Page numbered in accordance with Rule 0-3(b). Page 1 of 84.
The Exhibit Index can be found on Page 46.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 0-10329
AW COMPUTER SYSTEMS, INC.
-------------------------
(Name of Small Business Issuer 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) (Zip Code)
609-234-3939
------------
Issuer's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Exchange Act:
--------------------------------------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Shares, par value $.01 per share
-----------------------------------------------
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve 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 ninety days. Yes X
No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No N/A
X
Issuer's revenues for its most recent fiscal year: $3,424,341
As of March 20, 1996, the aggregate market value (based on the average closing
bid and asked quotations) of the 3,546,134 Class A Common Shares held by
non-affiliates of the Company was $11,634,866 and a total of 4,754,644 Class A
Common Shares of the Company were issued and outstanding.
Documents Incorporated by Reference:
- ------------------------------------
Notice of and Proxy Statement for Annual Meeting of Shareholders to be held
August 12, 1996 incorporated by reference into Part III hereof to the extent
indicated herein.
<PAGE>
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PART I
------
Item 1. Business.
Since its inception in 1973, AW Computer Systems, Inc., a New
Jersey corporation, (the "Company" or "AW") has provided retailers with
custom-designed, high-performance, computer-based systems to upgrade their
Point-of-Sale ("POS") operations. AW's products integrate a wide variety of POS
terminals into the current store's computer systems offered by the three largest
POS system manufacturers in the United States. AW has established relationships
with the IBM Corporation ("IBM"), AT&T/Global Information Solutions
("AT&T/GIS"), formerly NCR Corporation, and Fujitsu-ICL Systems, Inc. ("FJ-ICL")
to provide interfaces with their new POS systems, known as the 4690 Store System
for IBM, UNITY for AT&T/GIS, ISS400 for FJ-ICL, and existing popular cash
registers. The ability of the Company's personnel to produce de novo interface
hardware and software, customized to retailers' requirements, is a critical
factor in successful operations.
The Company's target market includes nation-wide chains of retail
stores and supermarkets. Because of the large size of these customers relative
to the Company, many of the Company's contracts for sale of its proprietary
hardware and licensing of its proprietary software comprise a significant
portion of the Company's revenues in any given year. For example, in 1995,
revenue from three customers accounted for 58% of total revenue (see Notes to
Financial Statements).
Products.
The Company's main product, known as AWare, enables the use of
existing popular, but older, cash registers with the POS systems manufactured by
IBM, AT&T/GIS, and FJ-ICL. If AWare is used, a retail chain can upgrade its POS
system while postponing the replacement of cash registers, a major cost of
upgrading to current on-line POS operations, and mix older and newer models and
different makes of cash registers. AW has developed AWare for use in supermarket
chains, mass merchandising stores, and department stores.
AW has developed a family of programmable microprocessor adapter
boards for the IBM, the AT&T/GIS, and the FJ-ICL computers that serve as cash
register controller units. They allow various NCR, Datachecker, and older IBM
cash registers to operate effectively with IBM's 4680 Store Controller, the
AT&T/GIS, and the FJ-ICL POS systems (the "Major Store Systems").
Because of the rapid pace of technological change in the POS
business, AW is constantly developing new products to provide additional
functionality to POS systems. Products currently being developed include:
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The Checker Productivity Analyzer (CPA) Project, being
developed under contract with a large supermarket chain, which does not include
any guaranteed minimum purchase, is designed to enhance the economic efficiency
in the handling of goods by supermarket operators. CPA has been installed at a
Pilot Store and is scheduled to begin live testing shortly.
The Wizard brings the familiarity of Microsoft's graphical
Windows environment to the retail POS operation. Unlike existing graphical POS
systems that demand total replacement of a retailers hardware and software, the
Wizard adds graphical capability to existing environments. The Tutor version of
the Wizard is installed at two Pilot Stores and is being
tested.
The Company also presently derives additional revenue from
contract programming to provide system enhancements and maintenance agreements
covering all of AW's POS systems.
The Company's Computer Systems.
Each computer system marketed by the Company is an integrated,
customized package of computer hardware and software components.
AW typically licenses only the use of its software and sells the
microprocessor controller units which are proprietary products. The computers
and terminal equipment, which the Company's systems enhance, are typically
manufactured and sold to AW's clients by IBM, AT&T/GIS, FJ-ICL, and other
computer hardware manufacturers (See - "Suppliers" and "Marketing").
The software directs the system's computers to perform data
processing and communications functions desired by AW's customers. Most of the
software used in the Company's systems is designed and developed by the Company,
the most important of which is an operating system software package called the
AW Kernal. This highly efficient multi-user, prioritized transaction processor
operates in the AW microprocessor controller units. By performing the data
processing and communications tasks, which older cash registers are unable to
execute but which are required by the Major Store Systems, the Company's
microprocessors and software enable various POS terminals to operate with new
efficiency in a coordinated network of equipment, consisting of computers and
such terminal equipment as cash registers, scanners, and debit or credit card
readers.
<PAGE>
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POS Market.
Major retailers upgrade POS systems to achieve more efficient
operations through the use of accurate sales reporting and analysis direct from
the cash register, automated credit and debit card authorization initiated by
the cash register clerk, computerized price look-up, and electronic marketing in
supermarkets. This development in retail operations has been given impetus by an
increasingly competitive and promotional retail environment. While the Company
believes that the IBM 4680 Retail Store System is presently the leading POS
system available, the Company also believes that other POS system vendors, such
as AT&T/GIS and FJ-ICL, will be successful in gaining a significant share of the
POS system business. Accordingly, AW has broadened its AWare product to support
these new systems.
The retailers' principal economic barrier to implementing the new
POS systems is the cost of providing stores with suitable cash registers which
can communicate interactively with the Major Store Systems. At approximately
$3,500 to $6,500 per checkout station, rewiring stores and installing new POS
terminals can be disruptive, costly, and time consuming. The Company prices
AWare so that the cost to the retailer for upgrading sixteen cash registers is
approximately equal to the cost of one new cash register installation.
Since the POS system is a retailer's primary method of servicing
customers as well as capturing sales and inventory data, most store operators
adopt new systems and technology only after careful study and evaluation of a
working product. Consequently, the length of time between initial contact by an
AW sales representative and large-scale implementation by a retail chain often
exceeds a year. Furthermore, as competitive pressures continue to squeeze retail
profit margins, chain operators are increasingly reluctant to pay for pilot
system development, customization, and installation.
Customers and Markets.
The Company presently offers its POS systems to three kinds of
target market retailers: 1) large general merchandise retailers, 2) large
discount retail operators, and 3) supermarket grocery stores. In general, the
Company's POS systems are attractive to any retailer with a large number of
stores. In 1995, as in 1994, the demand for the new POS systems offered by AT&T
and ICL remained soft, thereby limiting the need for AWare. Over the past three
years, AW's revenues from its main product AWare have decreased as follows, $7.7
million in 1993, $3.3 million in 1994, and $2.8 million in 1995.
The Company's business tends to center on a small number of large
clients in any given year. See Note 5 of Notes to Financial Statements for
information concerning the most recent three years. 1995 revenues include a
concentration of 58% attributed to three customers. The Company has derived
substantially all of its revenues from North America during the last three
years.
<PAGE>
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Customer Backlog.
Because nearly all customer system installations are contingent
upon successful test store or "Pilot" implementations (see "Contractual
Arrangements with Customers"), the total revenues from a customer cannot be
considered firm until after acceptance of the Pilot system. At March 25, 1996,
the total amount of the Company's firm orders for delivery within one year for
maintenance services, hardware, and software was approximately $800 thousand,
compared to a total of approximately $3.3 million at March 25, 1995. Because of
the size of the backlog and the length of the selling cycle, frequently over a
year, the Company believes that the volume of operations will remain at the
relatively low level until the successful completion of either or both of its
new products, CPA and Wizard.
Competition.
The market for the type of computer systems offered by the
Company is increasingly competitive. One of the principal effects
of the increase in competition, most noticeable in AW's attempt to penetrate the
highly competitive supermarket arena, has been the need for the Company to
develop and install demonstration systems for prospective clients without
commitment or compensation. This marketing structure increases selling expense
and creates a substantial financial burden during the period in which the system
is being prepared for Pilot use by the prospective customer.
Important considerations for potential purchasers of the type of
computer systems marketed by the Company include system performance,
compatibility of the system with other software and hardware already in use,
software capability, systems reliability and maintainability, capability of the
systems packager to continue to develop new products which integrate new POS
equipment with existing POS equipment and, to a somewhat lesser degree, the
price of the system.
Several systems integrators offer POS systems which allow
retailers to connect cash registers made by various manufacturers to AT&T/GIS
and IBM PS/2 computers. The Company believes that several of these companies
presently offer such systems. The economic barriers to entry into this market
are not high for these companies; therefore, they are potential competitors of
AW. The Company believes that its products are competitive with these systems
integrators because AW's proprietary devices allow a wider variety of cash
registers to interact with the IBM 4680 Store System and the AT&T/GIS UNITY
system than the products offered by its competitors. In addition, AW's expanding
base of respected retail chains accelerates acceptance of AWare by retail
managers.
<PAGE>
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IBM, FJ-ICL, and AT&T/GIS also compete with the Company. Each of
these companies offers retailers POS systems that utilize in-store processors
and new cash registers that they manufacture. The Company believes that there
will continue to be a demand for its systems, notwithstanding the competition
from these much larger and well-established companies, because some retailers
that presently utilize older IBM, Datachecker, or AT&T/GIS cash registers will
not wish to incur the heavy capital costs associated with an immediate
conversion to an entirely IBM, FJ-ICL, or AT&T/GIS-based system.
Marketing.
The Company markets its computer systems through its own
personnel in cooperation with IBM, AT&T/GIS, and FJ-ICL representatives from its
offices in Mount Laurel, New Jersey to its customers and prospects. The Company
does not offer financing or leasing for its systems, nor is such a program
contemplated.
AW has had a complementary marketing agreement with IBM for the
sale of retail store systems. This type of agreement calls for mutual
identification of prospects and for AW to provide specified marketing
assistance. Under the agreement, AW would provide computer software and
communications hardware to retailers while IBM would supply the computer
equipment and network software.
The Company has a similar arrangement with AT&T/GIS. Under this
arrangement, AT&T/GIS and AW mutually designate prospective customers for the
AT&T/GIS UNITY POS system. If a sale is made, AW receives a commission payment
based on the AT&T/GIS equipment which is sold to the customer. Additionally, AW
is a Reseller of the UNITY POS system software.
In 1995, as in 1994, AW's marketing efforts were hampered by the
immaturity of the POS systems offered by AT&T/GIS and FJ-ICL. Frequent version
changes to correct early product deficiencies caused delays in implementing the
systems that AW was able to sell. As in prior years, marketing of the Company's
systems was also affected by competition and the reluctance of some potential
customers to purchase sophisticated computer systems which are critical to store
operations from a small company such as AW. Financial turmoil among certain of
AW's prospective clients is also a marketing barrier. The Company has dealt with
three major customers which have been under court protection in Chapter 11 of
the Bankruptcy Code.
Contractual Arrangements with Customers.
The Company's contracts with retailers normally obligate the
Company to design a system which meets the customer's specifications as set
forth in the contract and to complete the installation of that system in a
limited number of the customer's stores (the "Pilot"). Failure to timely
complete the design and development of a system, in some cases, gives the
customer the right to terminate the agreement. If the Pilot is successful, the
customer may elect to proceed to full-scale implementation of the system in all
of its stores (the "Rollout").
<PAGE>
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The Company normally contracts with its customers on a fixed-fee
basis in three stages. At the end of each stage, the client has the option to
terminate the project or proceed to the next stage.
In the first stage, typically pursuant to a letter agreement, the
technical staffs of the customer and AW jointly write a system description and
develop operating and acceptance specifications. Simultaneously, a fixed-fee
contract for the remaining stages is negotiated. Upon acceptance of this work,
the second stage begins.
At the beginning of the second stage, the contract for
installation of a Pilot system, and later delivery of production versions, is
executed. AW is typically obligated to deliver and install the AW hardware and
software in sufficient quantities for the client to test the use of the system
in a limited number of Pilot stores. AW also provides customized alterations to
meet the client's specific needs. The client is responsible for acquiring the
appropriate non-AW equipment and establishing the necessary communications
network to link the stores to headquarters and establish or provide an on-line
clearing house link from client headquarters for credit authorization and
appropriate POS terminal equipment for use in the system. Upon completion of the
Pilot system, AW grants the client a restricted non-exclusive license to use the
Pilot system in only the stores under test. During the Pilot, AW also provides
training and close operational support to the client. Upon acceptance of the
Pilot, the client has the option to proceed to the third stage.
In the third stage or Rollout, AW delivers production versions of
the system for use in the client's stores. The client is responsible for
purchasing the store computers and ensuring that the store communications
network functions, as jointly agreed with AW.
Effective upon the installation of a system, the customer
ordinarily pays AW for a non-exclusive, non-transferable, perpetual license to
use the system in its business. Under the contract, the customer also purchases
the AW-designed computer hardware used in the system for a specified price.
The price which the Company charges for a particular system
depends upon the type and amount of hardware used in the system and the
complexity of the system. Prices for the Company's systems range from $10,000
for a simple "add-on" software feature for an existing system to $3 to $6
million for a major system installation.
The computers and terminal equipment used in the Company's
systems are serviced by their respective manufacturers or other persons. AW
warrants its data communications equipment and proprietary software and firmware
programs against design defects for a specified period, normally not in excess
of twelve months. Warranty liabilities have been nominal. Upon the expiration of
the warranty period, AW services its proprietary data communication devices for
its customers at its regular rates for such services then in effect.
<PAGE>
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After the warranty period, AW typically provides software
maintenance service to its clients for a fee depending on the number of stores
using the AW system. Under these agreements, the Company usually provides
telephone "hot-line" support, updated versions of the AW system as they are
released and, if necessary, on-line programming changes to maintain system
performance.
Suppliers.
Manufacture of the Company's hardware products principally
involves circuit design, selection, and the assembly of purchased electronic,
electrical and peripheral components (such as custom-made printed circuit
boards, custom-manufactured enclosures, custom-manufactured application specific
integrated circuits, standard integrated circuits, components and power
supplies). The Company also makes use of programmable array logic chips in order
to minimize physical size and to protect against reverse engineering by
competitors. Agreements exist with the Company's suppliers to restrict them from
selling to others any custom components supplied to the Company. Most of the
components of the Company's hardware products are commonly available,
industry-standard material.
From time-to-time, the electronics industry has experienced
periodic shortages in the supply of certain standard semiconductor devices. It
is the Company's policy to maintain alternate sources for all important
components, as well as to adjust inventories, in anticipation of delayed
delivery times. Currently, however, some components utilized in the Company's
products are available only from a single source. No assurance can be given that
future shortages would not have an adverse effect on the Company's business.
Thus far, the Company's profit margins and delivery commitments have not been
affected by these market fluctuations.
Research and Development.
The Company operates in an industry which is subject to rapid
technological change. The Company's ability to compete depends upon, among other
things, its ability to offer its customers state-of-the-art computer systems.
Accordingly, AW's expenditures for the development of new data communications
equipment, software, and firmware are expected to continue at existing or higher
levels in the future (see Item 6 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Research and Development).
The Company protects its investment in software through use of
unregistered copyrights and by reliance on trade secrecy laws. The Company's use
of custom application specific integrated circuits ("ASIC") and programmable
array logic chips ("PAL") presents economic barriers to unauthorized copying of
the Company's products. The Company requires all technical personnel to sign
nondisclosure agreements with respect to the Company's products. There can be no
assurance that others will not unauthorizedly copy the Company's products
despite these protective devices. The Company believes that the most effective
protection of its trade secrets is rapid development of improved hardware and
software which makes use of the latest technology.
<PAGE>
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Employees.
On March 22, 1996, the Company employed 42 full-time persons: 8
in sales, management, and administration: 27 in software development and
production ;and 7 in hardware development and production; compared to the 59
full-time persons employed at March 22, 1995 (15 in sales, management, and
administration; 8 in hardware design and production; and 36 in software
development and production). From time-to-time, AW employs computer design
consultants and technicians on a temporary basis. None of the Company's
employees is represented by a labor union.
Item 2. Properties.
