SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 2002 Commission File Number: O-14741
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ASA International Ltd.
-----------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 02-0398205
- --------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Speen Street, Framingham, MA 01701
- ---------------------------------------- --------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 508-626-2727
------------
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:
------- -------
As of June 30, 2002, there were 2,982,397 shares of Common Stock of the
Registrant outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
------------------ -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,955,827 $ 4,024,254
Marketable securities 24,480 24,072
Receivables - net 2,242,055 1,782,294
Other current assets 803,029 566,122
----------- -----------
TOTAL CURRENT ASSETS 8,025,391 6,396,742
----------- -----------
PROPERTY AND EQUIPMENT
Land and building 4,312,795 4,312,795
Computer equipment 2,314,288 2,178,272
Office furniture and equipment 996,322 996,322
Leasehold improvements 115,846 115,846
Vehicles 574,138 574,138
----------- -----------
8,313,389 8,177,373
Accumulated depreciation and amortization 3,902,099 3,688,077
----------- -----------
NET PROPERTY AND EQUIPMENT 4,411,290 4,489,296
----------- -----------
SOFTWARE (less cumulative amortization
of $5,219,512 and $4,851,488) 1,539,431 1,907,457
NOTE RECEIVABLE 2,303,812 1,700,000
OTHER ASSETS 1,551,085 2,254,752
----------- -----------
$17,831,009 $16,748,247
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
2
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
--------------- --------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 83,538 $ 80,357
Accounts payable 526,996 288,727
Accrued expenses 2,296,446 1,955,948
Customer deposits 312,124 259,731
Deferred revenue 388,559 387,689
------------ ------------
TOTAL CURRENT LIABILITIES 3,607,663 2,972,452
------------ ------------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 3,677,391 3,661,475
------------ ------------
DEFERRED INCOME TAXES 709,000 709,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value
$.01 per share: Authorized and unissued, 1,000,000
shares, 60,000 shares of which designated as
Series A Junior Participating Preferred Stock
Common stock, par value
$.01 per share: Authorized , 6,000,000 shares;
issued 4,510,870; outstanding, 2,982,397 45,109 45,109
Additional paid-in capital 7,931,501 7,931,501
Retained earnings 5,283,221 4,851,994
Accumulated other comprehensive loss:
Unrealized loss on marketable securities (4,420) (4,828)
------------ ------------
13,255,411 12,823,776
Less: treasury stock, at cost 3,418,456 3,418,456
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 9,836,955 9,405,320
------------ ------------
$ 17,831,009 $ 16,748,247
============ ============
See Notes to Condensed Consolidated Financial Statements.
3
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
--------------------------------------
2002 2001
--------------------------------------
(Unaudited)
REVENUE
Product licenses $ 1,217,567 $ 704,552
Services 2,506,056 2,608,119
Computer and add-on hardware 515,560 400,006
----------- -----------
NET REVENUE 4,239,183 3,712,677
----------- -----------
COST OF REVENUE
Product licenses and development 684,129 719,563
Services 1,202,970 1,396,143
Computer and add-on hardware 402,659 292,288
----------- -----------
TOTAL COST OF REVENUE 2,289,758 2,407,994
----------- -----------
EXPENSES
Marketing and sales 684,767 862,124
General and administrative 852,729 768,001
----------- -----------
TOTAL EXPENSES 1,537,496 1,630,125
----------- -----------
INCOME (LOSS) FROM OPERATIONS 411,929 (325,442)
INTEREST INCOME - NET 155,747 83,132
OTHER INCOME - NET 46,838 11,478
----------- -----------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT 614,514 (230,832)
INCOME TAX EXPENSE (BENEFIT) 276,000 (93,000)
----------- -----------
NET INCOME (LOSS) $ 338,514 $ (137,832)
=========== ===========
INCOME (LOSS) PER COMMON SHARE:
BASIC AND DILUTED $ 0.11 $ (0.05)
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
June 30,
-----------------------------------
2002 2001
-----------------------------------
(Unaudited)
REVENUE
Product licenses $ 1,937,403 $ 1,645,733
Services 4,921,889 5,432,884
Computer and add-on hardware 834,805 780,102
----------- -----------
NET REVENUE 7,694,097 7,858,719
----------- -----------
COST OF REVENUE
Product licenses and development 1,278,606 1,672,033
Services 2,379,299 2,807,133
Computer and add-on hardware 644,598 593,119
----------- -----------
TOTAL COST OF REVENUE 4,302,503 5,072,285
----------- -----------
EXPENSES
Marketing and sales 1,389,481 1,896,168
General and administrative 1,539,484 1,544,735
----------- -----------
TOTAL EXPENSES 2,928,965 3,440,903
