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ASA INTERNATIONAL LTD.
10 Speen Street
Framingham, Massachusetts 01701
(508) 626-2727
April 2, 2001
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Attention: Filing Desk
RE: ASA INTERNATIONAL LTD.
SEC FILE NO. O-14741
Pursuant to regulations of the Securities and Exchange Commission, submitted
herewith for filing on behalf of ASA International Ltd. (the "Company") is the
Company's Report on Form 10-K for the fiscal year ended December 31, 2000.
This filing is being effected by direct transmission to the Commission's
Operational EDGAR System.
Very truly yours,
ASA INTERNATIONAL LTD.
/s/ Terrence C. McCarthy
Terrence C. McCarthy
Vice President and Treasurer
TCM/mb
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, 2000 O-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 20, 2001, 2,982,397 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 $3,880,000.
2
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part of Form 10-K Annual
Report in which Document
Document is Incorporated
- -------- ---------------
Definitive Proxy Statement to be
supplied to Shareholders in conjunction
with the 2001 Annual Meeting of Shareholders Part III
3
PART I
ITEM 1. Business
--------
GENERAL
Background
- ----------
ASA International Ltd. (the "Registrant" or the "Company") provides
networked automation systems and ongoing monthly support to approximately 800
businesses in North and South America. The Company designs and develops
proprietary enterprise software for the following markets: tire dealer and
retreader, law firms, system integrators and e-focused companies. The Company
installs its software on a variety of computers and networks, and various
Unix/Open Systems hardware platforms, and provides implementation, education,
custom development, and long-term software support to its customers.
The Company targets its products and services to distinct identifiable
markets. The Company considers its operation to be a single reporting segment
due to the comparable economic characteristics of its products and services as
well as similarities in the nature of the products and services offered, the
processes to develop and upgrade its products and services, and the methods to
market and distribute its products and services to customers. The Company's
current operations are comprised of three product lines and a corporate services
group which supports all three product lines. The three current product lines
are:
Tire Systems. Integrated offering of systems and services designed
specifically for the multi-user environments of today's tire and automotive
after-market businesses. ASA Tire Systems offers e-commerce and
business-to-business services through eTirePlace.com as well as ASP services.
e-Business Management Application Software Systems. Under the name
Khameleon(TM), a provider of e-Business management applications for software,
service, system integration and e-focused companies. Khameleon's extensive ASP
services are targeted to organizations looking to outsource their critical
front-office to back-office applications.
Legal Systems. Integrated accounting and practice management software
solutions for law firms in the United States and Latin America.
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"), ASA Tire Systems Inc., ASA Legal
Systems Inc. and Khameleon Software Inc. 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.
Recent Acquisitions and Divestitures
- ------------------------------------
Design Data
- -----------
In November 1999, the Company acquired the business of Design Data Systems
Corporation, a Florida corporation, pursuant to an Asset Purchase Agreement (the
"Purchase Agreement") by and among the Company, the Seller, individually (only
with respect to certain sections of the Purchase Agreement), and the Company's
Bank, as Escrow Agent (the "Escrow Agent") (only with respect to certain
sections of the Purchase Agreement). The Purchase Agreement provides that the
transaction is effective as of September 30, 1999 (the "Closing Date"). Pursuant
to and as more fully set forth in the Purchase Agreement, the Company had the
right and obligation to purchase certain of the assets and assume certain of the
4
liabilities of Seller for a purchase price of $5,000,000 (the "Purchase Price").
Of the Purchase Price, $4,750,000 was due and payable on the Closing Date and
$250,000 was to be deposited with the Escrow Agent to be held pursuant to the
terms of the Purchase Agreement. Also on the Closing Date, the Company entered
into a certain Asset Acquisition and Exchange Cooperation Agreement (the
"Exchange Agreement") with SQL Acquisition LLC, a Delaware limited liability
company ("SQL"), Fidelity National 1031 Exchange Services, Inc., a California
corporation, and Pacific American Property Exchange Corporation, a California
corporation and sole member and manager of SQL. The Company entered into the
Exchange Agreement for the purpose of seeking the ability to effectuate a
like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986, as amended. Pursuant to and as more fully set forth in the Exchange
Agreement, the Company reserved the right to exchange certain software and
related intellectual property of Seller (the "Replacement Property") for certain
other relinquished property of the Company. In connection therewith, the Company
assigned to SQL the Company's right and obligation under the Purchase Agreement
to acquire the Replacement Property pursuant to a certain Assignment Agreement
dated the Closing Date between the Company, Seller and SQL. The Company
completed the like-kind exchange involving $4,300,000 of Replacement Property on
September 15, 2000.
ASA Italy
- ---------
In September 2000, the Company sold all of its shares of its Italian
subsidiary, ASA Italy S.r.l., an Italian limited company ("S.r.l.") to
management of the S.r.l. for nominal cash consideration. In connection with the
sale, S.r.l. acknowledged and agreed to pay a debt of approximately $9,000
incurred by the Company on behalf of S.r.l.
SmartTime
- ---------
In August 2000, the Company completed the sale of its SmartTime business to
InterPro Business Solutions, Inc. (formerly InterPro Expense Systems, Inc.), a
Delaware corporation ("InterPro"). Pursuant to an Option to Purchase Agreement
dated August 2, 1999 by and between the Company, InterPro, and ASA InterPro
SmartTime LLC, a Delaware limited liability company, InterPro exercised its
option to purchase the SmartTime business from the LLC for the aggregate
purchase price of $7,020,000 less the option fees paid on August 2, 1999 of
$1,660,000 and $540,000 paid on August 1, 2000. The terms and conditions of the
acquisition under the option are contained in the Asset Purchase Agreement dated
as of August 2, 1999 (the "Purchase Agreement"). As set forth in the Purchase
Agreement and Exhibits, on August 2, 1999, InterPro had loaned to the Company
$3,200,000 pursuant to a promissory note due on or before August 31, 2000 (the
"ASA Note"). Interest of $160,000 on the ASA Note was prepaid to August 1, 2000.
InterPro completed the transaction by paying the remaining $4,820,000 of the
purchase by (a) delivering the ASA Note (valued at $3,213,151 as a result of
interest accrued from August 1 through August 31, 2000), and (b) paying the
remainder of $1,606,849 in cash.
The net assets of the SmartTime product line are included in current assets
in the Company's balance sheet at December 31, 1999. The results for the
operations of this product line are shown in the Consolidated Statements of
Operations for the years ended December 31, 2000 and 1999 under the caption
"Equity in Loss from Affiliate."
CommercialWare
- --------------
Effective March 3, 1999, the Company sold substantially all of the assets
of the Company's CommercialWare Division ("CWI") to CommercialWare, Inc., a
Delaware Corporation ("CW"). CWI provided enterprise order management and
fulfillment systems to consumer, business catalog, direct marketing and
electronic commerce firms. 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
CW's common stock, par value $.01 per share, and (v) one (1) share of CW's
Series A Preferred Stock.
International Trade and Transportation Systems Group
- ----------------------------------------------------
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
5
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 "TradePoint 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 of the Company. 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, except as noted
above, 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.
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 Latin America for
Business-to-Business ("B2B") via the Internet, 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
computer 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 computer systems in the United States.
Within this operating group, the Company also continues to maintain,
upgrade, and support legacy manufacturing management and control and accounting
software based primarily on the Digital (Compaq) hardware platform.
Legal Systems
- -------------
The Company provides integrated client/server-based financial management,
knowledge base management and file room management systems for mid-size law
firms and corporate legal departments throughout the United States and Latin
America. The Company's Visual Pyramid, Visual FastTrack and Visual One products
are a powerful, fully integrated suite of legal specific applications designed
to run on PC networks. The products are written using Microsoft development
tools and Microsoft relational database technology. Systems range in price
between approximately $50,000 and $200,000.
6
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. In July 1999, the Company acquired substantially all of the assets
of Chase Technologies Incorporated of Washington Crossing, Pennsylvania.
e-Business Management Applications Software
- -------------------------------------------
The Company offers a modular suite of back- and front-office software
applications based on the Oracle platform, marketed under the name Khameleon
Software. The product, designed to meet the needs of software companies, systems
integrators, service and e-focused companies, includes the following modules:
Marketing & Sales Force Automation, Contracts & Logistics Management, Project
Accounting & Management, Customer Relationship Management and Financial
Accounting & Management. Systems range in price from $50,000 to $200,000.
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, legal, and e-Business Management
Applications Software markets served by the Company, the total 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.
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.
7
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 such manufacturers would not have a material adverse
effect on the Company's business. 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 all of its computer hardware and peripheral equipment
from hardware vendors, and performs only software installation, testing, final
system configuration, and quality control. 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 certain legal clients may
also purchase "source" code. In addition, most Khameleon Software clients have
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 North and South
America.
Working Capital Items
- ---------------------
The Company does not have any unusual trade practices which would require
restrictions on working capital.
Revenue by Product Line
- -----------------------
During the fiscal years ended December 31, 2000, 1999 and 1998, the
Company's revenue by product line was approximately as follows:
2000 1999 1998
---- ---- ----
Product Line Revenue % Revenue % Revenue %
- ------------ ------- - ------- - ------- -
Tire Systems $ 5,798,000 29% $10,741,000 42% $ 8,735,000 25%
Legal Systems 4,099,000 21% 6,222,000 24% 5,150,000 15%
e-Business Management
Applications Software 7,851,000 40% 1,965,000 8%
ERP Systems 1,326,000 7% 2,899,000 11% 3,513,000 10%
SmartTime Software/
Legacy products 559,000 3% 3,796,000 15% 6,870,000 19%
ASA Consulting - - 424,000 1%
CommercialWare - - 10,776,000 30%
---------- ----- ---------- --- ---------- --
$19,633,000 100% $25,623,000 100% $35,468,000 100%
=========== === =========== === =========== ===
8
Backlog
Set forth below is information concerning the Company's backlog at December
31, 2000 and 1999, respectively:
Backlog at December 31,
-----------------------
2000 1999
---- ----
Support Support
Product Line Total Contracts Total Contracts
- ------------ ----- --------- ----- ---------
Tire Systems/Legacy Products $ 3,600,000 $ 2,700,000 $ 2,700,000 $ 2,000,000
Legal Systems 2,000,000 1,700,000 2,200,000 1,700,000
ERP Systems - 600,000 500,000
e-Business Management
Applications Software 2,500,000 2,000,000 1,600,000 900,000
--------- --------- --------- -------
$ 8,100,000 $ 6,400,000 $ 7,100,000 $ 5,100,000
=========== =========== =========== ===========
The Company expects that all of the backlog existing at December 31, 2000
will be filled in fiscal year 2001. 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 for Tire Systems are Goodyear, Madden
Co., OpenWebs and TireMaster. The Company believes the principal competitive
factors for tire systems are: the ability to offer B2B products via the
Internet; the ability to offer web site development; 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, Juris,
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; 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 e-Business Management Applications Software market is also highly
competitive. The primary competitors for the Company's Khameleon product line
are SOFTRAX, Great Plains, Solomon, Deltek and Lawson. The Company believes the
principal competitive factors for these systems are: cost; name recognition; the
quality of professional services and support; and the ability to manage business
processes that integrate customers; suppliers and business partners. While the
Company believes it competes favorably with respect to most of these factors, it
has embarked on a marketing campaign to increase the visibility of its product
in the marketplace.
