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, 2003 O-14741
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ASA International Ltd.
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(Exact name of Registrant as specified in its Charter)
Delaware 02-0398205
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Speen Street, Framingham, MA 01701
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 626-2727
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange
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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 22, 2004, 1,914,157 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 June 30, 2003 (the last business day of the registrant's most
recently completed second fiscal quarter) was approximately $3,410,000.
1
PART I
ITEM 1. Business
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GENERAL
Background
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ASA International Ltd. (the "Registrant" or the "Company") provides
networked automation systems and ongoing monthly support to approximately 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. Our tire systems procuct line consists of an integrated
offering of systems and services designed specifically for the multi-user
environments of today's tire and automotive after-market businesses. The Company
markets its flagship products TireMax(R) and TirePro(R) and offers e-commerce
and business-to-business services through eTireLink as well as ASP services. In
2003, a Business Intelligence data mining product called Analytix was released
which interfaces to TireMax(R) and TirePro(R).
Legal Systems. Our legal systems product line is offered under the name of
RainMaker(TM), as a provider of integrated financial management, practice
management, and business intelligence software solutions for law firms in the
United States.
Enterprise Software for Project-Based Organizations. Our enterprise
application software product line consists of software designed exclusively for
organizations that provide project-based services, such as value added
resellers, systems integrators, software companies, technology consulting,
professional services, and contract furnishing providers. Marketed under the
name "Khameleon Software," the Company offers a modular suite of back-office and
front-office software applications capable of processing all transactions and
activities for the entire service delivery including; sales force automation,
project accounting, contract management, sales and distribution, service desk,
and financial management.
Manufacturing and Distribution Systems. Our manufacturing and distribution
systems product line consists of enterprise application software designed for
small-to-medium size manufacturers and distributors. Marketed under the name
"Verticent," the Company targets vertical industries where it has both
experience and proven success, including metal service centers, metal
fabricators, industrial machinery, outsourced manufacturers, and
configure-to-order manufacturers.
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., ASA International
Ventures, Inc., ASA Tire Systems Inc., RainMaker Software, Inc. (formerly ASA
Legal Systems, Inc.), Khameleon Software Inc., Verticent, Inc., ASA Aircraft LLC
and Pilot Services, 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.
2
Acquisitions and Divestitures within the Past Five Years
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Design Data
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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 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
3
electronic commerce firms. In connection therewith, the Company transferred to
the purchaser certain of the liabilities of CWI. The Company received (i) cash
in the amount of $4,000,000, (ii) a promissory note in the amount of $1,700,000,
(iii) a junior promissory note in the amount of $500,000, (iv) 30,000 shares of
CW's common stock, par value $.01 per share, and (v) one (1) share of CW's
Series A Preferred Stock.
International Trade and Transportation Systems Group
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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 332,799 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 332,799 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
685,340 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
682,335 due to approximately 3,000 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 $2.70 per share for the 222,213
shares covered under the Stock Repurchase Agreement and a value of approximately
$2.02 for the 460,223 remaining shares issued. The $2.02 value for these shares
is based on the closing price of ASA's stock as of the merger date of August 1,
2002. Identified intangible assets, consisting principally of software, which
totaled approximately $941,000 after the pro rata reduction of the amounts that
otherwise would be assigned, will be amortized over an estimated life of five
years. The merger followed the approval of the transaction by the shareholders
of each company in July 2002.
The share/per share amounts for the merger have been restated to reflect
the May 30, 2003 reverse/forward split of the Company's common stock.
4
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 $1,114,000 of goodwill, $232,000 of
software, $360,000 of other assets, and the assumption of approximately
$1,019,000 of liabilities were recorded at their fair values.
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, and Hewlett-Packard Unix/Linux-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 $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 (HP) hardware platform.
Legal Systems
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The Company provides integrated financial management, practice management,
and business intelligence systems for mid-large size law firms throughout the
United States. The Company's RainMaker Platinum products are a 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, Inc., of New Hope,
Pennsylvania. In July 1999, the Company acquired substantially all of the assets
of Chase Technologies, Inc., of Washington Crossing, Pennsylvania. In August
2002, the Company completed the merger with CompuTrac, Inc., of Richardson,
Texas.
Enterprise Software for Project-Based Organizations.
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Marketed under the name Khameleon Software, the Company's products are
designed exclusively for organizations that provide project-based services.
Khameleon offers a modular suite of applications, including sales force
5
automation, project accounting, contract management, sales and distribution,
service desk, and financial management. Khameleon's products run exclusively on
Oracle's premier database technology. Systems range in price from approximately
$50,000 to $200,000.
The Company entered this market in November 1999 when it acquired Design
Data Systems Corporation of Clearwater, Florida.
Manufacturing and Distribution Systems.
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Marketed under the name Verticent the Company provides a comprehensive
enterprise business system designed for the unique needs of small-to-medium size
manufacturers and distributors. Incorporating enterprise resource planning,
customer relationship management, e-business, and business intelligence
solutions, the Verticent enterprise business system is designed to leverage
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 $50,000 to $250,000.
The Company entered the Manufacturing and Distribution Systems market in
December 2002 when it acquired substantially all of 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, project-based services, and manufacturing and
distribution applications software markets served by the Company, the total
markets are 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 in 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.