The Company leases its administrative offices and sales and
programming facilities (containing approximately 30,000 square feet of space) in
Mount Laurel, New Jersey. The Company pays approximately $24,000 per month,
including its share of taxes, insurance and other expenses customarily borne by
a tenant under a "net" lease, which has been extended to March 15, 1999. The
Company does not own, and leases no other, real property. The Company believes
that its facilities are satisfactorily maintained.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
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PART II
-------
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The following table shows the quarterly range of prices for the
Company's Class A Common Shares, as reported by the National Association of
Securities Dealers Automated Quotation system for the period January 1, 1994
through December 31, 1995. Prices shown represent actual trades.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
March 31, 1994 3 5/8 1 1/2
June 30, 1994 2 1/8 1 1/16
September 30, 1994 1 3/4 7/8
December 31, 1994 1 3/4 13/16
March 31, 1995 2 1/8 1 5/16
June 30, 1995 1 1/2 1
September 30, 1995 2 15/16
December 31, 1995 2 5/16 1 3/8
</TABLE>
Holders. On March 25, 1996, there were approximately 1,873
holders of Class A Common Shares, including holders of record and participants
in security position listings.
Dividends. The Company has not paid any cash dividends on its
Common Shares. The Company's credit agreements, with its bank, prohibit the
payment of dividends.
<PAGE>
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations.
AW's success depends upon the number of new computer systems
which the Company is able to develop, customize, and deliver to retailers who
wish to use existing POS equipment in conjunction with one of the POS systems
offered by any of the three largest POS system manufacturers in the United
States: IBM, AT&T/GIS, or FJ-ICL. These systems are critical to the information
and customer service systems of AW's clients. Therefore, the selling cycle
frequently takes over a year to complete from the introductory marketing through
in-store "Pilot" system testing phases of this process. The Company typically
contracts with its clients on a long-term, fixed-fee basis for the development,
customization, pilot testing, and licensing of the use of these systems in
multiple stores (the "Rollout") and, therefore, reports this activity as
contract revenues. AW derives additional revenues from on-going client support
revenue ("Maintenance"), fee for service programming activity, and one-time
system software licensing.
Because nearly all customer system installations are contingent
upon successful test store or Pilot implementations, the backlog of total
revenues from a customer project cannot be considered firm until after the Pilot
has been accepted by the customer. At March 25, 1996, AW had a backlog of firm
orders for delivery within one year of $800 thousand compared to $3.3 million at
March 25, 1995.
During the first quarter of 1995, the Company set aside $143,000
of inventory and incurred $42,000 of labor cost in preparing to ship an AWare
system pursuant to a letter of intent from a large foreign retail chain.
Although the letter of intent contemplated delivery prior to April 30, 1995,
management of the retail chain has advised the Company that the decision on the
AWare purchase will be made by the foreign entity's American joint venture
partner. As a result of this event, there is no assurance that the contract will
be awarded to AW.
Continuation of Company operations beyond the second quarter of
1996 will be dependent on the successful completion and receipt of substantial
orders on either or both of the Company's new products: the Checker Productivity
Analyzer ("CPA") and the Wizard of POS ("Wizard"). The CPA Project, being
developed under contract with a large supermarket chain, which does not include
any guaranteed minimum purchase, is designed to enhance the economic efficiency
in the handling of goods by supermarket operators. CPA has been installed at a
Pilot Store and is expected to begin live testing shortly. The Wizard brings the
familiarity of Microsoft's graphical Windows environment to the retail POS
operation. Unlike existing graphical POS systems that demand total replacement
of a retailer's hardware and software, the Wizard adds graphical capability to
existing environments. The tutor version of Wizard is installed at two Pilot
Stores and is being tested.
AW has established relationships with AT&T/GIS and FJ-ICL to
provide interfaces between their new POS systems and existing popular cash
register models.
<PAGE>
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Revenues.
1995.
Revenues in 1995 declined $1.3 million or 27% below the
revenue flow in 1994 primarily due to sharply reduced sales of the Company's
principal product, AWare. During 1994 it became evident that the POS system
products being introduced by AT&T/GIS and FJ-ICL were not ready for aggressive
marketing. Consequently, sales of AWare continue to be adversely affected. AW
was able to sell AWare to only one new customer during the year. AWare revenues
were $2.8 million in 1995 compared to $3.3 million in 1994. AWare sales made up
95% of revenue in 1995, 69% in 1994 and 92% in 1993. In order to stimulate
revenues, AW broadened the functionality of AWare to support the acceptance of
debit cards by retailers as payment at the point-of-sale. This development
produced additional revenues from one existing customer in 1995.
The development contract for a new product, known as CPA,
designed to enhance the economic efficiency of the checkout process in
supermarkets has exceeded its $1.7 million contractual budget; as such, the
Company has recognized a loss provision of $300 thousand representing the
estimated cost to complete the contract. The recognition of a loss on the
contract during 1995 caused a reduction in revenue of $13 thousand on a
percentage completion basis. Due to uncertainties inherent in the estimation
process, it is reasonably possible that the completion costs for the project
will be further revised in the near term. Under the terms of this contract with
a well established corporation, reporting revenues in excess of $10 billion and
shareholders' equity greater than $900 million, ownership of the product will be
transferred to the contract partner while exclusive marketing rights will remain
with AW. AW has granted the contract partner a warrant to purchase 236,773
shares of AW's Class A Common Shares.
Other important sources of revenue for AW in 1995 included
software services revenues, maintenance fees, and contract programming for AW's
customers.
1994.
Revenues in 1994 declined $3.6 million or 43% below the
revenue in 1993 primarily due to sharply reduced sales of the Company's
principle product, AWare. AWare revenues were $3.3 million in 1994 compared to
$7.7 million in 1993. During 1994 it became evident that the POS system products
being introduced by AT&T/GIS and FJ/ICL were not ready for aggressive marketing,
consequently adversely affecting AWare sales.
<PAGE>
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1993.
The largest revenue sources in 1993 were AWare shipments to
IBM for Winn-Dixie, Kroger Stores, Inc. and development for FJ-ICL. Revenues
were 9.3%, or $854,000, lower in 1993 compared to 1992 primarily due to slower
than expected sales of AWare equipment. In July 1993, the Company assisted
AT&T/GIS with the installation of the first UNITY-equipped supermarket. Although
normal first installation adjustments had been anticipated, their resolution was
not accomplished in time to generate substantial "Rollout" orders in 1993.
Costs.
1995.
The direct profit margin was compressed in 1995 to 22%
compared to 42% in 1994. This decrease is related to the continued decline in
AWare revenue,as well as, the development contract (CPA Project) which has
exceeded its $1.7 million budget. In addition, the Company took a charge of $115
thousand to reserve for slow moving AWare inventory. Cost of revenues decreased
only 3% in 1995 compared to 1994 as a result.
1994.
The direct profit margin was compressed in 1994 to 42%
compared to 59% in 1993 primarily as a result of the large development contract
referred to in the discussion of 1995 Revenues that was being performed on a
break-even basis. Costs of revenues decreased only 19% in 1994 compared to 1993
as a result.
1993.
The direct profit margin decreased to 59% in 1993 from 65%
in 1992. Costs of revenues increased 4.5%, or $145 thousand, in 1993 primarily
as a result of the high level of development activity compared to 1992.
Contracts requiring development generated $1.6 million, or 47%, of costs in 1993
compared to $854 thousand, or 26%, of costs in 1992. Development activity is
comparatively less profitable than shipment of rollout hardware for AWare.
<PAGE>
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Expenses.
1995.
Selling, general and administrative expenses decreased $291
thousand, or 8%, in 1995 compared to 1994 due primarily to a decrease in
compensation expense related to the reduction of 17 staff positions during the
year. Expenses increased as a percentage of revenues from 83% in 1994 to 101% in
1995 primarily because of the continued drop in revenues from the Company's main
product, AWare. In March 1995, the Chairman of the Board, who was consulting the
Company as part of a phase-out to retirement, agreed to return to full-time
status to assist in marketing the Company's products. His return to full
compensation offset the savings in staff reduction by approximately $75
thousand.
1994.
Selling, general and administrative expenses increased $63
thousand, or 1.8%, in 1994 compared to 1993 due primarily to the expenses of six
additional employees. During the year, a salary restraint was imposed and the
Company ceased matching the contributions of its employees to the 401(k)
retirement savings plan to partially offset the expenses associated with
additional staff needed for development of new products. Expenses increased as a
percentage of revenues from 43% in 1993 to 83% in 1994 primarily because of
increased development costs.
1993.
Selling, general and administrative expenses rose $255
thousand, or 8%, in 1993 compared to 1992 principally because of the increase in
facilities expense and personnel expenses primarily related to incentive
compensation for all personnel.
Research and Development.
The data processing industry is characterized by rapid
technological advances. Consequently, to the extent its financial resources
permit, AW will continue developing new, and refining existing, proprietary
products.
The Company is presently engaged in development projects to
produce new products which were designed to substantially enhance the economic
efficiency of the checkout process in supermarkets. The Checker Productivity
Analyzer (CPA) being developed under contract with a large supermarket chain
which does not include any guaranteed minimum purchase, is designed to enhance
the economic efficiency in the handling of goods by supermarket operators. CPA
has been installed at a Pilot Store and is expected to begin testing shortly.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 15 of 84.
The Wizard brings the familiarity of Microsoft's graphical
Windows environment to the retail Point of Sale operation. Unlike existing
graphical POS systems that demand total replacement of a retailers hardware and
software, the wizard adds graphical capability to existing environments. The
tutor version of Wizard has been installed at two Pilot Stores and is being
tested.
Of the approximately $7.6 million spent on development during the
last five years, $1.2 million was recorded as development expense, $5.7 million
as contract expense, and $0.8 million as capitalized software. The Company now
has a proprietary interface which connects an expanding list of various popular
models of cash register with the current generation of microprocessors for use
in POS systems and the software necessary to provide state-of-the-art
applications to retail chain store operators. On a year-by-year basis, AW's
development spending has been influenced by the availability of resources.
<TABLE>
<CAPTION>
Summary Of Development Expenditures
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
(In Thousands)
Contracts requiring
development $ 1,483 1,389 1,642 854 $ 285
Development expense,
net 167 371 131 263 246
Capitalized Software 325 50 16 182 186
----- ----- ----- ----- ---
$ 1,975 1,810 1,789 1,299 $ 717
===== ===== ===== ===== ===
</TABLE>
The Company has achieved software feasibility for two of its new
products. Accordingly, AW expects to capitalize a significant portion of its
remaining related development efforts for activities outside the scope of its
contracts requiring development (see Note 2 of Notes to Financial Statements).
Operating Results.
1995.
As a result of the high level of low margin contract
development activity in 1995 and the low level of AWare sales, gross profit was
less than Selling, general and administrative expenses. After Development and
Interest expenses, the loss before income taxes was $2.6 million. The Company
does not have sufficient prior years' operating income for federal income tax
purposes to carry back all of the 1995 loss. The anticipated refund related to
the carry back of the 1995 loss is $280 thousand. After the tax benefit, the net
loss was $2.3 million, or $0.56 per share.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 16 of 84.
1994.
As a result of the high level of contract development
activity in 1994 that compressed the direct profit margin and the low level of
AWare sales, gross profit was less than Selling, general and administrative
expenses. After Development and Interest expenses, the Net loss before income
taxes was $1.9 million. The Company had available sufficient prior years'
operating income for federal income tax purposes to be able to carry the 1994
loss back and expects to realize a refund. After the Income tax benefit, the net
loss was $1.3 million, or $0.34, per share.
1993.
Lower levels of revenues and a higher proportion of
development activity reduced gross profit by $998 thousand in 1993 compared to
1992. Expansion of facilities and personnel levels were the principal reasons
for a $139 thousand increase in total expenses. Consequently, pre-tax net income
was $1.2 million lower in 1993. After income taxes, the decrease in 1993 net
income was $661 thousand bringing earnings per share to $0.21 in 1993 compared
to $0.37 in 1992 on substantially the same number of common share equivalents.
Financial Position and Capital Resources.
Cash flow generated by operations is AW's primary source of
funds. AW's needs for cash arise principally from salary, marketing, research
and development expenses and, to a lesser extent, from inventory purchasing
requirements and occupancy expenses.
During the year, working capital decreased $2 million to $1.1
million, or 55 days, of costs and expenses compared to $3.1 million, or 155
days, of costs and expenses at December 31, 1994. Current assets decreased $2
million due to decreases in inventory and income taxes receivable of $231
thousand and $294 thousand, respectively. Additionally, as a result of progress
billings on revenue contracts, costs in excess of billings decreased by $961
thousand. Current liabilities decreased $13 thousand over the period due to a
decrease in current debt of $408 thousand as a result of the debt restructuring
in July 1995 (see Note 4 to Notes to Financial Statements), and a decrease of $9
thousand in leases payable and billings in excess of cost. These decreases were
offset by an increase of $273 thousand in accrued contract costs and an increase
of $131 thousand in accounts payable and other accrued liabilities.
Cash and cash equivalents decreased by $620 thousand as of
December 31, 1995 compared to December 31, 1994. The primary factors for this
decrease were $110 thousand consumed by operations, $389 thousand of investments
in non-current assets, and $424 thousand in debt reduction offset by $303
thousand in proceeds from the sale of common stock. Cash and cash equivalents
necessary to operate at the Company's current capacity beyond the second quarter
of 1996 will be dependent on the successful completion and rollout of the CPA or
Wizard Projects.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 17 of 84.
The results of operations in 1995 have affected the Company's
debt to equity relationship as can be seen in the following table:
<TABLE>
<CAPTION>
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total liabilities 1,807,797 1,809,775 1,261,000 2,139,000
Total Shareholders' equity 2,086,456 4,074,047 5,320,000 4,292,000
Total liabilities divided by
shareholders' equity 0.87 0.44 0.24 0.50
</TABLE>
Liquidity.
The Company expects to require continued significant product
development efforts and capital expenditures for plant and 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 future external financing as
can be arranged. Continuation of operations beyond the second quarter will be
dependent on the successful completion and roll-out of either the CPA Project or
the Wizard Project, or on the Company securing external financing to help bring
its products to market.
In order to raise funds for the development of new products and
for the support of on-going 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 grant. The purchase price was $0.55 per unit. The total
proceeds to the Company, net of expenses, were $206,000. The securities sold are
not registered for public sale under the Securities Act of 1933 or any state
securities law and the purchasers acquired no registration rights with respect
thereto.
On March 8, 1996, the Company, in a private cash transaction,
sold 250,000 Class A Common Shares for $2.00 per share to Winn-Dixie Stores,
Inc. As additional consideration for the purchase of the shares by Winn-Dixie
Inc., the Company modified the strike price of the warrants held by Winn-Dixie,
pursuant to a Warrant Agreement dated October 28, 1993, which was entered into
in consideration of the Company receiving exclusive marketing rights to the CPA
product, from the previously amended price of $3.062 to $2.00 per share. By
operation of anti-dilution provisions of the warrants, the number of shares into
which Winn-Dixie could convert the warrants automatically and without additional
consideration increased from 200,000 to 236,773 on May 15, 1995, as a result of
the private placement to certain officers and directors noted above.
The Company has engaged an investment banking firm to assist the
Company in financial areas and in matters necessary to bring its new products to
market.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 18 of 84.
During 1995 the Company maintained three credit arrangements with
a bank. The Company had borrowings outstanding on term loans of $400,000 and
$500,000 at a fixed rate of interest of 8% and 7.95%, payable in equal monthly
installments. The Company had a line of credit in the amount of $600,000 with
interest at the Bank's prime rate (8.00% at December 31, 1995) plus one and
one-half percent. The line of credit had an outstanding balance of $550,000 on
December 31, 1995.
The Company failed to meet the net profit debt covenant required
under the loan agreements as of December 31, 1994. On July 21, 1995, the Company
and the Bank reached a Debt Restructuring Agreement. The terms of this Agreement
are as follows: the balance of the $400,000 fixed term note at July 31, 1995 of
$125,000 was paid in full; the term of the $500,000 note was accelerated from
June 1999 to July 1996 (this acceleration changed the monthly installments from
$8,333 through 1999 to eleven installments of $33,333 and one final installment
of $25,000 on July 1, 1996); and payment of the $550,000 balance on the Line of
Credit, originally scheduled for May 1995, was extended until December 31, 1996,
no future advances are available under this note. The Bank permanently waived
provisions requiring the Company to maintain any ratio of debt to net worth
and/or any ratios relating to net operating profit so long as payments are made
according to the Agreement.
