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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, 1998 0-14741
- ------------------------- ----------------------
ASA INTERNATIONAL LTD.
------------------------------------------------------
(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:
- -----------------------------------------------------------
Title of Each Class
-------------------------------
Common Stock, $.01 par value
Preferred Stock Purchase Rights
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. [ ].
As of March 24, 1999, 3,350,812 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 $6,460,000.
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 1999 Annual Meeting of Shareholders Part III
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, Italian manufacturing, 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 five product lines and a corporate services
group. The Company's SmartTime Software 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. The CommercialWare Group, which was sold in
March 1999, specialized in delivering enterprise systems to consumer and
business direct marketing companies and companies engaging in e-commerce. The
ERP Systems Group provides integrated client/server based ERP (Enterprise
Resource Planning) systems to manufacturing companies throughout Italy.
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"), ASA
International Ventures, Inc. ("Ventures"), and ASA Italy, S.r.l. ASA Properties
Inc. is the sole and managing member of 10 Speen Street LLC, which is the owner
of the Company's corporate headquarters.
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.
Effective March 3, 1999, the Company sold substantially all of the assets
of the Registrant's CommercialWare Division ("CWI") to CommercialWare, Inc., a
Delaware Corporation (the Purchaser). In connection therewith, the Company
transferred to the Purchaser certain of the liabilities of CWI. The Company
received (i) cash in the amount of $4,000,000, (ii) a promissory note in the
amount of $1,700,000, (iii) a junior promissory note in the amount of $500,000,
(iv) 30,000 shares of the Purchaser's common stock, par value $.01 per share,
and (v) one (1) share of Purchaser's Series A Preferred Stock.
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 accounts 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 ASA 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 by automatically applying
the unique pay rules of the customer to produce gross hours for payroll
processing. The Company's SmartRules(R) product, an object-oriented developed
tool and calculation engine that interfaces with SmartTime, allows customers who
have a dynamic, complex pay rule environment, to maintain and modify those pay
rules without the need for custom programming. The Company believes that it
currently maintains approximately 10% market share in its target markets.
The Company offers a comprehensive set of professional and consulting
services to all of its customers, including training, implementation assistance,
operations and application 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, Compaq/DEC and Unix-based systems to independent tire dealers,
wholesalers, and retreaders in the United States, Canada and South America for
point-of-sale, work orders, inventory control, purchasing, and accounting
functions. The systems range in price between approximately $25,000 and
$300,000.
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 $50,000 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 believes it has an estimated 12% share of the
mid-sized law firm market.
ERP Systems
- -------------
The Company, through its ERP Systems Group located in Venice, Italy,
provides fully integrated client/server based ERP systems which run under the
UNIX and NT operating systems. The product line, called "GX," is targeted at
mid-range companies with 20 to 60 users throughout Italy. The products were
developed using C++ and operate with many popular relational databases including
Oracle, Microsoft SQL, and Informix.
CommercialWare
- --------------
As discussed above, the CommercialWare division was sold on March 3, 1999.
Prior to such time, the Company provided enterprise order management and
fulfillment systems to consumer, business catalog, direct marketing and
electronic commerce firms.
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 dire ct 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,
Canada, and Italy.
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, 1998, the Company's revenue by
product line was approximately as follows:
Product Line Revenue($) %
- ------------ ----------- ---
SmartTime Software $ 6,870,000 19%
Tire Systems 8,735,000 25
Legal Systems 5,150,000 15
CommercialWare 10,776,000 30
ASA Italy 3,513,000 10
ASA Consulting 424,000 1
----------- ----
$35,468,000 100%
=========== ====
Backlog
- -------
Set forth below is information concerning the Company's backlog at December
31, 1998 and 1997, respectively:
Backlog at December 31,
-----------------------
1998 1997
---- ----
Support Support
Product Line Total Contracts Total Contracts
- ------------ ----- --------- ----- ---------
SmartTime Software $ 2,700,000 $1,100,000 $ 2,900,000 $1,100,000
Tire Systems 4,300,000 1,900,000 3,000,000 2,000,000
Legal Systems 2,900,000 1,600,000 2,400,000 1,500,000
ASA Italy 1,100,000 600,000 - -
CommercialWare - - 2,400,000 900,000
----------- ---------- ---------- ----------
$11,000,000 $5,200,000 $10,700,000 $5,500,000
=========== ========== =========== ==========
Support contracts are generally cancelable by the Company or the Company's
customers upon 90 days prior 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 ABI TruTrack. 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 mid-range ERP market in Italy is highly competitive with the principal
competition coming from highly competent and efficient local providers. The
principal competitive factors are market visibility, reputation and references,
solid technology, Year 2000 and EURO compliance, product functionality, and
quality of professional services. The Company believes it competes favorable
with respect to each of these factors.
Prior to its sale on March 3, 1999, CWI engaged in the direct marketing
systems market which is highly competitive. CWI's major competitors are
Smith-Gardner, Sigma Micro, and Computer Solutions. The direct marketing product
competed on price/performance, ease of use, and sophistication of software. CWI
believed it competed favorably with respect to all these factors. The next
generation product, Mozart, unveiled in 1994, was CASE-developed and competed
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, 1998, the Company had 213 full time employees. Of these
employees, 10 are executive officers or senior managers, 33 are engaged in
marketing and sales, 82 in customer support and training, 63 in product/custom
development or engineering and 25 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. This property is
owned by 10 Speen Street LLC, a Delaware limited liability company. ASA
Properties, Inc., a wholly owned subsidiary of the Company is the managing and
sole member of the LLC. The SmartTime Software business is also located at this
facility. The Company occupies approximately 44% of the space in the building,
while tenants lease the remainder of the space. In September 1998, the Company
refinanced this facility with a $3,000,000 mortgage loan at 7.24% for 10 years
with 30 year amortization. The carrying costs for the building, which was
acquired in October 1991, include monthly principal and interest payments of
$20,445 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 $12,487 9,667 s.f. January 31, 2006
Kirkland, Washington $ 5,728 3,720 s.f. October 31, 2001
Udine, Italy $ 1,765 3,068 s.f. December 31, 2000
Venice, Italy $ 4,891 5,801 s.f. February 28, 2001
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, 1998, 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 Common Stock of ASA International Ltd. is traded on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) under the
symbol ASAA. The table below indicates the high and low sales prices of the
Company's Common Stock during 1997 and 1998:
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
Calendar Year 1998 Low High
------------------ ------- --------
First Quarter $1.750 $2.313
Second Quarter $1.750 $2.250
Third Quarter $1.719 $2.125
Fourth Quarter $2.000 $2.563
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions. There were 1,277 holders of record of the Company's outstanding
Common Stock as of March 24, 1999.
