<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-15440
AUDRE RECOGNITION SYSTEMS INC.
(Exact name of registrant as specified in its charter)
11021 Via Frontera, San Diego, California 92127
(Address of registrant's principal executive office)
(619) 451-2260
(Registrant's telephone number)
<TABLE>
<S> <C>
British Columbia, Canada 33-0257463
------------------------ ----------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ( ) No ( X )
Number of shares of common stock of registrant outstanding at
September 13, 1995 is 62,145,377.
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AUDRE RECOGNITION SYSTEMS INC.
AND SUBSIDIARY
FORM 10 - Q
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page Number
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets --
July 31, 1995 (Unaudited) and April 30, 1995 (Unaudited) 3
Consolidated Statements of Operations
for the three months ended July 31, 1995 and 1994
(Unaudited) 4
Consolidated Statement of Cash Flows
for the three months ended July 31, 1995 and 1994
(Unaudited) 5
Consolidated Statements of Stockholders' Equity
for the three months ended July 31, 1995 (Unaudited)
and the year ended April 30, 1995 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
</TABLE>
2
<PAGE> 3
AUDRE RECOGNITION SYSTEMS INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 30, 1995 April 30, 1995
------------- --------------
Current assets: (unaudited) (unaudited)
<S> <C> <C>
Cash $ 424,093 $ 365,917
Accounts receivable, less allowance for doubtful
accounts of $41,000 40,822 99,310
Inventory less reserve of $128,096 351,626 351,626
Notes receivable less allowance of $154,500 132,586 132,586
Other 22,799 24,120
------------ ------------
Total current assets 971,926 973,559
Software, at cost, net of accumulated amortization 2,886,453 2,720,979
Equipment, at cost, net of accumulated depreciation 1,076,674 1,139,879
Deposits 24,264 27,662
------------ ------------
Total assets $ 4,959,317 $ 4,862,079
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable-current $ 50,000 $ 50,000
Accounts payable 1,689,390 1,388,681
Accrued liabilities 586,332 599,100
------------ ------------
Total current liabilities 2,325,722 2,037,781
------------ ------------
Notes Payable 600,000 600,000
Notes Payable - shareholder 700,000 500,000
------------ ------------
Total Liabilities 3,625,722 3,137,781
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, authorized
100,000,000 shares; issued and outstanding
62,145,377 shares 27,518,832 27,486,733
Deficit (26,185,237) (25,762,435)
------------ ------------
Total stockholders' equity 1,333,595 1,724,298
------------ ------------
Total liabilities and stockholders' equity $ 4,959,317 $ 4,862,079
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
AUDRE RECOGNITION SYSTEMS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31,1995 JULY 31,1994
--------------------------------------------
<S> <C> <C>
Sales:
Product $ 1,120,236 $ 1,717,638
Maintenance 14,195 23,985
----------- ------------
Total Sales 1,134,431 1,741,623
Costs and expenses:
Cost of sales (exclusive of amortization) 156,986
Selling, general and administrative expenses 1,104,891 945,023
Product development 222,305 267,607
Depreciation and amortization 187,579 153,996
Interest expense 43,626 7,047
Other (1,168) 39,295
----------- ------------
Total costs and expenses 1,557,233 1,569,954
----------- ------------
Net Income (Loss) (422,802) 171,669
=========== ============
Primary Loss per share ($ .01) $ .00
=========== ============
Weighted average number of common shares 62,080,175 59,231,145
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
AUDRE RECOGNITION SYSTEMS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net Income (Loss) ($422,802) $ 171,669
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation 69,972 85,571
Software amortization 105,833 68,425
Accounts receivable 58,488 (1,126,893)
Notes receivable 12,700
Inventory 133,666
Other assets 1,322 (42,937)
Deposits 3,398 11,218
Accounts payable 300,709 51,991
Accrued liabilities (12,769) 60,753
--------- -----------
Total adjustments 526,953 (745,506)
--------- -----------
Net cash provided (used) by operating activities 104,151 (573,837)
--------- -----------
Cash flows from investing activities:
Capitalized software (271,307) (281,622)
Net purchases of fixed assets (6,767) (14,537)
--------- -----------
Net cash used by investing activities (278,074) (296,159)
--------- -----------
Cash flows from financing activities:
Net proceeds from notes payable 200,000 500,000
--------- -----------
Proceeds from issuance of common stock 32,099 0
