,997) ( 216,946)
activities ----------- -----------
Cash flows, from financing
activities:
Net borrowing (payments):
Long-term debt and lease
obligations ( 227,411) ( 125,503)
Net (advances) repayments of
related party loans 0 0
Proceeds from issuance of
common shares 668,261 302,022
------- -------
Net cash provided by (used in)
financing activities 440,850 176,519
------- -------
Increase (decrease), cash and
cash equivalents ( 436,721) ( 574,224)
Cash and cash equivalents:
Beginning of period 848,560 1,468,778
------- ---------
End of period $ 411,839 $ 894,554
=========== ===========
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 6 of 12.
AW COMPUTER SYSTEMS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany transactions
and balances have been eliminated. All adjustments consisting only of
normal recurrent adjustments which, in the opinion of management, are
necessary for a fair statement of the results for this interim period have
been made.
2. Prior year statements have been restated to conform to present year
presentation.
3. These statements should be read in conjunction with the Summary of
Significant Accounting Policies and other notes included in the Notes to
Consolidated Financial Statements in the Company's 1995 Annual Report on
Form 10-KSB.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 7 of 12.
Item 2. Management's Discussion And Analysis Of Financial Condition And
----------------------------------------------------------------------
Results Of Operations.
----------------------
AW's future is dependent on the sales and receipt of a significant
deposit on an order(s) for the Company's new completed product - the Wizard of
Point-of-Sale ("Wizard") and/or on the Company's ability to raise additional
capital to maintain its operations while the Checker Productivity Analyzer
("CPA") product continues to be developed. The Company has also sought contract
changes concerning the CPA development contract that would improve cashflow and
increase contract revenue if approved. It is uncertain that such modifications
will be acceptable and in the absence of addition capital from other sources the
CPA project may be terminated and a substantial portion of the companies
operations would be eliminated. In the absence of such contract modifications
and associated revenue and cashflow, the company expects that its existing
capital resources may enable it to maintain reduced operations through the third
quarter of 1996. Thereafter, the Company will need to raise substantial
additional capital to remain in business. The Company is seeking such additional
funding through collaborative or partnering agreements or through public or
private equity or debt financing, as well as attempting to obtain deposits from
customers. There can be no assurance of Wizard sales or that additional
financing will be available on acceptable terms or at all.
Based on the nominal size of the backlog of firm orders for delivery
within one year, the Company believes that the volume of operations will remain
nominal until market acceptance of the Wizard and/or the completion and market
acceptance of CPA. Acceptance of either or both of these products would generate
future revenues, however, there can be no assurance that the Company will not
continue to experience delays with the CPA products or that the Wizard marketing
efforts will be successful. The Company is also attempting to make arrangements
with its customers to perform special programming tasks in order to generate
immediate revenues, although there is no assurance that these efforts will be
successful.
Operations.
-----------
Revenues for the three and six month periods ended June 30, 1996 were
$1,149 thousand or 90% lower, and $1,777 thousand or 79%, lower, than the same
periods in 1995, respectively. The comparative decrease for the quarter ended
June 30, 1996 was absence of sales in 1996 the delivery of AWare equipment plus
an increase in software services income in 1995.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 8 of 12.
Gross profit (loss) for the second quarter and first half of 1996 was
$(462) thousand and $(512) thousand respectively, a decrease of $1,010 thousand
and a decrease of $1,326 thousand compared to the same periods in 1995. The
negative gross profit margins experienced during 1996 was the result of the
continuing significant effort expended under a fixed price contract to produce
the CPA product with very little corresponding revenue. In the second quarter of
1995, the gross profit margins were higher than the year to date period because
the second quarter had a higher percentage of equipment and software services
revenue which generally produce higher gross margins.
For the three months ended June 30, 1996, Selling, General, and
Administrative Expenses (S.G.&A.) decreased $266 thousand (28%), as compared to
1995, primarily due to an expense reduction program which included a staff
reduction of 19% on June 5, 1996. For the year-to-date periods, S.G.&A.
decreased $539 thousand (29%), as compared to 1995. This decrease is primarily
due to a $213 thousand provision for bad debt in 1995 related to a development
contract for one of the Company's business partners that had difficulties
selling its product. At June 30 1996, AW had 33 employees compared with 52 at
June 30, 1995.
Development expense decreased by $9 thousand during the second quarter
of 1996 when compared to the same period in 1995 and increased $26 thousand over
the previous year to date period.
