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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file number:
December 31, 1997 0-14741
- ------------------------- ----------------------
ASA INTERNATIONAL LTD.
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(Exact name of registrant as specified in its charter)
Delaware 02-0398205
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Speen Street, Framingham, MA 01701
- ----------------------------------------- ----------
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 626-2727
- ------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
- ----------------------------------------------------------
Title of each class Name of each exchange
- ------------------- on which registered
---------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
- -----------------------------------------------------------
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No.
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. Yes X No.
--- ---
As of March 20, 1998, 3,478,316 shares of Common Stock, $.01 par value
per share, were outstanding. The aggregate market value, held by non-affiliates,
of shares of the Common Stock, based upon the average of the bid and ask prices
for such stock on that date was approximately $5,180,000.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Document Part of Form 10-K Annual
- -------- Report in which Document
is Incorporated
Definitive Proxy Statement to be
supplied to Shareholders in conjunction
with the 1998 Annual Meeting of Shareholders Part III
Report on Form 8-K filed on January 15, 1997 Part IV
Registration Statement on Form S-18
(File number 33-3832-B) Part IV
Registration Statement on Form S-1
(File number 33-15381) Part IV
Registration Statement on Form S-8
(File number 33-312933) Part IV
PART I
ITEM 1. Business
--------
GENERAL
ASA International Ltd. (the "Registrant" or the "Company") provides
networked automation systems and ongoing monthly support to approximately 900
businesses in the United States, Canada, South America, Western Europe, and
Australia. The Company designs and develops proprietary enterprise and
point-solution software for the electronic time and labor management market, for
catalog direct marketers, and for the legal and tire dealer markets. The Company
installs its software on a variety of computers and networks, including IBM
Corporation ("IBM"), Hewlett Packard ("HP"), and various Unix/Open Systems
hardware platforms, and provides implementation, training, custom development,
and long-term software and hardware support to its clients.
The Company is comprised of four product lines and a corporate
services group. The Company's SmartTIME(R) Software Group (formerly Business
Systems Group) provides electronic time recording solutions for payroll and pay
rules to companies with greater than 500 employees and over $10 million in
sales. The Tire Systems Group provides integrated hardware and software
solutions to independent tire dealers, wholesalers, and retreaders. The Legal
Systems Group provides integrated accounting and practice management solutions
to law firms. Lastly, the CommercialWare Group, acquired in August 1993,
specializes in delivering enterprise systems to consumer and business direct
marketing companies.
The Company, founded in 1969, was organized as a Massachusetts
corporation on December 15, 1982 and was reincorporated as a Delaware
corporation on May 5, 1986. As used in this Report, the term "Company" includes
ASA International Ltd. and its wholly owned subsidiaries, ASA Properties, Inc.
("Properties") and ASA International Ventures, Inc. ("Ventures").
The Company's consulting and general business systems operations began
in 1969 under the direction of the Company's founder and Chief Executive
Officer, Alfred C. Angelone.
In December 1996, the Company completed the disposition of
substantially all of the assets and liabilities of the Company's International
Trade and Transportation Systems Group, (the "International Group") to
TradePoint Systems LLC ("TradePoint"), a New Hampshire limited liability
company. In exchange for the assets of the International Group and the
assumption of the International Group's liabilities, the Company received a 16%
membership interest in TradePoint and a subordinated promissory note in the face
amount of $600,000 from TradePoint (the "Note"). The remaining 84% interest in
TradePoint is owned by Christopher J. Crane, the former president of and a
former director of the Company. Simultaneously, with the completion of this
transaction, Mr. Crane resigned from all of his positions with the Company. In
exchange for his interest in TradePoint, Mr. Crane (i)
contributed all of the Company's common stock, $.01 par value per
share (the "Common Stock") owned by him, totaling 665,597 shares; (ii) assigned
to the Company a 16% partnership interest in the ASA Investment Partnership, a
partnership by and among Mr. Crane, the Company, and Alfred C. Angelone, the
Company's Chief Executive Officer and Chairman; and (iii) canceled all of his
options to purchase 245,000 shares of Common Stock. The consideration to be paid
was determined by negotiations between the parties and was independently
evaluated on behalf of the Company by Shields & Company, Inc. The Company will
account for its investment in TradePoint under the cost method.
In connection with the transaction, TradePoint granted to the Company
an irrevocable proxy covering the Company's Common Stock owned by TradePoint.
The Company has the right to cause TradePoint to redeem the 16% membership
interest in TradePoint held by the Company by notice given on or after March 1,
2002, in exchange for the Company's Common Stock held by TradePoint and the fair
market value of the 16% membership interest in TradePoint. TradePoint has the
right to redeem the Company's membership interest by notice given on or after
December 31, 2001 in exchange for the Company's Common Stock held by it and the
greater of $400,000 or the fair market value of the 16% membership interest in
TradePoint.
During the past year, there have been no bankruptcy proceedings,
receivership, or similar proceedings with respect to the Registrant, nor has
there been any merger or consolidation of the Registrant, and there has been no
disposition of any material amount of the Registrant's assets.
BUSINESS
The following paragraphs describe in greater detail the business
conducted by the Registrant.
SmartTIME Software (formerly Business Systems)
- ----------------------------------------------
The Company designs, develops, markets, implements and supports
Client/Server Enterprise-Wide software that manages the "source-to-gross"
payroll process of its customers. The Company's SmartTIME(R) product (first
introduced in 1993) facilitates the electronic collection of time, attendance,
and labor data (the source), which is then processed against the unique pay
rules of the customer to produce gross hours for payroll processing. The
Company's SmartRULES(TM) product, an object oriented developed tool that
interfaces with SmartTIME, allows customers who have a dynamic, complex pay rule
environment, to maintain those pay rules without the need for custom
programming.
The Company offers a comprehensive set of professional and consulting
services to all of its customers, including training, implementation assistance,
operations support, and custom software development.
The Company also continues to maintain, upgrade, and support legacy
manufacturing management and control and accounting software based primarily on
the DEC hardware platform.
Tire Systems
- ------------
The Company provides integrated hardware and software multi-user
solutions on Sun, DEC and Unix-based systems to independent tire dealers,
wholesalers, and retreaders in the United States, Canada and Latin America for
point-of-sale, work orders, inventory control, purchasing, and accounting
functions. The systems range in price between approximately $15,000 and
$200,000.
In September 1988, July 1989, September 1990, and November 1996,
respectively, the Company acquired Associated Software Consultants Organization,
Inc., Snyder Computing Systems, Computers Northwest, and certain assets of
Progressive Computer Systems, Inc., all of which specialized in supplying
systems to independent tire dealers. In recent years, the Company has
consolidated its position in the independent tire dealer marketplace. The
Company believes that it has the largest installed base of independent tire
retailer and distributor multi-user systems in the United States.
Legal Systems
- -------------
The Company provides integrated client/server-based financial
management systems for law firms throughout the United States. The Company's
Visual Pyramid product is a powerful, fully integrated suite of legal specific
applications designed to run on PC networks. The product is written using MS
Visual Studio for the front end and MS SQL Server for the back end. Systems
range in price between approximately $25,000 and $500,000.
The Company entered the legal systems marketplace in June 1991 by
acquiring Quorum Legal Systems of Plymouth Meeting, Pennsylvania from Control
Data Corporation. In January 1992, the Company acquired the fixed assets of
Legal Data Systems of Boston, Massachusetts. In November 1994, the Company
acquired certain software products of Precedent Technologies Incorporated of New
Hope, Pennsylvania. The Company has approximately 240 customers in this market.
CommercialWare
- --------------
The Company provides enterprise order management and fulfillment
systems to consumer, business catalog, direct marketing and electronic commerce
firms. Utilizing the IBM AS/400, the Company's Mozart(TM) product is a leading
industry standard for order fulfillment, customer service, and decision support
systems. The Company entered this marketplace in August 1993 when it acquired
CommercialWare, Inc. of Norwood, Massachusetts. The Company now believes it has
an estimated 3% market share in this marketplace.
Marketing
- ---------
The Company markets its products and services to new prospects and
existing customers primarily using the Company's direct sales force, assisted by
technical personnel. These personnel are trained in the Company's product and
service offerings and in the operations of the Company's customers. The Company
uses its own personnel, rather than third-party distributors, because prospects
and the Company's customers often lack comprehensive computer and systems
technical expertise and require a "consultative" selling approach, involving a
long selling cycle.
More importantly, the Company's objective is to develop a direct,
long-term relationship with each customer. This marketing approach requires
substantial, specialized knowledge of the requirements of the Company's
customers generally not available from third-party distribution arrangements.
These requirements result from the intangible nature of applications software
and related services, the sophistication of the Company's products and the need
for each customer to understand how the Company's products and services will
work to meet its requirements. The Company's sales force is supported by
marketing personnel who develop advertising and marketing campaigns; produce
product literature, periodic newsletters, and direct mail campaigns; arrange
attendance at trade shows and conventions; and sponsor seminars.
Marketing to a new prospect consists of identifying the prospect,
qualifying the prospect and, if the prospect is qualified, preparing and
presenting a sales proposal. In the tire, direct marketing, and legal markets
served by the Company, the total domestic market is well defined through the
respective industry and professional organizations. In these markets, trade
shows and direct contacts are used to determine how prospects are satisfying
their information processing requirements. For the time and attendance product
line, the prospects for the Company's products are more diverse and difficult to
target. In these markets, the Company engages in "prospecting" to identify
interest in the Company's products by companies who are currently seeking
products or services of the type offered by the Company. The prospecting process
includes trade publication advertising, purchased mailing lists, telemarketing,
direct mail, seminars, and trade shows to generate appointments for the direct
sales force with qualified prospects.
