SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended: Commission File Number:
December 31, 2002 O-14741
ASA International Ltd.
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(Exact name of Registrant as specified in its Charter)
Delaware 02-0398205
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Speen Street, Framingham, MA 01701
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 626-2727
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
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Title of Each Class
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Common Stock, $.01 par value
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2):
Yes: No: X
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As of March 20, 2003, 4,272,995 shares of Common Stock, $.01 par value per
share, were outstanding. The aggregate market value, held by non-affiliates, of
shares of the Common Stock, based upon the average of the bid and ask prices for
such stock on that date was approximately $3,900,000.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain of the information required by Part II, Items 5 and 9 and Part III,
Items 10, 11, 12 and 13 of this Annual Report on Form 10-K, to the extent not
set forth herein, is incorporated by reference from specified portions of the
Registrant's definitive Proxy Statement for the Company's 2003 Annual Meeting of
Stockholders scheduled for May 16, 2003.
ITEM 1. Business
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GENERAL
Background
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ASA International Ltd. (the "Registrant" or the "Company") provides
networked automation systems and ongoing monthly support to approximately 780
businesses in North and South America. The Company designs and develops
proprietary enterprise software for the following markets: tire dealer and
retreader, law firms, system integrators and e-focused companies and
manufacturing and distribution companies. The Company installs its software on a
variety of computers and networks, and various Unix/Open Systems hardware
platforms, and provides implementation, education, custom development, and
long-term software support to its customers.
The Company targets its products and services to distinct identifiable
markets. The Company considers its operation to be a single reporting segment
due to the comparable economic characteristics of its products and services as
well as similarities in the nature of the products and services offered, the
processes to develop and upgrade its products and services, and the methods to
market and distribute its products and services to customers. The Company's
current operations are comprised of four product lines and a corporate services
group that supports all four product lines. The four current product lines are:
Tire Systems. Integrated offering of systems and services designed
specifically for the multi-user environments of today's tire and automotive
after-market businesses. ASA Tire Systems offers e-commerce and
business-to-business services through eTirePlace.com as well as ASP services.
Legal Systems. Under the name of RainMaker(TM), a provider of integrated
accounting and practice management software solutions for law firms in the
United States.
e-Business Management Application Software Systems. Under the name
Khameleon(TM), a provider of e-Business management applications for software,
service, system integration and e-focused companies. Khameleon's extensive ASP
services are targeted to organizations looking to outsource their critical
front-office to back-office applications.
Manufacturing and Distribution Systems. Under the name Verticent, Inc. a
provider of a comprehensive enterprise business system designed for the unique
needs of small-to-medium size manufacturers and distributors. Verticent offers
enterprise resource planning, customer relationship management, e-business, and
business intelligence to targeted vertical industries where it has both
experience and proven success.
The Company, founded in 1969, was organized as a Massachusetts corporation
on December 15, 1982 and was reincorporated as a Delaware corporation on May 5,
1986. As used in this Report, the term "Company" includes ASA International Ltd.
and its wholly owned subsidiaries, ASA Properties, Inc. ("Properties"), ASA
International Ventures, Inc. ("Ventures"), ASA Tire Systems Inc., RainMaker
Software, Inc. (formerly ASA Legal Systems, Inc.), Khameleon Software Inc. and
Verticent, Inc. ASA Properties, Inc. is the sole and managing member of 10 Speen
Street LLC, which is the owner of the Company's corporate headquarters.
The Company's consulting and general business systems operations began in
1969 under the direction of the Company's founder and Chief Executive Officer,
Alfred C. Angelone.
Acquisitions and Divestitures within the Past Five Years
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Design Data
In November 1999, the Company acquired the business of Design Data
Systems Corporation, a Florida corporation, pursuant to an Asset Purchase
Agreement (the "Design Data Purchase Agreement") by and among the Company, the
Seller, individually (only with respect to certain sections of the Design Data
Purchase Agreement), and the Company's Bank, as Escrow Agent (the "Escrow
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Agent") (only with respect to certain sections of the Design Data Purchase
Agreement). The Design Data Purchase Agreement provides that the transaction is
effective as of September 30, 1999 (the "Closing Date"). Pursuant to and as more
fully set forth in the Design Data Purchase Agreement, the Company had the right
and obligation to purchase certain of the assets and assume certain of the
liabilities of Seller for a purchase price of $5,000,000 (the "Purchase Price").
Of the Purchase Price, $4,750,000 was due and payable on the Closing Date and
$250,000 was to be deposited with the Escrow Agent to be held pursuant to the
terms of the Design Data Purchase Agreement. Also on the Closing Date, the
Company entered into a certain Asset Acquisition and Exchange Cooperation
Agreement (the "Exchange Agreement") with SQL Acquisition LLC, a Delaware
limited liability company ("SQL"), Fidelity National 1031 Exchange Services,
Inc., a California corporation, and Pacific American Property Exchange
Corporation, a California corporation and sole member and manager of SQL. The
Company entered into the Exchange Agreement for the purpose of seeking the
ability to effectuate a like-kind exchange pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended. Pursuant to and as more fully set
forth in the Exchange Agreement, the Company reserved the right to exchange
certain software and related intellectual property of Seller (the "Replacement
Property") for certain other relinquished property of the Company. In connection
therewith, the Company assigned to SQL the Company's right and obligation under
the Design Data Purchase Agreement to acquire the Replacement Property pursuant
to a certain Assignment Agreement dated the Closing Date between the Company,
Seller and SQL. The Company completed the like-kind exchange involving
$4,300,000 of Replacement Property on September 15, 2000.
ASA Italy
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In September 2000, the Company sold all of its shares of its Italian
subsidiary, ASA Italy S.r.l., an Italian limited company ("S.r.l.") to
management of the S.r.l. for nominal cash consideration. In connection with the
sale, S.r.l. acknowledged and agreed to pay a debt of approximately $9,000
incurred by the Company on behalf of S.r.l.
SmartTime
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In August 2000, the Company completed the sale of its SmartTime business to
InterPro Business Solutions, Inc. (formerly InterPro Expense Systems, Inc.), a
Delaware corporation ("InterPro"). Pursuant to an Option to Purchase Agreement
dated August 2, 1999 by and between the Company, InterPro, and ASA InterPro
SmartTime LLC, a Delaware limited liability company, InterPro exercised its
option to purchase the SmartTime business from the LLC for the aggregate
purchase price of $7,020,000 less the option fees paid on August 2, 1999 of
$1,660,000 and $540,000 paid on August 1, 2000. The terms and conditions of the
acquisition under the option are contained in the Asset Purchase Agreement dated
as of August 2, 1999 (the "SmartTime Purchase Agreement"). As set forth in the
SmartTime Purchase Agreement and Exhibits, on August 2, 1999, InterPro had
loaned to the Company $3,200,000 pursuant to a promissory note due on or before
August 31, 2000 (the "ASA Note"). Interest of $160,000 on the ASA Note was
prepaid to August 1, 2000. InterPro completed the transaction by paying the
remaining $4,820,000 of the purchase by (a) delivering the ASA Note (valued at
$3,213,151 as a result of interest accrued from August 1 through August 31,
2000), and (b) paying the remainder of $1,606,849 in cash.
The results for the operations of this product line are shown in the
Consolidated Statements of Operations for the year ended December 31, 2000 under
the caption "Equity in Loss from Affiliate."
CommercialWare
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Effective March 3, 1999, the Company sold substantially all of the assets of
the Company's CommercialWare Division ("CWI") to CommercialWare, Inc., a
Delaware Corporation ("CW"). CWI provided enterprise order management and
fulfillment systems to consumer, business catalog, direct marketing and
electronic commerce firms. In connection therewith, the Company transferred to
the purchaser certain of the liabilities of CWI. The Company received (i) cash
in the amount of $4,000,000, (ii) a promissory note in the amount of $1,700,000,
(iii) a junior promissory note in the amount of $500,000, (iv) 30,000 shares of
CW's common stock, par value $.01 per share, and (v) one (1) share of CW's
Series A Preferred Stock.
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International Trade and Transportation Systems Group
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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.
CompuTrac, Inc
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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. The final number of shares issued
totaled 1,364,670 due to approximately 6,000 in shares not issued to dissenting
former CompuTrac shareholders. 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 920,245 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.
PowerCerv Corporation
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On December 1, 2002, the Company completed the purchase of substantially all
of the assets of PowerCerv Corporation. Under terms of an Asset Purchase
Agreement (the "PowerCerv Purchase Agreement"), in addition to assuming certain
PowerCerv liabilities, the Company paid PowerCerv $500,000 cash ($100,000 of
which had been advanced to PowerCerv as a loan) and issued a $90,000 note at
1.81% per annum due in six months. The purchase price was increased by
approximately $16,000 for adjustments specified under the terms of the PowerCerv
Purchase Agreement. The closing of the transaction was completed after the
approval of the transaction by the shareholders of PowerCerv. The net assets
acquired consisting of approximately $1,247,000 of goodwill, $232,000 of
software, $360,000 of other assets, and the assumption of approximately
$1,152,000 of liabilities were recorded at their fair values.
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During the past year, there have been no bankruptcy proceedings,
receivership, or similar proceedings with respect to the Registrant, nor has
there been any merger or consolidation of the Registrant, and, except as noted
above, there has been no disposition of any material amount of the Registrant's
assets.
BUSINESS
The following paragraphs describe in greater detail the business conducted
by the Registrant.
Tire Systems
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The Company provides integrated hardware and software multi-user solutions
on Sun, Compaq/DEC and Unix-based systems to independent tire dealers,
wholesalers, and retreaders in the United States, Canada and Latin America for
Business-to-Business ("B2B") via the Internet, point-of-sale, work orders,
inventory control, purchasing, and accounting functions. The systems range in
price between approximately $25,000 and $300,000.
In September 1988, July 1989, September 1990, and November 1996,
respectively, the Company acquired Associated Software Consultants Organization,
Inc., Snyder Computing Systems, Computers Northwest, and certain assets of
Progressive Computer Systems, Inc., all of which specialized in supplying
computer systems to independent tire dealers. In recent years, the Company has
consolidated its position in the independent tire dealer marketplace. The
Company believes that it has the largest installed base of independent tire
retailer and distributor multi-user computer systems in the United States.
Within this operating group, the Company also continues to maintain,
upgrade, and support legacy manufacturing management and control and accounting
software based primarily on the Digital (Compaq) hardware platform.
Legal Systems
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The Company provides integrated client/server-based financial management,
knowledge base management and file room management systems for mid-size law
firms and corporate legal departments throughout the United States. The
Company's Visual Pyramid, Visual FastTrack and Visual One products are a
powerful, fully integrated suite of legal specific applications designed to run
on PC networks. The products are written using Microsoft development tools and
Microsoft relational database technology. Systems range in price between
approximately $50,000 and $200,000.
The Company entered the legal systems marketplace in June 1991 by acquiring
Quorum Legal Systems of Plymouth Meeting, Pennsylvania from Control Data
Corporation. In January 1992, the Company acquired the fixed assets of Legal
Data Systems of Boston, Massachusetts. In November 1994, the Company acquired
certain software products of Precedent Technologies Incorporated of New Hope,
Pennsylvania. In July 1999, the Company acquired substantially all of the assets
of Chase Technologies Incorporated of Washington Crossing, Pennsylvania.
e-Business Management Applications Software
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The Company offers a modular suite of back-office and front-office software
applications based on the Oracle platform, marketed under the name Khameleon
Software. The product is designed to enable the integration of key financial and
operations business processes for companies selling products and services with
on-going customer maintenance and support agreements. Specific business sectors
using the product include education, engineering services, publishing, software
development and distribution, systems integration, resellers, government
contractors, and contract furnishings distributors. The following modules are
offered: Marketing & Sales Force Automation, Contracts & Logistics Management,
Project Accounting & Management, Customer Relationship Management and Financial
Accounting & Management. Systems range in price from approximately $50,000 to
$200,000.
Manufacturing and Distribution Systems
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The Company offers a full suite of integrated CRM and resource planning
enterprise software products for small-to-medium size manufacturers and
distributors and provides industry-specific functionality and know-how in order
to meet the unique needs of the industry without requiring expensive
modification or extension. The Verticent enterprise business system leverages
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up-to-date technology for a flexible, comprehensive yet affordable system which
can be implemented quickly, and which can be administered with minimal
resources. Systems range in price from approximately $75,000 to $150,000.
The Company entered the manufacturing and distribution software market in
December 2002 by acquiring substantially all the assets of PowerCerv Corporation
of Tampa, Florida.
Marketing
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The Company markets its products and services to new prospects and existing
customers primarily using the Company's direct sales force, assisted by
technical personnel. These personnel are trained in the Company's product and
service offerings and in the operations of the Company's customers. The Company
uses its own personnel, rather than third-party distributors, because the
Company's prospects and existing customers often lack comprehensive computer and
systems technical expertise and require a "consultative" selling approach,
involving a long selling cycle.
More importantly, the Company's objective is to develop a direct, long-term
relationship with each customer. This marketing approach requires substantial,
specialized knowledge of the requirements of the Company's customers generally
not available from third-party distribution arrangements. These requirements
result from the intangible nature of applications software and related services,
the sophistication of the Company's products and the need for each customer to
understand how the Company's products and services will work to meet the
customer's requirements. The Company's sales force is supported by marketing
personnel who develop advertising and marketing campaigns; produce product
literature, periodic newsletters, and direct mail campaigns; arrange attendance
at trade shows and conventions; and sponsor seminars.
Marketing to a new prospect consists of identifying the prospect, qualifying
the prospect and, if the prospect is qualified, preparing and presenting a sales
proposal. In the tire, legal, and e-Business Management Applications Software
markets served by the Company, the total market is well defined through the
respective industry and professional organizations. In these markets, trade
shows and direct contacts are used to determine how prospects are satisfying
their information processing requirements.
Once a prospect is qualified as to interest in the Company's products and/or
services, the direct sales and, as required, support personnel, visit the
prospect to understand the prospect's specific requirements. This process
usually results in the preparation of a written proposal, which describes the
hardware, software, and services that will meet the prospect's requirements.
This sales cycle can be long, ranging from six months to beyond one year. The
Company believes the success of its sales activities depends upon this
consultative approach.
The Company believes that its customer base presents continuing
opportunities for sales of additional software and services. The Company's
products and services generally become an integral part of the customer's
business. As a result, the quality of customer support is essential to selling
to existing customers.
The Company maintains frequent contact with customers through sales and
service representatives. The Company provides customer support lines to handle
customer system operational issues within a prescribed response time, and
continually communicates with its customers through newsletters and customer
seminars. Through frequent contact with its customers by marketing and service
activities, the Company believes that it can better understand customer
requirements and direct its product development activities toward developing and
enhancing products that should be well accepted by both existing customers and
new prospects.
Sources and Availability of Raw Materials
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The Company's systems operate on computer hardware supplied by leading
hardware manufacturers pursuant to Original Equipment Manufacturer or Value
Added Reseller Agreements. These agreements are renewable on a year-to-year
basis, and entitle the Company to purchase equipment at various discounts based
upon volume and the type of equipment. The loss of the Company's ability to
purchase equipment from such manufacturers would not have a material adverse
effect on the Company's business. The Company could also continue to purchase
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from hardware distributors, but on terms less favorable than from the original
manufacturer. The Company believes that its relationship with the hardware
manufacturers is satisfactory.
The Company purchases all of its computer hardware and peripheral equipment
from hardware vendors, and performs only software installation, testing, final
system configuration, and quality control. The Company believes there are
several alternative suppliers for system components used by the Company.
Patents and Proprietary Technology
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The Company does not believe that patents are material to its business. The
Company relies primarily upon trade secrets, unpatented proprietary know-how,
and continuing technological innovation to develop and maintain its competitive
position. In particular, the Company generally provides only "run time" code for
its software to its tire and legal clients, although certain legal clients may
also purchase "source" code. In addition, most Khameleon Software and Verticent,
Inc. clients have source code licenses. Insofar as the Company relies on trade
secrets and unpatented know-how, there can be no assurance that others may not
independently develop similar technology or that secrecy will not be breached.