----------- -----------
INCOME (LOSS) FROM OPERATIONS 462,629 (654,469)
INTEREST INCOME (EXPENSE) - NET 83,760 103,429
OTHER INCOME
License fee - divestiture 100,000 100,000
Management fee 123,720 --
Other 13,118 34,297
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 783,227 (416,743)
INCOME TAX EXPENSE (BENEFIT) 352,000 (167,000)
----------- -----------
NET INCOME (LOSS) $ 431,227 $ (249,743)
=========== ===========
INCOME (LOSS) PER COMMON SHARE:
BASIC AND DILUTED $ 0.14 $ (0.08)
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
5
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2002 2001 2002 2001
-------------------------- -------------------------
(Unaudited) (Unaudited)
NET INCOME (LOSS) $ 338,514 $(137,832) $ 431,227 $(249,743)
OTHER COMPREHENSIVE INCOME (LOSS)
NET OF INCOME TAX:
Unrealized gain (loss) on marketable securities (340) (612) 408 808
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ 338,174 $(138,444) $ 431,635 $(248,935)
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
6
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
---------------------------
2002 2001
---------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 431,227 $ (249,743)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 582,043 621,346
Receivables (394,986) 887,355
Accounts payable and accrued expenses 578,766 (602,729)
Other (68,757) (728,482)
----------- -----------
Total adjustments 697,066 177,490
----------- -----------
Net cash provided by (used for) operating activities 1,128,293 (72,253)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (136,015) (64,528)
Decrease in sales-type leases 26,760 41,244
Reductions in assets held for future transactions -- 2,720,000
Additions to notes receivable (858,197) --
Other assets 751,635 (282,770)
----------- -----------
Net cash provided by investing activities (215,817) 2,413,946
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in long-term debt 19,097 (37,157)
----------- -----------
Net cash provided by (used for) financing activities 19,097 (37,157)
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase 931,573 2,304,536
Balance, beginning of period 4,024,254 1,178,048
----------- -----------
Balance, end of period $ 4,955,827 $ 3,482,584
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
7
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
- ------------------------------
As permitted by the rules of the Securities and Exchange Commission applicable
to quarterly reports on Form 10-Q, these notes are condensed and do not contain
all disclosures required by accounting principles generally accepted in the
United States. Reference should be made to the financial statements and related
notes included in the Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying financial statements reflect all
adjustments, all of which are of a normal recurring nature necessary for a fair
presentation of the Company's results of operations for the three and six months
ended June 30, 2002 and June 30, 2001, respectively.
The results disclosed in the Condensed Consolidated Statement of Operations for
the three and six months ended June 30, 2002 are not necessarily indicative of
the results expected for the full year.
Note 2 - Note Receivable
- ------------------------
In June 2002, the Company received a Second Amended and Restated Promissory Note
("Second Note") for $2,558,197 at 12% for five years. The Second Note represents
a restatement of the original Note Receivable of $1,700,000 plus accrued
interest under the terms of the sale of the Company's CommercialWare division
("CWI") completed in March 1999, along with the interest due under the First
Amended and Restated Note negotiated in April 2002. The terms of the Second Note
call for monthly principal and interest payments of $35,000 after an initial
payment which was received in June 2002 of $105,000.
During the period ended March 31, 2002, the Company had not recognized
approximately $135,000 in interest income due under the First Amended Note due
to a delay in CWI securing additional funding. The funding was obtained and the
interest income not recognized in the prior quarter along with the interest
income for the current quarter ended June 30, 2002 of approximately $26,000 has
been received and recorded in the Statements of Operations for the three and six
months ended June 30, 2002.
The Company believes that the Second Note is adequately collateralized by the
intellectual property of CWI as of June 30, 2002. The Company will continue to
evaluate the Second Note for impairment to determine if an allowance for loss is
required.
Note 3 - Notes Payable - Bank and Debt
- --------------------------------------
In June 2002, the Company renewed through June 30, 2003, its revolving demand
loan agreement with a bank for up to $1,500,000 which bears interest at prime
plus 1/2%.