Once a prospect is qualified as to interest in the Company's products
and/or services, the direct sales and, as required, support personnel, visit the
prospect to understand the prospect's specific requirements. This process
usually results in the preparation of a written proposal which describes the
hardware, software, and services that will meet the prospect's requirements.
This sales cycle can be long, ranging from six months to beyond one year. The
Company believes the success of its sales activities depends upon this
consultative approach.
The Company believes that its customer base presents continuing
opportunities for sales of additional software and services. The Company's
products and services generally become an integral part of the
customer's business. As a result, the quality of customer support is
essential to selling to existing customers.
The Company maintains frequent contact with customers through sales
and service representatives. The Company provides customer support lines to
handle customer system operational issues within a prescribed response time, and
continually communicates with its customers through newsletters and customer
seminars. Through frequent contact with its customers by marketing and service
activities, the Company believes that it can better understand customer
requirements and direct its product development activities toward developing and
enhancing products that should be well accepted by both existing customers and
new prospects.
Sources and Availability of Raw Materials
- -----------------------------------------
The Company's systems operate on computer hardware supplied by leading
hardware manufacturers pursuant to Original Equipment Manufacturer or Value
Added Reseller Agreements. These agreements are renewable on a year-to-year
basis, and entitle the Company to purchase equipment at various discounts based
upon volume and the type of equipment. The loss of the Company's ability to
purchase equipment from the manufacturer would not have an adverse effect on the
Company's business. The Company's products have been ported to run under the
Unix operating system. The Company could also continue to purchase from hardware
distributors, but on terms less favorable than from the original manufacturer.
The Company believes that its relationship with the hardware manufacturers is
satisfactory.
The Company purchases IBM hardware for certain of the Company's market
segments from IBM under Industry Remarketer Agreements. The Company believes
that its relationship with IBM is satisfactory based upon IBM's selection of the
Company as an Authorized Industry Remarketer for these segments.
The Company also purchases HP hardware for certain of the Company's
market segments from HP under a Value-Added Reseller Program. The Company
believes that its relationship with HP is satisfactory given the selection of
the Company as a Value-Added Reseller for these markets.
The Company purchases all of its computer hardware and peripheral
equipment from IBM, HP, or other vendors, and performs only software
installation, testing, final system configuration, and quality control. With the
exception of multi-user systems purchased from IBM and HP, the Company believes
there are several alternative suppliers for system components used by the
Company.
Patents and Proprietary Technology
- ----------------------------------
The Company does not believe that patents are material to its
business. The Company relies primarily upon trade secrets, unpatented
proprietary know-how, and continuing technological innovation to develop and
maintain its competitive position. In particular, the Company generally provides
only "run time" code for its software to its tire and
legal clients, although time recording/labor management systems and
certain legal clients may also purchase "source" code. In addition, most
catalogue direct marketing clients purchase source code licenses. Insofar as the
Company relies on trade secrets and unpatented know-how, there can be no
assurance that others may not independently develop similar technology or that
secrecy will not be breached. Certain product names of the Company are
recognized as trademarks in interstate commerce and are or may be registered
trademarks.
Seasonality
- -----------
The Company has not experienced material seasonality in its business,
other than that due to the economic fluctuation of the economies of the United
States and Canada.
Working Capital Items
- ---------------------
The Company does not have any unusual trade practices which would
require restrictions on working capital.
Customers
- ---------
During fiscal year-ended December 31, 1997, the Company's revenue by
product line was approximately as follows:
Product Line Revenue($) %
- ------------ ----------- ---
SmartTIME Software $ 7,822,000 31%
Tire Systems 5,877,000 23
Legal Systems 4,205,000 16
CommercialWare 7,603,000 30
----------- ----
$25,507,000 100%
=========== ====
Backlog
- -------
Set forth below is information concerning the Company's backlog at
December 31, 1997 and 1996, respectively:
Backlog at December 31,
-----------------------
1997 1996
---- ----
Support Support
Product Line Total Contracts Total Contracts
- ------------ ----- --------- ----- ---------
SmartTIME Software $ 2,900,000 $1,100,000 $1,600,000 $1,000,000
Tire Systems 3,000,000 2,000,000 2,600,000 2,000,000
Legal Systems 2,400,000 1,500,000 2,400,000 1,600,000
CommercialWare 2,400,000 900,000 1,300,000 800,000
----------- ---------- ---------- ----------
$10,700,000 $5,500,000 $7,900,000 $5,400,000
=========== ========== ========== ==========
Support contracts are generally cancelable by the Company or the
Company's customers upon 90 days written notice.
Competition
- -----------
The Company's primary competitors in its target market for time and
attendance and labor reporting software are Kronos, JeTech, InTime Systems,
FasTech and EAS. The Company believes the principal competitive factors in this
market are: management of complex pay rules; technological sophistication and
vision; scaleability; platform independence; and rapid application deployment
and development. The Company believes it competes favorably with respect to all
of these factors.
The Company's primary competitors for tire systems are Madden Co.,
Signal Software and TireMaster. The Company believes the principal competitive
factors for tire systems are: complete point of sale functionality to assist
sales personnel to maximize gross margin on each sale; the ability to post data
automatically to the accounting system; the ability to track the manufacturing
process of tire retreaders; the ability to have electronic connectivity to
manufacturers; and the availability of marketing products which assist in
retaining and increasing existing customer business. The Company believes it
competes favorably with respect to all of these factors.
The legal systems market is highly competitive. The Company's primary
competitors for legal systems are CMS/DATA Corp., Elite Data Processing,
Barrister, Prolaw, and Omega. The Company believes that the principal
competitive factors in the legal systems business are: vendor
reputation and references; the ability to provide 32 bit client/server
products with a GUI front end and MS SQL Server back end; Year 2000 compliance;
the ability to easily interface with other Windows-based applications; the
ability to run both the "front office" and the "back office" applications on a
single network; product reliability; and the quality of professional services
and support. The Company believes it competes favorably with respect to all of
these factors.
The direct marketing systems market is highly competitive. The
Company's major competitors are Smith-Gardner, Sigma Micro, and Computer
Solutions. The direct marketing product competes on price/performance, ease of
use, and sophistication of software. The Company believes it competes favorably
with respect to all these factors. The next generation product, Mozart, unveiled
in 1994, is CASE-developed and competes favorably with the products of
competitors.
Research and Development
- ------------------------
During the last three fiscal years, the amounts spent by the Company
on Company-sponsored research and development activities and on
customer-sponsored research activities relating to the development of new
products, services, or techniques or the improvement of existing products,
services, or techniques were not material.
Government Regulation
- ---------------------
There is presently no material government regulation with respect to
the Company's business. Approvals for computer hardware from Underwriter's
Laboratories and the Federal Communications Commission are obtained by the
hardware manufacturer. However, the extent to which future federal, state, or
local governmental regulations may regulate the Company's activities cannot be
predicted, and the Company may be subject to restrictions on export of its
computer systems to other countries if it seeks further expansion into non-U.S.
markets.
Employees
- ---------
As of December 31, 1997, the Company had 152 full time employees. Of
these employees, 8 are executive officers or senior managers, 25 were engaged in
marketing and sales, 62 in customer support and training, 39 in product/custom
development or engineering and 18 in general and administrative positions. The
Company's ability to develop, market and sell products and to establish and
maintain its competitive position in light of new technological developments
will depend, in large part, on its ability to attract and retain qualified
personnel. The Company believes that it has been successful to date in
attracting skilled personnel critical to its business. No employees are covered
by collective bargaining agreements. Management of the Company believes that its
relationship with its employees is satisfactory.
ITEM 2. Description of Properties
-------------------------
The Company's Corporate Headquarters are located in a 32,000 square
foot office building at 10 Speen Street, Framingham, Massachusetts. The
SmartTIME Software and CommercialWare businesses are also located at this
facility. The Company occupies approximately 80% of the space in the building,
while tenants lease the remainder of the space. The carrying costs for the
building, which was acquired in October 1991, include monthly principal and
interest payments of $14,815 on a fifteen-year mortgage note along with
operating costs and taxes.
The Company's Tire Systems operations are located in approximately
7,000 square feet of a 24,000 square foot office building at 615 Amherst Street,
Nashua, New Hampshire, purchased in December 1992. Approximately 12,000 square
feet of the facility is leased to TradePoint Systems, LLC under a long-term
lease. The carrying costs for the facility include approximately $10,000 per
month for principal and interest on twenty-year mortgage notes plus operating
costs and taxes.
The Company maintains the following additional offices:
Current Date of Lease
Location Monthly Rent Office Area Expiration
- -------- ------------ ----------- -------------
Blue Bell, Pennsylvania (1) $13,149 9,214 s.f. February 1, 1999
Kirkland, Washington $5,913 3,720 s.f. October 31, 2001
(1) This amount is net of $13,811 per month in rent collected on a
sublease of approximately 11,206 square feet of space.
ITEM 3. Legal Proceedings
-----------------
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party or of which any of their property is
subject.