6
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
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, 2003, 2002, and 2001, the
Company's revenue by product line was approximately as follows:
2003 2002 2001
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Product Line Revenue % Revenue % Revenue %
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Tire Systems $ 6,625,000 41% $ 8,438,000 53% $ 6,852,000 47%
Legal Systems 5,385,000 34% 4,567,000 28% 3,416,000 23%
Project-Based
Services Systems 2,019,000 13% 2,913,000 18% 4,477,000 30%
Manufacturing and
Distribution Systems 1,887,000 12% 138,000 1% -- --
----------- --- ----------- --- ----------- ---
$15,916,000 100% $16,056,000 100% $14,745,000 100%
=========== === =========== === =========== ===
7
Backlog
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Set forth below is information concerning the Company's backlog at December
31, 2003 and 2002, respectively:
Backlog at December 31,
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2003 2002
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Support Support
Product Line Total Contracts Total Contracts
- ------------ ----- --------- ----- ---------
Tire Systems/Legacy Products $ 3,700,000 $ 2,900,000 $ 3,100,000 $ 2,700,000
Legal Systems 3,700,000 3,200,000 3,900,000 3,600,000
Project-based Services Systems 1,100,000 1,100,000 1,400,000 1,300,000
Manufacturing and
Distribution Systems 900,000 900,000 500,000 500,000
------------- ------------- ------------- -------------
$ 9,400,000 $ 8,100,000 $ 8,900,000 $ 8,100,000
============= ============= ============= =============
The Company expects that all of the backlog existing at December 31, 2003
will be filled in fiscal year 2004. 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 has five main competitors in the Tire Market: MaddenCo,
CarParts, Quality Design Systems (QDS), Signal, and Goodyear. A new entrant to
the market, TireWare, is developing a browser based application for
Point-of-Sale. MaddenCo has a mature client base and is not growing or losing
customers at a significant rate. QDS is owned by Bandag, Incorporated (NYSE
ticker symbol: BDG). QDS focuses primarily on the low end (single-location)
dealerships and has recently begun to offer the product to prospects with
multiple locations. Signal has a legacy base of clients that they maintain.
Goodyear has both company owned and independent dealers operating on their
system. The Company believes that the principal competitive factors are initial
price, ongoing cost of ownership, ease of startup, and overall customer
satisfaction. 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 Enterprise Software market for Project-based Organizations is highly
competitive. The primary competitors for the Company's Khameleon product line
are SOFTRAX, Microsoft Great Plains, Microsoft 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 the complex business processes associated with project
accounting, contract management, and revenue recognition. 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 telemarketing, email
broadcasting, search engine optimization, on-line advertising, and public
relations.
8
The Enterprise Software market for small-to-medium size Manufacturers and
Distributors is intensely competitive. The primary competitors for the Company's
Verticent product line include Axis Computer Systems, Invera, Metalware, Lilly
Software, Made2Manage, Epicor, and Microsoft Navision. 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 the
complex business processes faced by Verticent's targeted vertical industries,
including rules-based order configuration, dimensional variability, cut
optimization, mill test reporting, remnant inventory, electronic data
interchange, and landed cost, among others. 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 telemarketing, email broadcasting, search
engine optimization, print and on-line advertising, and public relations.
New Accounting Pronouncements
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In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." This Interpretation clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 requires an enterprise
to consolidate a variable interest entity if that enterprise will absorb a
majority of the entity's expected losses, is entitled to receive a majority of
the entity's expected residual returns, or both. FIN 46 also requires
disclosures about unconsolidated variable interest entities in which an
enterprise holds a significant variable interest. FIN 46 is currently effective
for variable interest entities created or entered into after January 31, 2003.
FASB Staff Position 46-6, which was issued in October 2003, delayed the
effective date of FIN 46 to the first reporting period ending after December 15,
2003 for variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN 46 did
not have a material effect on the Company's results of operations or financial
position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This Statement clarifies
under what circumstances a contract with an initial net investment meets the
characteristics of a derivative, clarifies when a derivative contains a
financing component, amends the language used in FIN 45, and amends certain
other existing pronouncements. The provisions of SFAS No. 149 are effective for
contracts entered into or modified after June 30, 2003. The adoption of SFAS No.
149 did not have a material effect on the Company's results of operations or
financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances),
which, under previous guidance, may have been classified as equity. The
provisions of SFAS No. 150 are effective for financial instruments entered into
or modified after May 31, 2003 and otherwise shall generally be effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have a material effect on the Company's results
of operations or financial position.
Research and Development
- ------------------------
During the last three fiscal years, the amounts spent by the Company on
Company-sponsored research and development activities and on customer-sponsored
research activities relating to the development of new products, services, or
techniques or the improvement of existing products, services, or techniques were
not material.
Government Regulation
- ---------------------
There is presently no material government regulation with respect to the
Company's business. Approvals for computer hardware from Underwriter's
Laboratories and the Federal Communications Commission are obtained by the
hardware manufacturer. However, the extent to which future federal, state, or
9
local governmental regulations may regulate the Company's activities cannot be
predicted, and the Company may be subject to restrictions on export of its
computer systems to other countries if it seeks further expansion into non-U.S.
markets.
Employees
- ---------
As of December 31, 2003, the Company had 110 full time employees. Of these
employees, 8 are executive officers or senior managers, 14 are engaged in
marketing and sales, 49 in customer support and training, 23 in product/custom
development or engineering and 16 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 I, in the Company's Notes to Consolidated Financial
Statements.