Under the terms of a share repurchase program authorized by the Company's
Board of Directors in June 1990 and August 1998, the Company is authorized to
repurchase up to $1,000,000 of its Common Stock. The Company repurchased shares
as follows for the months indicated:
1991 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
December 25,000 $1.06
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
1998 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
May 15,000 $2.15
June 20,000 2.05
July 15,000 2.03
August 80,000 1.99
September 55,000 1.97
October 25,000 2.13
---------- ------- -----
1998 Total 210,000 $2.02
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, 1998, 1997, and 1996, and the balance
sheet data as of December 31, 1998 and 1997, 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 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.
Years Ended December 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Operating Data:
- ---------------
Revenues $35,468 $25,507 $25,471 $31,032 $27,111
Costs and Expenses,
excluding income tax
expense 34,398 24,534 26,362 29,983 26,545
Earnings (Loss)
from Operations 1,532 1,485 (144) 1,502 920
Net Earnings (Loss) 417 388 (649) 457 166
Basic Earnings (Loss) per
Common Share $.12 $.12 $(.17) $.12 $.04
Diluted Earnings (Loss) per
Common Share $.11 $.11 $(.17) $.11 $.04
December 31,
------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance Sheet Data:
- -------------------
Total Assets $19,732 $17,826 $16,630 $19,515 $20,131
Long-Term Obligations 4,068 2,696 3,012 2,707 3,112
Long-Term Liabilities - other 305 - - - -
Shareholders' Equity 8,809 8,398 8,012 10,110 9,652
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, potential acquisitions, and Year 2000 implications.
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 1998 to 1997
- --------------------------
(000's omitted)
---------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1998 1997 Amount Percentage
---- ---- -------- ----------
Product licenses $ 8,490 $ 6,178 $ 2,312 37%
Services 18,218 14,005 4,213 30%
Computer and add-on hardware 8,760 5,324 3,436 65%
------- ------- -------
Net Revenue $35,468 $25,507 $ 9,961 39%
======= ======= =======
REVENUE
In March 1999, the Company completed the disposition of its CommercialWare
Division (direct marketing systems product line). In the three years ended
December 31, 1998, 1997, and 1996, this group's revenues totaled approximately
$10,776,000, $7,603,000 and $6,530,000, or 30%, 30% and 26% of total Company
revenue.
Net revenue. The Company designs and develops proprietary enterprise and
point-solution software for the electronic time and labor recording market, for
catalog direct marketers until the sale of its CommercialWare division in March
1999, and for the tire dealer, legal, and ERP (enterprise resource planning)
markets. The Company entered the ERP market in January 1998 with the acquisition
of substantially all the assets of Cedes S.r.l. and SIPI-U S.r.l., subsidiaries
of the Findest Group of Padova, Italy. The Company's revenues are derived from
the licensing of the Company's software products, from client service and
support, and from the sale of third party computer and add-on hardware. The
Company's total revenues increased by approximately $9,961,000, or 39%, for the
year ended December 31, 1998, compared to the year ended December 31, 1997, with
the ERP systems product line acquired in January 1998 accounting for $3,513,000
or 14% of the increase in revenue.
Product licenses. The Company's software license revenues are derived
primarily from the licensing of the Company's enterprise and point-solution
products. Product license revenues increased by approximately $2,312,000, or
37%, for the year ended December 31, 1998, compared to the same period in 1997,
with the newly acquired ERP systems product accounting for $629,000 or 10% of
the increase in product license revenue. 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.
Services. Services are comprised of fees generated from training,
consulting, software modifications, and ongoing client support provided under
self-renewing maintenance agreements. Service revenues increased by
approximately $4,213,000, or 30%, for the year ended December 31, 1998, compared
to the same period in 1997, with the newly acquired ERP systems product
accounting for $2,721,000, or 19%, of the increase in services revenue.
Computer and add-on hardware. Hardware revenues are derived from the resale
of third-party hardware products to the Company's clients in conjunction with
the licensing of the Company's software. Hardware revenues increased by
approximately $3,436,000, or 65%, for the year ended December 31, 1998, compared
to the same period in 1997, with the newly acquired ERP systems product
accounting for $163,000, or 3%, of the increase in computer add-on hardware
revenue. The increase in hardware revenues from existing businesses was due
primarily to the increase of hardware unit sales accompanying increased product
license sales.
COST OF REVENUE
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 expenses 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 associated overhead costs. Cost of
software license revenues and development increased by approximately $1,325,000
for the year ended December 31, 1998, compared to the same period in 1997. The
change primarily reflects the costs associated with license revenue increases
from the electronic time recording, tire, and legal systems 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 of third-party software
products in each period contrasted with certain fixed expenses such as the
amortization of capitalized software.
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 increased by approximately $3,732,000
for the year ended December 31, 1998, compared to the same period in 1997. The
gross margin percentage for services for the year ended 1998 decreased to
approximately 36%, from 43% of revenue from services in the same period in 1997.
The Company's revenue and margin from services fluctuate from period to period
due to changes in the mix of contracts and projects.
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 $2,635,000, or 53%, for year ended December 31, 1998,
compared to the same period in 1997. The increase in dollar amount for the cost
of hardware revenues for the year ended December 31, 1998 was due primarily to
increased unit sales of hardware products accompanying increased product license
sales.
The gross margin percentage for hardware sales increased to 13% for the
year ended December 31, 1998, from 6%, in the same period in 1997. 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 fluctuate in the future. The Company continues to direct its
efforts toward building service and license revenues to offset the historical
decline and uncertainty in hardware revenue and margins.