ITEM 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
(a) No matter was submitted to a vote of security-holders during the
fourth quarter of the fiscal-year ended December 31, 1997, through the
solicitation of proxies or otherwise.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
PART II
ITEM 5. Market Price of and Dividends on the Company's Common
Equity and Related Stockholder Matters
-------------------------------------------------------
The Company's Common Stock has been traded on the over-the-counter
market (NASDAQ symbol: ASAA) since June 25, 1986. The following table shows the
range of low and high sales prices for the Company's Common Stock on the NASDAQ
System for the periods indicated, as furnished to the Company by NASDAQ.
Calendar Year 1996 Low High
------------------ ------- --------
First Quarter $1.438 $2.688
Second Quarter $1.375 $6.500
Third Quarter $1.375 $2.563
Fourth Quarter $0.875 $1.813
Calendar Year 1997 Low High
------------------ ------- --------
First Quarter $0.880 $1.625
Second Quarter $1.031 $1.313
Third Quarter $1.000 $3.375
Fourth Quarter $1.875 $2.813
These quotations represent prices between dealers and do not include
retail markups, markdowns, or commissions, and may not necessarily represent
actual transactions. There were 1,331 holders of record of the Company's
outstanding Common Stock as of March 20, 1998.
Under the terms of a share repurchase program authorized by the
Company's Board of Directors in June 1990, the Company is authorized to
repurchase up to $500,000 of its Common Stock. In December 1991, the Company
repurchased 25,000 shares at a cost of approximately $1.06 per share. The
Company also repurchased shares as follows for the months indicated:
1992 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
March 5,000 $1.15
May 10,000 $1.53
July 3,000 $1.81
August 6,700 $1.81
8,100 $2.00
September 45,000 $1.94
15,000 $2.00
5,000 $1.99
October 5,000 $1.88
1993 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
March 5,000 $1.54
August 10,000 $2.93
September 1,800 $3.02
1997 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
December 23,000 $2.29
Although it is not obligated to do so, the Company may continue to
repurchase shares of Common Stock when market conditions for the purchase of its
stock meet its requirements.
Since its organization, the Company has not paid any dividends on its
Common Stock and its Board of Directors does not contemplate declaring any
dividends in the foreseeable future. The declaration and payment of dividends in
the future will be determined by the Board of Directors in light of conditions
then existing, including the Company's earnings, its financial condition and
requirements (including working capital needs), any agreements restricting the
payment of dividends and other factors. The Company's current banking
arrangements prohibit the payment of dividends by the Company.
ITEM 6. Selected Consolidated Financial Data
----------------------------------------
(in thousands, except per share amounts)
The following selected consolidated financial data are derived from
the consolidated financial statements of the Company. The statement of
operations data for the years ended December 31, 1997 and 1996 and 1995 and the
balance sheet data as of December 31, 1997 and 1996 are derived from and
qualified by reference to the consolidated financial statements and notes
thereto included herein and audited by BDO Seidman, LLP, the Company's
independent certified public accountants, as set forth in their report and also
included elsewhere herein. The balance sheet data as of December 31, 1995 is
derived from the financial statements audited by BDO Seidman, LLP, the Company's
certified public accountants, as set forth in their report not presented herein.
The statement of operations data for the years ended December 31, 1994 and 1993,
and the balance sheet data as of December 31, 1994 and 1993 are derived from
financial statements audited by Deloitte & Touche LLP the Company's then
independent auditors as set forth in their report not presented herein.
The financial information set forth below should be read in
conjunction with, and is qualified in its entirety by, the detailed information
in the consolidated financial statements and notes thereto appearing elsewhere
herein.
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standard No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 requires the
presentation of both basic and diluted earnings per
share and replaces previously required standards for computing and
presenting earnings per share. Earnings per share amounts for all periods have
been presented and where appropriate restated to conform to the requirements of
SFAS 128.
Years Ended December 31,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Operating Data:
- ---------------
Revenues $25,507 $25,471 $31,032 $27,111 $27,863
Costs and Expenses,
excluding income tax
expense (credit) 24,534 26,362 29,983 26,545 27,555
Earnings (Loss)
from Operations 1,485 (144) 1,502 920 569
Earnings (Loss)
Before Cumulative Effect
of Adopting SFAS No. 109 388 (649) 457 166 98
Net Earnings (Loss) 388 (649) 457 166 742
Basic Earnings (Loss) per
Common Share before
Cumulative Effect of
Adopting SFAS No. 109 $.12 $(.17) $.12 $.04 $.03
Cumulative Effect of
Adopting SFAS No. 109 0 0 0 0 $.17
Basic Earnings (Loss) per
Common Share $.12 $(.17) $.12 $.04 $.20
Diluted Earnings (Loss) per
Common Share before
Cumulative Effect of
Adopting SFAS No. 109 $.11 $(.17) $.11 $.04 $.02
Cumulative Effect of
Adopting SFAS No. 109 0 0 0 0 $.16
Diluted Earnings (Loss) per
Common Share $.11 $(.17) $.11 $.04 $.18
December 31,
------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Balance Sheet Data:
- -------------------
Total Assets $17,826 $16,630 $19,515 $20,131 $20,826
Long-Term Obligations 2,696 3,012 2,707 3,112 3,366
Shareholders' Equity 8,398 8,012 10,110 9,652 9,486
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
In addition to the historical information contained herein, the
discussions contained in this document include forward-looking statements. By
way of example, the discussions include statements regarding revenues, gross
margins, future marketing efforts, and potential acquisitions. Such statements
involve a number of risks and uncertainties, including but not limited to those
discussed below and those identified from time to time in the Company's filings
with the Securities and Exchange Commission. These risks and uncertainties could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements. The
Company assumes no obligation to update these forward-looking statements to
reflect events or circumstances arising after the date hereof.
Results of Operations
- ---------------------
Comparison of 1997 to 1996
- --------------------------
(000's omitted)
---------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1997 1996 Amount Percentage
---- ---- -------- ----------
Computer and add-on hardware $ 5,324 $ 4,808 $ 516 11%
Services 14,005 15,832 (1,827) (12%)
Product licenses 6,178 4,831 1,347 28%
------- ------- -------
Net Revenue $25,507 $25,471 $ 36 0%
======= ======= =======
REVENUE
In December 1996, the Company completed the disposition of its
International Trade and Transportation Systems Group. In the two years ended
December 31, 1996 and 1995, this group's revenues totaled approximately
$6,718,000 and $6,968,000, or 26% and 22% of total Company revenue,
respectively.
Net revenue. The Company designs and develops proprietary enterprise
and point-solution software for the electronic time and labor management market,
for catalog direct marketers, and for the tire dealers and legal markets. The
Company's revenues are derived from the sale of third party computer and add-on
hardware, from the licensing of the Company's software products, and from
service and support.
The Company's net revenues remained approximately the same for the
year ended December 31, 1997, compared to the year ended December 31, 1996.
Revenue from existing businesses increased by approximately $6,754,000, or 36%,
for the period, when approximately $6,718,000 in revenue from the Company's
international trade product line, which was sold in December 1996, is excluded
from the results for 1996.
Computer and add-on hardware. Hardware revenues are derived from the
resale of third-party hardware products to the Company's customers in
conjunction with the licensing of the Company's software. Hardware revenues
increased by approximately $516,000, or 11%, for the year ended December 31,
1997, compared to the same period in 1996. Hardware revenue from existing
businesses increased by approximately $2,423,000 or 84% for the period, when
approximately $1,907,000 in hardware revenue from the Company's international
trade product line is excluded from the results for 1996. The increase of
hardware revenues from existing businesses was due primarily to the increase of
hardware unit sales accompanying increased product license sales.
Services. Services are comprised of fees generated from training,
consulting, custom development, and ongoing client support provided under
self-renewing maintenance agreements. Service revenues decreased by
approximately $1,827,000, or 12%, for the year ended December 31, 1997, compared
to the year ended December 31, 1996. Service revenue from existing businesses
increased by approximately $1,766,000, or 14%, for the period, when compared to
1996, and the service revenue from the international trade product line of
approximately $3,593,000 for 1996 is eliminated. The change was due to increases
in software license revenues which were accompanied by client requirements for
training and consulting services, and to the increase in support revenues as a
result of a larger installed customer base.
Product licenses. The Company's software license revenues are derived
primarily from the licensing of the Company's enterprise and point-solution
products. Software license revenues increased by approximately $1,347,000, or
28%, for the year ended December 31, 1997, compared to the same period in 1996.
Product license revenue from existing businesses increased by approximately
$2,566,000, or 71%, for the period, when compared to 1996, and the product
license revenue from the international trade product line of approximately
$1,219,000 for 1996 is eliminated. The increase in dollar amount was primarily
due to increased market acceptance of the Company's software products, and the
increased capacity created by growth in the Company's direct sales force and
marketing efforts.
COST OF REVENUE
Computer and add-on hardware. Cost of hardware revenues consists
primarily of the costs of third-party hardware products. Cost of hardware
revenues increased by approximately $918,000, or 23%, for the year ended
December 31, 1997, compared to the prior year. The cost of hardware revenue from
existing businesses increased by approximately $2,479,000 or 99%, when
approximately $1,561,000 in cost of hardware from the Company's international
trade product line is excluded from the results for 1996. The increase in dollar
amount for the cost of hardware
revenues for the year ended December 31, 1997 was due primarily to
increased unit sales of hardware products, accompanying increased product
license sales, and a decrease in gross margin on hardware product sales as
discussed below.
The gross margin percentage for hardware sales decreased to 6%, for
the year ended December 31, 1997, from 15% in the same period in 1996. Margins
on computer and add-on hardware fluctuate based on the mix of computer and
ancillary hardware products sold and that computer hardware has become a
commodity. Accordingly, the Company expects hardware gross margins to continue
to fluctuate in the future. The Company continues to direct its efforts toward
building service and license revenues to offset the historical decline in
hardware revenue and margins.