ITEM 2. Properties
----------
The Company's corporate headquarters are located in a 32,000 square foot
office building at 10 Speen Street, Framingham, Massachusetts. This property is
owned by 10 Speen Street LLC, a Delaware limited liability company. ASA
Properties, Inc., a wholly owned subsidiary of the Company, is the managing and
sole member of 10 Speen Street LLC. The Company occupies approximately 16% of
the space in the building, while tenants lease the remainder of the space. In
September 1998, the Company refinanced this facility with a $3,000,000 mortgage
loan at 7.24% for 10 years with monthly principal and interest payments of
$20,445 through October 2008 and a final payment of approximately $2,638,000 of
principal, together with interest thereon.
In October 2003, the Company sold its 25,600 square foot office building in
Nashua, New Hampshire for $2,300,000 in cash. Approximately $960,000 of the
proceeds was used to satisfy mortgage loan obligations for the building. The
sale resulted in a pretax gain of approximately $650,000. Concurrent with the
sale of the building, the Company signed a five-year lease for approximately
10,000 square feet of the building currently used by the Tire Systems product
line for office space.
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:
Location Monthly Rent Current Date of Lease
-------- ------------ Office Area Expiration
----------- ----------
Blue Bell, Pennsylvania $ 13,786 9,667 s.f. January 31, 2006
Kirkland, Washington $ 6,190 3,720 s.f. October 31, 2006
Nashua, New Hampshire $ 12,739 10,191 s.f. October 31, 2008
Tampa, Florida $ 16,819 12,232 s.f. December 31, 2008
10
ITEM 3. Legal Proceedings
-----------------
Various legal actions arising in the normal course of business have been
brought against the Company. Management believes these matters will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
ITEM 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
No matter was submitted to a vote of security-holders during the fourth
quarter of the fiscal year ended December 31, 2003, through the solicitation of
proxies or otherwise.
PART II
ITEM 5. Market for 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 2002 and 2003:
Calendar Year 2002 Low High
------------------ --- ----
First Quarter $2.46 $3.24
Second Quarter $2.20 $2.90
Third Quarter $1.50 $3.00
Fourth Quarter $1.56 $2.40
Calendar Year 2003 Low High
------------------ --- ----
First Quarter $1.78 $2.90
Second Quarter $1.50 $2.46
Third Quarter $1.94 $2.40
Fourth Quarter $2.15 $3.21
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions. There were 383 holders of record of the Company's outstanding
Common Stock as of March 22, 2004. 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. In 2003, the Company repurchased shares under the program
in the months indicated as follows:
11
2003 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
April 2,750 $2.12
May 4,350 2.17
August 22,700 2.19
September 5,200 2.19
October 5,000 2.19
As of December 31, 2003, the Company may still repurchase up to
approximately $500,000 of its Common Stock under the program. 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.
During 2002 and 2003, the Company purchased 23,148 and 55,548 shares
respectively, of its stock at $2.70 per share under the Stock Repurchase
Agreement related to the CompuTrac acquisition. Also during 2003, the Company
purchased 3,392 shares at $2.10 per share from a shareholder.
All share/per share amounts reflect the May 30, 2003, reverse/forward split
of the Company's common stock.
Since its organization, the Company has not paid any dividends on its Common
Stock and its Board of Directors does not contemplate declaring any dividends in
the foreseeable future. The declaration and payment of dividends in the future
will be determined by the Board of Directors in light of conditions then
existing, including the Company's earnings, its financial condition and
requirements (including working capital needs), any agreements restricting the
payment of dividends and other factors. The Company's current banking
arrangements prohibit the payment of dividends by the Company.
ITEM 6. Selected Consolidated Financial Data
------------------------------------
(in thousands, except per share amounts)
The following selected consolidated financial data are derived from the
consolidated financial statements of the Company. The statement of operations
data for the years ended December 31, 2003, 2002, and 2001 and the balance sheet
data as of December 31, 2003 and 2002 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 for the years ended
December 31, 2000, and 1999, and the balance sheet data as of December 31, 2000,
and 1999 are derived from financial statements audited by BDO Seidman, LLP, the
Company's then independent certified public accountants.
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.
(000's omitted)
Years Ended Decdmber 31,
------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Operating Data: (a) (b) (c) (d)(e)
Revenues $ 15,916 $ 16,056 $ 14,745 $ 19,633 $ 25,623
Costs of Revenue, Expenses and
Other Income and Expenses
excluding income tax expense 16,847 15,383 15,194 19,349 21,534
Earnings (Loss)
from Operations (1,647) 295 (931) (5,242) 491
Net Earnings (Loss) (515) 408 (309) 29 2,167
Basic Earnings (Loss) per
Common Share $ (0.25) $ 0.12 $ (0.10) $ 0.01 $ 0.67
Diluted Earnings (Loss) per
Common Share $ (0.25) $ 0.11 $ (0.10) $ 0.01 $ 0.63
Balance Sheet Data: 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Total Assets $ 17,799 $ 19,896 $ 16,748 $ 18,601 $ 27,870
Long-Term Obligations 3,210 3,596 3,661 3,744 3,915
Long-Term Liabilities - other 830 999 709 725 769
Shareholders' Equity 10,437 10,747 9,405 9,716 10,240
12
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 Design Data Systems Corporation
from the date of its acquisition on 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 2003 to 2002
(000's omitted)
-------------------------------------------------------
Revenue Increase/(Decrease)
------------------------- --------------------------
2003 2002 Amount Percentage
Services $ 12,169 $ 10,916 $ 1,253 11%
Product licenses 2,782 3,606 (824) (23)%
Computer and add-on hardware 965 1,534 (569) (37)%
--------- ------------ ------------ -----------
Total Revenue $ 15,916 $ 16,056 $ (140) (1)%
========= ============ ============ ===========
13
During 2002, the Company completed the acquisition of two product lines. The
revenues related to these product lines for the year ended December 31, 2003 and
2002 were as follows:
Revenue Revenue
ASA Acquisition for for
Line Acquired From Product Line Date 2003 2002
------------------ ------------ ---- ---- ----
CompuTrac, Inc. Legal August 2002 $ 2,504,000 $ 699,000
PowerCerv Corporation Manufacturing & November 2002 1,887,000 138,000
Distribution ------------ ----------
Total $ 4,391,000 $ 837,000
============ ==========
REVENUE
Total Revenue. The Company designs and develops proprietary enterprise software
for the tire dealer, legal, project-based services, 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 decreased by approximately $140,000 for the year ended December
31, 2003, compared to the year ended December 31, 2002. Revenue from existing
businesses (which excludes the effect in 2002 and 2003 of PowerCerv) decreased
by approximately $1,888,000 or 12% for the year ended December 31, 2003, when
compared to the same period in 2002 and approximately $1,887,000 and $138,000 in
revenue from the products acquired from PowerCerv for the years ended December
31, 2003 and December 31, 2002, respectively, is excluded.