9
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, 2000, the Company had 137 full time employees. Of these
employees, 7 are executive officers or senior managers, 32 are engaged in
marketing and sales, 49 in customer support and training, 29 in product/custom
development or engineering and 20 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.
Financial Information about Geographic Areas
- --------------------------------------------
See Item 14(a)1, Note I, in the Company's Notes to Consolidated Financial
Statements.
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 10 Speen Street LLC. The Company occupies approximately 16% 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 monthly principal and interest payments of
$20,445 through October 2008 and a final payment of approximately $2,638,000 of
principal, together with interest thereon.
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 $12,736 9,667 s.f. January 31, 2006
Kirkland, Washington $4,805 3,720 s.f. October 31, 2001
Clearwater, Florida $17,252 16,252 s.f. September 30, 2004
Boise, Idaho $675 160 s.f. September 30, 2003
10
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, 2000, 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 1999 and 2000:
Calendar Year 1999 Low High
------------------ --- ----
First Quarter $1.875 $2.750
Second Quarter $2.500 $2.719
Third Quarter $2.250 $2.313
Fourth Quarter $2.063 $3.000
Calendar Year 2000 Low High
------------------ --- ----
First Quarter $2.750 $7.000
Second Quarter $2.875 $4.125
Third Quarter $3.125 $3.313
Fourth Quarter $1.500 $3.156
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions. There were 1,155 holders of record of the Company's outstanding
Common Stock as of March 20, 2001. Each holder of Common Stock is also the
holder of a Preferred Stock Purchase Right which entitles the holder to purchase
one one-hundreth of a share of Series A Junior Participating Preferred Stock of
the Company for each share of Common Stock held by such person upon satisfaction
of certain conditions set forth in the Company's Shareholders Rights Plan.
11
Under the terms of a share repurchase program authorized by the Company's
Board of Directors in June 1990, August 1998, July 1999, January 2000, and
October 2000, the Company is authorized to repurchase up to $2,250,000 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
1999 Number of Shares Per Share Purchase Price
- ---- ---------------- ------------------------
March 62,500 $2.26
April 60,000 2.63
May 62,000 2.69
June 22,500 2.69
September 3,877 3.00
October 5,000 2.30
November 35,000 2.43
December 20,200 2.72
12
2000 Number of Shares Per Share Purchase Price
- ---- ---------------- ------------------------
May 60,000 $3.10
June 20,000 3.16
July 30,000 3.32
August 41,000 3.22
September 45,000 3.20
October 15,000 2.99
November 18,000 2.77
----------- ---------
2000 Total 229,000 $3.14
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, 2000, 1999, and 1998, and the balance
sheet data as of December 31, 2000 and 1999, 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 data for the statement of operations for the years ended
December 31, 1997 and 1996 and the balance sheet data as of December 31, 1998,
1997 and 1996 have been derived from the audited financial statements of the
Company (not included 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,
------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating Data:
Revenues $ 19,633 $ 25,623 $35,468 $ 25,507 $ 25,471
Costs, Expenses and Other
excluding income tax
expense 19,349 21,534 34,398 24,534 26,362
Earnings (Loss)
from Operations (5,242) 491 1,532 1,485 (144)
Net Earnings (Loss) 29 2,167 417 388 (649)
Basic Earnings (Loss) per
Common Share $ 0.01 $ 0.67 $ 0.12 $ 0.12 $ (0.17)
Diluted Earnings (Loss) per
Common Share $ 0.01 $ 0.63 $ 0.11 $ 0.11 $ (0.17)
13
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance Sheet Data:
Total Assets $ 18,601 $ 27,870 $19,732 $ 17,826 $ 16,630
Long-Term Obligations 3,744 3,915 4,068 2,696 3,012
Long-Term Liabilities-other - 272 305 - -
Shareholders' Equity 9,716 10,240 8,809 8,398 8,012
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 statements that constitute forward-looking
statements under the safe harbor provisions of the Private Securities Reform Act
of 1995. 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 2000 to 1999
- --------------------------
(000's omitted)
---------------
Revenue Increase/(Decrease)
------- -------------------
2000 1999 Amount Percentage
---- ---- ------ ----------
Product licenses $ 5,415 $ 6,506 $ (1,091) (17)%
Services 12,737 15,064 (2,327) (15)%
Computer and add-on hardware 1,481 4,053 (2,572) (63)%
----- ----- ------ ---
Net Revenue $ 19,633 $ 25,623 $ (5,990) (23)%
======== ======== ======== ===
REVENUE
- -------
During 2000, the Company completed a product line disposition, and in 1999,
the Company completed a product line disposition, a discontinuation of a product
line pending its sale, and one product line acquisition. The revenues related to
these product lines for the three years ended December 31, 2000, 1999, and 1998
are as follows.
(000's omitted)
---------------
Revenue for year-ended December 31,
-----------------------------------
Disposition/Discontinuation:
Product Line Month 2000 1999 1998
- ------------ ----- ---- ---- ----
ERP September 2000 $ 1,326 $ 2,898 $ 3,513
CommercialWare March 1999 - 10,776
SmartTime Software August 1999 - 2,915 5,890
---- ----- -----
Total $ 1,326 $ 5,813 $20,179
======= ======= =======
Acquisition:
Product Line Month 2000 1999 1998
- ------------ ----- ---- ---- ----
Khameleon Software November 1999 $ 7,851 $ 1,965 $ -
======= ======= =======
14
Net revenue. The Company designs and develops proprietary enterprise
software for the tire dealer, legal, and e-Business management software markets.
The Company entered the enterprise management software market in November 1999
with the acquisition of the business of Design Data Corporation, a Florida
corporation. The Company has renamed this product line, formerly known as SQL*
Time, Khameleon Software. The Company sold its ERP business, which was based in
Italy, on September 25, 2000. 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 decreased by approximately $5,990,000, or 23%, for the period
when compared to the year ended December 31, 1999. Revenue from existing
businesses decreased by approximately $3,075,000, or 14% for the period, when
approximately $2,915,000 in revenue from the Company's SmartTime product line
for the year ended December 31, 1999 is excluded.
Product licenses. The Company's software license revenues are derived
primarily from the licensing of the Company's enterprise products. Software
license revenues decreased by approximately $1,091,000, or 17%, for the year
ended December 31, 2000, compared to the same period in 1999. Product license
revenue from existing businesses decreased by approximately $633,000, or 10%,
for the period, when compared to 1999, and the product license revenue from the
SmartTime product line of approximately $458,000 for 1999 is excluded.
Services. Services are comprised of fees generated from training,
consulting, software modifications, and ongoing client support provided under
self-renewing maintenance agreements. Service revenues decreased by
approximately $2,327,000, or 15%, for the year ended December 31, 2000, compared
to the year ended December 31, 1999. Service revenue from existing businesses
remained approximately the same for the period, when compared to 1999, and the
service revenue from the SmartTime product line of approximately $2,389,000 for
1999 is excluded.
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 decreased by
approximately $2,572,000, or 63%, for the year ended December 31, 2000, compared
to the same period in 1999. The decrease in hardware revenues was due primarily
to the decrease of hardware unit sales by the Company's tire systems product
line.
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 $595,000
for the year ended December 31, 2000, compared to the same period in 1999. Cost
of product license and development increased by approximately $1,411,000 or 39%
for the year when compared to 1999, and the cost of product licenses and
development from the SmartTime product line for 1999 is excluded. The costs of
product license and development for Khameleon, acquired in November 1999,
increased by approximately $1,931,000 for the year ended December 31, 2000 when
compared to the year ended December 31, 1999. These costs increased from
approximately $917,000 for a partial year of operations in the year ended
December 31, 1999 to approximately $2,848,000 for a full year of operations in
the year ended December 31, 2000. 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.
15
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 $1,637,000
for the year ended December 31, 2000, compared to the same period in 1999, due
primarily to the lower level of services revenue in 2000 compared to 1999. The
gross margin percentage for services for the year ended December 31, 2000
increased to approximately 38% from 37% of revenue from services in 1999. 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
decreased by approximately $1,964,000, or 61%, for the year ended December 31,
2000, compared to the prior period. The decrease in dollar amount for the cost
of hardware revenues for the year ended December 31, 2000 was due primarily to
increased unit sales of hardware products by the Company's tire systems product
line.
The gross margin percentage for hardware sales decreased to 15% for the
year ended December 31, 2000, from 21% in the same period in 1999. Margins on
computer and add-on hardware can fluctuate based on the mix of computer and
ancillary hardware products sold. Accordingly, the Company expects hardware
gross margins to continue to fluctuate in the future. The Company continues to
direct its efforts toward building service and license revenues to offset the
historical decline in hardware revenue and margins.
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 $813,000,
or 19%, for the year ended December 31, 2000, compared to 1999. The change in
marketing and sales expenses reflects the elimination of the marketing and sales
expenses of the ERP systems and SmartTime product lines partially offset by
increased sales and marketing expenses from the newly acquired Khameleon
Software product lines.
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 remained
approximately the same for the year ended December 31, 2000, compared to the
same period in 1999. The elimination of the expenses related to the ERP systems
and SmartTime product lines and a decrease in these expenses for the tire
systems product line is offset by increased general and administrative expenses
from the legal and the newly acquired Khameleon Software product lines.
Net earnings for the year ended December 31, 2000 were approximately
$29,000, as compared to net earnings of approximately $2,167,000 for 1999. The
change results from a decrease in earnings from operations of $5,733,000, an
increase in equity in loss from affiliate of $811,000, and an increase in
interest expense, net of $190,000, partially offset by the difference in the
gain on the sale of product lines of $2,905,000, a decrease in other expense,
net of $24,000, and a decrease in income tax expense of $1,667,000.