EXPENSES
Marketing and sales. Marketing and sales expenses consist primarily of
employee salaries, benefits, commissions and associated overhead costs, and the
cost of marketing programs such as direct mailings, trade shows, seminars, and
related communication costs. Marketing and sales expenses increased by
$1,090,000, or 24%, for the year ended December 31, 1998, compared to the same
period in 1997. The change in marketing and sales expenses primarily reflects
increases in sales staffing, the higher sales commissions associated with
increased revenues, and the additional expenses related to the newly acquired
ERP systems product line.
General and administrative. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive, and
finance personnel and associated overhead costs, as well as consulting,
accounting, and legal expenses. General and administrative expenses increased by
approximately $1,027,000, or 35%, for the year ended December 31, 1998, compared
to the same period in 1997. The change primarily reflects additional expenses
related to the ERP, Tire Systems, and Direct Marketing product lines.
Net earnings for 1998 were approximately $417,000, as compared to net
earnings of approximately $388,000 in 1997. The change resulted from an increase
in earnings from operations of approximately $47,000, and a decrease in other
expense of approximately $184,000, partially offset by an increase in net
interest expense of approximately $134,000, and an increase in income tax
expense of approximately $68,000. Interest expense for the current year includes
a one-time charge of approximately $248,000 related to the early payoff of a
mortgage on Company-owned real estate, which was refinanced.
Comparison of 1997 to 1996
- --------------------------
(000's omitted)
---------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1997 1996 Amount Percentage
---- ---- -------- ----------
Product licenses $ 6,178 $ 4,831 $ 1,347 28%
Services 14,005 15,832 (1,827) (12%)
Computer and add-on hardware 5,324 4,808 516 11%
------- ------- -------
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.
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.
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.
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.
COST OF REVENUE
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.
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.
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.
EXPENSES
Marketing and sales. Marketing and sales 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. Marketing and sales 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 marketing and sales 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.
Liquidity and Capital Resources
- -------------------------------
The Company had total cash and cash equivalents at December 31, 1998 of
approximately $4,262,000, an increase of approximately $2,980,000 from December
31, 1997. The Company and its subsidiaries currently have a maximum line of
credit totaling $1,500,000, all of which was available at December 31, 1998.
This line is scheduled to expire in 1999. The Company expects to renew the line
under approximately the same terms of which no assurance can be given.
In September of 1998, the Company refinanced its Corporate Headquarters
building in Framingham, Massachusetts. The mortgage loan, totaling $3,000,000
with interest at 7.24% for 10 years with 30 year amortization, provides for
monthly principal and interest payments of $20,445 through October 2008 with a
final principal payment of approximately $2,638,000 plus interest. The financing
required the payoff of the principal on a previous mortgage of $1,169,206 along
with a prepayment fee on the previous mortgage of approximately $248,000. The
proceeds of the loan were used to pay-off the Company's term loan with the
remainder retained for general corporate purposes.
In November 1998, the Company entered into a joint venture agreement with a
third party whereby the Company will sell and support software products in the
United States and Canada. The Company has agreed to provide $500,000 in funding
for this venture. No activity occurred under the Joint Venture Agreement during
1998.
Effective March 3, 1999, the Company sold substantially all of the assets
of the Registrant's CommercialWare Division ("CWI") to CommercialWare, Inc., a
Delaware Corporation (the Purchaser). In addition and pursuant to the Purchase
Agreement, the Company transferred to the Purchaser certain of the liabilities
of CWI. The Company received (i) cash in the amount of $4,000,000, (ii) a
promissory note in the amount of $1,700,000, (iii) a junior promissory note in
the amount of $500,000, (iv) 30,000 shares of the Purchaser's common stock, par
value $.01 per share, and (v) one (1) share of Purchaser's Series A Preferred
Stock.
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 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative and Hedging Activities" ("SFAS 133"). SFAS 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet, or to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk, or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to affect its financial statements.
Other Information; Year 2000 Issue Disclosure
- ----------------------------------------------
The Company has continued to evaluate the potential impact of the Year 2000
Issue, which concerns the inability of computer hardware and software programs
to properly recognize and process date-sensitive information relating to the
21st century. Certain of the Company's internal use software and existing
products are currently Year 2000 compliant, while others have required
modification so that the software will function properly with respect to dates
in the Year 2000 and thereafter. In addition, the Company has been, and is
currently, providing customers upgrade alternatives to Year 2000 compliant
versions of the Company's products. The total cost of compliance measures is not
estimated to be material and is being funded through operating cash flows and
expensed as incurred. The Company presently believes that due to its use of
currently Year 2000 compliant systems, along with the modification of
non-compliant software and products, the Year 2000 issue will not pose
significant operational problems for the Company or its customers. Although the
Company believes its systems and software are, or will be, Year 2000 compliant
in all material respects, there can be no assurance that the Company's current
systems and products do not contain undetected errors or defects with Year 2000
date functions that may result in material costs to the Company.
The Company has also contacted certain of its significant vendors to
determine the extent to which the Company's products are vulnerable to those
third parties' failure to correct their own Year 2000 issues. Generally,
computer systems and software provided by third parties and included in the
Company's systems are developed by leading suppliers with Year 2000 programs in
process. There can be no guarantee that the systems and software of other
companies, on which the Company's systems rely, will be timely or properly
converted. Failure of these third party products to operate properly with regard
to the Year 2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
the Company's business, results of operations, and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Risk. The Company is exposed to the impact of interest rate changes and
foreign currency fluctuations.
Interest Rate Risk. The Company's exposure to market rate risk for changes
in interest rates relates primarily to the Company's cash equivalent
investments. The Company has not used derivative financial instruments. The
Company invests its excess cash in short-term floating rate instruments which
carry a degree of interest rate risk. These instruments may produce less income
than expected if interest rates fall.
Foreign Currency Risk. International revenues from the Company's foreign
subsidiary and other foreign sources were approximately 12% of all revenues.