Services. Cost of services consists of the costs incurred in providing
client training, consulting, and ongoing support as well as other client
service-related expenses. Cost of services decreased by approximately $2,083,000
for the year ended December 31, 1997, compared to the same period in 1996. The
decrease primarily reflects the elimination of the cost of service related to
the international trade product line which was sold in December 1996. The gross
margin percentage for services for 1997 increased to approximately 43% from 36%
of revenue from services in 1996. The Company's revenue and margin from services
fluctuate from period to period due to changes in the mix of contracts and
projects.
Product licenses and development. Cost of software license revenues
consists of the costs of amortization of capitalized software costs, and the
costs of sublicensing third-party software products. The amount also includes
the costs associated with the development of new products and the enhancement of
existing products (net of capitalized software costs), which consist primarily
of employee salaries, benefits, and related overhead costs. Cost of software
license revenues and development decreased by approximately $117,000 for the
year ended December 31, 1997, compared to the same period in 1996. The change
primarily reflects the elimination of the expenses of the international trade
product line. The cost of product licenses as a percentage of product license
revenue may fluctuate from period to period due to the mix of sales of
third-party software products in each period contrasted with certain fixed
expenses such as the amortization of capitalized software.
EXPENSES
Sales and marketing. Sales and marketing expenses consist primarily of
employee salaries, benefits, commissions and related overhead costs, and the
cost of marketing programs such as direct mailings, trade shows, seminars, and
advertising. Sales and marketing expenses increased by approximately $361,000,
or 9%, for the year ended December 31, 1997, compared to the same period in
1996. The change in sales and marketing expenses primarily reflects increases in
sales staffing and the higher sales commissions associated with increased
revenues, offset by the elimination of expenses related to the international
trade product line.
General and administrative. General and administrative expenses
consist primarily of employee salaries and benefits for administrative,
executive, and finance personnel and related overhead costs, as well as
consulting, accounting, and legal expenses. General and administrative expenses
decreased by approximately $643,000, or 18%, for the year ended December 31,
1997, compared to the same period in 1996. The change primarily reflects the
elimination of the expenses related to the international trade product line.
Net earnings for the year ended December 31, 1997 were approximately
$388,000, as compared to a net loss of approximately $649,000 for the year ended
December 31, 1996. The change resulted from an increase in earnings from
operations of approximately $1,630,000, decreases in net interest expense and
other expense of approximately $96,000 and $138,000, respectively, partially
offset by an increase in income tax expense of $827,000.
Comparison 1996 to 1995
- ------------------------
(000's omitted)
---------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1996 1995 Amount Percentage
---- ---- -------- ----------
Computer and add-on hardware $ 4,808 $ 8,444 $ (3,636) (43%)
Services 15,832 16,654 (822) (5%)
Product licenses 4,831 5,934 (1,103) (19%)
------- ------- ---------
Net Revenue $25,471 $31,032 $ (5,561) (18%)
======= ======= =========
REVENUE
Net revenue. The Company's net revenues decreased by approximately
$5,561,000, or 18%, for the year ended December 31, 1996, compared to the year
ended December 31, 1995. The change reflects an overall decline in net revenues
from the electronic time recording, legal, and direct marketing systems product
lines.
Computer and add-on hardware. The decrease in computer and add-on
hardware revenue of approximately $3,636,000 for the year ended December 31,
1996, compared to the same period in 1995, resulted primarily from a decrease in
revenue from the international trade, electronic time recording, legal and
direct marketing systems product lines. This decrease was partially offset by an
increase for the same period in computer and add-on hardware revenue from the
tire systems product line.
Services. Services revenues decreased approximately $822,000, or 5%,
for the year. Revenue decreases for the international trade, electronic time
recording and legal systems product lines were offset by revenue increases in
the tire and direct marketing systems product lines.
Gross margin from services increased to approximately 36% from 27%.
The Company's revenue and margin from services fluctuate from period to period
due to the mix of contracts and projects.
Product licenses. Software license revenue decreased by approximately
$1,103,000, or 19%, for the year ended December 31, 1996, compared to the same
period in 1995. The change was a result of revenue decreases from the
international trade and electronic time recording products lines, partially
offset by increases from the tire, legal and direct marketing systems product
lines.
COST OF REVENUE
Computer and add-on hardware. Cost of hardware revenues decreased by
approximately $2,847,000, or 41%, for the year ended December 31, 1996, compared
to the prior period. The change in dollar amount for the cost of hardware
revenues for the year ended December 31, 1996 was due primarily to decreased
unit sales of hardware products accompanying decreased product license sales.
The gross margin percentage for hardware sales decreased to 15% for
the year ended December 31, 1996, from 18%, in the same period in 1995. Margins
on computer and add-on hardware do fluctuate based on the mix of computer and
ancillary hardware products sold. Accordingly, the Company expects hardware
gross margins to continue to fluctuate in the future. The Company continues to
direct its efforts toward building service and license revenues to offset the
historical decline in hardware revenue and margins.
Services. Cost of services decreased by approximately $2,043,000, or
17%, for the year ended December 31, 1996, compared to 1995. The decrease
reflects the changes in service revenues noted above. The gross margin
percentage for services for the year ended December 31, 1996, increased to
approximately 36%, from 27%, of revenue from services in the year ended December
31, 1995. The Company's revenues and margins from services fluctuate from period
to period due to changes in the mix of contracts and projects.
Product licenses and development. Cost of software license revenues
and development increased by approximately $845,000, or 33%, for the year ended
December 31, 1996, compared to the same period in 1995. The change primarily
reflects the increased product license and development costs for the electronic
time recording and direct marketing product lines, partially offset by decreases
in these expenses for the international trade, tire, and legal product lines.
The cost of product licenses as a percentage of product license revenue may
fluctuate from period to period due to the mix of sales and third-party software
products and product development costs incurred in each period contrasted with
certain fixed expenses such as the amortization of capitalized software.
EXPENSES
Marketing and sales. Marketing and sales expenses decreased by
approximately $236,000, or 5%. This change primarily reflects a decrease in
advertising, marketing, and commission-related expenses for the international
trade, electronic time recording and tire systems product lines.
General and administrative. Expenses for the year ended December 31,
1996 increased by approximately $366,000, or 11%, compared to the prior year.
The change is the result of severance costs for the international trade product
line, increases in property taxes for Company-owned facilities, and increased
expense for computer equipment rental and maintenance for the direct marketing
systems product line.
Pretax loss from operations was approximately $144,000 for 1996,
compared to earnings of approximately $1,502,000 for 1995. The decrease in
earnings results from a decrease in contribution from the Company's
international trade, electronic time recording and direct marketing systems
product lines. Contribution increased in the tire and legal systems product
lines.
The net loss for the year ended December 31, 1996 was approximately
$649,000, as compared to net earnings of approximately $457,000 for the
comparable period in 1995. The change results from the decrease in earnings from
operations of approximately $1,646,000, along with the loss on the sale of
TradePoint Systems, LLC of approximately $322,000. These changes were partially
offset by decreases in net interest and income tax expense of approximately
$28,000 and $834,000, respectively.
Liquidity and Capital Resources
- -------------------------------
The Company had total cash and cash equivalents at December 31, 1997
of approximately $1,283,000, an increase of approximately $609,000 from December
31, 1996. The Company and its subsidiaries currently have a maximum line of
credit totaling $2,000,000, all of which was available at December 31, 1997.
This line is scheduled to expire in 1998. The Company expects to renew the line
under approximately the same terms of which no assurance can be given.
The Company expects to continue to pursue strategic acquisitions.
These acquisitions have been, and are expected to continue to be, financed in a
number of ways. Management believes, subject to the conditions of the financial
markets, that it should be able to continue its program of acquisitions,
although the Company has no specific plans with regard to acquisitions and has
no commitments as of the date of this report.
The Company has experienced significant fluctuations in its quarterly
operating results and anticipates such fluctuations in the future. Quarterly
revenues and operating results depend on the volume and timing of orders
received during the quarter which are difficult to forecast. Large orders for
the Company's products often have a lengthy sales cycle while the prospect
evaluates and receives approvals for the
purchase of the products. It may be difficult to accurately predict
the sales cycle of any large order. If one or more large order fails to close as
forecasted in a fiscal quarter, the Company's revenues and operating results
could be materially adversely affected. In addition, the Company typically
receives a substantial portion of its product orders in the last month of the
quarter. Orders are shipped as received and, as a result, the Company often has
little or no backlog except for support and service revenue. The Company
acknowledges the potential adverse impact that such fluctuations and general
economic uncertainty could have on its ability to maintain liquidity and raise
additional capital.
The Company's future financial performance is also dependent in large
part on the successful development, introduction, and customer acceptance of new
and enhanced versions of its software products. Due to the rapid change in
vendor hardware platforms, operating systems, and technology, the complexity and
expense of developing, testing, and maintaining the Company's products has
increased. There can be no assurance that these efforts will be successful or
result in significant product enhancements. The Company intends, as it has in
the past, to fund this development primarily from cash from operations and bank
debt.
Subject to the foregoing, the Company believes that based on the level
of operating revenue, cash on hand, and available bank debt, it has sufficient
capital to finance its ongoing business.
Inflation
- ---------
General inflation over the last three years has not had a material
effect on the Company's cost of doing business.