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 $1,253,000, or 11%, for the year ended December 31, 2003 compared
to the year ended December 31, 2002. Services revenue from existing businesses
decreased approximately $323,000, or 3% for the period when approximately
$1,714,000 and $138,000 in service revenue from the products acquired from
PowerCerv for the years ended December 31, 2003 and December 31, 2002, is
excluded. Service revenue decreased for the Company's tire and project-based
services systems product lines. The decrease in service revenues was due
primarily to reduced client requirements for training and consulting services.
Product licenses. The Company's software license revenues are derived primarily
from the licensing of the Company's enterprise products. Product license
revenues decreased by approximately $824,000, or 23%, for the year ended
December 31, 2003, compared to the year ended December 31, 2002. Product license
revenues decreased for all product lines except for project-based services
systems from the year ended December 31, 2003 when compared to the year ended
December 31, 2002. Product license revenue from existing businesses decreased by
approximately $996,000, or 28% for the period when approximately $172,000 in
product license revenue from the products acquired from PowerCerv is excluded.
The decrease in license revenue for the year ended December 31, 2003 compared to
the same period in 2002 was primarily attributable to overall continuing
economic uncertainty and a persisting delay in decisions by customers to make
expenditures on information technology.
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
decreased by approximately $569,000, or 37%, for the year ended December 31,
2003, compared to the year ended December 31, 2002. The decrease in hardware
revenues from existing businesses was due to decreased hardware sales by the
tire systems product line. Clients are electing to use third party sources for
their hardware needs as price competition continues to increase.
14
COST OF REVENUE
Services. The Company's cost of services consists of the costs incurred in
providing client training, consulting, and ongoing support as well as other
client service-related expenses. Cost of services increased by approximately
$1,101,000, or 20%, for the year ended December 31, 2003, compared to the year
ended December 31, 2002. The increase includes approximately $957,000 in cost of
services from the newly acquired manufacturing and distribution software product
line. The gross margin percentage for services for the period decreased to
approximately 46% from 50% of revenue from services for the same period in 2002.
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. 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
$200,000, or 6%, for the year ended December 31, 2003, compared to the year
ended December 31, 2002. Expenses from existing businesses decreased by $83,000
or 3% when approximately $347,000 and $65,000 in license revenue and development
expenses for the newly acquired manufacturing and distribution software product
line for the years ended December 31, 2003 and 2002, respectively, are 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 $390,000, or 34%, for the year ended December 31, 2003,
compared to the year ended December 31, 2002. The decrease was due to decreased
sales of hardware products by the Company's tire systems product line. The gross
margin percentage for hardware sales decreased to 20% for the year ended
December 31, 2003, from 24% for the year ended December 31, 2002. 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. Marketing and sales expenses consist primarily of employee
salaries, benefits, commissions and associated overhead costs, and the cost of
marketing programs such as direct mailings, trade shows, seminars, and related
communication costs. Marketing and sales expenses increased by approximately
$150,000, or 7%, for the year ended December 31, 2003, compared to the year
ended December 31, 2002. Sales and marketing expenses from existing businesses
decreased by $473,000, or 16%, when approximately $665,000 and $42,000 in
expenses for the newly acquired manufacturing and distribution systems product
line for the years ended December 31, 2003 and 2002, respectively, are excluded.
This change, along with an increase in sales and marketing expenses for the
legal product line was partially offset by a decrease in such expenses from the
Company's tire systems and project-based services product lines for the year
ended December 31, 2003 compared to the similar period ended December 31, 2002.
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 increased
approximately $570,000, or 18%, for the year ended December 31, 2003, compared
to the year ended December 31, 2002. The change primarily reflects the general
and administrative expenses from the newly acquired manufacturing and
distribution software product line, a decrease in rental income along with
increased operating costs for the Company's real estate operations, and
increased expenses related to corporate overhead and the legal systems product
line.
OTHER INCOME
Gain on Sale of Building. In October 2003, the Company sold its 25,600 square
foot office building in Nashua, New Hampshire for $2,300,000 in cash.
Approximately $960,000 of the proceeds was used to satisfy mortgage loan
obligations for the building. The sale resulted in a pretax gain of
approximately $654,000.