At the end of 1995, the Company's capital obligations consisted
of capitalized lease obligations for equipment and an operating lease commitment
for its offices which expires in 1999. The Company anticipates satisfying these
obligations (approximately $250,000 annually) with funds generated from
operations.
Stock Options and Warrants.
The Company will adopt Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation beginning in 1996.
The Company has elected the disclosure only alternative of the statement and
thereby will continue to use Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, for accounting purposes.
Item 7. Financial Statements.
Financial statements, together with the report of the Company's
independent accountants thereon, are presented under Item 13 of this report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 19 of 84.
PART III
--------
Items 9 through 12 are incorporated by reference to the Company's
definitive proxy statement which will be filed prior to August 12, 1996 relating
to its 1996 Annual Meeting of Shareholders.
PART IV
-------
Item 13. Exhibits, Financial Statements and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) Financial Statements:
A. Report of Independent Accountants
B. Consolidated Statements of Operations for the
Three Years Ended December 31, 1995
C. Consolidated Balance Sheets, December 31, l995
and l994
D. Consolidated Statements of Changes in
Shareholders' Equity for the Three Years Ended
December 31, 1995
E. Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 1995
F. Notes to Consolidated Financial Statements
(2) Exhibits:
3A The Company's Restated Certificate of
Incorporation. Exhibit 3A to the Company's
Registration Statement No 2-68939 is
incorporated herein by reference.
3A-1 Amendment to the Company's Restated
Certificate of Incorporation dated June 30,
1987. Exhibit 3A-1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June
30, 1987 is incorporated herein by reference.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 20 of 84.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(Continued)
3B The Company's Amended and Restated By-Laws.
Exhibit 3B to the Company's Annual Report on
Form 10-KSB for the year ended December 31,
1994 is incorporated herein by reference.
3C The Company's Post-Effective Amendment No. 1
to Form S-8 (Registration Statement No.
33-64686). Exhibit 3C to the Company's
Quarterly Report on Form 10Q-SB for the
quarter ended September 30, 1995 is
incorporated herein by reference.
3C-1 The Company's Registration Statement on Form
S-8. Exhibit 3C-1 to the Company's Quarterly
Report on Form 10Q-SB for the quarter ended
September 30, 1995 is incorporated herein by
reference.
4F Specimen Certificate for Class A Common
Shares. Exhibit 4F to the Company's Annual
Report on Form 10-KSB for the year ended
December 31, 1994 is incorporated herein by
reference.
4H-1 Note and Warrant Purchase Agreement 15%
Promissory Notes With Warrants. Exhibit 4H-1
to the Company's Quarterly Report on Form 10-Q
for September 30, 1990 is incorporated herein
by reference.
4I-1 Term Note between AW Computer Systems, Inc.
and National Westminster Bank, NJ in the
amount of $400,000, and Letter, Grid Note and
Continuing General Security Agreement dated
August 28, 1992 between the Company and
National Westminster Bank, NJ approving a line
of credit in the amount of $250,000. Exhibit
4I-1 to the Company's Quarterly Report on Form
10-Q for September 30, 1992 is incorporated
herein by reference.
4I-2 $600,000 Grid Note payable to National
Westminster Bank New Jersey dated June 1,
1994. Exhibit 4I-2 to the Company's Annual
Report on Form 10-KSB for the year ended
December 31, 1994 is incorporated herein by
reference.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 21 of 84.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(Continued).
4I-3 Term Note in the amount of $500,000 and
Continuing General Security Agreement, both
dated May 13, 1994, between the Company and
National Westminster Bank, NJ. Exhibit 4I-3 to
the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994 is
incorporated herein by reference.
4I-4 Guarantee between the Company's subsidiary and
National Westminster Bank, NJ dated on May 31,
1994. Exhibit 4I-4 to the Company's Annual
Report on Form 10-KSB for the year ended
December 31, 1994 is incorporated herein by
reference.
4I-5 Letter Agreement between the Company and
NatWest Bank N.A. dated July 25, 1995.
10D Employment Agreement dated October 1, 1985
between Nicholas Ambrus and the Company.
Exhibit 28B to the Company's Registration
Statement No. 33-1898 is incorporated herein
by reference.
10D-1 Amendment to Employment Agreement between the
Company and Nicholas Ambrus. Exhibit 10D-1 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1990 is
incorporated herein by reference.
10D-4 Supplemental Employment and Retirement
Agreement dated March 1, 1993 between Nicholas
Ambrus and the Company . Exhibit 10D-4 to the
Company's Annual Report on Form 10-KSB for the
year ended December 31, 1993 is incorporated
herein by reference.
10E Employment Agreement dated October 1, 1985
between Charles Welch and the Company. Exhibit
28C to the Company's Registration Statement
No. 33-1898 is incorporated herein by
reference.
10E-1 Amendment Number Two to the Employment
Agreement between the Company and Charles
Welch dated August 31, 1995.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 22 of 84.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(Continued).
10F Employment Agreement between the Company and
Charles J. McMullin dated April 25, 1994.
Exhibit 10F to the Company's Annual Report on
Form 10-KSB for the year ended December 31,
1994 is incorporated herein by reference.
10G Employment Agreement between the Company and
P. Michael Lutze dated February 15, 1996.
10H Lease between Linpro Industrial Limited and
the Company dated August 12, 1983. Exhibit 10H
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1983 is
incorporated herein by reference.
10H-1 Amendment dated August 1, 1986 to the Lease
between Linpro Industrial Limited and the
Company. Exhibit 10H-1 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1986 is incorporated herein by
reference.
10H-2 Amendment dated December 2, 1986 to the Lease
between Linpro Industrial Limited and the
Company. Exhibit 10H-2 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1986 is incorporated herein by
reference.
10H-3 Sixth Amendment dated November 27, 1991 to
Lease between Linpro South Jersey, Inc. and
the Company. Exhibit 10H-3 of the Company's
Annual Report on Form 10-K for the year ended
December 31, 1991 is incorporated here in by
reference.
10H-4 Seventh Amendment dated June 7, 1992 to lease
between Linpro Greentree Business Centre
Partnership and the Company. Exhibit 10H-4 to
the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1992 is
incorporated herein by reference.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 23 of 84.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(Continued).
10H-5 Eighth Amendment dated February 15, 1994 to
lease between Linpro Greentree Business Centre
Partnership and the Company. Exhibit 10H-5 to
the Company's Annual Report on Form 10-KSB for
year ended December 31, 1994 is incorporated
herein by reference.
10J Summary of Bonus Plan. Exhibit 10J to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1987 is incorporated
herein by reference.
10L Letter Agreement between the Company and the
Wall Street Group. Exhibit 10L of the
Company's Annual Report on Form 10-KSB for the
year ended December 31, 1992 is incorporated
herein by reference.
10M-1 IBM Business Partner Agreement Application
Specialist dated January 12, 1992. Exhibit
10M-1 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994 is
incorporated herein by reference.
10M-12 Development Agreement between Fujitsu-ICL and
the Company dated June 29, 1993. Exhibit
10M-12 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994 is
incorporated herein by reference.
10M-13 Amendment #1 to the Development Agreement
between Fujitsu-ICL and the Company dated
January 21, 1994. Exhibit 10M-13 to the
Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994 is incorporated
herein by reference.
10M-14 Reseller Agreement between NCR Corporation and
the Company dated August 17, 1992. Exhibit
10M-14 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994 is
incorporated herein by reference.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 24 of 84.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(continued).
10M-15 Referral Agreement between NCR Corporation and
the Company dated August 17, 1992. Exhibit
10M-15 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994 is
incorporated herein by reference.
10M-16 Addendum to the Referral Agreement between NCR
Corporation and the Company dated December 10,
1993. Exhibit 10M-16 to the Company's Annual
Report on Form 10-KSB for the year ended
December 31, 1994 is incorporated herein by
reference.
10M-17 Letter Agreement between NCR Corporation and
the Company extending repayment of the
Referral Agreement dated February 23, 1995.
Exhibit 10M-17 to the Company's Annual Report
on Form 10-KSB for the year ended December 31,
1994 is incorporated herein by reference.
10M-18 Solution Provider Agreement between Microsoft
Corporation and the Company dated August 1995.
10N 1984 Stock Option and Stock Grant Plan of the
Company. Exhibit 10N to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1988 is incorporated herein by
reference.
10N-1 Amendment to the 1984 Stock Option and Stock
Grant Plan. Exhibit 10O to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1989 is incorporated herein by
reference.
10N-2 The Company's October 1992 Stock Option and
Stock Grant Plan (as amended). Exhibit 10N-2
of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1992 is
incorporated herein by reference.
10P Subscription Agreement between the Company and
Winn-Dixie Stores, Inc. dated March 8, 1996.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 25 of 84.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(Continued).
10P-1 Addendum to Warrant Agreement between the
Company and Winn-Dixie Stores, Inc. dated
March 8, 1996.
10P-2 SEC Report on Form 10-C dated March 12, 1996.
10T-1 POS Purchase Agreement dated April 18, 1991
between Wal-Mart, Inc. and the Company.
Exhibit 10T-1 to the Company's Annual Report
on Form 10-K for the year ended December 31,
1991 is incorporated herein by reference.
10U Letter Agreement between the Company and
Janney Montgomery Scott Inc. dated October 4,
1995.
10U-1 Letter Agreement between the Company and
Janney Montgomery Scott Inc. dated January 30,
1996.
10U-2 Letter Agreement between the Company and
Janney Montgomery Scott Inc. dated March 5,
1996.
10V Agreement for the Procurement of Life
Insurance dated May 13, 1986 between the
Company and Nicholas Ambrus. Exhibit 10V to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1986 is
incorporated herein by reference.
10W Agreement for the Procurement of Life
Insurance dated May 13, 1986 between the
Company and Charles Welch. Exhibit 10W to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1986 is incorporated
herein by reference.
10Y IBM Subcontractor Agreement dated February 11,
1992 between the IBM Corporation and the
Company with Pricing Amendment Letter dated
February 25, 1992. Exhibit 10-Y to the
Company's Quarterly Report on Form 10-Q for
September 30, 1992 is incorporated herein by
reference.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 26 of 84.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(Continued).
21 Subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand, L.L.P.,
Independent Accountants.
27 Financial Data Schedules, electronically
filed, as per Regulation SB.
(b) No reports on Form 8-K were filed by the Company during
the last quarter of 1995.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 27 of 84.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
AW Computer Systems, Inc.
We have audited the consolidated financial statements of AW Computer Systems,
Inc. as listed in Item 13(a) of this Form 10-KSB. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally-accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AW
Computer Systems, Inc. as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally-accepted accounting principles.
The accompanying financial statements have been prepared assuming that AW
Computer Systems, Inc. will continue as a going concern. As discussed in Note 1
to the financial statements, AW Computer Systems, Inc. has incurred recurring
losses from operations and has recurring negative cash flows from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Coopers & Lybrand L.L.P
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 15, 1996
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 28 of 84.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Revenues $ 3,424,341 $ 4,721,168 $ 8,324,427
Costs of revenues 2,661,030 2,743,520 3,377,744
--------- --------- ---------
763,311 1,977,648 4,946,683
--------- --------- ---------
Expenses:
Selling, general and
administrative 3,204,513 3,495,494 3,432,413
Development 167,379 371,480 131,454
Interest 100,197 62,709 35,918
--------- --------- ---------
Total 3,472,089 3,929,683 3,599,785
--------- --------- ---------
Other Income 67,681 46,795 36,577
Income (loss) before
income taxes (2,641,097) (1,905,240) 1,383,475
Income tax provision(benefit) (300,079) ( 586,903) 532,540
--------- --------- ---------
Net income (loss) $(2,341,018) $(1,318,337) $ 850,935
========= ========= =========
Net income(loss) per share ($0.56) ($0.34) $0.21
Average shares outstanding 4,151,058 3,855,750 4,095,144
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 29 of 84.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 848,560 $ 1,468,778
Accounts and contract receivables,
less allowance for doubtful
accounts of $110,000 in 1995 and
$240,500 in 1994 604,957 521,899
Costs and estimated earnings in excess
of billings on uncompleted
contracts 458,237 1,418,792
Inventories 514,791 746,254
Income taxes receivable 280,445 574,533
Prepaid and other current assets 101,558 86,808
--------- ---------
Total current assets 2,808,548 4,817,064
Property and equipment, net 669,194 902,742
Computer software, net 363,626 112,814
Other assets 52,885 51,202
--------- ----------
Total assets $ 3,894,253 $ 5,883,822
========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Line of credit $ 500,000 $ 550,000
Current portion of long-term debt 225,000 633,333
Current portion of lease obligations 6,918 16,341
Accounts payable 291,870 208,726
Accrued contract costs 332,653 59,525
Accrued liabilities 134,515 122,218
Accrued compensation 71,984 ---
Billings in excess of cost and
estimated earnings on
uncompleted contracts --- 8,582
Other current liabilities 51,057 87,383
--------- ---------
Total current liabilities 1,663,997 1,686,108
Capitalized lease obligations 8,542 15,461
Pension cost 135,258 108,206
Commitments & Contingencies
Shareholders' Equity
Common shares:
Class A, $.01 par; authorized 10,000,000
shares; 4,467,544 and 3,897,969
issued and outstanding in 1995
& 1994, respectively 44,676 38,980
Additional paid in capital 1,895,992 1,564,695
Retained earnings 181,354 2,522,372
Deferred compensation ( 35,566) ( 52,000)
--------- ---------
Total shareholders' equity 2,086,456 4,074,047
--------- ---------
Total liabilities and share-
holders' equity $ 3,894,253 $ 5,883,822
========= =========
</TABLE>
The accompanying notes are an integral part of the
financial statements
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 30 of 84.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Class A Common Stock
Additional Total
Number Paid-in Retained Deferred Shareholders'
of Amount Capital Earnings Compensation Equity
Shares
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1992 3,747,269 $ 37,473 $1,318,834 $ 2,989,774 $( 53,719) $ 4,292,362
Issuance of stock grants 22,000 220 85,030 --- ( 85,250) ---
Exercise of stock options 60,950 609 42,551 --- --- 43,160
Compensation expense --- --- --- --- 133,051 133,051
Net income --- --- --- 850,935 --- 850,935
--------- ------ --------- --------- --------- ---------
Balance,
December 31, 1993 3,830,219 38,302 1,446,415 3,840,709 ( 5,918) 5,319,508
Issuance of stock grants 50,000 500 111,210 --- ( 111,710) ---
Exercise of stock options 17,750 178 7,070 --- --- 7,248
Compensation expense --- --- --- --- 65,628 65,628
Net loss --- --- --- (1,318,337) --- (1,318,337)
--------- ------ --------- --------- --------- ---------
Balance,
December 31, 1994 3,897,969 38,980 1,564,695 2,522,372 ( 52,000) 4,074,047
--------- ------- --------- --------- --------- ---------
Issuance of stock grants 30,000 300 33,450 --- ( 33,750) ---
Exercise of stock options 145,575 1,456 85,087 --- --- 86,543
Private Placement 394,000 3,940 212,760 --- --- 216,700
Compensation expense --- --- --- --- 50,184 50,184
Net loss --- --- --- (2,341,018) --- (2,341,018)
--------- ------- -------- --------- --------- ---------
Balance,
December 31, 1995 4,467,544 $ 44,676 $1,895,992 $ 181,354 $( 35,566) $ 2,086,456
========= ======= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 31 of 84.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss): $(2,341,018) $(1,318,337) $ 850,935
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities
Depreciation and amortization 377,529 328,228 364,470
Amortization-unearned compensation 50,184 65,628 133,052
Provision for doubtful accounts ( 130,372) 15,509 25,000
Provision for inventory 115,000 --- ---
Gain on capital disposals ( 6,983) --- ---
Deferred income taxes --- ( 45,632) ( 65,570)
Decrease (increase) in:
Accounts receivable 47,314 2,145,283 1,034,452
Cost & estimated earnings
on uncompleted contracts 960,555 ( 576,334) ( 39,249)
Inventories 116,463 ( 289,107) 44,085)
Income tax receivable 294,088 ( 449,867) ( 125,380)
Prepaid expenses & other assets ( 16,433) ( 20,193) ( 3,386)
Increase (decrease) in:
Accounts payable 83,144 ( 105,786) 26,232
Accrued liabilities 12,297 ( 269,916) ( 113,348)
Accrued cost 273,128 --- ( 304,934)
Other current liabilities ( 36,326) 82,364 25,809
Accrued compensation 71,984 --- ---
Pension costs 27,052 108,206 ---
Billing in excess of costs &
estimated earnings on
uncompleted contracts ( 8,582) ( 107,817) ( 98,023)
--------- --------- ---------
Net cash provided by (used in)
operating activities ( 110,976) ( 437,771) (1,754,145)
--------- --------- ---------
Cash flows, investing activities:
Capital expenditures ( 105,892) ( 395,661) ( 275,181)
Capital disposals 43,241 --- ---
Computer software capitalized ( 325,159) ( 52,327) ( 16,342)
--------- --------- ---------
Net cash (used in) investing activites ( 387,810) ( 447,988) ( 291,523)
--------- --------- ---------
Cash flows, financing activities:
Net borrowing (payments)
Line of credit --- 550,000 ( 250,000)
Proceeds from long-term debt --- 500,000 ---
Payments on long-term debt ( 408,333) ( 141,667) ( 100,000)
Lease obligations ( 16,342) ( 15,039) ( 12,805)
Advances-related party loans --- --- ( 40,000)
Issuance of common shares 303,243 7,248 43,160
--------- --------- ---------
Net cash provided by (used in)
financing activities ( 121,432) 900,542 ( 359,645)
--------- --------- ---------
Increase (decrease) cash and
cash equivalents ( 620,218) 14,783 1,102,977
Cash and cash equivalents:
Beginning of year 1,468,778 1,453,995 351,018
--------- --------- ---------
End of year $ 848,560 $ 1,468,778 $ 1,453,995
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 32 of 84.