New Accounting Standards Not Yet Adopted
- ----------------------------------------
In June 1997, the Financial Accounting Standards Board issued two new
pronouncements. Results of operations and financial position will be unaffected
by implementation of these new standards.
Statement of Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income" establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting standards
as components of comprehensive income to be reported in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14. "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic area and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Management has not completed its evaluation of the
impact, if any, these standards may have on future financial statement
disclosures.
In November 1997, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which is
effective for the Company in fiscal 1998. Management has not completed its
evaluation of the impact, if any, this standard may have on future financial
statements.
Other Information; Year 2000 Issue Disclosure
- ----------------------------------------------
The Company has evaluated the potential impact of the situation referred to as
the "Year 2000 Issue." The Year 2000 Issue concerns the inability of computer
software programs to properly recognize and process date sensitive information
relating to the Year 2000. It is not anticipated that the Company will incur any
negative impact as a result of this potential problem. Certain of the Company's
systems are currently Year 2000 compliant. Other of the Company's applications,
which utilize a two-digit century field, are expected to require little
additional effort to be Year 2000 compliant.
ITEM 8. Financial Statements and Supplementary Data
-------------------------------------------
The financial statements and supplementary data are listed under Part IV,
Item 14, in this Report.
ITEM 9. Disagreements with Accountants on Accounting and
Financial Disclosure
------------------------------------------------
Not applicable.
PART III
Items 10-13 are incorporated herein by reference from the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports On
Form 8-K
------------------------------------------------------
(a)1. Financial Statements.
---------------------
The Consolidated Financial Statements required to be filed herein
are as follows:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules.
-----------------------------
None
(a)3. Exhibits.
---------
The following exhibits are filed with this report:
10 Promissory Note (Revolver) between ASA International Ltd. and
CoreStates Bank, N.A., dated June 30, 1997.
21 Subsidiaries of Registrant.
23 Consent of BDO Seidman, LLP, independent certified public accountants.
27 Financial Data Schedule
A) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 31, 1997:
10-1 Amendment Letter dated December 10, 1996 to the Loan Agreement
between ASA International Ltd., ASA Incorporated and ASA Legal
Systems Company, Inc., and CoreStates Bank, N.A., dated November 3, 1994.
10-2 Promissory Note (Term) between ASA International Ltd. and
CoreStates Bank, N.A., dated December 10, 1996.
10-4 Security Agreement between ASA International Ventures, Inc.
and CoreStates Bank, N.A., dated December 10, 1996.
10-5 Guarantee between ASA International Ltd. and CoreStates Bank, N.A., dated
December 10, 1996.
B) The following exhibits and Financial Statements were filed with the
Registrant's Form 8-K on January 15, 1997 and are incorporated
herein by reference:
2(b) Pro forma financial information for the Registrant.
The following unaudited pro forma condensed consolidated financial
statements are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet at
September 30, 1996 F-1 to F-2
Pro Forma Condensed Consolidated Statements of Operations.
Year Ended December 31, 1995 F-3
Nine Months Ended September 30, 1996 F-4
The Pro Forma Condensed Consolidated Balance Sheet of the
Registrant as of September 30, 1996 reflects the financial
position of the Registrant after giving effect to the
disposition of the assets and assumption of the liabilities
discussed in Item 2 and assumes the disposition took place on
September 30, 1996. The Pro Forma Condensed Consolidated Statements of
Operations for the fiscal year ended December 31, 1995 and the nine
months ended September 30, 1996
assume that the disposition occurred on January 31, 1995,
and are based on the operations of the Registrant for the year
ended December 31, 1995, and the nine months ended September 30, 1996,
respectively.
The unaudited pro forma condensed consolidated financial statements have
been prepared by the Registrant based upon assumptions deemed proper
by it. The unaudited pro forma condensed consolidated financial
statements are not necessarily indicative of the future financial
position or results of operations or actual results that would have
occurred had the transactions been in effect as of the dates presented.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the Registrant's historical
financial statements and related notes.
2(c) Reorganization Agreement by and between the Registrant, TradePoint
Systems LLC and Christopher J. Crane.
C) The following exhibits were filed with the Registrant's Form 8-K on
November 27, 1996 and are incorporated herein by reference:
2(a) First Amendment to the Asset Purchase Agreement (the "Purchase
Agreement") by and between the Company and Progressive Computer
Systems, Inc. dated October 18, 1996.
2(b) Second Amendment to the Purchase Agreement dated November 15, 1996.
D) The following exhibits were filed with the Registrant's Form 8-K on
September 20, 1996 and are incorporated herein by reference:
2 Agreement by and between the Registrant and Progressive Computer
Systems, Inc. dated as of August 30, 1996.
C) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 28, 1996:
2-1 The Commonwealth of Massachusetts Articles of Merger Merging
ASA Incorporated and ASA Legal Systems Company, Inc. into ASA
International Ltd., dated December 28, 1995.
2-2 Certificate of Ownership and Merger Merging ASA Incorporated and
ASA Legal Systems Company, Inc. into ASA International Ltd.,
dated December 28, 1995.
3a Certificate of Incorporation of ASA International Ventures, Inc.,
dated December 28, 1995.
3b Bylaws of ASA International Ventures, Inc.
10-3 Consent to Assignment of Lease for 960 Harvest Drive, Blue Bell,
Pennsylvania.
10-4 Agreement for Purchase and Sale of Assets between ASA
International Ventures, Inc. and ASA Incorporated, dated
December 29, 1995.
10-5 Agreement for Purchase and Exchange of Assets between ASA
International Ventures, Inc. and ASA International Ltd., dated
December 29, 1995.
10-6 Agreement for Exchange of Intangibles between ASA International
Ventures, Inc. and ASA International Ltd., dated December 29,
1995.
F) The following document is incorporated by reference to the Registrant's Form
8-K filed on August 31, 1995:
16 The Registrant announced that it had retained BDO Seidman, LLP,
as its new independent accountants, replacing its prior independent
accountants, Deloitte & Touche LLP.
G) The following documents are incorporated by reference to the registrant's
Report on Form 10-K filed on March 30, 1995:
10-1 Loan Agreement between ASA International Ltd., ASA Incorporated
and ASA Legal Systems Company, Inc., and CoreStates Bank, N.A.,
dated November 3, 1994.
10-4 Security Agreement between ASA International Ltd. and CoreStates
Bank, N.A., dated November 3, 1994.
H) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 30, 1994:
10-1 Promissory Note between ASA Properties, Inc., and Berkshire Life
Insurance Company, dated September 28, 1993.
10-2 Mortgage and Security Agreement between ASA Properties, Inc. and
Berkshire Life Insurance Company, dated September 28, 1993.
10-3 Collateral Assignment of Leases between ASA Properties, Inc., and
Berkshire Life Insurance Company, dated September 28, 1993.
10-4 Collateral Assignment and Security Agreement between ASA Properties,
Inc., and Berkshire Life Insurance Company, dated September 28, 1993.
10-5 Promissory Note between ASA Properties, Inc., and Granite State
Development Corporation, dated December 23, 1992.
10-6 Servicing Agent Agreement between ASA Properties, Inc., and Colson
Services Corporation, dated May 12, 1993.
10-15 Amendment to Merger Agreement by and among the Company, ASA Incorporated,
CommercialWare, Donald Askin, and Jonathan Ellman,
dated September 15, 1993.
I) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 30, 1993:
10-3 Lease for 960 Harvest Drive, Blue Bell, Pennsylvania.
10-4 Mortgage and Security Agreement between ASA Properties, Inc. and
Sun Life Assurance Company of Canada.
10-5 Promissory Note of ASA Properties, Inc. in favor of Sun Life
Assurance Company of Canada.
J) The following document is incorporated by reference to the Registrant's Form
8-K filed on September 29, 1993:
10-1 Agreement and Plan of Merger by and among the Company, ASA Incorporated,
CommercialWare, Donald Askin, and Jonathan Ellman,
dated as of August 31, 1993.
K) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 31, 1988:
3b Bylaws, as amended.
L) The following documents are incorporated by reference to the Company's
Registration Statement on Form S-18 (File number 33-5832-B):
4c Specimen Convertible Note.
M) The following documents are incorporated by reference to the Company's
Registration Statement on Form S-1 (File number 33-15381):
3a Certificate of Incorporation, as amended.
(b) Reports on Form 8-K.
--------------------
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASA INTERNATIONAL LTD.
By /s/ Alfred C. Angelone
---------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
report has been signed below by the following persons on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Alfred C. Angelone Director, Chief March 30, 1998
- -------------------------- Executive Officer,
Alfred C. Angelone and President
(principal executive
officer and principal
accounting officer)
/s/ James P. O'Halloran Director March 30, 1998
- --------------------------
James P. O'Halloran
/s/ Gordon J. Rollert Director March 30, 1998
- --------------------------
Gordon J. Rollert
/s/ William A. Kulok Director March 30, 1998
- --------------------------
William A. Kulok
/s/ Robert L. Voelk Director March 30, 1998
- --------------------------
Robert L. Voelk
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheets of ASA
International Ltd. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. 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 audits 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 financial position of ASA International
Ltd. and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Boston, Massachusetts
March 13, 1998
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,282,817 $ 674,239
Receivables -- net 5,926,610 3,753,971
Computer hardware held for resale 237,642 87,750
Other current assets 651,843 710,130
----------- -----------
TOTAL CURRENT ASSETS 8,098,912 5,226,090
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings 3,863,351 3,857,021
Computer equipment 2,883,864 2,548,511
Office furniture and equipment 856,224 842,659
Leasehold improvements 36,574 36,574
Vehicles 258,814 262,458
----------- -----------
7,898,827 7,547,223
Accumulated depreciation
and amortization 3,617,402 3,194,815
----------- -----------
NET PROPERTY AND EQUIPMENT 4,281,425 4,352,408
----------- -----------
SOFTWARE
(less cumulative amortization
of $6,634,296 and $5,433,284) 3,496,798 4,657,840
COST EXCEEDING NET ASSETS ACQUIRED
(less cumulative amortization
of $1,634,320 and $1,403,960) 695,755 873,205
OTHER ASSETS 1,252,812 1,520,435
----------- ------------
$17,825,702 $16,629,978
=========== ============
See notes to consolidated financial statements.