Certain product names of the Company are recognized as trademarks in interstate
commerce and are or may be registered trademarks.
Seasonality
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The Company has not experienced material seasonality in its business, other
than that due to the economic fluctuation of the economies of North and South
America.
Working Capital Items
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The Company does not have any unusual trade practices which would require
restrictions on working capital.
Revenue by Product Line
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During the fiscal years ended December 31, 2002, 2001 and 2000, the
Company's revenue by product line was approximately as follows:
2002 2001 2000
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Product Line Revenue % Revenue % Revenue %
- ------------ ------- - ------- - ------- -
Tire Systems $ 8,438,000 53% $ 6,852,000 47% $ 5,798,000 29%
Legal Systems 4,567,000 28% 3,416,000 23% 4,099,000 21%
e-Business Management
Applications Software 2,913,000 18% 4,477,000 30% 7,851,000 40%
Manufacturing and
Distribution Systems 138,000 1% -- -- -- --
ERP Systems -- -- -- -- 1,326,000 7%
SmartTime Software/
Legacy products -- -- -- -- 559,000 3%
----------- ------ ----------- ------ ----------- -----
$16,056,000 100% $14,745,000 100% $19,633,000 100%
=========== ====== =========== ====== =========== =====
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Backlog
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Set forth below is information concerning the Company's backlog at December
31, 2002 and 2001, respectively:
Backlog at December 31,
-----------------------
2002 2001
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Support Support
Product Line Total Contracts Total Contracts
- ------------ ----- --------- ----- ---------
Tire Systems/Legacy Products $3,100,000 $2,700,000 $2,900,000 $2,800,000
Legal Systems 3,900,000 3,600,000 1,900,000 1,600,000
e-Business Management
Applications Software 1,400,000 1,300,000 1,400,000 1,300,000
Manufacturing and
Distribution Systems 500,000 500,000 -- --
---------- ---------- ---------- ----------
$8,900,000 $8,100,000 $6,200,000 $5,700,000
========== ========== ========== ==========
The Company expects that all of the backlog existing at December 31, 2002
will be filled in fiscal year 2003. Support contracts are generally cancelable
by the Company or the Company's customers upon 90 days prior written notice.
Competition
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The Company's primary competitors for Tire Systems are Goodyear, Madden Co.,
OpenWebs and TireMaster. The Company believes the principal competitive factors
for tire systems are: the ability to offer B2B products via the Internet; the
ability to offer web site development; ASP offering; complete point-of-sale
functionality to assist sales personnel to maximize gross margin on each sale;
the ability to post data automatically to the accounting system; the ability to
track the manufacturing process of tire retreaders; the ability to have
electronic connectivity to manufacturers; and the availability of marketing
products which assist in retaining and increasing existing customer business.
The Company believes it competes favorably with respect to all of these factors.
The Legal Systems market is highly competitive. The Company's primary
competitors for legal systems are CMS/DATA Corp., Elite Data Processing, Juris,
Prolaw, Omega and Provantage. The Company believes that the principal
competitive factors in the legal systems business are: vendor reputation and
references; the ability to provide 32 bit client/server products with a GUI
front end and MS SQL Server back end; the ability to easily interface with other
Windows-based applications; the ability to run both the "front-office" and the
"back-office" applications on a single network; product reliability; and the
quality of professional services and support. The Company believes it competes
favorably with respect to all of these factors.
The e-Business Management Applications Software market is also highly
competitive. The primary competitors for the Company's Khameleon product line
are SOFTRAX, Great Plains, Navision, Oracle, Deltek and Lawson. The Company
believes the principal competitive factors for these systems are: cost; name
recognition; the quality of professional services and support; and the ability
to manage business processes that integrate customers; suppliers and business
partners. While the Company believes it competes favorably with respect to most
of these factors, it has embarked on a marketing campaign to increase the
visibility of its product in the marketplace. This campaign includes the use of
direct mail, email broadcasting, search engine optimization, on-line and print
advertising and public relations.
The market for enterprise software application and e-commerce products and
services targeting manufacturers and distributors is intensely competitive,
rapidly changing and significantly affected by new product offerings and other
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market activities. A number of companies, including Axis Computer Systems,
Invera Inc., Metalware Inc., Lilly Software, Epicor Software, and Navision,
offer products similar to the Company's products and services, which are
targeted at mid-size companies. Many of the Company's existing competitors, as
well as a number of potential competitors, have longer operating history, more
established marketing and sales organizations, greater name recognition, larger
research and development and technical organizations, significantly greater
financial and technical resources and a larger installed base of customers than
the Company. As a result, these competitors may be able to respond more quickly
to new or emerging technologies and to changes in customer requirements, or to
devote greater resources to the development, promotion and sale of their
products, than can the Company.
Research and Development
- ------------------------
During the last three fiscal years, the amounts spent by the Company on
Company-sponsored research and development activities and on customer-sponsored
research activities relating to the development of new products, services, or
techniques or the improvement of existing products, services, or techniques were
not material.
Government Regulation
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There is presently no material government regulation with respect to the
Company's business. Approvals for computer hardware from Underwriter's
Laboratories and the Federal Communications Commission are obtained by the
hardware manufacturer. However, the extent to which future federal, state, or
local governmental regulations may regulate the Company's activities cannot be
predicted, and the Company may be subject to restrictions on export of its
computer systems to other countries if it seeks further expansion into non-U.S.
markets.
Employees
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As of December 31, 2002, the Company had 134 full time employees. Of these
employees, 12 are executive officers or senior managers, 16 are engaged in
marketing and sales, 59 in customer support and training, 25 in product/custom
development or engineering and 22 in general and administrative positions. The
Company's ability to develop, market and sell products and to establish and
maintain its competitive position in light of new technological developments
will depend, in large part, on its ability to attract and retain qualified
personnel. The Company believes that it has been successful to date in
attracting skilled personnel critical to its business. No employees are covered
by collective bargaining agreements. Management of the Company believes that its
relationship with its employees is satisfactory.
Financial Information about Geographic Areas
- --------------------------------------------
See Item 15(a)1, Note H, in the Company's Notes to Consolidated Financial
Statements.
ITEM 2. Description of Properties
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The Company's corporate headquarters are located in a 32,000 square foot
office building at 10 Speen Street, Framingham, Massachusetts. This property is
owned by 10 Speen Street LLC, a Delaware limited liability company. ASA
Properties, Inc., a wholly owned subsidiary of the Company, is the managing and
sole member of 10 Speen Street LLC. The Company occupies approximately 16% of
the space in the building, while tenants lease the remainder of the space. In
September 1998, the Company refinanced this facility with a $3,000,000 mortgage
loan at 7.24% for 10 years with monthly principal and interest payments of
$20,445 through October 2008 and a final payment of approximately $2,638,000 of
principal, together with interest thereon.
The Company's Tire Systems operations are located in approximately 7,000
square feet of a 24,000 square foot office building at 615 Amherst Street,
Nashua, New Hampshire, purchased in December 1992. Approximately 12,000 square
feet of the facility is leased to TradePoint Systems, LLC under a long-term
lease. The carrying costs for the facility include approximately $10,000 per
month for principal and interest on twenty-year mortgage notes plus operating
costs and taxes.
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Certain of the Company's Legal Systems operations are located in
approximately 10,000 square feet of a 20,000 square foot office building at 222
Municipal Drive, Richardson, Texas, which was acquired as part of the CompuTrac
transaction in August 2002. There is no mortgage outstanding on the facility and
the carrying costs are approximately $11,000 per month. The portion of the
building not in use by the Company is currently unoccupied.
The Company maintains the following additional offices:
Current Date of Lease
Location Monthly Rent Office Area Expiration
- -------- ------------ ----------- ----------
Blue Bell, Pennsylvania $12,991 9,667 s.f. January 31, 2006
Kirkland, Washington $6,190 3,720 s.f. October 31, 2006
Clearwater, Florida $17,252 16,252 s.f. September 30, 2004
Tampa, Florida $ 6,525 5,220 s.f. May 31, 2003
ITEM 3. Legal Proceedings
-----------------
There are no material pending legal proceedings to which the Company or any
of its subsidiaries is a party or of which any of their property is subject.
ITEM 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
(a) No matter was submitted to a vote of security-holders during the fourth
quarter of the fiscal year ended December 31, 2002, through the
solicitation of proxies or otherwise.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
PART II
ITEM 5. Market Price of and Dividends on the Company's Common Equity and
----------------------------------------------------------------
Related Stockholder Matters
---------------------------
The Common Stock of ASA International Ltd. is traded on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) under the
symbol ASAA. The table below indicates the high and low sales prices of the
Company's Common Stock during 2001 and 2002:
Calendar Year 2001 Low High
------------------ --- ----
First Quarter $1.375 $2.625
Second Quarter $1.250 $1.750
Third Quarter $1.000 $1.560
Fourth Quarter $1.100 $1.450
Calendar Year 2002 Low High
------------------ --- ----
First Quarter $1.230 $1.620
Second Quarter $1.100 $1.450
Third Quarter $0.750 $1.500
Fourth Quarter $0.780 $1.200
12
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions. There were 1,343 holders of record of the Company's outstanding
Common Stock as of March 20, 2003. Each holder of Common Stock is also the
holder of a Preferred Stock Purchase Right which entitles the holder to purchase
one one-hundredths of a share of Series A Junior Participating Preferred Stock
of the Company for each share of Common Stock held by such person upon
satisfaction of certain conditions set forth in the Company's Shareholders
Rights Plan.
Under the terms of a share repurchase program authorized by the Company's
Board of Directors in June 1990, August 1998, July 1999, January 2000, October
2000 and November 2002, the Company is authorized to repurchase up to $2,750,000
of its Common Stock. During 2002, the Company purchased 46,295 shares of its
stock at $1.35 per share under the Stock Repurchase Agreement related to the
CompuTrac acquisition. Prior to 2002, the Company repurchased shares as follows
in the months indicated:
1991 Number of Shares Per Share Purchase Price
- ---- ---------------- ------------------------
December 25,000 $1.06
1992 Number of Shares Per Share Purchase Price
- ---- ---------------- ------------------------
March 5,000 $1.15
May 10,000 1.53
July 3,000 1.81
August 6,700 1.81
8,100 2.00
September 45,000 1.94
15,000 2.00
5,000 1.99
October 5,000 1.88
1993 Number of Shares Per Share Purchase Price
- ---- ---------------- ------------------------
March 5,000 $1.54
August 10,000 2.93
September 1,800 3.02
1997 Number of Shares Per Share Purchase Price
- ---- ---------------- ------------------------
December 23,000 $2.29
1998 Number of Shares Per Share Purchase Price
- ---- ---------------- ------------------------
May 15,000 $2.15
June 20,000 2.05
July 15,000 2.03
August 80,000 1.99
September 55,000 1.97
October 25,000 2.13
1999 Number of Shares Per Share Purchase Price
- ---- ---------------- ------------------------
March 62,500 $2.26
April 60,000 2.63
May 62,000 2.69
June 22,500 2.69
September 3,877 3.00
October 5,000 2.30
November 35,000 2.43
December 20,200 2.72
13
2000 Number of Shares Per Share Purchase Price
- ---- ---------------- ------------------------
May 60,000 $3.10
June 20,000 3.16
July 30,000 3.32
August 41,000 3.22
September 45,000 3.20
October 15,000 2.99
November 18,000 2.77
Although it is not obligated to do so, the Company may continue to
repurchase shares of Common Stock when market conditions for the purchase of its
stock meet its requirements.
Since its organization, the Company has not paid any dividends on its Common
Stock and its Board of Directors does not contemplate declaring any dividends in
the foreseeable future. The declaration and payment of dividends in the future
will be determined by the Board of Directors in light of conditions then
existing, including the Company's earnings, its financial condition and
requirements (including working capital needs), any agreements restricting the
payment of dividends and other factors. The Company's current banking
arrangements prohibit the payment of dividends by the Company.
14
ITEM 6. Selected Consolidated Financial Data
------------------------------------
(in thousands, except per share amounts)
The following selected consolidated financial data are derived from the
consolidated financial statements of the Company. The statement of operations
data for the years ended December 31, 2002 and 2001 and the balance sheet data
as of December 31, 2002 and 2001 are derived from and qualified by reference to
the consolidated financial statements and notes thereto included herein and
audited by Sansiveri, Kimball & McNamee L.L.P., the Company's independent
certified public accountants, as set forth in their report and also included
elsewhere herein. The statement of operations data for the year ended December
31, 2000 is derived from the consolidated financial statements and notes thereto
included herein and audited by BDO Seidman, LLP, the Company's then independent
certified public accountants, as set forth in their report and also included
elsewhere herein. The statement of operations for the year ended December 31,
1999 and 1998, and the balance sheet data as of December 31, 2000, 1999 and 1998
are derived from financial statements audited by BDO Seidman, LLP.
The financial information set forth below should be read in conjunction
with, and is qualified in its entirety by, the detailed information in the
consolidated financial statements and notes thereto appearing elsewhere herein.
Years Ended December 31,
------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Operating Data: (a) (b) (c) (d)(e) (e)
Revenues $ 16,056 $ 14,745 $ 19,633 $ 25,623 $ 35,468
Costs of Revenue, Expenses and
Other Income and Expenses
excluding income tax expense 15,383 15,194 19,349 21,534 34,398
Earnings (Loss)
from Operations 295 (931) (5,242) 491 1,532
Net Earnings (Loss) 408 (309) 29 2,167 417
Basic Earnings (Loss) per
Common Share $ 0.12 $ (0.10) $ 0.01 $ 0.67 $ 0.12
Diluted Earnings (Loss) per
Common Share $ 0.11 $ (0.10) $ 0.01 $ 0.63 $ 0.11
Balance Sheet Data: 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total Assets $ 19,896 $ 16,748 $ 18,601 $ 27,870 $ 19,732
Long-Term Obligations 3,596 3,661 3,744 3,915 4,068
Long-Term Liabilities - other - - - 272 305
Shareholders' Equity 10,747 9,405 9,716 10,240 8,809
15
Factors That Effect the Comparability of the Financial Information
(a) Includes pretax management fee of $149,000 earned for the period of January
1, 2002 through July 31, 2002 related to the acquisition of CompuTrac, Inc.,
which was completed on August 1, 2002. Revenues for CompuTrac, Inc. were
$699,000 for the year ended December 31, 2002. Revenues related to the
assets acquired from PowerCerv Corporation in December 2002 were $138,000.
(b) Includes the pretax gain on the sale in September 2000 of ASA Italy
(formerly Cedes) of $14,000. ASA Italy's revenues were $3,513,000,
$2,898,000 and $1,326,000 for the years ended December 31, 1998, 1999 and
2000, respectively.
(c) Includes the pretax gain on the sale in August 2000 of SmartTime Software of
$6,716,000. SmartTime's revenues were $5,890,000 and $2,915,000 for the
years ended December 31, 1998 and 1999, respectively.
(d) Includes the pretax gain on the sale in March 1999 of CommercialWare of
$3,824,000. CommercialWare's revenues were $10,776,000 for the year ended
December 31, 1998.
(e) Includes the continuing operations of the following companies acquired by
ASA from their respective dates of acquisition: Cedes S.r.l. and SIPI-U
S.r.l., (together, "Cedes") (January 13, 1998), and Design Data Systems
Corporation (November 4, 1999).
