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: September 30, 2002 Commission File Number: O-14741
------------------ -------
ASA International Ltd.
-----------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 02-0398205
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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 September 30, 2002, there were 4,352,869 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
September 30, December 31,
2002 2001
------------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,258,449 $ 4,024,254
Marketable securities 22,406 24,072
Receivables - net 2,224,864 1,782,294
Note receivable - short term 262,388 73,333
Other current assets 411,182 492,789
----------- -----------
TOTAL CURRENT ASSETS 8,179,289 6,396,742
----------- -----------
PROPERTY AND EQUIPMENT:
Land and building 4,990,822 4,312,795
Computer equipment 2,412,445 2,178,272
Office furniture and equipment 1,027,713 996,322
Leasehold improvements 115,846 115,846
Vehicles 574,138 574,138
----------- -----------
9,120,964 8,177,373
Accumulated depreciation and amortization 4,017,053 3,688,077
----------- -----------
NET PROPERTY AND EQUIPMENT 5,103,911 4,489,296
----------- -----------
SOFTWARE (less cumulative amortization
of $5,441,176 at 9/30/02 and $4,851,488 at 12/31/01) 2,259,050 1,907,457
NOTE RECEIVABLE 2,222,114 1,700,000
INTEREST INCOME RECEIVABLE -- 432,954
OTHER ASSETS 1,688,860 1,821,798
----------- -----------
$19,453,224 $16,748,247
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
1
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
-------------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 85,187 $ 80,357
Accounts payable 325,071 288,727
Accrued expenses 2,408,705 1,955,948
Customer deposits 374,112 259,731
Deferred revenue 421,755 387,689
------------ ------------
TOTAL CURRENT LIABILITIES 3,614,830 2,972,452
------------ ------------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 3,649,858 3,661,475
------------ ------------
DEFERRED INCOME TAXES 709,000 709,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REPURCHASE 595,530
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 , 8,000,000 shares;
issued 5,881,342 at 9/30/02 and 4,510,870 shares at 12/31/01; outstanding,
4,352,869 at 9/30/02 and 2,982,397 shares at 12/31/01 58,813 45,109
Additional paid-in capital 8,858,750 7,931,501
Retained earnings 5,358,393 4,851,994
Accumulated other comprehensive loss
Unrealized loss on marketable securities (6,494) (4,828)
------------ ------------
14,269,462 12,823,776
Less: treasury stock, at cost 3,418,456 3,418,456
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 11,446,536 9,405,320
------------ ------------
$ 19,420,224 $ 16,748,247
============ ============
See Notes to Condensed Consolidated Financial Statements.
2
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
--------------------------------
2002 2001
--------------------------------
(Unaudited)
REVENUE
Product licenses $1,006,204 $1,288,891
Services 2,821,426 2,504,085
Computer and add-on hardware 390,381 208,262
---------- ----------
NET REVENUE 4,218,011 4,001,238
---------- ----------
COST OF REVENUE
Product licenses and development 896,986 728,888
Services 1,436,438 1,339,443
Computer and add-on hardware 293,609 180,540
---------- ----------
TOTAL COST OF REVENUE 2,627,033 2,248,871
---------- ----------
EXPENSES
Marketing and sales 747,816 652,935
General and administrative 746,511 938,440
---------- ----------
TOTAL EXPENSES 1,494,327 1,591,375
---------- ----------
INCOME FROM OPERATIONS 96,651 160,992
INTEREST INCOME - NET 16,116 81,586
OTHER INCOME - NET 25,405 83,321
---------- ----------
EARNINGS BEFORE INCOME TAXES 138,172 325,899
INCOME TAX EXPENSE 63,000 131,000
---------- ----------
NET EARNINGS $ 75,172 $ 194,899
========== ==========
EARNINGS PER COMMON SHARE:
Basic $ 0.02 $ 0.07
========== ==========
Diluted $ 0.02 $ 0.06
========== ==========
See Notes to Condensed Consolidated Financial Statements.