December 31,
-------------
1997 1996
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit note $ - $ 795,000
Accounts payable 2,263,573 1,360,585
Accrued expenses 1,575,813 1,228,339
Accrued commissions 538,558 256,455
Customer deposits 497,190 377,550
Deferred revenue 820,563 813,371
Current maturities of
long-term obligations 420,423 394,875
---------- -----------
TOTAL CURRENT LIABILITIES 6,116,120 5,226,175
---------- -----------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 2,696,020 3,011,976
---------- -----------
DEFERRED INCOME TAXES 616,000 380,000
---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value
$.01 per share: Authorized
and unissued, 1,000,000 shares - -
Common stock, par value
$.01 per share: Authorized, 6,000,000
shares; issued 4,096,502 and 3,984,237
shares; outstanding, 3,278,106
and 3,188,841 shares 40,965 39,842
Additional paid-in capital 7,394,281 7,344,564
Retained earnings 2,548,013 2,159,863
------------ -----------
9,983,259 9,544,269
Less treasury stock, at cost 1,585,697 1,532,442
------------ -----------
8,397,562 8,011,827
------------ -------------
$17,825,702 $16,629,978
============ ===========
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--Years Ended December 31,--
1997 1996 1995
---- ---- ----
REVENUES
Computer and add-on hardware $ 5,323,734 $ 4,808,082 $ 8,443,995
Services 14,005,494 15,831,948 16,654,125
Product licenses 6,177,507 4,830,947 5,934,237
------------ ------------ ------------
NET REVENUE 25,506,735 25,470,977 31,032,357
------------ ------------ ------------
COST OF REVENUE
Computer and add-on hardware 4,992,025 4,073,528 6,920,796
Services 8,010,547 10,093,562 12,136,916
Product licenses and development 3,326,174 3,442,981 2,598,035
------------ ------------ ------------
TOTAL COST OF REVENUE 16,328,746 17,610,071 21,655,747
------------ ------------ ------------
EXPENSES
Marketing and sales 4,487,320 4,126,394 4,362,178
General and administrative 2,974,900 3,617,931 3,252,290
Amortization of goodwill 230,360 260,833 260,523
------------ ------------ ------------
TOTAL EXPENSES 7,692,580 8,005,158 7,874,991
------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 1,485,409 (144,252) 1,501,619
INTEREST EXPENSE (419,039) (424,738) (463,199)
INTEREST INCOME 90,780 - 10,894
OTHER EXPENSE (184,000) (322,333) -
------------ ------------ ------------
EARNINGS (LOSS) BEFORE
INCOME TAXES (CREDIT) 973,150 (891,323) 1,049,314
INCOME TAXES (CREDIT) 585,000 (242,000) 592,000
------------ ------------ ------------
NET EARNINGS (LOSS) $ 388,150 $ (649,323) $ 457,314
============ ============ ============
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $.12 $(.17) $.12
============ ============ ============
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $.11 $(.17) $.11
============ ============ ============
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------
Common Stock Treasury Stock
------------ --------------
Additional
Paid-in Retained
Shares Amount Capital Earnings Shares Amount Total
------ ------- ---------- -------- ------ ------ -----
BALANCES,
1/1/95 3,917,268 $39,173 $7,681,632 $2,351,872 129,799 $(420,442) $ 9,652,235
Exercise of
stock
options 48 - 43 - - - 43
Net earnings - - - 457,314 - - 457,314
--------- --------- ----------- ----------- ----------- ------------ ------------
BALANCES,
12/31/95 3,917,316 39,173 7,681,675 2,809,186 129,799 (420,442) 10,109,592
Exercise of
stock
options 66,921 669 61,589 - - - 62,258
Reacquisition
of stock on
sale of
TradePoint - - - - 665,597 (1,112,000) (1,112,000)
Surrender of
stock options
on sale of
TradePoint - - (398,700) - - - (398,700)
Net loss - - - (649,323) - - (649,323)
--------- ------- ----------- ---------- ------- ------------ ------------
BALANCES,
12/31/96 3,984,237 39,842 7,344,564 2,159,863 795,396 (1,532,442) 8,011,827
Exercise of
stock
options 8,143 82 7,847 - - - 7,929
Issuance of
contingent
shares 104,122 1,041 51,870 - - - 52,911
Purchase of
Treasury
Stock - - - - 23,000 (53,255) (53,255)
Repurchase of
stock
options - - (10,000) - - - (10,000)
Net earnings - - - 388,150 - - 388,150
--------- ------- ----------- ----------- ------- ------------ ------------
BALANCES,
12/31/97 4,096,502 $40,965 $7,394,281 $2,548,013 818,396 $(1,585,697) $ 8,397,562
========= ======= =========== =========== ======= ============ ============
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---Years Ended December 31,---
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 388,150 $ (649,323) $ 457,314
----------- ----------- -----------
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,864,730 2,397,313 2,167,419
Deferred taxes 236,000 (237,000) 500,000
Doubtful receivables provision 125,381 32,546 (62,621)
Loss on sale of TradePoint - 322,333 -
Changes in assets and liabilities,
net of effects of acquisitions:
Receivables (2,298,020) 604,265 122,798
Computer hardware held for resale (149,892) 150,874 75,212
Other current assets 58,287 (55,759) 450,421
Accounts payable 902,988 316,633 (836,530)
Accrued expenses 629,577 (427,170) (431,211)
Other current liabilities 126,832 47,427 (180,863)
----------- ----------- -----------
Total adjustments 1,495,883 3,151,462 1,804,625
----------- ----------- -----------
Net cash provided by operating
activities 1,884,033 2,502,139 2,261,939
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (249,743) (302,729) (429,637)
Additions to software (39,967) (1,506,559) (1,054,043)
Reductions (increases) in
sales-type leases - 146,002 112,152
Cash transferred upon
sale of TradePoint - (718,197) -
Other assets 257,623 56,912 (50,127)
----------- ----------- -----------
Net cash used for investing
activities (32,087) (2,324,571) (1,421,655)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank and
other notes (795,000) (230,000) 50,000
Reduction in long-term debt (643,042) (414,613) (496,682)
Increase in long-term debt 250,000 675,000 -
Issuance of common stock 7,929 62,258 43
Purchase of Treasury Stock (53,255) - -
Repurchase of stock options (10,000) - -
----------- ----------- -----------
Net cash provided by (used for)
financing activities (1,243,368) 92,645 (446,639)
----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase 608,578 270,213 393,645
Balance, beginning of year 674,239 404,026 10,381
----------- ----------- -----------
Balance, end of year $1,282,817 $ 674,239 $ 404,026
=========== =========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1997, the Company acquired $102,634 of equipment through a capital lease
transaction.
During 1997, the Company issued contingently issuable common stock in the amount
of $52,911.
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, 1995
A. Summary of Significant Accounting Policies:
Business description and principles of consolidation The Company develops,
markets, and provides services for its proprietary enterprise and point-solution
software products and distributes computer hardware to its software customers.
The consolidated financial statements include the accounts of ASA International
Ltd. and its wholly owned subsidiaries, ASA Properties, Inc. and ASA
International Ventures, Inc., after elimination of all material inter-company
balances and transactions.
Cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. On a cash basis,
interest income received approximates the amounts reported on the statements of
operations.
Concentration of credit risks
Concentration of credit risk with respect to accounts receivable is limited due
to the large number of customers comprising the Company's customer base. Ongoing
credit reviews of customers' financial condition are performed, and collateral
is not required. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not exceeded management's expectations.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect 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.
Many of the Company's estimates and assumptions used in the financial statements
relate to the Company's products, which are subject to rapid technological
change. It is possible that changes may occur in the near term that would affect
management's estimates with respect to capitalized software.
Computer hardware held for resale
Inventory is stated at the lower of cost (first-in, first-out method) or market.
Property and equipment
Property and equipment are stated at cost. Depreciation for equipment and
vehicles is recorded on the straight-line method, based on the estimated useful
lives of the related assets (ranging from 3 to 7 years). Buildings are
depreciated over 40 years. Equipment under
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
capital leases and leasehold improvements are amortized over the shorter of the
lease term or the estimated useful lives of the assets.
Costs exceeding net assets acquired
Costs exceeding net assets of businesses acquired are amortized on a
straight-line basis over periods of 10 and 20 years. On an annual basis, the
Company reviews the carrying value of the costs exceeding net assets acquired
against projections of undiscounted cash flows and, if necessary, records
impairment.
Revenue recognition
Computer hardware revenue is recognized upon shipment of the product to the
client. Product license revenue is recognized upon shipment to the client
provided that no significant vendor obligations remain in connection with the
software being licensed and the collectability of the sale is probable in
accordance with Statement of Position 91-1 "Accounting for Software Revenue
Recognition."