8
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Earnings (Loss) per Share
The weighted average number of common shares outstanding used in the computation
of earnings (loss) per share is summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2002 2001 2002 2001
----------- ------------ ----------- -----------
Numerator:
Net earnings (loss) $ 338,514 $ (137,832) $ 431,227 $ (249,743)
----------- ----------- ----------- -----------
Numerator for diluted earnings (loss) per share -
income available to common shareholders $ 338,514 $ (137,832) $ 431,227 $ (249,743)
----------- ----------- ----------- -----------
Denominator:
Denominator for basic and diluted loss per share -
Weighted average shares 2,982,397 2,982,397 2,982,397 2,982,397
Effect of dilutive securities
Employee stock options 46,046 -- 43,644 --
----------- ----------- ----------- -----------
Dilutive potential common shares
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 3,028,443 2,982,397 3,026,041 2,982,397
=========== =========== =========== ===========
Basic earnings (loss) per share $ 0.11 $ (0.05) $ 0.14 $ (0.08)
=========== =========== =========== ===========
Diluted earnings (loss) per share $ 0.11 $ (0.05) $ 0.14 $ (0.08)
=========== =========== =========== ===========
The following table summarizes securities which were outstanding as of June 30,
2002 and 2001 but not included in the calculation of diluted loss per share
because such shares are antidilutive:
Three Months Ended
June 30,
-------------------------
2002 2001
----------- ----------
Employee Stock Options - 340,005
9
Note 5 - Subsequent Event - CompuTrac Acquisition
- -------------------------------------------------
In August 2002, the Company completed the merger of CompuTrac, Inc. into its
RainMaker Software, Inc. subsidiary. The merger was effective on August 1, 2002.
The shareholders of each company approved the merger in July 2002. The Agreement
and Plan of Merger which documents the arrangement among CompuTrac, Inc., the
Company and RainMaker Software, Inc. was previously filed by the Company on
January 15, 2002 on its Form 8-K.
Item 2. 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
Second Quarter of 2002
compared to
Second Quarter of 2001
------------------- ---------------------
(000's omitted) Revenue Increase / (Decrease)
------------------- ---------------------
2002 2001 Amount Percentage
------- -------- ------- ----------
Product licenses $1,218 $ 705 $ 513 73%
Services 2,506 2,608 (102) (4%)
Computer and add-on hardware 515 400 115 29%
------ ------ ------
Net revenue $4,239 $3,713 $ 526 14%
====== ====== ====== =======
REVENUE
- -------
Net revenue. The Company designs and develops proprietary enterprise software
for the tire dealer, legal, and e-Business management software markets. The
Company's revenues are derived from the licensing of the Company's software
products, from client service and support, and from the sale of third party
computer and add-on hardware. The Company's total revenues increased by
approximately $526,000, or 14%, for the quarter ended June 30, 2002, compared to
the quarter ended June 20, 2001.
Product licenses. The Company's software license revenues are derived primarily
from the licensing of the Company's enterprise products. Software license
revenues increased by approximately $513,000, or 73%, for the quarter ended June
30, 2002, compared to the quarter ended June 30, 2001. Product license revenues
increased for all product lines from the second quarter of 2001 when compared to
10
the second quarter of 2002. The increase in license revenue from the second
quarter of 2001 to the second quarter of 2002 was primarily attributable to
increased software license revenues from the tire and legal systems partially
offset by a decrease in software license revenue by the e-business management
product line.
Services. The Company's services are comprised of fees generated from training,
consulting, software modifications, and ongoing client support provided under
maintenance agreements that renew automatically unless either party gives prior
notice as specified in the agreements. Service revenues decreased by
approximately $102,000, or 4%, for the quarter ended June 30, 2002, compared to
the quarter ended June 30, 2001. Service revenues decreased for all product
lines except tire systems from the second quarter of 2001 when compared to the
second quarter of 2002. The decrease in service revenues was due primarily to
reduced client requirements for training and consulting services.
Computer and add-on hardware. The Company's hardware revenues are derived from
the resale of third-party hardware products to the Company's clients in
conjunction with the licensing of the Company's software. Hardware revenues
increased by approximately $115,000, or 29%, for the quarter ended June 30,
2002, compared to the same quarter ended June 30, 2001. The increase in hardware
revenues was due to increased hardware sales by the tire systems product line.