ITEM 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
This Annual report on Form 10-K contains forward-looking information about
the Company. In addition to the historical information contained herein, the
discussions in this document include statements that constitute forward-looking
statements under the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995, including with respect to the Company's revenues, gross
margins, acquisitions and expected cash flow. The Company is hereby setting
forth statements identifying important factors that may cause the Company's
actual results to differ materially from those set forth in any forward-looking
statements made by the Company. Some of the most significant factors include:
the risks associated with acquisitions; the ability of the Company to adapt to
the rapid changes in the software industry and compete with companies with
significantly greater financial and technical resources; the loss of executive
officers and key personnel who are critical to the Company's business; the
volume and timing of orders received during the period, which are difficult to
forecast; the successful completion and sale of new products and enhancements to
existing products; the availability of additional capital in the future and
financial market volatility; and general economic and business conditions.
Management believes these forward-looking statements are reasonable. However,
caution should be taken not to place undue reliance on any such forward-looking
statements since such statements speak only as of the date when made.
Accordingly, there can be no assurances that any anticipated future results will
be achieved and the forward-looking statements contained herein should not be
relied upon as predictions of future results. Furthermore, the Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS
Comparison of 2002 to 2001
(000's omitted)
----------------------------------------------------
Revenue Increase/(Decrease)
-------------------------- ----------------------
2002 2001 Amount Percentage
Services $ 10,916 $ 10,139 $ 777 8%
Product licenses 3,606 3,395 211 6%
Computer and add-on hardware 1,534 1,211 323 27%
---------- ------------ ---------
Total Revenue $ 16,056 $ 14,745 $ 1,311 9%
========== ============ =========
16
During 2002, the Company completed the acquisition of two product lines. The
revenues related to these product lines for the year ended December 31, 2002 are
as follows:
Revenue
ASA Acquisition for
Line Acquired From Product Line Date 2002
------------------ ------------ ---- ----
CompuTrac, Inc. Legal August $699,000
2002
PowerCerv Corporation Manufacturing & November 138,000
Distribution 2002
--------
Total $837,000
========
The product line acquired from CompuTrac, Inc. has been combined as part of the
Company's Legal Systems product line which has been renamed Rainmaker Software.
The product line acquired from PowerCerv Corporation remains as a separate
manufacturing and distribution product line from the Company which has been
named Verticent.
REVENUE
Total Revenue. The Company designs and develops proprietary enterprise software
for the tire dealer, legal, e-Business management, and manufacturing and
distribution 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 $1,311,000, or 9% for the year ended
December 31, 2002, compared to the year ended December 31, 2001. Revenues for
the year ended December 31, 2002 include approximately $699,000 and $138,000 in
revenue from CompuTrac, Inc., and Verticent (formerly PowerCerv Corporation),
respectively.
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 $777,000, or 8% for the year ended December 31, 2002, compared to
the year ended December 31, 2001. Service revenues increased for all product
lines except the e-business management product line for the year ended December
31, 2002 when compared to the same period in 2001. The increase in service
revenues was due primarily to increased client requirements for training and
consulting services. Service revenues for the year ended December 31, 2002
include approximately $668,000 and $138,000 in revenue from CompuTrac, Inc., and
Verticent, respectively.
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 $211,000 or 6% for the year ended December
31, 2002, compared to the year ended December 31, 2001. An increase in product
license revenue from the tire dealer and legal systems product lines was
partially offset by a decrease in license revenue for the e-business management
product line. Product license revenue for the year ended December 31, 2002
includes approximately $31,000 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 $323,000, or 27%, for the year ended December 31,
2002, compared to the same year ended December 31, 2001. The increase in
hardware revenues was due to increased hardware sales by the tire systems
product line.
COST OF REVENUE
Services. The Company's cost of services consists of the costs incurred
providing client training, consulting, and ongoing support as well as other
client service-related expenses. Cost of services increased by approximately
17
$88,000 or 2%, for the year ended December 31, 2002, compared to the year ended
December 31, 2001. The gross margin percentage for services for the period
increased to 50% for the year ended December 31, 2002 from 47% for the
comparable period in 2001. The Company's revenues and margin from services
fluctuate from period to period due to changes in the mix of contracts and
projects.
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
$113,000, or 4%, for the year ended December 31, 2002, compared to the year
ended December 31, 2001. The cost of product licenses and development increased
for all product lines for year ended December 31, 2002 when compared to same
period in 2001. The cost of product licenses as a percentage of product licenses
revenue may fluctuate from period to period due to the mix of sales of
third-party software products in each period contrasted with certain fixed
expenses such as the amortization of capitalized software.
Computer and Add-on Hardware. The Company's costs of hardware revenues consist
primarily of the costs of third-party hardware products. Cost of hardware
revenues increased by approximately $216,000, or 23%, for the year ended
December 31, 2002, compared to the year ended December 31, 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 the hardware sales increased to 24% for the year
ended December 31, 2002, from 22% for the year ended December 31, 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.
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 $165,000, or 5%, for the year ended December 31,
2002, compared to the year ended December 31, 2001. The decrease in marketing
and sales expenses reflects a decrease in sales and marketing expenses for the
e-business management product line partially offset by increased sales and
marketing expenses from the tire and legal systems 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
decreased by approximately $167,000, or 5%, for the year ended December 31,
2002, compared to the year ended December 31, 2001. The change primarily
reflects decreased general and administrative expenses for the e-business
management product line.
Net earnings for the year ended December 31, 2002 were approximately $408,000,
as compared to a net loss of approximately $309,000 for the year ended December
31, 2001. The change results from an increase in income from operations of
approximately $1,226,000 along with management fee income of approximately
$149,000 for which there was no comparable amount in the year ended December 31,
2001. These amounts were partially offset by a decrease in interest income-net
of approximately $153,000, a decrease in other income-net of approximately
$77,000, the elimination of the gain on sale of product lines of approximately
$23,000 and an increase in income tax expense of $405,000.
18
Comparison of 2001 to 2000
(000's omitted)
-------------------------------------------------------
Revenue Increase/(Decrease)
-------------------------- -------------------------
2001 2000 Amount Percentage
---- ---- ------ ----------
Services $ 10,139 $ 12,737 $ (2,598) (20)%
Product licenses 3,395 5,415 (2,020) (37)%
Computer and add-on hardware 1,211 1,481 (270) (18)%
---------- ------------ ------------
Total Revenue $ 14,745 $ 19,633 $ (4,888) (25)%
========== ============ ============
REVENUE
Total Revenue. The Company designs and develops proprietary enterprise software
for the tire dealer, legal, and e-Business management software markets. The
Company sold its ERP business, which was based in Italy, on September 25, 2000.
The Company's revenues are derived from the licensing of the Company's software
products, from client service and support, and from the sale of third party
computer and add-on hardware. The Company's total revenues decreased by
approximately $4,888,000, or 25%, for the period when compared to the year ended
December 31, 2000. Revenue from existing businesses decreased by approximately
$3,562,000, or 19% for the period, when approximately $1,326,000 in revenue from
the Company's ERP product line sold in September 2000 for the year ended
December 31, 2000 is excluded. The Company believes that the difficult economic
conditions in the United States during 2001 have resulted in reduced technology
spending by many of the Company's customers and prospects.
Services. Services are comprised of fees generated from training, consulting,
software modifications, and ongoing client support provided under self-renewing
maintenance agreements. Service revenues decreased by approximately $2,598,000,
or 20%, for the year ended December 31, 2001, compared to the year ended
December 31, 2000. Service revenue from existing businesses decreased by
approximately $1,631,000, or 14% for the period, when compared to 2000, and the
service revenue from the ERP product line of approximately $967,000 for 2000 is
excluded.
Product Licenses. The Company's software license revenues are derived primarily
from the licensing of the Company's enterprise products. Software license
revenues decreased by approximately $2,020,000, or 37%, for the year ended
December 31, 2001, compared to the same period in 2000. Product license revenue
from existing businesses decreased by approximately $1,768,000, or 34%, for the
period, when compared to 2000, and the product license revenue from the ERP
product line of approximately $252,000 for 2000 is excluded.
Computer and Add-on Hardware. Hardware revenues are derived from the resale of
third-party hardware products to the Company's clients in conjunction with the
licensing of the Company's software. Hardware revenues decreased by
approximately $270,000, or 18%, for the year ended December 31, 2001, compared
to the same period in 2000. Revenue from computer and add-on hardware decreased
by approximately $163,000, or 12%, for the year when compared to 2000 and the
revenue from computer and add-on hardware from the ERP product line of
approximately $107,000 for 2000 is excluded. The decrease in hardware revenues
was due primarily to the decrease of hardware unit sales by the Company's tire
systems product line.
COST OF REVENUE
Services. Cost of services consists of the costs incurred in providing client
training, consulting, and ongoing support as well as other client
service-related expenses. Cost of services decreased by approximately
$2,516,000, or 32%, for the year ended December 31, 2001, compared to the same
period in 2000, due primarily to the lower level of services revenue in 2001
compared to 2000. The gross margin percentage for services for the year ended
December 31, 2001 increased to approximately 47% from 38% of revenue from
services in 2000. The Company's revenue and margin from services fluctuate from
period to period due to changes in the mix of contracts and projects.
Product Licenses and Development. Cost of software license revenues consists of
the costs of amortization of capitalized software costs, and the costs of
sublicensing third-party software products. The amount also includes the
expenses associated with the development of new products and the enhancement of
existing products (net of capitalized software costs), which consist primarily
of employee salaries, benefits, and associated overhead costs. Cost of software
19
license revenues and development decreased by approximately $2,007,000, or 40%,
for the year ended December 31, 2001, compared to the same period in 2000. Cost
of product license and development decreased by approximately $1,895,000, or
38%, for the year when compared to 2000, and the cost of product licenses and
development from the ERP product line of approximately $112,000 for 2000 is
excluded. The cost of product licenses as a percentage of product license
revenue may fluctuate from period to period due to the mix of sales of
third-party software products in each period contrasted with certain fixed
expenses such as the amortization of capitalized software.
Computer and Add-on Hardware. Cost of hardware revenues consists primarily of
the costs of third-party hardware products. Cost of hardware revenues decreased
by approximately $311,000, or 25%, for the year ended December 31, 2001,
compared to the prior period. The decrease in dollar amount for the cost of
hardware revenues for the year ended December 31, 2001 was due primarily to
decreased unit sales of hardware products by the Company's tire systems product
line. The gross margin percentage for hardware sales increased to 22% for the
year ended December 31, 2001, from 14% in the same period in 2000. Margins on
computer and add-on hardware can fluctuate based on the mix of computer and
ancillary hardware products sold. Accordingly, the Company expects hardware
gross margins to continue to fluctuate in the future. The Company continues to
direct its efforts toward building service and license revenues to offset the
historical decline in hardware revenue and margins.
EXPENSES
Marketing and Sales. Marketing and sales expenses consist primarily of employee
salaries, benefits, commissions and associated overhead costs, and the cost of
marketing programs such as direct mailings, trade shows, seminars, and related
communication costs. Marketing and sales expenses decreased by $2,098,000, or
41%, for the year ended December 31, 2001, compared to 2000. The change in
marketing and sales expenses reflects the elimination of the marketing and sales
expenses of the ERP systems and the decrease in marketing and sales expenses for
all product lines of the Company.
General and Administrative. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive, and
finance personnel and associated overhead costs, as well as consulting,
accounting, and legal expenses. General and administrative expenses decreased
approximately $263,000, or 7%, for the year ended December 31, 2001, compared to
the same period in 2000. The elimination of the expenses related to the ERP
systems product line and a decrease in these expenses for the legal systems
product line are offset by increased general and administrative expenses from
the Tire and Khameleon Software product lines.
The net loss for the year ended December 31, 2001 was approximately $309,000, as
compared to net earnings of approximately $29,000 for 2000. The change results
from a decrease in the gain on the sale of product lines of $6,707,000, which
was partially offset by a decrease in the loss from operations of $4,311,000, a
decrease in interest expense of $215,000, an increase in interest income of
$121,000, a decrease in other expense - net of $350,000, a decrease in the
equity in loss from affiliate of $977,000, and a decrease in income tax expense
of $395,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and cash equivalents at December 31, 2002 of
approximately $4,510,000, an increase of approximately $485,000 from December
31, 2001. The Company had a maximum line of credit totaling $1,500,000 available
at December 31, 2002 and 2001. At December 31, 2002, the Company had
approximately $23,000 invested in marketable securities, a decrease of
approximately $1,000 from December 31, 2001.
In March 1999, the Company exchanged the assets and liabilities of its
CommercialWare Division (CWI) for approximately $4,000,000 in cash, a $1,700,000
three year note at 7.06%, a 10% interest in a newly formed entity,
CommercialWare, Inc., and a $500,000 Junior Note. The Junior Note was collected
in 2000. The interest rate on the three-year note was amended retroactively to
the date of CWI's sale to 15% in April 2001 as a result of a restructuring of
CWI's debt. Under the terms of the sale of CWI, the note and any accrued
interest are secured by the intellectual property of CWI. In June 2002, the
Company received a second note for $2,558,197 at 12% for five years, which
represents a restatement of the original Note Receivable of $1,700,000, along
with the interest due under the first amendment to the Note negotiated in April
2001. The terms of the second Note call for monthly principal and interest
payments of $35,000 after an initial payment of $105,000, which was received in
June 2002. The monthly principal and interest payment changes to the following
amounts over the term of the second note: April 2003 $50,000, November 2003
$55,000, April 2004 $60,000, January 2005 $65,000, with a final payment of
approximately $25,000 in June 2007. Interest income of approximately $381,000
20
has been received and recorded in the Statements of Operations for the year
ended December 31, 2002. The accrued interest under the note was included on the
Company's balance sheet in other assets at December 31, 2001.
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 $.2l56 in cash for each
share of CompuTrac common stock held at the time of the merger. 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. As of
December 31, 2002, 46,295 shares of Company stock had been repurchased by the
Company under the Stock Repurchase Agreement at a cost of approximately $63,000.
The Company anticipates that repurchase of its stock under the Stock Repurchase
Agreement is likely to continue.
On December 1, 2002, the Company completed the purchase of substantially all of
the assets of PowerCerv Corporation. Under the terms of an Asset Purchase
Agreement (the "PowerCerv Purchase Agreement"), in addition to assuming certain
PowerCerv liabilities, the Company paid PowerCerv $500,000 cash ($100,000 of
which had been advanced to PowerCerv as a loan) and issued a $90,000 note at
1.81% per annum due in six months. The purchase price was increased by
approximately $16,000 for adjustments specified under the terms of the PowerCerv
Purchase Agreement which amount is expected to be paid in the first quarter of
2003.
In January 2003, the Company co-signed and guaranteed a Promissory Note for
$893,000 under a Demand Loan and Security Agreement with a bank for the purchase
of a 50% interest in an entity that owns an aircraft. The 5-year note with
interest at prime (4.25% at December 31, 2002) plus .25% calls for monthly
principal and interest payments of $6,861 through December 2007 with a final
payment of approximately $666,869, plus interest, due in December 2007. The
Promissory Note is collateralized by the aircraft.
The Company expects to continue to pursue strategic acquisitions. These
acquisitions have been, and are expected to continue to be, financed in a number
of ways. Management believes, subject to the conditions of the financial
markets, that it should be able to continue its program of acquisitions. These
acquisitions could present challenges to the Company's management, such as
integrating and incorporating new operations, product lines, technologies and
personnel. If the Company's management is unable to manage these challenges, the
Company's business, financial condition or results of operations could be
materially adversely affected. Any acquisition, depending on its size, could
result in significant dilution to the Company's stockholders. Furthermore, there
can be no assurance that any acquired products will gain acceptance in the
Company's markets.
The Company has experienced significant fluctuations in its quarterly operating
results and anticipates such fluctuations in the future. Quarterly revenues and
operating results depend on the volume and timing of orders received during the
quarter, which are difficult to forecast. Large orders for the Company's
products often have a lengthy sales cycle while the customer evaluates and
receives approvals for the purchase of the products. It may be difficult to
accurately predict the sales cycle of any large order. If one or more large
orders fail to close as forecasted in a fiscal quarter, the Company's revenues
and operating results could be materially adversely affected. In addition, the
Company typically receives a substantial portion of its product orders in the
last month of the quarter. Orders are shipped as received and, as a result, the
Company often has little or no backlog except for support and service revenue.