3
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
September 30,
------------------------------------
2002 2001
------------------------------------
(Unaudited)
REVENUE
Product licenses $ 2,943,607 $ 2,934,624
Services 7,743,315 7,936,969
Computer and add-on hardware 1,225,186 988,364
------------ ------------
NET REVENUE 11,912,108 11,859,957
------------ ------------
COST OF REVENUE
Product licenses and development 2,175,592 2,400,921
Services 3,815,737 4,146,576
Computer and add-on hardware 938,207 773,659
------------ ------------
TOTAL COST OF REVENUE 6,929,536 7,321,156
------------ ------------
EXPENSES
Marketing and sales 2,137,297 2,549,103
General and administrative 2,285,995 2,483,178
------------ ------------
TOTAL EXPENSES 4,423,292 5,032,281
------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 559,280 (493,480)
INTEREST INCOME (EXPENSE) - NET 99,876 185,015
OTHER INCOME
License fee -- divestiture 100,000 100,000
Management fee 149,125 --
Other 13,118 117,619
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES 921,399 (90,846)
INCOME TAX EXPENSE (BENEFIT) 415,000 (36,000)
------------ ------------
NET EARNINGS (LOSS) $ 506,399 $ (54,846)
============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ 0.16 $ (0.02)
============ ============
Diluted $ 0.15 $ (0.02)
============ ============
See Notes to Condensed Consolidated Financial Statements.
4
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2002 2001 2002 2001
----------------------- -----------------------
(Unaudited) (Unaudited)
NET EARNINGS (LOSS) $ 75,172 $ 194,899 $ 506,399 $ (54,846)
OTHER COMPREHENSIVE EARNINGS (LOSS)
NET OF INCOME TAX:
Unrealized loss on
marketable securities (2,074) (2,210) (1,666) (1,402)
--------- --------- --------- ---------
COMPREHENSIVE EARNINGS (LOSS) $ 73,098 $ 192,689 $ 504,733 $ (56,248)
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
5
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
---------------------------
2002 2001
---------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (Loss) $ 506,399 $ (54,846)
----------- -----------
Adjustments to reconcile net earnings/(loss) to net cash provided by operating
activities:
Depreciation and Amortization 918,659 941,770
Changes in Assets and Liabilities:
Receivables (129,117) 647,952
Other Current Assets 175,318 (112,358)
Accounts Payable and Accrued Expenses (145,295) (757,700)
Other (160,168) (168,686)
----------- -----------
Total adjustments 659,397 550,978
----------- -----------
Net cash provided by (used for) operating activities 1,165,796 496,132
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (185,692) (87,476)
Additions to software -- (9,400)
Decrease in sales-type leases 26,760 81,932
Cash received in acquisition of CompuTrac 1,956,812 --
Cash paid for CompuTrac merger expenses (257,338) --
Reductions in assets held for future transactions -- 2,720,000
Additions to Notes Receivable (827,253) --
Other assets 787,305 (551,458)
----------- -----------
Net cash provided by investing activities 1,500,594 2,153,598
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 64,367 --
Payments of long-term debt (71,154) (55,661)
Cash paid to CompuTrac Shareholders (1,425,408) --
----------- -----------
Net cash used for financing activities (1,432,195) (55,661)
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase 1,234,195 2,594,069
Balance, beginning of period 4,024,254 1,178,048
----------- -----------
Balance, end of period $ 5,258,449 $ 3,772,117
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
6
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NON-CASH INVESTING AND FINANCING ACTIVITIES
As part of the acquisition of CompuTrac in August 2002, the Company issued
1,370,679 shares of common stock valued at $1,536,485 to CompuTrac shareholders.
The following is a summary of the non cash net assets acquired from CompuTrac
which are excluded from the statement of cash flows:
Accounts receivable-net 308,758
PP&E 757,895
Software 941,282
Other Assets 197,494
Assumed liabilites (943,010)
------------
Net Assets Acquired $ 1,262,419
============
As of September 30, 2002 approximately $207,000 of accrued merger costs remain
unpaid.
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 nine
months ended September 30, 2002 and September 30, 2001, respectively.