COST OF REVENUE
- ---------------
Product licenses and development. The Company's 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
$35,000, or 5%, for the quarter ended June 30, 2002, compared to the quarter
ended June 30, 2001. The cost of product licenses and development decreased for
all product lines except for tires systems from the second quarter of 2001 when
compared to the second quarter of 2002. 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. The Company's 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
$193,000, or 14%, for the quarter ended June 30, 2002, compared to the quarter
ended June 30, 2001. The gross margin percentage for services for the period
increased to 52% for the quarter ended June 30, 2002 from 46% for the comparable
period in 2001. 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. The Company's cost of hardware revenues consists
primarily of the costs of third-party hardware products. Cost of hardware
revenues increased by approximately $110,000, or 38%, for the quarter ended June
30, 2002, compared to the quarter ended June 30, 2001. The increase in dollar
amount for the cost of hardware revenues 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 22% for the quarter ended June
30, 2002, from 27% for the quarter ended June 30, 2001. 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.
11
EXPENSES
- --------
Marketing and sales. The Company's 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 approximately $177,000, or 21%, for the quarter ended June 30,
2002, compared to the quarter ended June 30, 2001. The decrease in marketing and
sales expenses reflects decreased sales and marketing expenses from the tire
systems and e-business management product lines.
General and administrative. The Company's general and administrative expenses
consist primarily of employee salaries and benefits for administrative,
executive, and finance personnel and associated overhead costs, as well as
consulting, accounting, and legal expenses. General and administrative expenses
increased by approximately $85,000, or 11%, for the quarter ended June 30, 2002,
compared to the quarter ended June 30, 2001. The change primarily reflects
increased general and administrative expenses from the tire systems and
e-business management product lines.
Net earnings for the quarter ended June 30, 2002 were approximately $339,000, as
compared to a net loss of approximately $138,000 for the quarter ended June 30,
2001. The change results from a decrease in loss from operations of
approximately $737,000, an increase in interest income-net of approximately
$73,000 and an increase in other income net of approximately $36,000, partially
offset by an increase in income tax expense of approximately $369,000.
Results of Operations
Six Months Ended June 30, 2002
compared to
Six Months Ended June 30, 2001
----------------------------------------------
(000's omitted) Revenue Increase / (Decrease)
------------------ ----------------------
2002 2001 Amount Percentage
------ ------ ------- ----------
Product licenses $1,937 $1,646 $ 291 18%
Services 4,922 5,433 (511) (9%)
Computer and add-on hardware 835 780 55 7%
------ ------ ------ ------
Net revenue $7,694 $7,859 $ (165) (2%)
====== ====== ====== ======
REVENUE
- -------
Net revenue. The Company's total revenues decreased by approximately $165,000,
or 2%, for the six months ended June 30, 2002, compared to the six months ended
June 30, 2001.
Product licenses. Software license revenues increased by approximately $291,000,
or 18%, for the six months ended June 30, 2002, compared to the six months ended
June 30, 2001. Product license revenues increased for all product lines except
for e-business management systems from the first six months of 2001 when
compared to the first six months of 2002.
12
Services. Service revenues decreased by approximately $511,000, or 9%, for the
six months ended June 30, 2002 compared to the six months ended June 30, 2001.
Service revenue decreases for the legal and e-business systems product lines
were partially offset by an increase in service revenues from the tire systems
product line. The decrease in service revenues was due primarily to reduced
client requirements for training and consulting services.
Computer and add-on hardware. Hardware revenues increased by approximately
$55,000, or 7%, for the six months ended June 30, 2002, compared to the same six
months ended June 30, 2001. The increase in hardware revenues from existing
businesses was due primarily to increased hardware sales by the tire systems
product line.
COST OF REVENUE
- ---------------
Product licenses and development. Cost of software license revenues and
development decreased by approximately $393,000, or 24%, for the six months
ended June 30, 2002, compared to the six months ended June 30, 2001 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. The Company's 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
$428,000, or 15%, for the six months ended June 30, 2002, compared to the six
months ended June 30, 2001. The gross margin percentage for services for the
period increased to approximately 52% from 48% of revenue from services for the
same period in 2001. 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 increased by
approximately $51,000, or 9%, for the six months ended June 30, 2002, compared
to the six months ended June 30, 2001. The increase in dollar amount for the
cost of hardware revenues was due to increased sales of hardware products by the
Company's tire systems product line.
The gross margin percentage for hardware sales decreased to 23% for the six
months ended June 30, 2002, from 24% for the six months ended June 30, 2001.
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 decreased by approximately
$507,000, or 27%, for the six months ended June 30, 2002, compared to the six
months ended June 30, 2001. The decrease in marketing and sales expenses
reflects decreased sales and marketing expenses from the tire systems and
e-business product lines.
General and administrative. General and administrative expenses remained
approximately the same for the six months ended June 30, 2002, compared to the
six months ended June 30, 2001.
