-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QhUfCI6TMeuV47q6UHdT4EmVwgmL+nIy1MJj/vJ5lc1bVJSgz8gBLYDmpm2VLt6i gjJS6kYj8G7XmoNReklVVA== 0000891618-96-002681.txt : 19961115 0000891618-96-002681.hdr.sgml : 19961115 ACCESSION NUMBER: 0000891618-96-002681 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AWARD SOFTWARE INTERNATIONAL INC CENTRAL INDEX KEY: 0001013920 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942893462 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28904 FILM NUMBER: 96660514 BUSINESS ADDRESS: STREET 1: 777 E MIDDLEFIELD ROAD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4159684433 MAIL ADDRESS: STREET 1: 777 E MIDDLEFIELD ROAD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission File Number 1-11799 AWARD SOFTWARE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 94-2893462 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 777 EAST MIDDLEFIELD ROAD MOUNTAIN VIEW, CALIFORNIA 94043 (Address of principal executive offices) (Zip Code) 415-968-4433 (registrant's telephone number, including area code) 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 --- --- Registrant had 6,507,754 shares of Common Stock, no par value, outstanding at November 8, 1996. 1 2 AWARD SOFTWARE INTERNATIONAL, INC. INDEX
Page Number PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements a) Condensed Consolidated Balance Sheet as of September 30, 1996 (Unaudited) and December 31, 1995 3 b) Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 1996 and 1995 (Unaudited) 4 c) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 1996 and 1995 (Unaudited) 5 d) Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
Award Software International(R) and SMSAccess are trademarks of registrant. 2 3 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements AWARD SOFTWARE INTERNATIONAL INC. CONDENSED CONSOLIDATED BALANCE SHEET (in thousands, except share data)
September 30, December 31, 1996 1995 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 13,217 $ 6,498 Accounts receivable, net 1,993 992 Receivable from related party 573 568 Receivable from GCH Systems, Inc. 220 282 Other current assets 1,585 216 -------- ------- Total current assets 17,588 8,556 Property and equipment, net 627 276 Other assets 324 251 -------- ------- $ 18,539 $ 9,083 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 682 $ 191 Accrued liabilities 2,032 1,723 -------- ------- Total current liabilities 2,714 1,914 Stockholders' equity Common stock, 40,000,000 shares authorized; no par value; 5,257,754 and 4,586,283 shares issued and outstanding 13,184 6,215 Deferred stock compensation (199) (255) Retained earnings 2,955 1,245 Cumulative translation adjustment (115) (36) -------- ------- Total stockholders' equity 15,825 7,169 -------- ------- $ 18,539 $ 9,083 ======== =======
See accompanying notes to condensed consolidated financial statements. 3 4 AWARD SOFTWARE INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 1996 1995 1996 1995 ------ ------ ------ ------ Revenues: Software license fees $3,000 $1,675 $8,049 $4,800 Engineering services 91 48 382 195 Related parties 304 535 1,118 1,300 ------ ------ ------ ------ Total revenues 3,395 2,258 9,549 6,295 ------ ------ ------ ------ Cost of revenues: Software license fees 173 47 312 158 Engineering services 58 8 115 38 Related parties 27 44 262 125 ------ ------ ------ ------ Total cost of revenues 258 99 689 321 ------ ------ ------ ------ Gross profit 3,137 2,159 8,860 5,974 Operating expenses: Research and development 1,144 674 3,010 1,948 Sales and marketing 707 757 1,965 1,794 General and administrative 451 371 1,497 1,223 ------ ------ ------ ------ Total operating expenses 2,302 1,802 6,472 4,965 ------ ------ ------ ------ Income from operations 835 357 2,388 1,009 Interest income, net 114 13 284 -- ------ ------ ------ ------ Income before provision for income taxes 949 370 2,672 1,009 Provision for income taxes 341 150 961 408 ------ ------ ------ ------ Net income $ 608 $ 220 $1,711 $ 601 ------ ------ ------ ------ Net income per common share $ 0.10 $ 0.03 $ 0.28 $ 0.09 ====== ====== ====== ====== Weighted average number of common and common equivalent shares outstanding 6,039 6,400 6,059 6,595 ====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements. 4 5 AWARD SOFTWARE INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------- 1996 1995 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,711 $ 601 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 160 103 Warrants issued for services 0 373 Deferred stock compensation 56 23 Changes in assets and liabilities: Accounts receivable, net (964) (87) Receivable from related party (5) (434) Other current assets (1,394) (43) Other assets (109) 79 Accounts payable 496 22 Accrued liabilities 310 417 -------- ------- Net cash provided by operating activities 261 1,054 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment,net (480) (75) -------- ------- Net cash used in investing activities (480) (75) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from common stock issuances 6,969 1,466 Payments from (to) GCH 62 (1,781) Principal payments under note obligations 0 (33) -------- ------- Net cash provided by (used in) financing activities 7,031 (348) Effect of exchange rate changes on cash (93) 35 -------- ------- Net increase in cash and cash equivalents 6,719 666 Cash and cash equivalents at beginning of period 6,498 1,374 -------- ------- Cash and cash equivalents at end of period $ 13,217 $ 2,040 ======== =======
