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, 2001 O-14741
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ASA International Ltd.
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(Exact name of Registrant as specified in its Charter)
Delaware 02-0398205
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Speen Street, Framingham, MA 01701
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 626-2727
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange
- ------------------- on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
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Title of Each Class
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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 [X].
As of March 14, 2002, 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 $3,021,000.
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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 2002 Annual Meeting of Shareholders Part III
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PART I
ITEM 1. Business
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GENERAL
Background
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ASA International Ltd. (the "Registrant" or the "Company") provides
networked automation systems and ongoing monthly support to approximately 700
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 that 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, 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. Under the name of RainMaker, a provider of integrated
accounting and practice management software solutions for law firms in the
United States.
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., RainMaker
Software, Inc. (formerly 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.
Acquisitions and Divestitures within the Past Five Years and Pending Merger
- ---------------------------------------------------------------------------
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
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
4
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
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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
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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
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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
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
5
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. To date TradePoint has not given the Company notice of its intent to
redeem the membership interest. The Company is currently evaluating its options
with regard to requiring the redemption of its membership interest by TradePoint
after March 1, 2002.
CompuTrac, Inc.
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In January 2002, the Company announced the execution of an Agreement and
Plan of Merger, dated as of January 3, 2002, under which the Company will
acquire CompuTrac, Inc., subject to approval by the shareholders of the Company
and CompuTrac. The terms of the merger agreement provide that CompuTrac will be
merged into the Company's RainMaker Software, Inc. subsidiary, with CompuTrac
stock being converted into a right to receive a pro rata share of 1,370,676
shares of the Company's common stock and approximately $1,300,000 in cash,
subject to certain conditions and adjustments. In connection with the merger
agreement, the Company and CompuTrac entered into a management agreement whereby
RainMaker will manage the business of CompuTrac effective January 1, 2002. The
Company and certain stockholders of CompuTrac also entered into a Stockholders
Agreement whereby the Company obtained a proxy to vote such stockholders shares
in favor of the proposed merger and an option to purchase such stockholders'
shares upon certain events.
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
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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.
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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
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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. 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.
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
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The Company offers a modular suite of back-office and front-office software
applications based on the Oracle platform, marketed under the name Khameleon
Software. The product is designed to enable the integration of key financial and
operations business processes for companies selling products and services with
on-going customer maintenance and support agreements. Specific business sectors
using the product include education, engineering services, publishing, software
development and distribution, systems integration, resellers, government
contractors, and contract furnishings distributors. The following modules are
offered: Marketing & Sales Force Automation, Contracts & Logistics Management,
Project Accounting & Management, Customer Relationship Management and Financial
Accounting & Management. Systems range in price from approximately $50,000 to
$200,000.
Marketing
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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 the
Company's prospects and existing 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 the
customer's 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
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prospect's requirements. This sales cycle can be long, ranging from six months
to beyond one year. The Company believes the success of its sales activities
depends upon this consultative approach.
The Company believes that its customer base presents continuing
opportunities for sales of additional software and services. The Company's
products and services generally become an integral part of the customer's
business. As a result, the quality of customer support is essential to selling
to existing customers.
The Company maintains frequent contact with customers through sales and
service representatives. The Company provides customer support lines to handle
customer system operational issues within a prescribed response time, and
continually communicates with its customers through newsletters and customer
seminars. Through frequent contact with its customers by marketing and service
activities, the Company believes that it can better understand customer
requirements and direct its product development activities toward developing and
enhancing products that should be well accepted by both existing customers and
new prospects.
Sources and Availability of Raw Materials
- -----------------------------------------
The Company's systems operate on computer hardware supplied by leading
hardware manufacturers pursuant to Original Equipment Manufacturer or Value
Added Reseller Agreements. These agreements are renewable on a year-to-year
basis, and entitle the Company to purchase equipment at various discounts based
upon volume and the type of equipment. The loss of the Company's ability to
purchase equipment from 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
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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
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The Company does not have any unusual trade practices which would require
restrictions on working capital.
Revenue by Product Line
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During the fiscal years ended December 31, 2001, 2000 and 1999, the
Company's revenue by product line was approximately as follows:
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2001 2000 1999
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Product Line Revenue % Revenue % Revenue %
- ------------ ------- - ------- - ------- -
Tire Systems $ 6,852,000 47% $ 5,798,000 29% $10,741,000 42%
Legal Systems 3,416,000 23% 4,099,000 21% 6,222,000 24%
e-Business Management
Applications Software 4,477,000 30% 7,851,000 40% 1,965,000 8%
ERP Systems - 1,326,000 7% 2,899,000 11%
SmartTime Software/
Legacy products - - 559,000 3% 3,796,000 15%
--------------- ------- ---------------- ------- ---------------- -------
$14,745,000 100% $19,633,000 100% $25,623,000 100%
=============== ======= ================ ======= ================ =======
Backlog
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Set forth below is information concerning the Company's backlog at December
31, 2001 and 2000, respectively:
Backlog at December 31,
-----------------------
2001 2000
---- ----
Support Support
Product Line Total Contracts Total Contracts
- ------------ ----- --------- ----- ---------
Tire Systems/Legacy Products $2,900,000 $2,800,000 $3,600,000 $2,700,000
Legal Systems 1,900,000 1,600,000 2,000,000 1,700,000
e-Business Management
Applications Software 1,400,000 1,300,000 2,500,000 2,000,000
---------- ---------- ---------- ----------
$6,200,000 $5,700,000 $8,100,000 $6,400,000
========== ========== ========== ==========
The Company expects that all of the backlog existing at December 31, 2001
will be filled in fiscal year 2002. Support contracts are generally cancelable
by the Company or the Company's customers upon 90 days prior written notice.
Competition
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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; ASP offering; 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, Omega and Provantage. 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
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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, Navision, Oracle, 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. This campaign includes the use of
direct mail, email broadcasting, search engine optimization, on-line and print
advertising and public relations.
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, 2001, the Company had 98 full time employees. Of these
employees, 7 are executive officers or senior managers, 14 are engaged in
marketing and sales, 41 in customer support and training, 19 in product/custom
development or engineering and 17 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 H, 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.
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The Company maintains the following additional offices:
Current Date of Lease
Location Monthly Rent Office Area Expiration
-------- ------------ ----------- ----------
Blue Bell, Pennsylvania $12,991 9,667 s.f. January 31, 2006
Kirkland, Washington $6,190 3,720 s.f. October 31, 2006
Clearwater, Florida $17,252 16,252 s.f. September 30, 2004
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, 2001, 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 2000 and 2001:
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
Calendar Year 2001 Low High
------------------ --- ----
First Quarter $1.375 $2.625
Second Quarter $1.250 $1.750
Third Quarter $1.000 $1.560
Fourth Quarter $1.100 $1.450
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions. There were 1,146 holders of record of the Company's outstanding
Common Stock as of March 14, 2002. Each holder of Common Stock is also the
holder of a Preferred Stock Purchase Right which entitles the holder to purchase
one one-hundredths 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.
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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 did not repurchase any of its Common Stock in 2001.
Prior to 2001, 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
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
12
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 year ended December 31, 2001 and the balance sheet data as of
December 31, 2001 are derived from and qualified by reference to the
consolidated financial statements and notes thereto included herein and audited
by Sansiveri, Kimball & McNamee L.L.P., the Company's independent certified
public accountants, as set forth in their report and also included elsewhere
herein. The statement of operations data for the years ended December 31, 2000,
and 1999, and the balance sheet data as of December 31, 2000 are derived from
the consolidated financial statements and notes thereto included herein and
audited by BDO Seidman, LLP, the Company's then independent certified public
accountants, as set forth in their report and also included elsewhere herein.
The statement of operations for the years ended December 31, 1998 and 1997, and
the balance sheet data as of December 31, 1999, 1998, and 1997 are derived from
financial statements audited by BDO Seidman, LLP.
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,
------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Operating Data: (a)(b) (c)(d) (d)
Revenues $ 14,745 $ 19,633 $ 25,623 $ 35,468 $ 25,507
Costs of Revenue, Expenses and
Other Income and Expenses
excluding income tax expense 15,194 19,349 21,534 34,398 24,534
Earnings (Loss)
from Operations (931) (5,242) 491 1,532 1,485
Net Earnings (Loss) (309) 29 2,167 417 388
Basic Earnings (Loss) per
Common Share $ (0.10) $ 0.01 $ 0.67 $ 0.12 $ 0.12
Diluted Earnings (Loss) per
Common Share $ (0.10) $ 0.01 $ 0.63 $ 0.11 $ 0.11
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet Data:
Total Assets $16,748 $18,601 $27,870 $19,732 $17,826
Long-Term Obligations 3,661 3,744 3,915 4,068 2,696
Long-Term Liabilities - other -- -- 272 305 --
Shareholders' Equity 9,405 9,716 10,240 8,809 8,398
13
Factors That Effect the Comparability of the Financial Information
- ------------------------------------------------------------------
(a) Includes the pretax gain on the sale in September 2000 of ASA Italy
(formerly Cedes) of $14,000. ASA Italy's revenues were $3,513,000,
$2,898,000 and 1,326,000 for the years ended December 31, 1998, 1999
and 2000, respectively.
