Page numbered in accordance with Rule 0-3(b). Page 1 of 54.
The Exhibit Index is on Page 48.
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
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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: $1,000,319
As of March 25, 1997, the aggregate market value (based on the average closing
bid and asked quotations) of the 5,379,733 Class A Common Shares held by
non-affiliates of the Company was $4,841,760 and a total of 6,675,567 Class A
Common Shares of the Company were issued and outstanding.
Documents Incorporated by Reference:
- ------------------------------------
None.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 2 of 54.
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 is developing two new
products to provide additional functionality to POS systems. These products are
the Checker Productivity Analyzer ("CPA") and the Wizard of POS ("Wizard").
Historically, 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"), NCR Corporation ("NCR"), 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 NCR, 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
1996, revenue from three customers accounted for 87% of total revenue (see Notes
to Financial Statements).
Products.
AW is currently developing two products to provide additional
functionality to POS systems. Products currently being developed include the
Checker Productivity Analyzer ("CPA") and the Wizard of POS ("Wizard") Family of
Products, specifically the Tutor and Eureka.
The CPA Project is being developed under contract with a large
supermarket chain, which does not include any guaranteed minimum purchase.
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Page numbered in accordance with Rule 0-3(b). Page 3 of 54.
The CPA system protects supermarket against losses due to
theft and inaccuracies at the checkout counter. It is real-time security system
that interfaces with the POS system "listening to" register transactions as they
are transmitted over the register loop. Scanned or keyed information is used to
obtain product descriptions that are known to the system and stored in memory.
The system consists of cameras strategically mounted above the checkout counters
and AW's proprietary software. Visual images of products and shopping carts are
captured by cameras at the checkstand and converted to a form that enables
comparison with the known product and cart descriptions. When the system
determines there is a mismatch between camera data and database representations
of the product or cart descriptions, an "event" is declared. An event is the
recognition by the CPA system of the occurrence at a checkout station or lane
that deviates from the established norm. (The CPA system differs from that of
normal security systems in the fact that it records abnormal actions events
only; most security systems record everything, prompting the store manager to
view hours of video tape in the hope of finding evidence of fraud). An event is
usually reported by an "alert", which is defined as a signal to prompt the
checker to check the non-empty cart, print a message on the register journal
printer, write a description of the event to the CPA Controller Log and save
video as specified, and/or to lock the register until a manager override is
performed. Alerts are specified by the store manager in any combination for any
detected event or no alerts need be specified (e.g. while a cashier is
training).
Currently, CPA's supermarket database typically contains
55,000 items. The full storage requirement is approximately 350-600 megabytes.
The database is dynamic, always "learning" new images as presented to the
system.
CPA is installed at a pilot store and is being used to perform
live testing.
The AW Wizard of POS Family of Products ("Wizard"),
specifically the Tutor and Eureka, bring 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 AW Wizard Tutor is an easy-to-use, hands-on cashier
guidance system. It actually tutors new sales associates while they assist
customers at the checkout line. The Tutor presents consistent on-line help
screens to sales associates. Service is improved by reducing cashier calls for
supervisor assistance. The Tutor is an interactive tool that is available 24
hours a day, 7 days per week. It is a handy, immediate reference to remind
recent hires of the POS operation. Leading retail chains are experiencing a
quick six to nine month return with the Tutor.
The Tutor addresses the cost and effectiveness of making the
sales associates productive quickly. The Tutor guides new cashiers on keying
sequences and store policy in an easy to understand, concise approach. The
system is designed and developed for the popular IBM 4683/4684 and 4693/4694 POS
terminals.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 4 of 54.
The Tutor provides cashiers with a user-friendly graphical
interface to the POS terminal. The Tutor operates on MS-Windows 3.1, MS Windows
95, or IBM OS/2 platforms, and passively monitors all POS terminal peripheral
activity such as scanning, keyboard entry, and displays. The Tutor software then
provides graphical help on a video graphics adaptor ("VGA") display panel. This
display shows a keyboard with valid keys highlighted and a text area provides
instructions to the operator. The Tutor allows new cashiers to become self
proficient in the POS operation and eliminates the prolonged expense of a
high-cost, experienced person in the traditional buddy system method.
Currently, the Tutor version of the Wizard is installed at
five pilot stores and is being tested.
The AW Wizard Eureka is an electronic produce flip chart which
displays digital images of the fruits and vegetables at the store. Using a touch
screen, the cashier can quickly identify the correct fruit or vegetable, its PLU
code, and optionally have the code entered automatically. Eureka reduces delays
at the cash register and improves customer service by eliminating cumbersome
flip charts and time consuming searches. Also shrinkage is reduced from errors
made in misidentifying fancy imported fruits and vegetables as less expensive
items.
Eureka's versatile interface provides fast access to product
information, regardless of the cashier's level of knowledge or experience.
Produce can be identified by group ("top sellers"), by category index ("citrus
fruits" or "leafy vegetables"), by word index, by interactive description
("orange, oval-shaped, size of tennis ball, with thorns") or by simply browsing
through the digital images. Eureka can display a blow-up of the digital
photograph and its PLU, give a brief description of that item, and optionally
insert the PLU code into the IBM 4683/4693 POS terminal. Eureka will also be
developed for applications with mass merchandisers.
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 historical main product, known as AWare, enables
the use of existing popular, but older, cash registers with the POS systems
manufactured by IBM, NCR, 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 NCR, 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 NCR,
and the FJ-ICL POS systems (the "Major Store Systems").
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 5 of 54.
Customers and Markets.
The Company markets the Checker Productivity Analyzer to the
supermarket grocery industry. Currently the Company has installed the system in
a pilot store at a major supermarket grocery chain.
The Company presently offers its Wizard of POS 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 or a large number of checkout counters.
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. In 1996, revenues included a
concentration of 87% attributed to three customers. The Company has derived
substantially all of its revenues from North America during the last three
years.
Customer Backlog.
Because nearly all customer system installations are
contingent upon successful test store or "pilot" implementations, the total
revenues from a customer cannot be considered firm until after acceptance of the
pilot system. At March 25, 1997, the total amount of the Company's firm orders
for delivery within one year for maintenance services, hardware, and software
was approximately $570,000, compared to a total of approximately $800,000 at
March 25, 1996. 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 Company is not aware of any product on the market that is
similar to CPA or the Wizard. However, there are numerous security companies and
software firms that are potential competitors and they may develop products that
are more efficient or less costly than the Company's products. These potential
competitors are large, well financed, established companies that have greater
resources for research and development, manufacturing and marketing than the
Company.
Marketing.
The Company markets its products through its own personnel
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.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 6 of 54.
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, subject to availability of financing (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 technological 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>
Page numbered in accordance with Rule 0-3(b). Page 7 of 54.
Employees.
On March 22, 1997, the Company employed 30 full-time persons:
7 in sales, management, and administration: 19 in software development and
production ;and 4 in hardware development and production; compared to the 42
full-time persons employed at March 22, 1996 (8 in sales, management, and
administration; 7 in hardware design and production; and 27 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.
The Company believes that its future success is dependent in
part on its continued ability to recruit and retain highly competent management,
marketing and technical personnel.
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 $26,000 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>
Page numbered in accordance with Rule 0-3(b). Page 8 of 54.