Comparison of 1999 to 1998
- --------------------------
(000's omitted)
---------------
Revenue Increase/(Decrease)
------- -------------------
1999 1998 Amount Percentage
---- ---- ------ ----------
Product licenses $ 6,506 $ 8,490 $(1,984) (23)%
Services 15,064 18,218 (3,154) (17)%
Computer and add-on hardware 4,053 8,760 (4,707) (54)%
----- ----- ------ ---
Net Revenue $25,623 $35,468 $(9,845) (28)%
======= ======= ======= ===
16
REVENUE
During 1999, the Company completed a product line disposition, a
discontinuation of a product line pending its sale, and one product line
acquisition. The revenues related to these product lines for the three years
ended December 31, 1999, 1998 and 1997 are as follows.
(000's omitted)
Revenue for year ended December 31,
Disposition/Discontinuation:
Product Line Month 1999 1998 1997
- ------------ ----- ---- ---- ----
CommercialWare March 1999 - $ 10,776 $ 7,603
SmartTime Software August 1999 $ 2,915 5,890 6,412
======= ===== =====
Total $ 2,915 $ 16,666 $ 14,015
======= ======== ========
Acquisition:
- ------------
Product Line Month 1999 1998 1997
- ------------ ----- ---- ---- ----
Khameleon Software November 1999 $ 1,965 - -
======= ======= =======
Net revenue. The Company designs and develops proprietary enterprise
software for the tire dealer, legal, ERP (enterprise resource planning) and
e-Business management software markets. The Company entered the enterprise
management software market in November 1999 with the acquisition of the business
of Design Data Corporation, a Florida corporation. The Company has renamed this
product line, formerly known as SQL* Time, Khameleon Software. 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 decreased by approximately $9,845,000, or
28%, for the period when compared to the year ended December 31, 1998. Revenue
from existing businesses increased by approximately $3,906,000, or 21% for the
period, when approximately $2,915,000 and $16,666,000 in revenue from the
Company's catalog direct marketing systems and SmartTime product lines for the
year ended December 31, 1999 and 1998, respectively, is excluded. Approximately
$1,965,000 of the increase in revenue from existing businesses is from the newly
acquired Khameleon product line for which there is no comparable amount in 1998.
Product licenses. The Company's software license revenues are derived
primarily from the licensing of the Company's enterprise products. Software
license revenues decreased by approximately $1,984,000, or 23%, for the year
ended December 31, 1999, compared to the same period in 1998. Product license
revenue from existing businesses increased by approximately $1,404,000, or 30%,
for the period, when compared to 1998, and the product license revenue from the
catalog direct marketing systems and SmartTime product lines of approximately
$458,000 and $3,846,000 for the 1999 and 1998 periods, respectively, are
excluded. Approximately $498,000 of the increase in product license revenue from
existing business is from the Khameleon product line for which there is no
comparable amount in 1998.
Services. Services are comprised of fees generated from training,
consulting, software modifications, and ongoing client support provided under
maintenance agreements that renew automatically unless either party gives prior
notice as specified in the agreements. Service revenues decreased by
approximately $3,154,000, or 17%, for the year ended December 31, 1999, compared
to the year ended December 31, 1998. Service revenue from existing businesses
17
increased by approximately $1,895,000, or 18%, for the period, when compared to
1998, and the service revenue from the catalog direct marketing systems and
SmartTime product lines of approximately $2,389,000 and $7,438,000 for the 1999
and 1998 periods, respectively, are excluded. Approximately $1,467,000 of the
increase in service revenue from existing businesses is from the newly acquired
Khameleon product line for which there is no comparable amount in service
revenue for the year ended December 31, 1998.
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 decreased by
approximately $4,707,000, or 54%, for the year ended December 31, 1999, compared
to the same period in 1998. Hardware revenue from existing businesses increased
by approximately $607,000, or 18% for the period, when approximately $68,000 and
$5,382,000 hardware revenues from the Company's catalog direct marketing systems
and SmartTime product lines for the 1999 and 1998 periods are excluded. The
increase in hardware revenues from existing businesses was due primarily to the
increase of hardware unit sales by the Company's tire systems product line.
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 decreased by approximately $194,000
for the year ended December 31, 1999, compared to the same period in 1998. Cost
of product license and development increased by approximately $1,411,000, or 63%
for the year when compared to 1998, and the cost of product licenses and
development from the catalog direct marketing systems and SmartTime product
lines for the 1999 and 1998 periods are excluded. Approximately $917,000 of the
increase in the cost of product licenses and development from the Company's
existing businesses is attributable to the newly acquired Khameleon product line
for which there is no comparable amount in 1998. 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 $2,257,000
for the year ended December 31, 1999, compared to the same period in 1998. The
gross margin percentage for services for the year ended December 31, 1999
increased to approximately 37% from 36% of revenue from services in 1998. 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
decreased by approximately $4,407,000, or 58%, for the year ended December 31,
1999, compared to the prior period. The cost of hardware revenue from existing
businesses increased by approximately $294,000, or 11%, when the cost of
hardware from the Company's catalog direct marketing systems and SmartTime
product lines is excluded from the results for the years ended December 31, 1998
and 1999. The increase in dollar amount for the cost of hardware revenues for
the year ended December 31, 1999 was due primarily to increased unit sales of
hardware products by the Company's tire systems product line.
The gross margin percentage for hardware sales increased to 21% for the
year ended December 31, 1999, from 13% in the same period in 1998. Margins on
computer and add-on hardware can fluctuate based on the mix of computer and
ancillary hardware products sold. Accordingly, the Company expects hardware
gross margins to continue to fluctuate in the future. The Company continues to
direct its efforts toward building service and license revenues to offset the
historical decline in hardware revenue and margins.
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 decreased by
$1,221,000, or 22%, for the year ended December 31, 1999, compared to 1998. The
change in marketing and sales expenses reflects the elimination of the marketing
and sales expenses of the catalog direct marketing systems and SmartTime product
lines partially offset by increased sales and marketing expenses from the tire,
ERP systems, and the newly acquired Khameleon Software product lines.
18
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 decreased by
approximately $432,000, or 11%, for the year ended December 31, 1999, compared
to the same period in 1998. The change primarily reflects the elimination of the
expenses related to the catalog direct marketing systems and SmartTime product
lines, partially offset by increased general and administrative expenses from
the tire, ERP, legal, and the newly acquired Khameleon Software product lines.
Net earnings for the year ended December 31, 1999 were approximately
$2,167,000, as compared to net earnings of approximately $417,000 for 1998. The
change results from the gain on the sale of CommercialWare of $3,824,000 and a
reduction in net interest expense of approximately $585,000, partially offset by
a decrease in earnings from operations of $1,041,000, a loss from the equity in
earnings from affiliate of approximately $166,000, an increase in other expense,
net of $183,000 and an increase in income tax expense of approximately
$1,269,000.
Liquidity and Capital Resources
The Company had total cash and cash equivalents at December 31, 2000 of
approximately $1,178,000, a decrease of approximately $1,119,000 from December
31, 1999. At December 31, 2000, the Company also had $2,720,000 segregated as
assets held for future transactions as described in the Notes to the Company's
Consolidated Financial Statements. The Company had a maximum line of credit
totaling $1,500,000 available at December 31, 2000. At December 31, 2000, the
Company had approximately $26,000 invested in marketable securities, a decrease
of approximately $3,340,000 from December 31, 1999.
In September 2000, the Company sold all of its shares of its Italian
subsidiary, ASA Italy S.r.l., an Italian limited company ("S.r.l.") to
management of the S.r.l. for nominal cash consideration. In connection with the
sale, S.r.l. acknowledged and agreed to pay a debt of approximately $9,000
incurred by the Company on behalf of S.r.l.
In August 2000, the Company completed the sale of its SmartTime business to
InterPro Business Solutions, Inc. (formerly InterPro Expense Systems, Inc.), a
Delaware corporation ("InterPro"). Pursuant to an Option to Purchase Agreement
dated August 2, 1999 by and between the Company, InterPro, and ASA InterPro
SmartTime LLC, a Delaware limited liability company, InterPro exercised its
option to purchase the SmartTime business from the LLC for the aggregate
purchase price of $7,020,000 less the option fees paid on August 2, 1999 of
$1,660,000 and $540,000 paid on August 1, 2000. The terms and conditions of the
acquisition under the option are contained in the Asset Purchase Agreement dated
as of August 2, 1999 (the "Purchase Agreement"). As set forth in the Purchase
Agreement and Exhibits, on August 2, 1999, InterPro had loaned to the Company
$3,200,000 pursuant to a promissory note due on or before August 31, 2000 (the
"ASA Note"). Interest of $160,000 on the ASA Note was prepaid to August 1, 2000.
InterPro completed the transaction by paying the remaining $4,820,000 of the
purchase by (a) delivering the ASA Note (valued at $3,213,151 as a result of
interest accrued from August 1 through August 31, 2000), and (b) paying the
remainder of $1,606,849 in cash.
In November 1999, the Company acquired the business of Design Data Systems
Corporation, a Florida corporation, pursuant to an Asset Purchase Agreement (the
"Purchase Agreement") by and among the Company, the Seller, individually (only
with respect to certain sections of the Purchase Agreement), and the Company's
Bank, as Escrow Agent (the "Escrow Agent") (only with respect to certain
sections of the Purchase Agreement). The Purchase Agreement provides that the
transaction is effective as of September 30, 1999 (the "Closing Date"). Pursuant
to and as more fully set forth in the Purchase Agreement, the Company had the
right and obligation to purchase certain of the assets and assume certain of the
liabilities of Seller for a purchase price of $5,000,000 (the "Purchase Price").
Of the Purchase Price, $4,750,000 was due and payable on the Closing Date and
$250,000 was to be deposited with the Escrow Agent to be held pursuant to the
terms of the Purchase Agreement. Also on the Closing Date, the Company entered
into a certain Asset Acquisition and Exchange Cooperation Agreement (the
"Exchange Agreement") with SQL Acquisition LLC, a Delaware limited liability
company ("SQL"), Fidelity National 1031 Exchange Services, Inc., a California
corporation, and Pacific American Property Exchange Corporation, a California
corporation and sole member and manager of SQL. The Company entered into the
Exchange Agreement for the purpose of seeking the ability to effectuate a
19
like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986, as amended. Pursuant to and as more fully set forth in the Exchange
Agreement, the Company reserved the right to exchange certain software and
related intellectual property of Seller (the "Replacement Property") for certain
other relinquished property of the Company. In connection therewith, the Company
assigned to SQL the Company's right and obligation under the Purchase Agreement
to acquire the Replacement Property pursuant to a certain Assignment Agreement
dated the Closing Date between the Company, Seller and SQL. The Company
completed the like-kind exchange involving $4,300,000 of Replacement Property on
September 15, 2000.