(b) Includes the pretax gain on the sale in August 2000 of SmartTime
Software of $6,716,000. SmartTime's revenues were $6,412,000,
$5,890,000 and $2,915,000 for the years ended December 31, 1997, 1998
and 1999, respectively.
(c) Includes the pretax gain on the sale in March 1999 of CommercialWare
of $3,824,000. CommercialWare's revenues were $7,603,000 and
$10,776,000 for the years ended December 31, 1997 and 1998,
respectively.
(d) Includes the continuing operations of the following companies acquired
by ASA from their respective dates of acquisition: Cedes S.r.l. and
SIPI-U S.r.l., (together, "Cedes") (January 13, 1998), and Design Data
Systems Corporation (November 4, 1999).
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, and potential acquisitions.
Such statements involve a number of risks and uncertainties, including but not
limited to those discussed below and those identified from time to time in the
Company's filings with the Securities and Exchange Commission. These risks and
uncertainties could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements. The Company assumes no obligation to update these
forward-looking statements to reflect events or circumstances arising after the
date hereof.
Results of Operations
- ---------------------
Comparison of 2001 to 2000
- --------------------------
(000's omitted)
-----------------------------------------
Revenue Increase/(Decrease)
----------------- ---------------------
2001 2000 Amount Percentage
---- ---- ------ ----------
Services $10,139 $12,737 $(2,598) (20)%
Product licenses 3,395 5,415 (2,020) (37)%
Computer and add-on hardware 1,211 1,481 (270) (18)%
------- ------- -------
Net Revenue $14,745 $19,633 $(4,888) (25)%
======= ======= =======
REVENUE
Net revenue. The Company designs and develops proprietary enterprise
software for the tire dealer, legal, and e-Business management software markets.
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 $4,888,000, or 25%, for the period when compared to the year ended
December 31, 2000. Revenue from existing businesses decreased by approximately
$3,562,000, or 19% for the period, when approximately $1,326,000 in revenue from
the Company's ERP product line sold in September 2000 for the year ended
December 31, 2000 is excluded. The Company believes that the difficult economic
conditions in the United States during 2001 have resulted in reduced technology
spending by many of the Company's customers and prospects.
14
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 $2,598,000, or 20%, for the year ended December 31, 2001, compared
to the year ended December 31, 2000. Service revenue from existing businesses
decreased by approximately $1,631,000, or 14% for the period, when compared to
2000, and the service revenue from the ERP product line of approximately
$967,000 for 2000 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 $2,020,000, or 37%, for the year
ended December 31, 2001, compared to the same period in 2000. Product license
revenue from existing businesses decreased by approximately $1,768,000, or 34%,
for the period, when compared to 2000, and the product license revenue from the
ERP product line of approximately $252,000 for 2000 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 $270,000, or 18%, for the year ended December 31, 2001, compared
to the same period in 2000. Revenue from computer and add-on hardware decreased
by approximately $163,000, or 12%, for the year when compared to 2000 and the
revenue from computer and add-on hardware from the ERP product line of
approximately $107,000 for 2000 is excluded. 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
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
$2,516,000, or 32%, for the year ended December 31, 2001, compared to the same
period in 2000, due primarily to the lower level of services revenue in 2001
compared to 2000. The gross margin percentage for services for the year ended
December 31, 2001 increased to approximately 47% from 38% of revenue from
services in 2000. The Company's revenue and margin from services fluctuate from
period to period due to changes in the mix of contracts and projects.
Product licenses and development. Cost of software license revenues
consists of the costs of amortization of capitalized software costs, and the
costs of sublicensing third-party software products. The amount also includes
the 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 $2,007,000,
or 40%, for the year ended December 31, 2001, compared to the same period in
2000. Cost of product license and development decreased by approximately
$1,895,000, or 38%, for the year when compared to 2000, and the cost of product
licenses and development from the ERP product line of approximately $112,000 for
2000 is excluded. 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.
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 $311,000, or 25%, for the year ended December 31,
2001, compared to the prior period. The decrease in dollar amount for the cost
of hardware revenues for the year ended December 31, 2001 was due primarily to
decreased unit sales of hardware products by the Company's tire systems product
line. The gross margin percentage for hardware sales increased to 22% for the
year ended December 31, 2001, from 14% in the same period in 2000. 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
$2,098,000, or 41%, for the year ended December 31, 2001, compared to 2000. The
change in marketing and sales expenses reflects the elimination of the
15
marketing and sales expenses of the ERP systems and the decrease in sales and
marketing expenses for all product lines of the Company.
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
approximately $263,000, or 7%, for the year ended December 31, 2001, compared to
the same period in 2000. The elimination of the expenses related to the ERP
systems product line and a decrease in these expenses for the legal systems
product line are offset by increased general and administrative expenses from
the tire and Khameleon Software product lines.
The net loss for the year ended December 31, 2001 was approximately
$309,000, as compared to net earnings of approximately $29,000 for 2000. The
change results from a decrease in the gain on the sale of product lines of
$6,707,000, which was partially offset by a decrease in the loss from operations
of $4,311,000, a decrease in interest expense of $215,000, an increase in
interest income of $121,000, a decrease in other expense - net of $350,000, a
decrease in the equity in loss from affiliate of $977,000, and a decrease in
income tax expense of $395,000.
Comparison of 2000 to 1999
- --------------------------
(000's omitted)
------------------------------------------
Revenue Increase/(Decrease)
----------------- -----------------------
2000 1999 Amount Percentage
---- ---- ------ ----------
Services $12,737 $15,064 $(2,327) (15)%
Product licenses 5,415 6,506 (1,091) (17)%
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 years ended December 31, 2000 and 1999 are as
follows.
(000's omitted)
-----------------------------------
Revenue for year ended December 31,
-----------------------------------
Disposition/Discontinuation:
Product Line Month 2000 1999
- ------------ ----- ---- ----
ERP September 2000 $1,326 $2,898
SmartTime Software August 1999 $ -- $2,915
------ ------
Total $1,326 $5,813
====== ======
Acquisition:
Product Line Month 2000 1999
- ------------ ----- ---- ----
Khameleon Software November 1999 $7,851 $1,965
====== ======
16
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.
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
17
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.
Liquidity and Capital Resources
- -------------------------------
The Company had total cash and cash equivalents at December 31, 2001 of
approximately $4,024,000, an increase of approximately $2,846,000 from December
31, 2000. The Company had a maximum line of credit totaling $1,500,000 available
at December 31, 2001 and 2000. At December 31, 2001, the Company had
approximately $24,000 invested in marketable securities, a decrease of
approximately $2,000 from December 31, 2000.
In January 2002, the Company announced the execution of an Agreement and
Plan of Merger, dated as of January 3, 2002, under which the Company will
acquire CompuTrac, Inc. subject to approval by the shareholders of the Company
and CompuTrac. The terms of the merger agreement provide that CompuTrac will be
merged into the Company's RainMaker Software, Inc. subsidiary, with CompuTrac
stock being converted into a right to receive a pro rata share of 1,370,679
shares of the Company's common stock and approximately $1,300,000 in cash which
is presently on CompuTrac. Inc.'s balance sheet, subject to certain conditions
and adjustments. In connection with the merger agreement, the Company and
CompuTrac entered into a management agreement whereby RainMaker will manage the
business of CompuTrac effective January 1, 2002. The Company and certain
stockholders of CompuTrac also entered into a Stockholders Agreement whereby the
Company obtained a proxy to vote such stockholders' shares in favor of the
proposed merger and an option to purchase such stockholders' shares upon certain
events.
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.
18
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.