The net loss for the year ended December 31, 2003 was approximately $515,000, as
compared to net earnings of approximately $408,000 for the year ended December
31, 2002. The change results from a decrease in earnings from operations of
approximately $1,942,000, a decrease in license and management fees and other
income-net of approximately $210,000 and a decrease in interest income-net of
approximately $106,000, partially offset by the gain on the sale of building of
approximately $654,000 and a decrease in income tax expense of approximately
$681,000.
15
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%
============ ============ ============
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:
ASA Revenue
--- 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, project-based services, 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
16
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 project-based services 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 project-based services
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
$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.
17
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
project-based services 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 project-based
services 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.
RELATED PARTY TRANSACTIONS
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. At December 31, 2002,
the Note Receivable - related party represents a demand note bearing interest at
an annual rate of 6.4%. In March 2003, the Company received 55,000 shares of the
Company's Common Stock from the Chairman of the Company as consideration for the
note and related accrued interest which totaled approximately $211,000. The
shares received were recorded as treasury stock at the then current market value
of $2.63 with the difference of approximately $66,000 recorded as a bonus. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and cash equivalents at December 31, 2003 of
approximately $4,746,000, an increase of approximately $236,000 from December
31, 2002. The Company had a maximum line of credit subject to a formula totaling
$1,500,000 available at December 31, 2003. At December 31, 2003, the Company had
approximately $1,670,000 invested in marketable securities, an increase of
approximately $1,647,000 from December 31, 2002.
In October 2003, the Company completed the sale of its office facility at 615
Amherst Street, Nashua, New Hampshire. The 25,600 square foot building was sold
for $2,300,000 in cash with outstanding debt on the building including a
prepayment penalty of approximately $960,000 paid from the cash proceeds at the
time of closing. The sale resulted in a pretax gain for the Company of
approximately $650,000 and net cash proceeds of approximately $1,156,000. The
Company also signed a five-year lease for approximately 10,000 square feet of
the facility currently occupied by its Tire Systems Group.
In May 2003, the Company purchased 225,625 shares of common stock of Omtool Ltd.
The aggregate purchase price of the shares was $676,875. The shares were
purchased under a Stock Purchase Agreement with two third parties which requires
that the Company pay, under certain conditions, an additional amount under a
formula to the third parties should the Company subsequently purchase additional
shares of Omtool stock. At the current time, no additional purchases of Omtool
Ltd.'s common stock by the Company are contemplated. Mr. Robert Voelk, who is
Chairman and CEO of Omtool Ltd., is a member of the Company's Board of
Directors.
In May 2003, the Company's stockholders approved a reverse/forward split of the
Company's common stock which resulted in a one-for-two reverse split and a cash
out of stockholders who owned fewer than 200 shares. A total of approximately
$159,000 was paid out for cashed out and fractional shares, which totaled
approximately 71,600 post-split shares.
In January 2003, the Company co-signed and guaranteed a Promissory Note on
behalf of a newly formed, 100% owned subsidiary, ASA Aircraft, LLC. The note for
$893,000 was signed under a Demand Loan and Security Agreement with a bank for
the purchase of a 50% interest in an aircraft. The total purchase price of the
aircraft was $900,000. The Company is obligated for 50% of the $893,000 note and
is a guarantor on the remaining 50%. The co-borrower on the note is an unrelated
party that is liable for 50% of the note and is also a guarantor of the
Company's liability. The 5-year note with interest at prime (4.00% at December
31, 2003) plus .25% calls for monthly principal and interest payments of $6,861
through December 2007 with a final payment of approximately $666,869 plus
18
interest due in December 2007. The Promissory Note is collateralized by the
aircraft with cross guarantees by each of the borrowers. Under the provisions of
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Guarantees of Indebtedness of Others," management of
the Company has determined that the fair value of the guarantee related to the
note is nominal and not material to the Company's financial statements.
In December 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. The total amount due on this Note of approximately $90,800 was paid in
June 2003. The purchase price was also increased by approximately $16,000 for
adjustments specified under the terms of the PowerCerv Purchase Agreement which
was paid in the first quarter of 2003. The assets acquired now comprise the
Company's manufacturing and distribution software product line which was tested
for impairment during the fourth quarter of 2003 under the provisions of
Statement of Accounting Standard No. 142, "Goodwill and Other Intangible Assets
("SFAS 142"). The test was applied utilizing the estimated fair value of this
reporting unit as of December 31, 2003, determined based on a combination of the
manufacturing and distribution software product line's discounted cash flows and
acquisition multiples of comparable businesses. As a result of this analysis,
the Company recorded a non-cash impairment charge of $171,000, or ($0.08) per
share.
The Company expects to continue to pursue strategic acquisitions. These
acquisitions have been, and are expected to continue to be, financed in a number
of ways. Management believes, subject to the conditions of the financial
markets, that it should be able to continue its program of acquisitions. These
acquisitions could present challenges to the Company's management, such as
integrating and incorporating new operations, product lines, technologies and
personnel. If the Company's management is unable to manage these challenges, the
Company's business, financial condition or results of operations could be
materially adversely affected. Any acquisition, depending on its size, could
result in significant dilution to the Company's stockholders. Furthermore, there
can be no assurance that any acquired products will gain acceptance in the
Company's markets.