International sales are made primarily from the Company's foreign subsidiary in
Italy and are denominated in the local currency. Accordingly, the foreign
subsidiary uses the local currency as its local currency. The Company's
international business is subject to risk typical of an international business,
including, but not limited to, differing economic conditions, changes in
political climate, differing tax structures, other regulations and restrictions,
and foreign exchange rate volatility. Accordingly, the Company's future results
could be materially adversely impacted by changes in these or other factors. The
Company is exposed to foreign currency exchange rate fluctuations as the
financial results of its foreign subsidiary are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall profitability. The effect of
foreign exchange rate fluctuations on the Company in 1998 was not material.
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 Comprehensive Income
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 Lease for 475 Sentry Parkway, Blue Bell, Pennsylvania, dated August 26,
1998.
21 Subsidiaries of Registrant.
23 Consent of BDO Seidman, LLP, independent certified public accountants.
27 Financial Data Schedule.
A) The following exhibits were filed with the Registrants: Form 10-Q on
November 16, 1998 and are incorporated herein by reference:
10-1 Commercial Lease dated September 15, 1998, between 10 Speen Street, LLC
as Lessor, and ASA International Ltd., as Lessee, for the property
located at 10 Speen Street, Framingham, MA.
10-2 Indemnification Agreement made September 21, 1998, by 10 Speen Street,
LLC and ASA International Ltd., as Indemnitors, for the benefit of John
Hancock Real Estate Finance, Inc., as Mortgagee.
10-3 Guarantee Agreement effective September 21, 1998 by ASA International
Ltd., as Guarantor, in favor of John Hancock Real Estate Finance, Inc.
B) The following exhibits were filed with the Registrant's Form 8-K on November
4, 1998 and are incorporated herein by reference:
10-1 Rights Agreement, dated as of October 21, 1998 between the Registrant and
American Securities Transfer & Trust, Inc., as Rights Agent, which
includes as Exhibit B thereto the Form of Rights Certificate.
10-2 Letter to the holders of the Registrant's Common Stock, dated November 4,
1998 (including summary of Rights).
10-3 Press release, dated October 22, 1998.
C) The following exhibit was filed with the Registrant's Form 10-Q filed on
August 13, 1998 and is incorporated herein by reference:
10-1 Promissory Note (Revolver) between ASA International Ltd. and CoreStates
Bank, N.A., dated June 30, 1998.
D) 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.
E) 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.
F) 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.
G) 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.
H) 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.
I) 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.
J) 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.
K) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 30, 1994:
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.
L) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 30, 1993:
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.
M) 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.
N) 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.
O) 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.
P) 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.
--------------------
On November 4, 1998, the Company filed a report on Form 8-K in which the
Company announced the approval of a Shareholder Rights Plan by its Board of
Directors.
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, 1999
- -------------------------- Executive Officer,
Alfred C. Angelone and President
(principal executive
officer and principal
accounting officer)
/s/ James P. O'Halloran Director March 30, 1999
- --------------------------
James P. O'Halloran
/s/ Gordon J. Rollert Director March 30, 1999
- --------------------------
Gordon J. Rollert
/s/ Alan J. Klitzner Director March 30, 1999
- --------------------------
Alan J. Klitzner
/s/ William A. Kulok Director March 30, 1999
- --------------------------
William A. Kulok
/s/ Robert L. Voelk Director March 30, 1999
- --------------------------
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, 1998 and 1997 and the
related consolidated statements of operations, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
As discussed in the Summary of Significant Accounting Policies, the Company
changed its method of recognizing revenue in 1998 with the adoption of Statement
of Position 97-2, "Software Revenue Recognition."
/s/ BDO Seidman, LLP
Boston, Massachusetts
March 6, 1999
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------
1998 1997
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,262,438 $ 1,282,817
Receivables -- net 5,187,076 5,926,610
Computer hardware held for resale 202,487 237,642
Other current assets 502,126 651,843
Net assets of CommercialWare division 1,312,962 -
----------- -----------
TOTAL CURRENT ASSETS 11,467,089 8,098,912
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings 4,018,949 3,863,351
Computer equipment 3,278,879 2,883,864
Office furniture and equipment 934,032 856,224
Leasehold improvements 36,574 36,574
Vehicles 463,402 258,814
----------- -----------
8,731,836 7,898,827
Accumulated depreciation
and amortization 3,889,322 3,617,402
----------- -----------
NET PROPERTY AND EQUIPMENT 4,842,514 4,281,425
----------- -----------
SOFTWARE
(less cumulative amortization
of $6,480,122 and $6,634,296) 1,908,723 3,496,798
COST EXCEEDING NET ASSETS ACQUIRED
(less cumulative amortization
of $1,369,222 and $1,634,320) 60,278 695,755
OTHER ASSETS 1,453,751 1,252,812
----------- -----------
$19,732,355 $17,825,702
=========== ===========
See notes to consolidated financial statements.