In March 1999, the Company sold substantially all of the assets of its
catalog direct marketing systems product line to CommercialWare, Inc., a
Delaware Corporation (the Purchaser). Under the terms of the sale, the Company
transferred to the Purchaser certain of the liabilities of the product line. The
Company received (i) cash in the amount of $4,000,000, (ii) a promissory note
due in three years 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. These
acquisitions could present challenges to the Company's management, such as
integrating and incorporating new operations, product lines, technologies and
personnel. If the Company's management is unable to manage these challenges, the
Company's business, financial condition or results of operations could be
materially adversely affected. Any acquisition, depending on its size, could
result in significant dilution to the Company's stockholders. Furthermore, there
can be no assurance that any acquired products will gain acceptance in the
Company's markets.
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 customer
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 orders fail 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 updated versions, the complexity and
expense of developing, testing, and maintaining the Company's products has
increased. The Company intends, as it has in the past, to fund this development
primarily from its cash from operations and bank debt. There can be no assurance
that these efforts will be successful or result in significant product
enhancements.
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.
Effect of New Accounting Pronouncements
- ---------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and 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
20
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, as amended by SFAS No.
137, is effective for all fiscal quarters of fiscal years beginning after June
15, 2000.
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.
In March 2000, the Financial Accounting Standards Board issued
interpretation No. 44 ("FIN44"), "Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of APB Opinion No. 25." FIN44 clarifies
the application of APB No. 25 for (a) the definition of employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequences of various modifications
to the previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN44 became
effective July 2, 2000 but certain conclusions cover specific events that occur
after either December 15, 1998 or January 12, 2000. The Company has adopted
FIN44 in Fiscal 2000 and it did not have a material effect on the Company's
financial statements.
Effective January 1, 2000, the Company adopted Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" (SAB 101"). SAB 101
requires the following to occur before the Company can recognize income: (1)
Persuasive evidence of an arrangement exists; (2) Delivery has occurred or
services have been rendered; (3) The price is fixed or determinable; and (4)
Collectibility is reasonably assured. SAB 101 has not had a material impact on
the Company's balance sheet, statements of operations or cash flows.
Other Information; Year 2000 Issue Disclosure
Prior to December 31, 1999, where necessary, the Company had provided its
customers upgrade alternatives to its Year 2000 non-compliant software and to
date has experienced only minor Year 2000 problems related to its products. The
majority of computer hardware and software the Company uses in its internal
operations did not require replacement or modification as a result of Year 2000
non-compliance. The Company believes that its significant vendors and service
providers are Year 2000 compliant and has not, to date, been made aware that any
of its significant vendors or service providers have suffered Year 2000
disruptions in their systems. Accordingly, the Company does not anticipate
incurring material expenses or experiencing any material operational disruptions
as a result of any Year 2000 problems. The total cost of the Company's Year 2000
compliance measures was not material and was funded through operating cash flows
and expensed as incurred.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
The Company is exposed to the impact of interest rate changes and foreign
currency fluctuations and changes in the value of its investments.
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 and
senior secured floating rate loan funds which carry a degree of interest rate
risk. These instruments may produce less income than expected if interest rates
fall.
Investment Risk. The Company has invested, and may invest in the future, in
equity instruments of privately held companies for business and strategic
purposes. These investments are included in other long-term assets and are
accounted for under the cost method when ownership is less than 20%. For these
non-quoted investments, the Company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The Company identifies and records impairment
losses on long-lived assets when events or circumstances indicate that such
assets might be impaired.
21
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' Reports
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:
10-1 First Amendment to Demand Loan and Security Agreement dated August 16,
2000.
21 Subsidiaries of Registrant.
23-1 Consent of BDO Seidman, LLP, independent certified public accountants.
23-2 Consent of Deloitte & Touche, LLP, independent certified public
accountants.
A) The following exhibits were filed with the Registrant's Form 8K on October
20, 2000 and are incorporated herein
22
by reference:
Item 2. Disposition of Assets
ASA International Ltd., a Delaware corporation (the "Registrant"),
completed the sale of its SmartTime business to InterPro Business
Solutions, Inc. (formerly InterPro Expense Systems, Inc.), a Delaware
corporation ("InterPro"). Pursuant to an Option to Purchase Agreement
dated August 2, 1999 by and between the Registrant, InterPro, and ASA
InterPro SmartTime LLC, a Delaware limited liability company, InterPro
exercised its option to purchase the SmartTime business from the LLC for
the aggregate purchase price of $7,020,000 less the option fees paid on
August 2, 1999 of $1,660,000 and $540,000 paid on August 1, 2000. The
terms and conditions of the acquisition under the option are set forth in
the Asset Purchase Agreement dated as of August 2, 1999 (the "Purchase
Agreement"). As more fully set forth in the Purchase Agreement and
Exhibits thereto, on August 2, 1999, InterPro had loaned to the
Registrant $3,200,000 pursuant to a promissory note due on or before
August 31, 2000 (the "ASA Note"). Interest of $160,000 on the ASA Note
was prepaid to August 1, 2000. InterPro completed the transaction by
paying the remaining $4,820,000 of the purchase price by (a) delivering
the ASA Note (valued at $3,213,151 as a result of interest accrued from
August 1 through August 31, 2000), and (b) paying the remainder of
$1,606,849 in cash.
Item 7. Financial Statements and Exhibits.
(a) Not applicable.
(b) Pro forma financial information.
The following unaudited pro forma condensed consolidated financial
statements are filed with this report:
Pro forma Condensed Consolidated Balance Sheet at June 30, 2000 F-1 to
F-2
Pro forma Condensed Consolidated Statements of Operations.
Year Ended December 31, 1999 F-3
Six Months Ended June 30, 2000 F-4
The pro forma condensed consolidated balance sheet of the Registrant as of
June 30, 2000, reflects the inancial 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
June 30, 2000. The pro forma condensed consolidated statements of
operations for the fiscal year ended December 31, 1999, and the six months
ended June 30, 2000, assume that the disposition occurred on January 1,
1999, and are based on the operations of the Registrant for the year ended
December 31, 1999 and the six months ended June 30, 2000, 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 transaction
been in effect as of the dates presented. he unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the
Registrant's historical financial statements and related notes.
(c) Exhibits.
10-1* Option to Purchase Agreement dated as of August 2, 1999.
10-2* Asset Purchase Agreement dated as of August 2, 1999.
10-3* Operating Agreement dated as of August 2, 1999.
10-4* Sublease and Consent Agreement dated as of August 2, 1999.
10-5* Revolving Promissory Note dated as of August 2, 1999.
10-6* Customer Intangibles License Agreement dated as of August 2, 1999.
10-7* Intellectual Property License Agreement dated as of August 2, 1999.
10-8* Promissory Note dated as of August 2, 1999.
* Previously filed on August 13, 1999.
23
B) The following exhibits were filed with the Registrant's Form 8-K on
October 10, 2000 and are incorporated herein by reference:
Item 2. Disposition of Assets.
On September 25, 2000, ASA International Ltd., a Delaware corporation (the
"Registrant"), sold all of its shares of its Italian subsidiary, ASA Italy
S.r.l., an Italian limited company (the "Subsidiary") to management of the
Subsidiary, Alessandro Baldo, Saverio Giglio and Roberto Locatelli, for
nominal cash consideration. In connection with the sale, the Subsidiary
acknowledged and agreed to pay a debt of approximately $9,000 incurred by
the Registrant on behalf of the Subsidiary.
Item 7. Financial Statements and Exhibits.
(a) Not applicable.
(b) Pro forma financial information.
The following unaudited pro forma condensed consolidated financial
statements are filed with this report: Pro forma Condensed Consolidated
Balance Sheet at June 30, 2000 F-1 to F-2
Pro forma Condensed Consolidated Statements of Operations.
Year Ended December 31, 1999 F-3
Six Months Ended June 30, 2000 F-4
The pro forma condensed consolidated balance sheet of the Registrant as of
June 30, 2000, 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
June 30, 2000. The pro forma condensed consolidated statements of
operations for the fiscal year ended December 31, 1999, and the six months
ended June 30, 2000, assume that the disposition occurred on January 1,
1999, and are based on the operations of the Registrant for the year ended
December 31, 1999 and the six months ended June 30, 2000, 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
transaction 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.
(c) Exhibits.
2 Cessation of Share of Limited Company agreement by and among ASA
International Ltd., Alessandro Baldo, Saverio Giglio and Roberto
Locatelli, effective as of September 25, 2000.
99 Acknowledgement of Debt and Agreement to Pay by ASA Italy S.r.l., dated
September 25, 2000.
C) The following exhibits were filed with the Registrant's Form 8-K on
January 18, 2000 and are incorporated herein by reference:
Items 7(a)(b) Financial statements and pro forma financial information of
business acquired.
The Registrant's Form 8-K as filed with the Securities and Exchange
Commission on November 15, 1999 provides that the financial statements and
pro forma financial information required by this item would be filed by
amendment within sixty days of such date. Such financial statements and
pro forma financial information are provided herein by this amendment
following the signature line.
24
Item 7(a) Financial statements
Independent Auditors' Report
Financial statements as of and for the year ended December 31, 1998:
Balance Sheet
Statement of Operations
Statement of Shareholder's Deficit
Statement of Cash Flows
Notes to Financial Statements
Item 7(b) Pro forma financial information
The accompanying condensed financial statements illustrate the effect of
the acquisition of the business of Design Data Systems Corporation (DDS),
("Pro Forma") on the Company's financial position and results of
operations. The pro forma condensed consolidated balance sheet as of
September 30, 1999 is based on the historical balance sheets of ASA
International Ltd. and DDS as of that date. The pro forma condensed
consolidated balance sheet assumes the acquisition took place on September
30, 1999.
The pro forma condensed consolidated statement of operations for the year
ended December 31, 1998 is based on the historical statements of
operations of ASA International Ltd. and DDS and assumes the acquisition
took place on January 1, 1998. The pro forma condensed consolidated
statement of operations for the nine months ended September 30, 1999 is
based on the historical statements of operations of ASA International Ltd.
and DDS and assumes the acquisition took place on January 1, 1999.
The pro forma condensed consolidated financial statements may not be
indicative of the actual results of the acquisition and there can be no
assurance that the foregoing results will be obtained. In particular, the
pro forma condensed financial statements are based on management's current
estimate of the allocation of the purchase price, the actual allocation of
which may differ.
The accompanying pro forma condensed financial statements should be read
in conjunction with the historical financial statements of ASA
International Ltd. and DDS.
D) The following documents are incorporated by reference to the
Registrant's Report on Form 10-K filed on March 30, 2000:
10-1 Revolving Demand Note between ASA International Ltd./ASA International
Ventures, Inc. and Eastern Bank dated 10/20/99.