AW COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. Basis of Presentation:
Description of Business:
AW Computer Systems, Inc. and subsidiary (the "Company") is
principally in the business of developing and marketing
specialized computer-based POS systems consisting of
proprietary hardware and software. The Company derives
revenues from selling the hardware and installing the software
for licensed use by clients. Because of rapid technological
advances in the computer systems upon which the Company bases
its products and the changing needs of customers, new software
and hardware must constantly be developed in order to deliver
products which use the current industry standard equipment.
Substantially all of the Company's revenues and backlog of
orders come from the retail sector of the economy.
Going Concern:
As shown in the accompanying financial statements, the Company
has incurred losses for the past two years and the resulting
negative cash flow from operations. The Company's Line of
Credit in the amount of $550,000 is payable on December 31,
1996 and no further advances are available to the Company
under this line. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
Management has instituted a cost reduction program which
included a reduction in the labor force in May of 1995.
Additionally, the Company is in the process of introducing two
new pilot products into the market. Acceptance of either or
both of these products by the Company's customers would
generate future revenues, however the success of these
products is uncertain. The financial statements do not include
any adjustments that might be necessary if the Company is
unable to continue as a going concern.
2. Summary of Significant Accounting Policies:
Principals of Consolidation:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant
intercompany transactions and balances have been eliminated.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 33 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting Estimates:
The preparation of financial statements in conformity with
generally-accepted accounting principles requires management
to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Revenue Recognition:
Revenue and costs are recognized on fixed-price contracts
using the percentage of completion method. The percentage of
completion is based upon the percentage of total cost of labor
performed to the estimated total labor costs to be incurred
under the contract. This method is used because management
considers labor performed to be the best available measure of
progress on these contracts.
Contract costs include all direct labor, material and overhead
costs. Revisions to estimated costs and contract profitability
are recognized in the period the revisions are determined.
Provisions for estimated losses on contracts are recorded in
the period such losses become evident.
Revenue from the licensing of computer software is recognized
when the software is accepted by the customer.
Revenue under maintenance contracts is recognized ratably over
the life of the contract.
Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash
equivalents. The carrying amount reported in the balance sheet
approximates its fair value.
Inventories:
Inventories are stated at the lower of cost (determined by the
first-in, first-out method), or market. After a periodic
review of inventory, management provides an allowance for
obsolete or nonsalable items to ensure statement of inventory
at the lower of cost or market.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 34 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment:
Property and equipment are carried at cost. Expenditures for
major renewals, improvements and betterments are capitalized
and minor repairs and maintenance are charged to expense. When
assets are sold, the related cost and accumulated depreciation
are removed from the accounts and any gain or loss from such
disposition is included in operations. Leasehold improvements
are capitalized and amortized over the term of the lease.
Computer Software:
The Company capitalizes computer software development costs
and costs of product enhancements incurred subsequent to the
establishment of technological feasibility and up to the time
the product becomes available for general release. Maintenance
and upgrades are expensed as incurred. Capitalized software
costs are amortized using the straight-line method over the
remaining estimated economic life of the product including the
period being reported on. It is reasonably possible that the
remaining estimated economic life of the software will be
reduced significantly in the near term due to competitive
pressures. As a result, the carrying amount of the capitalized
software costs may be reduced materially in the near term.
Amortization expense of computer software costs was
approximately $74,000, 61,000, and $173,000 in 1995, 1994, and
1993, respectively.
Depreciation and Amortization:
Property and Equipment:
Property and equipment is depreciated or amortized on
the straight-line method over the estimated useful
lives of the assets (ranging from five to seven
years).
Capitalized Software:
Capitalized software development and enhancement
costs are amortized on a product-by-product basis.
Amortization is included in costs of revenues and is
computed using the straight-line method over the
estimated life of the product (ranging from one to
three years). Accumulated amortization as of December
31, 1995 and 1994 was $1,111,000 and 1,037,000,
respectively.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 35 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Equipment Warranty:
The Company's equipment products and proprietary software
programs are warranted by the Company against design defects
for a specified period, normally not in excess of twelve
months. Provision for future claims has been evaluated based
on historical experience.
Income Taxes:
Income taxes are provided based upon the provisions of
Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109), which requires
recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been
included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the
differences are expected to reverse.
Net Income per Class A Common Share:
Net income (loss) per Class A Common Share is computed based
on the average number of Class A Common Shares outstanding
during the year, after giving effect to all dilutive common
stock equivalents outstanding.
Concentration of Credit:
The Company sells primarily to customers in the retail
industry throughout the United States and Canada. The
financial instruments, which potentially subject the Company
to a concentration of credit risk, are cash and accounts
receivable. As of December 31, 1995, approximately 67% of the
recorded accounts receivable were concentrated with two
customers. To reduce credit risk, the Company performs a
credit evaluation of its customers' financial conditions and
has generally short payment terms. The Company does not
require collateral on its accounts receivable and its losses
on accounts receivable have been within Management's
expectations. The Company maintains its cash and cash
equivalents primarily in two financial institutions in excess
of insured limits.
Reclassification:
Prior years balance sheet and cash flow statements are
reclassified to conform to present year presentation.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 36 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Statement of Cash Flows:
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
Cash paid during the years for: 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest $100,197 $62,709 $ 35,918
Taxes 293 2,225 784,483
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Equipment acquired under
capital leases $ --- $ --- $ 14,416
Issuance of stock grants 33,750 111,710 85,250
</TABLE>
4. Contracts Requiring Development:
The fixed price contracts by which the Company recognizes revenues
frequently involve development of new software programs and/or hardware
components. The Company retains ownership of the products developed
under most of these contracts. If the newly developed product(s) fail
to meet specifications under the contract, the Company does not usually
have an obligation to refund to clients any revenues received.
Revenues and costs recognized under these contracts have been:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Contract revenues $1,420,000 $1,903,000 $2,606,000
Cost of contract revenues 1,483,000 1,389,000 1,642,000
</TABLE>
The Company is currently providing research and development to one of
its major customers pursuant to an Application System Prototype
Development Agreement (CPA Project). To date, $1,532,000 and $2,097,000
have been recognized as revenues and cost under this Agreement,
respectively. The Project has exceeded its $1,700,000 contractual
budget, as such, the Company has recognized a loss provision of
$300,000 representing the estimated cost to complete the project. Due
to uncertainties inherent in the estimation process, it is reasonably
possible that the completion costs for the Project will be further
revised in the near term. Under this Agreement, the Company retains
sole marketing rights of the technology and is required to pay
royalties.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 37 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Major Customers:
Information concerning major customers is as follows:
<TABLE>
<CAPTION>
Revenues
Year Ended Number of attributable to each
December 31, major customers major customer
------------ --------------- --------------
<S> <C> <C>
1995 Three 21%, 21%, and 16%
1994 Two 27% and 24%
1993 Three 29%, 25%, and 10%
</TABLE>
6. Income Taxes:
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Current: 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal $(300,079) $(634,960) $ 450,107
State --- 2,425 148,003
------- ------- -------
(300,079) (632,535) 598,110
Deferred --- 45,632 ( 65,570)
------- ------- -------
$(300,079) $(586,903) $ 532,540
======= ======= =======
</TABLE>
Deferred tax assets (liabilities) comprised the following at December
31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Excess tax basis over book basis of
property and equipment $ 19,253 $ 2,223
Excess book basis over tax basis of
computer software (145,210) (38,356)
Excess book basis over tax basis of
bad debt and inventory allowance 53,600 21,571
Excess book basis over tax basis of
non-qualified defined pension 54,103 36,720
Net operating loss carryforwards 817,679 153,000
Other --- ---
------- -------
799,425 175,158
------- -------
Valuation allowance for deferred tax asset (799,425) (175,158)
------- -------
$ --- $ ---
======= =======
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 38 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has a net operating loss (NOL) carry forward for federal
tax purposes of $409,000 which expires in the year 2010, and a state
tax NOL carry forward of $409,000, $153,000 expires in 2000 and
$256,000 expires in 2001. The Company has established a full valuation
allowance for this balance.
Reconciliation of the federal statutory rate to the Company's effective
tax rate for the years ended December 31, 1995, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Percent
<S> <C> <C> <C>
Federal statutory rate (34.0) (34.0) 34.0
State income tax rate, net of
federal income tax benefit ( 6.0) ( 9.0) 6.0
Change in deferred tax asset
valuation allowance 30.3 10.0 ---
Other, net (1.7) 2.2 ( 1.5)
--- --- ----
Effective tax rate (11.4) (30.8) 38.5
==== ==== ====
</TABLE>
7. Costs Incurred and Estimated Earnings on Uncompleted Contracts:
Costs incurred and estimated earnings on uncompleted contracts consist
of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Costs incurred on uncompleted
contracts $ 2,358,278 $ 2,832,768
Estimated earnings 45,497 713,508
---------- ---------
2,403,775 3,546,276
Less: Billings to date 1,945,538 2,136,066
--------- ---------
$ 458,237 $ 1,410,210
========= =========
The foregoing is included in the
accompanying balance
sheets under the following
captions:
Costs incurred and estimated
earnings in excess of
billings on uncompleted
contracts $ 458,237 $ 1,418,792
Billings in excess of costs incurred
and estimated earnings on
uncompleted contracts ( --- ) ( 8,582)
--------- ----------
$ 458,237 $ 1,410,210
========= =========
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 39 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Finished products $ 20,155 $ 85,914
Work in process 259,820 370,229
Raw material 234,816 290,111
------- -------
$ 514,791 $746,254
======= =======
</TABLE>
9. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Furniture and equipment $ 1,929,188 $ 1,832,887
Automotive equipment 123,606 204,578
Leasehold improvements 342,263 331,385
Property under capital lease 73,578 73,578
--------- ---------
2,468,635 2,442,428
Less: accumulated depreciation
and amortization 1,799,441 1,539,686
--------- ---------
$ 669,194 $ 902,742
========= =========
</TABLE>
Depreciation expense was $303,000, $265,000, and $192,000 for the years
ended December 31, 1995, 1994, and 1993, respectively.
10. Benefit Plans:
The Company has a 401(k) defined contribution retirement plan that
covers substantially all employees. Eligible employees may contribute
up to 15% of compensation with matching contributions at the Company's
option. Effective June 30, 1994, the Company suspended matching
contributions. The Company contributed $0 and $95,200 in 1995 and 1994,
respectively, to the plan.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 40 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Debt:
During 1995 the Company maintained three credit arrangements with a
bank. The Company had borrowings outstanding on term loans of $400,000
and $500,000 at a fixed rate of interest of 8% and 7.95%, payable in
equal monthly installments. The Company had a line of credit in the
amount of $600,000 with interest at the bank's prime rate (8.00% at
December 31, 1995) plus one and one-half percent. The line of credit
had an outstanding balance of $550,000 on December 31, 1995. The credit
facilities are collateralized by substantially all of the Company's
assets. The carrying amount of the Company's credit arrangements
approximate their fair value.
The Company failed to meet the net profit debt covenant required under
the loan agreements as of December 31, 1994. On July 21, 1995 the
Company and the Bank reached a Debt Restructuring Agreement. The terms
of this Agreement are as follows: The balance of the $400,000 fixed
term note at July 31, 1995 of $125,000 was paid in full. The term of
the $500,000 note was accelerated from June 1999 to July 1996. This
acceleration changed the monthly installments from $8,333 through 1999
to eleven (11) installments of $33,333 and one final installment of
$25,000 on July 1, 1996. Payment of the $550,000 balance on the Line of
Credit, originally scheduled for May 1995, was extended until December
31, 1996. The Bank permanently waived provisions requiring the Company
to maintain any ratio of debt to net worth and/or any ratios relating
to net operating profit so long as the Company continues to make
payments under the Agreement. The Agreement prohibits the payment of
dividends.
Debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Term loan payable $225,000 $ 633,333
Line of credit 550,000 550,000
------- ---------
$775,000 $1,183,333
======= =========
</TABLE>
12. Leases:
The Company leases office facilities under a lease which has been
extended through 1998. The rental expense for the operating lease
totaled $252,000, $215,000 and $212,000 for the years ended December
31, 1995, 1994 and 1993, respectively.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 41 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1995, annual future minimum lease payments under
capital and operating leases and the present value of minimum lease
payments are as follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
<S> <C> <C>
Minimum lease payments:
1996 $ 8,104 $ 257,897
1997 5,087 264,709
1998 4,240 270,373
1999 --- 56,563
----- -------
Total minimum lease payments 17,431 $ 849,542
Less amounts representing interest 1,971 =======
------
Present value of minimum lease
payments 15,460
Less: current maturities 6,918
------
Long-term maturities $ 8,542
======
</TABLE>
13. Commitments and Contingencies:
The Company has entered into an agreement with its former Chief
Executive Officer under which he has commenced to act as Chairman
effective December 31, 1993 and as a consultant on a part-time basis
for a period of five years. During the period that the former Chief
Executive Officer consults on a part-time basis, he will vest in a
non-qualified, defined pension plan. The total accrual as of December
31, 1995 was $135,000; total expense was $27,000 and $108,000 in 1995
and 1994, respectively. The Company will continue accruing benefits
when the Chairman returns to part-time consulting status.
14. Stockholders Equity:
In order to raise funds for the development of new products 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 grant. The purchase price
was $0.55 per unit. The total proceeds to the Company, net of expenses,
were $206,000. The securities sold are not registered for public sale
under the Securities Act of 1933 or any state securities law and the
purchasers acquired no registration rights with respect thereto.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 42 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. Stock Options and Warrants:
Stock option and warrant transactions for the years ended December 31,
1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Incentive Non-Qualified
Stock Per Share Options and Per Share
Options Option Price Warrants Option Price
------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 393,300 $0.375 to $3.03 102,491 $0.25 to 0.5.75
Granted --- --- 200,000 $3.625
Expired ( 6,900) $0.59 to $2.75 ( 2,700) $2.75
Exercised ( 58,450) $0.375 to $2.75 ( 2,500) $2.75
---------------- -------------
Balance, December 31, 1993 327,950 $0.375 to $3.03 297,291 $0.25 to $5.75
Granted --- ---
Expired ( 6,450) $0.59 to $1.22 ( 4,700) $1.22
Exercised ( 17,750) $0.375 to $0.59 --- ---
--------------- ------------
Balance, December 31, 1994 303,750 $0.375 to $1.22 292,591 $0..25 to $5.75
Granted 225,991 $1.00 476,282 $1.00 to $2.00
Expired ( 55,966) $0.375 to $1.22 --- ---
Exercised ( 138,575) $0.59 to $1.22 ( 7,000) $0.59
--------------- -------------
Balance, December 31, 1995 335,200 $0.59 to $1.22 761,873 $1.00 to $2.00
=============== =============
Shares exercisable ,
December 31, 1995 335,200 761,873
</TABLE>
As shown in the foregoing table, during 1993, in connection with a
development contract, the Company issued 200,000 warrants to acquire
the Company's stock, this Warrant Agreement included a non-dilution
clause which resulted in the issuance of an additional 36,773 warrants
in 1995. The adjustment was related to a Private Placement of 394,000
units in May 1995. These additional warrants are included as an
addition to non qualified options in 1995.