The Company acknowledges the potential adverse impact that such fluctuations and
general economic uncertainty could have on its ability to maintain liquidity and
raise additional capital.
The Company's future financial performance is also dependent in large part on
the successful development, introduction, and customer acceptance of new and
enhanced versions of its software products. Due to the rapid change in vendor
hardware platforms, operating systems, and updated versions, the complexity and
expense of developing, testing, and maintaining the Company's products has
increased. The Company intends, as it has in the past, to fund this development
21
primarily from its cash from operations and bank debt. There can be no assurance
that these efforts will be successful or result in significant product
enhancements.
Subject to the foregoing, the Company believes that based on the level of
operating revenue, cash on hand, and available bank debt, it has sufficient
capital to finance its ongoing business.
Inflation. General inflation over the last three years has not had a material
effect on the Company's cost of doing business.
Critical Accounting Policies and Estimates. Managements discussion and analysis
of the Company's financial condition and results of operations are based upon
the consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. On
an on-going basis, management evaluates estimates, including those related to
the allowance for doubtful accounts, software, acquired software and other
acquired intangibles, the likelihood of the utilization of certain tax loss
carry-backs and carry-forwards for certain of the transactions completed by the
Company, and the valuation allowance on deferred tax assets. The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The Company believes
the following critical accounting policies affect its more significant judgments
and estimates used in the preparation of its consolidated financial statements.
For a detailed discussion on the application of these and other accounting
policies, see Note A in the Notes to the Consolidated Financial Statements.
Accounts Receivable. Accounts receivable balances are evaluated on a continual
basis and allowances are provided for potentially uncollectible accounts based
on management's estimate of the collectability of customer accounts. If the
financial condition of a customer were to deteriorate, resulting in an
impairment of their ability to make payments, an additional allowance may be
required. Allowance adjustments are charged to operations in the period in which
the facts that give rise to the adjustments become known. The accounts
receivable balance at December 31, 2002 was $2,240,877 net of an allowance for
doubtful accounts of $188,949.
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
22
the SEC. Future interpretations of existing accounting standards or changes in
the Company's business practices could result in future changes in its revenue
accounting policies that could have a material adverse effect on its business,
financial condition and results of operations.
The Company's revenue recognition policy is significant because the Company's
revenue is a key component of its results of operations. In addition, the
Company's revenue recognition determines the timing of certain expenses, such as
commissions and license costs. The Company follows very specific and detailed
guidelines in measuring revenue; however, certain judgments affect the
application of the Company's revenue policy. Revenue results are difficult to
predict, and any shortfall in revenue or delay in recognizing revenue could
cause the Company's operating results to vary significantly from quarter to
quarter and could result in future operating losses.
Software. The Company accounts for the costs of computer software developed in
accordance with Statement of Financial Accounting Standard No. 86. Accordingly,
the costs of purchased software, and of that software developed internally (once
technological feasibility is established) associated with coding new
applications or modules and enhancing and porting existing applications
software, are capitalized. Amortization of these costs is based on the greater
of the charge resulting from the application of either the straight-line method
over five years or the proportion of current sales to estimated future revenues
of each product. The Company periodically reviews the carrying value of its
software to determine whether an impairment exists. Relevant cash flow and
profitability information, including estimated future operating results, trends,
and other available information are considered in assessing whether the carrying
value of the software can be recovered. If it is determined that the carrying
value of the software will not be recovered from the undiscounted cash flows,
the carrying value of the software would be considered impaired and reduced by a
charge to operations in the amount of the impairment. An impairment charge is
measured as any deficiency in the amount of undiscounted future cash flows
available to recover the carrying value related to the software. Future adverse
changes in market conditions could result in an inability of the Company to
recover the carrying value of the software, thereby possibly requiring an
impairment charge in the future.
Goodwill and other acquired intangibles. The determination of the value of such
intangible assets requires management to make estimates and assumptions that
affect the Company's consolidated financial statements. As a result of the
adoption of Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets" ("SFAS 142"), the Company annually reviews goodwill and
other intangible assets that have indefinite lives for impairment and when
events or changes in circumstances indicate the carrying value of these assets
might exceed their current fair values. Fair value is determined using
discounted cash flow analysis, which requires the Company to make certain
assumptions and estimates regarding industry economic factors and future
profitability of acquired businesses. If actual results are not consistent with
these assumptions and judgments, the Company could be exposed to a material
impairment charge.
Long-Lived Assets. The Company accounts for long-lived assets in accordance with
SFAS 144, and accordingly, reviews its long-lived assets and identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. In performing the
review for recoverability, the Company estimates the future cash flows expected
to result from the use of the asset and its eventual disposition. If the sum of
the undiscounted expected future cash flows is less than the carrying amount of
the asset, an impairment loss is recognized. Otherwise, an impairment loss is
not recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles would be based on the fair value of the asset.
Recently Issued Accounting Pronouncements. During 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" (SFAS 143), which addresses
the financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The standard applies to obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development,
and (or) normal use of the asset. The Company is required and plans to adopt the
provision of SFAS 143 during the quarter ending March 31, 2003. To accomplish
this, the Company must identify all obligations for asset retirement
obligations, if any, and determine the fair value of these obligations on the
date of adoption. The Company does not believe the adoption of SFAS 143 will
have a significant impact on its consolidated financial statements.
23
During 2002 the FASB issued Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146),
which requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. This standard will be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The Company does not
believe the adoption of SFAS 146 will have a significant impact on its
consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 addresses the disclosure
requirements of a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. FIN 45 also
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
disclosure requirements of FIN 45 are effective for the Company effective
December 31, 2002. The liability recognition requirements will be applicable
prospectively to all guarantees issued or modified after December 31, 2002. This
pronouncement will be adopted as of the first quarter of 2003.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock Based Compensation--Transition and Disclosure",
(SFAS 148) which provides two additional transition methods for entities that
adopt the preferable method of accounting for stock based compensation. Further,
the statement requires disclosure of comparable information for all companies
regardless of whether, when, or how an entity adopts the preferable, fair value
based method of accounting. These disclosures are now required for interim
periods in addition to the traditional annual disclosure. SFAS is effective for
fiscal periods ending after December 15, 2002. See footnotes A and F for
pro-forma disclosure of stock based compensation.
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.
24
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 noncompetition agreements, and there can be no assurance that ASA will retain
its officers and key employees. If ASA loses the services of Alfred C. Angelone,
chairman and chief executive officer of ASA, or one or more of its other
executive officers or key employees, or if one or more of these individuals
decides to join a competitor or otherwise compete with ASA, ASA's business,
operating results and financial condition could be seriously harmed.
ASA may need additional capital in the future, which may not be available.
ASA has entered into a revolving demand loan agreement with a bank for up to
$1,500,000 (which cannot exceed 80% of qualified accounts receivables), bearing
interest at a rate approximating prime minus .5%, which extends through June 30,
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.
25
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 7A. Quantitative and Qualitative Disclosure about Market Risk
---------------------------------------------------------
The Company is exposed to the impact of interest rate changes and changes in
the value of its investments.
Interest Rate Risk. The Company's exposure to market rate risk for changes in
interest rates relates primarily to the Company's cash equivalent investments.
The Company has not used derivative financial instruments. The Company invests
its excess cash in short-term floating rate instruments and senior secured
floating rate loan funds, which carry a degree of interest rate risk. These
instruments may produce less income than expected if interest rates fall.
Investment Risk. The Company has invested, and may invest in the future, in
equity instruments of privately held companies for business and strategic
purposes. These investments are included in other long-term assets and are
accounted for under the cost method when ownership is less than 20%. For these
non-quoted investments, the Company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The Company identifies and records impairment
losses on long-lived assets when events or circumstances indicate that such
assets might be impaired.
26
ITEM 8. Financial Statements and Supplementary Data
-------------------------------------------
The financial statements and supplementary data are listed under Part IV,
Item 15, in this Report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
In November 2001, the Company decided to replace BDO Seidman, LLP with
Sansiveri, Kimball & McNamee, L.L.P., as its independent public accountants to
audit the financial statements for the year ended December 31, 2001. The
decision to change independent public accountants was approved by the Company's
Board of Directors.
In connection with the audits for the years ended December 31, 2000 and
1999, and through the date of the change in accountants, there were no
disagreements with BDO Seidman, LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to their satisfaction would have caused
them to make reference in connection with their opinion on the subject matter of
the disagreements.
The report of BDO Seidman, LLP on our financial statements for the years
ended December 31, 2000 and 1999 did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principle.
PART III
Items 10-13 are incorporated herein by reference from the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission.
ITEM 14. (a) Evaluation of disclosure controls and procedures. Based on
their evaluation, as of a date within 90 days prior to the date of
the filing of this Form 10-K, of the effectiveness of the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the principal executive officer and the
principal financial officer of the Company have each concluded that
such disclosure controls and procedures are effective and sufficient
to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission rules and forms.
(b) Changes in internal controls. Subsequent to the date of their
evaluation, there have not been any significant changes in the
Company's internal controls or in other factors that could
significantly affect these controls, including any corrective action
with regard to significant and material weaknesses.
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)1. Financial Statements.
---------------------
The Consolidated Financial Statements required to be filed herein are as
follows:
Independent Auditors' Reports
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
27
(a)2. Financial Statement Schedules.
-----------------------------
Schedule II - Valuation and Qualifying Accounts
All prescribed schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
(a)3. Exhibits.
--------
See Exhibit Index. The Exhibits listed in the accompanying Exhibit Index are
filed or incorporated by reference as part of this Annual report on Form 10-K.
(b) Reports on Form 8-K.
--------------------
The Registrant filed the following Current Reports on Form 8-K during the
quarter ended December 31, 2002:
On October 9, 2002, the Registrant reported the execution of a
definitive agreement pursuant to which the Registrant will acquire
substantially all of the assets of PowerCerv.
On December 11, 2002, the Registrant reported the completion of
the purchase of substantially all of the assets of PowerCerv.
On December 13, 2002, the Registrant amended its report filed on
December 11, 2002 to report under Items 2 and 7, the purchase of
substantially all of the assets of PowerCerv, previously reported
under Items 5 and 7 in the previous filing.
EXHIBIT INDEX
Number Description
- ------ -----------
2.1+ Asset Purchase Agreement made and entered into as of October 1,
2002 by and among PCV Acquisition, Inc., PowerCerv Corporation,
PowerCerv Technologies Corporation, and ASA International Ltd.,
incorporated by reference to exhibit 2 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
October 9, 2002.
2.2+ Agreement and Plan of Merger dated as of January 3, 2002 among the
Registrant, Rainmaker Software, Inc. and CompuTrac, Inc.,
incorporated by reference to exhibit 2.1 previously filed with the
Registrant's Form S-4/A filed with the SEC on June 14, 2002.
2.3+ Management Agreement dated as of January 3, 2002 among the
Registrant, Rainmaker Software, Inc. and CompuTrac, Inc.,
incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC
on January 15, 2002.
2.4+ Stockholders Agreement dated as of January 3, 2002 among the
Registrant and certain shareholders of CompuTrac, Inc. listed
therein, incorporated by reference to exhibit 10.3 previously
filed with the Registrant's Current Report on Form 8-K filed with
the SEC on January 15, 2002.
3.1.1+ Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant, as filed with the Secretary of
State of Delaware on July 31, 2002, incorporated by reference to
exhibit 4.1 previously filed with the Registrant's Quarterly
Report on Form 10-Q filed for the fiscal quarter ended June 30,
2002 filed with the SEC on August 14, 2002.
3.1.2+ Amended and Restated Certificate of Incorporation of Registrant,
incorporated by reference to exhibit 3.1 previously filed with the
Registrant's Form S-4/A filed with the SEC on June 14, 2002.
3.1.3+ Certificate of Designation filed with the Delaware Secretary of
State on October 22, 1998 designating 60,000 shares of Series A
Junior Participating Preferred Stock, par value $0.01.,
incorporated by reference A of exhibit 4 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
November 4, 1998.
3.2+ Amended and Restated Bylaws of Registrant. incorporated by
reference to exhibit 3b previously filed with the Registrant's
registration statement on Form S-18 filed with the SEC on May 19,
1986.
4.1+ Specimen Stock Certificate, incorporated by reference to exhibit
4b previously filed with the Registrant's amendment no. 1 filed on
June 16, 1986 to the registration statement on Form S-18 filed
with the SEC on May 19, 1986.
4.2+ Preferred Stock Rights Agreement, dated as of October 21, 1998
between the Registrant and American Securities Transfer & Trust,
Inc., as Rights Agent, which includes as Exhibit B thereto the
Form of Rights Certificate, incorporated by reference to exhibit
10.1 previously filed with the Registrant's Current Report on Form
8-K filed with the SEC on November 4, 1998.
4.3+ Letter to the holders of the Registrant's Common Stock, dated
November 4, 1998 (including summary of Rights), incorporated by
reference to exhibit 10.2 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on November 4, 1998.
10.1# Promissory Note made payable to Regions Bank by ASA Aircraft LLC
and RSR Aircraft LLC, executed on January 15, 2003.
10.2# Business Loan Agreement by and between Regions Bank, ASA Aircraft
LLC and RSR Aircraft LLC, executed on January 15, 2003.
10.3# Commercial Guaranty between Regions Bank, ASA Aircraft LLC, RSR
Aircraft LLC and ASA International Ltd., executed on January 15,
2003.
10.4# FAA Aircraft Registry, Aircraft Security Agreement between Regions
Bank, ASA Aircraft LLC and RSR Aircraft LLC, executed on January
15, 2003.
10.5+ Stock Repurchase Agreement dated August 1, 2002 by and between ASA
International Ltd., Harry W. Margolis and Margolis family members,
incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
August 14, 2002.
10.6+ Employment Agreement dated August 1, 2002 between RainMaker
Software, Inc., ASA International Ltd. and Harry W. Margolis,
incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
August 14, 2002.
10.7+ Non Competition Agreement dated August 1, 2002 by and between
RainMaker Software, Inc. and Harry W. Margolis, incorporated by
reference to exhibit 10.3 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on August 14, 2002.
10.8+ Deed of Trust dated August 1, 2002 granted by RainMaker Software,
Inc. to Dawn M. Douthit as Trustee, incorporated by reference to
exhibit 10.4 previously filed with the Registrant's Current Report
on Form 8-K filed with the SEC on August 14, 2002.
10.9+ Certificate of Merger of CompuTrac, Inc. into RainMaker Software,
Inc. dated August 1, 2002, incorporated by reference to exhibit
10.5 previously filed with the Registrant's Current Report on Form
8-K filed with the SEC on August 14, 2002.
10.10+ Renewal of Revolving Demand Note made payable by the Registrant to
Eastern Bank in the amount of $1,500,000 dated June 17, 2002,
incorporated by reference to exhibit 10.2 previously filed with
the Registrant's Quarterly Report on Form 10-Q filed for the
fiscal quarter ended June 30, 2002 filed with the SEC on August
14, 2002.
10.11+ Second Amended and Restated Promissory Note made payable by
CommercialWare, Inc. to the Registrant, dated June 3, 2002,
incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Quarterly Report on Form 10-Q filed for the
fiscal quarter ended June 30, 2002 filed with the SEC on August
14, 2002.
10.12+ Amended and Restated Promissory Note made payable by
CommercialWare, Inc. to the Registrant dated April 26, 2001,
incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Quarterly Report on Form 10-Q filed for the
fiscal quarter ended September 30, 2001 filed with the SEC on
August 15, 2001.