Net income for the six months ended June 30, 2002 was approximately $431,000, as
compared to a net loss of approximately $250,000 for the six months ended June
30, 2001. The change results from a decrease in loss from operations of
approximately $1,117,000, an increase in other income-net of approximately
$103,000 partially offset by a decrease in interest income-net of approximately
$20,000 and an increase in income tax expense of approximately $519,000.
13
Liquidity and Capital Resources
The Company had total cash and cash equivalents at June 30, 2002 of
approximately $4,956,000, an increase of approximately $932,000 from December
31, 2001. The Company and its subsidiaries had a maximum line of credit totaling
$1,500,000 which was available at June 30, 2002. At June 30, 2002, the Company
had approximately $24,000 invested in marketable securities, which is
approximately the same as the amount invested at December 31, 2001.
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.
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 would acquire
CompuTrac, Inc., subject to approval by the shareholders of the Company and
CompuTrac.
The shareholders of each company had voted to approve the merger in July 2002.
In August 2002, the Company completed the merger effective on August 1, 2002.
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. 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, 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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,
14
see Note A in the Notes to the Consolidated Financial Statements in Item 14 of
the Company's Annual Report on Form 10-K. Note that the Company's preparation of
the 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.
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
15
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.
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;
16
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 future will require substantial effort for each
company, including the integration and coordination of marketing and sales
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 executive 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
non-competition 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,
2003. 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.
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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.
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 3. Quantitative And Qualitative Disclosure About Market Risk
---------------------------------------------------------
The Company is exposed to the impact of interest rate changes, foreign currency
fluctuations, and investment changes.
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
certain of 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.
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PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
On July 25, 2002, the Company held a Special Meeting in Lieu of an Annual
Meeting of Stockholders (the "Annual Meeting") to vote on the following
proposals:
1. To approve the issuance of shares of ASA's common stock in the proposed
merger of CompuTrac, Inc. with and into RainMaker Software, Inc., a wholly-owned
subsidiary of ASA;
2. To approve an amendment to ASA's Certificate of Incorporation to
increase the authorized shares of common stock of ASA to 8,000,000 shares;
3. To elect five (5) members to the Board of Directors ("Proposal No. 1").
Nominees for Director were: (a) Alfred C. Angelone; (b) Alan J. Klitzner; (c)
William A. Kulok; (d) James P. O'Halloran; and (e) Robert L. Voelk; and
4. To ratify and confirm the appointment of Sansiveri, Kimball & McNamee,
LLP, as the independent auditors for the Company for the fiscal year ending
December 31, 2002 ("Proposal No. 4").
Of the 3,672,539 shares of the Company's Common Stock of record as of June 7,
2002 able to be voted at the Annual Meeting, a total of approximately 2,957,258
shares were voted, or approximately 81% of the Company's issued and outstanding
shares of Common Stock entitled to vote on these matters. Proposals No. 1, No.
2, No. 3 and No. 4 were adopted with the vote totals as follows:
Shares
Shares Voting Broker
Proposal Voting For Against Withheld Non-Votes
Proposal No. 1 1,209,569 23,725 15,940 1,708,024
Proposal No. 2 2,908,478 32,100 16,680
Proposal No. 3
(a) Alfred C. Angelone 2,931,883 3,805 21,570
(b) Alan J. Klitzner 2,931,964 3,724 21,570
(c) William A. Kulok 2,932,064 3,624 21,570
(d) James P. O'Halloran 2,931,414 3,624 22,220
(e) Robert L. Voelk 2,932,064 3,624 21,570
Proposal No. 4 2,918,336 21,836 15,090 1,996
Item 5. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
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4.1 Certificate of Amendment of the Restated Certificate of
Incorporation of the Company, as filed with the Secretary of
State of Delaware on July 31, 2002.
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10.1 Second Amended and Restated Promissory Note made payable by
CommercialWare, Inc. to the Company, dated June 3, 2002.
10.2 Renewal of Revolving Demand Note made payable by the Company
to Eastern Bank in the amount of $1,500,000 dated June 17,
2002.
99.1 Certification of Chief Executive Officer.
99.2 Certification of Chief Financial Officer.
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities and 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.
----------------------
(Registrant)
8/13/02 /s/Alfred C. Angelone
- -------- ----------------------------------------
(Date) (Signature)
Alfred C. Angelone
Chief Executive Officer
8/13/02 /s/Terrence C. McCarthy
- ------- ----------------------------------------
(Date) (Signature)
Terrence C. McCarthy
Vice President, Secretary, and Treasurer
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