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, 1995
through December 31, 1996. Prices shown represent actual trades.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
First Quarter 1995 2 1/8 1 5/16
Second Quarter 1995 1 1/2 1
Third Quarter 1995 2 15/16
Fourth Quarter 1995 2 5/16 1 3/8
First Quarter 1996 4 1/2 9/16
Second Quarter 1996 3 13/16 2
Third Quarter 1996 3 1/8 1
Fourth Quarter 1996 1 5/16 1
</TABLE>
The Company's Class A Common Shares are listed on the Over the
Counter ("OTC") Electronic Bulletin Board since August 28, 1996 and prior to
that date the shares were listed on the NASDAQ National Market Systems.
Holders. On March 25, 1997, there were approximately 276
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>
Page numbered in accordance with Rule 0-3(b). Page 9 of 54.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations.
AW's ability to continue as a going concern is dependent on
the receipt of a significant deposit on an order(s) for the Company's recently
completed product, the Wizard, and/or sales from the 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 second 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.
Most all customer system installations are contingent upon
successful test store or pilot implementations, therefore, 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, 1997, AW had a backlog of firm
orders for delivery within one year of $570,000 compared to $800,000 at March
25, 1996.
Continuation of Company operations beyond the second quarter
of 1997 will be dependent on the successful completion of a financing to provide
working capital to sustain the Company until the 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
is being developed under contract with a large supermarket chain, which does not
include any guaranteed minimum purchase. The CPA system protects supermarket
against losses due to theft and inaccuracies at the checkout counter. The system
consists of cameras strategically mounted above the checkout counters and AW's
proprietary software. The CPA system employs vision technology to interact
visual images and relate them to the transaction being processed at the cash
register. CPA is being installed at a pilot store and is being used to perform
live testing. 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 five pilot stores and is being tested. The Eureka version is an
electronic product flip chart that displays digital images of the produce or
products in a grocery or retail store.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 10 of 54.
The Company has lost money for the past three years and it is
anticipated that expenses will continue to exceed revenue in the near future.
The Company has paid operating expenses during the past years with funds raised
from the sale of common stock. AW's ability to remain in business is dependent
on the successful completion of future financings.
Revenues.
1996.
Revenues in 1996 declined $2,424,000 to $1,000,000. The
decrease in sales was primarily caused by the reduction in sales of AWare
related equipment and software because of technical obsolescence. Software
revenues, maintenance fees and contract programming also contributed to 1996
revenue and were approximately the same as 1995.
The CPA Development Contract incurred costs in excess
of its $1,700,000 contractual budget and the Company recognized a loss of
$1,104,000 on the contract during 1996. The 1996 loss included a loss provision
of $400,000 representing the estimated cost to complete the contract. The
Company anticipates that the completion costs for the project will be revised in
the future. Under the terms of this contract with a well established grocery
chain, 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. 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.
1995.
Revenues in 1995 declined $1,300,000 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 NCR 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 $2,800,000 in 1995 compared to $3,300,000 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 $130 thousand on a
percentage completion basis.
Other important sources of revenue for AW in 1995
included software services revenues, maintenance fees, and contract programming
for AW's customers.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 11 of 54.
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 NCR and FJ-ICL were not ready for aggressive marketing,
consequently, adversely affecting AWare sales.
Costs.
1996.
The Company incurred direct cost in excess of revenues
primarily from the costs related to the development contract for the CPA
contract. The Company recognized a loss of $1,104,000 on the contract in 1996
including a loss provision of $400,000.
1995.
The direct gross margin decreased 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 $1,700,000 budget. In addition, the Company incurred a charge of
$115,000 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 CPA Project that was being
performed on a break-even basis. Cost of revenues decreased only 19% in 1994
compared to 1993 as a result.
Expenses.
1996.
The Selling, General and Administrative expenses
increased $206,000 or 6% in 1996 as compared to 1995 due primarily to increased
employee compensation and related expenses.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 12 of 54.
1995.
Selling, General and Administrative expenses decreased
$291,000 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, and higher than anticipated development costs on the CPA
project. In March 1995, the Chairman of the Board, who was consulting the
Company as part of a transition 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 $75,000.
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.
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 spent $110,000, $167,000 and $371,000 on development for
1996, 1995 and 1994, respectively.
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 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 is currently being installed
at a pilot store and is expected to begin testing shortly.
<PAGE>
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Operating Results.
1996.
Costs incurred in excess of contract revenues for the
CPA project caused expenses to exceed revenue causing a negative gross profit of
approximately $419,000. After Selling, General and Administrative expenses, the
loss before and after taxes was approximately $3,862,000. The Company
anticipates that losses will continue until such time, if ever, that it can
generate sufficient revenues from the sale of products to cover operating costs.
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 $2,600,000. 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 $280,000. After the tax benefit, the net loss
was $2,300,000, or $0.56 per share.
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 $1,900,000. 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 $1,300,000, or $0.34, per share.
Financial Position and Capital Resources.
In 1996, operations were funded by the sale of new common
stock because cash flow generated from operations were not sufficient to sustain
the Company. AW's needs for cash arise principally from salaries, sales and
marketing expenses, research and development expenses and occupancy expenses.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 14 of 54.
During the year, working capital decreased $1,467,000 to
$(323,000) as compared to $1,100,000 at December 31, 1995. Current assets
decreased $1,518,000 due to decreases in accounts receivable, inventory and
income taxes receivable of $527,000, $457,000, and $280,000, respectively.
Additionally, as a result of progress billings on revenue contracts, costs in
excess of billings decreased by $258,000. Current liabilities decreased $50,000
over the period due to a decrease in current debt of $225,000 and a decrease of
$145,000 in accounts payable. These decreases were offset by an increase of
$76,000 in accrued contract costs and an increase of $240,000 in other accrued
liabilities and accrued compensation.
Cash and cash equivalents increased by $71,000 as of December
31, 1996 compared to December 31, 1995. The primary factors for this increase
was $2,446,000 received from the sale of Common Stock and the exercise of
employee stock options and the reduction in accounts receivable of $596,000
offset by losses from operations of $3,861,000. Cash and cash equivalents
necessary to operate at the Company's current capacity beyond the second quarter
of 1997 will be dependent on the successful completion of a financing to provide
working capital and the rollout of the CPA or Wizard Projects.
The results of operations in 1996 have affected the Company's
debt to equity relationship as can be seen in the following table:
<TABLE>
<CAPTION>
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total liabilities $1,776,965 $1,807,797 $1,809,775 $1,261,000
Total Shareholders' equity $ 817,732 $2,086,456 $4,074,047 $5,320,000
Total liabilities divided by
shareholders' equity 2.17 0.87 0.44 0.24
</TABLE>
Liquidity.
The Company expects to require continued significant product
development efforts and capital expenditures for plant and equipment in 1997.
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.
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. The price
per share was $1.00, or an aggregate consideration of 1,678,023. The funds were
used for working capital for the development of new products and to support
on-going operations.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 15 of 54.
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. 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.
In October 1996, the Company negotiated a one year extension
of the Line of Credit until December 31, 1997. In consideration for the one year
extension, the Company issued to Fleet Bank a Warrant expiring August 31, 1998
to purchase 50,000 Class A Common Shares at $1.25 per share.
During 1996, the Company maintained a $550,000 Line of Credit
with interest at the Bank's prime rate (8.25% at December 31, 1996) plus 1%. In
October 1996, the credit facility was increased by $20,368 with an interest rate
of prime plus 2% to fund the requirements of a Letter of Credit presented to the
Bank. The Line of Credit had an outstanding balance of $570,368 on December 31,
1996.
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.