December 31,
------------
1998 1997
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,174,792 $2,263,573
Accrued expenses 2,735,837 1,575,813
Accrued commissions 539,628 538,558
Customer deposits 789,705 497,190
Deferred revenue 726,117 820,563
Current maturities of
long-term obligations 152,571 420,423
---------- -----------
TOTAL CURRENT LIABILITIES 6,118,650 6,116,120
---------- -----------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 4,067,797 2,696,020
---------- -----------
LONG-TERM LIABILITIES - Other 304,769 -
---------- -----------
DEFERRED INCOME TAXES 432,000 616,000
---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value
$.01 per share: Authorized
and unissued, 1,000,000 shares,
60,000 shares of which are designated
as Series A Junior Participating
Preferred Stock - -
Common stock, par value
$.01 per share: Authorized, 6,000,000
shares; issued 4,376,858 and 4,096,502
shares; outstanding, 3,348,462 and
3,278,106 shares 43,768 40,965
Additional paid-in capital 7,793,774 7,394,281
Retained earnings 2,964,622 2,548,013
Accumulated other comprehensive income 17,026 -
----------- -----------
10,819,190 9,983,259
Less treasury stock, at cost 2,010,051 1,585,697
----------- -----------
8,809,139 8,397,562
----------- -----------
$19,732,355 $17,825,702
=========== ===========
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--Years Ended December 31,--
1998 1997 1996
---- ---- ----
REVENUES
Product licenses $ 8,490,301 $ 6,177,507 $ 4,830,947
Services 18,217,434 14,005,494 15,831,948
Computer and add-on hardware 8,760,421 5,323,734 4,808,082
------------ ------------ ------------
NET REVENUE 35,468,156 25,506,735 25,470,977
------------ ------------ ------------
COST OF REVENUE
Product licenses and development 4,650,739 3,326,174 3,442,981
Services 11,742,580 8,010,547 10,093,562
Computer and add-on hardware 7,626,820 4,992,025 4,073,528
------------ ------------ ------------
TOTAL COST OF REVENUE 24,020,139 16,328,746 17,610,071
------------ ------------ ------------
EXPENSES
Marketing and sales 5,577,389 4,487,320 4,126,394
General and administrative 4,002,374 2,974,900 3,617,931
Amortization of goodwill 336,183 230,360 260,833
------------ ------------ ------------
TOTAL EXPENSES 9,915,946 7,692,580 8,005,158
------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 1,532,071 1,485,409 (144,252)
INTEREST EXPENSE (603,299) (419,039) (424,738)
INTEREST INCOME 140,837 90,780 -
OTHER EXPENSE - (184,000) (322,333)
------------ ------------ ------------
EARNINGS (LOSS) BEFORE
INCOME TAXES (CREDIT) 1,069,609 973,150 (891,323)
INCOME TAXES (CREDIT) 653,000 585,000 (242,000)
------------ ------------ ------------
NET EARNINGS (LOSS) $ 416,609 $ 388,150 $ (649,323)
============ ============ ============
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $.12 $.12 $(.17)
============ ============ ============
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $.11 $.11 $(.17)
============ ============ ============
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
--Years Ended December 31,--
1998 1997 1996
---- ---- ----
NET INCOME (LOSS) $ 416,609 $ 388,150 $ (649,323)
OTHER COMPREHENSIVE INCOME
NET OF INCOME TAX:
Foreign currency translation 17,026 - -
----------- ----------- ------------
COMPREHENSIVE INCOME (LOSS) $ 433,635 $ 388,150 $ (649,323)
============ ============ ============
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accum.
Other
Common Stock Additional Compre- Treasury Stock
-------------- Paid-in Retained hensive ---------------
Shares Amount Capital Earnings Income Shares Amount Total
------ ------- ---------- -------- ----- ------ ------ -----
BALANCES,
1/1/96 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
Exercise of
stock
options 210 2 205 - - - - 207
Issuance of
contingent
shares 80,146 801 26,288 - - - - 27,089
Purchase of
Treasury
Stock - - - - - 210,000 (424,354) (424,354)
Issuance of
share for
Cedes
acquisition 200,000 2,000 373,000 - - - - 375,000
Net earnings - - - 416,609 - - - 416,609
Foreign
currency
translation - - - - 17,026 - - 17,026
--------- ------- ---------- ---------- ------- --------- ----------- ----------
BALANCES,
12/31/98 4,376,858 $43,768 $7,793,774 $2,964,622 $17,026 1,028,396 $(2,010,051) $8,809,139
========= ======= ========== ========== ======= ========= ============ ==========
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--Years Ended December 31,--
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 416,609 $ 388,150 $ (649,323)
------------ ----------- -------------
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,316,093 1,864,730 2,397,313
Deferred taxes (184,000) 236,000 (237,000)
Doubtful receivables provision 203,131 125,381 32,546
Loss on sale of TradePoint - - 322,333
Changes in assets and liabilities,
net of effects of acquisitions:
Receivables (2,383,472) (2,298,020) 604,265
Computer hardware held for resale (39,591) (149,892) 150,874
Other current assets 210,744 58,287 (55,759)
Accounts payable (1,274,586) 902,988 316,633
Accrued expenses 3,416,443 629,577 (496,868)
Customer deposits 450,277 119,640 (381,817)
Deferred revenue 473,952 7,192 498,942
------------ ----------- ------------
Total adjustments 3,188,991 1,495,883 3,151,462
------------ ----------- ------------
Net cash provided by operating
activities 3,605,600 1,884,033 2,502,139
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,040,547) (249,743) (302,729)
Additions to software (8,283) (39,967) (1,506,559)
Reductions (increases) in
sales-type leases (582) - 146,002
Cash received in acquisition,
net of cash paid 98,272 - -
Cash transferred upon
sale of TradePoint - - (718,197)
Other assets (350,893) 257,623 56,912
------------ ----------- ------------
Net cash used for investing
activities (1,302,033) (32,087) (2,324,571)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank and
other notes - (795,000) (230,000)
Reduction in long-term debt (2,084,463) (643,042) (414,613)
Increase in long-term debt 3,182,042 250,000 675,000
Increase in long-term liabilities (8,748) - -
Issuance of common stock 207 7,929 62,258
Purchase of Treasury Stock (424,354) (53,255) -
Repurchase of stock options - (10,000) -
------------ ----------- ------------
Net cash provided by (used for)
financing activities 664,684 (1,243,368) 92,645
------------ ----------- -----------
EFFECT OF EXCHANGE RATES ON
CASH & CASH EQUIVALENTS 11,370 - -
------------ ----------- ------------
cash and cash equivalents:
Net increase 2,979,621 608,578 270,213
Balance, beginning of year 1,282,817 674,239 404,026
------------ ----------- ------------
Balance, end of year $4,262,438 $1,282,817 $ 674,239
============ =========== ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1997, the Company acquired $102,634 of equipment through a capital lease
transaction.
During 1998 and 1997, the Company issued contingently issuable common stock in
the amount of $27,089 and $52,911.
During 1998, the Company acquired substantially all of the assets of Cedes
S.r.l. and SIPI-U S.r.l. (now known as ASA Italy). Assets acquired, liabilities
assumed, and consideration paid for this acquisition were as follows:
Fair value of assets acquired
excluding cash received
of $306,733 $ 1,356,742
Liabilities assumed (1,080,014)
Issuance of common stock (375,000)
------------
Net cash received $ (98,272)
============
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997, 1996
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., ASA International
Ventures, Inc., and ASA Italy S.r.l., 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. The Company had approximately $2,473,000 and $642,000 invested in
money market funds at December 31, 1998 and 1997, respectively.
