Massachusetts | 04-2911026 | |
(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) | |
Incorporation or Organization) |
PART I | FINANCIAL INFORMATION | ||
Item 1. | Unaudited Consolidated Financial Statements | ||
Consolidated Balance Sheets as of
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March 31, 2011 and December 31, 2010 | 3 | ||
Consolidated Statements of Operations for the
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Three Months Ended March 31, 2011 and
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March 31, 2010 | 4 | ||
Consolidated Statements of Cash Flows for the
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Three Months Ended March 31, 2011 and
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March 31, 2010 | 5 | ||
Notes to Consolidated Financial Statements | 6 | ||
Item 2. | Management’s Discussion and Analysis of Financial | ||
Condition and Results of Operations | 10 | ||
Item 3. | Quantitative and Qualitative Disclosures about | ||
Market Risk | 15 | ||
Item 4. | Controls and Procedures | 15 | |
PART II | OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 16 | |
Item 1A. | Risk Factors | 16 | |
Item 6. | Exhibits | 17 | |
Signatures | 17 |
March 31,
2011
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December 31,
2010
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|||||||
ASSETS
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||||||||
Current assets:
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||||||||
Cash and cash equivalents
|
$ | 40,015 | $ | 39,949 | ||||
Accounts receivable, net
|
6,120 | 4,968 | ||||||
Inventories
|
1,681 | 1,863 | ||||||
Prepaid expenses and other current assets
|
402 | 235 | ||||||
Total current assets
|
48,218 | 47,015 | ||||||
Property and equipment, net
|
6,296 | 6,360 | ||||||
Other assets, net
|
21 | 25 | ||||||
Total assets
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$ | 54,535 | $ | 53,400 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$ | 703 | $ | 565 | ||||
Accrued expenses
|
136 | 118 | ||||||
Accrued compensation
|
740 | 1,143 | ||||||
Accrued professional
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316 | 427 | ||||||
Deferred revenue
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1,046 | 944 | ||||||
Total current liabilities
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2,941 | 3,197 | ||||||
Long-term deferred revenue
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380 | 320 | ||||||
Stockholders’ equity:
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||||||||
Preferred stock, $1.00 par value; 1,000,000 shares authorized,
none outstanding
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- | - | ||||||
Common stock, $.01 par value; 70,000,000 shares authorized; issued
and outstanding 20,298,403 as of March 31, 2011 and 20,041,863
as of December 31, 2010
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203 | 200 | ||||||
Additional paid-in capital
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78,111 | 77,373 | ||||||
Accumulated deficit
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(27,100 | ) | (27,690 | ) | ||||
Total stockholders’ equity
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51,214 | 49,883 | ||||||
Total liabilities and stockholders’ equity
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$ | 54,535 | $ | 53,400 |
Three Months Ended
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March 31,
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||||||||
2011
|
2010
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Revenue:
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Product sales
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$ | 5,078 | $ | 4,651 | ||||
Services
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829 | 209 | ||||||
Royalties
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451 | 756 | ||||||
Total revenue
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6,358 | 5,616 | ||||||
Costs and expenses:
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Cost of product sales
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1,220 | 1,036 | ||||||
Cost of services
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357 | 72 | ||||||
Research and development
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1,961 | 2,035 | ||||||
Selling and marketing
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1,051 | 1,066 | ||||||
General and administrative
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1,197 | 1,402 | ||||||
Total costs and expenses
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5,786 | 5,611 | ||||||
Income from operations
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572 | 5 | ||||||
Interest income
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20 | 18 | ||||||
Income before provision for income taxes
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592 | 23 | ||||||
Provision for income taxes
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2 | 1 | ||||||
Net income
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$ | 590 | $ | 22 | ||||
Net income per share – basic
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$ | 0.03 | $ | 0.00 | ||||
Net income per share – diluted
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$ | 0.03 | $ | 0.00 | ||||