10-2 Acquisition Line of Credit Agreement between ASA International Ltd./ASA
International Ventures, Inc. and Eastern Bank dated 10/20/99.
E) The following exhibits were filed with the Registrant's Form 8-K on
November 15, 1999 and are incorporated herein by reference:
2 Asset Purchase Agreement dated November 4, 1999.
10-1 Assignment and Assumption Agreement dated November 4, 1999.
10-2 Bill of Sale and General Assignment of Assets dated November 4, 1999.
10-3 Assignment of Trademarks dated November 4, 1999.
25
10-4 Assignment of Copyrights dated November 4, 1999.
10-5 Asset Acquisition and Exchange Cooperation Agreement dated November 4,
1999.
10-6 Promissory Note dated November 4, 1999.
10-7 Security Agreement dated November 4, 1999.
10-8 Intellectual Property License Agreement dated November 4, 1999.
10-9 Assignment Agreement dated November 4, 1999.
10-10 Bill of Sale and General Assignment of Assets dated November 4, 1999.
10-11 Assignment of Trademarks dated November 4, 1999.
10-12 Assignment of Copyrights dated November 4, 1999.
F) The following exhibits were filed with the Registrant's Form 8-K on
August 13, 1999 and are incorporated herein by reference:
10-1 Option to Purchase Agreement dated as of August 2, 1999.
10-2 Asset Purchase Agreement dated as of August 2, 1999.
10-3 Operating Agreement dated as of August 2, 1999.
10-4 Sublease and Consent Agreement dated as of August 2, 1999.
10-5 Revolving Promissory Note dated as of August 2, 1999.
10-6 Customer Intangibles License Agreement dated as of August 2, 1999.
10-7 Intellectual Property License Agreement dated as of August 2, 1999.
10-8 Promissory Note dated as of August 2, 1999.
G) The following exhibits were filed with the Registrant's Form 8-K on
March 18, 1999 and are incorporated herein by reference:
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, 1998 F-1 to F-2
Pro forma Condensed Consolidated Statements of Operations.
Year Ended December 31, 1997 F-3
Nine Months Ended September 30, 1998 F-4
26
The pro forma condensed consolidated balance sheet of the Registrant as of
September 30, 1998, 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, 1998. The pro forma condensed consolidated statements of
operations for the fiscal year ended December 31, 1997, and the nine months
ended September 30, 1998, assume that the disposition occurred on December
31, 1996, and are based on the operations of the Registrant for the year
ended December 31, 1997 and the nine months ended September 30, 1998,
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 transaction
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.
c. Exhibits
2 Asset Purchase Agreement dated as of March 3, 1999.
4-1 Shareholder Agreement dated as of March 3, 1999.
4-2 Promissory Note dated as of March 3, 1999.
4-3 Security Agreement dated as of March 3, 1999.
4-4 Trademark Assignment dated as of March 3, 1999.
4-5 Trademark Security Agreement dated as of March 3, 1999.
4-6 Sub-Lease and Consent Agreement dated as of March 3, 1999.
4-7 Subordinated Promissory Note dated as of March 3, 1999.
H) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 30, 1999:
10 Lease for 475 Sentry Parkway, Blue Bell, Pennsylvania, dated August 26,
1998.
I) 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.
27
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.
J) 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.
K) 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.
28
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.
L) 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.
M) 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.
N) 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.
10-4 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.
29
10-6 Agreement for Exchange of Intangibles between ASA International Ventures,
Inc. and ASA International Ltd., dated December 29, 1995.
O) 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.
P) 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.
10-15Amendment to Merger Agreement by and among the Company, ASA Incorporated,
CommercialWare, Donald Askin, and Jonathan Ellman, dated September 15,
1993.
Q) 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.
R) 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.
S) 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.
T) The following documents are incorporated by reference to the Company's
Registration Statement on Form S-18 (File number 33-5832-B):
30
4c Specimen Convertible Note.
U) 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.
-------------------
Form 8-K filed on October 10, 2000 reporting the sale by the Company of its
shares of its Italian subsidiary, ASA Italy S.r.l., an Italian limited company,
to the management of the subsidiary.
Form 8-K filed on October 20, 2000 reporting that the Company completed the
sale of its SmartTime business to InterPro Business Solutions, Inc. (formerly
InterPro Expense Systems, Inc.).
31
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, 2001
- -------------------------- Executive Officer,
Alfred C. Angelone and President
(principal executive
officer and principal
accounting officer)
/s/ James P. O'Halloran Director March 30, 2001
- --------------------------
James P. O'Halloran
/s/ Alan J. Klitzner Director March 30, 2001
- --------------------------
Alan J. Klitzner
/s/ William A. Kulok Director March 30, 2001
- --------------------------
William A. Kulok
/s/ Robert L. Voelk Director March 30, 2001
- --------------------------
Robert L. Voelk
32
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, 2000 and 1999 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, 2000. 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 did not audit the 1999 financial
statements of the Company's foreign subsidiary, which statements reflect total
assets of approximately $2,056,000 as of December 31, 1999 and total revenues of
approximately $2,899,000 for the year then ended. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for such subsidiary, is based
solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States of America.
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 2, 2001
33
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders ASA ITALY S.r.l.
We have audited the financial statements of ASA Italy S.r.l., consisting of
a balance sheet as at December 31, 1999 and the related statement of operations,
income statement, shareholder's equity and cash flows for the year ended
December 31, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the reporting schedules are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the reporting schedules. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation. We believe that
our audit provides a reasonable basis for our opinion.
The financial statements referred to above, present fairly, in all material
respects, the financial position of ASA Italy S.r.l. at December 31, 1999 and
the results of their operations and cash flows for the year ended December 31,
1999, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche, LLP
Treviso, Italy
February 15, 2000
34
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,178,048 $ 2,297,364
Marketable securities 25,713 3,365,737
Receivables - net 3,219,020 5,326,722
Other current 1,133,042 1,289,170
Assets held for future transactions 2,720,000 -
Net assets of SmartTime division - 1,411,240
--------- ---------
TOTAL CURRENT ASSETS 8,275,823 13,690,233
--------- ----------
PROPERTY AND EQUIPMENT:
Land and buildings 4,255,398 4,192,882
Computer equipment 2,065,400 2,249,005
Office furniture and equipment 996,322 1,162,820
Leasehold improvements 115,846 142,766
Vehicles 436,097 415,991
-------- ------- -------
7,869,063 8,163,464
Accumulated depreciation and amortization 3,247,748 3,092,487
--------- ---------
NET PROPERTY AND EQUIPMENT 4,621,315 5,070,977
--------- ---------
SOFTWARE
(less cumulative amortization
of $4,027,899 and $2,822,289) 2,721,645 6,034,685
COST EXCEEDING NET ASSETS ACQUIRED
(less cumulative amortization
of $1,429,500 and $1,411,455) - 18,045
NOTE RECEIVABLE 1,700,000 1,700,000
OTHER ASSETS 1,282,609 1,356,345
--------- ---------
$ 18,601,392 $ 27,870,285
============ =============
See notes to consolidated financial statements.
35
December 31,
------------
2000 1999
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ - $ 601,527
Note payable - other - 3,200,000
Deferred option and license fees - 2,460,000
Accounts payable 676,751 1,047,228
Accrued expenses 2,195,312 2,514,673
Accrued commissions 413,715 436,584
Customer deposits 399,819 514,723
Deferred revenue 658,941 2,056,600
Current maturities of long-term obligations 72,049 114,391
------ -------
TOTAL CURRENT LIABILITIES 4,416,587 12,945,726
--------- ----------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 3,744,126 3,915,331
--------- ---------
LONG-TERM LIABILITIES - Other
- 272,220
--------- -------
DEFERRED INCOME TAXES 725,000 497,000
------- -------
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 4,510,870 and 4,384,458 shares;
outstanding, 2,982,397and 3,084,985 shares 45,109 43,845
Additional paid-in capital 7,931,506 7,801,387
Retained earnings 5,160,708 5,131,487
Accumulated other comprehensive loss:
Foreign currency translation - (10,968)
Unrealized loss on marketable securities (3,188) (26,478)
------ -------
13,134,135 12,939,273
Less treasury stock, at cost 3,418,456 2,699,265
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 9,715,679 10,240,008
--------- ----------
$ 18,601,392 $ 27,870,285
============ =============
See notes to consolidated financial statements.
36
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
REVENUES
Product licenses $ 5,415,084 $ 6,506,376 $ 8,490,301
Services 12,737,489 15,062,870 18,217,434
Computer and add-on hardware 1,480,510 4,053,289 8,760,421
--------- --------- ---------
NET REVENUE 19,633,083 25,622,535 35,468,156
---------- ---------- ----------
COST OF REVENUE
Product licenses and development 5,051,824 4,456,953 4,650,739
Services 7,848,964 9,485,924 11,742,580
Computer and add-on hardware 1,255,094 3,219,535 7,626,820
--------- --------- ---------
TOTAL COST OF REVENUE 14,155,882 17,162,412 24,020,139
---------- ---------- ----------
EXPENSES
Marketing and sales 5,169,271 4,356,610 5,577,389
General and administrative 3,545,511 3,570,022 4,002,374
Amortization of goodwill 18,045 42,234 336,183
Impairment loss on capitalized software 1,986,000 - -
--------- --------- ---------
TOTAL EXPENSES 10,718,827 7,968,866 9,915,946
---------- --------- ---------
EARNINGS (LOSS) FROM OPERATIONS (5,241,626) 491,257 1,532,071
INTEREST EXPENSE (551,898) (386,396) (603,299)
INTEREST INCOME
484,477 508,793 140,837
GAIN ON SALE OF PRODUCT LINES 6,730,252 3,824,420 -
OTHER EXPENSE, NET (159,653) (183,237) -
EQUITY IN LOSS FROM AFFILIATE (977,331) (165,972) -
-------- -------- ---------
EARNINGS BEFORE INCOME TAXES 284,221 4,088,865 1,069,609
INCOME TAXES 255,000 1,922,000 653,000
------- --------- -------
NET EARNINGS $ 29,221 $ 2,166,865 $ 416,609
=========== ============ ===========
BASIC EARNINGS PER
COMMON SHARE:
NET EARNINGS $.01 $.67 $.12
==== ==== ====
DILUTED EARNINGS PER
COMMON SHARE:
NET EARNINGS $.01 $.63 $.11
==== ==== ====
See notes to consolidated financial statements.
37
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
NET INCOME $ 29,221 $ 2,166,865 $ 416,609
OTHER COMPREHENSIVE INCOME (LOSS)
NET OF INCOME TAX:
Foreign currency translation 10,968 (27,994) 17,026
Unrealized gain (loss) on marketable securities 23,290 (26,478)
------ ------- -------
-
COMPREHENSIVE INCOME $ 63,479 $ 2,112,393 $ 433,635
========== ============ ===========
See notes to consolidated financial statements.
