Page numbered in accordance with Rule 0-3(b). Page 1 of 10.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from to
Commission File Number 0-10329
AW COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1991981
(Sate or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9000A Commerce Parkway, Mt. Laurel, New Jersey 08054
(Address of principal executive offices)
609-234-3939
(Registrant's telephone number, including area code)
N/A
(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
As of November 11, 1996, there were issued and outstanding 6,603,567 Class A
Common Shares of the Company.
Traditional Small Business Disclosure Format (Check One): Yes X No
<PAGE>
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PART I
FINANCIAL INFORMATION
(UNAUDITED)
Item 1. Interim Financial Statements
Contents:
Statements of Operations for three and nine month periods ended
September 30, 1996 and 1995.
Balance Sheets as of September 30, 1996 and December 31, 1995.
Statements of Cash Flow for the nine month periods ended September 30,
1996 and 1995.
Notes to Interim Financial Statements.
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<TABLE>
<CAPTION>
AW COMPUTER SYSTEMS, INC.
COMPARATIVE STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
Three Months Nine Months
1996 1995 1996 1995
<S> <C> <C> <C> <C>
$ 238,470 $ 878,317 Revenues $ 714,462 $ 3,131,765
587,591 600,828 Costs of revenues 1,575,690 2,040,563
------- ------- --------- ---------
( 349,121) 277,489 ( 861,228) 1,091,202
----------- ------- ---------- ---------
Selling, general and
590,228 787,130 administrative 1,939,871 2,675,991
1,434 51,114 Development 84,906 108,202
12,780 20,099 Interest 51,211 78,423
------ ------ ------ ------
604,442 858,343 2,075,988 2,862,616
------- ------- --------- ---------
2,987 8,558 Interest income 19,878 38,567
----- ----- ------ ------
( 950,576) ( 572,296) Loss before income taxes (2,917,338) 1,732,847)
--- --- Income tax benefit --- ( 319,758)
- - ----------- ----------- ---------- -----------
$( 950,576) $( 572,296) Net loss $(2,917,338) $(1,413,089)
============ ============ ============ ============
$(.17) ($.14) Net loss per share $(.58) ($.34)
Average shares
5,734,306 3,989,957 outstanding 5,072,448 4,109,813
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
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<TABLE>
<CAPTION>
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,571,765 $ 1,848,560
Accounts and contract receivables, less allowance
for doubtful accounts of $112,350 and $488,302 in
1996 and 1995 193,204 604,957
Costs and estimated earnings in excess of billings on
uncompleted contracts 66,926 458,237
Inventories 204,598 514,791
Income taxes receivable --- 280,445
Prepaid and other current assets 54,851 101,558
------ -------
Total current assets 2,091,344 2,808,548
--------- ---------
Property and equipment, net 536,844 669,194
Computer software, net 625,422 363,626
Other assets 151,866 52,885
------- ------
Total Assets $ 3,405,476 $ 3,894,253
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Line of credit $ --- $ 550,000
Current portion of long-term debt --- 225,000
Current portion of lease obligations 5,288 6,918
Accounts payable 183,017 291,870
Accrued liabilities 246,527 134,515
Accrued compensation 127,728 71,984
Billings in excess of costs and estimated earnings on
uncompleted contracts --- ---
Accrued contract costs 408,406 332,653
Other current liabilities 81,780 51,057
------ ------
Total current liabilities 1,052,746 1,663,997
--------- ---------
Long-term debt 570,368 ---
Capitalized lease obligations 5,789 8,542
Pension costs 164,224 135,258
Shareholder's Equity
Common shares:
Class A, $.01 par; authorized 25,000,000
and 10,000,000 shares; 6,603,567 and
4,081,944 issued and outstanding in 1996
and 1995, respectively 66,036 44,676
Additional paid-in capital 4,282,297 1,895,992
Retained earnings (2,735,984) 181,354
Deferred compensation --- ( 35,566)
-------- ---------
Total shareholders' equity 1,612,349 2,086,456
--------- ---------
Total liabilities and shareholders' equity $ 3,405,476 $ 3,894,253
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
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<TABLE>
<CAPTION>
AW COMPUTER SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,
1996 AND 1995
(UNAUDITED)
Nine Months
1996 1995
<S> <C> <C>
Cash flows, operating activities:
Net loss: $(2,917,338) $(1,413,089)
Adjustments to reconcile net loss to net cash
provided by/(used) in operating activities:
Depreciation and amortization 227,620 287,354
Amortization of unearned compensation 35,566 29,237
Deferred income taxes --- ---
Decrease (increase) in:
Accounts receivable 411,753 ( 790,843)
Costs and estimated earnings on
uncompleted contracts 391,311 509,528
Inventories 310,193 147,540
Income tax receivable 280,445 325,678
Prepaid expenses 46,707 21,272
Other assets ( 98,981) ---
Increase (decrease) in:
Accounts payable ( 108,853) 294
Accrued liabilities 140,978 116,572
Accrued cost 75,753 234,999
Billing in excess of cost and estimated
earnings on uncompleted contracts --- ( 8,582)
Other current liabilities 86,467 ( 16,360)