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.
Customers' financial condition is reviewed on an ongoing basis, 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 capital leases and leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful lives of the assets.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
approximately $653,000, $513,000, and $475,000 in the years ending December 31,
1998, 1997, and 1996, respectively.
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
The Company is engaged as a seller and licensor of software. Effective January
1, 1998, the Company adopted Statement of Position ("SOP") 97-2, Software
Revenue Recognition" for purposes of recognizing revenue on software
transactions. In accordance with SOP 97-2, revenue is recognized when all of the
following are met: pervasive evidence of an arrangement exists; delivery has
occurred; the vendor's fee is fixed and determinable; and collectibility is
probable. For multiple-element license arrangements, the license fee is
allocated to the various elements based on fair value. When a multiple-element
arrangement includes rights to a post-contract customer support, the portion of
the license fee allocated to such support is recognized ratably over the term of
the arrangement. For arrangements to deliver software that requires significant
modification or customization, revenue is recognized on the
percentage-of-completion method. The effect of adopting SOP 97-2 on the 1998
Statement of Operations was to decrease income before income taxes and net
income by approximately $446,000 and $174,000, respectively.
During 1998, SOP 98-9 was issued. The provisions of SOP 98-9 amend certain
provisions of SOP 98-4 and SOP 97-2. The adoption of these standards had no
material effect on the Company's financial position or results of operations.
Prior to adoption of SOP 97-2, the Company followed SOP 91-1 for purposes of
recognizing revenue for software transactions. In accordance with SOP 91-1,
product license revenue was recognized upon shipment to the client provided that
no significant vendor obligation remained in connection with software being
licensed and the collectibility of the sale was probable.
Computer hardware revenue is recognized upon shipment of product to the client.
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.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 $1,446,000, $1,201,000, and $1,655,000 for the years ended
December 31, 1998, 1997, and 1996, 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.
Comprehensive income
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes
rules for the reporting of comprehensive income and its components.
Comprehensive income consists of net income and foreign currency translation
adjustments and is presented in the consolidated statements of comprehensive
income. The adoption of SFAS No. 130 had no impact on total shareholders'
equity.
Net earnings (loss) per share
The Company follows SFAS No. 128 "Earnings per Share." Under SFAS 128, Basic
Earnings Per Share (EPS) excludes the effect of any dilutive options, warrants
or convertible securities and is computed by dividing the net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed by dividing the net income
(loss) available to common shareholders by the sum of the weighted average
number of common shares and common share equivalents computed using the average
market price for the period under the treasury stock method.
Foreign currency translation
The Company has determined that the local currency of its Italian Subsidiary is
the functional currency. In accordance with Statement of Financial Accounting
Standard No. 52, "Foreign Currency Translation," the assets and liabilities
denominated in foreign currency are translated into U.S. dollars at the current
rate of exchange existing at period-end and revenues and expenses are translated
at average monthly exchange rates. Related translation adjustments are reported
as a separate component of shareholders' equity, whereas, gains or losses
resulting from foreign currency transactions are included in results of
operations.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
New Accounting Standards Not Yet Adopted
- ----------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative and Hedging Activities" ("SFAS 133"). SFAS 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet, or to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk, or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. The Company does not expect
adoption of this new standard to affect its financial statements.
B. Business Acquisitions and Divestitures:
Acquisitions
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 (ERP) software to mid-range
companies in Italy. The transaction involved an exchange of approximately
$30,000 in cash, assumption of certain liabilities, and issuance of 200,000
shares of the Company's Common Stock in exchange for the assets of Cedes. The
acquisition was recorded using the purchase method of accounting whereby the net
assets acquired were recorded at their fair values based on the Company's
estimate of these values.
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. 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, or 26%, of total Company
revenue for the year ended December 31, 1996. 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
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
being repaid in monthly installments of principal and interest of $11,730.
Included in other assets at December 31, 1998 and 1997 was the outstanding
balance on this note of $460,000 and $534,000, 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 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, 1998 and 1997.
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, 1998 and 1997, were written down to a net realizable
value of approximately $150,000 during 1997. The writedown of approximately
$184,000 is 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,
------------
1998 1997
---- ----
Trade $5,198,384 $5,954,179
Amounts due from officers
and employees 204,572 117,498
Other 15,340 18,375
---------- ----------
5,418,296 6,090,052
Less allowance for
doubtful accounts 231,220 163,442
---------- ----------
$5,187,076 $5,926,610
========== ==========
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, 1995 was $60,246. During the
three years ending December 31, 1998, 1997, and 1996, the provisions for
doubtful accounts were $203,131, $145,886 and $236,830, and write-offs were
$135,353, $75,236 and $204,284, respectively.
D. Notes Payable, Long-Term Obligations, Commitments, and
Contingencies:
December 31,
------------
1998 1997
---- ----
Long-term obligations
Term loans $ 182,041 $ 750,000
Mortgage notes 3,948,071 2,213,391
Capital lease obligations 90,256 153,052
---------- ----------
4,220,368 3,116,443
Less current maturities 152,571 420,423
---------- ----------
$4,067,797 $2,696,020
========== ==========
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 $1,500,000 (which cannot exceed
80% of acceptable accounts receivable), all of which was available at December
31, 1998. The agreement, which extends through June 30, 1999, stipulates
interest at prime (7.75% at December 31, 1998), plus .5%. Short-term borrowings
under the revolving credit agreement, at and for the year ended December 31, are
as follows:
December 31,
------------
1998 1997 1996
---- ---- ----
Balance outstanding at
December 31 $ - $ - $ 795,000
=========== =========== ===========
Interest rate at
December 31 8.25% 9.50% 9.25%
=========== =========== ===========
Maximum amount outstanding
during the year $ - $1,055,000 $1,935,000
=========== =========== ===========
Average amount outstanding
during the year $ - $ 337,000 $1,342,000
=========== =========== ===========
Weighted average interest
rate during the year
based on average
month-end balances - 9.44% 9.29%
=========== =========== ===========
This credit facility 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, 1998, is due on December 31, 2003 and
payable in semi-annual installments of approximately $37,000, plus interest at
3.8%.