Critical Accounting Policies
- ----------------------------
The Company has identified the policies below as critical to the Company's
business operations and the understanding of the Company's results of
operations. The impact and any associated risks related to these policies on the
Company's business operations is discussed in management's Discussion and
Analysis of Financial Condition and Results of Operations where such policies
affect the Company's reported and expected financial results. For a detailed
discussion on the application of these and other accounting policies, see Note A
in the Notes to the Consolidated Financial Statements in Item 14 of this Annual
Report on Form 10-K. Note that the Company's preparation of this Annual Report
on Form 10-K requires us to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the Company's financial statements, and the reported
amounts of revenue and expenses during the reporting period. There can be no
assurance that actual results will not differ from those estimates.
Revenue recognition. The Company recognizes revenue in accordance with the
American Institute of Certified Public Accountants (AICPA) Statement of Position
("SOP") 97-2, "Software Revenue Recognition," and SOP 98-9 "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions".
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.
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.
19
Based on the Company's reading and interpretation of these SOPs, the
Company believes that its current sales contract terms and business arrangements
have been properly reported. However, the AICPA and its Software Revenue
Recognition Task Force continue to issue interpretations and guidance for
applying the relevant standards to a wide range of sales contract terms and
business arrangements that are prevalent in the software industry. Also, the
Securities and Exchange Commission (SEC) has issued Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements," which provides guidance
related to revenue recognition based on interpretations and practices followed
by the SEC. Future interpretations of existing accounting standards or changes
in the Company's business practices could result in future changes in its
revenue accounting policies that could have a material adverse effect on its
business, financial condition and results of operations.
The Company's revenue recognition policy is significant because the
Company's revenue is a key component of its results of operations. In addition,
the Company's revenue recognition determines the timing of certain expenses,
such as commissions and license costs. The Company follows very specific and
detailed guidelines in measuring revenue; however, certain judgments affect the
application of the Company's revenue policy. Revenue results are difficult to
predict, and any shortfall in revenue or delay in recognizing revenue could
cause the Company's operating results to vary significantly from quarter to
quarter and could result in future operating losses.
Software. The Company accounts for the costs of computer software developed
in accordance with Statement of Financial Accounting Standard No. 86.
Accordingly, the costs of purchased software, and of that software developed
internally (once technological feasibility is established) associated with
coding new applications or modules and enhancing and porting existing
applications software are capitalized. Amortization of these costs is based on
the greater of the charge resulting from the application of either the
straight-line method over five years or the proportion of current sales to
estimated future revenues of each product. The Company periodically reviews the
carrying value of its software to determine whether an impairment exists.
Relevant cash flow and profitability information, including estimated future
operating results, trends, and other available information are considered in
assessing whether the carrying value of the software can be recovered. If it is
determined that the carrying value of the software will not be recovered from
the undiscounted cash flows, the carrying value of the software would be
considered impaired and reduced by a charge to operations in the amount of the
impairment. An impairment charge is measured as any deficiency in the amount of
undiscounted future cash flows available to recover the carrying value related
to the software. Future adverse changes in market conditions could result in an
inability of the Company to recover the carrying value of the software, thereby
possibly requiring an impairment charge in the future.
Acquired software and other acquired intangibles. The Company's business
acquisitions typically result in goodwill and other intangible assets, which
affect the amount of future period amortization expense and possible impairment
expense that the Company will incur. The determination of the value of such
intangible assets requires management to make estimates and assumptions that
affect the Company's consolidated financial statements.
Effect of New Accounting Pronouncements
- ---------------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142").
SFAS 141 requires all business combinations to be accounted for using the
purchase method of accounting and that certain intangible assets acquired in a
business combination shall be recognized as assets apart from goodwill. SFAS 141
is effective for all business combinations initiated after June 30, 2001.
SFAS 142 requires goodwill to be tested for impairment under certain
circumstances, and written down when impaired, rather than being amortized as
previous standards required. Furthermore, SFAS 142 requires purchased intangible
assets other than goodwill to be amortized over their useful lives unless these
lives are determined to be indefinite. Purchased intangible assets are carried
at cost less accumulated amortization. Amortization is computed over the useful
lives of the respective assets, generally two to five years. SFAS 142 is
effective for fiscal years beginning after December 15, 2001.
20
In August 2001, SFAS 144 was issued regarding the "Accounting for the
Impairment or Disposal of Long-Lived Assets". Statement 144 addresses the
accounting and reporting for the impairment or disposal of long-lived assets.
The statement provides a single accounting model for long-lived assets to be
disposed of. New criteria must be met to classify the asset as an asset
held-for-sale. This statement also focuses on reporting the effects of a
disposal of a segment of a business. This statement is effective for fiscal
years beginning after December 15, 2001.
At December 31, 2001, the Company had no recorded goodwill on its balance
sheet. The Company does not anticipate any material adjustments to its financial
statements as a result of the adoption of SFAS 144.
Certain Factors That May Affect Future Results
- ----------------------------------------------
ASA is heavily dependent on the software industry and changes in the industry
could harm ASA's business and operating results.
The software industry is subject to economic cycles and has in the past
experienced, and is likely in the future to experience, recessionary periods. In
particular, many sectors of the software industry are currently experiencing the
effects of a downturn in economic conditions. This downturn is leading to
reduced demand for the services provided by software companies like ASA. These
changes in demand and in economic conditions have resulted and may continue to
result in customer cancellation or rescheduling of orders, which could affect
ASA's results of operations. In addition, a protracted general recession in the
software industry could have a material adverse effect on ASA's business,
financial condition and results of operations.
ASA's operating results may fluctuate substantially, which may cause its stock
price to fall.
ASA's quarterly and annual results of operations have varied in the past,
and ASA's operating results may vary significantly in the future due to a number
of factors including, but not limited to, the following:
o timing of orders from major customers;
o mix of products and services;
o pricing and other competitive pressures;
o delays in new product development, which could cause ASA to be unable to
meet customer delivery schedules;
o economic conditions in the software industry; and
o ASA's ability to time expenditures in anticipation of future revenues.
ASA is subject to risks associated with acquisitions, and these risks could harm
ASA's operating results and cause its stock price to decline.
ASA has historically pursued a strategy of growth through acquisitions.
These acquisitions have primarily involved acquisitions of entire companies.
Acquisitions of companies and businesses and expansion of operations involve
certain risks, including the following:
o the potential inability to successfully integrate acquired operations,
product lines, technologies, personnel and businesses or to realize
anticipated synergies, economies of scale or other value;
o diversion of management's attention;
o difficulties in coordinating management of operations at new sites;
o difficulties associated with managing and integrating operations in distant
geographic locations;
o the possible need to restructure, modify or terminate customer
relationships of the acquired company; and
o loss of key employees of acquired operations.
ASA may experience problems in integrating operations previously acquired
by ASA or operations associated with any future acquisition. ASA cannot assure
you that any recent or future acquisition will result in a positive contribution
to ASA's results of operations. In particular, the successful combination of ASA
with any business ASA acquires in the
21
future will require substantial effort for each company, including the
integration and coordination of sales and marketing efforts. The diversion of
the attention of management and any difficulties encountered in the transition
process, including the interruption of, or a loss of momentum in, the activities
of any future acquisition, problems associated with integration of management
information and reporting systems, and delays in implementation of consolidation
plans, could harm ASA's ability to realize the anticipated benefits of any
future acquisition. Any failure by ASA to realize the anticipated benefits of
its acquisitions could harm its business, financial condition and operating
results, and could cause the price of ASA's common stock to decline. In
addition, future acquisitions may result in significantly dilutive issuances of
equity securities, the incurrence of additional debt, large one-time write-offs
and the creation of goodwill or other intangible assets that could result in
amortization expense or impairment charges. These factors could harm ASA's
business, financial condition and operating results and cause the price of ASA's
common stock to decline.
Some executives officers and key personnel are critical to ASA's business and
these officers and key personnel may not remain with ASA in the future.
ASA's success depends upon the continued service of some executive officers
and other key personnel. Generally, ASA's employees are not bound by employment
or noncompetition agreements, and there can be no assurance that ASA will retain
its officers and key employees. If ASA loses the services of Alfred C. Angelone,
chairman and chief executive officer of ASA, or one or more of its other
executive officers or key employees, or if one or more of these individuals
decides to join a competitor or otherwise compete with ASA, ASA's business,
operating results and financial condition could be seriously harmed.
ASA may need additional capital in the future, which may not be available.