10.13+ Revolving Demand Note, dated June 4, 2001, incorporated by
reference to exhibit 10.2 previously filed with the Registrant's
Quarterly Report on Form 10-Q filed for the fiscal quarter ended
September 30, 2001 filed with the SEC on August 15, 2001.
29
10.14+ Demand Loan and Security Agreement, by and between the Registrant,
ASA International Ventures, Inc., ASA Tire Systems Inc., ASA Legal
Systems Inc., Khameleon Software Inc. and Eastern Bank, dated June
4, 2001, incorporated by reference to exhibit 10.3 previously
filed with the Registrant's Quarterly Report on Form 10-Q filed
for the fiscal quarter ended September 30, 2001 filed with the SEC
on August 15, 2001.
10.15+ Acknowledgement of Debt and Agreement to Pay by ASA Italy S.r.l.,
dated September 25, 2000, incorporated by reference to exhibit 99
previously filed with the Registrant's Current Report on Form 8-K
filed with the SEC on October 10, 2000.
10.16+ Cessation of Share of Limited Company agreement by and among the
Registrant, Alessandro Baldo, Saverio Giglio and Roberto
Locatelli, effective as of September 25, 2000, incorporated by
reference to exhibit 2 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on October 10, 2000.
10.17+ Revolving Demand Note between the Registrant, ASA International
Ventures, Inc. and Eastern Bank dated October 20, 1999,
incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 filed with the SEC on March 30, 2000.
10.18+ Acquisition Line of Credit Agreement between the Registrant, ASA
International Ventures, Inc. and Eastern Bank dated October 20,
1999, incorporated by reference to exhibit 10.2 previously filed
with the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 filed with the SEC on March 30, 2000.
10.19+ Asset Purchase Agreement dated November 4, 1999, incorporated by
reference to exhibit 2 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on November 15,
1999.
10.20+ Assignment and Assumption Agreement dated November 4, 1999,
incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
10.21+ Bill of Sale and General Assignment of Assets dated November 4,
1999, incorporated by reference to exhibit 10.2 previously filed
with the Registrant's Current Report on Form 8-K filed with the
SEC on November 15, 1999.
10.22+ Assignment of Trademarks dated November 4, 1999, incorporated by
reference to exhibit 10.3 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on November 15,
1999.
10.23+ Assignment of Copyrights dated November 4, 1999, incorporated by
reference to exhibit 10.4 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on November 15,
1999.
10.24+ Asset Acquisition and Exchange Cooperation Agreement dated
November 4, 1999, incorporated by reference to exhibit 10.5
previously filed with the Registrant's Current Report on Form 8-K
filed with the SEC on November 15, 1999.
10.25+ Promissory Note dated November 4, 1999, incorporated by reference
to exhibit 10.6 previously filed with the Registrant's Current
Report on Form 8-K filed with the SEC on November 15, 1999.
10.26+ Security Agreement dated November 4, 1999, incorporated by
reference to exhibit 10.7 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on November 15,
1999.
10.27+ Intellectual Property License Agreement dated November 4, 1999,
incorporated by reference to exhibit 10.8 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
November 15, 1999.
10.28+ Assignment Agreement dated November 4, 1999, incorporated by
reference to exhibit 10.9 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on November 15,
1999.
10.29+ Bill of Sale and General Assignment of Assets dated November 4,
1999, incorporated by reference to exhibit 10.10 previously filed
with the Registrant's Current Report on Form 8-K filed with the
SEC on November 15, 1999.
10.30+ Assignment of Trademarks dated November 4, 1999, incorporated by
reference to exhibit 10.11 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on November 15,
1999.
30
10.31+ Assignment of Copyrights dated November 4, 1999, incorporated by
reference to exhibit 10.12 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on November 15,
1999.
10.32+ Option to Purchase Agreement dated as of August 2, 1999,
incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on
August 13, 1999.
10.33+ Asset Purchase Agreement dated as of August 2, 1999, incorporated
by reference to exhibit 10.2 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
August 13, 1999.
10.34+ Lease for 475 Sentry Parkway, Blue Bell, Pennsylvania, dated
August 26, 1998, incorporated by reference to exhibit 10
previously filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999 filed with the SEC on
March 30, 1999.
10.35+ Asset Purchase Agreement dated as of March 3, 1999, incorporated
by reference to exhibit 2 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on March 18, 1999.
10.36+ Shareholder Agreement dated as of March 3, 1999, incorporated by
reference to exhibit 4.1 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on March 18, 1999.
10.37+ Promissory Note dated as of March 3, 1999, incorporated by
reference to exhibit 4.2 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on March 18, 1999.
10.38+ Security Agreement dated as of March 3, 1999, incorporated by
reference to exhibit 4.3 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on March 18, 1999.
10.39+ Trademark Assignment dated as of March 3, 1999, incorporated by
reference to exhibit 4.4 previously filed with the Registrant's
Current Report on Form 8-K filed with the SEC on March 18, 1999.
10.40+ Trademark Security Agreement dated as of March 3, 1999,
incorporated by reference to exhibit 4.5 previously filed with the
Registrant's Current Report on Form 8-K filed with the SEC on
March 18, 1999.
10.41+ Commercial Lease dated September 15, 1998, between 10 Speen
Street, LLC as Lessor, and the Registrant, as Lessee, for the
property located at 10 Speen Street, Framingham, Massachusetts,
incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998 filed with the SEC on November
16, 1998.
10.42+ Indemnification Agreement made September 21, 1998, by 10 Speen
Street, LLC and the Registrant, as Indemnitors, for the benefit of
John Hancock Real Estate Finance, Inc., as Mortgagee, incorporated
by reference to exhibit 10.2 previously filed with the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1998 filed with the SEC on November 16, 1998.
10.43+ Guarantee Agreement effective September 21, 1998 by the
Registrant, as Guarantor, in favor of John Hancock Real Estate
Finance, Inc, incorporated by reference to exhibit 10.3 previously
filed with the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998 filed with the SEC on
November 16, 1998.
10.44+ Reorganization Agreement by and between the Registrant, TradePoint
Systems LLC and Christopher J. Crane, incorporated by reference to
exhibit 2(c) previously filed with the Registrant's Current Report
on Form 8-K filed with the SEC on January 15, 1997.
10.45+ Certificate of Incorporation of ASA International Ventures, Inc.,
dated December 28, 1995, incorporated by reference to exhibit 3(a)
previously filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 filed with the SEC on
March 28, 1996.
10.46+ Bylaws of ASA International Ventures, Inc., incorporated by
reference to exhibit 3(b) previously filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995 filed with the SEC on March 28, 1996.
10.47+ Agreement for Purchase and Sale of Assets between ASA
International Ventures, Inc. and ASA Incorporated, dated December
29, 1995, incorporated by reference to exhibit 10.4 previously
31
filed with the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 filed with the SEC on March
28, 1996.
10.48+ Agreement for Purchase and Exchange of Assets between ASA
International Ventures, Inc. and ASA International Ltd., dated
December 29, 1995, incorporated by reference to exhibit 10.5
previously filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 filed with the SEC on
March 28, 1996.
10.49+ Agreement for Exchange of Intangibles between ASA International
Ventures, Inc. and ASA International Ltd., dated December 29,
1995, incorporated by reference to exhibit 10.6 previously filed
with the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 filed with the SEC on March 28, 1996.
10.50+ Promissory Note between ASA Properties, Inc., and Granite State
Development Corporation, dated December 23, 1992, incorporated by
reference to exhibit 10.5 previously filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 filed with the SEC on March 30, 1994.
10.51+ Servicing Agent Agreement between ASA Properties, Inc., and Colson
Services Corporation, dated May 12, 1993, incorporated by
reference to exhibit 10.6 previously filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 filed with the SEC on March 30, 1994.
10.52+ Mortgage and Security Agreement between ASA Properties, Inc. and
Sun Life Assurance Company of Canada, incorporated by reference to
exhibit 10.4 previously filed with the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 filed
with the SEC on March 30, 1993.
10.53+ Promissory Note of ASA Properties, Inc. in favor of Sun Life
Assurance Company of Canada, incorporated by reference to exhibit
10.5 previously filed with the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 filed with the
SEC on March 30, 1993.
10.54*+ 1986 Incentive Stock Option Plan of the Registrant, incorporated
by reference to exhibit 4A previously filed with the Registrant's
Form S-8 filed with the SEC on September 27, 1996.
10.55*+ 1988 Stock Option Plan of the Registrant, incorporated by
reference to exhibit 4B previously filed with the Registrant's
Form S-8 filed with the SEC on September 27, 1996.
10.56*+ 1993 Stock Option Plan of the Registrant, incorporated by
reference to exhibit 4C previously filed with the Registrant's
Form S-8 filed with the SEC on September 27, 1996.
10.57*+ 1995 Stock Option Plan of the Registrant, incorporated by
reference to exhibit 4D previously filed with the Registrant's
Form S-8 filed with the SEC on September 27, 1996.
16.1+ Letter of BDO Seidman, LLP, incorporated by reference to the
Registrant's Current Report on Form 8-K filed with the SEC on
November 30, 2001.
16.2+ Letter of Deloitte & Touche LLP, incorporated by reference to the
Registrant's Current Report on Form 8-K filed with the SEC on
August 31, 1995.
21# Subsidiaries of Registrant.
23.1# Consent of Sansiveri, Kimball & McNamee, LLP, Independent
Auditors.
23.2# Consent of BDO Seidman LLP, Independent Certified Public
Accountants.
99.1# Certification of Alfred C. Angelone, Director, Chief Executive
Officer and President of the Registrant pursuant to 18 U.S.C.
Section 1350.
99.2# Certification of Terrence C. McCarthy, Vice President, Secretary,
Treasurer and Chief Financial Officer of the Registrant pursuant
to 18 U.S.C. Section 1350.
+ Previously filed.
# Filed with this report.
* Management contracts or compensatory plans or arrangements covering
executive officers or directors of the Registrant.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASA INTERNATIONAL LTD.
By /s/ Alfred C. Angelone
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, report
has been signed below by the following persons on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Alfred C. Angelone Director, Chief March 31, 2003
- -------------------------- Executive Officer,
Alfred C. Angelone and President
(principal executive
officer and principal
accounting officer)
/s/ James P. O'Halloran Director March 31, 2003
- --------------------------
James P. O'Halloran
/s/ Alan J. Klitzner Director March 31, 2003
- --------------------------
Alan J. Klitzner
/s/ William A. Kulok Director March 31, 2003
- --------------------------
William A. Kulok
/s/ Robert L. Voelk Director March 31, 2003
- --------------------------
Robert L. Voelk
/s/ Chas B. Blalack Director March 31, 2003
- --------------------------
Chas B. Blalack
33
Executive Certifications Required by Rules 13a-14 and 15d-14
Under the Securities Exchange Act of 1934
Certification of President
I, Alfred C. Angelone, certify that:
1. I have reviewed this Annual Report on Form 10-K of ASA International Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I am 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, is made known to us by others within those
entities, particularly during the period in which this annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 officer 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 function):
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 a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual 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 our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ Alfred C. Angelone
Name: Alfred C. Angelone ----------------------
Title: Director, Chief Executive Officer and President
34
Certification of Chief Financial Officer
I, Terrence C. McCarthy, certify that:
1. I have reviewed this Annual Report on Form 10-K of ASA International Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I am 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, is made known to us by others within those
entities, particularly during the period in which this annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 officer 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 function):
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 a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual 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 our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ Terrence C. McCarthy
Name: Terrence C. McCarthy ------------------------
Title: Vice President, Secretary, Treasurer and Chief Financial Officer
35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheet of ASA International
Ltd. and subsidiaries as of December 31, 2002 and 2001 and the related
consolidated statement of operations, stockholders' equity and comprehensive
income, and cash flows for the years then ended. The financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audits. The consolidated
financial statements of ASA International Ltd. and subsidiaries for the year
ended December 31, 2000, were audited by other auditors whose report dated March
2, 2001 expressed an unqualified opinion.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of ASA International Ltd. and subsidiaries at December 31, 2002 and
2001, and the results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Sansiveri, Kimball & McNamee, LLP
Providence, Rhode Island
March 7, 2003
36
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated statement of operations,
comprehensive income, shareholders' equity and cash flows of ASA International
Ltd., and subsidiaries for the year ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of ASA International Ltd., and subsidiaries for the year ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States of America.
/s/ BDO Seidman, LLP
Boston, Massachusetts
March 2, 2001
37
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
2002 2001
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,509,686 $ 4,024,254
Marketable securities 22,780 24,072
Receivables:
Trade (net of allowance for doubtful
accounts of $188,949 in 2002
and $239,491 in 2001) 2,042,798 1,342,403
Related parties 31,239 338,459
Other 166,840 101,432
Current portion of note receivable 293,163 --
Other current assets 443,075 566,122
----------- -----------
TOTAL CURRENT ASSETS 7,509,581 6,396,742
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings 4,990,823 4,312,795
Computer equipment 2,342,072 2,178,272
Office furniture and equipment 1,027,713 996,322
Leasehold improvements 115,846 115,846
Vehicles 574,138 574,138
Capital leases 85,266 --
----------- -----------
9,135,858 8,177,373
Accumulated depreciation and amortization 4,132,869 3,688,077
----------- -----------
NET PROPERTY AND EQUIPMENT 5,002,989 4,489,296
----------- -----------
SOFTWARE
(less cumulative amortization
of $5,701,690 in 2002 and $4,851,488 in 2001) 2,164,053 1,907,457
RECEIVABLES FROM RELATED PARTIES -
net of current portion 338,931 --
NOTE RECEIVABLE - net of current portion 2,192,791 1,700,000
NOTE RECEIVABLE - Related party 175,000 175,000
GOODWILL 1,257,686 --
OTHER ASSETS 1,255,034 2,079,752
----------- -----------
$19,896,065 $16,748,247
=========== ===========
See notes to consolidated financial statements
38
2002 2001
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - other $ 90,000 $ --
Current maturities of long-term obligations 105,402 80,357
Accounts payable 402,566 288,727
Accrued expenses 2,093,120 1,726,530
Accrued commissions 385,621 229,418
Customer deposits 297,301 259,731
Deferred revenue 1,179,563 387,689
------------ ------------
TOTAL CURRENT LIABILITIES 4,553,573 2,972,452
------------ ------------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 3,596,237 3,661,475
------------ ------------
DEFERRED INCOME TAXES 466,000 709,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REPURCHASE 533,031 --
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, par value
$.01 per share: Authorized and unissued,
1,000,000 shares, 60,000 shares of which are
designated as Series A Junior Participating
Preferred Stock -- --
Common stock, par value
$.01 per share: Authorized, 8,000,000 shares;
issued 5,852,540 and 4,510,870 shares;
outstanding, 4,300,772 and 2,982,397 shares 58,525 45,109
Additional paid-in capital 8,801,660 7,931,501
Retained earnings 5,260,095 4,851,994
Accumulated other comprehensive loss:
Unrealized loss on marketable securities (6,120) (4,828)
------------ ------------
14,114,160 12,823,776
Less treasury stock, at cost 3,366,936 3,418,456
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 10,747,224 9,405,320
------------ ------------
$ 19,896,065 $ 16,748,247
============ ============
See notes to consolidated financial statements.