The term loan outstanding at December 31, 1997, dated December 10, 1996, and due
on December 1, 2000 was paid in full in 1998.
Mortgage notes
The Company has three mortgage notes outstanding at December 31, 1998. In
September 1998, the Company completed the refinancing of its mortgage related to
its Corporate Headquarters in Framingham, Massachusetts. The new mortgage note,
in the original amount of $3,000,000, with interest at 7.24% for 10 years
provides for monthly principal and interest payments of $20,445 through October
2008 with a final principal payment of approximately $2,638,000 plus interest.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The financing required a prepayment fee to the prior lender for early pay-off on
the existing mortgage of $248,000. This fee was recorded as interest expense in
the Statement of Operations for the year ended December 31, 1998. 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 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 $603,000, $383,000, and $425,000, for the years
ended December 31, 1998, 1997, and 1996, respectively. The Company and its
subsidiaries lease office and warehouse facilities under operating leases
expiring on various dates through January 2006. Total rent expense charged to
operations approximated $270,000, $240,000, and $229,000, in 1998, 1997, and
1996, respectively.
At December 31, 1998, 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
-------------- --------------------- ----------------
1999 $60,937 $ 95,487 $ 311,622
2000 34,090 105,106 326,840
2001 - 111,233 219,590
2002 - 117,233 158,750
2003 - 123,730 161,925
Thereafter - 3,577,323 347,692
------- ---------- ----------
95,027 4,130,112 1,526,419
Less
imputed
interest 4,771 - -
------- ---------- ----------
$90,256 $4,130,112 $1,526,419
======= ========== ==========
The amount recorded under capital leases included in computer equipment is
approximately $358,000 at December 31, 1998 and 1997. Accumulated depreciation
and amortization was approximately $300,000 and $244,000, at December 31, 1998
and 1997, respectively.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. Income Taxes (Credits):
Income (loss) from operations before income taxes is as follows:
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Domestic $ 922,066 $ 973,150 $(891,323)
Foreign 147,543 - -
----------- --------- ----------
Total $1,069,609 $ 973,150 $(891,323)
=========== ========= ==========
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Current:
Federal $ 394,000 $ 108,000 $ (5,000)
State 308,000 241,000 -
Foreign 135,000 - -
Deferred (184,000) 236,000 (237,000)
---------- ---------- ----------
$ 653,000 $ 585,000 $(242,000)
========== ========== ==========
A non-US subsidiary computes taxes at rates in effect in Italy. Earnings from
this subsidiary may also be subject to additional income and withholding taxes
when they are distributed as dividends. These earnings are not expected to be
remitted because they are permanently reinvested locally by the subsidiary.
Undistributed earnings of the non-US subsidiary deemed to be permanently
invested were approximately $12,000 at December 31, 1998.
On a cash basis, income taxes paid in 1998, 1997, and 1996 were
approximately $633,000, $64,000, and $60,300, respectively.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income taxes are reconciled with the U.S. federal statutory rate as
follows:
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Income taxes (credits) at
U.S. statutory federal rate $364,000 $331,000 $(303,000)
State income tax (credit),
net of federal income
tax benefit 117,000 133,000 (30,000)
Non-deductible amortization
of intangibles 81,000 78,000 86,000
Foreign tax differential 85,000 - -
Other, net 6,000 43,000 5,000
--------- --------- ----------
$653,000 $585,000 $(242,000)
========= ========= ==========
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, 1998 and 1997 are as
follows:
1998 1997
---- ----
Deferred tax liabilities:
Software development
deducted for tax, not book $ 833,000 $ 1,295,000
Differences between book
and tax basis of property 29,000 2,000
Deferred gain on divestiture 175,000 175,000
Other 8,000 16,000
------------ ------------
1,045,000 1,488,000
Deferred tax assets:
Operating loss carryforwards - 22,000
Tax credit carryforwards 366,000 614,000
Accruals/reserves 217,000 203,000
Other 30,000 33,000
------------ ------------
613,000 872,000
------------ ------------
Net deferred tax liability $ (432,000) $ (616,000)
============ ============
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has available at December 31, 1998 general business credit
carryforwards of $267,000, which expire through the year 2012, and an
alternative minimum tax credit carryforward of $99,000, which does not expire.
F. Capital Transactions:
Series A Junior Participating Preferred Stock
In October 1998 the Company's Board of Directors adopted a Shareholders Rights
Plan (the "Plan"), which provides a dividend of one preferred share purchase
right (a "Right") for each outstanding share of the Company's common stock, par
value $.01 per share. Except as set forth below and subject to adjustment as set
forth in the Plan, each Right will entitle the holder to buy one one-hundredth
of a share of authorized Series A Junior Participating Preferred Stock, par
value $.01 per share ("Series A Preferred Stock") at a purchase price of $10 per
right. Initially, the Rights will attach to all Common Stock Certificates
representing shares then outstanding, and may not be traded apart from the
stock. The Rights become exercisable on the tenth day after public announcements
that a person or group has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the Company's outstanding common stock,
commencement of a tender or exchange offer that would result in a beneficial
ownership by a person or group of 20% or more of the Company's common stock, or
a person or group acquired 10% or more of the outstanding common stock and is
deemed an Adverse Person under the terms of the Plan. If, after the Rights
become exercisable, the Company is a party to certain merger or business
combination transactions, or transfers 50% or more of its assets or earnings
power, or if an acquirer engages in certain self-dealing transactions, each
Right (except those held by the acquirer) will entitle its holder to buy a
number of shares of the Company's Series A Preferred Stock or, in certain
circumstances, a number of shares of the acquiring company's common stock, in
either case having a market value equal to two times the exercise price of the
Right. The Rights may be redeemed by the Company at any time up to ten days
after a person or group acquires 20% or more of the Company's common stock at a
redemption price of $.01 per Right. The Rights will expire on October 20, 2008.
The Company has reserved 60,000 shares of Series A Junior Participating
Preferred Stock for the exercise of the Rights.