ASA has entered into a revolving demand loan agreement with a bank for up
to $1,500,000 (which cannot exceed 80% of qualified accounts receivables),
bearing interest at a rate approximating prime minus .5%, which extends through
June 30, 2002. The revolving demand loan is subject to certain terms and
conditions, including maintenance of a stated tangible net worth, stated debt
service coverage and debt to tangible net worth ratios. Payment of dividends is
prohibited under the terms of the agreement. Borrowings are secured by the
personal property of ASA. Although ASA has no indebtedness under the revolving
demand loan agreement, ASA may need to borrow money in the future. If ASA is
unable to borrow under the agreement, ASA may be unable to raise sufficient
additional capital when needed, on favorable terms, or at all. If ASA's
borrowings under the agreement are insufficient, the agreement includes
provisions and covenants that would restrict ASA's ability to incur further
indebtedness. If ASA's capital resources are insufficient to meet future capital
requirements, ASA will have to raise additional funds. The sale of equity or
convertible debt securities in the future may be dilutive to ASA's stockholders.
If ASA is unable to obtain adequate funds on reasonable terms, ASA may be
required to curtail operations significantly or to obtain funds by entering into
financing agreements on unattractive terms.
ASA may need to refinance its headquarters in the future, which may not be
possible.
ASA has a mortgage related to its corporate headquarters in Framingham,
Massachusetts. The 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 payment of approximately
$2,638,000 plus interest. If ASA's capital resources are insufficient to meet
the monthly or final payment obligations, ASA will have to raise additional
funds or relocate its headquarters, which may not be possible on attractive or
reasonable terms.
ASA's operating results are subject to fluctuations.
ASA has historically experienced significant fluctuations in its quarterly
operating results and anticipates such fluctuations in the future. ASA's
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 ASA's products often have a lengthy sales cycle while the customer
evaluates and receives approvals for the purchase of the products. Accurately
predicting the sales cycle of any large order may be difficult. If one or more
large orders fail to close as forecasted in a fiscal quarter, ASA's revenues and
operating results could be materially adversely affected. In addition, ASA
typically receives a substantial portion of its product orders in the last month
of a quarter. Orders are shipped as received and, as a result, ASA often has
little or no backlog except for support and service revenue. Such fluctuations
and general economic uncertainty could have a material adverse impact on ASA's
ability to maintain liquidity and raise additional capital.
22
Failure to manage ASA's growth may seriously harm its business.
ASA's business has grown in recent years through both internal expansion
and acquisitions, and continued growth may cause a significant strain on ASA's
infrastructure and internal systems. To manage ASA's growth effectively, ASA
must continue to improve and expand its management information systems. Future
acquisitions could place additional strains on ASA's management infrastructure.
If ASA is unable to manage growth effectively, its results of operations could
be harmed.
The trading price of ASA's common stock may be volatile.
The trading prices of ASA's common stock has been and could in the future
be subject to significant fluctuations in response to variations in quarterly
operating results, developments in the software industry, changes in general
economic conditions and economic conditions in the software industry changes in
securities analysts' recommendations regarding ASA's securities, and other
factors. In addition, the stock market in recent years has experienced
significant price and volume fluctuations which have affected the market prices
of technology companies and which have been unrelated to or disproportionately
impacted by the operating performance of those companies. These broad market
fluctuations may cause the market price of ASA's common stock to decline.
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.
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. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
In November 2001, the Company decided to replace BDO Seidman, LLP with
Sansiveri, Kimball & McNamee, L.L.P. as its independent public accountants to
audit the financial statements for the year ended December 31, 2001. The
decision to change independent public accountants was approved by the Company's
Board of Directors.
In connection with the audits for the years ended December 31, 2000 and
1999, and through the date of the change in accountants, there were no
disagreements with BDO Seidman, LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to their satisfaction would have caused
them to make reference in connection with their opinion on the subject matter of
the disagreements.
23
The report of BDO Seidman, LLP on our financial statements for the years
ended December 31, 2000 and 1999 did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles.
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.
------------------------------
All prescribed schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
(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 Sansiveri, Kimball & McNamee, L.L.P., independent
certified public accountants.
23-2 Consent of BDO Seidman, LLP, independent certified
public accountants.
23-3 Consent of Deloitte & Touche, LLP, independent certified
public accountants.
24
EXHIBIT INDEX
Number Description
2.1(1) Agreement and Plan of Merger dated as of January 3, 2002 among the
Registrant, Rainmaker Software, Inc. and CompuTrac.
2.2(2) Management Agreement dated as of January 3, 2002 among the
Registrant, Rainmaker Software, Inc. and CompuTrac, Inc.
2.3(3) Stockholders Agreement dated as of January 3, 2002 among the
Registrant and certain shareholders of CompuTrac, Inc. listed
therein.
2.4(4) Form of Employment Agreement between Rainmaker Software, Inc. and
Harry W. Margolis.
2.5(5) Form of Non-Competition Agreement between the Registrant and Harry
W. Margolis.
2.6(6) Form of Stock Repurchase Agreement among the Registrant, Harry W.
Margolis and certain shareholders of CompuTrac, Inc. listed
therein.
3.1(7) Amended and Restated Certificate of Incorporation of Registrant.
3.1.2(8) Certificate of Designation filed with the Delaware Secretary of
State on October 22, 1998 designating 60,000 shares of Series A
Junior Participating Preferred Stock, par value $0.01.
3.2(9) Amended and Restated Bylaws of Registrant.
4.1*(10) Specimen Stock Certificate.
4.2(11) Preferred Stock 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.
4.3(12) Letter to the holders of the Registrant's Common Stock, dated
November 4, 1998 (including summary of Rights).
10.1 Renewal Agreement to Working Capital Line of Credit Agreement with
Eastern Bank, dated July 18, 2001.
10.2(13) Amended and Restated Promissory Note made payable by
CommercialWare, Inc. to the Company dated April 26, 2001.
10.3(14) Revolving Demand Note, dated June 4, 2001.
10.4(15) Demand Loan and Security Agreement, by and between the Registrant,
ASA International Ventures, Inc., ASA Tire Systems Inc., ASA Legal
Systems Inc., Khameleon Software Inc. and Eastern Bank, dated June
4, 2001.
10.5(16) Acknowledgement of Debt and Agreement to Pay by ASA Italy S.r.l.,
dated September 25, 2000.
10.6(17) Cessation of Share of Limited Company agreement by and among the
Registrant, Alessandro Baldo, Saverio Giglio and Roberto
Locatelli, effective as of September 25, 2000.
10.7(18) Revolving Demand Note between the Registrant, ASA International
Ventures, Inc. and Eastern Bank dated October 20, 1999.
10.8(19) Acquisition Line of Credit Agreement between the Registrant, ASA
International Ventures, Inc. and Eastern Bank dated October 20,
1999.
10.9(20) Asset Purchase Agreement dated November 4, 1999.
10.10(21) Assignment and Assumption Agreement dated November 4, 1999.
10.11(22) Bill of Sale and General Assignment of Assets dated November 4,
1999.
10.12(23) Assignment of Trademarks dated November 4, 1999.
10.13(24) Assignment of Copyrights dated November 4, 1999.
10.14(25) Asset Acquisition and Exchange Cooperation Agreement dated
November 4, 1999.
10.15(26) Promissory Note dated November 4, 1999.
10.16(27) Security Agreement dated November 4, 1999.
10.17(28) Intellectual Property License Agreement dated November 4, 1999.
10.18(29) Assignment Agreement dated November 4, 1999.
10.19(30) Bill of Sale and General Assignment of Assets dated November 4,
1999.
10.20(31) Assignment of Trademarks dated November 4, 1999.
10.21(32) Assignment of Copyrights dated November 4, 1999.
10.22(33) Option to Purchase Agreement dated as of August 2, 1999.
10.23(34) Asset Purchase Agreement dated as of August 2, 1999.
10.24(35) Lease for 475 Sentry Parkway, Blue Bell, Pennsylvania, dated
August 26, 1998.
10.25(36) Asset Purchase Agreement dated as of March 3, 1999.
10.26(37) Shareholder Agreement dated as of March 3, 1999.
10.27(38) Promissory Note dated as of March 3, 1999.
10.28(39) Security Agreement dated as of March 3, 1999.
10.29(40) Trademark Assignment dated as of March 3, 1999.
10.30(41) Trademark Security Agreement dated as of March 3, 1999.
10.31(42) Commercial Lease dated September 15, 1998, between 10 Speen
Street, LLC as Lessor, and the Registrant, as Lessee, for the
property located at 10 Speen Street, Framingham, Massachusetts.
10.32(43) Indemnification Agreement made September 21, 1998, by 10 Speen
Street, LLC and the Registrant, as Indemnitors, for the benefit of
John Hancock Real Estate Finance, Inc., as Mortgagee.
10.33(44) Guarantee Agreement effective September 21, 1998 by the
Registrant, as Guarantor, in favor of John Hancock Real Estate
Finance, Inc.