The results disclosed in the Condensed Consolidated Statement of Operations for
the three and nine months ended September 30, 2002 are not necessarily
indicative of the results expected for the full year.
Note 2 - CompuTrac Acquisition
- ------------------------------
On August 1, 2002, the Company and CompuTrac, Inc., a Texas corporation
("CompuTrac"), completed the merger of CompuTrac into RainMaker Software, Inc.,
a wholly owned subsidiary of the Company, pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"). Under the terms of the Merger Agreement,
CompuTrac stock was converted into a right to receive a pro rata share of
1,370,679 shares of ASA common stock and approximately $1,425,000 in cash,
subject to certain conditions and adjustments. CompuTrac shareholders received
..20648 shares of ASA common stock and approximately $.2156 in cash for each
share of CompuTrac common stock held at the time of the merger. Since the sum of
the amounts assigned to the assets acquired and the liabilities assumed exceeded
the cost of CompuTrac, the excess over cost was allocated as a pro rata
reduction of the amounts that otherwise would be assigned to all of the acquired
assets. The excess over cost was approximately $1,096,389, computed using a
purchase price of $3,219,231.
The purchase price is based on a value of $1.35 per share for the 444,425 shares
covered under the Stock Repurchase Agreement and a value of approximately $1.01
for the 926,254 remaining shares issued. The $1.01 value for these shares is
based on the closing price of ASA's stock as of the merger date of August 1,
2002. Identified intangible assets, consisting principally of software, which
totaled approximately $941,000 after the pro rata reduction of the amounts that
otherwise would be assigned, will be amortized over an estimated life of five
years. The merger followed the approval of the transaction by the shareholders
of each company in July 2002. The Company accounted for the merger as a purchase
business combination and recorded acquisition costs and the purchase price
allocation for CompuTrac as follows:
8
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Cash to CompuTrac Shareholders $ 1,425,408
Fair value of ASA common stock issued 1,536,485
Direct acquisition costs 257,338
-------------
Total purchase price $ 3,219,231
=============
Fair value of net tangible assets:
Cash
To CompuTrac Shareholders $ 1,425,408
To be paid to H. Margolis 349,000
To be paid for costs related to the transaction 45,798
To be paid to ASA (RainMaker) under Mgmt Agreement 136,606
---------------------------
1,956,812
Receivables-net 308,758
Other current assets 24,045
Noncompete Agreement 275,000
less: Effect of pro rata allocation of excess of fair
value of net assets acquired over the purchase price (101,551)
---------------------------
173,449
Property and Equipment 1,201,629
less: Effect of prorata allocation of excess of fair
value of net assets acquired over the purchase price (443,734)
---------------------------
757,895
Accrued expenses (358,683)
Payments due to H. Margolis (349,000)
Premium for directors and officers tail policy (15,750)
Deferred revenue & customer deposits (210,069)
Accounts payable (9,508)
--------------------------
Value of net tangible assets 2,277,949
Estimated fair value of identifiable intangible assets 1,492,386
less: Effect of prorata allocation of excess of fair
value of net assets acquired over the purchase price (551,104)
--------------------------
Value of net identifiable intangible assets 941,282
-------------
$ 3,219,231
=============
9
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Unaudited pro forma consolidated revenues, net earnings and net earnings per
basic and diluted shares for the three-months and nine-months ended September
30, 2001 and 2002, would have been approximately as follows if the merger had
occurred on January 1, 2001. The unaudited pro forma financial information is
not necessarily indicative of future results of the Company because it does not
give effect to what might have occurred had the merger and combined operations
been functioning on January 1, 2001.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ----------------------------
2002 2001 2002 2001
----------- ----------- ------------ -------------
Revenues $ 4,461,459 $ 4,810,716 $ 14,019,020 $ 14,592,748
Net earnings 48,329 209,315 516,956 (1,394,684)
Net earnings per share:
Basic $ 0.01 $ 0.05 $ 0.16 $ (0.32)
Diluted $ 0.01 $ 0.05 $ 0.16 $ (0.32)