Treasury Stock
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, 1998, 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
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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:
1998 1997 1996
---- ---- ----
Net income (loss) As reported $416,609 $388,150 $(649,323)
Pro forma $384,132 $348,771 $(680,665)
Basic Earnings (loss)
per share As reported $.12 $.12 $(.17)
Pro forma $.11 $.11 $(.18)
Diluted Earnings (loss)
per share As reported $.11 $.11 $(.17)
Pro forma $.10 $.10 $(.18)
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 1998, 1997, and 1996, respectively: dividend
yield of 0% for all years, and expected volatility of 46% for 1998, 47% for
1997, and 30% for 1996, risk-free rates ranging from 5.50% to 5.80% for 1998,
5.76% to 6.73% for 1997, and 5.88% to 6.67% for 1996, and expected lives ranging
from 12 to 18 months for 1998, from 12 to 48 months for 1997, and 18 to 24
months for 1996.
A summary of the status of the Company's stock option plans as of December 31,
1998, 1997, and 1996, and changes during the years ending on those dates, is
presented below:
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1998 1997 1996
----------------------- ------------------------ -----------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ----------------- ------ ----------------
OUTSTANDING
AT BEGINNING
OF YEAR 359,749 $1.05 366,097 $1.37 607,186 $1.28
GRANTED 60,300 1.90 22,700 1.46 101,700 1.47
EXERCISED 210 1.00 8,143 .97 66,922 .93
CANCELED 4,087 1.13 20,905 1.08 275,867 1.32
------- ------- -------
OUTSTANDING AT
END OF YEAR 415,752 $1.17 359,749 $1.05 366,097 $1.37
======= ===== ======= ===== ======= =====
OPTIONS
EXERCISABLE
AT YEAR-END 319,735 $1.03 306,799 $1.02 318,613 $1.34
======= ===== ======= ===== ======= =====
WEIGHTED-
AVERAGE FAIR
VALUE OF
OPTIONS
GRANTED
DURING THE
YEAR $1.07 $ .59 $ .72
===== ===== =====
As of December 31, 1998, the 415,752 options outstanding under the Plan have
exercise prices between $.88 and $2.63, and a weighted-average remaining
contractual life of approximately 5 years.
As of December 31, 1998 the 319,735 exercisable options outstanding under the
Plan have exercise prices between $.88 and $2.63 and a weighted-average
remaining contractual life of approximately 3 1/2 years.
Common stock reserved
At December 31, 1998, the Company has reserved 964,252 shares of its common
stock for incentive and nonqualified stock options.
G. Earnings per Share:
The weighted average number of common shared outstanding used in the computation
of earnings (loss) per share is summarized as follows:
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1998 1997 1996
---- ---- ----
Denominator:
Denominator for basic
earnings per share -
weighted average shares 3,456,362 3,278,689 3,830,771
Effect of dilutive
securities:
Employee stock options 178,546 135,919 -
Contingently issuable
shares - 80,146 -
----------- ----------- -----------
Dilutive potential
common shares
Denominator for
diluted earnings per
share - adjusted
weighted average
shares and assumed
conversions 3,634,908 3,494,754 3,830,771
=========== =========== ===========
The following table summarizes securities that which were outstanding as of
December 31, 1998, 1997, and 1996, but not included in the calculation of
diluted net earnings (loss) per share because such shares are antidilutive:
Year Ended December 31,
--------------------------
1998 1997 1996
---- ---- ----
Employee stock options 3,900 4,000 626,000
Contingently issuable shares - - 184,000
H. Transactions with Major Suppliers:
In 1998, 1997, and 1996, the Company made significant purchases from two
hardware suppliers totaling approximately $2,900,000, $2,700,000, and
$3,581,000, respectively.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
I. 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 1998 and 1996 from which the Company derived sales in excess
of 10%.
J. Geographic Information:
The following is a summary of selected geographic information as of December 31,
1998, 1997, and 1996.
Revenues:
1998 1997 1996
---- ---- ----
United States $31,500,000 $25,000,000 $24,700,000
Italy 3,500,000 - -
Other 500,000 500,000 800,000
----------- ----------- -----------
Total $35,500,000 $25,500,000 $25,500,000
=========== =========== ===========
Revenues are attributed to countries based on location of customers.
Long-lived assets:
1998 1997 1996
---- ---- ----
United States $7,528,000 $9,727,000 $11,404,000
Italy 737,000 - -
Other - - -
---------- ---------- -----------
Total $8,265,000 $9,727,000 $11,404,000
========== ========== ===========
K. Commitments:
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 1998,
1997, and 1996 were approximately $132,000, $62,000, and $168,000, respectively.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The long term liability amount outstanding in the December 31, 1998 balance
sheet represents an employee severance liability as calculated in conformance
with Italian law. The liability is computed on the basis of: the category of
employee, their length of service, annual compensation, and includes the effect
of inflation. The Company's liability under the law is fully accrued at December
31, 1998.
In November 1998, the Company entered into a joint venture agreement with a
third party whereby the Company will sell and support software products in the
United States and Canada. The Company has agreed to provide $500,000 in funding
for this venture. No activity occurred under the joint venture agreement during
1998.
L. Subsequent Event:
In March 1999, the Company exchanged the assets and liabilities of its
CommercialWare Division (CWI) for approximately $4,000,000 in cash, a
$1,700,000 three year note at 7.06%, a 10% interest in a newly formed entity,
CommercialWare, Inc., and a $500,000 Junior Note. The Company will not reflect
the $500,000 Junior Note as part of the proceeds due to the uncertainty of the
ultimate collection of this Note. Financial data relative to the CWI operation
is as follows:
Year Ended December 31,
--------------------------
1998 1997 1996
---- ---- ----
Revenues $10,776,000 $7,603,000 $6,530,000
Net earnings 278,000 553,000 367,000
Basic earnings per share .08 .17 .10
Diluted earnings per share .08 .16 .10
Assets applicable to CWI, net of related liabilities assumed, have been
segregated in the accompanying balance sheet and shown as net assets of
CommercialWare division.
A summary of net assets of CWI division at December 31, 1998, is as follows:
Current assets $ 3,510,543
Property and equipment 239,804
Excess of cost over net assets acquired 562,578
Other assets 657,503
Current liabilities (3,657,466)
------------
Net assets $ 1,312,962
============