10.34(45) Reorganization Agreement by and between the Registrant, TradePoint
Systems LLC and Christopher J. Crane.
10.35(46) Certificate of Incorporation of ASA International Ventures, Inc.,
dated December 28, 1995.
10.36(47) Bylaws of ASA International Ventures, Inc.
10.37(48) Agreement for Purchase and Sale of Assets between ASA
International Ventures, Inc. and ASA Incorporated, dated December
29, 1995.
10.38(49) Agreement for Purchase and Exchange of Assets between ASA
International Ventures, Inc. and ASA International Ltd., dated
December 29, 1995.
10.39(50) Agreement for Exchange of Intangibles between ASA International
Ventures, Inc. and ASA International Ltd., dated December 29,
1995.
10.41(51) Promissory Note between ASA Properties, Inc., and Granite State
Development Corporation, dated December 23, 1992.
10.42(52) Servicing Agent Agreement between ASA Properties, Inc., and Colson
Services Corporation, dated May 12, 1993.
10.43(53) Mortgage and Security Agreement between ASA Properties, Inc. and
Sun Life Assurance Company of Canada.
10.44(54) Promissory Note of ASA Properties, Inc. in favor of Sun Life
Assurance Company of Canada.
10.45(55) 1986 Incentive Stock Option Plan of the Registrant.
10.46(56) 1988 Stock Option Plan of the Registrant.
10.47(57) 1993 Stock Option Plan of the Registrant.
10.48(58) 1995 Stock Option Plan of the Registrant.
16.1(59) Letter of BDO Seidman, LLP.
16.2(60) Letter of Deloitte & Touche LLP.
21.1 Subsidiaries of Registrant.
23.1* Consent of Sansiveri, Kimball & McNamee, Independent Auditors.
23.2 Consent of BDO Seidman LLP, Independent Certified Public
Accountants.
23.3 Consent of Deloitte & Touche, LLP, Independent Certified Public
Accountants.
+ Previously filed.
* Management contracts or compensatory plans or arrangements covering executive
officers or directors of ASA International Ltd.
(1) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
January 15, 2002.
(2) Incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
January 15, 2002.
(3) Incorporated by reference to exhibit 10.3 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
January 15, 2002.
(4) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
January 15, 2002.
(5) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
January 15, 2002.
(6) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
January 15, 2002.
(7)
(8)
(9)
(10)
(11) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 4, 1998.
(12) Incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 4, 1998.
(13) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Quarterly Report on Form 10-Q filed for the
fiscal quarter ended September 30, 2001 filed with the SEC on
August 15, 2001.
(14) Incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Quarterly Report on Form 10-Q filed for the
fiscal quarter ended September 30, 2001 filed with the SEC on
August 15, 2001.
(15) Incorporated by reference to exhibit 10.3 previously filed with
the Registrant's Quarterly Report on Form 10-Q filed for the
fiscal quarter ended September 30, 2001 filed with the SEC on
August 15, 2001.
(16) Incorporated by reference to exhibit 99 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
October 10, 2000.
(17) Incorporated by reference to exhibit 2 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
October 10, 2000
(18) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 filed with the SEC on March 30, 2000.
(19) Incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 filed with the SEC on March 30, 2000.
(20) Incorporated by reference to exhibit 2 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(21) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(22) Incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(23) Incorporated by reference to exhibit 10.3 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(24) Incorporated by reference to exhibit 10.4 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(25) Incorporated by reference to exhibit 10.5 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(26) Incorporated by reference to exhibit 10.6 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(27) Incorporated by reference to exhibit 10.7 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(28) Incorporated by reference to exhibit 10.8 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(29) Incorporated by reference to exhibit 10.9 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(30) Incorporated by reference to exhibit 10.10 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(31) Incorporated by reference to exhibit 10.11 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(32) Incorporated by reference to exhibit 10.12 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
(33) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
August 13, 1999.
(34) Incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
August 13, 1999.
(35) Incorporated by reference to exhibit 10 previously filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 filed with the SEC on March 30, 1999.
(36) Incorporated by reference to exhibit 2 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
March 18, 1999.
(37) Incorporated by reference to exhibit 4.1 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
March 18, 1999.
(38) Incorporated by reference to exhibit 4.2 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
March 18, 1999.
(39) Incorporated by reference to exhibit 4.3 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
March 18, 1999.
(40) Incorporated by reference to exhibit 4.4 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
March 18, 1999.
(41) Incorporated by reference to exhibit 4.5 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
March 18, 1999.
(42) Incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998 filed with the SEC on November
16, 1998.
(43) Incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998 filed with the SEC on November
16, 1998.
(44) Incorporated by reference to exhibit 10.3 previously filed with
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998 filed with the SEC on November
16, 1998.
(45) Incorporated by reference to exhibit 2(c) previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
January 15, 1997.
(46) Incorporated by reference to exhibit 3(a) previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 filed with the SEC on March 28, 1996.
(47) Incorporated by reference to exhibit 3(b) previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 filed with the SEC on March 28, 1996.
(48) Incorporated by reference to exhibit 10.4 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 filed with the SEC on March 28, 1996.
(49) Incorporated by reference to exhibit 10.5 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 filed with the SEC on March 28, 1996.
(50) Incorporated by reference to exhibit 10.6 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 filed with the SEC on March 28, 1996.
(51) Incorporated by reference to exhibit 10.5 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 filed with the SEC on March 30, 1994.
(52) Incorporated by reference to exhibit 10.6 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 filed with the SEC on March 30, 1994.
(53) Incorporated by reference to exhibit 10.4 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 filed with the SEC on March 30, 1993.
(54) Incorporated by reference to exhibit 10.5 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 filed with the SEC on March 30, 1993.
(55) Incorporated by reference to exhibit 4A previously filed with the
Registrant's Form S-8 filed with the SEC on September 27, 1996.
(56) Incorporated by reference to exhibit 4B previously filed with the
Registrant's Form S-8 filed with the SEC on September 27, 1996.
(57) Incorporated by reference to exhibit 4C previously filed with the
Registrant's Form S-8 filed with the SEC on September 27, 1996.
(58) Incorporated by reference to exhibit 4D previously filed with the
Registrant's Form S-8 filed with the SEC on September 27, 1996.
(59) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the SEC on November 30, 2001.
(60) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the SEC on August 31, 1995.
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 28, 2002
- ----------------------- Executive Officer,
Alfred C. Angelone and President
(principal executive
officer and principal
accounting officer)
/s/ James P. O'Halloran Director March 28, 2002
- -----------------------
James P. O'Halloran
/s/ Alan J. Klitzner Director March 28, 2002
- -----------------------
Alan J. Klitzner
/s/ William A. Kulok Director March 28, 2002
- -----------------------
William A. Kulok
/s/ Robert L. Voelk Director March 28, 2002
- -----------------------
Robert L. Voelk
29
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheet of ASA
International Ltd. and subsidiaries as of December 31, 2001 and the related
consolidated statement of operations, comprehensive income, shareholders' equity
and cash flows for the year ended December 31, 2001. The financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit. The
consolidated financial statements of ASA International Ltd. and subsidiaries as
of December 31, 2000 and for the years ended December 31, 2000 and 1999, were
audited by other auditors whose report dated March 2, 2001 expressed an
unqualified opinion.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit, 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, 2001, and
the results of their operations and their cash flows for the year ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Sansiveri, Kimball & McNamee, L.L.P.
Providence, Rhode Island
March 1, 2002
30
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheet of ASA
International Ltd. and subsidiaries as of December 31, 2000 and the related
consolidated statement of operations, comprehensive income, shareholders' equity
and cash flows for the years ended December 31, 2000 and 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 audits. We did not audit the 1999 financial statements of the Company's
foreign subsidiary, which statements reflect 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 the results of their operations and their
cash flows for the years ended December 31, 2000 and 1999, in conformity with
accounting principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
Boston, Massachusetts
March 2, 2001
31
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
32
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
2001 2000
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,024,254 $ 1,178,048
Marketable securities 24,072 25,713
Receivables - net 1,782,294 3,219,020
Other current assets 566,122 1,133,042
Assets held for future transactions -- 2,720,000
----------- -----------
TOTAL CURRENT ASSETS 6,396,742 8,275,823
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings 4,312,795 4,255,398
Computer equipment 2,178,272 2,065,400
Office furniture and equipment 996,322 996,322
Leasehold improvements 115,846 115,846
Vehicles 574,138 436,097
----------- -----------
8,177,373 7,869,063
Accumulated depreciation and amortization 3,688,077 3,247,748
----------- -----------
NET PROPERTY AND EQUIPMENT 4,489,296 4,621,315
----------- -----------
SOFTWARE
(less cumulative amortization
of $4,851,488 in 2001and $4,027,899 in 2000) 1,907,457 2,721,645
NOTE RECEIVABLE 1,700,000 1,700,000
OTHER ASSETS 2,254,752 1,282,609
----------- -----------
$16,748,247 $18,601,392
=========== ===========
See notes to consolidated financial statements.