10
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Earnings (Loss) per Share
The weighted average number of common shares outstanding used in the computation
of loss per share is summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Numerator:
Net earnings (loss) $ 75,172 $ 194,899 $ 506,399 $ (54,846)
----------- ----------- ----------- -----------
Numerator for diluted earnings (loss) per share -
income available to common shareholders $ 75,172 $ 194,899 $ 506,399 $ (54,846)
----------- ----------- ----------- -----------
Denominator for basic earnings per share -
weighted average shares 3,795,644 2,982,397 3,255,480 2,982,397
Effect of dilutive securities:
Employee stock options 18,854 46,528 36,195 --
----------- ----------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 3,814,498 3,028,925 3,291,675 2,982,397
=========== =========== =========== ===========
Basic earnings (loss) per share $ 0.02 $ 0.07 $ 0.16 $ (0.02)
=========== =========== =========== ===========
Diluted earnings (loss) per share $ 0.02 $ 0.06 $ 0.15 $ (0.02)
=========== =========== =========== ===========
The following table summarizes securities which were outstanding as of September
30, 2002 and 2001 but not included in the calculation of diluted loss per share
because such shares are antidilutive:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Employee Stock Options -- 122,580 -- 122,563
11
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - 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
representsa 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 5 - Subsequent Event - PowerCerv Acquisition
- -------------------------------------------------
On October 3, 2002 the Company signed a definitive agreement to purchase
substantially all of the assets of PowerCerv Corporation, a Tampa-based provider
of enterprise software solutions. Under terms of the agreement, in addition to
assuming certain PowerCerv liabilities, upon closing the Company will pay
PowerCerv $500,000 cash and issue a $90,000 note due in six months. The purchase
price may be subject to certain post-closing adjustments. Closing of the
transaction is subject to the satisfaction of various conditions, including the
approval of PowerCerv shareholders.
Note 6 - Subsequent Event - Trade Point Systems LLC
- ---------------------------------------------------
On November 1, 2002, the Company and ASA Investment Partnership ("AIP"), a
partnership between the Company and its Chief Executive Officer, exchanged their
respective 5.49% and 10.51% membership interests in Tradepoint Systems LLC
("Tradepoint") for $400,000 and 665,597 shares of the Company's common stock,
respectively (the "Exchange"). Also on November 1, 2002, the Company paid to
Tradepoint $400,000 in full satisfaction of certain of the Company's obligations
to Tradepoint pursuant to a lease by Tradepoint from the Company of office space
at the Company's Nashua, New Hampshire facility (the "Lease").
In December 1996, the Company transferred substantially all of the assets and
liabilities of the Company's International Trade and Transportation Systems
Division to Tradepoint in exchange for a 16% membership interest in TradePoint
and a subordinated promissory note (the "Note") in the principal amount of
$600,000 (the "1996 Transaction"). The remaining 84% interest in TradePoint is
owned by the former President and a director of the Company and his spouse. In
connection with the 1996 Transaction, the former President resigned from all of
his positions with the Company. In exchange for his interest in TradePoint, the
former President (i) contributed all of the 665,597 shares of common stock of
the Company owned by him; (ii) assigned to the Company a 16% partnership
interest in AIP; and (iii) canceled all of his options to purchase 245,000
shares of the Company's common stock. In October 2002, the Company transferred a
10.51% membership interest in Tradepoint to AIP.
12
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Note was repaid in full during 2000. In connection with the Exchange, the
Company and Tradepoint modified or terminated various agreements entered into in
connection with the 1996 Transaction. As a result, neither the Company nor AIP
has any continuing interest in Tradepoint or any of the assets used in
Tradepoint's business, and neither the Company nor Tradepoint has any continuing
obligations to the other party, except for certain obligations of Tradepoint to
the Company pursuant to the Lease.