Loss before income tax benefit increased for the quarter ended June
30, 1996 compared to the same period in 1995 by $773 thousand to a loss of
$1,071 thousand, while the 1996 year-to-date loss increased $807 thousand to a
loss of $1,966 thousand. The net loss for the three and six month periods ended
June 30, 1996 was $1,071,244 and $1,966,762 compared to net losses in the
comparable 1995 periods of $276,716 and $840,791, respectively.
Liquidity.
----------
During the first six months of this year, working capital decreased
$1.431 million to $(286) thousand compared to $1.145 million at December 31,
1995. Current assets decreased $1.406 million resulting from decreases in all
asset categories. Current liabilities decreased by less than $100 thousand.
During the first half of 1996, cash and cash equivalents decreased
$437 thousand. The primary factors in this decrease were $1,966 thousand loss
from operations, $219 thousand of investment in non-current assets, $227
thousand in debt reduction offset by $668 thousand in proceeds from the sale of
common stock.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 9 of 12.
Financial Resources.
--------------------
The Company expects to require continued significant product
development effort on the CPA product and capital expenditures for equipment in
1996. The Company believes its competitive position must be maintained by the
development of new proprietary hardware and software products. Expenditures for
these items will be funded from cash flow and from potential future financing as
can be arranged. There can be no assurance that additional financing will be
available on acceptable terms or at all.
The primary source of funds in the near future is expected to be the
Company's operations, cash, and accounts receivable. At June 30, 1996 the
company had $607 thousand in cash and accounts receivable compared to $1,712
million in total liabilities. The Company's principle fixed payment obligations
at June 30, 1996 were the lease for its facilities and the payments on the bank
loans.
In order to raise funds for the continued development of the CPA product
and for the support of ongoing operations, on May 15, 1995 certain officers and
directors of the Company and other individuals purchased a total of 394,000
units, each consisting of one share of the Company's Class A Common Stock and
one warrant to purchase an additional share of Class A Common Stock at an
exercise price of $2.00 per share. The warrants are exercisable for five years
from the date of the grant. The purchase price was $.55 per unit. The total
proceeds to the Company, net of expenses, were $206,000.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 10 of 12.
The Company failed to meet the net profit debt covenant under the Loan
Agreements as of December 31, 1994, and the Company failed to repay the $550,000
Grid Note due on May 30, 1995. The bank and the Company have agreed to
restructure the debt as follows: the outstanding balance of the $400,000 Term
Note of $125,000 was paid in full on August 1, 1995. The term of the $500,000
Fixed Rate Note bearing interest of 7.95% was accelerated from June 1999 to July
1996. This Fixed Rate Note was paid in full during the second quarter of 1996.
The Company continues to make interest payments on the $550,000 Grid Note at one
and one-half percent above the bank's prime rate (9.25% on June 30, 1996). This
note will mature on December 31, 1996. The bank permanently waived provisions
requiring the Company to maintain any ratio of debt to net worth and/or any
ratios related to net operating profit so long as the Company continues to make
payments under the Agreement. The Agreement prohibits the payment of dividends.
The Company's capital obligations consist of capitalized lease obligations
for equipment and an operating lease commitment for its offices which expires in
1999. The Company is relying on funds generated from operations or from future
financing as can be arranged to satisfy these obligations (approximately
$275,000 annually).
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 11 of 12.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8 - None.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 12 of 12.
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.
AW COMPUTER SYSTEMS, INC.
(REGISTRANT)
DATE: August 29, 1996 /s/Charles Welch
Charles Welch
CEO/President
DATE August 29, 1996 /s/Charles J. McMullin
Charles J. McMullin
Chief Operating Officer
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 411,839
<SECURITIES> 0
<RECEIVABLES> 305,005
<ALLOWANCES> (110,000)
<INVENTORY> 457,316
<CURRENT-ASSETS> 1,283,869
<PP&E> 2,014,622
<DEPRECIATION> (1,514,359)
<TOTAL-ASSETS> 2,529,561
<CURRENT-LIABILITIES> 1,569,674
<BONDS> 0
0
0
<COMMON> 817,193
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,529,561
<SALES> 475,992
<TOTAL-REVENUES> 475,992
<CGS> 988,099
<TOTAL-COSTS> 988,099
<OTHER-EXPENSES> 1,416,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,431
<INCOME-PRETAX> (1,966,762)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,966,762)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,966,762)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