The Company has experienced significant fluctuations in its quarterly operating
results and anticipates such fluctuations in the future. Quarterly revenues and
operating results depend on the volume and timing of orders received during the
quarter, which are difficult to forecast. Large orders for the Company's
products often have a lengthy sales cycle while the customer evaluates and
receives approvals for the purchase of the products. It may be difficult to
accurately predict the sales cycle of any large order. If one or more large
orders fail to close as forecasted in a fiscal quarter, the Company's revenues
and operating results could be materially adversely affected. In addition, the
Company typically receives a substantial portion of its product orders in the
last month of the quarter. Orders are shipped as received and, as a result, the
Company often has little or no backlog except for support and service revenue.
The Company acknowledges the potential adverse impact that such fluctuations and
general economic uncertainty could have on its ability to maintain liquidity and
raise additional capital.
The Company's future financial performance is also dependent in large part on
the successful development, introduction, and customer acceptance of new and
enhanced versions of its software products. Due to the rapid change in vendor
hardware platforms, operating systems, and updated versions, the complexity and
expense of developing, testing, and maintaining the Company's products has
increased. The Company intends, as it has in the past, to fund this development
primarily from its cash from operations and bank debt. There can be no assurance
that these efforts will be successful or result in significant product
enhancements.
Subject to the foregoing, the Company believes that based on the level of
operating revenue, cash on hand, and available bank debt, it has sufficient
capital to finance its ongoing business.
Inflation. General inflation over the last three years has not had a material
effect on the Company's cost of doing business.
Off-balance Sheet Arrangements. The Company has engaged in certain financial
transactions that, under generally accepted accounting principles are either not
recorded on the Consolidated Balance Sheet or are recorded in amounts that
differ from the full contract amounts.
19
The Company co-signed and guaranteed a Promissory Note on behalf of a newly
formed, 100% owned subsidiary, ASA Aircraft, LLC. The note for $893,000 was
signed under a Demand Loan and Security Agreement with a bank for the purchase
of a 50% interest in an aircraft. The total purchase price of the aircraft was
$900,000. The Company is obligated for 50% of the $893,000 note and is a
guarantor on the remaining 50%. The co-borrower on the note is an unrelated
party that is liable for 50% of the note and is also a guarantor of the
Company's liability. The five-year note with interest at prime (4.00% at
December 31, 2003) 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 with cross guarantees by each of the borrowers. Under the provisions of
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Guarantees of Indebtedness of Others," management of
the Company has determined that the fair value of the guarantee related to the
note is nominal and not material to the Company's financial statements. The
total balance outstanding on the note at December 31, 2003 is $850,000, of which
$425,000 is included in the Company's balance sheet.
The Company has contractual obligations to make future payments on operating
lease commitments. Operating lease commitments are not reflected on the
Company's Consolidated Balance Sheets. Details of these contractual obligations
as at December 31, 2003 are disclosed by remaining maturity in Footnote J to the
Company's Consolidated Financial Statements.
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 $278,000 and $381,000 has been received and
recorded in the Statements of Operations for the years ended December 31, 2003
and 2002, respectively.
Contractual Obligations. The following table sets forth the Company's
contractual obligations as of December 31, 2003:
Less Than 1 - 3 3 - 5 More Than
Total 1 Year Years Years 5 Years
----------- ---------- ----------- ----------- ---------
Long-term debt (a) $ 3,294,000 $ 77,000 $ 162,000 $ 3,055,000 $ --
Operating leases (b) 2,388,000 549,000 1,454,000 385,000 --
----------- ---------- ----------- ----------- ---------
Total $ 5,682,000 $ 626,000 $ 1,616,000 $ 3,440,000 $ --
=========== ========== =========== =========== =========
(a) Represents the carrying value of long-term obligations, which includes
mortgage note, demand note and capital leases.
(b) Represents minimum rental commitments under non-cancellable operating
leases with initial term of one year or more.
Critical Accounting Policies and Estimates. Management's 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 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 accounts
receivable balance at December 31, 2003 was $1,466,719, net of an allowance for
doubtful accounts of $122,646.
20
Revenue Recognition. The Company recognizes revenue in accordance with the
American Institute of Certified Public Accountants (AICPA) Statement of Position
("SOP") 97-2, "Software Revenue Recognition," and SOP 98-9 "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions."
Revenue is recognized when all of the following are met: pervasive evidence of
an arrangement exists; delivery has occurred; the vendor's fee is fixed and
determinable; and collectibility is probable. For multiple-element license
arrangements, the license fee is allocated to the various elements based on fair
value. When a multiple-element arrangement includes rights to a post-contract
customer support, the portion of the license fee allocated to such support is
recognized ratably over the term of the arrangement. For arrangements to deliver
software that requires significant modification or customization, revenue is
recognized on the percentage-of-completion method.
Computer hardware revenue is recognized upon shipment of product to the client.
Service revenues include post-contract client support, consulting, and training
support. Post-contract client support is generally provided under self-renewing
maintenance agreements. Revenue on these maintenance agreements is recognized
ratably over the contract term. Consulting and training services revenue is
recognized in the period the service is rendered.
Based on the Company's reading and interpretation of these SOPs, the Company
believes that its current sales contract terms and business arrangements have
been properly reported. However, the AICPA and its Software Revenue Recognition
Task Force continue to issue interpretations and guidance for applying the
relevant standards to a wide range of sales contract terms and business
arrangements that are prevalent in the software industry. Also, the Securities
and Exchange Commission (SEC) has issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," which provides guidance related
to revenue recognition based on interpretations and practices followed by the
SEC. Future interpretations of existing accounting standards or changes in the
Company's business practices could result in future changes in its revenue
accounting policies that could have a material adverse effect on its business,
financial condition and results of operations.