38
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Treasury Stock
------------ --------------
Accumulated
Other
Comprehen-
Additional sive
Paid-in Retained Income/
Shares Amount Capital Earnings (Loss) Shares Amount Total
------ ------ ------- -------- ------ ------ ------ -----
BALANCES, 1/1/98 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 shares 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
Exercise of stock
options 7,600 77 7,613 - - - - 7,690
Purchase of Treasury
Stock - - - - - 271,077 (689,214) (689,214)
Net earnings - - - 2,166,865 - - - 2,166,865
Foreign currency
translation - - - - (27,994) - - (27,994)
Unrealized loss on
marketable securities - - - - (26,478) - - (26,478)
------ ------ ------ ------ ------ ------ ------ ------
BALANCES, 12/31/99 4,384,458 43,845 7,801,387 5,131,487 (37,446) 1,299,473 (2,699,265) 10,240,008
Exercise of stock 131,383
options 126,412 1,264 130,119 - - - -
Purchase of Treasury
Stock - - - - - 229,000 (719,191) (719,191)
Net earnings
- - - 29,221 - - - 29,221
Foreign currency 10,968 10,968
translation - - - - - -
Unrealized gain on marketable
securities - - - - 23,290 - - 23,290
------ ------ ------ ------ ------ ------ ------ ------
BALANCES, 12/31/00 4,510,870 $45,109 $7,931,506 $5,160,708 $(3,188) 1,528,473 $(3,418,456) $9,715,679
========= ======= ========== ========== ======= ========= =========== ==========
39
See notes to consolidated financial statements.
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 29,221 $ 2,166,865 $ 416,609
Adjustments to reconcile net earnings
to net cash provided by (used for) operating
activities:
Depreciation and amortization 1,987,098 1,735,286 2,316,093
Deferred taxes 228,000 65,000 (184,000)
Doubtful receivables provision 125,443 348,538 203,131
Gain on divestitures (6,730,252) (3,824,420) -
Charge for impairment of long-lived assets 1,986,000
Changes in assets and liabilities,
net of effects of acquisitions:
Receivables 1,154,482 (430,991) (2,383,472)
Other current assets 844,864 (601,710) 171,153
Accounts payable (120,682) (162,825) (1,274,586)
Accrued expenses 88,887 (601,084) 3,416,443
Customer deposits (104,857) (302,346) 450,277
Deferred revenue (1,313,672) 2,647,606 473,952
---------- --------- -------
Total adjustments (1,854,689) (1,126,946) 3,188,991
---------- ---------- ---------
Net cash provided by (used for) operating activities (1,825,468) 1,039,919 3,605,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (308,705) (717,521) (1,040,547)
Additions to software (452,920) (90,817) (8,283)
Increases in sales-type leases (187,724) (575) (582)
Cash received from divestitures, net of cash paid 40,464 3,437,382 98,272
Cash paid in acquisition of Design Data Systems - (5,094,507) -
Additions to assets held for future transactions (1,113,151) - -
Proceeds from sale of (additions to) marketable securities 3,363,315 (3,392,215) -
Other assets 147,462 83,574 (350,893)
------- ------ --------
Net cash provided by (used for) investing activities 1,488,741 (5,774,679) (1,302,033)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank notes - 481,473 -
Increase in note payable - other - 3,200,000 -
Reduction in long-term debt (138,301) (142,939) (2,084,463)
Increase in long-term debt - - 3,182,042
Decrease in long-term liabilities (53,479) (32,549) (8,748)
Issuance of common stock 131,383 7,690 207
Purchase of Treasury Stock (719,191) (689,214) (424,354)
-------- -------- --------
Net cash provided by (used for) financing activities (779,588) 2,824,461 664,684
-------- --------- -------
EFFECT OF EXCHANGE RATES ON
CASH & CASH EQUIVALENTS (3,001) (54,775) 11,370
------ ------- ------
CASH & CASH EQUIVALENTS:
Net increase (decrease) (1,119,316) (1,965,074) 2,979,621
Balance, beginning of year 2,297,364 4,262,438 1,282,817
--------- --------- ---------
Balance, end of year $ 1,178,048 $ 2,297,364 $ 4,262,438
============ ============ ============
40
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 2000, the Company received a note valued at $3,213,151 in payment of
the balance due of $4,820,000 from InterPro Business Solutions, Inc. on the sale
of the Company's SmartTime product line. The remainder of the balance due of
$1,606,849 was paid in cash and is included in assets held for future
transactions. Also during 2000, the Company recorded an unrealized gain on
marketable securities of $23,290.
During 1999, the Company acquired substantially all the assets of Design
Data Systems Corporation. Assets acquired, liabilities assumed, and
consideration paid for this acquisition were as follows:
Fair value of assets $ 7,776,332
Liabilities assumed (2,681,825)
--------------
Net cash paid $ 5,094,507
==============
During 1998, the Company acquired substantially all of the assets of Cedes
S.r.l. and SIPI-U S.r.l. (renamed 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)
================
During 1998, the Company issued contingently issuable common stock in the amount
of $27,089.
See notes to consolidated financial statements.
41
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, 1998
A. Summary of Significant Accounting Policies:
------------------------------------------
Business description and principles of consolidation
- ----------------------------------------------------
The Company develops, markets, and provides services for its proprietary
enterprise software products and distributes computer hardware to its software
customers. The Company targets its products and services to distinct
identifiable markets. The Company considers its operation to be a single
reporting segment due to the comparable economic characteristics of its products
and services as well as similarities in the nature of the products and services
offered, the processes to develop and upgrade its products and services, and the
methods to market and distribute its products and services to customers. The
consolidated financial statements include the accounts of ASA International Ltd.
and its wholly owned subsidiaries, ASA Properties, Inc., ASA International
Ventures, Inc., ASA Tire Systems Inc., ASA Legal Systems Inc. and Khameleon
Software Inc. after elimination of all material inter-company balances and
transactions.
Cash equivalents
- ----------------
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. On a cash basis,
interest income received approximates the amounts reported on the statements of
operations. The Company had approximately $703,000 and $864,000 invested in
money market funds at December 31, 2000 and 1999, 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.
42
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.
Marketable securities
- ---------------------
At December 31, 2000 and 1999 the Company held investments in a senior
secured, floating rate loan, mutual fund. The Company accounts for this
investment as available-for-sale in accordance with Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investment in Debt and Equity Securities," which requires that debt and
marketable equity securities be classified as trading, available-for-sale, or
held-to-maturity. Available-for-sale securities are reported in the balance
sheet at fair value with unrealized gains or losses included in a separate
component of stockholders' equity.
At December 31, 2000 and 1999, the fair market values of these investments
were approximately $26,000 and $3,366,000. Accumulated unrealized gains/(losses)
for the years ended December 31, 2000 and 1999 were approximately ($3,000) and
($26,000).
Assets Held for Future Transactions
- -----------------------------------
At December 31, 2000, the Company has $2,720,000 classified on the Balance
Sheet as current assets under the caption, assets held for future transactions,
which are so held for the purpose of seeking the ability to effectuate a
like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986, as amended. This amount represents $7,020,000 in proceeds from the sale of
SmartTime, net of $4,300,000 in software and intellectual property exchanged in
the Design Data Systems Corporation transaction (see Note B). At December 31,
2000 these funds were invested in an interest bearing account. In February,
2001, these funds were released to the Company for unrestricted use as the time
period to complete a like-kind exchange for the remaining unused proceeds from
the SmartTime sale had lapsed.
43
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.
Advertising
- -----------
The Company expenses advertising costs as incurred. Advertising expense was
approximately $735,000, $519,000, and $653,000 in the years ending December 31,
2000, 1999, and 1998, respectively.
Costs exceeding net assets acquired
- -----------------------------------
Costs exceeding net assets of businesses acquired were amortized on a
straight-line basis over periods of 10 and 20 years through December 31, 2000.
At December 31, 2000 these costs were fully amortized.
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.
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
44
five years or the proportion of current sales to estimated future revenues of
each product. Total amortization of software charged to operations was
approximately $1,453,000, $1,305,000, and $1,446,000 for the years ended
December 31, 2000, 1999, and 1998, respectively. During the fourth quarter of
2000, the Company recorded a $1,986,000 impairment loss related to its software
products which is included in the Consolidated Statement of Operations for the
year ended December 31, 2000.
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, foreign currency translation
adjustments and unrealized gain (loss) on marketing securities 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 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 earnings
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed by dividing the net earnings
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
- ----------------------------
In fiscal 2000, the Company sold its foreign subsidiary. Prior to its sale,
the Company determined that the local currency of its former Italian Subsidiary
was the functional currency. In accordance with Statement of Financial
Accounting Standard No. 52, "Foreign Currency Translation," the assets and
liabilities denominated in foreign currency were translated into U.S. dollars at
the current rate of exchange existing at period-end and revenues and expenses
were translated at average monthly exchange rates. Related translation
adjustments were reported as a separate component of shareholders' equity,
whereas, gains or losses resulting from foreign currency transactions were
included in results of operations.
Effect of New Accounting Pronouncements
- ---------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and 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, as amended by SFAS No.
137, is effective for all fiscal quarters of fiscal years beginning after June
15, 2000.
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.
In March 2000, the Financial Accounting Standards Board issued
interpretation No. 44 ("FIN44"), "Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of APB Opinion No. 25." FIN44 clarifies
45
the application of APB No. 25 for (a) the definition of employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequences of various modifications
to the previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN44 became
effective July 2, 2000 but certain conclusions cover specific events that occur
after either December 15, 1998 or January 12, 2000. The Company has adopted
FIN44 in Fiscal 2000 and it did not have a material effect on the Company's
financial statements.
Effective January 1, 2000, the Company adopted Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
requires the following to occur before the Company can recognize income: 1)
Persuasive evidence of an arrangement exists. 2) Delivery has occurred or
services have been rendered. 3) The price is fixed or determinable. 4)
Collectibility is reasonably assured. SAB 101 has not had a material impact on
the Company's balance sheet, statements of operations or cash flows.
B. Business Acquisitions and Divestitures:
--------------------------------------
Acquisitions
- ------------
In November 1999, the Company acquired the business of Design Data Systems
Corporation, a Florida corporation, pursuant to an Asset Purchase Agreement (the
"Purchase Agreement") by and among the Company, the Seller, individually (only
with respect to certain sections of the Purchase Agreement), and the Company's
Bank, as Escrow Agent (the "Escrow Agent") (only with respect to certain
sections of the Purchase Agreement). The Purchase Agreement provides that the
transaction is effective as of September 30, 1999 (the "Closing Date"). Pursuant
to and as more fully set forth in the Purchase Agreement, the Company had the
right and obligation to purchase certain of the assets and assume certain of the
liabilities of Seller for a purchase price of $5,000,000 (the "Purchase Price").