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
Third Quarter of 2002
compared to
Third Quarter of 2001
--------------------- ----------------------
(000's omitted) Revenue Increase / (Decrease)
--------------------- ----------------------
2002 2001 Amount Percentage
------- ------ ------- ----------
Product licenses $1,006 $1,289 $ (283) (22%)
Services 2,821 2,504 $ 317 13%
Computer and add-on hardware 391 208 $ 183 88%
------ ------ ------
Net revenue $4,218 $4,001 $ 217 5%
====== ====== ====== ======
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 $217,000, or 5%, for the quarter ended September 30, 2002,
compared to the quarter ended September 20, 2001. Revenues for the three months
ended September 30, 2002 include approximately $570,000 in revenue from
CompuTrac, Inc., which was acquired on August 1, 2002.
13
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 $283,000, or 22%, for the quarter ended
September 30, 2002, compared to the quarter ended September 30, 2001. A decrease
in product license revenue for the e-business management product was partially
offset by increases in license revenue from the tire dealer and legal systems
product lines. Product license revenue for the three months ended September 30,
2002 include approximately $40,000 in revenue from CompuTrac, Inc.
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 increased by
approximately $317,000, or 13%, for the quarter ended September 30, 2002,
compared to the quarter ended September 30, 2001. Service revenues increased for
all product lines except the e-business management product line from the third
quarter of 2002 when compared to the third quarter of 2001. The increase in
service revenues was due primarily to increased client requirements for training
and consulting services. Service revenues for the three months ended September
30, 2002 include approximately $530,000 in revenue from CompuTrac, Inc.
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 $183,000, or 88%, for the quarter ended September 30,
2002, compared to the same quarter ended September 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 increased by approximately
$168,000, or 23%, for the quarter ended September 30, 2002, compared to the
quarter ended September 30, 2001. The cost of product licenses and development
increased for all product lines from the third quarter of 2002 when compared to
the third quarter of 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 increased by approximately
$97,000 or 7%, for the quarter ended September 30, 2002, compared to the quarter
ended September 30, 2001. The gross margin percentage for services for the
period increased to 49% for the quarter ended September 30, 2002 from 47% 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 $113,000, or 63%, for the quarter ended
September 30, 2002, compared to the quarter ended September 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 increased to 25% for the
quarter ended September 30, 2002, from 13% for the quarter ended September 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.
14
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
increased by approximately $95,000, or 15%, for the quarter ended September 30,
2002, compared to the quarter ended September 30, 2001. The increase in
marketing and sales expenses reflects increased sales and marketing expenses
from the tire and legal systems product lines partially offset by a decrease in
sales and marketing expenses for the e-business management product line.
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
decreased by approximately $192,000, or 20%, for the quarter ended September 30,
2002, compared to the quarter ended September 30, 2001. The change primarily
reflects decreased general and administrative expenses for the e-business
management product line.
Net earnings for the quarter ended September 30, 2002 were approximately
$75,000, as compared to net earnings of approximately $195,000 for the quarter
ended September 30, 2001. The change results from a decrease in income from
operations of approximately $64,000, a decrease in interest income-net of
approximately $66,000 and a decrease in other income net of approximately
$58,000, partially offset by a decrease in income tax expense of approximately
$68,000.
Results of Operations
Nine Months Ended September 30, 2002
compared to
Nine Months Ended September 30, 2001
-------------------------------------------------
(000's omitted) Revenue Increase / (Decrease)
-------------------- ----------------------
2002 2001 Amount Percentage
------- ------- ------- ----------
Product licenses $ 2,944 $ 2,935 $ 9 0%
Services 7,743 7,937 (194) (2%)
Computer and add-on hardware 1,225 988 237 24%
------- ------- -------
Net revenue $11,912 $11,860 $ 52 0%
======= ======= ======= =======
15
REVENUE
- -------
Net revenue. The Company's total revenues increased by approximately $52,000,
for the nine months ended September 30, 2002, compared to the nine months ended
September 30, 2001. Revenues for the nine months ended September 30, 2002
include approximately $570,000 in revenue from CompuTrac, Inc.
Product licenses. Software license revenues increased by approximately $9,000,
for the nine months ended September 30, 2002, compared to the nine months ended
September 30, 2001. Product license revenue increases for the tire dealer and
legal systems product lines were offset by a decrease in product license revenue
by the e-business management systems product line for the first nine months of
2002 when compared to the first nine months of 2001. Product license revenue for
the nine months ended September 30, 2002 include approximately $40,000 in
revenue from CompuTrac, Inc.