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 1.5%.
The Line of Credit had an outstanding balance of $550,000 on December 31, 1995.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 16 of 54.
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 payment 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 adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation beginning in 1996.
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.
On October 24, 1996, Coopers & Lybrand L.L.P. terminated the
relationship with AW Computer Systems, Inc. as the Registrant's certifying
accountant. During the past two fiscal years, the Former Accountants' report on
the financial statements of the Registrant did not contain an adverse opinion or
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. However, the report did contain an
explanatory paragraph regarding the Company's ability to continue as a going
concern. During the past two fiscal years and the interim period preceding such
resignation, there were no disagreements with the Former Accountants on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the Former Accountants, would have caused it to make reference
to the subject matter of the disagreements in connection with its report.
The Board of Directors of the Registrant voted to retain the
firm of Moore Stephens, P.C. on October 28, 1996.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 17 of 54.
PART III
--------
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth a summary of the aggregate compensation earned
for services rendered in all capacities to the Company during the years 1994
through 1996 by the Chief Executive Officer, and by each of the three other most
highly compensated executive officers earning over $100,000 in 1996 (the "Named
Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation(1)
-------------------------
Awards Payouts
------ -------
Other
Annual Restricted Number Long Term
Name and Fiscal Compen- Stock of Incentive All Other
Principal Position Year Salary Bonus sation(2) Awards Options Payounts Compensation3
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles J. McMullin 1996 $140,000(5) --- $ 7,073 --- 100,000 --- $2,060
Chairman and Chief 1995 $140,000 --- $ 7,750 --- 25,000 --- $2,152
Operating Officer 1994 $ 93,333 $ 5,167 --- 60,000 --- $2,692
Charles Welch 1996 $168,150(6) --- $ 3,782 --- --- --- $3,831
President and Chief 1995 $168,150 --- $15,400 --- 10,000 --- $3,105
Executive Officer 1994 $168,150 --- $18,490 --- --- --- $2,500
Charles F. Trapp 1996 $ 41,153(7) --- $ 2,235 --- 60,000 --- $3,000
Vice President,
Finance
P. Michael Lutze 1996 $126,800(8) --- $ 9,275 --- --- --- ---
Vice President 1995 $126,800 --- $16,450 --- 12,500 --- ---
1994 $126,800 --- $12,302 --- --- --- ---
Nicholas Ambrus4 1996 $ 98,394 --- $32,650 --- --- --- ---
Former Chairman 1995 $137,924 --- $13,900 --- 10,000 --- ---
1994 $ 98,176 --- $15,890 --- --- --- ---
<FN>
(1) During three years, 1994 through 1996, no Named Officer received stock
appreciation rights, restricted stock awards or Long-Term Incentive
Plan payouts.
(2) Other Annual Compensation includes the following:
For Mr. McMullin: in 1996, $7,073 automobile benefit; in 1995, $7,750
automobile benefit and in 1994, $5,167 automobile benefit.
For Mr. Welch: in 1996, $3,782 automobile benefit; in 1995, $6,150
gain on exercise of options and $9,250 automobile benefit; and in
1994, $9,250 automobile benefit and $9,240 Company contribution to
his 401(k) account.
For Mr. Trapp: in 1996, $2,235 automobile benefit.
For Mr. Lutze: in 1996, $3,759 automobile benefit; in 1995, $8,200
gain on exercise of options and $8,250 automobile benefit; and in
1994, $8,250 automobile benefit and $4,052 Company contribution to
his 401(k) account.
For Mr. Ambrus: in 1996, $9,275 automobile benefit and $23,375 for
consulting services; in 1995, $6,150 gain on exercise of options and
$7,750 automobile benefit; and in 1994, $7,750 automobile benefit
and $8,140 Company contribution to his 401(k) account.
(3) All Other Compensation is comprised of life insurance premiums paid on
behalf of the respective individuals.
(4) Mr. Ambrus resigned as Chairman in August 1996.
(5) Includes $23,750 of deferred salary.
(6) Includes $48,613 of deferred salary.
(7) Includes $692 of deferred salary.
(8) Includes $35,225 of deferred salary.
</FN>
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 18 of 54.
<TABLE>
<CAPTION>
STOCK OPTION GRANTS IN 1996
Percent of Total
Name and Options Options Granted Exercise Expiration
Principal Position Granted To Employees Price Date
<S> <C> <C> <C> <C>
Charles J. McMullin 100,000 21.5% $1.00 Sept. 20, 2001
Chairman and Chief Operating
Officer
Charles F. Trapp 60,000 12.9% $1.00 Sept. 20, 2001
Vice President, Finance
</TABLE>
Exercise of Stock Options and Aggregate Outstanding Stock Options at December
31, 1996
The following table sets forth information concerning stock options which were
exercised during 1996 by the Chief Executive Officer and the other Named
Officers and the amounts of their respective unexercised options as of December
31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS
<TABLE>
<CAPTION>
Number
of Shares Value of
Underlying In-the-Money
Unexercised Unexercised
Number Options at Options at
of Shares 12/31/96 12/31/96
Name and Acquired on Value Exercisable/ Exercised/
Principal Position Exercise Realized Unexercisable Unexercised
------------------ -------- -------- ------------- -----------
<S> <C> <C> <C> <C>
Charles J. McMullin - 0 - - 0 - 165,000/20,000 --/--
Chairman and Chief
Operating Officer
Charles Welch - 0 - - 0 - 121,000/-- --/--
President and Chief
Executive Officer
Charles F. Trapp - 0 - - 0 - 60,000/-- --/--
Vice President,
Finance
P. Michael Lutze - 0 - - 0 - 26,500/-- --/--
Senior Vice President
Nicholas Ambrus - 0 - - 0 - 30,000/-- --/--
Former Chairman
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 19 of 54.
Bonus Plans
The Board of Directors adopted a bonus plan for Mr. Welch under which a varying
percentage of the Company's net profits in a particular year are paid as an
annual bonus if certain profit objectives established by the Board of Directors
for that year are achieved. Under the plan now in effect, Mr. Welch would
receive 2.5% of the first $99,999 of the Company's annual pre-tax profit, 3.75%
of the next $100,000 of the Company's annual pre-tax profit and 5% of the
Company's annual pre-tax profit in excess of $199,999. No bonus was paid under
this plan for 1996.
On April 25, 1994, the Company and Charles J. McMullin entered into an
employment agreement that provides for a term of employment of three years at an
annual salary of $140,000 and a cash bonus of 1.25% of the first $99,999 of the
net income of the Company before charges for officers' bonuses and income taxes
("EBOBAT"), 1.875% of the next $100,000 of EBOBAT and 2.5% of EBOBAT in excess
of $200,000. No bonus was paid under this plan for 1996.
Since the organization of the Company in 1973, it has been the policy of the
Company to award an annual bonus to the Company's officers and employees. The
amount of the bonus awarded to an officer or employee in a particular year is
discretionary and has been dependent upon the officer's or employee's level of
performance during the year, his length of service with the Company, and the
Company's earnings during the year. No discretionary bonuses were paid in 1996.
Under the Company's current discretionary bonus arrangement, Messrs. McMullin
and Welch are not eligible for discretionary bonuses. The Company may award
discretionary bonuses for 1997 and subsequent years.