Service revenues include post-contract client support, consulting, and training
support. Post-contract client support is generally provided under self-renewing
maintenance agreements. Revenue on these maintenance agreements is recognized
ratably over the contract term. Consulting and training services revenue is
recognized in the period the service is rendered.
Research and development
The Company expenses research and development costs as incurred. Costs incurred
other than capitalized costs for software were not material.
Software
The Company accounts for the costs of computer software developed in accordance
with Statement of Financial Accounting Standard No. 86. Accordingly, the costs
of purchased software, and of that software developed internally (once
technological feasibility is established) associated with coding new
applications or modules and enhancing and porting existing applications software
are capitalized. Amortization of these costs is based on the greater of the
charge resulting from the application of either the straight-line method over
five years or the proportion of current sales to estimated future revenues of
each product. Total amortization of software charged to operations was
approximately $1,201,000, $1,655,000 and $1,346,000 for the years ended December
31, 1997, 1996, and 1995, respectively.
Income taxes
Deferred tax assets or liabilities are recognized for the estimated tax effects
of temporary differences between the tax and financial reporting basis of the
Company's assets and liabilities and for loss carryforwards based on enacted tax
laws and rates.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net earnings (loss) per share
In fiscal 1997, the Company adopted Statement of Financial Accounting Standard
No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 requires the presentation
of both basic and diluted earnings per share and replaces previously required
standards for computing and presenting earnings per share. Earnings per share
amounts for all periods have been presented and, where appropriate, restated to
conform to the requirements of SFAS 128.
New Accounting Standards Not Yet Adopted
- -----------------------------------------
In June 1997, the Financial Accounting Standards Board issued two new
pronouncements. Results of operations and financial position will be unaffected
by implementation of these new standards.
Statement of Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income" establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting standards
as components of comprehensive income to be reported in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14. "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic area and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Management has not completed its evaluation of the
impact, if any, these standards may have on future financial statement
disclosures.
In November 1997, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which is
effective for the Company in fiscal 1998. Management has not completed its
evaluation of the impact, if any, this standard will have on future financial
statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
B. Business Acquisitions and Divestitures:
Acquisitions
The Company has consummated the following business combination using the
purchase method of accounting during the three years ended December 31, 1997.
The Company's consolidated statements of operations include the operating
results of this entity from its acquisition date.
In November 1994, the Company completed the acquisition of certain software
products of Precedent Technologies Incorporated. The purchase agreement called
for an initial payment of $297,000 ($70,000 in cash and $227,000 in short-term
notes) and potential contingent consideration of an additional $400,000 over
three years, based upon a percentage of the gross revenues received by the
Company through the licensing of these software products. As of December 31,
1997, the Company has not exceeded the gross revenues necessary for the payment
of additional consideration.
The acquisition price of CommercialWare, Inc. (CWI) in December 1993,
contemplated a contingent future payment in Company stock or cash (an adjustment
to purchase price) based on the future performance of CWI and the market value
of the Company's stock. Up to 100,000 additional shares are issuable to the
former owners of CWI over the three years ending December 31, 1996, based upon
CWI attaining at least 80% of yearly targeted contribution levels. As of
December 31, 1996, CWI had not met the targeted contribution level and,
therefore, no contingent payments were made. Certain former owners of CWI
received in March 1997 and 1998 deficiency payments in Company stock amounting
to 104,122 shares and 80,146 shares, respectively, based on the difference
between the market price for the measurement period, as defined, and $5 per
share.
Divestitures
In December 1996 the Company disposed of substantially all of the assets and
liabilities of the Company's international trade product line (Product).
Product's revenues totaled approximately $6,718,000 and $6,968,000, or 26% and
22%, of total Company revenue for the two years ended December 31, 1996 and
1995, respectively. In exchange for the assets of Product and the assumption of
its liabilities, the Company received a 16% membership interest in TradePoint
Systems, LLC (Trade), the acquiring corporation, and a subordinated promissory
note in the face amount of $600,000 from Trade. The note bears interest of 12%,
is due on December 31, 2002, and is paid in monthly installments of principal
and interest of $11,730. Included in other assets at December 31, 1997 and 1996
was the outstanding balance on this note of $534,000 and $600,000, respectively.
The remaining 84% interest in Trade is owned by the former president and
director of the Company (Buyer). In exchange for his interest in Trade, Buyer
(i) contributed all of the Company's common stock, $.01 par value per share (the
"Common Stock") owned by him, totaling 665,597 shares; (ii) assigned to the
Company a 16% partnership interest in the ASA Investment Partnership, a
partnership by
ASA INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
and among Buyer, the Company, and the Company's Chief Executive Officer and
Chairman; and (iii) canceled all of his options to purchase 245,000 shares of
Common Stock. The Company recorded a loss on the transaction of $322,333, based
on the fair value of the consideration received, less the book value of the net
assets exchanged. The consideration to be paid was determined by negotiations
between the parties and was independently evaluated on behalf of the Company by
an investment banking firm. The Company's investment in Trade, which is valued
at $500,000, is accounted for under the cost method and is included in other
assets at December 31, 1997 and 1996.
In connection with the transaction, Trade granted to the Company an irrevocable
proxy covering the Company's Common Stock owned by Trade. The Company has the
right to cause Trade to redeem the 16% membership interest in Trade held by the
Company by notice given on or after March 1, 2002, in exchange for the Company's
Common Stock held by Trade, and the fair market value of the 16% membership
interest in Trade. Trade has the right to redeem the Company's membership
interest by notice given on or after December 31, 2001, in exchange for the
Company's Common Stock held by it, and the greater of $400,000, or the fair
market value of the 16% membership interest in Trade.
In 1990, the Company sold the assets of its BIT unit which provided computer
systems to the hardgoods distribution market segment. A portion of the
consideration paid consisted of a promissory note for $300,000, with a five-year
term at 6% interest (discounted value of $272,000 at 10% interest), and 10,000
shares of Class B Non-Voting Stock of the acquiring corporation, Distribution
Management Systems, Inc. (DMS). The note was paid in full during 1995. The DMS
shares, originally valued at $334,000, included under the category of other
assets at December 31, 1997 and 1996, were written down to a net realizable
value of approximately $150,000 during 1997. The writedown of approximately
$184,000 has been recorded in other expense for the year ended December 31,
1997.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
C. Receivables:
December 31,
------------
1997 1996
---- ----
Trade $5,954,179 $3,801,041
Amounts due from officers
and employees 117,498 42,689
Other 18,375 3,033
---------- ----------
6,090,052 3,846,763
Less allowance for
doubtful accounts 163,442 92,792
---------- ----------
$5,926,610 $3,753,971
========== ==========
Amounts due from officers and employees represent unsecured periodic advances
reduced by repayments. There is no interest charged on these advances.
The allowance for doubtful accounts at December 31, 1994 was $122,867. During
the three years ending December 31, 1997, 1996, and 1995, the provisions for
doubtful accounts were $145,886, $236,830 and $357,161, and write-offs were
$75,236, $204,284 and $419,782, respectively.
D. Notes Payable, Long-Term Obligations, Commitments, and
Contingencies:
December 31,
------------
1997 1996
---- ----
Long-term obligations
Term loans $ 750,000 $1,000,000
Mortgage notes 2,213,391 2,307,172
Capital lease obligations 153,052 99,679
---------- ----------
3,116,443 3,406,851
Less current maturities 420,423 394,875
---------- ----------
$2,696,020 $3,011,976
========== ==========
The current carrying value of long-term obligations approximate their fair
market value.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revolving credit note
The Company has a revolving credit agreement for $2,000,000 (which cannot exceed
80% of acceptable accounts receivable), all of which was available at December
31, 1997. The agreement, which extends through June 30, 1998, stipulates
interest at prime (8.50% at December 31, 1997), plus 1%. Short-term borrowings
under the revolving credit agreement, at and for the year ended December 31, are
as follows:
December 31,
------------
1997 1996 1995
---- ---- ----
Balance outstanding at
December 31 $ - $ 795,000 $1,025,000
=========== =========== ===========
Interest
rate at December 31 9.50% 9.25% 9.50%
=========== =========== ===========
Maximum amount outstanding
during the year $1,055,000 $1,935,000 $1,625,000
=========== =========== ===========
Average amount outstanding
during the year $ 337,000 $1,342,172 $1,154,000
=========== =========== ===========
Weighted average interest
rate during the year based 9.44% 9.29% 9.79%
on average month end balances =========== =========== ===========
This credit facility, which includes the Company's $1,000,000 term loan,
requires the Company to maintain a stated tangible net worth amount and debt
service coverage. Payment of dividends is prohibited under the terms of this
agreement. This note is secured by the personal property of the Company.
Term loans
The term loan outstanding at December 31, 1997, dated December 10, 1996, is due
on December 1, 2000, and is payable in monthly installments of $20,833 plus
interest at 10%. This loan is secured by the personal property of the Company.
Mortgage notes
The Company has three mortgage notes outstanding at December 31, 1997. In
September 1993, the Company completed the refinancing of its Corporate
Headquarters in Framingham, Massachusetts. The mortgage note, in the original
amount of $1,450,000, at 9.125% for 15 years, provides for monthly principal and
interest payments of $14,815. A note on a second building acquired in December
1992 requires monthly principal and interest (at 9.5%) payments of $5,710 over
twenty years. In May 1993, the Company received $507,000 in mortgage financing
for the improvement
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and updating of this facility under a note from the Small Business
Administration. The twenty year note, with interest at approximately 6.6%, calls
for monthly principal and interest payments of $4,277. Each of these notes is
collateralized by the buildings which they financed.