See accompanying notes to condensed consolidated financial statements. 5 6 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Award Software International, Inc. (the "Company") as of September 30, 1996 and for the three and nine months ended September 30, 1996 and 1995 are unaudited. The condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1995 included in the Registration Statement (Number 333-05107) on Form S-1, as amended as of October 25, 1996, filed by the Company under the Securities Act of 1933, as amended. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year or any future period. 2. NET INCOME PER SHARE Net income per share is computed using the weighted average number of common and common equivalent shares, when dilutive, from stock options and warrants (using the treasury stock method). Pursuant to a Securities and Exchange Commission Staff Accounting Bulletin, common and common equivalent shares (using the treasury stock 6 7 method and the public offering price) issued within 12 months prior to the Company's initial public offering filing and through the effective date of such filing have been included in the calculation as if they were outstanding for all periods presented. 3. INITIAL PUBLIC OFFERING On October 25, 1996, the Company completed its initial public offering. In this transaction, the Company sold an aggregate of 1,250,000 shares of common stock at $8.00 per share, resulting in net proceeds to the Company of approximately $8,325,000 after deducting the underwriting discount and offering expenses. 7 8 AWARD SOFTWARE INTERNATIONAL, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company designs, develops and markets system management software for the global computing market. The following is a discussion of the financial condition and results of operations of the Company as of September 30, 1996 and for the three and nine months ended September 30, 1996 and 1995, respectively, and should be read in conjunction with the accompanying Quarterly Condensed Consolidated Financial Statements and Notes thereto and the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 1995 included in the Company's Registration Statement (Number 333-05107) on Form S-1 and is qualified in its entirety by reference thereto. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, consolidated statement of operations information as a percentage of total revenues.
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 1996 1995 1996 1995 ------ ------ ------ ------ Revenues: Software license fees 88.3% 74.2% 84.3% 76.3% Engineering services 2.7 2.1 4.0 3.1 Related parties 9.0 23.7 11.7 20.6 ------ ------ ------ ------ Total revenues 100.0 100.0 100.0 100.0 ------ ------ ------ ------ Cost of revenues: Software license fees 5.1 2.1 3.3 2.5 Engineering services 1.7 0.4 1.2 0.6 Related parties 0.8 1.9 2.7 2.0 ------ ------ ------ ------ Total cost of revenues 7.6 4.4 7.2 5.1 ------ ------ ------ ------ Gross profit 92.4 95.6 92.8 94.9 Operating expenses: Research and development 33.7 29.9 31.5 31.0 Sales and marketing 20.8 33.5 20.6 28.5 General and administrative 13.3 16.4 15.7 19.4 ------ ------ ------ ------ Total operating expenses 67.8 79.8 67.8 78.9 ------ ------ ------ ------ Income from operations 24.6 15.8 25.0 16.0 Interest income, net 3.4 0.6 3.0 -- ------ ------ ------ ------ Income before provision for income taxes 28.0 16.4 28.0 16.0 Provision for income taxes 10.1 6.6 10.1 6.5 ------ ------ ------ ------ Net income 17.9% 9.8% 17.9% 9.5% ====== ====== ====== ======