39
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
---------------------------------------------
2002 2001 2000
REVENUES
Services $ 10,915,630 $ 10,139,008 $ 12,737,489
Product licenses 3,606,338 3,395,016 5,415,084
Computer and add-on hardware 1,533,833 1,210,946 1,480,510
------------ ------------ ------------
NET REVENUE 16,055,801 14,744,970 19,633,083
------------ ------------ ------------
COST OF REVENUE
Services 5,420,486 5,332,616 7,848,964
Product licenses and development 3,158,268 3,045,072 5,051,824
Computer and add-on hardware 1,160,369 944,250 1,255,094
------------ ------------ ------------
TOTAL COST OF REVENUE 9,739,123 9,321,938 14,155,882
------------ ------------ ------------
EXPENSES
Marketing and sales 2,905,838 3,071,138 5,169,271
General and administrative 3,115,549 3,282,407 3,545,511
Amortization of goodwill -- -- 18,045
Impairment loss on capitalized software -- -- 1,986,000
------------ ------------ ------------
TOTAL EXPENSES 6,021,387 6,353,545 10,718,827
------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 295,291 (930,513) (5,241,626)
INTEREST EXPENSE (321,952) (337,361) (551,898)
INTEREST INCOME 437,519 605,910 484,477
GAIN ON SALE OF PRODUCT LINES -- 22,820 6,730,252
MANAGEMENT FEE 149,125 -- --
OTHER INCOME (EXPENSE), NET 113,118 190,430 (159,653)
EQUITY IN LOSS FROM AFFILIATE -- -- (977,331)
------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES 673,101 (448,714) 284,221
INCOME TAXES 265,000 (140,000) 255,000
------------ ------------ ------------
NET EARNINGS (LOSS) $ 408,101 $ (308,714) $ 29,221
============ ============ ============
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $ 0.12 $ (0.10) $ 0.01
============ ============ ============
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $ 0.11 $ (0.10) $ 0.01
============ ============ ============
See notes to consolidated financial statements.
40
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31,
------------------------------------
2002 2001 2000
NET EARNINGS (LOSS) $ 408,101 $(308,714) $ 29,221
OTHER COMPREHENSIVE INCOME (LOSS)
NET OF INCOME TAX:
Foreign currency translation -- -- 10,968
Unrealized gain (loss) on marketable securities (1,292) (1,640) 23,290
--------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ 406,809 $(310,354) $ 63,479
========= ========= =========
See notes to consolidated financial statements.
41
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Common Stock Treasury Stock
------------------------- ---------------------------
Accum-
ulated
Other
Compre-
Additional hensive
Paid-In Retained Income/
Shares Amount Capital Earnings (Loss) Shares Amount Totals
------------------------------------------------------------------------------------------------------
BALANCES
12/31/99 4,384,458 $43,845 $7,801,387 $5,131,487 $ (37,446) 1,299,473 $(2,699,265) $10,240,008
Exercise of
stock options 126,412 1,264 130,119 - - - - 131,383
Purchase of
Treasury Stock - - - - - 229,000 (719,191) (719,191)
Net earnings - - - 29,221 - - - 29,221
Foreign currency
translation - - - - 10,968 - - 10,968
Unrealized gain
on marketable
securities - - - - 23,290 - - 23,290
------------------------------------------------------------------------------------------------------
BALANCES
12/31/00 4,510,870 45,109 7,931,506 5,160,708 (3,188) 1,528,473 (3,418,456) 9,715,679
Repayment on
partial shares - - (5) - - - - (5)
Net loss - - - (308,714) - - - (308,714)
Unrealized loss
on marketable
securities - - - - (1,640) - - (1,640)
------------------------------------------------------------------------------------------------------
BALANCES
12/31/01 4,510,870 45,109 7,931,501 4,851,994 (4,828) 1,528,473 (3,418,456) 9,405,320
CompuTrac
Acquisition 1,364,670 13,646 921,449 - - - - 935,095
Repurchase
of shares
guaranteed in
CompuTrac
Acquisition - - - - - 46,295 - -
Cancellation of
Treasury Shares (23,000) (230) (51,290) - - (23,000) 51,520 -
Net earnings 408,101 408,101
Unrealized
loss on
marketable
securities - - - - (1,292) - - (1,292)
------------------------------------------------------------------------------------------------------
BALANCES
12/31/02 5,852,540 $58,525 $8,801,660 $5,260,095 $ (6,120) 1,551,768 $(3,366,936) $10,747,224
======================================================================================================
See notes to consolidated financial statements.
42
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
2002 2001 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 408,101 $ (308,714) $ 29,221
------------- ----------- ----------
Adjustments to reconcile net earnings (loss)
to net cash provided by (used for) operating activities:
Depreciation and amortization 1,294,989 1,284,547 1,987,098
Deferred taxes (243,000) (16,000) 228,000
Doubtful receivables provision (102,542) 364,388 343,948
Gain on divestitures -- -- (6,730,252)
Charge for impairment of long-lived assets -- -- 1,986,000
Changes in assets and liabilities, net
of effects of acquisitions:
Receivables 64,062 1,044,638 935,977
Other current assets 157,264 296,916 844,864
Accounts payable (53,880) (388,023) (120,682)
Accrued expenses (475,504) (653,079) 88,887
Customer deposits 21,734 (140,088) (104,857)
Deferred revenue (217,110) (271,251) (1,313,672)
----------- ----------- -----------
Total adjustments 446,013 1,522,048 (1,854,689)
----------- ----------- -----------
Net cash provided by (used for) operating activities 854,114 1,213,334 (1,825,468)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (200,585) (328,940) (308,705)
Additions to software -- (9,400) (452,920)
Decrease (increase) in sales-types leases 56,273 94,624 (187,724)
Cash received from divestitures, net of cash paid -- -- 40,464
Cash received in acquisition of CompuTrac 1,956,812 -- --
Cash paid in acquisition of CompuTrac (257,338) -- --
Cash paid in acquistion of Verticent (596,468) -- --
Reductions (additions) to assets held for future transactions -- 2,720,000 (1,113,151)
Proceeds from sale of (additions to) marketable securities -- -- 3,363,315
Other assets 200,723 (769,064) 147,462
----------- ----------- -----------
Net cash provided by (used for) investing activities 1,159,417 1,707,220 1,488,741
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction in long-term debt (40,193) (74,343) (138,301)
Cash paid to CompuTrac shareholders (1,425,408) -- --
Decrease in long-term liabilities -- -- (53,479)
Issuance of common stock -- (5) 131,383
Purchase of treasury stock (62,498) -- (719,191)
----------- ----------- -----------
Net cash provided by (used for) financing activities (1,528,099) (74,348) (779,588)
----------- ----------- -----------
EFFECT OF EXCHANGE RATES ON
CASH & CASH EQUIVALENTS -- -- (3,001)
----------- ----------- -----------
CASH & CASH EQUIVALENTS:
Net increase (decrease) 485,432 2,846,206 (1,119,316)
Balance, beginning of year 4,024,254 1,178,048 2,297,364
----------- ----------- -----------
Balance, end of year $ 4,509,686 $ 4,024,254 $ 1,178,048
=========== =========== ===========
See notes to consolidated financial statements.
43
NON-CASH INVESTING AND FINANCING ACTIVITIES
During 2000, the Company received a note valued at $3,213,151 in payment of the
balance due of $4,820,000 from InterPro Business Solutions, Inc. on the sale of
the Company's SmartTime product line. The remainder of the balance due of
$1,606,849 was paid in cash and is included in assets held for future
transactions. Also during 2000, the Company recorded an unrealized gain on
marketable securities of $23,290.
In April 2001, the Company recorded accrued interest receivable related to a
change in interest rate on a note receivable, which totaled $217,447. In March
2002, the Company amended the note and added $858,197 of accrued interest and
fees to the principal due under the amended note.
As part of the acquisition of CompuTrac in 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 liabilities (943,010)
------------
Net Assets Acquired $ 1,262,419
============
44
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001, 2000
A. Summary of Significant Accounting Policies:
Business Description and Principles of Consolidation
The Company develops, markets, and provides services for its proprietary
enterprise software products and distributes computer hardware to its
software customers. The Company targets its products and services to
distinct identifiable markets. The Company considers its operation to be a
single reporting segment due to the comparable economic characteristics of
its products and services as well as similarities in the nature of the
products and services offered, the processes to develop and upgrade its
products and services, and the methods to market and distribute its
products and services to customers. The consolidated financial statements
include the accounts of ASA International Ltd. and its wholly owned
subsidiaries, ASA Properties, Inc., ASA International Ventures, Inc., ASA
Tire Systems Inc., RainMaker Software, Inc., Verticent, Inc., and Khameleon
Software Inc. after elimination of all material inter-company balances and
transactions. 10 Speen Street LLC is a wholly owned subsidiary of ASA
Properties, Inc.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
maturity of three months or less to be cash equivalents. The Company had
approximately $1,785,000 and $2,890,000 invested in money market funds at
December 31, 2002 and 2001, respectively.
Accounts and Notes Receivable
The Company carries its accounts receivable at cost less an allowance for
doubtful accounts. Accounts receivable balances are evaluated on a
continual basis and allowances are provided for potentially uncollectible
accounts based on management's estimate of the collectibility of customer
accounts. If the financial condition of a customer were to deteriorate,
resulting in an impairment of their ability to make payments, an additional
allowance may be required. Allowance adjustments are charged to operations
in the period in which the facts that give rise to the adjustments become
known.
The Company's policy is to review Notes Receivable for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. In performing the review for recoverability,
the Company estimates the future cash flows from the Note. If the sum of
the undiscounted expected future cash flows is less than the carrying
amount of the Note, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. Measurement of an impairment loss for
the Note would be based on the fair value of the asset.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Many of the Company's estimates and assumptions used in the financial
statements relate to the Company's products, which are subject to rapid
technological change. It is possible that changes may occur in the near
term that would affect management's estimates with respect to capitalized
software, the recorded value of investments in equity instruments, and the
carrying value of the note receivable.
Marketable Securities
At December 31, 2002 and 2001, the Company held investments in a senior
secured, floating rate loan, mutual fund. The Company accounts for this
investment as available-for-sale in accordance with Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investment in Debt and Equity Securities," which requires that debt and
marketable equity securities be classified as trading, available-for-sale,
45
or held-to-maturity. Available-for-sale securities are reported in the
balance sheet at fair value with unrealized gains or losses included in a
separate component of shareholders' equity.
At December 31, 2002 and 2001, the fair market values of these investments
were approximately $23,000 and $24,000. Accumulated unrealized losses for
the years ended December 31, 2002 and 2001 were approximately $6,000 and
$5,000, respectively.
Financial Instruments
Financial instruments consist of cash and cash equivalents, marketable
securities, accounts receivable, note receivable, accounts payable and
notes payable. The carrying value of these financial instruments
approximate their fair value.
Property and Equipment
Property and equipment are stated at cost. Depreciation for equipment and
vehicles is recorded on the straight-line method, based on the estimated
useful lives of the related assets (ranging from 3 to 7 years). Buildings
are depreciated over 40 years. Equipment under capital leases and leasehold
improvements are amortized over the shorter of the lease term or the
estimated useful lives of the assets.
Software
The Company accounts for the costs of computer software developed in
accordance with Statement of Financial Accounting Standard No. 86.
Accordingly, the costs of purchased software, and of that software
developed internally (once technological feasibility is established)
associated with coding new applications or modules and enhancing and
porting existing applications software, are capitalized. Amortization of
these costs is based on the greater of the charge resulting from the
application of either the straight-line method over five years or the
proportion of current sales to estimated future revenues of each product.
The Company periodically reviews the carrying value of its software to
determine whether an impairment exists. Relevant cash flow and
profitability information, including estimated future operating results,
trends, and other available information are considered in assessing whether
the carrying value of the software can be recovered. If it is determined
that the carrying value of the software will not be recovered from the
undiscounted cash flows, the carrying value of the software would be
considered impaired and reduced by a charge to operations in the amount of
the impairment. An impairment charge is measured as any deficiency in the
amount of undiscounted future cash flows available to recover the carrying
value related to the software. Future adverse changes in market conditions
could result in an inability of the Company to recover the carrying value
of the software, thereby possibly requiring an impairment charge in the
future.
Investments
The Company has invested, and may invest in the future, in equity
instruments of privately held companies for business and strategic
purposes. These investments are accounted for under the cost method when
ownership is less than 20%. For these non-quoted investments, the Company's
policy is to regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying values. The
Company identifies and records impairment losses on long-lived assets when
events or circumstances indicate that such assets might be impaired. The
Company's investments in equity instruments of privately held companies
which are included in other long-term assets totaled approximately $101,000
and $501,000 at December 31, 2002 and 2001, respectively. As discussed in
footnote B, the Company received $400,000 and other consideration for its
membership interest in TradePoint Systems LLC which was valued at $400,000
at December 31, 2001.
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
approximately $419,000, $316,000, and $735,000 in the years ending December
31, 2002, 2001, and 2000, respectively.
Revenue Recognition
The Company derives its revenue from primarily two sources (i) product
revenue which includes software license and hard drive revenue and (ii)
services and support revenue, which includes software maintenance and
support, installation, training and consulting revenue. The Company
generates revenue from licensing the rights to use its software products
46
directly to end-users and indirectly through resellers, and from the sale
of hardware to end-users. The Company's Tire Systems product line sells
hardware products, which are provided by a third-party, on a pass through
basis, plus an additional mark-up, to end users. To support its software
products, the Company sells software maintenance and support, installation,
training and consulting services to end users and indirectly through
resellers.
The Company applies the provisions of Statement of Position ("SOP") 97-2,
"Software Revenue Recognition", as amended by SOP 98-9, Modification of SOP
97-2, "Software Revenue Recognition, With Respect to Certain Transactions",
to all transactions involving the sale of multiple elements including
software, hardware and service revenue. In December 1999, the SEC issued
Staff Accounting Bulletin ("SAB") NO. 101, "Revenue Recognition in
Financial Statements". This bulletin establishes guidelines for revenue
recognition. The Company's revenue recognition policy complies with this
pronouncement as well. The Company applies the provisions of SFAS No. 48,
"Revenue Recognition When Right of Return Exists", with respect to
providing for potential future product returns.
The Company recognizes revenue from the sale of software products and
hardware to both end-users and resellers when persuasive evidence of an
arrangement exists, the products have been delivered, the fee is fixed or
determinable, collection of the resulting receivable is reasonably assured
and there are no customer acceptance provisions. Software maintenance and
support revenue is recognized ratably over the term of the related
maintenance period, typically one-year. Other services revenue is
recognized as the services are performed. If the fee is considered to be
not fixed or determinable, the Company recognizes revenue as the fees
become due. If the Company determines that collection of a fee is not
reasonably assured, the fee is deferred and revenue is recognized at the
time collection becomes reasonably assured, which is generally upon receipt
of payment. If an arrangement includes an acceptance provision, the Company
will defer all revenue until the customer accepts the products. Acceptance
generally occurs upon the earlier of receipt of a written customer
acceptance or expiration of the acceptance period. 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.
Research and Development
The Company expenses research and development costs as incurred. Costs
incurred other than capitalized costs for software were not material.
Income Taxes
Deferred tax assets or liabilities are recognized for the estimated tax
effects of temporary differences between the tax and financial reporting
basis of the Company's assets and liabilities and for loss carry forwards
based on enacted tax laws and rates.
Comprehensive Income
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes rules
for the reporting of comprehensive income and its components. Comprehensive
income consists of net income, foreign currency translation adjustments and
unrealized gain (loss) on marketing securities and is presented in the
consolidated statements of comprehensive income.
Stock Based Compensation
At December 31, 2002, the Company has four stock-based compensation plans,
which are described more fully in Note F. The Company accounts for these
plans under the recognition and measurement principles of APB Opinion
47
No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based compensation costs are reflected in net
income, as all options granted under those plans had an exercise price at
least equal to the market value of the underlying common stock on the date
of grant. The following tables illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Net earnings (loss):
As reported $ 408,101 $ (308,714) $ 29,221
Pro forma 363,627 (360,141) (45,246)
Net earnings (loss) per common and common
equivalent share:
Basic as reported $ 0.12 $ (.10) $ 0.01
Diluted as reported 0.11 (.10) 0.01
Pro forma - Basic 0.11 (.12) (0.01)
Proforma - Diluted 0.10 (.12) (0.01)
Net Earnings Per Share
The Company follows SFAS No. 128 "Earnings per Share." Under SFAS 128,
Basic Earnings Per Share (EPS) excludes the effect of any dilutive options,
warrants or convertible securities and is computed by dividing the net
earnings available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed by
dividing the net earnings available to common shareholders by the sum of
the weighted average number of common shares and common share equivalents
computed using the average market price for the period under the treasury
stock method.