Services. Service revenues decreased by approximately $194,000, or 2%, for the
nine months ended September 30, 2002 compared to the nine months ended September
30, 2001. Service revenue increases for the tire dealer and legal systems
product lines were partially offset by a decrease in service revenues from the
e-business systems. The decrease in service revenues was due primarily to
reduced client requirements for training and consulting services. Service
revenues for the nine months ended September 30, 2002 include approximately
$530,000 in revenue from CompuTrac, Inc.
Computer and add-on hardware. Hardware revenues increased by approximately
$237,000, or 24%, for the nine months ended September 30, 2002, compared to the
same nine months ended September 30, 2001. The increase in hardware revenues
from existing businesses was due 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 $225,000, or 9%, for the nine months
ended September 30, 2002, compared to the nine months ended September 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
$331,000, or 8%, for the nine months ended September 30, 2002, compared to the
nine months ended September 30, 2001. The gross margin percentage for services
for the period increased to approximately 51% 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 $165,000, or 21%, for the nine months ended September 30, 2002,
compared to the nine months ended September 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 increased to 23% for the nine
months ended September 30, 2002, from 22% for the nine months ended September
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.
16
EXPENSES
- --------
Marketing and sales. Marketing and sales expenses decreased by approximately
$412,000, or 16%, for the nine months ended September 30, 2002, compared to the
nine months ended September 30, 2001. The decrease in marketing and sales
expenses primarily reflects decreased sales and marketing expenses from the
e-business product systems line.
General and administrative. General and administrative expenses decreased
approximately $197,000, or 8% for the nine months ended September 30, 2002,
compared to the nine months ended September 30, 2001. The change primarily
reflects decreased general and administrative expenses from the e-business
systems product line.
Net income for the nine months ended September 30, 2002 was approximately
$506,000, as compared to a net loss of approximately $55,000 for the nine months
ended September 30, 2001. The change results from a decrease in loss from
operations of approximately $1,053,000, an increase in other income-net of
approximately $45,000 partially offset by a decrease in interest income-net of
approximately $85,000 and an increase in income tax expense of approximately
$451,000.
Liquidity and Capital Resources
The Company had total cash and cash equivalents at September 30, 2002 of
approximately $5,258,000, an increase of approximately $1,234,000 from December
31, 2001. The Company and its subsidiaries had a maximum line of credit totaling
$1,500,000 which was available at September 30, 2002. At September 30, 2002, the
Company had approximately $22,000 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.
On August 1, 2002, the Company and CompuTrac, Inc., a Texas corporation
("CompuTrac"), completed the merger of CompuTrac into RainMaker Software, Inc.,
a wholly owned subsidiary of the Company, pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"). Under the terms of the Merger Agreement,
CompuTrac stock was converted into a right to receive a pro rata share of
1,370,679 shares of ASA common stock and approximately $1,425,000 in cash,
subject to certain conditions and adjustments. CompuTrac shareholders received
..20648 shares of ASA common stock and approximately $.2156 in cash for each
share of CompuTrac common stock held at the time of the merger. Since the sum of
the amounts assigned to the assets acquired and the liabilities assumed exceeded
the cost of CompuTrac, the excess over cost was allocated as a pro rata
reduction of the amounts that otherwise would be assigned to all of the acquired
assets. The excess over cost was approximately $1,096,389, compared using a
purchase price of $3,219,231.
17
The Company expended approximately $257,000 in cash on the direct costs of the
acquisition and received approximately $137,000 in cash under the terms of a
Management Agreement.
On October 3, 2002 the Company signed a definitive agreement to purchase
substantially all of the assets of PowerCerv Corporation, a Tampa-based provider
of enterprise software solutions. Under terms of the agreement, in addition to
assuming certain PowerCerv liabilities, upon closing the Company will pay
PowerCerv $500,000 cash and issue a $90,000 note due in six months. The purchase
price may be subject to certain post-closing adjustments. Closing of the
transaction is subject to the satisfaction of various conditions, including the
approval of PowerCerv shareholders.