Employment Agreements
The Company has entered into an agreement with Mr. McMullin providing for his
employment in an executive capacity from April 25, 1994 through April 24, 1997
at an annual minimum base salary of $140,000. If the employment of Mr. McMullin
is terminated by the Company prior to the end of his employment term without
cause, the Company will continue to pay Mr. McMullin his salary until the end of
such term, his death, or his employment with another organization, at which time
the Company shall be only obligated to pay Mr. McMullin the difference between
his compensation from the new employer and his current compensation. During
1996, Mr. McMullin deferred receipt of $23,750 of salary.
The Company has entered into an agreement with Mr. Welch providing for his
employment in an executive capacity from October 1, 1995 through September 30,
1998, at an annual minimum base salary of $168,150. The agreement requires that
this minimum base salary be adjusted annually during the second and third years
of the contract to reflect the average percentage salary increase awarded other
senior and executive employees of the Company during the preceding twelve
months. If the employment of Mr. Welch is terminated by the Company prior to the
end of his employment term without cause, the Company will continue to pay Mr.
Welch his salary until the end of such term, or the date on which he begins
competing with, or begins working for an organization which competes with the
Company. During 1996, Mr. Welch deferred receipt of $48,613 of salary.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 20 of 54.
The Company has entered into an agreement with Mr. Trapp providing for his
employment in an executive capacity from August 29, 1996 through August 28,
1999, at an annual minimum base salary of $120,000. The agreement requires that
this minimum base salary be adjusted annually during the second and third years
of the contract to reflect the average percentage salary increase awarded other
senior and executive employees of the Company during the preceding twelve
months. If the employment of Mr. Trapp is terminated by the Company prior to the
end of his employment term without cause, the Company will continue to pay Mr.
Trapp his salary until the end of such term, or the date on which he begins
competing with, or begins working for an organization which competes with the
Company. During 1996, Mr. Trapp deferred receipt of $692 of salary.
The Company has entered into an agreement with Mr. Lutze providing for his
employment in an executive capacity from February 15, 1996 through February 14,
1999 at an annual minimum base salary of $126,800. If the employment of Mr.
Lutze is terminated by the Company prior to the end of his employment term
without cause, the Company will continue to pay Mr. Lutze his salary until the
end of such term, his death, or his employment with another organization, at
which time the Company shall be only obligated to pay Mr. Lutze the difference
between his compensation from the new employer and his current compensation.
During 1996, Mr. Lutze deferred receipt of $35,225 of salary.
On March 1, 1993, Mr. Ambrus entered into a Supplemental Employment and
Retirement Agreement with the Company, providing for his phased withdrawal from
active involvement in daily management activities. Effective December 31, 1993,
Mr. Ambrus ceased to serve as Chief Executive Officer of the Company. Mr.
Nicholas Ambrus retired as Chairman and as a member of the Board of Directors in
August 1996. In July 1996, Mr. Ambrus entered into a seven year consulting
agreement with the Company which provides for a monthly retainer of $4,675 and
the use of a Company automobile through December 31, 1998. The agreement also
provides that, effective August 1, 2003, and continuing until January 31, 2008,
the Company will pay Mr. Ambrus a retirement benefit of $4,675 per month.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 21 of 54.
PART IV
-------
Item 13. Exhibits, Financial Statements and Reports on Form 8-K.
(a) The following documents are filed with this report:
(1) Financial Statements:
A. Reports of Independent Accountants.
B. Consolidated Statements of
Operations for the Three Years
Ended December 31, 1996.
C. Consolidated Balance Sheets,
December 31, l996 and l995.
D. Consolidated Statements of Changes
in Shareholders' Equity for the
Three Years Ended December 31,
1996.
E. Consolidated Statements of Cash
Flows for the Three Years Ended
December 31, 1996.
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.
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-1 The Company's Registration
Statement on Form S-8. Exhibit 3C-1
to the Company's Quarterly Report
on Form 10-QSB for the quarter
ended September 30, 1995 is
incorporated herein by reference.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 22 of 54.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(Continued).
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.
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. Exhibit 10E-1 on
Form 10-KSB for the year ended
December 31, 1995 is incorporated
herein by reference.
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. Exhibit 10E-1 on
Form 10-KSB for the year ended
December 31, 1995 is incorporated
herein by reference.
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.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 23 of 54.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(Continued).
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 herein 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.
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.
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-18 Solution Provider Agreement between
Microsoft Corporation and the
Company dated August 1995. Exhibit
10E-1 on Form 10-KSB for the year
ended December 31, 1995 is
incorporated herein by reference.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 24 of 54.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(Continued).
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.
1OP-1 Addendum to Warrant Agreement
between the Company and Winn-Dixie
Stores, Inc. dated March 8, 1996.
Exhibit 10E-1 on Form 10-KSB for
the year ended December 31, 1995 is
incorporated herein by reference.
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.
21 Subsidiaries of the Registrant.
Consent of Moore Stephens, P.C.,
23 Independent Accountants.
23A 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 1996.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 25 of 54.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
AW Computer Systems, Inc.
We have audited the consolidated balance sheet of AW Computer Systems, Inc.
and its subsidiary as of December 31, 1996, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides 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. and its subsidiary as of December 31, 1996, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that AW Computer Systems, Inc. and its subsidiary will continue as a
going concern. As discussed in Note 1 to the consolidated financial statements,
AW Computer Systems, Inc. and its subsidiary have incurred recurring losses from
operations and have recurring negative cash flows from operations that raise
substantial doubt about their ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
March 17, 1997
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 26 of 54.
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. for 1995 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 audit 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 results of its operations and
its cash flows for each of the two 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, 1997
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 27 of 54.
AW COMPUTER SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues: $ 1,000,319 $ 3,424,341 $ 4,721,168
Costs of revenues 1,420,089 2,661,030 2,743,520
--------- --------- ---------
Gross (Loss) Profit ( 419,770) 763,311 1,977,648
--------- --------- ---------
Expenses:
Selling, General and Administrative 3,300,394 3,204,513 3,495,494
Development 111,028 167,379 371,480
Interest 69,536 100,197 62,709
--------- --------- ---------
Total 3,480,958 3,472,089 3,929,683
--------- --------- ---------
Other Income 38,865 67,681 46,795
--------- --------- ---------
(Loss) before income taxes (3,861,863) (2,641,097) (1,905,240)
Income tax provision -- ( 300,079) ( 586,903)
-------- --------- ---------
Net (loss) $(3,861,863) $(2,341,018) $(1,318,337)
========= ========= =========
Net income (loss) per share $(.71) $(.56) $(.34)
Average shares outstanding 5,458,978 4,151,058 3,855,750
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 28 of 54.