Of the Purchase Price, $4,750,000 was due and payable on the Closing Date and
$250,000 was to be deposited with the Escrow Agent to be held pursuant to the
terms of the Purchase Agreement. Also on the Closing Date, the Company entered
into a certain Asset Acquisition and Exchange Cooperation Agreement (the
"Exchange Agreement") with SQL Acquisition LLC, a Delaware limited liability
company ("SQL"), Fidelity National 1031 Exchange Services, Inc., a California
corporation, and Pacific American Property Exchange Corporation, a California
corporation and sole member and manager of SQL. The Company entered into the
Exchange Agreement for the purpose of seeking the ability to effectuate a
like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986, as amended. Pursuant to and as more fully set forth in the Exchange
Agreement, the Company reserved the right to exchange certain software and
related intellectual property of Seller (the "Replacement Property") for certain
other relinquished property of the Company. In connection therewith, the Company
assigned to SQL the Company's right and obligation under the Purchase Agreement
to acquire the Replacement Property pursuant to a certain Assignment Agreement
dated the Closing Date between the Company, Seller and SQL (the "Assignment").
The Exchange Agreement provided the Company with the option to purchase the
Replacement Property within twelve months of the Closing Date for a purchase
price of $4,300,000 plus interest incurred by SQL on the promissory note due
November 3, 2000. On the Closing Date, the following actions were completed:
1. SQL acquired the Replacement Property from Seller in accordance with the
Purchase Agreement and the Assignment in exchange for a payment of
$4,300,000.
2. The Company acquired the remainder of Seller's assets in accordance with
the Purchase Agreement in exchange for (a) the payment of $700,000 (of
which $250,000 was deposited with the Escrow Agent) and (b) the assumption
of certain of Seller's liabilities.
3. The Company loaned SQL $4,300,000 pursuant to the Exchange Agreement and a
related promissory note due on November 3, 2000 and bearing interest at the
rate of 6.18% per annum. The funds were used by SQL to acquire the
Replacement Property.
4. SQL granted a license to the Company to use the Replacement Property until
November 3, 2000 pursuant to a License Agreement between the Company and
SQL, in exchange for a one-time license fee of $285,000.
Due to the existence of the Exchange Agreement between the Company and SQL,
the Company obtained control of the net assets of Design Data Systems.
46
Accordingly, the Company recorded the acquisition of Design Data Systems by SQL
as if the purchase had been completed by the Company in fiscal 1999 at a
purchase price consisting of the $4,300,000 promissory note with SQL, the
$700,000 payment to Design Data Systems, the assumption of certain liabilities
of Design Data Systems and direct costs of the acquisition. The net assets
acquired consisting of approximately $5,900,000 of software, $1,700,000 of other
assets, and the assumption of approximately $2,500,000 of liabilities were
recorded at their fair values based on the Company's estimate of these values.
The Company completed the like-kind exchange involving $4,300,000 of
Replacement Property in September, 2000 with the completion of the sale of
SmartTime (see also Divestitures).
Unaudited pro forma consolidated revenues, net income and net income per
basic and diluted share for the years ended December 31, 1999 and 1998, would
have been approximately as follows if the 1999 acquisition had occurred on
January 1, 1998. The unaudited pro forma financial information is not
necessarily indicative of future results of operations of the Company because it
does not give effect to what might have occurred had the restructured and
combined operations been functioning on January 1, 1998.
Years Ended December 31,
------------------------
1999 1998
---- ----
Revenues $ 30,775,000 $ 42,381,000
Net income 2,333,000 305,000
Net income per share:
Basic $.72 $.09
Diluted $.68 $.08
In January 1998, the Company acquired substantially all of the assets of
Cedes S.r.l. and SIPI-U S.r.l. ("ASA Italy"), subsidiaries of the Findest Group
of Padova, Italy. ASA Italy sold 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
ASA Italy. 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. In September 2000, the Company's Italian
subsidiary was sold (see also Divestures).
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 September 2000, the Company sold all of its shares of its Italian
subsidiary, ASA Italy S.r.l., an Italian limited company ("S.r.l.") to
management of the S.r.l. for nominal cash consideration. In connection with the
sale, S.r.l. acknowledged and agreed to pay a debt of approximately $9,000
incurred by the Company on behalf of S.r.l.
In August 1999, the Company granted to a company ("Optionee") an option to
purchase the Company's SmartTime product line. As per the terms of the Option
Agreement, the Company transferred the assets and liabilities of its SmartTime
product line to a newly formed LLC, of which the Company is the sole member and
the Optionee is the manager.
The Agreement provided that the Optionee had the option to purchase the
SmartTime product line from the LLC at anytime from August 1, 2000 through
August 31, 2000 (the "Option Period"), or at such earlier date as agreed to by
the parties, for an aggregate purchase price of $7,020,000, less any option fee
paid to date (the "Purchase Price"). The terms and conditions of the acquisition
are set forth in an Asset Purchase Agreement dated as of August 2, 1999 (the
"Purchase Agreement"). The Purchase Agreement provided that the sale would occur
within two days after exercise of the option and the satisfaction of certain
47
other conditions as specified in the Purchase Agreement. During the Option
Period, the Optionee employed the employees of the SmartTime product line and
bore the risk of its financial performance.
The Optionee paid an initial option fee in the amount of $1,660,000 upon
execution of the Agreement and paid a second option fee on August 1, 2000 in the
amount of $540,000. The option fees were non-refundable to the Optionee in the
event that the Optionee did not exercise the option to purchase the SmartTime
product line. Pursuant to the Agreement, the Optionee loaned to the Company the
sum of $3,200,000 (the "Note") (with respect to which the Company has prepaid
$160,000 in interest). In addition, the LLC loaned the Optionee an amount equal
to the net cash of the LLC available after collection of the LLC's accounts
receivable and payment of the LLC's accounts payable.
The Optionee purchased exclusive licenses to use the customer intangibles
and intellectual property of the SmartTime product line during the Option Period
for $300,000 and $500,000, respectively.
In August 2000, the Company completed the sale of its SmartTime business to
InterPro Business Solutions, Inc. (formerly InterPro Expense Systems, Inc.), a
Delaware corporation ("InterPro"). Pursuant to an Option to Purchase Agreement
dated August 2, 1999 by and between the Company, InterPro, and ASA InterPro
SmartTime LLC, a Delaware limited liability company, InterPro exercised its
option to purchase the SmartTime business from the LLC for the aggregate
purchase price of $7,020,000 less the option fees paid on August 2, 1999 of
$1,660,000 and $540,000 paid on August 1, 2000. As set forth in the Purchase
Agreement and Exhibits, on August 2, 1999, InterPro had loaned to the Company
$3,200,000 pursuant to a promissory note due on or before August 31, 2000 (the
"ASA Note"). Interest of $160,000 on the ASA Note was prepaid to August 1, 2000.
InterPro completed the transaction by paying the remaining $4,820,000 of the
purchase by (a) delivering the ASA Note (valued at $3,213,151 as a result of
interest accrued from August 1 through August 31, 2000), and (b) paying the
remainder of $1,606,849 in cash.
Assets applicable to the SmartTime division net of liabilities assumed were
segregated in the Company's balance sheet at December 31, 1999 and shown as net
assets of the SmartTime division. The results for the operations of this product
line are shown in the Consolidated Statements of Operations for the years ended
December 31, 2000 and 1999 under the caption "Equity in Loss from Affiliate."
A summary of net assets of SmartTime at December 31, 1999 were as follows:
Current assets $ 1,293,103
Property and equipment 198,237
Software 643,923
Liabilities (724,023)
----------------
Net assets $ 1,411,240
================
Financial data relative to the operation of ASA Italy S.r.l. and the
SmartTime business is as follows:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Revenues $ 1,326 $ 5,813 $ 9,403
Net income (1,289) (612) 332
Net income per share:
Basic ($.41) ($.19) ($.10)
Diluted ($.41) ($.19) ($.09)
48
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 did not reflect
the $500,000 Junior Note as part of the proceeds due to the uncertainty of the
ultimate collection of this Note. Through December 31, 1999, the Company had
collected approximately $255,000 on the Junior Note. The remaining balance of
$245,000 was collected in 2000. This income is recorded in Other Income
(Expense) for the respective period. A pretax gain on the sale of CWI of
approximately $3,824,000 is included in the Consolidated Statement of Operations
for the year ended December 31, 1999. Financial data relative to the CWI
operation is as follows:
Year Ended December 31,
1998
----
Revenues $ 10,776,000
Net income 278,000
Net income per share:
Basic $.08
Diluted $.08
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 had agreed to provide $500,000 in funding
for this venture. No activity occurred under the joint venture agreement during
1998. During 1999, the Company contributed approximately $156,000 in funding to
the venture. In January 2000, the joint venture was terminated with all assets,
net of liabilities sold to a third party. The Company received a payment of
$17,500 in January 2000 and a payment of $52,500 plus interest at 6% in January
2001. The Company has recorded a loss of approximately $86,000 in Other Expense,
net in the Consolidated Statements of Operations for the year ended December 31,
1999.
In December 1996, the Company disposed of substantially all of the assets
and liabilities of the Company's international trade product line (Product). 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 was paid in full in 2000. The outstanding balance on this note of
$369,000 was included in other assets at December 31, 1999. The remaining 84%
interest in Trade is owned by the former President and Director of the Company
(Buyer). The Company's investment in Trade, which was originally valued at
$500,000, and is accounted for under the cost method was subsequently reduced to
$400,000 in fiscal 2000. This investment is included in other assets at December
31, 2000 and 1999.
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 in 1997 to a net
realizable value of approximately $150,000. In November 1999, the shares were
redeemed by DMS for $25,000 with the remaining balance of approximately $125,000
was written-off and recorded under Other Expense, net in the Consolidated
Statement of Operations for the year ended December 31, 1999.
49
C. Receivables:
-----------
December 31,
------------
2000 1999
---- ----
Trade $ 3,309,192 $ 4,747,089
Amounts due from officers and employees 152,283 230,243
Other 272,745 739,147
------- -------
3,734,220 5,716,479
Less allowance for doubtful accounts 515,200 389,757
------- -------
$ 3,219,020 $ 5,326,722
============ ============
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, 1997 was $163,442.