The Company has various incentive plans. Under these plans, incentive
stock options, non-qualified stock options and stock grants may be
issued to officers and key employees. Incentive stock options are
exercisable at a price equal to the fair market value of the shares at
the date of grant. Non-qualified options will be exercisable at a
price, not less than $0.50 per share, determined by the Board of
Directors. All options are exercisable for no longer than ten years
from the date of the grant. The plans also provide for grants of stock
subject to at least six months deferred vesting. The options generally
vest or become fully exercisable over periods ranging from one to four
years.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 43 of 84.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Related Party Transaction:
The Company has two notes receivable from outside directors of the
Company totaling $40,000 which is included on other assets on the
balance sheet. Interest is charged and paid monthly at a rate equal to
the rate received by the Company on its cash balances (approximately
3.0%).
Subsequent Event:
On March 8, 1996, the Company, in a private cash transaction, sold
250,000 Class A Common Shares for $2.00 per share to Winn-Dixie Stores,
Inc. As additional consideration for the purchase of the shares by
Winn-Dixie Stores, Inc., the Company modified the exercise price of the
warrants held by Winn-Dixie, pursuant to a Warrant Agreement dated
October 28, 1993, which was entered into in consideration of the
Company receiving exclusive marketing rights to the CPA product, from
the previously amended price of $3.062 to $2.00 per share.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 44 of 84.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AW COMPUTER SYSTEMS, INC.
(Registrant)
By:/s/Charles Welch
Charles Welch
Chief Executive Officer/President
By:/s/Robert O'Connor
Robert O'Connor
Controller and Treasurer
(Principal Financial Officer)
Dated: March 25, 1996
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Nicholas Ambrus Chairman March 25, 1996
Nicholas Ambrus
/s/Charles Welch CEO/President/Director March 25, 1996
Charles Welch
/s/Charles McMullin Chief Operating Officer/ March 25, 1996
Charles McMullin Director
/s/P. Michael Lutze Senior Vice President/ March 25, 1996
P. Michael Lutze Director
/s/Richard A. Schroeter Director March 25, 1996
Richard A. Schroeter
/s/Robert J. Hannon Director March 25, 1996
Robert J. Hannon
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 45 of 84.
Supplemental Information to be furnished with Reports Filed Pursuant to Section
l5(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section l2 of the Act.
Not Applicable.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 46 of 84.
<TABLE>
<CAPTION>
EXHIBIT INDEX
PAGE NUMBERED IN SEQUENTIAL
NUMBERING SYSTEM AS
EXHIBIT DESCRIBED IN RULE 0-3(b)
INDEX DESCRIPTION OF INDEX WHERE EXHIBIT CAN BE FOUND
<S> <C> <C>
3A Amendment to the Company's Restated Exhibit 3A-1 to the Company's Quarterly
Certificate of Incorporation dated Report on Form 10-Q for the quarter
June 30, 1987. ended June 30, 2987 is incorporated
herein by reference at page 19.
3A-1 Amendment to the Company's Restated Exhibit 3A-1 to the Company's Quarterly
Restated Certificate of Incorporation Report on Form 10-Q for the quarter
dated June 30, 1987. ended June 30, 1987 is incorporated
herein by reference at page 19.
3B The Company's Amended and Restated Exhibit 3B to the Company's Annual
Restated By-Laws. Report on Form 10-KSB for the year
ended December 31, 1994 is incorporated
herein by reference at page 20.
3C The Company's Post-Effective Exhibit 3C to the Company's Quarterly
Amendment No. 1 to Form 2-8 Report on Form 10-QSB for the quarter
(Registration Statement No. 33- ended September 30, 1995 is incorporated
64686). herein by reference at page 20.
3C-1 The Company's Registration Exhibit 3C-1 to the Company's Quarterly
Statement on Form S-8. Report on Form 10-QSB for the quarter
ended September 30, 1995 is incorporated
herein by reference at page 20.
4F Specimen Certificate for Class A Exhibit 4F to the Company's Annual
Common Shares. Report on Form 10-KSB for the year
ended December 31, 1994 is incorporated
herein by reference at page 20.
4H-1 Note and Warrant Purchase Exhibit 4H-1 to the Company's Quarterly
Agreement 15% Promissory Notes Report on Form 10-Q for September 30,
with Warrants. 1990 is incorporated herein by reference
at page 20.
</TABLE>
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4I-1 Term Note between AW Computer Exhibit 4I-1 to the Company's Quarterly
Systems, Inc. and National Report on Form 10-Q for September 30,
Westminster Bank, NJ in the amount 1992 is incorporated herein by reference
of $400,000 and Letter, Grid Note at page 20.
and Continuing General Security
Agreement dated August 28, 1992
between the Company and National
Westminster Bank, NJ approving a
line of credit in the amount of
$250,000.
4I-2 $600,00 Grid Note payable to Exhibit 4I-2 to the Company's Annual
National Westminster Bank-New Report on Form 10-KSB for the year
Jersey dated June 1, 1994. ended December 31, 1994 is incorporated
herein by reference at page 20.
4I-3 Term note in the amount of Exhibit 4I-3 to the Company's Annual
$500,000 and Continuing General Report on Form 10-KSB for the year ended
Security Agreement, both dated December 31, 1994 is incorporated
May 13, 1994 between the Company herein by reference at page 21.
and National Westminster Bank, NJ.
4I-4 Guarantee between the Company's Exhibit 4I-4 to the Company's Annual
subsidiary and National Westminster Report on Form 10-KSB for the year
Bank, NJ dated on May 31, 1994. ended December 31, 1994 is incorporated
herein by reference page 21.
4I-5 Letter Agreement between the Page 53.
Company and NatWest Bank N.A.
dated July 25, 1995.
10D Employment Agreement dated Exhibit 10D to the Company's Annual
October 1, 1986 between Nicholas Report on Form 10-K for the year ended
Ambrus and the Company. December 31, 1990 is incorporated herein
by reference at page 21.
</TABLE>
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10D-1 Amendment to Employment Exhibit 10D-1 to the Company's Annual
Agreement between the Company Report on Form 10-K for the year ended
and Nicholas Ambrus. December 31, 1990 is incorporated herein
by reference at page 21.
10D-4 Supplemental Employment and Exhibit 10D-4 to the Company's Annual
Retirement Agreement dated March Report on Form 10-KSB for the year
1, 1993 between Nicholas Ambrus ended December 31, 1993 is incorporated
and the Company. herein by reference at page 21.
10E Employment Agreement dated Exhibit 28C to the Company's
October 1, 1986 between Charles Registration Statement No. 33-1898 is
Welch and the Company. incorporated herein by reference. Exhibit
10E to the Company's Annual Report on
Form 10-K for the year ended December
31, 1990 is incorporated herein by
reference at page 21.
10E-1 Amendment Number Two to Page 56.
Employment Agreement between
the Company and Charles Welch.
10F Employment Agreement between Exhibit 10F to the Company's Annual
the Company and Charles J. Report on Form 10-KSB for the year
McMullin dated April 25, 1994. ended December 31, 1994 is incorporated
herein by reference at page 22.
10G Employment Agreement between Page 57.
the Company and P. Michael Lutze
date February 15, 1996.
10H Lease between Linpro Industrial Exhibit 10H to the Company's Annual
Limited and the Company dated Report on Form 10-K for the year ended
August 12, 1983. December 31, 1983 is incorporated herein
by reference at page 22.
10H-1 Amendment dated August 1, 1986 to Exhibit 10H-1 to the Company's Annual
the Lease between Linpro Industrial Report on Form 10-K for the year ended
Limited and the Company. December 31, 1986 is incorporated herein
by reference at page 22.
</TABLE>
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10H-2 Amendment dated December 2, Exhibit 10H-2 to the Company's Annual
1986 to the Lease between Linpro Report on Form 10-K for the year ended
Industrial Limited and the Company. December 31, 1986 is incorporated herein
by reference at page 22.
10H-3 Sixth Amendment dated November Exhibit 10H-3 to the Company's Annual
27, 1991 to Lease between Linpro Report on Form 10-K for the year ended
South Jersey, Inc. and the Company. December 31, 1991 is incorporated herein
by reference at page 22.
10H-4 Seventh Amendment dated June 7, Exhibit 10H-4 to the Company's Annual
1992 to lease between Linpro Report on Form 10-KSB for the year
Greentree Business Centre ended December 31, 1987 is incorporated
Partnership and the Company. herein by reference at page 22.
10H-5 Eighth Amendment dated February Exhibit 10H-5 to the Company's Annual
15, 1994 to lease between Linpro Report on Form 10-KSB for the year
Greentree Business Centre ended December 31, 1994 is incorporated
Partnership and the Company. herein by reference at page 23.
10J Summary of Bonus Plan. Exhibit 10J to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1987 is incorporated herein
by reference at page 23.
10L Letter Agreement between the Exhibit 10L of the Company's Annual
Company and the Wall Street Report on Form 10-KSB for the year
Group. ended December 31, 1992 is incorporated
herein by reference at page 23.
10M-1 IBM Business Partner Agreement Exhibit 10M-1 to the Company's Annual
Application Specialist dated January Report on Form 10-KSB for the year
12, 1992. ended December 31, 1994 is incorporated
herein by reference at page 23.
10M-12 Development Agreement between Exhibit 10M-12 to the Company's Annual
Fujitsu-ICL and the Company dated Report on Form 10-KSB for the year
June 29, 1993. ended December 31, 1994 is incorporated
herein by reference at page 23.
</TABLE>
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10M-13 Amendment #1 to the Development Exhibit 10M-13 to the Company's Annual
Agreement between Fujitsu-ICL and Report on Form 10-KSB for the year
the Company dated January 21, ended December 31, 1994 is incorporated
1994. herein by reference at page 23.
10M-14 Reseller Agreement between NCR Exhibit 10M-14 to the Company's Annual
Corporation and the Company dated Report on Form 10-KSB for the year
August 17, 1992. ended December 31, 1994 is incorporated
herein by reference at page 23.
10M-15 Referral Agreement between NCR Exhibit 10M-15 to the Company's Annual
Corporation and the Company dated Report on Form 10-KSB for the year
August 17, 1992. ended December 31, 1994 is incorporated
herein by reference at page 24.
10M-16 Addendum to the Referral Exhibit 10M-16 to the Company's Annual
Agreement between NCR Report on Form 10-KSB for the year ended
Corporation and the Company dated December 31, 1994 is incorporated herein
December 10, 1993. by reference at page 24.
10M-17 Letter Agreement between NCR Exhibit 10M-17 to the Company's Annual
Corporation and the Company Report on Form 10-KSB for the year
extending repayment of the Referral ended December 31, 1994 is incorporated
Agreement dated February 23, 1995. herein by reference at page 24.
10M-18 Solution Provider Agreement Page 62.
between Microsoft Corporation and
the Company dated August 1995.
10N 1984 Stock Option and Stock Grant Exhibit 10N to the Company's Quarterly
Plan of the Company. Report on Form 10-Q for the quarter
ended June 30, 1988 is incorporated
herein by reference at page 24.
10N-1 Amendment to the 1984 Stock Exhibit 10O to the Company's Quarterly
Option and Stock Grant Plan. Report on Form 10-Q for the quarter
ended June 30, 1989 is incorporated
herein by reference at page 24.
</TABLE>
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10N-2 The Company's October 1992 Stock Exhibit 10N-2 to the Company's Annual
Option and Stock Grant Plan (as Report on Form 10-KSB for the year
amended). ended December 31, 1992 is incorporated
herein by reference at page 24.
10P Subscription Agreement between the Page 68.
Company and Winn-Dixie Stores,
Inc. dated March 8, 1996.
10P-1 Addendum to Warrant Agreement Page 71.
between the Company and Winn-
Dixie Stores, Inc. dated March 8,
1996.
10P-2 SEC Report on Form 10-C dated Page 72.
March 12, 1996.
10T-1 POS Purchase Agreement dated Exhibit 10T-1 to the Company's Annual
April 18, 1991 between Wal-Mart, Report on Form 10-K for the year ended
Inc. and the Company. December 31, 1991 is incorporated herein
by reference at page 25.
10U Letter Agreement between the Page 73.
Company and Janney Montgomery
Scott Inc. dated October 4, 1995.
10U-1 Letter Agreement between the Page 78.
Company and Janney Montgomery
Scott Inc. dated January 30, 1996.
10U-2 Letter Agreement between the Page 79.
Company and Janney Montgomery
Scott Inc. dated March 5, 1996.
</TABLE>
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10V Agreement for the Procurement of Exhibit 10V to the Company's Annual
Life Insurance dated May 13, 1986 Report on Form 10-K for the year ended
between the Company and Nicholas December 31, 1986 is incorporated herein
Ambrus. by reference at page 25.
10W Agreement for the Procurement of Exhibit 10W to the Company's Annual
Life Insurance dated May 13, 1986 Report on Form 10-K for the year ended
between the Company and Charles December 31, 1986 is incorporated herein
Welch. by reference at page 25.
10Y IBM Subcontract Agreement dated Exhibit 10Y to the Company's Quarterly
February 11, 1992 between the IBM Report on Form 10-Q for September 30,
Corporation and the Company with 1992 is incorporated herein by reference
Pricing Amendment Letter dated at page 25.
February 26, 1992.
21 Subsidiaries of the Registratant. Page 81.
23 Consent of Coopers & Lybrand, Page 82.
L.L.P., Independent Accountants.
27 Financial Data Schedule, CE
electronically filed, as per
Regulation SB.
No reports on Form 8-K were filed
by the Company during the last
quarter of 1995.
</TABLE>
<PAGE>
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National Westminster Bank NJ EXHIBIT 4I-5
51 Cragwood Road
South Plainfield, NJ 07080
A.W. Computer Systems, Inc.
9000A Commerce Parkway
Mt. Laurel, NJ 08054
Attention: Mr. Charles McMullin, Executive Vice President
RE: Term Note ("Term Note") in the principal amount of $400,000 made and
delivered by A.W. Computer Systems, Inc. (the "Company") to National Westminster
Bank, NJ now known as NatWest Bank N.A. (the "Bank").
Fixed Rate Term Note ("Fixed Rate Note") dated May 13, 1994 in the
principal amount of $500,000 made and delivered by the Company to the Bank.
Interest bearing Grid Note ("Grid Note") in the principal amount of
$600,000 made and delivered by the Company to the Bank.
Dear Mr. McMullin:
Reference is made to each of the above notes and your request that we
modify the terms of the Fixed Rate Note and the Grid Note. We have agreed to go
upon the following terms and conditions:
1. Existing Undebtedness
The Company hereby confirms to the Bank that without offset,
deduction or counterclaim, as follows:
a) The Term Note has a principal balance of $133,333.44
outstanding as of June 30, 1995 together with accrued and unpaid interest
thereon.
b) The Fixed Rate Note has a principal balance of $400,000
outstanding as of June 30, 1995 together with accrued and unpaid interest
thereon.
c) The Grid Note by its terms matured on May 30, 1995 and as
of that date, the principal balance outstanding thereunder was $550,000 together
with accrued and unpaid interest thereon.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 54 of 84.
2. Payment of Term Note and Modification of Fixed Rate Note and
Grid Note
Upon payment in full of the Term Note and provided such
payment occurs prior to August 1, 1995, we agree to modify the terms of the
Fixed Rate Note and the Grid Note as follows:
a) Fixed Rate Note-Commencing on August 1, 1995 and on the
first day of each month thereafter, eleven (11) successive monthly principal
installments, each in the amount of $33,333.33, shall be paid to the Bank
together with interest as set forth in the Fixed Rate Note on each principal
payment date as set forth herein. The principal balance remaining of
approximately $25,000.08 (after payment of such principal payments) and any
accrued interest thereon shall be due and payable on July 1, 1996 unless sooner
accelerated. Provided payments are made as stated therein, the Bank shall waive
any provision requiring the Company to maintain any ratio of debt to net worth
and/or any ratios relating to net operation profit whether required in this note
or elsewhere. /s/CJM
b) The Grid Note-Effective May 30, 1995:
(i) No further advances shall be available to the
Company under this note.
(ii) Interest payments shall continue to be paid as set
forth in the note and shall commence on August 1, 1995 and on the first day of
each month thereafter until
this note is paid in full.