AW COMPUTER SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 919,621 $ 848,560
Accounts and contract receivables, less
allowance for doubtful accounts of
$39,967 in 1996 and $110,000 in 1995 78,380 604,957
Costs and estimated earnings in
excess of billings on uncompleted contracts 200,015 458,237
Inventories 56,589 514,791
Income taxes receivable -- 280,445
Prepaid and other current assets 36,854 101,558
--------- ---------
Total current assets 1,291,459 2,808,548
Property and equipment, net 511,579 669,194
Computer software, net 669,351 363,626
Due from related parties -- 40,000
Other assets 27,308 12,885
--------- ---------
Total assets $ 2,499,697 $ 3,894,253
========= =========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current Liabilities:
Line of credit $ 570,368 $ 550,000
Current portion of long-term debt -- 225,000
Current portion of lease obligation -- 6,918
Accounts payable 147,195 291,870
Accrued contract costs 408,406 332,653
Accrued liabilities 269,371 134,515
Accrued compensation 177,362 71,984
Other current liabilities 41,755 51,057
--------- ---------
Total current liabilities 1,614,457 1,663,997
Capitalized lease obligations -- 8,542
Deferred compensation payable 162,508 135,258
--------- ---------
Total Liabilities 1,776,965 1,807,797
Commitments and Contingencies
Shareholders' equity
Preferred Stock - No Par Value:
Authorized 5,000,000 shares in 1996 and zero in 1995
and zero issued and outstanding in 1996 -- --
Common shares:
Class A, $.01 par; authorized 25,000,000 and
10,000,000 shares; 6,638,067 and 4,467,544
issued and outstanding in 1996 and 1995, 66,381 44,676
respectively
Additional paid-in capital 4,431,860 1,895,992
Retained earnings (Deficit) (3,680,509) 181,354
Stock subscription - related party ( 95,000) --
Deferred compensation -- ( 35,566)
--------- ---------
Total shareholders' equity 722,732 2,086,456
--------- ---------
Total liabilities and shareholders' equity $ 2,499,697 $ 3,894,253
========= =========
</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 54.
AW COMPUTER SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Preferred Stock Class A Common Stock
--------------- --------------------
Number Number
of Shares Amount of Shares Amount
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Balance,
December 31, 1993 --- --- 3,830,219 $38,302
Issuance of stock grants --- --- 50,000 500
Exercise of stock options --- --- 17,750 178
Compensation expense --- --- --- ---
Net loss --- --- --- ---
Balance, ----- ----- --------- -------
December 31, 1994 --- --- 3,897,969 38,980
Issuance of stock grants --- --- 30,000 300
Exercise of stock options --- --- 145,575 1,456
Private Placement --- --- 394,000 3,940
Compensation expense --- --- --- ---
Net loss --- --- --- ---
Balance, ----- ----- --------- ------
December 31, 1995 --- --- 4,467,544 $44,676
Issuance of stock grants --- --- 30,000 300
Exercise of stock options --- --- 212,500 2,125
Private Placement --- --- 1,928,023 19,280
Non cash compensation --- --- --- ---
Compensation expense --- --- --- ---
Net loss --- --- --- ---
Balance, ----- ----- --------- ------
December 31, 1996 --- --- 6,638,067 $66,381
===== ===== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Stock
Additional Retained Subscription Total
Paid-in Earnings Related Deferred Shareholders'
Capital (Deficit) Party Compensation Equity
------- --------- ----- ------------ ------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 $1,446,415 $ 3,840,709 --- $( 5,918) $ 5,319,508
Issuance of stock grants 111,210 --- --- (111,710) ---
Exercise of stock options 7,070 --- --- --- 7,248
Compensation expense --- --- --- 65,628 65,628
Net loss --- (1,318,337) --- --- (1,318,337)
Balance, --------- --------- ------ ------- ---------
December 31, 1994 1,564,695 2,522,372 --- ( 52,000) 4,074,047
--------- --------- ------ ------- ---------
Issuance of stock grants 33,450 --- --- ( 33,750) ---
Exercise of stock options 85,087 --- --- --- 86,543
Private Placement 212,760 --- --- --- 216,700
Compensation expense --- --- --- 50,184 50,184
Net loss --- (2,341,018) --- --- (2,341,018)
Balance, --------- --------- ------ ------- ----------
December 31, 1995 1,895,992 181,354 --- ( 35,566) 2,086,456
--------- --------- ------ ------- ---------
Issuance of stock grants 33,450 --- --- --- 33,750
Exercise of stock options 201,594 --- --- --- 203,719
Private Placement 2,189,166 --- --- --- 2,208,446
Non cash compensation 111,658 --- --- --- 111,658
Common stock subscribed --- --- (95,000) --- ( 95,000)
Compensation expense --- --- --- 35,566 35,566
Net loss --- (3,861,863) --- --- (3,861,863)
Balance, --------- --------- ------ ------- ---------
December 31, 1996 $4,431,860 $(3,680,509) $(95,000) $ --- $ 722,732
========= ========= ====== ======= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 30 of 54.
AW COMPUTER SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDING DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(3,861,863) $(2,341,018) $(1,318,337)
Adjustments to reconcile net income (loss) to
net
cash provided by (used in) operating
activities:
Depreciation and amortization 299,958 377,529 328,228
Amortization of unearned compensation 35,566 50,184 65,628
Provision for doubtful accounts ( 70,162) ( 130,372) 15,509
Provision for inventory 57,366 115,000 --
Non cash compensation 145,408 -- --
Gain on capital disposals ( 4,127) ( 6,983) --
Deferred income taxes -- -- ( 45,632)
Decrease (increase) in:
Accounts receivables 596,740 47,314 2,145,283
Costs and estimated earnings
on uncompleted contracts 258,222 960,555 ( 576,334)
Inventories 400,836 116,463 ( 289,107)
Income taxes receivable 280,445 294,088 ( 449,867)
Prepaid expenses and other assets 50,281 ( 16,433) ( 20,193)
Increase (decrease) in:
Accounts payable ( 144,675) 83,144 ( 105,786)
Accrued liabilities 134,856 12,297 ( 269,916)
Accrued cost 75,753 273,128 --
Other current liabilities ( 9,302) ( 36,326) 82,364
Accrued compensation 105,378 71,984 --
Pension costs 27,250 27,052 108,206
Billings in excess of costs and
estimated earnings on
uncompleted contracts
-- ( 8,582) ( 107,817)
--------- --------- ---------
Net cash provided by (used in) operating activities (1,622,070) ( 110,976) ( 437,771)
--------- --------- ---------
Cash flows investing activities:
Capital expenditures ( 147,808) ( 105,892) ( 395,661)
Capital disposals 9,592 43,241 --
Computer software capitalized ( 305,725) ( 325,159) ( 52,327)
--------- --------- ---------
Net cash (used in) investing activities ( 443,941) ( 387,810) ( 447,988)
--------- ---------- ---------
Cash flows financing activities:
Borrowings (payments):
Line of credit 20,368 -- 550,000
Proceeds from long term debt -- -- 500,000
Payments on long term debt ( 225,000) ( 408,333) ( 141,667)
Lease obligations ( 15,460) ( 16,342) ( 15,039)
Advances-related party loans ( 55,000) -- --
Issuance of common shares 2,412,164 303,243 7,248
--------- --------- ---------
Net cash provided by (used in) financing 2,137,072 ( 121,432) 900,542
--------- --------- ---------
activities
Increase (decrease), cash and cash equivalents 71,061 ( 620,218) 14,783
Cash and cash equivalents:
Beginning of year 848,560 1,468,778 1,453,995
--------- --------- ---------
End of year $ 919,621 $ 848,560 $ 1,468,778
========= ========= =========
</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 54.
AW COMPUTER SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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 and its
customers are located throughout the United States.
Going Concern:
These financial statements have been prepared in conformity
with generally accepted accounting principles which
contemplates continuation of the Company as a going concern
and realization of assets and settlement of liabilities and
commitments in the normal course of business.
As shown in the accompanying financial statements, the Company
has incurred losses for the past three years and the resulting
negative cash flow from operations. The Company's Line of
Credit in the amount of $570,368 is payable on December 31,
1997 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 during 1996. 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. Additionally, the Company is seeking additional
financing. The financial statements do not include any
adjustments that might be necessary if the Company is unable
to continue as a going concern.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 32 of 54.
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.