During the three years ended December 31, 2000, 1999, and 1998, the provisions
for doubtful accounts were $343,948, $348,538, and $203,131, and write-offs were
$218,505, $190,001, and $135,353, respectively.
D. Notes Payable, Long-Term Obligations, Commitments, and Contingencies:
--------------------------------------------------------------------
December 31,
------------
2000 1999
---- ----
Short-term obligations
Note payable $ - $ 3,200,000
============ ============
Long-term obligations
Term loans $ - $ 144,310
Mortgage notes 3,816,175 3,884,373
Capital lease obligations - 1,039
------------ ------------
3,816,175 4,029,722
Less current maturities 72,049 114,391
------ -------
$ 3,744,126 $ 3,915,331
============ ============
The current carrying value of long-term obligations approximate their fair
market value.
Note Payable
- ------------
Under the terms of the August 1999 Option to Purchase Agreement for the
Company's SmartTime product line, the Company was advanced $3,200,000 at a fixed
rate of 5% per annum. The note was paid on August 31, 2000. The interest on the
note totaling $160,000 was prepaid upon the execution of the Option to Purchase
Agreement.
50
Revolving demand note
- ---------------------
In October 2000, the Company entered into a revolving demand loan agreement
with a bank for up to $1,500,000 (which cannot exceed 80% of qualified account
receivables), bearing interest at a rate approximating prime (9.5% at December
31, 2000) plus .5%, which extends through June 30, 2001. This arrangement
replaced a previous line of credit. This credit facility requires the Company to
maintain stated tangible net worth as well as, stated debt service coverage and
debt to tangible net worth ratios. Payment of dividends is prohibited under the
terms of this agreement. Borrowings are secured by the personal property of the
Company.
There were no borrowings under short-term revolving credit and demand
agreements during the years ended 2000, 1999 and 1998.
Term loans
- ----------
The term loan outstanding at December 31, 1999 was related to the Company's
Italian subsidiary, which was sold in September 2000. This debt was assumed by
the purchaser of the subsidiary.
Mortgage notes
- --------------
The Company has three mortgage notes outstanding at December 31, 2000. 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.
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.
Interest paid for notes payable and long-term debt obligations was
approximately $552,000, $386,000, and $603,000, for the years ended December 31,
2000, 1999, and 1998, 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
$461,000, $344,000, and $270,000, in 2000, 1999, and 1998, respectively.
At December 31, 2000, long-term obligations and minimum rental commitments
under noncancellable operating leases with initial terms of one year or more are
as follows:
Long-Term Operating
Obligations Leases
-------------------------------------
2001 $ 72,049 $ 418,816
2002 80,153 373,879
2003 86,650 375,029
2004 93,084 320,435
2005 101,263 168,467
Thereafter 3,382,976 14,062
---------------- -----------------
$ 3,816,175 $ 1,670,688
================ =================
51
E. Income Taxes (Credits):
-----------------------
Earnings (loss) before income taxes is as follows:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Domestic $ 481,221 $ 4,397,409 $ 922,066
Foreign (197,000) (308,544) 147,543
-------- -------- -------
Total $ 284,221 $ 4,088,865 $ 1,069,609
=========== ============ ============
Components of income taxes (credits) are as follows:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Current:
Federal $ - $ 1,290,000 $ 394,000
State - 499,000 308,000
Foreign 27,000 68,000 135,000
Deferred 228,000 65,000 (184,000)
------- ------ --------
$ 255,000 $ 1,922,000 $ 653,000
========= ============ ===========
Until its sale in fiscal 2000, the Company's non-US subsidiary computed
taxes at rates in effect in Italy. There were no undistributed earnings of the
non-US subsidiary due to cumulative losses.
On a cash basis, income taxes paid in 2000, 1999, and 1998 were
approximately $354,000, $1,170,000, and $633,000, respectively.
Income taxes are reconciled with the U.S. federal statutory rate as follows:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Income taxes at U.S. statutory
federal rate $ 97,000 $ 1,390,000 $ 364,000
State income tax, net of federal
income tax benefit 35,000 284,000 117,000
Non-deductible amortization of
intangibles 6,000 14,000 81,000
Foreign tax differential 94,000 173,000 85,000
Other, net 23,000 61,000 6,000
------ ------ -----
$ 255,000 $ 1,922,000 $ 653,000
========== =========== ==========
52
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. The tax effects of significant
items comprising the Company's net deferred tax liability as of December 31,
2000 and 1999 are as follows:
2000 1999
---- ----
Deferred tax liabilities:
Software development deducted for tax, not book $ 485,000 $ 183,000
Differences between book and tax basis of property 107,000 57,000
Deferred gain on divestitures 585,000 654,000
Other 51,000 3,000
------------ ------------
1,228,000 897,000
------------ ------------
Deferred tax assets:
Accruals/reserves 470,000 370,000
Other 33,000 30,000
------------ ------------
503,000 400,000
------------ ------------
Net deferred tax liability $ 725,000 $ 497,000
============ ============
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.
53
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, 2000, the Company has four stock-based compensation plans,
which are described below. The Company applies APB Opinion 25, Accounting for
Stock Issued to Employees, and related Interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for its stock
option plans. Had compensation cost for the Company's four stock option plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the method of FASB Statement No. 123, Accounting for
Stock-Based Compensation, the Company's net earnings (loss) and earnings (loss)
per share would have been adjusted to the pro forma amounts indicated below:
2000 1999 1998
---- ---- ----
Net income (loss) As reported $ 29,221 $2,166,865 $ 416,609
Pro forma (45,246) 2,119,701 384,132
Basic Earnings (loss)
per share As reported $ 0.01 $ 0.67 $ 0.12
Pro forma $ (0.01) $ 0.66 $ 0.11
Diluted Earnings (loss)
per share As reported $ 0.01 $ 0.63 $ 0.11
Pro forma $ (0.01) $ 0.62 $ 0.10
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 2000, 1999, and 1998, respectively: dividend
yield of 0% for all years, and expected volatility of 80% for 2000 and 46% for
1999 and 1998, risk-free rates ranging from 5.68% to 6.56% for 2000, 5.18% to
6.15% for 1999, and 5.50% to 5.80% for 1998, and expected lives ranging from 12
to 48 months for 2000, 1999, and 1998.
A summary of the status of the Company's stock option plans as of December
31, 2000, 1999, and 1998, and changes during the years ending on those dates, is
presented below:
2000 1999 1998
---- ---- ----
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
----------------------------- ----------------------------- --------------------------
Outstanding at
beginning of year 450,292 $ 1.36 415,752 $ 1.17 359,749 $ 1.05
Granted 31,800 2.95 90,000 2.50 60,300 1.90
Exercised 126,412 1.04 7,600 1.16 210 1.00
Canceled 15,500 1.99 47,860 1.86 4,087 1.13
------ ------ -----
Outstanding at
end of year 340,180 $ 1.60 450,292 $ 1.36 415,752 $ 1.17
======= ========= ======= ========= ======= =========
Options exercisable
at year-end 278,271 $ 1.38 337,518 $ 1.07 319,735 $ 1.03
======= ========= ======= ========= ======= =========
Weighted-average
fair value of options
granted during
the year $ 2.52 $ 1.42 $ 1.07
========= ========= =========
54
As of December 31, 2000, the 340,180 options outstanding under the Plan
have exercise prices between $.88 and $3.27, and a weighted-average remaining
contractual life of approximately 5 years.
As of December 31, 2000 the exercisable options outstanding under the Plan
have exercise prices between $.88 and $3.27 and a weighted-average remaining
contractual life of approximately 4 years.
Common stock reserved
- ---------------------
At December 31, 2000, the Company has reserved 660,280 shares of its common
stock for incentive and nonqualified stock options.
G. Earnings per Share:
------------------
The weighted average number of common shares outstanding used in the
computation of earnings per share is summarized as follows:
2000 1999 1998
---- ---- ----
Denominator for basic earnings per share -
weighted average shares 3,112,331 3,218,291 3,456,362
Effect of dilutive securities:
Employee stock options 181,940 211,553 178,546
------------ ------------ -------------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 3,294,271 3,429,844 3,634,908
============ ============ =============
55
The following table summarizes securities that which were outstanding as of
December 31, 2000, 1999, and 1998, but not included in the calculation of
diluted net earnings per share because such shares are antidilutive:
Years Ended December 31,
2000 1999 1998
----- ----- -----
Employee stock options 30,800 36,000 3,900
H. Transactions with Major Suppliers:
---------------------------------
In 1998, the Company made significant purchases from two hardware
suppliers totaling approximately $2,900,000.
I. Geographic Information:
----------------------
The following is a summary of selected geographic information as of December 31,
2000, 1999, and 1998.
Revenues:
2000 1999 1998
---- ---- ----
United States $ 18,100,000 $ 22,200,000 $ 31,500,000
Italy 1,300,000 2,900,000 3,500,000
Other 200,000 500,000 500,000
----------------- ------------------ ------------------
Total $ 19,600,000 $ 25,600,000 $ 35,500,000
================= ================== ==================
Revenues are attributed to countries based on location of customers.
Long-lived assets:
2000 1999 1998
----- ----- ----
United States $ 10,326,000 $ 13,543,000 $ 7,528,000
Italy - 637,000 737,000
------------------- ------------------ ------------------
-
Total $ 10,326,000 $ 14,180,000 $ 8,265,000
=================== ================== ==================
J. 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 2000, 1999, and 1998 were approximately $189,000, $149,000, and
$132,000, respectively.
The long-term liability amount outstanding in the December 31, 1999 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 was fully accrued at
December 31, 1999.
56
K. Quarterly Financial Data (unaudited)
------------------------------------
Earnings (loss) Basic Diluted
from Net earnings earnings (loss) earnings (loss)
Revenue operations (loss) per share per share
------- ---------- ------ --------- ---------
2000
- ----
First quarter $ 5,323,000 $ (595,000) $ (540,000) $ (0.17) $ (0.17)
Second quarter $ 5,026,000 $ (532,000) $ (551,000) $ (0.17) $ (0.17)
Third quarter $ 4,975,000 $(1,113,000) $ 3,135,000 $ 1.01 $ 0.95
Fourth quarter $ 4,309,000 $(3,001,000) $(2,015,000) $ (0.67) $ (0.67)
1999
- ----
First quarter $ 6,407,000 $ 541,000 $ 1,713,000 $ 0.51 $ 0.48
Second quarter $ 6,996,000 $ 339,000 $ 144,000 $ 0.04 $ 0.04
Third quarter $ 5,258,000 $ (159,000) $ (83,000) $ (0.03) $ (0.03)
Fourth quarter $ 6,962,000 $ (230,000) $ 393,000 $ 0.12 $ 0.12
57