Weighted average shares – basic
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20,219 | 19,913 | ||||||
Weighted average shares - diluted
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20,828 | 19,923 |
Three Months Ended
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March 31,
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2011
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2010
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Cash flows from operating activities:
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Net income
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$ | 590 | $ | 22 | ||||
Adjustments to reconcile net income to net cash
used in operating activities:
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Depreciation and amortization
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124 | 129 | ||||||
Stock-based compensation
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303 | 345 | ||||||
Increase (decrease) from changes in assets and liabilities:
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Accounts receivable
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(1,152 | ) | (633 | ) | ||||
Inventories
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182 | 23 | ||||||
Prepaid expenses
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(167 | ) | (137 | ) | ||||
Accounts payable
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138 | 247 | ||||||
Accrued expenses, compensation, and professional
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(496 | ) | (445 | ) | ||||
Deferred revenue
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162 | 108 | ||||||
Net cash used in operating activities
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(316 | ) | (341 | ) | ||||
Cash flows from investing activities:
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Purchases of property and equipment
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(56 | ) | (47 | ) | ||||
Expenses from sale of assets
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- | (100 | ) | |||||
Net cash used in investing activities
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(56 | ) | (147 | ) | ||||
Cash flows from financing activities:
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Proceeds from issuance of common stock
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477 | - | ||||||
Shares surrendered by employees to pay taxes related to
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unrestricted stock
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(39 | ) | (161 | ) | ||||
Net cash provided by (used in) financing activities
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438 | (161 | ) | |||||
Increase (decrease) in cash and cash equivalents
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66 | (649 | ) | |||||
Cash and cash equivalents, beginning of period
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39,949 | 39,669 | ||||||
Cash and cash equivalents, end of period
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$ | 40,015 | $ | 39,020 |
A)
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Basis of Presentation. The accompanying unaudited consolidated balance sheet, statements of operations, and statements of cash flows reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of financial position at March 31, 2011, and of operations and cash flows for the interim periods ended March 31, 2011 and 2010.
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B)
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Fair Value Measurements. The Financial Accounting Standards Board (“FASB”) issued authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures for assets and liabilities measured at fair value in financial statements. We adopted these provisions on January 1, 2008.
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C)
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Inventories. Inventories are stated at the lower of cost or net realizable value with cost being determined by the first-in, first-out (“FIFO”) method. Inventory reserves are established for estimated excess and obsolete inventory. Inventories consist primarily of the following (in thousands):
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March 31,
2011
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December 31,
2010
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Raw materials
Finished goods
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$
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969
712
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$
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966
897
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Total
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$ | 1,681 | $ | 1,863 |
D)
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Computation of Earnings per Share. Basic earnings per share is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income or loss by the weighted average number of common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued. For the purposes of this calculation, stock options are considered common stock equivalents in periods in which they have a dilutive effect. Stock options that are anti-dilutive are excluded from the calculation.