33
December 31,
----------------------------
2001 2000
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 80,357 $ 72,049
Accounts payable 288,727 676,751
Accrued expenses 1,726,530 2,195,312
Accrued commissions 229,418 413,715
Customer deposits 259,731 399,819
Deferred revenue 387,689 658,941
------------ ------------
TOTAL CURRENT LIABILITIES 2,972,452 4,416,587
------------ ------------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 3,661,475 3,744,126
------------ ------------
DEFERRED INCOME TAXES 709,000 725,000
------------ ------------
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 shares;
outstanding, 2,982,397 shares 45,109 45,109
Additional paid-in capital 7,931,501 7,931,506
Retained earnings 4,851,994 5,160,708
Accumulated other comprehensive loss:
Unrealized loss on marketable securities (4,828) (3,188)
------------ ------------
12,823,776 13,134,135
Less treasury stock, at cost 3,418,456 3,418,456
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 9,405,320 9,715,679
------------ ------------
$ 16,748,247 $ 18,601,392
============ ============
See notes to consolidated financial statements.
34
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
--------------------------------------------
2001 2000 1999
---- ---- ----
REVENUES
Services $ 10,139,008 $ 12,737,489 $ 15,062,870
Product licenses 3,395,016 5,415,084 6,506,376
Computer and add-on hardware 1,210,946 1,480,510 4,053,289
------------ ------------ ------------
NET REVENUE 14,744,970 19,633,083 25,622,535
------------ ------------ ------------
COST OF REVENUE
Services 5,332,616 7,848,964 9,485,924
Product licenses and development 3,045,072 5,051,824 4,456,953
Computer and add-on hardware 944,250 1,255,094 3,219,535
------------ ------------ ------------
TOTAL COST OF REVENUE 9,321,938 14,155,882 17,162,412
------------ ------------ ------------
EXPENSES
Marketing and sales 3,071,138 5,169,271 4,356,610
General and administrative 3,282,407 3,545,511 3,570,022
Amortization of goodwill -- 18,045 42,234
Impairment loss on capitalized software -- 1,986,000 --
------------ ------------ ------------
TOTAL EXPENSES 6,353,545 10,718,827 7,968,866
------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS (930,513) (5,241,626) 491,257
INTEREST EXPENSE (337,361) (551,898) (386,396)
INTEREST INCOME 605,910 484,477 508,793
GAIN ON SALE OF PRODUCT LINES 22,818 6,730,252 3,824,420
OTHER INCOME (EXPENSE), NET 190,430 (159,653) (183,237)
EQUITY IN LOSS FROM AFFILIATE -- (977,331) (165,972)
------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (448,714) 284,221 4,088,865
INCOME TAXES (140,000) 255,000 1,922,000
------------ ------------ ------------
NET EARNINGS (LOSS) $ (308,714) $ 29,221 $ 2,166,865
============ ============ ============
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $ (0.10) $ 0.01 $ 0.67
============ ============ ============
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $ (0.10) $ 0.01 $ 0.63
============ ============ ============
See notes to consolidated financial statements.
35
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
-----------------------------------------
2001 2000 1999
---- ---- ----
NET EARNINGS (LOSS) $ (308,714) $ 29,221 $ 2,166,865
OTHER COMPREHENSIVE INCOME (LOSS)
NET OF INCOME TAX:
Foreign currency translation 10,968 (27,994)
Unrealized gain (loss) on marketable securities (1,640) 23,290 (26,478)
----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (310,354) $ 63,479 $ 2,112,393
=========== =========== ===========
See notes to consolidated financial statements.
36
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Treasury Stock
-------------------- -------------------------------------
Accumulated
Other
Additional Comprehen-
Paid-in Retained sive Income/
Shares Amount Capital Earnings (Loss) Shares Amount Total
------ ------ ------- -------- ------------ ------ ------ -----
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 options 126,412 1,264 130,119 -- -- -- -- 131,383
Purchase of Treasury Stock -- -- -- -- -- 229,000 (719,191) (719,191)
Net earnings -- -- -- 29,221 -- -- -- 29,221
Foreign currency translation -- -- -- -- 10,968 -- -- 10,968
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
Repayment on partial shares -- -- (5) -- -- -- -- (5)
Net loss -- -- -- (308,714) -- -- -- (308,714)
Unrealized loss on marketable
securities -- -- -- -- (1,640) -- -- (1,640)
--------- ---------- ---------- ---------- ---------- --------- ----------- ------------
BALANCES, 12/31/01 4,510,870 $ 45,109 $7,931,501 $4,851,994 $ (4,828) 1,528,473 $(3,418,456) $904,405,320
========= ========== ========== ========== ========== ========== =========== ============
See notes to consolidated financial statements.
37
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (308,714) $ 29,221 $ 2,166,865
----------- ----------- -----------
Adjustments to reconcile net earnings (loss)
to net cash provided by (used for) operating activities:
Depreciation and amortization 1,284,547 1,987,098 1,735,286
Deferred taxes (16,000) 228,000 65,000
Doubtful receivables provision 364,388 343,948 348,538
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 1,044,638 935,977 (430,991)
Other current assets 296,916 844,864 (601,710)
Accounts payable (388,023) (120,682) (162,825)
Accrued expenses (653,079) 88,887 (601,084)
Customer deposits (140,088) (104,857) (302,346)
Deferred revenue (271,251) (1,313,672) 2,647,606
----------- ----------- -----------
Total adjustments 1,522,048 (1,854,689) (1,126,946)
----------- ----------- -----------
Net cash provided by (used for) operating activities 1,213,334 (1,825,468) 1,039,919
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (328,940) (308,705) (717,521)
Additions to software (9,400) (452,920) (90,817)
Increases in sales-type leases 94,624 (187,724) (575)
Cash received from divestitures, net of cash paid -- 40,464 3,437,382
Cash paid in acquisition of Design Data Systems -- -- (5,094,507)
Reductions (additions) to assets held for future transactions 2,720,000 (1,113,151) --
Proceeds from sale of (additions to) marketable securities 3,363,315 (3,392,215)
Other assets (769,064) 147,462 83,574
----------- ----------- -----------
Net cash provided by (used for) investing activities 1,707,220 1,488,741 (5,774,679)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank notes -- -- 481,473
Increase in note payable - other -- -- 3,200,000
Reduction in long-term debt (74,343) (138,301) (142,939)
Decrease in long-term liabilities -- (53,479) (32,549)
Issuance of common stock (5) 131,383 7,690
Purchase of treasury stock -- (719,191) (689,214)
----------- ----------- -----------
Net cash provided by (used for) financing activities (74,348) (779,588) 2,824,461
----------- ----------- -----------
EFFECT OF EXCHANGE RATES ON
CASH & CASH EQUIVALENTS -- (3,001) (54,775)
----------- ----------- -----------
CASH & CASH EQUIVALENTS:
Net increase (decrease) 2,846,206 (1,119,316) (1,965,074)
Balance, beginning of year 1,178,048 2,297,364 4,262,438
----------- ----------- -----------
Balance, end of year $ 4,024,254 $ 1,178,048 $ 2,297,364
=========== =========== ===========
See notes to consolidated financial statements.
38
NON-CASH INVESTING AND FINANCING ACTIVITIES:
In April 2001, the Company recorded accrued interest receivable related to a
change in interest rate on a note receivable, which totaled $217,447.
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
===========
See notes to consolidated financial statements.
39
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000, 1999
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. 10 Speen Street LLC is a wholly owned subsidiary of ASA
Properties, Inc.
Cash Equivalents
- ----------------
The Company considers all highly liquid debt instruments purchased with
maturity of three months or less to be cash equivalents. The Company had
approximately $2,890,000 and $703,000 invested in money market funds at December
31, 2001 and 2000, respectively.
Concentration of Credit Risks
- -----------------------------
Concentration of credit risk with respect to accounts receivable is limited
due to the large number of customers comprising the Company's customer base.
Customers' financial condition is reviewed on an ongoing basis, and collateral
is not required. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not exceeded management's expectations.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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,
the recorded value of investments in equity instruments, and the carrying value
of the note receivable.