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.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 33 of 54.
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.
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 (twelve to
thirty-six months) 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 $0 in 1996, $74,000 in 1995
and $61,000 in 1994. Costs capitalized prior to 1995 have been
fully amortized. The following is a table as of December 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computer Software $1,780,521 $1,474,796
Accumulated Amortization 1,111,170 1,111,170
--------- ---------
Computer Software, Net $ 669,351 $ 363,626
========= =========
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 34 of 54.
Impairment:
Certain long-term assets of the Company are reviewed at least
annually as to whether their carrying value has become
impaired, pursuant to guidance established in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets."
Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related
operations (undiscounted and without interest charges). If
impairment is deemed to exist, the assets will be written down
to fair value or projected discounted cash flows from related
operations. Management also re-evaluates the periods of
amortization to determine whether subsequent events and
circumstances warrant revised estimates of useful lives. As of
December 31, 1996, Management expects these assets to be fully
recoverable.
Stock Options Issued to Employees:
The Company adopted SFAS No. 123 on January 1, 1996 for
financial note disclosure purposes and will continue to apply
the intrinsic value method of Accounting Principles Boards
("APB") Opinion No. 25 for financial reporting purposes.
Depreciation and Amortization:
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).
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.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 35 of 54.
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 (Loss) 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.
Advertising:
Advertising Costs are expensed as incurred.
Concentration of Credit:
The Company sells primarily to customers in the retail
industry throughout the United States. The financial
instruments, which potentially subject the Company to a
concentration of credit risk, are cash and accounts
receivable. 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 of approximately $800,000.
3. Statement of Cash Flows:
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
Cash paid during the years for: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest $64,994 $100,197 $62,709
Taxes -- 293 2,225
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 36 of 54.
Supplemental disclosure of non-cash investing and financing activities:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Issuance of stock grants $33,750 $33,750 $111,710
Issuance of common stock for
Notes receivable 95,000 -- --
</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. Revenues and costs recognized under these
contracts have been:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Contract revenues $ 88,000 $1,420,000 $1,903,000
Cost of contract revenues 1,003,980 1,483,000 1,389,000
</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). Through December 31, 1996, $1,551,000 and
$3,501,000 have been recognized as revenues and cost under this Agreement,
respectively. The Project has exceeded its $1,751,000 contractual budget
and the Company has recognized a loss of $1,750,000 including a provision
of $400,000 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.
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>
1996 Three $420,000; $320,000; and $130,000
1995 Three $719,000; $719,000; and $548,000
1994 Two $1,275,000 and $1,133,000
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 37 of 54.
6. Income Taxes:
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $( --) $( 300,079) $( 634,960)
State -- -- 2,425
--------- --------- ----------
-- ( 300,079) ( 632,535)
Deferred --------- --------- 45,632
----------
$ -- $( 300,079) $( 586,903)
========== ========= ==========
</TABLE>
Deferred tax assets (liabilities) comprised the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Excess book over tax basis of
property and equipment $ 36,024 $ 19,253
Excess book basis over tax basis of
computer software ( 267,740) ( 145,210)
Excess book basis over tax basis of
bad debt and inventory allowance 92,533 53,600
Excess book basis over tax basis of
non-qualified defined pension 65,003 54,103
Net operating loss carryforwards 2,004,998 817,679
--------- -------
1,930,818 799,425
--------- -------
Valuation allowance for deferred tax asset (1,930,818) ( 799,425)
---------- ---------
$ -- $ --
========== ==========
</TABLE>
The Company has a net operating loss (NOL) carry forward for federal tax
purposes of $4,662,000 of which $801,000 expires in the year 2010 and
$3,861,000 which expires in the year 2011. 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, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Percent
Federal statutory rate (34.0) (34.0) (34.0)
State income tax rate, net of
federal income tax benefit ( 6.0) ( 6.0) ( 9.0)
Change in deferred tax asset
valuation allowance 40.0 30.3 10.0
Other, net -- ( 1.7) 2.2
---- ---- ----
Effective tax rate ( 0 ) (11.4) (30.8)
==== ==== ====
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 38 of 54.
7. Costs Incurred and Estimated Earnings on Uncompleted Contracts:
Costs incurred and estimated earnings on uncompleted contracts consist of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Costs incurred on uncompleted contracts $1,551,193 $2,358,278
Estimated earnings 0 45,497
--------- ---------
1,551,193 2,403,775
Less: Billings to date 1,351,178 1,945,538
--------- ---------
$ 200,015 $ 458,237
========= =========
</TABLE>
8. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished products $ -- $ 20,155
Work in process -- 259,820
Raw material 56,589 234,816
------ -------
$56,589 $514,791
====== =======
</TABLE>
9. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Furniture and equipment $2,067,590 $1,929,188
Automotive equipment 123,606 123,606
Leasehold improvements 349,074 342,263
Property under capital lease 59,321 73,578
--------- ---------
2,599,591 2,468,635
Less: accumulated depreciation
and amortization 2,088,012 1,799,441
--------- ---------
$ 511,579 $ 669,194
========= =========
</TABLE>
Depreciation expense was $299,958, $303,000 and $265,000 for the years
ended December 31, 1996, 1995, and 1994, respectively.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 39 of 54.
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
did not make a contribution to the plan in 1996 or 1995 and made a
contribution of $95,000 in 1994.
11. Debt:
During 1996, the Company maintained a $550,000 Line of Credit with interest
at the Bank's prime rate (8.25% at December 31, 1996) plus one percent. In
October 1996, the credit facility was increased by $20,368 with an interest
rate of prime plus 2% to fund the requirements of a Letter of Credit
presented to the Bank. The Line of Credit had an outstanding balance of
$570,368 on December 31, 1996.
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.
In consideration for a one year extension, the Company issued to the Bank a
Warrant expiring August 31, 1998 to purchase 50,000 shares of stock at
$1.25 per share. The Company recorded $31,300 as Additional Paid-in Capital
and Finance Expenses in connection with the loan extension.
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 with an outstanding
balance of $550,000 with interest at the bank's prime rate plus 1.5%.
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 $31,300 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, 1997. 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.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 40 of 54.
Debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Term loan payable $ -- $225,000
Line of credit 570,368 550,000
------- -------
$570,368 $775,000
======= =======
</TABLE>
12. Leases:
The Company leases office facilities under a lease, as amended, which
expires in 1999. The Company has the option to extend the lease in one year
intervals for five years. The Company also leases office equipment under
operating leases which expire in 2001. The rental expense for the operating
lease totaled $267,518, $252,000 and $215,000 for the years ended December
31, 1996, 1995 and 1994, respectively. Contingent rentals are provided on
the Company's office facilities based on CPI increases of operating
expenses, as defined.
At December 31, 1996, annual future minimum lease payments under operating
leases and the present value of minimum lease payments are as follows:
<TABLE>
<CAPTION>
Operating Leases
----------------
<S> <C>
Minimum lease payments:
1997 $270,824
1998 276,241
1999 62,431
2000 5,868
2001 5,868
---- -------
Total minimum lease payments $621,232
=======
</TABLE>
13. Commitments and Contingencies:
The Company has entered into an Amended Employment and Retirement Agreement
effective July 1, 1996 with its former Chairman under which he is retained
as a consultant to the Company at a cost of $4,675 per month until December
1, 1998. Effective January 1, 1999, the Company will pay a retirement
benefit of $4,675 per month until December 1, 2003. The total present value
as of December 31, 1996 for the non-qualified, retirement benefit was
$162,508; total expense was $27,250, $27,000, and $108,000 in 1996, 1995
and 1994, respectively.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 41 of 54.