(iii) The principal balance and any accrued and unpaid
interest shall be due and payable on December 31, 1996 unless sooner
accelerated.
3. Other Communications.
The Company's acceptance of this letter agreement shall also
confirm that to the extent any discussions have taken place, or may hereafter
take place, between the Bank and the Company, or any representative of the
Company, with regret to any possible settlement or restructuring of the above
notes:
(a) neither the fact nor the contents of such discussions
may be raised by the Company for any purpose whatsoever, in any action or
proceeding dealing with the Obligations in which the Company and the Bank are
parties,
(b) such discussions may be terminated by either the Bank or
the Company at any time without either party incurring any liability to the
other,
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 55 of 84.
(c) such discussions, if entered into by the Bank, shall be
without prejudice of the Bank's rights and remedies under any and all documents
evidencing or securing the above notes, (the "Loan Documents"), and shall not be
deemed to constitute a waiver by the Bank of any default under the Loan
Documents nor an implied extension of the term of any of the above notes except
as provided in this letter agreement.
4. Additional Matters; Releases; Waivers.
By its signature below, the Company hereby releases the Bank
and its officers, employees, agents, heirs, successors and assigns with respect
to any and all claims, actions or causes of action they might have against the
Bank. To further evidence such release, if requested by the Bank, the Company
shall execute a separate release in form and substance satisfactory to the Bank.
5. No Amendments.
Except as provided in this letter agreement, all of the terms,
covenants and provisions of the Loan Documents shall continue in full force and
effect without modification
This letter agreement is without prejudice to the Bank's
rights and remedies, all of which are expressly reserved.
If the foregoing is agreeable to the Company, please have a
copy of this letter countersigned by the Company and returned to the undersigned
on or before July 25, 1995, otherwise this letter shall be unenforceable against
the Bank.
Very truly,
/s/Joseph Gargiulo
Joseph Gargiulo
Assistant Vice President
The foregoing is hereby agreed to:
A.W. Computer Systems, Inc.
by/s/Charles J. McMullin, Exec V.P.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 56 of 84.
EXHIBIT 10E-1
A M E N D M E N T N U M B E R T W O
T O
E M P L O Y M E N T A G R E E M E N T
This Amendment Number Two entered into as of August 31, 1995.
WHEREAS, AW Computer Systems, Inc., 9000A Commerce Parkway, Mount Laurel, New
Jersey 08054 ("AW") and Charles Welch, an individual ("Executive") have entered
into an Employment Agreement dated as of the first day of October 1985; and,
WHEREAS, AW and Executive wish to extend the term of the said Employment
Agreement:
NOW THEREFORE, in consideration of the mutual promises contained herein and
intending to be legally bound the parties agree as follows:
1. Paragraph 2.01 of the said Agreement is hereby amended so that so that
the "Term of Employment" as defined in said paragraph shall end on
September 30, 1998. All other terms of the said Agreement shall remain
in full force and effect.
2. Paragraph 3.0 of the said Agreement is hereby amended to read in its
entirety:
3.01. Basic Compensation. As compensation for services to the
Company pursuant to this Agreement, the Company shall pay to
executive a salary at the rate of $168,150 per year. Such annual
salary shall be paid to Executive in approximately equal
semi-monthly installments.
3. Paragraph 3.02 of the said Agreement is hereby amended so that the
annual increase shall commence on October 1, 1995.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written.
(CORPORATE SEAL) AW COMPUTER SYSTEMS, INC.
Attest:/s/Robert O'Connor By:/s/Charles W. Welch
Witness:/s/Robert O'Connor /s/Nicholas Ambrus
Nicholas Ambrus
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 57 of 84.
EXHIBIT 10G
EMPLOYMENT AGREEMENT
Employment Agreement made as of the 15th day of February, 1996 by and between AW
Computer Systems, Inc., a New Jersey corporation (the "Company"), and Michael
Lutze, 9000A Commerce Pkwy. Mt Laurel, New Jersey 08054 an individual (the
"Executive").
W I T N E S S E T H:
In consideration of the mutual agreements contained herein and intending to be
legally bound, the parties hereby agree as follows:
SECTION 1. CAPACITY AND DUTIES
1.01 Nature of Employment. Subject to the terms and conditions herein set
forth, the Company hereby agrees to employ Executive as Executive
Assistant of the Company for the Term of Employment, as defined in
Section 2.01, and Executive hereby agrees to accept such employment.
Executive also agrees to undertake such duties as may be assigned to
him from time to time by the Board of Directors of the Company.
1.02 Extent of Employment. During the Term of Employment, the Executive
shall serve the company faithfully and to the best of his ability and
agrees to devote his full time during normal business hours and at
other times as reasonably necessary to the Company's business and
perform the duties of an executive of the Company and any other such
duties consistent with an executive that shall from time to time be
assigned to him by the Board of Directors of the Company. During the
Term of Employment hereunder, the Executive shall not perform any
services for any other company, which services shall conflict with his
obligations hereunder. Nothing in this Agreement shall preclude the
Executive from:
2) Delivering lectures, fulfilling speaking engagements and teaching
at educational institutions;
3) Engaging in charitable and community activities; and
4) Managing his personal investments, provided such activities do
not materially interfere with the regular performance of his
duties and responsibilities under this Employment Agreement.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 58 of 84.
Employment Agreement (continued)
SECTION 2. TERM OF EMPLOYMENT
2.01 Term of Employment. "Term of Employment" as used herein shall mean the
period beginning on February 15, 1996 and ending on February 14, 1999,
provided, however, that should the Executive's employment be earlier
terminated as hereinafter set forth in Section 2.03, the "Term of
Employment" shall end on the date of such earlier termination.
2.02 Extension. The Term of Employment shall be automatically extended for
successive three year periods in the absence of 180 days written
notice prior to the end of the then effective Term of Employment.
2.03 Termination.
(a) Death. The Term of Employment shall immediately terminate upon
the death of the Executive, in which event the Company shall not
be obligated to make any further payments hereunder other than
salary accrued as of the date of termination.
(b) Disability. If the Executive, in the reasonable opinion of the
Board of Directors of the Company, is unable to perform his
duties for a period of six consecutive months by reason of
physical or mental disability, the Term of Employment shall
terminate upon the receipt by the Executive at any time during
the continuation of such disability of a written notice to such
effect, in which even the Company shall not be obligated to make
any further payments hereunder other than salary accrued as of
the date of termination.
(c) Discharge for Cause. The Term of Employment shall be terminated
immediately if the Board of Directors of the Company discharges
the Executive for Cause, in which event the Company shall not be
obligated to make any further payments hereunder other than
amounts accrued as of the date of termination. "Cause" shall
mean: (i) Executive's dishonesty; or (ii) Executive's conviction
of a serious crime; or (iii) the willful breach or habitual
neglect by the Executive of the duties that he is required to
perform under the terms of this Agreement following the
Executive's receipt of written notice from the Company requesting
that the Executive correct such willful breach or habitual
neglect. Page 2 of 5
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 59 of 84.
Employment Agreement (continued)
(d) Early Termination.
(i) Employment hereunder may be terminated at any time without
cause by the Board of Directors of the Company in its sole
discretion upon written notice to the Executive at which
time the Term of Employment shall end. If the Executive's
employment hereunder is terminated pursuant to this
paragraph (d)(i), the Company shall continue to pay the
Executive his salary provided for in paragraph 3.01 until
the earlier to occur of (A) February 14, 1999, (B) his
death, (C) his employment with another organization of any
kind which provides the Executive with compensation, at
which time the Company shall be only obligated to pay the
Executive the difference between his compensation from the
new employer, if it is lower than the salary payable under
this paragraph and the salary payable under this paragraph
(i) or (D) the date on which the Executive becomes engaged
in or associated in any capacity with, or financially
interested in, any enterprise, firm or corporation which is
in competition with the Company or engages in or
participates in any effort or act to induce any of the
customers or employees of the Company to take any action
which would be disadvantageous to the Company. The Company
shall have no further obligation to the Executive beyond the
provisions of this paragraph 2.03(d)(i). In exchange for
this severance payout, the Executive agrees to resign from
any and all offices, positions, seats or capacities of any
character related to the Executive's relationship to the
Company.
(ii) For purposes of this paragraph (d), the ownership by the
Executive of less than five percent of the issued and
outstanding stock of any corporation the shares of which are
traded on a recognized public market shall not, solely for
such reason, cause the Executive to be deemed to be
associated with or financially interested in any enterprise,
firm or corporation which is in competition with the
Company. Page 3 of 5
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Page numbered in accordance with Rule 0-3(b). Page 60 of 84.
Employment Agreement (continued)
SECTION 3. COMPENSATION
3.01 Basic Compensation. As compensation for services to the Company
pursuant to this Agreement, the Company shall pay to the Executive a
salary at the rate of $126,800 per year. Such annual salary shall be
paid to the Executive in approximately equal semi-monthly
installments.
3.02 Employee Benefit Plans. In addition to the compensation provided for
in Sections 3.01, during the Term of Employment the Executive shall be
entitled to participate in the Company's existing benefit plans for
its officers and such other plans and benefit programs as may
hereafter be instituted by the Company in the same manner and to the
same extent as may from time to time be provided for other officers of
the Company.
3.03 Company Automobile. In addition to the compensation provided for in
Sections 3.01 and 3.02, during the Term of Employment the Company
shall furnish to the Executive an automobile of the Executive's choice
with a cost of up to $35,000. Executive shall be subject to taxation
for personal use of the automobile in accordance with the Internal
Revenue Code and the Internal Revenue Service regulations thereunder.
At the end of the Term of Employment, Executive shall return the
automobile to the Company in the same condition as when it was
furnished by the Company to Executive, reasonable wear and tear
excepted.
SECTION 4. MISCELLANEOUS
4.01 Notices. All notices or other communications hereunder shall be in
writing and deemed given if mailed by registered mail, return receipt
requested, to the parties at the addresses set forth below or such
other address of a party as shall be specified by notice to the other
party hereunder:
Page 4 of 5
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 61 of 84.
Employment Agreement (continued)
To the Company:
AW Computer Systems, Inc.
9000A Commerce Parkway
Mount Laurel, NJ 08054
To the Executive at his most recent address as shown on the
Company's records.
4.02 Assignment. This Agreement shall not be assignable by the Executive
and shall be assignable by the Company only to any person, firm or
corporation which may become a successor in interest to the Company by
purchase, merger or otherwise of the business presently operated by
it.
4.03 Entire Agreement. This Agreement represents the entire agreement and
understanding of the parties with respect to the subject matter
hereof, and supersedes all prior agreements and understanding of the
parties in connection therewith.
4.04 Binding Effect. This Agreement shall be binding upon the parties
hereto and their respective heirs, successors and assigns and shall
inure to the benefit of the parties hereto and, except to the extent
otherwise provided herein, to their respective heirs, successors and
assigns.
4.05 Governing Law. This Agreement shall be governed by the laws of the
State of New Jersey.
4.06 Headings. The headings in this Agreement are for convenience only;
they form no part of this Agreement and shall not affect its
interpretation.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written:
(CORPORATE SEAL) AW COMPUTER SYSTEMS, INC.
Attest: By:
/s/Robert O'Connor /s/Charles W. Welch
Witness:
/s/Robert O'Connor /s/P. Michael Lutze
Executive
Page 5 of 5
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EXHIBIT 10M-18
Microsoft Solution Provider Agreement
Member Level
SP Company Name: AW Computer Systems, Inc.
This Agreement ("Agreement") is between Microsoft Corporation ("Microsoft"), a
Washington corporation, located at One Microsoft Way, Redmond, WA 98052, and the
Microsoft Solution Provider ("SP") named above whose principal place of business
appears at the end of this Agreement. DO NOT ALTER OR AMEND THIS AGREEMENT IN
ANY MANNER: such alterations, without Microsoft written acceptance, will void
this Agreement.
1. PURPOSE
SP desires to provide comprehensive computer solutions to certain of its
customers, which may include the supply of computer hardware and software and
the provision of product support and training. Microsoft desires to supply
Microsoft software and provide services and support on Microsoft products to
assist SP in providing its customers with such solutions.
2. APPOINTMENT
Microsoft hereby appoints SP as a non-exclusive Microsoft Solution Provider at
the Member level in the Territory defined in the attached Details Annex, with
authority to promote its goods and services, in association with Microsoft, in
accordance with the terms of this Agreement.
3. TERMS AND TERMINATION
This Agreement shall take effect on the date of its acceptance by Microsoft
("Effective Date"), and unless terminated earlier as provided herein, shall
continue until September 30, 1996. (Acceptance is date indicated in the
confirmation letter from Microsoft to SP, indicating acceptance into the SP
program.) Either party shall have the right to terminate this Agreement at any
time, without cause and without the intervention of the courts, on the giving of
thirty (30) days' prior written notice. Neither party shall be responsible to
the other for any costs or damages resulting from the termination of this
Agreement. Upon expiration or termination of this Agreement, all rights and
benefits granted by this Agreement shall revert to Microsoft and SP shall
immediately cease use of all internal use and training licenses, MSDN and
TechNet licenses and the Solution Provider logo, and shall cease to represent
itself as a Microsoft Solution Provider.
4. PAYMENT
The fee for the appointment as a Microsoft Solution Provider under this
Agreement consists of a basic fee of $1,995 U.S. per year. This fee includes a
$795 U.S. fixed charge for product support benefits and a quarterly pro-rated
fee of $300 U.S. SP agrees to pay the fixed basic fee to Microsoft at time of SP
signature on this Agreement.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 63 of 84.
5. SP RIGHTS AND OBLIGATIONS
(A) TRADEMARKS
The appropriate trademark symbol (either "TM" [standard trademark] or (R)
[registered trademark] in a superscript following the product name) shall be
used whenever a Microsoft product name is mentioned in any advertisement,
brochure, or material circulated or published in any form whatsoever by SP. The
appropriate trademark symbol must be used in conjunction with, at least, the
first reference to each Microsoft product in all SP's circulations or
publications. Microsoft reserves the right to amend any Microsoft trademark,
service mark or logo and agrees to notify SP of any such amendments that are
relevant to SP's business. SP agrees to ensure that its use of any such mark
and/or logo is amended accordingly.
(B) SALES AND SERVICE REPORTING
When requested by Microsoft, Sales and Service reports shall be completed by SP
and forwarded to the Microsoft address indicated on the reporting template. Such
reports shall be substantially in the format of the reporting template provided
to SP from time to time. Frequency of Sales and Service reporting is expected to
be no more than quarterly. SP warrants that such reports are true and correct to
the best of its knowledge and belief.
(C) MEMBERSHIP APPLICATION AND PROFILE REPORT
SP represents and warrants that all the information provided on its Membership
Application and/or Profile Report is, in all material respects, true and correct
to the best of its knowledge and belief, and warrants that the information will
continue to be so during the term of this Agreement. Should there be any changes
in such information during the course of this Agreement, SP agrees to promptly
inform Microsoft in writing, giving details of such changes.
(D) MICROSOFT CERTIFIED PROFESSIONAL PERSONNEL
SP warrants that at least one (1) full-time member of its staff is qualified as
a Microsoft Certified Professional ("MCP") at SP's principal place of business
at all times during this agreement. Further, SP shall have one additional MCP on
staff by January 1, 1996, for a total of two (2) MCP's for the duration of the
Agreement.
(E) SERVICE/SALES ESTIMATE
SP's best estimate is that more than 15% of its revenues are generated from
provision of technical services (custom development, integration, consulting,
training and technical support) to its customers. This estimate shall not
include those services, support, training, etc. Provided to SP or any of SP's
Affiliates, subsidiaries, branches, divisions, or other related third parties.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 64 of 84.
6. SOLUTION PROVIDER FEATURES
(A) IDENTITY/LOGO USAGE
SP shall have the right to identify itself as a "Microsoft Provider" provided
that (i) SP continues to comply with Section 5 (d) above (Microsoft Certified
Professional personnel); (ii) SP complies with the then current Guidelines for
Using the Microsoft Solution Provider Logo (available from Microsoft); and (iii)
SP is in full compliance with the terms and conditions of this Agreement. In the
event that any of the above provisions are not met, SP will immediately cease
identifying itself as a Microsoft Solution Provider. Microsoft reserves the
right to amend the Microsoft Solution Provider logo and any other Microsoft
trademark, service mark or logo and agrees to notify SP of any such amendments
that are relevant to SP's business. SP agrees to ensure that its use of the
Microsoft Solution Provider logo and related trademarks, service marks and logos
is amended accordingly.