232,099 500,000
--------- -----------
Net increase (decrease) in cash 58,176 (369,996)
Cash balance, beginning of year 365,917 766,706
--------- -----------
Cash balance, end of period $424,093 $ 396,710
========= ===========
Supplemental schedule of non-cash
investing and financing activities:
Conversion of notes payable and interest to common stock $ 12,165
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
AUDRE RECOGNITION SYSTEMS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Common Stock Stockholders'
Shares Amount (Deficit) Equity
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, April 30, 1995 (unaudited) 62,004,184 $27,486,733 ($25,762,435) $1,724,298
Issuance of common stock for cash
Issuance of common stock upon 141,193 32,099 32,099
of warrants and options
Net Loss (422,802) (422,802)
---------- ----------- ----------- ----------
Balance as of July 31, 1995 62,145,377 $27,518,832 ($26,185,237) $1,333,595
---------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
AUDRE RECOGNITION SYSTEMS INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Preparation:
The unaudited consolidated financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended April 30, 1995. In the opinion of
management, such financial statements include all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
Company's consolidated financial position and consolidated results of
operations and cash flows. The consolidated results of operations for the
three-month period ended July 31, 1995 may not be indicative of the results
that may be expected for the year ending April 30, 1996.
Inventories:
Inventories consist of purchased components valued at the lower of
first-in, first-out (FIFO) cost or market.
2. Notes Payable:
During the period between June and August 1994, the Company issued $600,000
in 8% convertible notes due May 25, 1996. The holders of the notes are
entitled to convert the principal and accrued interest into shares of the
Company's common stock at any time, but no later than April 30, 1996.
The conversion price shall be 75% of the lowest consecutive five-day
average of the stock's daily market price during the term of the notes.
In October 1994, the Company issued a $50,000 convertible note at 8%, due
October 15, 1995. The holder of the note is entitled to convert the
principal and accrued interest into shares of the Company's common stock at
any time, but no later than September 30, 1995. The conversion price shall
be the lesser of $1.20 or the lowest consecutive five-day average of the
stock's daily market price during the term of the note.
7
<PAGE> 8
AUDRE RECOGNITION SYSTEMS INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Notes Payable (Continued):
On April 15, 1995, the Company entered into an arrangement with a principle
stockholder to borrow $700,000, of which $500,000 was provided on April 15,
1995. The remaining $200,000 was remitted in May and June of 1995. The
Company issued a convertible, three year, 10% secured promissory note. The
noteholder is allowed to convert the principle and accrued interest into
shares of the Company's common stock at any time during the term of the
note, at a conversion rate of $0.50 per share. The note is secured by
certain modules of the Company's software product.
3. Earning Per Share:
Primary earning per share is computed on the weighted average number of
common stock outstanding for the quarter. Outstanding stock options and
warrants are common stock equivalents, but are excluded from the July 31,
1995 earnings per common share computation due to their anti-dilutive
effect, and from the July 31, 1994 computation, due to immateriality. The
weighted average number of common shares used in primary earnings per
common share computations for July 31, 1995 and 1994 were 62,080,175 and
59,231,145, respectively.
The disclosure of fully diluted earning per share is not required by APB
Opinion No. 15 because it results in dilution of less than 3%. In
accordance with Regulation S-K item 601(b)(11), the computation of fully
diluted earning per share for July 31, 1994, if shown, would assume the
conversion of the 8% convertible notes (see "Notes Payable"), and exercise
of stock options and warrants using the treasury method. Also, net earning
available for shareholders are increased by $1,933, which represents
interest expenses, net of tax, on the convertible notes. The weighted
average number of shares in the computation of fully diluted earning per
share for quarter ended July 31, 1994 would be 62,148,103.
8
<PAGE> 9
AUDRE RECOGNITION SYSTEMS INC.