Marketable Securities
- ---------------------
At December 31, 2001 and 2000, 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, 2001 and 2000, the fair market values of these investments
were approximately $24,000 and $26,000. Accumulated unrealized losses for the
years ended December 31, 2001 and 2000 were approximately $5,000 and $3,000,
respectively.
40
Financial Instruments
- ---------------------
Financial instruments consist of cash and cash equivalents, marketable
securities, accounts receivable, note receivable, accounts payable and notes
payable. The carrying value of these financial instruments approximate their
fair value.
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.
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.
Software
- --------
The Company accounts for the costs of computer software developed in
accordance with Statement of Financial Accounting Standard No. 86. Accordingly,
the costs of purchased software, and of that software developed internally (once
technological feasibility is established) associated with coding new
applications or modules and enhancing and porting existing applications software
are capitalized. Amortization of these costs is based on the greater of the
charge resulting from the application of either the straight-line method over
five years or the proportion of current sales to estimated future revenues of
each product. The Company periodically reviews the carrying value of its
software to determine whether an impairment exists. Relevant cash flow and
profitability information, including estimated future operating results, trends,
and other available information are considered in assessing whether the carrying
value of the software can be recovered. If it is determined that the carrying
value of the software will not be recovered from the undiscounted cash flows,
the carrying value of the software would be considered impaired and reduced by a
charge to operations in the amount of the impairment. An impairment charge is
measured as any deficiency in the amount of undiscounted future cash flows
available to recover the carrying value related to the software. Future adverse
changes in market conditions could result in an inability of the Company to
recover the carrying value of the software, thereby possibly requiring an
impairment charge in the future.
Investments
- -----------
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 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. The Company's investments in equity
instruments of privately held companies which are included in other long-term
assets totaled approximately $501,000 and $493,000 at December 31, 2001 and
2000, respectively.
Advertising
- -----------
The Company expenses advertising costs as incurred. Advertising expense
was approximately $316,000, $735,000 and $519,000 in the years ending December
31, 2000, and 1999, respectively.
Revenue Recognition
- -------------------
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
41
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.
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.
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 carry forwards based on
enacted tax laws and rates.
Comprehensive Income
- --------------------
The Company follows 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.
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 July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142").
42
SFAS 141 requires all business combinations to be accounted for using the
purchase method of accounting and that certain intangible assets acquired in a
business combination shall be recognized as assets apart from goodwill. SFAS 141
is effective for all business combinations initiated after June 30, 2001.
SFAS 142 requires goodwill to be tested for impairment under certain
circumstances, and written down when impaired, rather than being amortized as
previous standards required. Furthermore, SFAS 142 requires purchased intangible
assets other than goodwill to be amortized over their useful lives unless these
lives are determined to be indefinite. Purchased intangible assets are carried
at cost less accumulated amortization. Amortization is computed over the useful
lives of the respective assets, generally two to five years. SFAS 142 is
effective for fiscal years beginning after December 15, 2001.
In August 2001, SFAS 144 was issued regarding the "Accounting for the
Impairment or Disposal of Long-Lived Assets". Statement 144 addresses the
accounting and reporting for the impairment or disposal of long-lived assets.
The statement provides a single accounting model for long-lived assets to be
disposed of. New criteria must be met to classify the asset as an asset
held-for-sale. This statement also focuses on reporting the effects of a
disposal of a segment of a business. This statement is effective for fiscal
years beginning after December 15, 2001.
At December 31, 2001, the Company had no recorded goodwill on its balance
sheet. The Company does not anticipate any material adjustments to its financial
statements as a result of the adoption of SFAS 144.
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.
43
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.
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 year ended December 31, 1999, would have been
approximately as follows if the 1999 acquisition had occurred on January 1,
1999. 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, 1999.
Year Ended December 31, 1999
----------------------------
Revenues $ 30,775,000
Net earnings 2,333,000
Net earnings per share:
Basic $ 0.72
Diluted $ 0.68
Divestitures
- ------------
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, to management of ASA Italy, for nominal cash consideration.
In connection with the sale, ASA Italy acknowledged and agreed to pay a debt
of approximately $9,000 incurred by the Company on behalf of ASA Italy.
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
44
and the satisfaction of certain 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.
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."
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
---- ----
Revenues $ 1,326 $ 5,812
Net loss (1,289) (612)
Net loss per share:
Basic ($.41) ($.19)
Diluted ($.41) ($.19)
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.
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
45
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. 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, 2001 and 2000.
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. To date TradePoint
has not given the Company notice of its intent to redeem the membership
interest. The Company is evaluating its options with regard to requiring the
redemption by TradePoint of the Company's membership interest.
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
written-off and recorded under Other Expense, net in the Consolidated Statement
of Operations for the year ended December 31, 1999.
C. Receivables:
-----------
December 31,
-----------------------
2001 2000
---- ----
Trade $1,581,894 $3,309,192
Amounts due from officers and employees 338,459 152,283
Other 101,432 272,745
---------- ----------
2,021,785 3,734,220
Less allowance for doubtful accounts 239,491 515,200
---------- ----------
$1,782,294 $3,219,020
========== ==========
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, 1998 was $231,220.
During the three years ended December 31, 2001, 2000, and 1999, the provisions
for doubtful accounts were $364,388, $343,948, and $348,538, and write-offs were
$640,097, $218,505, and $190,001, respectively.
46
December 31,
-----------------------
2001 2000
---- ----
Note receivable $1,700,000 $1,700,000
========== ==========
Accrued interest $ 722,884 $ 229,732
========== ==========
The three year note receivable at 7.06% per year along with accrued interest
is due on March 3, 2002, under the terms of the sale of the Company's
CommercialWare Division (CWI) in March 1999. The interest rate on the note was
amended retroactively to the date of CWI's sale to 15% in April 2001 as a result
of a restructuring of CWI's debt. Under the terms of the sale of CWI, the note
and any accrued interest are secured by the intellectual property of CWI. The
Company is presently negotiating a revision to the payment terms of this note
whereby it is anticipated that payment of principal and interest on the
outstanding balance of the note plus accrued interest over a five year term will
begin in April 2002. The accrued interest under the note is included on the
Company's balance sheet in other assets at December 31, 2001 and 2000.
D. Notes Payable and Long-Term Obligations:
---------------------------------------
December 31,
-----------------------
2001 2000
---- ----
Long-term obligations:
Mortgage notes $3,741,832 $3,816,175
---------- ----------
3,741,832 3,816,175
Less current maturities 80,357 72,049
---------- ----------
$3,661,475 $3,744,126
========== ==========
The current carrying value of long-term obligations approximate their fair
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.
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 (4.75% at December
31, 2001) plus .5%, which extends through June 30, 2002. 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 2001, 2000 and 1999.
Mortgage Notes
- --------------
The Company has three mortgage notes outstanding at December 31, 2001. 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
47
principal and interest payments of $20,445 through October 2008 with a final
principal payment of approximately $2,638,000 plus interest due in October 2008.
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 $337,000, $552,000, and $386,000, for the years ended December 31,
2001, 2000, and 1999, respectively.
At December 31, 2001 scheduled maturities of long-term obligations are as
follows:
Long-Term
Obligations
-----------
2002 $ 80,357
2003 86,869
2004 93,316
2005 101,517
2006 109,791
Thereafter 3,269,982
-----------
$3,741,832
==========
E. Income Taxes (Credits):
----------------------
Earnings (loss) before income taxes is as follows:
Years Ended December 31,
---------------------------------------
2001 2000 1999
---- ---- ----
Domestic $ (448,714) $ 481,221 $4,397,409
Foreign (197,000) (308,544)
---------- ---------- ----------
Total $ (448,714) $ 284,221 $4,088,865
========== ========== ==========
Components of income taxes (credits) are as follows:
Years Ended December 31,
--------------------------------------
2001 2000 1999
---- ---- ----
Current:
Federal $ (160,000) $ -- $1,290,000
State 36,000 -- 499,000
Foreign 27,000 68,000
Deferred (16,000) 228,000 65,000
---------- ---------- ----------
$ (140,000) $ 255,000 $1,922,000
========== ========== ==========
48
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 2001, 2000, and 1999 were
approximately $125,000, $354,000, and $1,170,000, respectively. During 2001, the
Company carried back certain net operating losses to previous years, resulting
in $160,000 in refundable income taxes. Such amount is included in other current
assets.