The Company's revenue recognition policy is significant because the Company's
revenue is a key component of its results of operations. In addition, the
Company's revenue recognition determines the timing of certain expenses, such as
commissions and license costs. The Company follows very specific and detailed
guidelines in measuring revenue; however, certain judgments affect the
application of the Company's revenue policy. Revenue results are difficult to
predict, and any shortfall in revenue or delay in recognizing revenue could
cause the Company's operating results to vary significantly from quarter to
quarter and could result in future operating losses.
Software. The Company accounts for the costs of computer software developed in
accordance with Statement of Financial Accounting Standard No. 86. Accordingly,
the costs of purchased software, and of that software developed internally (once
technological feasibility is established) associated with coding new
applications or modules and enhancing and porting existing applications
software, are capitalized. Amortization of these costs is based on the greater
of the charge resulting from the application of either the straight-line method
over five years or the proportion of current sales to estimated future revenues
of each product. The Company periodically reviews the carrying value of its
software to determine whether an impairment exists. Relevant cash flow and
profitability information, including estimated future operating results, trends,
and other available information are considered in assessing whether the carrying
value of the software can be recovered. If it is determined that the carrying
value of the software will not be recovered from the undiscounted cash flows,
the carrying value of the software would be considered impaired and 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 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 and acquisition multiples of comparable businesses, which requires the
Company to make certain assumptions and estimates regarding industry economic
21
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.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." This Interpretation clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 requires an enterprise
to consolidate a variable interest entity if that enterprise will absorb a
majority of the entity's expected losses, is entitled to receive a majority of
the entity's expected residual returns, or both. FIN 46 also requires
disclosures about unconsolidated variable interest entities in which an
enterprise holds a significant variable interest. FIN 46 is currently effective
for variable interest entities created or entered into after January 31, 2003.
FASB Staff Position 46-6, which was issued in October 2003, delayed the
effective date of FIN 46 to the first reporting period ending after December 15,
2003 for variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN 46 did
not have a material effect on the Company's results of operations or financial
position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement clarifies under
what circumstances a contract with an initial net investment meets the
characteristics of a derivative, clarifies when a derivative contains a
financing component, amends the language used in FIN 45, and amends certain
other existing pronouncements. The provisions of SFAS No. 149 are effective for
contracts entered into or modified after June 30, 2003. The adoption of SFAS No.
149 did not have a material effect on the Company's results of operations or
financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances), which, under
previous guidance, may have been classified as equity. The provisions of SFAS
No. 150 are effective for financial instruments entered into or modified after
May 31, 2003 and otherwise shall generally be effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of SFAS No. 150
did not have a material effect on the Company's results of operations or
financial position.
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.
22
ASA's operating results may fluctuate substantially, which may cause its stock
price to fall.
ASA's quarterly and annual results of operations have varied in the past,
and ASA's operating results may vary significantly in the future due to a number
of factors including, but not limited to, the following:
o timing of orders from major customers;
o mix of products and services;
o pricing and other competitive pressures;
o delays in new product development, which could cause ASA to be unable to
meet customer delivery schedules;
o economic conditions in the software industry; and
o ASA's ability to time expenditures in anticipation of future revenues.
ASA is subject to risks associated with acquisitions, and these risks could harm
ASA's operating results and cause its stock price to decline.
ASA has historically pursued a strategy of growth through acquisitions.
These acquisitions have primarily involved acquisitions of entire companies.
Acquisitions of companies and businesses and expansion of operations involve
certain risks, including the following:
o the potential inability to successfully integrate acquired operations,
product lines, technologies, personnel and businesses or to realize
anticipated synergies, economies of scale or other value;
o diversion of management's attention;
o difficulties in coordinating management of operations at new sites;
o difficulties associated with managing and integrating operations in distant
geographic locations;
o the possible need to restructure, modify or terminate customer relationships
of the acquired company; and
o loss of key employees of acquired operations.
ASA may experience problems in integrating operations previously acquired by
ASA or operations associated with any future acquisition. ASA cannot assure you
that any recent or future acquisition will result in a positive contribution to
ASA's results of operations. In particular, the successful combination of ASA
with any business ASA acquires in the 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.
23
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 plus .5%, which extends through June 30,
2004. The revolving demand loan is subject to certain terms and conditions,
including maintenance of a stated tangible net worth, stated debt service
coverage and debt to tangible net worth ratios. Payment of dividends is
prohibited under the terms of the agreement. Borrowings are secured by the
personal property of ASA. Although ASA has no indebtedness under the revolving
demand loan agreement, ASA may need to borrow money in the future. If ASA is
unable to borrow under the agreement, ASA may be unable to raise sufficient
additional capital when needed, on favorable terms, or at all. If ASA's
borrowings under the agreement are insufficient, the agreement includes
provisions and covenants that would restrict ASA's ability to incur further
indebtedness. If ASA's capital resources are insufficient to meet future capital
requirements, ASA will have to raise additional funds. The sale of equity or
convertible debt securities in the future may be dilutive to ASA's stockholders.
If ASA is unable to obtain adequate funds on reasonable terms, ASA may be
required to curtail operations significantly or to obtain funds by entering into
financing agreements on unattractive terms.
ASA may need to refinance its headquarters in the future, which may not be
possible.