AND SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1. Liquidity and Capital Resources
During the three months ended July 31, 1995, there was a 27% increase in
the working capital deficit from $1,064,222 at April 30, 1995 to $1,353,796
at July 31, 1995. The increase was primarily due to the $422,802 net loss
for the quarter ended July 31, 1995 (see "Results of Operations"). For the
quarter ended July 31, 1995 cashflow provided by operating activities was
approximately $104,000. During the similar period in 1994, AUDRE's use of
cash from operating activities was approximately $574,000. Cash utilized
for the acquisition of fixed assets and software development was $278,000
for the period, compared to $296,000 for the quarter ended July 31, 1994.
In fiscal 1994, the Company announced its intention to concentrate
resources and efforts on the government sector. In fiscal 1995, the Company
sold approximately $3.5 million in product and services to the United
States Department of Defense ("DoD"). In January 1995, the Company upgraded
its commercial sales efforts and allocated additional resources towards
those endeavors. Therefore, it is the opinion of management, that future
sales, which they believe will be generated from the DoD and the commercial
market, and continued maintenance and/or reduction of operating expenses,
will provide the Company with the ability to realize profitability and
continued operations in the long-term. While the Company believes it will
obtain sales sufficient to achieve profitability, no assurance can be made
that the Company will be successful in doing so or that it will occur prior
to the Company requiring additional capital. In regards to the legal
proceeding involving the Company, specifically Casey vs. Casey, which was
previously disclosed, the Company's ability to appeal the judgment requires
the posting of a bond in the amount of the judgment. If the Company is
unsuccessful in requesting, from the California Court of Appeal, a
significant reduction or elimination of the bond, it is likely to be unable
to finance a bond, and may have to seek shelter under the federal
bankruptcy code, which would stay the judgment and allow the Company to
appeal the decision.
9
<PAGE> 10
2. Results of Operations
Three Months ended July 31, 1995 and 1994 (Unaudited)
Revenue for the quarter ended July 31, 1995 was $1,134,431 compared to
$1,741,623 for the prior year period. The majority of the revenues in both
years was generated from sales to the United States Department of Defense
(DoD). Although quarterly revenue decreased compared to the prior year, due
to the procurement procedures of the DoD, AUDRE's products have been
historically purchased in bulk quantities at various intervals, therefore
since management believes additional sales to the DoD are forthcoming, it
is the Company's opinion that the decrease in sales does not appear to be
an unusual trend.
There were no cost of sales for the three months ended July 31, 1995, as all
of the sales in the first quarter of fiscal 1996 were for AUDRE's Automatic
Choice software product, which has minimal cost of sales.
Selling, general and administrative expenses increased 17% compared to the
quarter ended July 31, 1994. The increase was primarily due to increased
legal expenses. Product development costs for the quarter ended July 31,
1995, decreased 17% compared to the quarter ended July 31, 1994. The
decrease was achieved from reducing general departmental expenses.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 -- Financial Data Schedule
11
<PAGE> 12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUDRE RECOGNITION SYSTEMS INC.
By: /S/ Thomas F. Casey
-------------------------------
Thomas F. Casey
Chairman and Chief Executive Officer
(signing as both authorized officer and
Chief Financial Officer)
Date: September 13, 1995
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1995
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<CASH> 424,093
<SECURITIES> 0
<RECEIVABLES> 261,471
<ALLOWANCES> (41,000)
<INVENTORY> 351,626
<CURRENT-ASSETS> 971,926
<PP&E> 7,271,832
<DEPRECIATION> (3,308,105)
<TOTAL-ASSETS> 4,959,317
<CURRENT-LIABILITIES> 2,325,722
<BONDS> 1,300,000
<COMMON> 27,518,832
0
0
<OTHER-SE> (26,185,237)
<TOTAL-LIABILITY-AND-EQUITY> 4,959,317
<SALES> 1,134,431
<TOTAL-REVENUES> 1,134,431
<CGS> 0
<TOTAL-COSTS> 1,514,775
<OTHER-EXPENSES> (1,168)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,626
<INCOME-PRETAX> (422,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (422,802)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