(B) LICENSE GRANT FOR INTERNAL AND MARKETING USE
Microsoft hereby grants SP a non-exclusive, non-transferable, royalty-free,
terminable license to make and use a total of ten (10) copies of Windows 95, ten
(10) copies of Windows NT Workstation, ten (10) copies of Microsoft Office
Professional, and BackOffice Server Products [up to five (5) server licenses of
any server product in the BackOffice suite (Windows NT Server, SQL Server, SMS,
SNA Server, Mail Server)] in any combination for a total of no more than five
(5) individual server products, fifty (50) Back Office client licenses, one (1)
license for Visual Basic Professional and one (1) license for Visual C++. These
copies may be used for internal purposes and for marketing demonstrations only.
Upgrades to these products will be provided through the term of the Agreement.
SP is also eligible to acquire various Microsoft products under the Microsoft
Internal Use Product Program. Any products acquired thereby are governed by the
terms and conditions of this paragraph, as well as any terms and conditions
contained on the Microsoft Internal Use Product Program Order Form.
In all cases, use of the copies is subject to the additional terms of the End
User License Agreement for the corresponding product expect that the copies
shall not be resold or transferred to a third party. SP is permitted to use the
copies for marketing demonstrations at the premises of customers provided that
following any demonstrations, the copies, and license to use them, are not
assigned to the customer. The limited warranty, including liability limitation,
contained in the End User License Agreement for each Microsoft product shall
also apply. The terms of the End User License Agreements vary among different
Microsoft products. Microsoft reserves the right to change the Microsoft
products (and number of copies) licensed for internal and marketing use, and as
may be provided through the Microsoft Internal Use Product Program, form time to
time, in its sole discretion.
Upon termination or expiration of this Agreement, the rights granted in this
section shall revert to Microsoft and SP shall immediately cease us of all
internal and marketing use licenses, and any licenses provided through the
Microsoft Internal Use Product Program.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 65 of 84.
(C) TRAINING USE LICENSES
SP may offer training to customers on Microsoft products which are the subject
of this Agreement. SP is solely responsible for all costs and expenses
associated with training. Microsoft hereby grants SP permission to reproduce a
Microsoft product for up to one hundred (100) workstations at a time, for the
sole purpose of providing training on said Microsoft products. Training use of a
Microsoft product is held subject to the following conditions: (i) SP agrees to
destroy all copies at such time as SP is no longer a Microsoft SP; (ii) SP
agrees to destroy all copies used outside of SP location upon completion of
on-site training; (iii) SP may only reproduce Microsoft products for which SP
conducts training classes; (iv) SP agrees to be bound by the terms of the
Microsoft End User License Agreement for each copy, except that these Microsoft
products shall neither be resold nor transferred to a third party, and will
strictly control use of said copy in accordance with the End User License
Agreement; and (v) all copies of the Microsoft product shall be true and
complete copies, including all copyright and trademark notices.
(D) PRODUCT SUPPORT
(i) SP agrees to provide details of SP's network configuration as requested by
Microsoft. Microsoft may determine at any time that SP's network configuration
and topology are not supportable, in which case Microsoft in under no obligation
to provide the product support. Any subsequent changes to network configuration
and topology must be sent to Microsoft in writing, and Microsoft may redetermine
supportability.
(ii) The Microsoft support telephone number and other product support materials
will be provided to SP, and SP's product support will be activated, at the
earliest opportunity after the Effective Date.
(iii) Limited Warranty: Microsoft warrants that the teleprocessing services and
support provided hereunder shall reasonably accord with the service and support
description given in the relevant product support materials available from
Microsoft. THIS WARRANTY IS THE ONLY WARRANTY MADE BY MICROSOFT FOR PRODUCT
SUPPORT AND TELEPROCESSING SERVICES, AND IS IN LIEU OF ALL OTHER WARRANTIES AND
CONDITIONS. SP HEREBY WAIVES TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
ALL OTHER WARRANTIES AND CONDITIONS, EXPRESS, IMPLIES, OR STATUTORY, INCLUDING,
BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. It is understood that the provision of teleprocessing services
hereunder is dependent upon the continuous availability of communications
facilities to Microsoft and that Microsoft cannot warrant such availability. In
addition, Microsoft makes no guarantee of problem resolution and dies not
warrant that the support will be uninterrupted or error-free. SP agrees to take
adequate precautions against damage to its operation that could be caused by
such interruption or errors, including making appropriate data backups.
Microsoft cannot be held responsible for any loss of SP's data.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 66 of 84.
(E) MSDN AND TECHNET LICENSES
Microsoft hereby grants SP a non-exclusive, non-transferable, royalty-free,
terminable license for one (1) TechNet server license, ten (10) MSDN Development
Library licenses, and one (1) MSDN Development Platform license. SP will be
provided with updates to one (1) non-transferable set of CDs to facilitate this.
These licenses may be used for internal use and marketing demonstrations only.
This grant amends the End User License Agreements of MSDN and TechNet; however,
the provisions of such End User License Agreements where unamended remain in
full force and effect.
(F) PROMOTIONAL MATERIALS
Microsoft may, in its sole discretion, reference SP in advertising and
promotional materials in connection with the sale and promotion of Microsoft
products. Uses of SP's name include but are not limited to: lists of SP's for
customer information, advertising of SP program containing SP's name etc. When a
specific advertisement or promotion containing only SP's name is planned,
Microsoft will obtain SP's written permission before such use.
Microsoft shall also obtain SP's written permission before us of any logo of SP.
(G) CHANGES IN SP AGREEMENT FEATURES
SP understands that Microsoft may expand, change the scope or contents of,
and/or delete, any features offered under the Solution Provider program. In the
event that Microsoft adversely changes any program features, and should SP be
dissatisfied with those changes, SP may terminate this Agreement in accordance
with Section 3 and will have no other recourse against Microsoft.
7. CONFIDENTIALITY
Each party expressly undertakes to retain in confidence all information and
know-how transmitted to the other that the disclosing party has identified as
being proprietary and/or confidential or that, by the nature of the
circumstances surrounding the disclosure, ought in good faith to be treated as
proprietary and/or confidential, and expressly undertakes to make no use of such
information and know-how except under the terms and during the existence of this
Agreement (or a subsequent Solution Provider Agreement). However, neither party
shall have an obligation to maintain the confidentiality of information that (i)
it received rightfully from a third party prior to its receipt from the
disclosing party; (ii) the disclosing party has disclosed to a third party
without any obligation to maintain such information in confidence; or (iii) is
independently developed by the obligated party. Further, either party may
disclose confidential information as required by governmental or judicial order,
provided such party gives the other party prompt written notice prior to such
disclosure and complies with any protective order (or equivalent) imposed on
such disclosure. Each party shall treat all Microsoft product adaptation
materials as confidential information and shall not disclose, disseminate, or
distribute such materials to any third party without the other's prior written
permission. Each party shall treat the terms and conditions of this Agreement as
confidential; however, SP may disclose such information in confidence to its
immediate legal and financial consultants as required in the ordinary course of
its business. Each party's obligation under this Section shall extend to the
earlier of such time as the information protected hereby falls into the public
domain through no fault of the obligated party or five (5) years following
termination or expiration of this Agreement.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 67 of 84.
8. NEW PRODUCTS
Notwithstanding any other provisions of this Agreement, Microsoft may elect at
any time during the term of the Agreement to announce new Microsoft products to
which the terms and conditions of this Agreement may not apply. New versions,
updates, and maintenance releases of existing titles are not considered new
Microsoft products.
9. WARRANTIES/LIMITED WARRANTIES
Microsoft warrants all Microsoft products provided to SP under the terms of this
Agreement on the terms set out in the written limited warranty document
accompanying each such product. THESE LIMITED WARRANTIES ARE IN LIEU OF ALL
OTHER WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND
OF ALL OTHER OBLIGATIONS, CONDITIONS, OR LIABILITIES ON MICROSOFT'S PART EXCEPT
AS OTHERWISE PROVIDED BY APPLICABLE LAW.
10. LIMITATION OF LIABILITY
Subject to applicable law, neither Microsoft nor anyone else who has been
involved in the creation, production, or delivery of the products or services
that are the subject of this Agreement shall be liable for any direct, indirect,
consequential or incidental damages (including damages for loss of business
profits, business interruption, loss of business information, and the like)
arising out of the use of or inability to use the Microsoft products, or
provision of, or failure to provide, support, even if Microsoft has been advised
of the possibility of such damages. Because some jurisdictions do not allow the
exclusion or limitation of consequential or incidental damages, the above
limitation may not apply. In any event, except as otherwise provided by law, the
liability of Microsoft or its suppliers, whether for negligence, breach of
contract, breach of warranty, or otherwise, shall, in the aggregate, not exceed
the amount paid to Microsoft by SP hereunder.
11. GENERAL
(a) All notices, authorizations, and requests in connection with this Agreement
shall be deemed given two (2) business days after they are sent by
registered mail, and addressed as follows:
SP: (name and address as set forth at the end of this Agreement)
Microsoft: (name and address at set forth in the Details Annex)
Attn.: Microsoft Solution Provider Program, Program Marketing Manager
cc: Legal Department
or to such other address as the party to receive the notice so designates
by written notice to the other.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 68 of 84.
(b) This Agreement and the Details Annex constitute the entire agreement
between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous communications including all prior
and current Solution Provider Agreements. It shall not be modified except
by a written agreement dated subsequent to the Effective Date of this
Agreement and signed on behalf of SP and Microsoft by their respective duly
authorized representatives.
(c) If a particular provision of this Agreement is terminated or held by a
court of competent jurisdiction to be invalid, illegal, or unenforceable,
this Agreement shall remain in full force and effect as to the remaining
provisions.
(d) No waiver of any breach on any provisions of this Agreement shall
constitute a waiver of any prior, concurrent, or subsequent breach of the
same or any other provisions hereof, and no waiver shall be effective
unless made in writing and signed by a authorized representative of the
waiving party.
(e) Neither this Agreement, nor any terms and conditions contained herein,
shall be construed as creating a partnership, joint venture, franchise or
agency relationship.
(f) SP agrees that it shall inform its customers that SP is in independent
business from Microsoft, and shall not hold itself out as an agent of
Microsoft, or attempt to bind Microsoft to any third-party agreement. SP
shall defend, indemnify, and hold harmless Microsoft from and against all
liabilities, claims, costs, fines, and damages of any type (including
attorney's fees) arising our of or in any way related to SP's delivery of
training services and/or product support to its customers.
(g) This Agreement, and any rights or obligations hereunder, shall not be
assigned or sublicensed by SP, without Microsoft's prior written consent.
(h) This Agreement shall be governed by the laws of the State of Washington and
SP consents to jurisdictions and venue in the state and federal courts
sitting in the State of Washington. If either Microsoft or SP employs
attorneys to enforce and rights arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
costs and attorney's fees.
ACCEPTED:
SP
Company Name: AW Computer Systems, Inc.
Signature: /s/Charles Welch
Name (printed):Charles Welch
Job title: President/CEO
Address: 9000A Commerce Parkway
Mount Laurel, NJ 08054
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 69 of 84.
Microsoft Solution Provider Agreement
MEMBER LEVEL
DETAILS ANNEX
1. TERRITORY
For the purposes of this Agreement, the Territory shall be 1) the USA, excluding
U.S. territories, U.S. possessions, and Puerto Rico, and 2) Canada.
2. FEE
BASIC FEE
Basic Solution Provider fee is $1,995 U.S. per year or $795 U.S. per year plus
$300 U.S. pre quarter.
The following fee schedule applies to al new and renewing Solution Providers
(and applies to each SP Affiliate as well, as applicable) and provides program
membership through September 30, 1996.
Renewals
<TABLE>
<CAPTION>
Canada
United States (GST Included)
<S> <C> <C>
August 1995 $1,995 US $2,989 CDN
</TABLE>
<TABLE>
<CAPTION>
United States Canada
(GST Included)
<S> <C> <C>
If we receive your completed
application between:
August 1, 1995-December 31, 1995 $1,995 U.S. $2,989 CDN
January 1, 1996-March 31, 1996 $1,695 U.S. $2,539 CDN
April 1, 1996-June 30, 1996 $1,395 U.S. $2,090 CDN
July 1, 1996-September 30, 1996 $1,095 U.S. $1,640 CDN
In British Columbia and Ontario Canada, add PST.
</TABLE>
3. SUPPORT
A Priority Comprehensive 10 pack is a non-optional feature of the SP Program and
is included in the Basic Fee for $795 U.S.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 70 of 84.
EXHIBIT 10P
March 8, 1996
Mr. Charles Welch
President/CEO
AW Computer Systems, Inc.
9000A Commerce Parkway
Mount Laurel, NJ 08054
RE: Subscription Agreement
Dear Mr. Welch:
The undersigned, (the "Purchaser"), hereby subscribes for, and is
purchasing on the date hereof, 250,000 Class A Common Shares (the "Securities")
of AW Computer Systems, Inc. (the "Company") at a price of $2.00 per share, an
aggregate of $500,000. The Purchaser is acquiring the Securities solely for its
own account and not with a view to their distribution within the meaning of the
Securities Act of 1933 and the Rules and Regulations thereunder (collectively,
the "Act").
The Company represents that the Securities have been duly authorized,
validly issued, fully paid, and are non-assessable.
The Purchaser represents that its present and anticipated financial
position permits it to purchase the Securities and to hold such Securities
indefinitely for investment purposes.
The Purchaser acknowledges that:
(a) the availability of the exemption from registration under the Act
relied upon by the Company in issuing these Securities is
dependent, in part, upon the truth of the representations made
herein;
(b) it is thoroughly familiar with the proposed business of the
Company and has made all investigations which it deems necessary
or desirable;
(c) the Securities are not registered under the Act or under any
applicable state securities law and must be held indefinitely
unless they are subsequently so registered or unless an exemption
from such registration is available.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 71 of 84.
Mr. Charles Welch
March 8, 1996
Page 2
(d) the Purchaser may request in writing that the Company cause a
registration statement to be filed with the Securities and
Exchange Commission under the Securities Act of 1933 with respect
to the shares purchased under this Agreement. The Company shall
use its best efforts to cause all 250,000 Class A Common Shares
purchased under this Agreement to be registered under the Act as
soon as reasonably practicable after receipt of the demand. The
Company will use its best efforts to keep the registration
effective for a period not to exceed sixteen (16) months. The
Company, as part of this registration effort, will use its best
effort to comply with the State "Blue Sky" laws for the purpose
of enabling the sale of the Shares in the following states:
Florida, Pennsylvania, New Jersey, and New York. The Company will
provide the Purchaser with five copies of the prospectus
contained in the registration statement and such other documents
as Purchaser may reasonably request in order to facilitate the
public sale or other disposition of the Class A Common Shares.
The Company will promptly notify Purchaser as to the effective
date of the registration statement. Purchaser agrees to provide
the Company with such information which may be required for the
registration statement.
(e) Purchaser shall pay all underwriting discounts and commissions
with respect to the Class A Common Shares covered hereby, and
fees and expenses of Purchasers counsel. The Company will pay all
federal filing and registration fees, all fees and expenses of
complying with federal securities laws, and all "Blue Sky" filing
fees and all other expenses of complying with state "Blue Sky"
laws, duplication expenses, and the fees and expenses of
corporate consultants, counsel and accountants. At the request of
Purchaser, Company will use its best efforts to comply with the
"Blue Sky" laws of any additional states named by the Purchaser.
Purchaser shall pay filing fees and expenses of complying with
"Blue Sky" laws in any states not appearing in paragraph (d).
(f) if, the Company issues any Class A Common Shares or Class B
Common Shares or other equity securities which are or can be
converted into common equity shares, other than shares covered by
the Company's existing Employee Stock Option and Grant Plan, as
amended from time to time, (Dilutive Issuance), the Purchaser has
the right to participate in any such issuance pro rata to
maintain its percentage ownership of Class A Common Shares
resulting from this transaction. Any such issuance by the Company
which is made for non-cash consideration shall be considered
issued in exchange for the fair market value of such non-cash
consideration as determined in good faith by the Board of
Directors of the Company.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 72 of 84.