------ ----------
Net cash provided by (used in)
operating activities (1,118,379) ( 556,400)
---------- -----------
Cash flows, investing activities:
Capital expenditures ( 95,270) ( 77,103)
Computer software capitalized ( 261,796) ( 241,368)
----------- -----------
Net cash (used in) investing activities ( 357,066) ( 318,471)
----------- -----------
Cash flows, financing activities:
Net borrowing (payments):
Proceeds from long-term debt 570,368 ---
Payments on long-term debt and lease
obligations ( 779,383) ( 356,213)
Proceeds from issuance of common shares 2,407,665 302,022
--------- ----------
Net cash provided by (used in) financing activities 2,198,650 ( 54,191)
--------- ----------
Increase (decrease), cash and cash equivalents 723,205 ( 929,062)
Cash and cash equivalents:
Beginning of period 848,560 1,468,778
------- ---------
End of period $ 1,571,765 $ 539,716
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
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AW COMPUTER SYSTEMS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany transactions and
balances have been eliminated. All adjustments consisting only of normal
recurrent adjustments which, in the opinion of management, are necessary for a
fair statement of the results for this interim period have been made.
2. Prior year financial statements have been restated to conform to present
year presentation.
3. These statements should be read in conjunction with the Summary of
Significant Accounting Policies and other notes included in the Notes to
Consolidated Financial Statements in the Company's 1995 Annual Report on Form
10-KSB.
4. On September 20, 1996, the Company consummated the private placement of
1,678,023 Class A Common Shares to a limited number of qualified investors,
including certain officers and directors of the Company, as listed in the table
below. The price per share was $1.00, or an aggregate consideration of
$1,678,023. The proceeds of the private placement will be used to finance
on-going operations and the development of new products. The securities sold in
this private transaction are not registered for public sale under the Securities
Act of 1933 or any state securities law. The purchasers were granted certain
registration rights commencing on or after September 1, 1997.
5. On October 25, 1996, the Company entered into a letter agreement with Fleet
Bank N.A., (the "Bank") pursuant to which the Bank agreed to extend the period
for repayment of the outstanding indebtedness in the aggregate amount of
$570,368.00 owing to the Bank by the Company from December 31, 1996 to December
31, 1997. As consideration for the aforesaid extension, the Company issued
warrants to the Bank to purchase 50,000 of its Class A Common Shares. The
warrants are exercisable at $1.25 per share and expire on August 31, 1998. In
addition, the Bank is entitled to certain piggyback registration rights.
<PAGE>
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
AW's ability to continue as going concern is dependent on the sales
and receipt of a significant deposit on an order(s) for the Company's recently
completed product, the Wizard of Point-of-Sale ("Wizard"), and/or on the
Company's ability to generate sales from the the Checker Productivity Analyzer
("CPA") product which is still under development. On September 20, 1996, the
Company received $1,678,023 in proceeds from a private placement of 1,678,023
shares of Class A Common Stock. On October 25, 1996, the Company extended the
period for repayment of the outstanding bank debt in the amount of $570,368 from
December 31, 1996 to December 31, 1997. The Company expects that its existing
capital resources may enable it to maintain operations through the third quarter
of 1997. Thereafter, the Company will need to raise substantial additional
capital to remain in business. There can be no assurance that the Company will
be able to generate significant sales of its Wizard and/or CPA products or that
additional financing will be available on acceptable terms or at all.
Based on the size of the backlog of firm orders for delivery within
one year, the Company believes that the volume of operations will remain nominal
until market acceptance of the Wizard and/or the completion and market
acceptance of CPA. Acceptance of either or both of these products would generate
future revenues, however, there can be no assurance that the Company will not
continue to experience delays in the development of the CPA products or that the
Wizard marketing efforts will be successful. The Company is also attempting to
make arrangements with its customers to perform special programming tasks in
order to generate immediate revenues, although there is no assurance that these
efforts will be successful.
Results of Operations.
Revenues for the three and ninth month periods ended September 30,
1996 were $238 thousand or 73% lower, and $714 thousand or 77% lower, than the
corresponding periods in 1995. The comparative decrease for the quarter ended
September 30, 1996 was caused by the absence of sales in 1996 compared with the
delivery of AWare equipment plus an increase in software services income in
1995.