Recently Issued Accounting Pronouncements
During 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143), which addresses the financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
standard applies to obligations associated with the retirement of
long-lived assets that result from the acquisition, construction,
development, and (or) normal use of the asset. The Company is required and
plans to adopt the provision of SFAS 143 during the quarter ending March
31, 2003. To accomplish this, the Company must identify all obligations for
asset retirement obligations, if any, and determine the fair value of these
obligations on the date of adoption. The Company does not believe the
adoption of SFAS 143 will have a significant impact on its consolidated
financial statements.
During 2002 the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146), which requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan. This standard will be applied
prospectively to exit or disposal activities initiated after December 31,
2002. The Company does not believe the adoption of SFAS 146 will have a
significant impact on its consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others". FIN 45 addresses
the disclosure requirements of a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it
has issued. FIN 45 also requires a guarantor to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken
in issuing the guarantee. The disclosure requirements of FIN 45 are
48
effective for the Company effective December 31, 2002. The liability
recognition requirements will be applicable prospectively to all guarantees
issued or modified after December 31, 2002. This pronouncement will be
adopted as of the first quarter of 2003.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock Based Compensation--Transition and
Disclosure", (SFAS 148) which provides additional transition methods for
entities that apply the expense recognition method of accounting for stock
based compensation. Further, the statement requires disclosure of
comparable information for all companies regardless of whether, when, or
how an entity adopts the preferable, fair value based method of accounting.
These disclosures are now required for interim periods in addition to the
traditional annual disclosure. SFAS is effective for fiscal periods ending
after December 15, 2002. See footnotes A and F for pro-forma disclosure of
stock based compensation.
B. Business Acquisitions and Divestitures:
Acquisitions
Design Data. In November 1999, the Company acquired the business of Design
Data Systems Corporation, a Florida corporation, pursuant to an Asset
Purchase Agreement (the "Design Data Purchase Agreement") by and among the
Company, the Seller, individually (only with respect to certain sections of
the Design Data Purchase Agreement), and the Company's Bank, as Escrow
Agent (the "Escrow Agent") (only with respect to certain sections of the
Design Data Purchase Agreement). The Design Data Purchase Agreement
provides that the transaction is effective as of September 30, 1999 (the
"Closing Date"). Pursuant to and as more fully set forth in the Design Data
Purchase Agreement, the Company had the right and obligation to purchase
certain of the assets and assume certain of the liabilities of Seller for a
purchase price of $5,000,000 (the "Purchase Price"). Of the Purchase Price,
$4,750,000 was due and payable on the Closing Date and $250,000 was to be
deposited with the Escrow Agent to be held pursuant to the terms of the
Design Data Purchase Agreement. Also on the Closing Date, the Company
entered into a certain Asset Acquisition and Exchange Cooperation Agreement
(the "Exchange Agreement") with SQL Acquisition LLC, a Delaware limited
liability company ("SQL"), Fidelity National 1031 Exchange Services, Inc.,
a California corporation, and Pacific American Property Exchange
Corporation, a California corporation and sole member and manager of SQL.
The Company entered into the Exchange Agreement for the purpose of seeking
the ability to effectuate a like-kind exchange pursuant to Section 1031 of
the Internal Revenue Code of 1986, as amended. Pursuant to and as more
fully set forth in the Exchange Agreement, the Company reserved the right
to exchange certain software and related intellectual property of Seller
(the "Replacement Property") for certain other relinquished property of the
Company. In connection therewith, the Company assigned to SQL the Company's
right and obligation under the Design Data Purchase Agreement to acquire
the Replacement Property pursuant to a certain Assignment Agreement dated
the Closing Date between the Company, Seller and SQL (the "Assignment").
The Exchange Agreement provided the Company with the option to purchase the
Replacement Property within twelve months of the Closing Date for a
purchase price of $4,300,000 plus interest incurred by SQL on the
promissory note due November 3, 2000.
49
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On the Closing Date, the following actions were completed:
1. SQL acquired the Replacement Property from Seller in accordance with
the Purchase Agreement and the Assignment in exchange for a payment of
$4,300,000.
2. The Company acquired the remainder of Seller's assets in accordance
with the Purchase Agreement in exchange for (a) the payment of
$700,000 (of which $250,000 was deposited with the Escrow Agent) and
(b) the assumption of certain of Seller's liabilities.
3. The Company loaned SQL $4,300,000 pursuant to the Exchange Agreement
and a related promissory note due on November 3, 2000 and bearing
interest at the rate of 6.18% per annum. The funds were used by SQL to
acquire the Replacement Property.
4. SQL granted a license to the Company to use the Replacement Property
until November 3, 2000 pursuant to a License Agreement between the
Company and SQL, in exchange for a one-time license fee of $285,000.
The Company completed the like-kind exchange involving $4,300,000 of
Replacement Property in September 2000 with the completion of the sale of
SmartTime (see also Divestitures).
CompuTrac, Inc. 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. The
final number of shares issued totaled 1,364,670 due to approximately 6,000
in shares not issued to dissenting former CompuTrac shareholders. 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 920,245 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.
As of December 31, 2002, 46,295 shares of Company stock had been
repurchased by the Company under the Stock Repurchase Agreement at a cost
of approximately $63,000.
PowerCerv Corporation. On December 1, 2002, the Company completed the
purchase of substantially all of the assets of PowerCerv Corporation. Under
terms of an Asset Purchase Agreement (the "PowerCerv Purchase Agreement"),
in addition to assuming certain PowerCerv liabilities, the Company paid
PowerCerv $500,000 cash ($100,000 of which had been advanced to PowerCerv
as a loan) and issued a $90,000 note payable at 1.81% per annum due in six
months. The purchase price was increased by approximately $16,000 for
adjustments specified under the terms of the PowerCerv Purchase Agreement.
The closing of the transaction was completed after the approval of the
transaction by the shareholders of PowerCerv. The net assets acquired
consisting of approximately $1,247,000 of goodwill, $232,000 of software,
$360,000 of other assets, and the assumption of approximately $1,152,000 of
liabilities were recorded at their fair values based on the Company's
estimate of these values.
50
Unaudited pro forma consolidated revenues, net earnings (loss) and net
earnings (loss) per basic and diluted shares for the years ended December
31, 2002 and 2001, would have been approximately as follows if the
acquisitions of CompuTrac and PowerCerv in 2002 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.
Years Ended December 31,
------------------------
2002 2001
---- ----
Revenues $ 20,531,000 $ 24,549,000
Net earnings (loss) 121,000 (2,163,000)
Net earnings (loss) per share:
Basic $ 0.03 $ (0.50)
Diluted $ 0.03 $ (0.50)
Divestitures
ASA Italy. In January 1998, the Company acquired substantially all of the
assets of Cedes S.r.l. and SIPI-U S.r.l. ("ASA Italy"), subsidiaries of the
Findest Group of Padova, Italy. ASA Italy sold enterprise resource planning
(ERP) software to mid-range companies in Italy. The transaction involved an
exchange of approximately $30,000 in cash, assumption of certain
liabilities, and issuance of 200,000 shares of the Company's Common Stock
in exchange for the assets of ASA Italy. The acquisition was recorded using
the purchase method of accounting whereby the net assets acquired were
recorded at their fair values based on the Company's estimate of these
values. In September 2000, the Company's Italian subsidiary was sold, to
management of ASA Italy, for nominal cash consideration. In connection with
the sale, ASA Italy acknowledged and agreed to pay a debt of approximately
$9,000 incurred by the Company on behalf of ASA Italy.
SmartTime. In August 1999, the Company granted to a company ("Optionee") an
option to purchase the Company's SmartTime product line. As per the terms
of the Option Agreement, the Company transferred the assets and liabilities
of its SmartTime product line to a newly formed LLC, of which the Company
is the sole member and the Optionee is the manager.
The Agreement provided that the Optionee had the option to purchase the
SmartTime product line from the LLC at anytime from August 1, 2000 through
August 31, 2000 (the "Option Period"), or at such earlier date as agreed to
by the parties, for an aggregate purchase price of $7,020,000, less any
option fee paid to date (the "Purchase Price"). The terms and conditions of
the acquisition are set forth in an Asset Purchase Agreement dated as of
August 2, 1999 (the "SmartTime Purchase Agreement"). The SmartTime Purchase
Agreement provided that the sale would occur within two days after exercise
of the option and the satisfaction of certain other conditions as specified
in the SmartTime Purchase Agreement. During the Option Period, the Optionee
employed the employees of the SmartTime product line and bore the risk of
its financial performance.
The Optionee paid an initial option fee in the amount of $1,660,000 upon
execution of the Agreement and paid a second option fee on August 1, 2000
in the amount of $540,000. The option fees were non-refundable to the
Optionee in the event that the Optionee did not exercise the option to
purchase the SmartTime product line. Pursuant to the Agreement, the
Optionee loaned to the Company the sum of $3,200,000 (the "Note") (with
respect to which the Company has prepaid $160,000 in interest). In
addition, the LLC loaned the Optionee an amount equal to the net cash of
the LLC available after collection of the LLC's accounts receivable and
payment of the LLC's accounts payable.
The Optionee purchased exclusive licenses to use the customer intangibles
and intellectual property of the SmartTime product line during the Option
Period for $300,000 and $500,000, respectively.
51
In August 2000, the Company completed the sale of its SmartTime business to
InterPro Business Solutions, Inc. (formerly InterPro Expense Systems,
Inc.), a Delaware corporation ("InterPro"). Pursuant to an Option to
Purchase Agreement dated August 2, 1999 by and between the Company,
InterPro, and ASA InterPro SmartTime LLC, a Delaware limited liability
company, InterPro exercised its option to purchase the SmartTime business
from the LLC for the aggregate purchase price of $7,020,000 less the option
fees paid on August 2, 1999 of $1,660,000 and $540,000 paid on August 1,
2000. As set forth in the SmartTime Purchase Agreement and Exhibits, on
August 2, 1999, InterPro had loaned to the Company $3,200,000 pursuant to a
promissory note due on or before August 31, 2000 (the "ASA Note"). Interest
of $160,000 on the ASA Note was prepaid to August 1, 2000. InterPro
completed the transaction by paying the remaining $4,820,000 of the
purchase by (a) delivering the ASA Note (valued at $3,213,151 as a result
of interest accrued from August 1 through August 31, 2000), and (b) paying
the remainder of $1,606,849 in cash.
The results for the operations of this product line are shown in the
Consolidated Statements of Operations for the year ended December 31, 2000
under the caption "Equity in Loss from Affiliate."
Financial data relative to the operation of ASA Italy S.r.l. and the
SmartTime business for the year ended December 31, 2000 is as follows:
2000
----------------
Revenues $ 1,326,000
Net loss (1,289,000)
Net loss per share:
Basic $ (0.41)
Diluted $ (0.41)
CommercialWare. In March 1999, the Company exchanged the assets and
liabilities of its CommercialWare Division (CWI) for approximately
$4,000,000 in cash, a $1,700,000 three year note at 7.06%, a 10% interest
in a newly formed entity, CommercialWare, Inc., and a $500,000 Junior Note.
The Junior Note was collected in 2000. The interest rate on the three-year
note was amended retroactively to the date of CWI's sale to 15% in April
2001 as a result of a restructuring of CWI's debt. Under the terms of the
sale of CWI, the note and any accrued interest are secured by the
intellectual property of CWI. In June 2002, the Company received a second
note for $2,558,197 at 12% for five years, which represents a restatement
of the original Note Receivable of $1,700,000, along with the interest due
under the first amendment to the Note negotiated in April 2001. The terms
of the second Note call for monthly principal and interest payments of
$35,000 after an initial payment of $105,000, which was received in June
2002. The monthly principal and interest payments increase as follows over
the term of the second note: April 2003 $50,000, November 2003 $55,000,
April 2004 $60,000, January 2005 $65,000, with a final payment of
approximately $25,000 in June 2007. Interest income of approximately
$381,000 has been received and recorded in the Statements of Operations for
the year ended December 31, 2002. The accrued interest under the note was
included on the Company's balance sheet in other assets at December 31,
2001.
TradePoint. 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
52
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.
This transaction had the following effect on the Company's financial
statements for the year ended December 31, 2002: eliminated the Company's
$400,000 investment in TradePoint classified in other assets at December
31, 2001, and satisfied in full the Company's obligation for approximately
$400,000 related to the Lease which was classified as an accrued expense as
of December 31, 2001. There was no net effect on the Consolidated Statement
of Operations for the year ended December 31, 2002 related to the
transaction. The 665,597 of the Company's shares formerly held by
TradePoint and classified as Treasury Stock valued at approximately
$1,112,000 at December 31, 2001, continue to be classified as Treasury
Stock at December 31, 2002 after the transfer of the shares to AIP.
C. Receivables:
Related Parties
Amounts due from related parties represent unsecured periodic advances
reduced by repayments. There is no interest charged on these advances. The
amount in current receivables represents the repayments anticipated to be
received within a twelve-month period from the date of the balance sheet.
The Note Receivable - related party represents a demand note bearing
interest at an annual rate of 6.4%. No further loans or advances have been
or will be made subsequent to the prohibition of such loans or advances by
the Sarbanes-Oxley Act of 2002.
Trade
The allowance for doubtful accounts at December 31, 1999 was $389,757.
During the three years ended December 31, 2002, 2001, and 2000, the
provisions for doubtful accounts were $188,830, $364,388, and $343,948, and
write-offs were $239,372, $640,097, and $218,505, respectively.
Note Receivable
In March 1999, the Company exchanged the assets and liabilities of its
CommercialWare Division (CWI) for approximately $4,000,000 in cash, a
$1,700,000 three year note at 7.06%, a 10% interest in a newly formed
entity, CommercialWare, Inc., and a $500,000 Junior Note. The Junior Note
was collected in 2000. The interest rate on the three-year note was amended
retroactively to the date of CWI's sale to 15% in April 2001 as a result of
a restructuring of CWI's debt. Under the terms of the sale of CWI, the note
and any accrued interest are secured by the intellectual property of CWI.
In June 2002, the Company received a second note for $2,558,197 at 12% for
five years, which represents a restatement of the original Note Receivable
of $1,700,000, plus accrued interest of approximately $258,000 along with
the interest of approximately $310,000 and restructuring fee of
approximately $290,000 due under the first amendment to the Note negotiated
in April 2001.
The terms of the second Note call for monthly principal and interest
payments of $35,000 after an initial payment of $105,000, which was
received in June 2002. The monthly principal and interest increase as
follows over the term of the second note: April 2003 to October 2003
$50,000, November 2003 to March 2004 $55,000, April 2004 to December 2004
$60,000, January 2005 to May 2007 $65,000, with a final payment of
approximately $25,000 in June 2007. Interest income of approximately
$381,000 has been received and recorded in the Statements of Operations for
the year ended December 31, 2002. Principal payments during 2002 of
approximately $142,000 have been made in accordance with the payment
schedule called for under the second note. The accrued interest under the
note was included on the Company's balance sheet in other assets at
December 31, 2001.
53
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The balances related to these notes are as follows:
December 31,
---------------------------
2002 2001
Note receivable $ 2,415,954 $ 1,700,000
============ ============
Accrued interest - $ 722,884
============ ============
Also, during 2002, the Company sold certain software and received a note
receivable for $70,000. Such amount is included in Note Receivable - long
term on the balance sheet.
D. Notes Payable and Long-Term Obligations:
December 31,
--------------------------
2002 2001
Long-term obligations:
Mortgage notes $ 3,701,639 $ 3,741,832
------------ ------------
3,701,639 3,741,832
Less current maturities 105,402 80,357
------------ ------------
Long-term portion $ 3,596,237 $ 3,661,475
============ ============
The current carrying value of long-term obligations approximate their fair
value.