Income taxes are reconciled with the U.S. federal statutory rate as follows:
Years Ended December 31,
-------------------------------------
2001 2000 1999
---- ---- ----
Income taxes at U.S. statutory
federal rate $ (153,000) $ 97,000 $1,390,000
State income tax, net of federal
income tax benefit 23,000 35,000 284,000
Non-deductible amortization of
intangibles 6,000 14,000
Foreign tax differential 94,000 173,000
Other, net (10,000) 23,000 61,000
---------- ---------- ----------
$ (140,000) $ 255,000 $1,922,000
========== ========== ==========
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, 2001 and 2000 are as follows:
2001 2000
---- ----
Deferred tax liabilities:
Software development deducted for tax, not book $ 145,000 $ 485,000
Differences between book and tax basis of property 246,000 107,000
Deferred gain on divestitures 585,000 585,000
Other 59,000 51,000
---------- ----------
1,035,000 1,228,000
---------- ----------
Deferred tax assets:
Accruals/reserves 258,000 470,000
Net operating loss carryforward 50,000 --
Other 18,000 33,000
---------- ----------
326,000 503,000
---------- ----------
Net deferred tax liability $ 709,000 $ 725,000
========== ==========
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
49
value $.01 per share ("Series A Preferred Stock") at a purchase price of $10 per
right. Initially, the Rights will attach to all Common Stock Certificates
representing shares then outstanding, and may not be traded apart from the
stock. The Rights become exercisable on the tenth day after public announcements
that a person or group has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the Company's outstanding common stock,
commencement of a tender or exchange offer that would result in a beneficial
ownership by a person or group of 20% or more of the Company's common stock, or
a person or group acquired 10% or more of the outstanding common stock and is
deemed an Adverse Person under the terms of the Plan. If, after the Rights
become exercisable, the Company is a party to certain merger or business
combination transactions, or transfers 50% or more of its assets or earnings
power, or if an acquirer engages in certain self-dealing transactions, each
Right (except those held by the acquirer) will entitle its holder to buy a
number of shares of the Company's Series A Preferred Stock or, in certain
circumstances, a number of shares of the acquiring company's common stock, in
either case having a market value equal to two times the exercise price of the
Right. The Rights may be redeemed by the Company at any time up to ten days
after a person or group acquires 20% or more of the Company's common stock at a
redemption price of $.01 per Right. The Rights will expire on October 20, 2008.
The Company has reserved 60,000 shares of Series A Junior Participating
Preferred Stock for the exercise of the Rights.
Treasury Stock
- --------------
As described in Note B, the Company disposed of substantially all of the
assets and liabilities of its international trade product line in December 1996.
In exchange for an 84% membership interest in Trade, the former president of the
Company contributed to Trade, among other consideration, the 665,597 shares of
the Company's stock he then owned. These shares, valued at $1,112,000, were
recorded as Treasury Stock at the time of the transaction. In connection with
the transaction, Trade had granted the Company an irrevocable proxy covering
these Company shares owned by Trade.
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, 2001, 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:
2001 2000 1999
---- ---- ----
Net earnings (loss) As reported $ (308,714) $ 29,221 $ 2,166,865
Pro forma (360,141) (45,246) 2,119,701
Basic earnings (loss)
per share As reported $ (0.10) $ 0.01 $ 0.67
Pro forma $ (0.12) $ (0.01) $ 0.66
Diluted earnings (loss)
per share As reported $ (0.10) $ 0.01 $ 0.63
Pro forma $ (0.12) $ (0.01) $ 0.62
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.
50
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 2001, 2000, and 1999, respectively: dividend
yield of 0% for all years, and expected volatility of 65% for 2001, 80% for 2000
and 46% for 1999, risk-free rates ranging from 4.33% for 2001, 5.68% to 6.56%
for 2000, 5.18% to 6.15% for 1999, and expected lives ranging from 12 to 48
months for 2001, 2000, and 1999, respectively.
A summary of the status of the Company's stock option plans as of December
31, 2001, 2000, and 1999, and changes during the years ending on those dates, is
presented below:
2001 2000 1999
-------------------------- --------------------------- -----------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------------------------- --------------------------- -----------------------------
Outstanding at
beginning of year 340,180 $ 1.60 450,292 $ 1.36 415,752 $ 1.17
Granted 23,430 1.10 31,800 2.95 90,000 2.50
Exercised - - 126,412 1.04 7,600 1.16
Canceled 25,175 1.06 15,500 1.99 47,860 1.86
------- ------- -------
Outstanding at
end of year 338,435 $ 1.61 340,180 $ 1.60 450,292 $ 1.36
======= ====== ======= ====== ======= ======
Options exercisable
at year-end 310,006 $ 1.60 278,271 $ 1.38 337,518 $ 1.07
======= ====== ======= ====== ======= ======
Weighted-average
fair value of options
granted during
the year $ 0.76 $ 2.52 $ 1.42
====== ====== ======
As of December 31, 2001, the 338,435 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, 2001 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, 2001, the Company has reserved 635,105 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:
51
2001 2000 1999
---- ---- ----
Denominator for basic earnings per share -
weighted average shares 2,982,397 3,112,331 3,218,291
Effect of dilutive securities:
Employee stock options -- 181,940 211,553
--------- --------- ---------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 2,982,397 3,294,271 3,429,844
========= ========= =========
The following table summarizes securities that which were outstanding as of
December 31, 2001, 2000, and 1999, but not included in the calculation of
diluted net earnings per share because such shares are antidilutive:
Years Ended December 31,
---------------------------------------
2001 2000 1999
----- ----- ----
Employee stock options 122,580 30,800 36,000
H. Geographic Information:
----------------------
The following is a summary of selected geographic information as of December
31, 2001, 2000, and 1999:
Revenues: 2001 2000 1999
---- ---- ----
United States $14,557,000 $18,100,000 $22,200,000
Italy -- 1,300,000 2,900,000
Other 188,000 200,000 500,000
----------- ----------- -----------
Total $14,745,000 $19,600,000 $25,600,000
=========== =========== ===========
Revenues are attributed to countries based on location of customers.
Long-lived assets: 2001 2000 1999
----- ----- ----
United States $10,351,000 $10,326,000 $13,543,000
Italy -- -- 637,000
----------- ----------- -----------
Total $10,351,000 $10,326,000 $14,180,000
=========== =========== ===========
I. Commitments:
-----------
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 $440,000, $461,000, and $344,000, in
2001, 2000, and 1999, respectively.
52
At December 31, 2001, minimum rental commitments under noncancellable
operating leases with initial terms of one year or more are as follows:
Operating
Leases
--------------
2002 $ 440,433
2003 445,847
2004 399,635
2005 250,043
2006 98,085
Thereafter -
--------------
$ 1,634,043
==============
The Company, through its real estate subsidiary, ASA Properties Inc., leases
office facilities to third parties under operating leases expiring on various
dates through December 2010. Total rental income included in operations
approximated $798,000, $811,000, and $663,000 in 2001, 2000, and 1999,
respectively.
At December 31, 2001, future minimum rental payments to be received on
operating leases are as follows:
2002 $ 678,227
2003 597,715
2004 395,440
2005 127,965
2006 127,965
Thereafter 511,859
--------------
$ 2,439,171
==============
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 2001, 2000, and 1999 were approximately $77,000, $189,000, and
$149,000, respectively.
J. Subsequent Event:
----------------
In January 2002, the Company announced the execution of an Agreement and
Plan of Merger, dated as of January 3, 2002, under which the Company will
acquire CompuTrac, Inc. The terms of the merger agreement provide that CompuTrac
will be merged into the Company's RainMaker Software, Inc. subsidiary, with
CompuTrac stock being converted into a right to receive a pro rate share of
1,370,676 shares of the Company's common stock and approximately $1,300,000 in
cash, subject to certain conditions and adjustments.
In connection with the merger agreement, the Company and CompuTrac entered
into a management agreement whereby RainMaker will manage the business of
CompuTrac effective January 1, 2002. The Company and certain stockholders of
CompuTrac also entered into a Stockholders Agreement whereby the Company
obtained a proxy to vote such stockholders shares in favor of the proposed
merger and an option to purchase such stockholders' shares upon certain events.
53
K. Quarterly Financial Data (unaudited)
------------------------------------
Earnings (loss) Basic Diluted
from Net earnings earnings (loss) earnings (loss)
Revenue operations (loss) per share per share
----------- -------------- ----------- --------------- ---------------
2001
- ----
First quarter $ 4,146,000 $ (329,000) $ (112,000) $ (0.04) $ (0.04)
Second quarter 3,713,000 (325,000) (138,000) (0.05) (0.05)
Third quarter 4,001,000 161,000 195,000 0.07 0.06
Fourth quarter 2,885,000 (437,000) (254,000) (0.09) (0.09)
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)
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