Mr. Charles Welch
March 8, 1996
Page 3
(g) each certificate representing the Securities will bear the
following legend drawing attention to the restrictions on its
transferability;
The securities evidenced by this certificate have not been
registered under the Securities Act of 1993 or under any
applicable state securities law, and may not be transferred
except upon delivery to the Corporation of an opinion of
counsel satisfactory in form and substance to it that such
transfer will not violate the Securities Act of 1933, as
amended, or any applicable state securities law;
(h) if, at a time when registration is required, it is legally
permissible for the Purchaser to sell the Securities privately
without registration, any securities so sold will be restricted
in the hands of the purchaser.
Sincerely, Receipt Acknowledged:
AW Computer Systems, Inc.
/s/Richard McCook
Mr. Richard McCook
Chief Financial Officer By:/s/Charles W. Welch
Mr. Charles Welch
President/CEO
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 73 of 84.
EXHIBIT 10P-1
ADDENDUM TO WARRANT AGREEMENT BETWEEN
AW COMPUTER SYSTEMS, INC. AND
WINN-DIXIE STORES, INC.
DATED OCTOBER 28, 1993
As additional consideration for the purchase by Winn-Dixie Stores, Inc.
of 250,000 Unregistered Class A Common Shares of AW Computer Systems, Inc. at
$2.00 per share. AW Computer Systems, Inc., hereby modifies the strike price of
the warrants related to the Warrant Agreement, as amended, from $3.062 to $2.00.
This adjustment is in lieu of any adjustment required under Section 3 of the
Warrant Agreement.
Winn-Dixie Stores, Inc. and AW Computer Systems Inc. agree that all
other provisions of the Agreement, dated October 28, 1993 remain in effect.
AW Computer Systems, Inc. Winn-Dixie Stores, Inc.
By:/s/Charles W. Welch By:/s/R. P. McCook
Title:President Title:Financial V.P.
Date:3/5/96 March 8, 1996
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 74 of 84.
EXHIBIT 10P-2
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-C
Report by Issuer of Securities Quoted on NASDAQ
Interdealer Quotation System
Filed pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 and Rule 13a-17
or 15d-17 thereunder
AW COMPUTER SYSTEMS, INC.
(Exact name of issuer as specified in charter)
9000A Commerce Parkway, Mt. Laurel, NJ 08054 22-1991981
Address of Principal Executive Offices IRS Employer Identification No.
Issuer's telephone number, including area code: 609-234-3939
I. CHANGE IN NUMBER OF SHARES OUTSTANDING
Indicate any change (increase or decrease) of 5% or more in the number
of shares outstanding:
1. Title of Security: Class A Common Shares
2. Number of shares outstanding before the change: 4,483,544
3. Number of shares outstanding after the change: 4,733,544
4. Effective date of change: March 5, 1996
5. Method of change: Private Placement
Give brief description of transaction: Winn-Dixie Stores, Inc.
purchased 250,000 Class A Common Shares for $2.00 per share.
Additionally, the price of warrants held by Winn-Dixie Stores, Inc.
were reduced from $3.06 to $2.00.
II. CHANGE IN NAME OF ISSUER
N/A
1. Name prior to change:
2. Name after change:
3. Effective date of charter amendment changing name:
4. Date of shareholder approval of change, if required:
3/12/96 /s/Charles W. Welch President/CEO
DATE OFFICERS SIGNATURE & TITLE
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 75 of 84.
EXHIBIT 10U
Janney Montgomery Scott Inc.
26 Broadway
New York, NY 10004
October 4, 1995
Board of Directors
AW Computer Systems, Inc.
9000A Commerce Parkway
Mount Laurel, New Jersey 08054
Att: Mr. Charles McMullen
Chief Operating Officer
Gentlemen:
This letter will confirm our understanding concerning the financial
advisory services and fairness opinion ("Fairness Opinion") Janney Montgomery
Scott Inc. ("JMS") will render to AW Computer Systems, Inc. ("AW" or the
"Company") in connection with the sale of any or all of its stock or assets, or
its merger, consolidation or other type of combination ("Transaction").
JMS' understanding with respect to its engagement by the Board of AW is as
follows:
A. With regard to financial advisory services:
1. JMS shall have the exclusive opportunity to represent AW for nine
months commencing at the date of this letter or conclusion of the
Transaction whichever comes first. JMS will expeditiously move
discussions forward with certain identified qualified
merger/acquiror candidates for AW as approved by the Company in
writing.
2. AW management will assist JMS in the preparation of any
memorandum utilized in this effort, and will cooperate with JMS
and potential merger/acquiror candidates in analyzing data
presented, management interviews, and facility visits.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 76 of 84.
Janney Montgomery Scott Inc.
AW Computer Systems, Inc.
Page 2
3. Within a two-year period from the date hereof, should any
company, individual or other entity introduced by JMS or involved
in negotiation during the term of this agreement ("Buyer(s)")
acquire any or all of the stock or assets of AW, or any
subsidiary of affiliate thereof, as part of a corporate
acquisition transaction, or merge, consolidate or otherwise
combine with AW, or should AW or any of its subsidiaries of
affiliates purchase any or all of the stock or assets of, or
merge, consolidate or otherwise combine with any Buyer(s) as part
of a corporate acquisition transaction, JMS shall be paid a fee
by AW at the closing ("Fee") of 5% of the first million of
"Transaction Value" received by the sellers and 4% of the
Transaction Value thereafter.
4. As used herein the term Transaction Value, unless otherwise
mutually agreed upon by AW and JMS, is defined as follows:
a. In the case of a cash transaction, the total cash
consideration paid.
b. In the case of publicly traded common stock, the total
public market value of such common stock based on the
closing price on the day of the transaction.
c. In the case of debt securities, the total public market
value of such debt securities based on the closing price on
the day of the transaction, if not publicly traded, then at
face value.
d. In the case of preferred stock, the total liquidation value
or public market value of such preferred stock based on the
closing price on the day of the transaction, whichever is
higher.
e. Should the medium of exchange be any other security or any
combination of the above, the value will be mutually agreed
upon. Any dispute will be settled by an independent
investment banker acceptable to AW and JMS.
f. If the purchase price is to be paid in one or more
installments, or in a contingent pay-out, the said JMS cash
fee shall be paid within thirty (30) days after each such
installment or contingent pay-out in the same proportion
which the installment or contingent pay-out bears to the
total purchase price.
5. JMS shall also be entitled to its Fee in the event a bonafide
buyer provides the Company with a written expression of interest
or a letter of intent which indicates a Transaction Value in a
range acceptable to the Company as of the date hereof ("Selling
Range"), and the Company rejects such proposal; such Fee would be
paid within 30 days of the submission by the bonafide buyer
(except if rejection is solely due to a material due diligence
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 77 of 84.
Janney Montgomery Scott Inc.
AW Computer Systems, Inc.
Page 3
defect concerning Buyer which has occurred since the "buyer list"
discussed below was approved by the board). A bonafide buyer is
defined as a Company or other entity which has been presented on
the JMS "buyer list" and has been approved by the board or its
representatives. The Company acknowledges the Selling Range is
the higher of $6.00 per share or 110% of the then market price
per share which is defined as the average closing bid price of
the common stock for the 30 consecutive trading days prior to the
receipt of the expression of interest.
a. If the board approves the Transaction (pursuant to such approval, the
board and affiliated parties must vote their shares for the
transaction) and the shareholders turn it down, JMS shall be paid a
$250,000 fee at that time.
b. If the Company receives a Transaction topping bid and accepts it, JMS
shall be paid a full fee in accordance with paragraph #3 and subject
to the limitations of paragraph 5A. /s/NA /s/WJB
c. JMS understands that the Company must probably borrow the funds to pay
its fees.
B. With regard to the issuance of a Fairness Opinion:
1. JMS is being engaged to render its written opinion on the
fairness, from a financial point of view, to the Company and its
public shareholders of the consideration or exchange ratio to be
received by AW.
2. AW and the Buyer (/s/NA /s/WJB) will provide such information as
JMS will request and will cooperate fully with JMS in JMS'
engagement hereunder.
3. In rendering its opinion, JMS will perform such investment
banking techniques and analyses as it deems appropriate under the
circumstances.
4. JMS' opinion will be financial in nature and will not include any
judgment with regard to products, markets, management, etc.
5. The Company may publish JMS' opinion in its entirety in any
tender offering document, proxy statement or other documents
distributed to its stockholders in connection with a Transaction,
but the proposed utilization of a summary of JMS' opinion or of
its engagement hereunder in any written document, including any
proxy statement or offering statement, shall require the prior
written consent of JMS concerning specific language to be
employed for which no additional compensation or expenses shall
be paid or reimbursed and which consent shall not be unreasonably
withheld.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 78 of 84.
Janney Montgomery Scott Inc.
AW Computer Systems, Inc.
Page 4
6. JMS shall be paid $100,000 in cash upon the rendering of its
opinion to the Board of Directors of AW ("Fairness Opinion Fee").
The Fairness Opinion Fee shall be credited against all other fees
owed related to JMS' engagement hereunder.
AW will reimburse JMS on a monthly basis for its accountable travel and
other out of-pocket expenses, including any pre-approved consulting or legal
expenses. In addition, JMS will receive a non-refundable $1 0,000 time, due
diligence and offering memorandum preparation payment upon the signing hereof,
which will be credited against any Fee owed.
The Company recognizes and confirms that, in performing its engagement, JMS
will be using and relying on data, material and other information furnished to
it by the Company, or its auditing firm, attorneys, or others (collectively
"Advisors") as well as information otherwise available, both oral and written
(such data, material and other information is hereinafter referred to as the
"Information"). The Company recognizes and confirms that JMS does not assume
responsibility for the accuracy or completeness of the Information. The Company
hereby represents and warrants that any of the Information furnished by it or
its advisors to JMS will be complete in all respects and not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statement therein not false or misleading.
JMS recognizes and confirms that some of the Information is either
non-public, confidential or proprietary in nature. JMS hereby agrees that the
Information will be kept confidential and will not, without the prior consent of
the Company, be disclosed by them, their agents or employees, other than in
connection with the services to the Company as described above or as otherwise
required by law.
The Company agrees to indemnify and hold harmless JMS, its employees and
representatives and each person, if any, who controls JMS within the meaning of
the Securities Exchange Act of 1934 (the "Act") from and against any and all
losses, claims, damages or liabilities, joint or several, including all
reasonable out-of-pocket expenses, fees and disbursements of counsel incurred by
JMS, its employees, representatives or such controlling person in defending any
claim, action or proceeding whether or not resulting in liability to JMS, its
employees, representatives or any such controlling person, to which they may
become subject, caused by, arising out of or in connection with our engagement
including but not limited to losses, claims, damages or liabilities caused by or
arising out of any untrue statement of a material fact contained in information
furnished to JMS by the Company or its Advisors in connection with our
engagement, or any omission to state therein any material fact required or
necessary to make the information not misleading in light of circumstances under
which given, or any other violation of the federal securities laws or the
securities laws of any state, or otherwise arising out of our engagement
hereunder except in respect of any matter as to which
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 79 of 84.
Janney Montgomery Scott Inc.
AW Computer Systems, Inc.
Page 3
JMS shall have been adjudicated to have acted with gross negligence or wilful
malfeasance. In the event testimony from, or appearance by, any employee or
consultant of JMS is required before any tribunal or other body or agency in
connection with JMS' engagement hereunder, the Company agrees to promptly
reimburse JMS for accountable expenses (including legal expenses of JMS) as well
as compensation at the rate of $2,000 per person per day for all time expended
in preparing for and appearing and/or testifying, notwithstanding that any such
appearance and/or testimony shall be required by court or other process. Upon
request of JMS, the Company will pay a reasonable retainer to JMS' counsel
required in connection with the preceding sentence.
The Company agrees to waive the right to trial by jury in the context of
any claim relating to the services provided by JMS pursuant to its engagement
hereunder, including any claim concerning JMS' advice.
To the extent of the fees provided for hereunder paid to JMS, JMS will
indemnify and hold AW harmless from claims by corporations, firms or persons
claiming by virtue of a relationship with JMS to be entitled to a share of the
fees provided hereunder. Each party shall indemnify and hold the other party
harmless from and against any claim, liability, loss or damages (including
reasonable counsel fees) resulting from the breach by such indemnifying party of
any term, condition or provision of this agreement.
If the foregoing correctly states our mutual understanding, please sign the
enclosed copy of this letter and return it along with a check in the amount of
$10,000 to the undersigned.
Sincerely yours,
JANNEY MONTGOMERY SCOTT INC.
By: /s/William J. Barrett
William J. Barrett
Senior Vice President
WJB:bb
Accepted and Agreed to:
AW COMPUTER SYSTEMS, INC.
By: /s/Nicholas Ambrus
Nicholas Ambrus
Chairman
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 80 of 84.
EXHIBIT 10U-1
Janney Montgomery Scott Inc.
26 Broadway
New York, NY 10004
January 30, 1996
Mr. Nicholas Ambrus
Chairman
Board of Directors
AW Computer Systems, Inc.
9000A Commerce Parkway
Mount Laurel, New Jersey 08054
Gentlemen:
Pursuant to our conversation of January 26, 1996 with Mr. Charles McMullin,
Janney Montgomery Scott Inc. ("JMS") will engage Mr. Rudy Schwerdt as its
independent consultant. Mr. Schwerdt will help us in evaluating the technology
involved in, and the market potential for, the products of AW Computer Systems,
Inc. ("AW").
JMS will be responsible for paying Mr. Schwerdt's consulting fees and AW
will pay for all of Mr. Schwerdt's out-of-pocket expenses associated with the
completion of his due diligence.
If the foregoing correctly states our mutual understanding, please sign the
enclosed copy of this letter and return it to the undersigned.
Sincerely yours,
JANNEY MONTGOMERY SCOTT INC.
By: /s/William J. Barrett
William J Barrett
Senior Vice President
Accepted and Agreed to:
AW COMPUTER SYSTEMS, INC.
By: /s/Nicholas Ambrus
Nicholas Ambrus
Chairman
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 81 of 84.
EXHIBIT 10U-2
Janney Montgomery Scott Inc.
26 Broadway
New York, NY 10004
March 5, 1996
Board of Directors
AW Computer Systems, Inc.
9000A Commerce Parkway
Mount Laurel, New Jersey 08054
Attn: Mr. Nicholas Ambrus
Chairman
Gentlemen:
Pursuant to our conversation of March 5, 1996, Janney Montgomery Scott will
approach the following additional companies in connection with a strategic
investment in/acquisition of AW Computer Systems, Inc. ("AW"):
1) Pelco Sales Company, Inc. of Clovis, CA
2) Minnesota Mining & Manufacturing Co. of St. Paul, MN
These companies are in addition to the three companies that we are already
pursuing under the terms of our letter dated January 18, 1996 which serves as a
supplement to our engagement letter dated October 4, 1995:
1) Sensormatic Electronics Corp. of Deerfield Beach, FL
2) Checkpoint Systems, Inc. of Thorofare, NJ
3) Peak Technologies Group, Inc. of New York, NY
This will acknowledge that any investment made in/acquisition of AW by the above
companies, their affiliates or any individuals directly or indirectly associated
with such companies or their management will be subject to the fee agreements of
paragraph 3, 4 and 5 of our engagement letter dated October 4, 1995 and
considered as "Transaction Value". The price at which the securities will be
sole (or AW acquired) will be subject to mutual agreement between AW and the
investor(s)/acquiror.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 82 of 84.
Janney Montgomery Scott Inc.
If the foregoing correctly states our mutual understanding, please sign the
enclosed copy of this letter and return it to the undersigned.
Sincerely yours,
JANNEY MONTGOMERY SCOTT INC.
By: /s/William J. Barrett
William J. Barrett
Senior Vice President
Accepted and Agreed to:
AW COMPUTER SYSTEMS, INC.
By: /s/Nicholas Ambrus
Nicholas Ambrus
Chairman
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 83 of 84.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AW Computer Systems - Florida, Inc. Incorporated in the State of Florida
Conducts business under the name of AW Computer Systems - Florida, Inc.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 84 of 84.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
AW Computer Systems, Inc. on Form S-8 (File Nos. 2-91236, 33-6843, 33-32395 and
33-64686) and Form S-3 (File No. 33-42915) of our report dated March 15, 1996,
which includes an explanatory paragraph regarding the Company's ability to
continue as a going concern, on our audits of the consolidated financial
statements of AW Computer Systems, Inc. as of December 31, 1995 and 1994, and
for the years ended December 1994, 1994 and 1993, which report is included in
this Annual Report on Form 10-KSB.
/s/Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 29, 1996
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