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.

<PAGE>
           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>

          Page numbered in accordance with Rule 0-3(b). Page 13 of 54.

                  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 benefit                                         --     (  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 stock:
    
     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  Statement of
                  Financial Accounting Standards (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,  "Accounting for Stock-Based
                  Compensation,"   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,  "Accounting  for  Stock  Issued to  Employees,"  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