14. Stockholders Equity:
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 May 8, 1996, the Company, in a private cash transaction, received
$500,000 from the sale of 250,000 Class A Common Shares.
During 1996, the Company authorized 5,000,000 shares of Preferred Stock and
an additional 15,000,000 shares of Class A Common Stock. No Preferred Stock
was issued during 1996.
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.
15. Stock Options and Warrants:
Stock option and warrant transactions for the years ended December 31,
1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Weighted Average Non- Weighted Average
Incentive Average Remaining Qualified Average Remaining
Stock Exercise Contractual Options and Exercise Contractual
Options Price Life Warrants Price Life
------- ----- ---- -------- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 327,950 $ .82 -- 297,291 $1.91 --
Granted -- -- -- -- -- --
Expired ( 6,450) $ .91 -- ( 4,700) $1.22 --
Exercised ( 17,750) $ .48 -- -- -- --
--------- ---- --- --------- ---- ---
Balance, December 31, 1994 303,750 $ .80 -- 292,591 $1.93 --
Granted 225,991 $1.00 -- 476,282 $1.90 --
Expired ( 55,966) $ .72 -- -- -- --
Exercised ( 138,575) $ .62 -- ( 7,000) $ .59 --
--------- ---- --- --------- ---- ---
Balance, December 31, 1995 335,200 $1.07 -- 761,873 $1.92 --
Granted 277,500 $1.03 -- 287,500 $1.04 --
Expired ( 59,250) $1.05 -- -- -- --
Exercised ( 212,500) $1.10 -- -- -- --
--------- ---- --- --------- ---- ---
Balance, December 31, 1996 340,950 $1.02 4.7 years 1,049,373 $1.68 3.7 years
========= ==== === ========= ==== ===
Shares exercisable ,
December 31, 1996 340,950 $1.02 4.7 years 1,049,373 $1.68 3.7 years
========= ==== === ========= ==== ===
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 42 of 54.
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 applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting
for stock options issued to employees and others. Accordingly, expenses of
approximately $111,700 have been recognized for the Company's stock-based
compensation plans for the difference between the stock price and the
exercise price on the grant date. The Company has recorded $31,300 in
expense with respect to options granted non-employees.
Had compensation cost for the Company's stock options issued to employees
and directors been determined based upon the fair value at the grant date
for stock options issued under these plans pursuant to the methodology
prescribed under Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, the Company's net loss and
loss per share would have been increased, on a pro forma basis, by
$258,083, or $.04 per share for the year ended December 31, 1996 and
$381,196 or $.09 per share for December 31, 1995. Pro forma amounts were
calculated using the Black-Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Risk-free interest rate 6.198% 5.893%
Expected life 2 years 2 years
Expected volatility 97.2 % 100.75%
Expected dividends N/A N/A
</TABLE>
The weighted average exercise price and fair value of options is as follows
at December 31:
<TABLE>
<CAPTION>
Weighted-Average Weighted-Average
Exercise Price Fair Value
-------------- ----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Options Whose Price:
Exceeds Market $1.25 $2.00 $.63 $.55
Equals Market $1.06 $1.00 $.57 $.54
Is Less Than Market $1.07 -- $.64 --
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 43 of 54.
The following table summarizes information about incentive stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Weighted-Average
Range of Remaining Weighted-Average
Exercise Prices Shares Contractual Life Exercise Price
- --------------- ------ ---------------- --------------
<S> <C> <C> <C>
$1.00 to $1.25 337,450 4.7 years $1.00
$3.00 to $3.25 3,500 4.3 years $3.25
</TABLE>
The following table summarizes information about non-qualified stock
options and warrants outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Weighted-Average
Range of Remaining Weighted-Average
Exercise Prices Shares Contractual Life Exercise Price
- --------------- ------ ---------------- --------------
<S> <C> <C> <C>
$1.00 to $1.25 287,500 4.7 years $1.04
$1.75 to $2.00 761,873 3.3 years $1.92
</TABLE>
Net loss and net loss per share as reported, and on a pro forma basis as if
compensation cost had been determined on the basis of fair value pursuant
to SFAS No. 123 is as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Net Income (Loss)
As reported $(3,861,863) $(2,341,018)
Pro forma $(4,119,946) $(2,722,214)
Income (loss) per share
As reported $(.71) $(.56)
Pro forma $(.75) $(.65)
</TABLE>
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 44 of 54.
16. Related Party Transaction:
At December 31, 1996, the Company has three notes receivable from officers
of the Company totaling $95,000 which are included in the stockholders'
equity section of the Balance Sheet. The notes are for $20,000, $35,000 and
$40,000 and are secured by 20,000, 35,000 and 40,000 shares of AW Computer
Systems, Inc. Class A Common Stock respectively. The notes have an interest
rate of 6.1% and mature October 1, 1999.
The Company had two notes receivable from outside directors of the Company
totaling $40,000 which are included on Other Assets on the Balance Sheet at
December 31, 1995. Interest is charged and paid monthly at a rate equal to
the rate received by the Company on its cash balances (approximately 3.0%).
The notes were repaid in 1996.
17. Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments," which requires disclosing fair value to the extent
practicable for financial instruments which are recognized or unrecognized
in the balance sheet. The fair value of the financial instruments disclosed
herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement.
In assessing the fair value of these financial instruments, the Company was
required to make assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments,
including cash, accounts receivable, notes receivable, accounts payable,
amounts due to and from related parties and affiliates, and short-term
debt, management estimates that the carrying amount approximated fair value
for the majority of the instruments because of their short maturities.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 45 of 54.
18. New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS
No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. Earlier
application is not allowed. The provisions of SFAS No. 125 must be applied
prospectively; retroactive application is prohibited. Adoption on January
1, 1997 is not expected to have a material impact on the Company. The FASB
deferred some provisions of SFAS No. 125, which are not expected to be
relevant to the Company.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," and
No. 129, "Disclosure of Information about Capital Structure," in February
1997.
SFAS No. 128 simplifies the earnings per share ("EPS") calculations
required by Accounting Principles Board ("APB") Opinion No. 15, and related
interpretations, by replacing the presentation of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual presentation of basic
and diluted EPS by entities with complex capital structures. Basic EPS
includes no dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution of securities
that could share in the earnings of an entity, similar to the fully diluted
EPS of APB Opinion No. 15. SFAS No. 128 is effective for financial
statements issued for period ending after December 15, 1997, including
interim periods; earlier application is not permitted. When adopted, SFAS
No. 128 will require restatement of all prior period EPS data presented;
however, the Company has not sufficiently analyzed SFAS No. 128 to
determine what effect SFAS No. 128 will have on its historically reported
EPS amounts.
SFAS No. 129 does not change any previous disclosure requirements, but
rather consolidates existing disclosure requirements for ease of retrieval.
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 46 of 54.
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/Charles F. Trapp
Charles F. Trapp
Vice President, Finance
(Principal Financial Officer)
Dated: April 8, 1997
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/Charles McMullin Chairman/Chief Operating April 8, 1997
Charles McMullin Officer/Director
/s/Charles Welch CEO/President/Director April 8, 1997
Charles Welch
/s/Frank Cappiello Director April 8, 1997
Frank Cappiello
/s/Patricia Sunseri Director April 8, 1997
Patricia Sunseri
/s/Vincent Vidas Director April 8, 1997
Vincent Vidas
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 47 of 54.