8 9 Comparison of Three and Nine Month Periods Ended September 30, 1996 and 1995 Revenues. The Company's revenues consist of software license fees and engineering services revenues. Revenues increased by $1.1 million (50%) and $3.3 million (52%) for the three and nine month periods ended September 30, 1996, respectively, from the same periods of the prior year. Software license fees increased by $1.3 million (79%) and $3.2 million (68%) for the three and nine month periods ended September 30, 1996, respectively, from the same periods of the prior year primarily due to higher unit shipments to the Company's existing Taiwanese motherboard customers, and to a lesser degree to existing U.S. customers partially offset by a decrease in software license fees from a European customer. Engineering services revenues increased by $43,000 (90%) and $187,000 (96%) for the three and nine month periods ended September 30, 1996, respectively, from the same periods of the prior year primarily due to higher engineering services revenues from customers in the U.S. Related parties revenues decreased by $231,000 (43%) and $182,000 (14%) for the three and nine month periods ended September 30, 1996, respectively, from the same periods of the prior year primarily due to lower software license fees and engineering services revenues from related parties. Cost of Revenues. Cost of revenues consist primarily of the cost of materials and freight expenses associated with software license fees and direct costs associated with engineering services revenues. Cost of revenues as a percent of revenues increased to 8% and 7% of revenues for the three and nine month periods ended September 30, 1996, respectively, as compared to 4% and 5% of revenues for the same periods of the prior year. The increase in cost of revenues as a percent of revenues for the three month period ended September 30, 1996 was primarily due to higher cost of software license fees and cost of engineering services revenues offset by a decrease from cost of engineering services revenues associated with a related party product development effort. Research and Development. Research and development expenses consists primarily of engineering personnel and related expenses and equipment costs. Research and development expenses increased by $470,000 (70%) and $1.1 million (55%) for the 9 10 three and nine month periods ended September 30, 1996, respectively, from the same periods of the prior year primarily due to the hiring of engineering personnel and related expenses and outside consultants to develop new software products, such as mobile BIOS and the SMSAccess product suite. The Company anticipates that it will continue to devote substantial resources to product research and development and that such expenses will continue to increase in absolute dollars. Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses, sales commissions and travel costs. Sales and marketing expenses decreased by $50,000 (7%) and increased by $171,000 (10%) for the three month and nine month periods ended September 30, 1996, respectively, from the same periods of the prior year. The decrease for the three month period ended September 30, 1996 was primarily due to non-recurring charges of $283,000 related to the recognition of warrants issued to a related party, and $36,000 related to warrants issued to a shareholder in exchange for marketing services for the three month period ended September 30, 1995. This decrease was partially offset by the hiring of sales and marketing personnel and related expenses and higher sales commissions for increased revenues. The increase for the nine month period ended September 30, 1996 was primarily due to the hiring of sales and marketing personnel and related expenses and higher sales commissions for increased revenues. General and Administrative. General and administrative expenses consist primarily of personnel and related expenses, professional services and facilities costs. General and administrative expenses increased by $80,000 (22%) and $274,000 (22%) for the three and nine month periods ended September 30, 1996, respectively, from the same periods of the prior year primarily due to higher professional services fees and a one-time employee severance cost of $90,000 in the Company's European operations. In addition, the Company recorded $297,000 of deferred stock compensation related to the difference between the exercise price of certain Common Stock options and the deemed fair market value of the Common Stock on the date of grant during the second half of 1995. 10 11 Amortization of deferred compensation expense of $19,000 and $57,000 is included in general and administrative expense for the three and nine month periods ended September 30, 1996, respectively. Interest income, net. Interest income, net consists primarily of interest expense associated with short-term borrowings and interest income on cash and cash equivalents, net of expenses. Interest income, net increased by $101,000 and $284,000 for the three and nine month periods ended September 30, 1996, respectively, from the same periods of the prior year primarily due to an increase in interest income earned on higher cash balances. Provision for Income Taxes. The Company's effective tax rate decreased from 41% to 36% for the three months ended September 30, 1995 and September 30, 1996, respectively, and 40% to 36% for the nine months ended September 30, 1995 and September 30, 1996, respectively, primarily due to an increase in income taxable in Taiwan at rates lower than the applicable statutory rates in the U.S. and Germany. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1996, the Company had cash and cash equivalents of $13.2 million and working capital of $14.9 million. Net cash provided by operating activities was $261,000 for the nine months ended September 30, 1996 and was primarily due to higher net income, accounts payable and accrued liabilities partially offset by growth in accounts receivable and other current assets. Net cash provided by operating activities was $1.1 million for the nine months ended September 30, 1995 and primarily resulted from net income, warrants issued for services and accrued liabilities partially offset by accounts receivable from related parties. Net cash used in investing activities was $480,000 and $75,000 for the nine months ended September 30, 1996 and September 30, 1995, respectively, and was primarily due to the purchase and upgrade of the Company's computer hardware. 11 12 Net cash provided by financing activities was $7.0 million for the nine months ended September 30, 1996 and was primarily due to proceeds from private equity sales. Net cash used in financing activities was $348,000 for the nine months ended September 30, 1995 and was primarily due to advances and repayments to GCH Systems, Inc., a related party. On October 25, 1996, the Company completed its initial public offering ("IPO"). In this transaction, the Company sold an aggregate of 1,250,000 shares of common stock at $8.00 per share, resulting in net proceeds to the Company of approximately $8,325,000 after deducting the underwriting discount and offering expenses. The Company believes that its net proceeds from the IPO, together with anticipated cash flow from operations and existing cash balances, will satisfy the Company's projected expenditures through 1997 for working capital and general corporate purposes, including an increase in the company's internal product development, staffing in connection with new product introductions and other related product development expenditures. This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21A of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the Company's Registration Statement (Number 333-05107) on Form S-1 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. 12 13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following exhibits are filed herewith: Exhibit 11.1 Computation of Net Income Per Share (b) Reports on Form 8-K No reports on Form 8-K were filed during the three month period for which this report is filed. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AWARD SOFTWARE INTERNATIONAL, INC. November 13, 1996 By: /s/ George C. Huang ------------------- George C. Huang Chairman of the Board, President and Chief Executive Officer November 13, 1996 By: /s/ Kevin J. Berry ------------------ Kevin J. Berry Vice President, Finance, Chief Financial Officer, Treasurer and Secretary 14 15 EXHIBIT INDEX Exhibit No. Description Exhibit 11.1 Computation of Net Income Per Share Exhibit 27.1 Financial Data Schedule 15 EX-11.1 2 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11.1 AWARD SOFTWARE INTERNATIONAL INC. COMPUTATION OF NET INCOME PER SHARE (1) (In thousands except per share amount) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 1996 1995 1996 1995 ------ ------ ------ ------ Net income $ 608 $ 220 $1,711 $ 601 ------ ------ ------ ------ Weighted average common and common equivalent shares: Common stock 3,092 3,420 3,092 3,701 Common stock equivalents from stock options/warrants using the treasury stock method 444 477 464 391 Shares of common stock issued and options and warrants granted in accordance with SAB No.83 2,503 2,503 2,503 2,503 ------ ------ ------ ------ Weighted average common and common equivalent shares 6,039 6,400 6,059 6,595 ------ ------ ------ ------ Net income per share $ 0.10 $ 0.03 $ 0.28 $ 0.09 ====== ====== ====== ======
(1) Net income per share is computed using the weighted average number of common and common equivalent shares, when dilutive, from stock options and warrants (using the treasury stock method). Pursuant to a Securities and Exchange Commission Staff Accounting Bulletin, common and common equivalent shares (using the treasury stock method and the public offering price) issued by the Company within 12 months prior to the Company's initial public offering filing and through the effective date of such filing have been included in the calculation as if they were outstanding for all periods presented. EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 US DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 13,217 0 2,875 (89) 0 17,588 965 (338) 18,539 2,714 0 0 0 13,184 2,641 18,539 9,549 9,549 689 689 6,472 0 0 2,672 961 0 0 0 0 1,711 .28 0
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