Revolving Demand Note
In October 2000, the Company entered into a revolving demand loan agreement
with a bank for up to $1,500,000 (which cannot exceed 80% of qualified
account receivables), bearing interest at a rate approximating prime (4.25%
at December 31, 2002) plus .5%, which extends through June 30, 2003. This
arrangement replaced a previous line of credit. This credit facility
requires the Company to maintain stated tangible net worth as well as
stated debt service coverage and debt to tangible net worth ratios. Payment
of dividends is prohibited under the terms of this agreement. Borrowings
are secured by the personal property of the Company.
There were no borrowings under the revolving demand agreement during the
years ended 2002, 2001 and 2000.
Mortgage Notes
The Company has three mortgage notes outstanding at December 31, 2002. In
September 1998, the Company completed the refinancing of its 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 principal payment of
approximately $2,638,000 plus interest due in October 2008.
54
A note on a second building acquired in December 1992 requires monthly
principal and interest (at 9.5%) payments of $5,710 over twenty years. In
May 1993, the Company received $507,000 in mortgage financing for the
improvement and updating of this facility under a note from the Small
Business Administration. The twenty-year note, with interest at
approximately 6.6%, calls for monthly principal and interest payments of
$4,277. Each of these notes is collateralized by the buildings, which they
financed.
Capital Lease Obligations
The Company leases various computer equipment under capital lease
agreements. The agreements require monthly or quarterly payments of varying
amounts and expire through 2004.
Interest paid for notes payable and long-term debt obligations was
approximately $322,000, $337,000, and $552,000, for the years ended
December 31, 2002, 2001, and 2000, respectively.
55
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At December 31, 2002 scheduled maturities of long-term obligations and
minimum rental commitments under noncancellable capital leases with initial
terms of one year or more are as follows:
Long-Term
Capital Leases Obligations
---------------------------------
2003 $ 23,498 $ 86,869
2004 23,498 93,316
2005 - 101,517
2006 - 109,791
2007 - 118,755
Thereafter - 3,151,227
--------- ------------
46,996 3,661,475
Less imputed interest 6,832 -
--------- -----------
$ 40,164 $ 3,661,475
========= ===========
E. Income Taxes (Credits):
Earnings (loss) before income taxes is as follows:
Years Ended December 31,
-----------------------------------------------
2002 2001 2000
Domestic $ 673,101 $(448,714) $ 481,221
Foreign -- -- (197,000)
--------- --------- ---------
Total $ 673,101 $(448,714) $ 284,221
========= ========= =========
Components of income taxes (credits) are as follows:
Years Ended December 31,
----------------------------------------------
2002 2001 2000
---- ---- ----
Current:
Federal $ 361,000 $(160,000) $ --
State 147,000 36,000 --
Foreign -- -- 27,000
Deferred (243,000) (16,000) 228,000
--------- --------- ---------
$ 265,000 $(140,000) $ 255,000
========= ========= =========
56
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On a cash basis, income taxes paid in 2002, 2001, and 2000 were
approximately $555,000, $125,000, and $354,000, respectively. During 2001,
the Company carried back certain net operating losses to previous years,
resulting in $160,000 in refundable income taxes. Such amount was included
in other current assets.
Until its sale in fiscal 2000, the Company's non-US subsidiary computed
taxes at rates in effect in Italy. There were no undistributed earnings of
the non-US subsidiary due to cumulative losses.
Income taxes are reconciled with the U.S. federal statutory rate as follows:
Years Ended December 31,
------------------------------------
2002 2001 2000
---- ---- ----
Income taxes at U.S. statutory
federal rate $ 229,000 $(153,000) $ 97,000
State income tax, net of federal
income tax benefit 94,000 23,000 35,000
Tax benefits resulting from
CompuTrac acquisition (23,000) -- --
Non-deductible amortization of
intangibles -- -- 6,000
Foreign tax differential -- -- 94,000
Other, net (35,000) (10,000) 23,000
--------- --------- ---------
$ 265,000 $(140,000) $ 255,000
========= ========= =========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts for income tax purposes. The tax effects
of significant items comprising the Company's net deferred tax liability as
of December 31, 2002 and 2001 are as follows:
2002 2001
---- ----
Deferred tax liabilities:
Capitalized software deducted for tax, not book $ 226,000 $ 145,000
Differences between book and tax basis of property 260,000 246,000
Deferred gain on divestitures 553,000 585,000
Other 25,000 59,000
----------- -----------
1,064,000 1,035,000
----------- -----------
Deferred tax assets:
Accruals/reserves 225,000 258,000
Federal net operating loss carry-forward 1,071,000 50,000
Valuation allowance - Federal net operating
loss carry forward (711,000)
Capital and ordinary loss benefit --
related to TradePoint transaction 884,000 --
Valuation allowance - capital and ordinary loss
benefit related to TradePoint transaction (884,000) --
Other 13,000 18,000
----------- -----------
598,000 326,000
----------- -----------
Net deferred tax liability $ 466,000 $ 709,000
=========== ===========
57
The federal net operating loss carry-forwards result from the merger with
CompuTrac, Inc. The valuation for such federal net operating loss
carry-forwards is provided due to the limitations on the amount that such
net operating losses can be applied against taxable income each year over
the next twenty years. These Federal net operating loss carry-forwards of
$2,391,000 expire at various dates through 2022.
The capital loss carry-back and ordinary loss benefit result from the
TradePoint Systems LLC transaction. The Company, in filing its corporate
tax returns, anticipates utilization of approximately $1.4 million of
capital losses and $1.2 million of ordinary deductions that resulted from
this transaction. However, it is possible that in the event of an
examination by the Internal Revenue Service (IRS), some or all of such
capital losses and ordinary deductions could be disallowed. Due to this
uncertainty, a valuation allowance has been provided for the tax effect of
the full amount of such capital losses and ordinary deductions.
F. Capital Transactions:
Series A Junior Participating Preferred Stock
In October 1998 the Company's Board of Directors adopted a Shareholders
Rights Plan (the "Plan"), which provides a dividend of one preferred share
purchase right (a "Right") for each outstanding share of the Company's
common stock, par value $.01 per share. Except as set forth below and
subject to adjustment as set forth in the Plan, each Right will entitle the
holder to buy one one-hundredth of a share of authorized Series A Junior
Participating Preferred Stock, par value $.01 per share ("Series A
Preferred Stock") at a purchase price of $10 per right. Initially, the
Rights will attach to all Common Stock Certificates representing shares
then outstanding, and may not be traded apart from the stock. The Rights
become exercisable on the tenth day after public announcements that a
person or group has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the Company's outstanding common stock,
commencement of a tender or exchange offer that would result in a
beneficial ownership by a person or group of 20% or more of the Company's
common stock, or a person or group acquired 10% or more of the outstanding
common stock and is deemed an Adverse Person under the terms of the Plan.
If, after the Rights become exercisable, the Company is a party to certain
merger or business combination transactions, or transfers 50% or more of
its assets or earnings power, or if an acquirer engages in certain
self-dealing transactions, each Right (except those held by the acquirer)
will entitle its holder to buy a number of shares of the Company's Series A
Preferred Stock or, in certain circumstances, a number of shares of the
acquiring company's common stock, in either case having a market value
equal to two times the exercise price of the Right. The Rights may be
redeemed by the Company at any time up to ten days after a person or group
acquires 20% or more of the Company's common stock at a redemption price of
$.01 per Right. The Rights will expire on October 20, 2008.
The Company has reserved 60,000 shares of Series A Junior Participating
Preferred Stock for the exercise of the Rights.
Treasury Stock
Approximately $1,456,000 of the balance in treasury stock represents the
Company's investment in a partnership, the primary asset of which is the
Company's common stock. The Chief Executive Officer holds the remaining
partnership interest.
In 2002, the Company cancelled 23,000 shares of Treasury Stock valued at
$51,520.
Stock Options
At December 31, 2001, the Company has four stock-based compensation plans,
which are described below. The Company applies APB Opinion 25, Accounting
for Stock Issued to Employees, and related Interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for
its stock option plans. Had compensation cost for the Company's four stock
option plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of FASB Statement No.
123, Accounting for Stock-Based Compensation, the Company's net earnings
(loss) and earnings (loss) per share would have been adjusted to the pro
forma amounts indicated below:
58
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2002 2001 2000
---- ---- ----
Net earnings (loss) As reported $ 408,101 $ (308,714) $ 29,221
Pro forma 363,627 (360,141) (45,246)
Basic earnings (loss)
per share As reported $ 0.12 $ (0.10) $ 0.01
Pro forma 0.11 (0.12) (0.01)
Diluted earnings (loss)
per share As reported $ 0.11 $ (0.10) $ 0.01
Pro forma 0.10 (0.12) (0.01)
The Company's four stock option plans, the 1986, 1988, 1993, and 1995 Stock
Option Plans, provide for the granting of incentive stock options and
nonqualified stock options to purchase an aggregate of 980,000 shares of
common stock at a price not less than fair market value on the date the
option is granted.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2002, 2001, and 2000, respectively: dividend
yield of 0% for all years, and expected volatility of 62% for 2002, 65% for
2001 and 80% for 2000, risk-free rates ranging from 4.69% to 4.72% for
2002, 4.33% for 2001, and 5.68% to 6.56% for 2000, and expected lives
ranging from 12 to 48 months for 2002, 2001, and 2000, respectively.
A summary of the status of the Company's stock option plans as of December
31, 2002, 2001, and 2000, and changes during the years ending on those
dates, is presented below:
2002 2001 2000
------------------------------ ---------------------------- ------------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------------------------ ---------------------------- ------------------------------
Outstanding at
beginning of year 338,435 $ 1.61 340,180 $ 1.60 450,292 $ 1.36
Granted 50,000 1.10 23,430 1.10 31,800 2.95
Exercised - - - - 126,412 1.04
Canceled 17,055 2.87 25,175 1.06 15,500 1.99
----------- -------- --------
Outstanding at
end of year 371,380 $ 1.48 338,435 $ 1.61 340,180 $ 1.60
=========== ======= ======== ======= ======== ======
Options exercisable
at year-end 234,667 $ 1.14 310,006 $ 1.60 278,271 $ 1.38
=========== ======= ======== ======= ======== ======
Weighted-average
fair value of options
granted during
the year $ 0.77 $ 0.76 $ 2.52
======= ======= ======
59
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2002, the 371,380 options outstanding under the Plan
have exercise prices between $.88 and $2.81, and a weighted-average
remaining contractual life of approximately 4 years.
As of December 31, 2002 the exercisable options outstanding under the Plan
have exercise prices between $.88 and $2.81 and a weighted-average
remaining contractual life of approximately 4 years.
Common Stock Reserved
At December 31, 2002, the Company has reserved 634,550 shares of its common
stock for incentive and nonqualified stock options.
G. Earnings per Share:
The weighted average number of common shares outstanding used in the
computation of earnings per share is summarized as follows:
2002 2001 2000
---- ---- ----
Denominator for basic earnings per share -
weighted average shares 3,523,787 2,982,397 3,112,331
Effect of dilutive securities:
Employee stock options 30,343 -- 181,940
--------- --------- ---------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 3,554,130 2,982,397 3,294,271
========= ========= =========
The following table summarizes securities which were outstanding as of the
years ended December 31, 2002, 2001, and 2000 but not included in the
calculation of diluted net earnings per share because such shares are
antidilutive:
2002 2001 2000
---- ---- ----
Employee stock options 110,059 122,580 30,800
60
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
H. Geographic Information:
The following is a summary of selected geographic information for the years
ended December 31, 2002, 2001, and 2000:
Revenues: 2002 2001 2000
---- ---- ----
United States $15,898,000 $14,557,000 $18,100,000
Italy - - 1,300,000
Other 158,000 188,000 200,000
------------ ------------ ------------
Total $16,056,000 $14,745,000 $19,600,000
============ ============ ============
Revenues are attributed to countries based on location of customers.
No long-lived assets were held outside of the United States as of December
31, 2002, 2001, and 2000.
I. Commitments:
The Company and its subsidiaries lease office and warehouse facilities
under operating leases expiring on various dates through January 2006.
Total rent expense charged to operations approximated $429,000, $440,000,
and $461,000, in 2002, 2001, and 2000, respectively.
At December 31, 2002, minimum rental commitments under noncancellable
operating leases with initial terms of one year or more are as follows:
Operating
Leases
----------
2003 $ 519,000
2004 400,000
2005 250,000
2006 98,000
2007 -
Thereafter -
-----------
$ 1,267,000
===========
The Company, through its real estate subsidiary, ASA Properties Inc.,
leases office facilities to third parties under operating leases expiring
on various dates through December 2010. Total rental income included in
operations approximated $764,000, $798,000, and $811,000, in 2002, 2001,
and 2000, respectively.
61
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At December 31, 2002, future minimum rental payments to be received on
operating leases are as follows:
Operating
Leases
------------
2003 $ 694,318
2004 448,181
2005 210,893
2006 131,287
2007 127,887
Thereafter 383,661
------------
$ 1,996,227
============
The Company maintains a defined contribution benefit plan covering
substantially all its employees. The Company makes contributions to the
plan at the discretion of the Board of Directors based upon a percentage of
employee compensation as provided by the terms of the plan. Contributions
charged to operations in 2002, 2001, and 2000 were approximately $69,000,
$77,000, and $189,000, respectively.
J. Concentration of Credit Risks:
Financial instruments, which potentially subject the Companies' to
concentrations of credit risk, consist principally of cash and cash
equivalents and trade accounts receivable. At December 31, 2002, the
Company had approximately $4,032,000 of cash deposits in excess of FDIC
insurance limits. The Companies maintain such cash deposits in high credit
quality financial institutions.
Trade accounts receivable result primarily from sales to customers located
throughout the United States. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of customers
comprising the Companies' customer base, and their dispersion across many
different geographic regions and industries. Management believes that the
Company's allowance for doubtful accounts is adequate relative to any
potential exposure concerning potentially uncollectible trade accounts
receivable.
K. Subsequent Event:
In January 2003, the Company co-signed and guaranteed a Promissory Note for
$893,000 under a Demand Loan and Security Agreement with a bank for the
purchase of a 50% interest in an entity that owns an aircraft. The 5-year
note with interest at prime (4.25% at December 31, 2002) plus .25% calls
for monthly principal and interest payments of $6,861 through December 2007
with a final payment of approximately $666,869 plus interest due in
December 2007. The Promissory Note is collateralized by the aircraft. The
Company's portion of the aircraft's annual operating costs are estimated to
be approximately $90,000 based on 100 hours estimated usage. Fixed costs
for the aircraft approximate $30,000 annually.
62
L. Quarterly Financial Data (unaudited):
Earnings (loss) Basic Diluted
from Net earnings earnings (loss) earnings (loss)
Revenue operations (loss) per share per share
------- ---------- ------ --------- ---------
2002
- ----
First quarter $ 3,455,000 $ 50,000 $ 92,000 $ 0.03 $ 0.03
Second quarter 4,239,000 412,000 339,000 0.11 0.11
Third quarter 4,218,000 97,000 75,000 0.02 0.02
Fourth quarter 4,144,000 (264,000) (98,000) (0.02) (0.02)
2001
- ----
First quarter $ 4,146,000 $ (329,000) $ (112,000) $ (0.04) $ (0.04)
Second quarter 3,713,000 (325,000) (138,000) (0.05) (0.05)
Third quarter 4,001,000 161,000 195,000 0.07 0.06
Fourth quarter 2,885,000 (437,000) (254,000) (0.09) (0.09)
The basic and duluted earnings (loss) per share amounts for the Third and Fourth
Quarters of 2002 include the effect of the 1,364,670 additional shares in the
CompuTrac, Inc. acquisition completed in August 2002.
63