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 48 of 54.
EXHIBIT INDEX
<TABLE>
<CAPTION>
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 Report on
Certificate of Incorporation dated June 30, Form 10-Q for the quarter ended June 30, 1987 is
1987. incorporated herein by reference at page 21.
3A-1 Amendment to the Company's Restated Exhibit 3A-1 to the Company's Quarterly Report on
Certificate of Incorporation dated June 30, Form 10-Q for the quarter ended June 30, 1987 is
1987. incorporated herein by reference at page 21.
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 at page 21.
3C-1 The Company's Registration Statement on Exhibit 3C-1 to the Company's Quarterly Report on
Form S-8. Form 10-QSB for the quarter ended September 30,
1995 is incorporated herein by reference at page
21.
4F Specimen Certificate for Class A Common Exhibit 4F to the Company's Annual Report on Form
Shares. 10-KSB for the year ended December 31, 1994 is
incorporated herein by reference at page 22.
10D-4 Supplemental Employment and Retirement Exhibit 10D-4 to the Company's Annual Report on
Agreement dated March 1, 1993 between Form 10-KSB for the year ended December 31, 1993
Nicholas Ambrus and the Company. is incorporated herein by reference at page 22.
10E Employment Agreement dated October 1, 1986 Exhibit 28C to the Company's Registration
between Charles Welch and the Company. Statement No. 33-1898 is 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 22.
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 49 of 54.
EXHIBIT INDEX
<TABLE>
<CAPTION>
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>
10E-1 Amendment Number Two to Employment Exhibit 10P-1 to the Company's Annual Report on
Agreement between the Company and Charles Form 10-KSB for the year ended December 31, 1995
Welch. is incorporated herein by reference at page 22.
10F Employment Agreement between the Company Exhibit 10F to the Company's Annual Report on
and Charles J. McMullin dated April 25, Form 10-KSB for the year ended December 31, 1994
1994. is incorporated herein by reference at page 22.
10G Employment Agreement between the Company Exhibit 10P-1 to the Company's Annual Report on
and P. Michael Lutze dated February 15, Form 10-KSB for the year ended December 31, 1995
1996. is incorporated herein by reference at page 22.
10H Lease between Linpro Industrial Limited and Exhibit 10H to the Company's Annual Report on
the Company dated August 12, 1983. Form 10-K for the year ended December 31, 1983 is
incorporated herein by reference at page 22.
10H-1 Amendment dated August 1, 1986 to the Lease Exhibit 10H-1 to the Company's Annual Report on
between Linpro Industrial Limited and the Form 10-K for the year ended December 31, 1986 is
Company. incorporated herein by reference at page 23.
10H-2 Amendment dated December 2, 1986 to the Exhibit 10H-2 to the Company's Annual Report on
Lease between Linpro Industrial Limited and Form 10-K for the year ended December 31, 1986 is
the Company. incorporated herein by reference at page 23.
10H-3 Sixth Amendment dated November 27, 1991 to Exhibit 10H-3 to the Company's Annual Report on
Lease between Linpro South Jersey, Inc. and Form 10-K for the year ended December 31, 1991 is
the Company. incorporated herein by reference at page 23.
10H-4 Seventh Amendment dated June 7, 1992 to Exhibit 10H-4 to the Company's Annual Report on
lease between Linpro Greentree Business Form 10-KSB for the year ended December 31, 1987
Centre Partnership and the Company. is incorporated herein by reference at page 23.
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 50 of 54.
EXHIBIT INDEX
<TABLE>
<CAPTION>
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>
10H-5 Eighth Amendment dated February 15, 1994 to Exhibit 10H-5 to the Company's Annual Report on
lease between Linpro Greentree Business Form 10-KSB for the year ended December 31, 1994
Centre Partnership and the Company. is incorporated herein by reference at page 23.
10M-16 Addendum to the Referral Agreement between Exhibit 10M-16 to the Company's Annual Report on
NCR Corporation and the Company dated Form 10-KSB for the year ended December 31, 1994
December 10, 1993. is incorporated herein by reference at page 23.
10M-18 Solution Provider Agreement between Exhibit 10P-1 to the Company's Annual Report on
Microsoft Corporation and the Company dated Form 10-KSB for the year ended December 31, 1995
August 1995. is incorporated herein by reference at page 23.
10N-2 The Company's October 1992 Stock Option and Exhibit 10N-2 to the Company's Annual Report on
Stock Grant Plan (as amended). Form 10-KSB for the year ended December 31, 1992
is incorporated herein by reference at page 24.
10P-1 Addendum to Warrant Agreement between the Exhibit 10P-1 to the Company's Annual Report on
Company and Winn-Dixie Stores, Inc. dated Form 10-KSB for the year ended December 31, 1995
March 8, 1996. is incorporated herein by reference at page 24.
10V Agreement for the Procurement of Life Exhibit 10V to the Company's Annual Report on
Insurance dated May 13, 1986 between the Form 10-K for the year ended December 31, 9186 is
Company and Nicholas Ambrus. incorporated herein by reference at page 24.
10W Agreement for the Procurement of Life Exhibit 10W to the Company's Annual Report on
Insurance dated May 13, 1986 between the Form 10-K for the year ended December 31, 1986 is
Company and Charles Welch. incorporated herein by reference at page 24.
21 Subsidiaries of the Registrant. Page 52.
23 Consent of Moore Stephens, P.C., Page 53.
Independent Accountants.
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 51 of 54.
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBERED IN SEQUENTIAL
NUMBERING SYSTEM AS
EXHIBIT DESCRIBED IN RULE 0-3(b)
INDEX ESCRIPTION OF INDEX WHERE EXHIBIT CAN BE FOUND
<S> <C> <C>
23A Consent of Coopers & Lybrand, L.L.P., Page 50.
Independent Accountants.
27 Financial Data Schedules, electronically CE
filed, as per Regulation SB.
No reports on Form 8-K were filed by the
Company during the last quarter of 1994.
</TABLE>
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 52 of 54.
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 53 of 54.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of AW
Computer Systems, Inc. of 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 17, 1997,
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, 1996, which report is
included in this Annual Report on Form 10-KSB.
/s/Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Cranford, New Jersey
March 17, 1997
<PAGE>
Page numbered in accordance with Rule 0-3(b). Page 54 of 54.
EXHIBIT 23A
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of AW
Computer Systems, Inc. of 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 for the
years ended December 1995 and 1994, 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 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The accompanying notes are an integral part of the consolidated financial
statements.
</LEGEND>
<CIK> 0000319037
<NAME> AW COMPUTER SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 919,621
<SECURITIES> 0
<RECEIVABLES> 118,347
<ALLOWANCES> (39,967)
<INVENTORY> 56,589
<CURRENT-ASSETS> 1,291,459
<PP&E> 511,579
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,499,697
<CURRENT-LIABILITIES> 1,614,457
<BONDS> 0
0
0
<COMMON> 66,381
<OTHER-SE> 656,351
<TOTAL-LIABILITY-AND-EQUITY> 2,499,697
<SALES> 1,000,319
<TOTAL-REVENUES> 1,420,089
<CGS> 0
<TOTAL-COSTS> 1,420,089
<OTHER-EXPENSES> 3,411,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,536
<INCOME-PRETAX> (3,861,863)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,861,863)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,861,863)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
</TABLE>