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Three Months Ended
March 31,
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2011
|
2010
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Net income
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$ | 590 | $ | 22 | |||||
Weighted average common shares outstanding
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20,219 | 19,913 | |||||||
Additional dilutive common stock equivalents
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609 | 10 | |||||||
Diluted shares outstanding
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20,828 | 19,923 | |||||||
Net income per share – basic
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$ | 0.03 | $ | 0.00 | |||||
Net income per share – diluted
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$ | 0.03 | $ | 0.00 |
E)
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Stock-Based Compensation. The following table presents stock-based employee compensation expenses included in our unaudited consolidated statements of operations (in thousands):
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Three Months Ended
March 31,
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2011
|
2010
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Cost of product sales
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$ | 2 | $ | 2 | |||||
Cost of services
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9 | 6 | |||||||
Research and development
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67 | 114 | |||||||
Selling and marketing
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22 | 38 | |||||||
General and administrative
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203 | 185 | |||||||
Stock-based compensation expense
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$ | 303 | $ | 345 | |||||
F)
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Business Segments. We manage the business as one segment and conduct our operations in the United States. We sell our products and technology to domestic and international customers. Revenues were generated from the following geographic regions (in thousands):
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Three Months Ended
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March 31,
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2011
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2010
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United States
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$ | 3,645 | $ | 3,452 | |||||
Germany
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359 | 644 | |||||||
Rest of World
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2,354 | 1,520 | |||||||
$ | 6,358 | $ | 5,616 |
G)
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Income Taxes. As of December 31, 2010, we had federal net operating loss (“NOLs”) and research and experimentation credit carryforwards of approximately $51.0 million and $13.5 million respectively, which may be available to offset future federal income tax liabilities and expire at various dates from 2011 through 2030. In addition, at December 31, 2010, we had approximately $11.3 million and $7.3 million of state net operating losses and state research and development and investment tax carryforwards, respectively, which expire at various dates from 2011 through 2025. We have recorded a full valuation allowance on all of our deferred tax assets. We will release the valuation allowance when we are able to utilize NOLs and tax credit carryforwards by offsetting future taxable income.
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Based on an analysis that we performed under Internal Revenue Code Section 382 on our NOLs generated for the period 1997 through 2010, we have not experienced a change in ownership as defined by Section 382, and, therefore, the NOLs are not currently under any Section 382 limitation.
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H)
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Recent Accounting Pronouncements. We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.
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As of the date of this report, new pronouncements issued, but not effective until after March 31, 2011, are not expected to have a material impact on our financial condition, results of operations, or disclosures.
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I)
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Spin-off Plans. In September 2010, we announced plans to pursue a spin-off of our patent licensing operations. The spin-off would allow the spun-off entity to focus on patent licensing operations. After the spin-off, Aware would continue as a supplier of test and diagnostics products and biometrics and imaging software.
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Three Months Ended
March 31,
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2011
|
2010
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GAAP net income
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$ | 590 | $ | 22 | ||||
Stock-based compensation
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303 | 345 | ||||||
Non-GAAP net income
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$ | 893 | $ | 367 |
Three Months Ended
March 31,
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2011
|
2010
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GAAP net income per share
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$ | 0.03 | $ | 0.00 | ||||
Stock-based compensation
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0.01 | 0.02 | ||||||
Non-GAAP net income per share
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$ | 0.04 | $ | 0.02 |
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·
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Cash and cash equivalents, which consist of financial instruments with original maturities of three months or less;
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·
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Short-term investments, which consist of financial instruments with remaining maturities of twelve months or less; and
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·
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Investments, which consist of financial instruments that mature in three years or less.
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Exhibit 10.1*
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Form of Indemnification Agreement for Directors and Officers of Aware, Inc. (filed as Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on February 22, 2011 and incorporated herein by reference).
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Exhibit 31.1
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Certification of co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Exhibit 31.2
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Certification of co-Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Exhibit 32.1
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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AWARE, INC. | |||
Date: April 27, 2011
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By:
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/s/ Kevin T. Russell | |
Kevin T. Russell | |||
co-Chief Executive Officer & co-President
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General Counsel
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Date: April 27, 2011
|
By:
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/s/ Richard P. Moberg | |
Richard P. Moberg | |||
co-Chief Executive Officer & co-President
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Chief Financial Officer (Principal Financial and Accounting Officer)
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|
1.
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I have reviewed this quarterly report on Form 10-Q of Aware, Inc.;
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|
2.
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Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
|
|
d)
|
disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: April 27, 2011 | /s/ Kevin T. Russell |
Kevin T. Russell | |
co-Chief Executive Officer & co-President | |
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Aware, Inc.;
|
|
2.
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
|
|
d)
|
disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: April 27, 2011 | /s/ Richard P. Moberg |
Richard P. Moberg
|
|
co-Chief Executive Officer & co-President | |
Chief Financial Officer |
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
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