On November 1, 2002, the Company and ASA Investment Partnership ("AIP"), a
partnership between the Company and its Chief Executive Officer, exchanged their
respective 5.49% and 10.51% membership interests in Tradepoint Systems LLC
("Tradepoint") for $400,000 and 665,597 shares of the Company's common stock,
respectively (the "Exchange"). Also on November 1, 2002, the Company paid to
Tradepoint $400,000 in full satisfaction of certain of the Company's obligations
to Tradepoint pursuant to a lease by Tradepoint from the Company of office space
at the Company's Nashua, New Hampshire facility (the "Lease").
In December 1996, the Company transferred substantially all of the assets and
liabilities of the Company's International Trade and Transportation Systems
Division to Tradepoint in exchange for a 16% membership interest in TradePoint
and a subordinated promissory note (the "Note") in the principal amount of
$600,000 (the "1996 Transaction"). The remaining 84% interest in TradePoint is
owned by the former President and a director of the Company and his spouse. In
connection with the 1996 Transaction, the former President resigned from all of
his positions with the Company. In exchange for his interest in TradePoint, the
former President (i) contributed all of the 665,597 shares of common stock of
the Company owned by him; (ii) assigned to the Company a 16% partnership
interest in AIP; and (iii) canceled all of his options to purchase 245,000
shares of the Company's common stock. In October 2002, the Company transferred a
10.51% membership interest in Tradepoint to AIP.
The Note was repaid in full during 2000. In connection with the Exchange, the
Company and Tradepoint modified or terminated various agreements entered into in
connection with the 1996 Transaction. As a result, neither the Company nor AIP
has any continuing interest in Tradepoint or any of the assets used in
Tradepoint's business, and neither the Company nor Tradepoint has any continuing
obligations to the other party, except for certain obligations of Tradepoint to
the Company pursuant to the Lease.
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.
18
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
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 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.
19
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.
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.
20
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 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 receivable), bearing
interest at a rate approximating prime plus 0.5%, 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
21
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.
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
22
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.
Item 4. Controls and Procedures
-----------------------
Within the 90 days prior to the date of this report, the company carried out an
evaluation, under the supervision and with the participation of the company's
management, including the company's chief executive officer and chief financial
officer, of the effectiveness of the design and operation of the company's
disclosure controls and procedures pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934. Based upon that evaluation, the chief executive officer
and chief financial officer concluded that the company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the company (including its consolidated subsidiaries) required to be
included in the company's periodic SEC filings. There have been no significant
changes in the company's internal controls or in other factors that could
significantly affect internal controls subsequent to the date the company
carried out its evaluation.
23
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
99.1 Certification of Chief Executive Officer.
99.2 Certification of Chief Financial Officer.
(b) Reports on Form 8-K - The Registrant filed one Current Report on
Form 8-K during the quarter ended September 30, 2002. On August 14, 2002, the
Registrant filed a Form 8-K reporting under Item 2, the completion of the merger
of CompuTrac into RainMaker Software, Inc., a wholly-owned subsidiary of the
Registrant.
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)
11/ /02 /s/
- --------- ----------------------------------------
(Date) (Signature)
Alfred C. Angelone
Chief Executive Officer
11/ /02 /s/
- -------- ----------------------------------------
(Date) (Signature)
Terrence C. McCarthy
Vice President, Secretary, and Treasurer
24
CERTIFICATION
I, Alfred C. Angelone, Chief Executive Officer of ASA International Ltd.
certify that:
1. I have reviewed this quarterly report on Form 10-Q of ASA International
Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, if any, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of out most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November ___, 2002 /s/ Alfred C. Angelone
Alfred C. Angelone
25
CERTIFICATION
I, Terrence C. McCarthy, Chief Financial Officer of ASA International Ltd.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of ASA International
Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, if any, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our mosIt recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of out most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 13, 2002 /s/ Terrence C. McCarthy
Terrence C. McCarthy
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