Equipment loans and capital lease obligations The Company purchases or leases
various vehicles and computer equipment under loan and capital lease agreements.
The agreements require monthly or quarterly payments of varying amounts and
expire through 2000.
Interest paid was approximately $383,000, $425,000 and $523,000 for the years
ended December 31, 1997, 1996, and 1995, respectively. The Company and its
subsidiaries lease office and warehouse facilities under operating leases
expiring on various dates through October 31, 2001. Total rent expense charged
to operations approximated $240,000, $229,000 and $356,000, in 1997, 1996 and
1995, respectively.
At December 31, 1997, long-term obligations and minimum rental commitments under
noncancellable operating and capital leases with initial terms of one year or
more are as follows:
Capital Leases Long-Term Obligations Operating Leases
-------------- --------------------- ----------------
1998 $ 71,135 $ 358,159 $227,075
1999 61,469 363,070 82,152
2000 34,090 373,413 57,660
2001 - 134,713 48,050
2002 - 147,061 -
Thereafter - 1,586,975 -
-------- ---------- --------
166,694 2,963,391 414,937
Less
imputed
interest 13,642 - -
-------- ---------- --------
$153,052 $2,963,391 $414,937
======== ========== ========
Amounts recorded under capital leases included in computer equipment are
approximately $358,000 and $255,000, at December 31, 1997 and 1996,
respectively. Accumulated depreciation and amortization was approximately
$244,000 and $186,000, at December 31, 1997 and 1996, respectively.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. Income Taxes
(Credits):
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Current:
Federal $ 108,000 $ (5,000) $ 28,000
State 241,000 - 64,000
Deferred 236,000 (237,000) 500,000
--------- ---------- --------
$ 585,000 $(242,000) $592,000
========= ========== ========
On a cash basis, income taxes paid in 1997, 1996, and 1995 were
approximately $64,000, $60,300 and $33,700, respectively.
Income taxes are reconciled with the federal statutory rate as follows:
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Income taxes (credits) at
statutory federal rate $331,000 $(303,000) $357,000
State income tax (credit),
net of federal income
tax benefit 133,000 (30,000) 66,000
Non-deductible amortization
of intangibles 78,000 86,000 88,000
Other, net 43,000 5,000 81,000
-------- ---------- --------
$585,000 $(242,000) $592,000
======== ========== ========
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes and (b) operating loss and tax
credit carryforwards. The tax effects of significant items comprising the
Company's net deferred tax liability as of December 31, 1997 and 1996 are as
follows:
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1997 1996
---- ----
Deferred tax liabilities:
Software development
deducted for tax, not book $ 1,295,000 $1,555,000
Differences between book
and tax basis of property 2,000 118,000
Deferred gain on divestiture 175,000 275,000
Other 16,000 18,000
------------ -----------
1,488,000 1,966,000
Deferred tax assets:
Operating loss carryforwards 22,000 1,017,000
Tax credit carryforwards 614,000 515,000
Accruals/reserves 203,000 -
Other 33,000 54,000
------------ -----------
872,000 1,586,000
------------ -----------
Net deferred tax liability $ (616,000) $ (380,000)
============ ===========
The Company has available operating loss carryforwards primarily for Federal
purposes of $56,000, at December 31, 1997, that expire through 2009, some of
which are losses of purchased subsidiaries and whose use is limited. The Company
has available at December 31, 1997 general business credit carryforwards of
$515,000, which expire through the year 2007, and an alternative minimum tax
credit carryforward of $99,000 which does not exprie.
F. Capital Transactions:
Approximately $343,000 of the balance in treasury stock represents the Company's
75% investment in a partnership which consists of shares of its own common
stock. The Chief Executive Officer holds the remaining 25% of the investment.
Stock options
At December 31, 1997, the Company has four stock-based compensation plans, which
are described below. The Company applies APB Opinion 25, Accounting for Stock
Issued to Employees, and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock option
plans. Had compensation cost for the Company's four stock option plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, Accounting for
Stock-Based Compensation, the Company's net income (loss) and earnings (loss)
per share would have been adjusted to the pro forma amounts indicated below:
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1997 1996 1995
---- ---- ----
Net income (loss) As reported $388,150 $(649,323) $457,314
Pro forma 348,771 (680,665) 454,555
Basic Earnings (loss)
per share As reported $.12 $(.17) $.12
Pro forma $.11 $(.18) $.12
Diluted Earnings (loss)
per share As reported $.11 $(.17) $.11
Pro forma $.10 $(.18) $.11
The Company's four stock option plans, the 1986, 1988, 1993 and 1995 Stock
Option Plans, provide for the granting of incentive stock options and
nonqualified stock options to purchase an aggregate of 980,000 shares of common
stock at a price not less than fair market value on the date the option is
granted.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield
of 0% for all years, and expected volatility of 47% for 1997, 30% for 1996, and
30% for 1995, risk-free rates ranging from 5.76% to 6.73% for 1997, 5.88% to
6.67% for 1996, and 7% to 7.75% for 1995, and expected lives ranging from 12 to
48 months for 1997, 18 to 24 months for 1996, and 12 to 19 months for 1995.
A summary of the status of the Company's stock option plans as of December 31,
1997, 1996, and 1995, and changes during the years ending on those dates, is
presented below:
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1997 1996 1995
----------------------- ------------------------ -----------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ ---------------- ------ ----------------- ------ ----------------
Outstanding
at beginning
of year 366,097 $1.37 607,186 $ 1.28 615,236 $1.29
Granted 22,700 1.46 101,700 1.47 8,150 .99
Exercised 8,143 .97 66,922 .93 48 .89
Canceled 20,905 1.08 275,867 1.32 16,152 1.37
------- ------- -------
Outstanding at
end of year 359,749 $1.05 366,097 $1.37 607,186 $1.28
======= ======= =======
Options
exercisable
at year-end 306,799 $1.02 318,613 $1.34 573,438 $1.24
======= ===== ======= ===== ======= =====
Weighted-
average fair
value of
options
granted
during the
year $ .59 $ .72 $ .55
===== ===== =====
As of December 31, 1997, the 359,749 options outstanding under the Plan have
exercise prices between $.88 and $2.63, and a weighted-average remaining
contractual life of approximately 5 years.
Included in the 1995 stock option amounts are 220,000 nonqualified options which
could only be used to purchase unregistered stock.
Common stock reserved
At December 31, 1997, the Company has reserved 1,017,124 shares of its common
stock for incentive and nonqualified stock options.
G. Earnings per Share:
The following table sets forth the computation of basic and diluted earnings per
share:
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1997 1996 1995
---- ---- ----
Numerator:
Net income (loss) $ 388,150 $ (649,323) $ 457,314
========== ============ ===========
Numerator for diluted
earnings per share -
income available to
common shareholders $ 388,150 $ (649,323) $ 457,314
========== ============ ===========
Denominator:
Denominator for basic
earnings per
share - weighted
average shares 3,278,689 3,830,771 3,787,496
Effect of dilutive
securities:
Employee stock options 135,919 - 112,432
Contingently issuable
shares 80,146 - 184,268
---------- ----------- -----------
Dilutive potential
common shares
Denominator for
diluted earnings per
share - adjusted
weighted average
shares and assumed
conversions 3,494,754 3,830,771 4,084,196
========== ============ ===========
Basic Earnings (loss)
per share $.12 $(.17) $.12
==== ====== =====
Diluted Earnings (loss)
per share $.11 $(.17) $.11
==== ====== =====
The following table summarizes securities that which were outstanding as of
December 31, 1997, 1996, and 1995, but not included in the calculation of
diluted net earnings (loss) per share because such shares are antidilutive:
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Ended December 31,
--------------------------
1997 1996 1995
---- ---- ----
Employee stock options 4,000 626,000 309,000
Contingently issuable shares - 184,000 -
H. Employee Benefit Plan:
The Company maintains a defined contribution benefit plan covering substantially
all its employees. The Company makes contributions to the plan at the discretion
of the Board of Directors based upon a percentage of employee compensation as
provided by the terms of the plan. Contributions charged to operations in 1997,
1996, and 1995 were approximately $62,000, $168,000, and $63,000, respectively.
I. Transactions with Major Suppliers:
In 1997, 1996 and 1995, the Company made significant purchases from two hardware
suppliers totaling approximately $2,700,000, $3,581,000 and $6,129,000,
respectively.
J. Major customers:
The Company had sales to one customer approximating 13% of gross sales for the
fiscal year ended December 31, 1997. Accounts receivable relating to this
customer was 7% of total accounts receivable at December 31, 1997. There were no
major customers in 1996 or 1995.
K. Subsequent Event:
In January 1998, the Company acquired substantially all of the assets of Cedes
S.r.l. and SIPI-U S.r.l. ("Cedes"), subsidiaries of the Findest Group of Padova,
Italy. Cedes sells enterprise resource planning software to mid-range companies
in Italy. The transaction involved an exchange of approximately $30,000 US in
cash, assumption of certain liabilities, and 200,000 shares of the Company's
Common Stock for the assets of Cedes. The cash portion of the consideration was
paid from the Company's working capital. Cedes had revenues of approximately
$3,600,000 US for the year ended December 31, 1997.