Gross profit (loss) for the third quarter and nine months of 1996 was
$(349) thousand and $(861) thousand respectively, a decrease of $627 thousand
and a decrease of $1,952 thousand compared to the same periods in 1995. The
negative gross profit margins experienced during 1996 was the result of the
continuing significant effort expended under a fixed price contract to produce
the CPA product without corresponding revenue. In the third quarter of 1995, the
gross profit margins were higher than the year to date period because the second
quarter had a higher percentage of equipment and software services revenue which
generally produce higher gross margins.
For the three months ended September 30, 1996, Selling, General, and
Administrative Expenses (S.G.&A.) decreased $197 thousand (32%), as compared to
1995, primarily due to an expense reduction program which included a staff
reduction of 19% on June 5, 1996. For the year-to-date periods, S.G.&A.
decreased $736 thousand (28%), as compared to 1995. At September 30 1996, AW had
30 employees compared with 49 at September 30, 1995.
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Loss before income tax benefit increased for the quarter ended
September 30, 1996 compared to the same period in 1995 by $378 thousand to a
loss of $951 thousand, while the 1996 year-to-date loss increased $1,184
thousand to a loss of $2,917 thousand. The net loss for the three and nine month
periods ended September 30, 1996 was $951 thousand and $2,917 million compared
to net losses in the comparable 1995 periods of $572 thousand and $1,413
million, respectively. The loss for the quarter and nine months was caused by
the absence of sales during 1996 while the 1995 periods benefitted from the
delivery of AWare equipment plus an increase in software services.
Liquidity.
During the first nine months of 1996, working capital decreased $107
thousand to $1.038 million compared to $1.145 million at December 31, 1995.
Current assets decreased $718 thousand resulting from decreases in all asset
categories except cash and cash equivalents. Current liabilities decreased by
$389 thousand.
During the first nine months of 1996, cash and cash equivalents
increased $723 thousand. The primary factor in this increase was $2,407,665 in
new equity.
Financial Resources.
The Company expects to require continued significant product
development effort on the CPA product and capital expenditures for equipment in
1996. The Company believes its future success is dependent on the development of
new proprietary hardware and software products. Expenditures for these items
will be funded from working capital and from potential future financing as can
be arranged. The Company raised $500,000 in March of 1996 and $1,678,023 in
September 1996 with the balance of the funds generated from the exercise of
stock options. There can be no assurance of revenues from the Wizard and/or CPA
products. The Company will need to raise substantial additional capital to
remain in business and there can be no assurance that additional financing will
be available on acceptable terms or at all.
The primary source of funds in the near future is expected to be the
Company's operations, cash, and accounts receivable. At September 30, 1996 the
company had $1,765 million in cash and accounts receivable compared to $1,053
million in total liabilities. The Company's principal fixed payment obligations
at September 30, 1996 were the lease for its facilities and the payments on the
bank loans.
In order to raise funds for the continued development of the CPA
product and for the support of ongoing operations, on September 20, 1996 certain
officers and directors of the Company and other individuals purchased a total of
1,678,023 shares of the Company's Class A Common Stock at $1.00 per share. The
total proceeds to the Company were $1,678,023.
On March 8, 996, the Company, through a private cash transaction,
vested $500,000 through the sale of 250,000 Class A Common Shares.
Uncertainty of Forward-Looking Statements
This report on Form 10-QSB contains forward-looking statements that
involve results and uncertainties. The Company's actual risks and could differ
materially. Factors that could cause or contribute to such differences include,
but are not limited to, the factors described above as well as those discussed
elsewhere in the Company's reports filed with the Securities and Exchange
Commission.
<PAGE>
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities.
A. Current Report on Form 8-K dated September 27, 1996
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K.
A. Current Report on Form 8-K dated October 24, 1996
B. Current Report on Form 8-K dated October 25, 1996
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 10 of 10.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 11, 1996 AW COMPUTER SYSTEMS, INC.
/s/Charles W. Welch
Charles W. Welch
CEO/President
/s/Charles F. Trapp
Charles F. Trapp
Vice President, Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,571,765
<SECURITIES> 0
<RECEIVABLES> 193,204
<ALLOWANCES> 0
<INVENTORY> 204,598
<CURRENT-ASSETS> 2,091,344
<PP&E> 536,844
<DEPRECIATION> 227,620
<TOTAL-ASSETS> 3,405,476
<CURRENT-LIABILITIES> 1,052,746
<BONDS> 0
0
0
<COMMON> 66,036
<OTHER-SE> 4,282,297
<TOTAL-LIABILITY-AND-EQUITY> 3,405,476
<SALES> 714,462
<TOTAL-REVENUES> 714,462
<CGS> 1,575,690
<TOTAL-COSTS> (861,228)
<OTHER-EXPENSES> 1,939,871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,211
<INCOME-PRETAX> (2,917,338)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,917,338)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,917,338)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
</TABLE>