ASA has a mortgage related to its corporate headquarters in Framingham,
Massachusetts. The mortgage note, in the original amount of $3,000,000 with
interest at 7.24% for 10 years, provides for monthly principal and interest
payments of $20,445 through October 2008 with a final payment of approximately
$2,638,000 plus interest. If ASA's capital resources are insufficient to meet
the monthly or final payment obligations, ASA will have to raise additional
funds or relocate its headquarters, which may not be possible on attractive or
reasonable terms.
ASA's operating results are subject to fluctuations.
ASA has historically experienced significant fluctuations in its quarterly
operating results and anticipates such fluctuations in the future. ASA's
quarterly revenues and operating results depend on the volume and timing of
orders received during the quarter, which are difficult to forecast. Large
orders for ASA's products often have a lengthy sales cycle while the customer
evaluates and receives approvals for the purchase of the products. Accurately
predicting the sales cycle of any large order may be difficult. If one or more
large orders fail to close as forecasted in a fiscal quarter, ASA's revenues and
operating results could be materially adversely affected. In addition, ASA
typically receives a substantial portion of its product orders in the last month
of a quarter. Orders are shipped as received and, as a result, ASA often has
little or no backlog except for support and service revenue. Such fluctuations
and general economic uncertainty could have a material adverse impact on ASA's
ability to maintain liquidity and raise additional capital.
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.
24
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 which carry a degree of
interest rate risk. These instruments may produce less income than expected if
interest rates fall.
Investment Risk. The Company has invested, and may invest in the future, in
equity instruments of privately held companies for business and strategic
purposes. These investments are included in other long-term assets and are
accounted for under the cost method when ownership is less than 20%. For these
non-quoted investments, the Company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The Company identifies and records impairment
losses on long-lived assets when events or circumstances indicate that such
assets might be impaired.
ITEM 8. Financial Statements and Supplementary Data
-------------------------------------------
The financial statements and supplementary data are listed under Part IV,
Item 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.
ITEM 9A. Controls and Procedures
-----------------------
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures pursuant to the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this
report. Based on such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective. There have not been
any changes in the Company's internal control over financial reporting during
the Company's fourth fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
25
PART III
ITEM 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Directors
The directors of ASA are elected annually and hold office until the next annual
meeting of stockholders and until their successors shall have been elected and
qualified. The following table sets forth the age of each director, the year
each director was elected a director and the positions presently held by each
director with ASA.
First
Became Positions and Offices
Name Age Director with ASA
- ---- --- -------- --------
Alfred C. Angelone 65 1982 Chairman of the Board, Chief Executive
Officer and President
Chas B. Blalack 46 2002 Director
Alan J. Klitzner 62 1998 Director
William A. Kulok 63 1993 Director
James P. O'Halloran 71 1991 Director
Robert L. Voelk 48 1997 Director
Executive Officers
The executive officers of ASA, their ages and positions held with ASA are as
follows:
Year
First
Became Positions and Offices
Name Age Officer with ASA
- ---- --- ------- --------
Alfred C. Angelone 65 1982 Chief Executive Officer and President
Terrence C. McCarthy 53 1989 Vice President, Secretary and Treasurer
Wayne C. Croswell 48 2002 Group Vice President and President of
ASA's Tire Systems Product Line.
Occupations of Directors and Executive Officers
The following table sets forth the principal occupation of each of the directors
and executive officers during the past five years:
26
Principal Occupation During
Name Past Five Years
- ---- ---------------
Alfred C. Angelone Chairman, Chief Executive Officer and President of ASA.
Chas B. Blalack Managing member of Maritime Capital LLC, a private equity
Firm; formerly General Partner of Wind River Capital, LLC,
a privately held company in the acquisitions,
restructuring, and operations consulting business in the
Eastern United States; formerly Senior Managing Director
of Capital Markets / Finance & Operations for Spencer
Trask & Co.; and formerly General Partner of Greenwich
Ventures, LLC, a fund that focused on the Internet and
technology.
Alan J. Klitzner Chairman of Klitzner Industries, Inc., a privately
held manufacturer of emblematic jewelry.
William A. Kulok Director, World Trade Center Palm Beach, an organization
that produces trade shows and events; formerly President,
North American Corporate Games, an organization that
produces multi-sport festivals for executives; formerly
Chairman of Community Productions, Inc., a privately held
producer of expositions and educational programs; and
formerly President of Kulok Capital, Inc., a privately
held venture capital firm.
James P. O'Halloran Formerly Senior Vice President, Treasurer and Chief
Financial Officer, Pegasystems Inc., a publicly held
software company; formerly President of G & J Associates,
Ltd., formerly The Janus Group, Ltd., a privately held
consulting firm; formerly Vice President, Private Equity
Managers, a privately held venture capital firm; and
formerly Partner, Arthur Andersen & Co.
Robert L. Voelk Chairman and Chief Executive Officer of eSped.com, a
privately held software company; Chief Executive Officer,
President and Chairman of Omtool, Ltd., a publicly held
communications software company; and formerly Executive
Vice President and director of ASA.
Terrence C. McCarthy Vice President, Secretary and Treasurer of ASA.
Wayne C. Croswell Group Vice President and President of ASA's Tire Systems
Product Line.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
executive officers, directors and persons who beneficially own more than ten
percent (10%) of ASA's stock to file initial reports of ownership on Form 3 and
reports of changes in ownership on Form 4 with the Securities and Exchange
Commission and any national securities exchange on which ASA's securities are
registered. Executive officers, directors and greater than ten percent (10%)
27
beneficial owners are required by the Securities and Exchange Commission's
regulations to furnish ASA with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to ASA and
written representations from the executive officers and directors of ASA, ASA
believes that all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than ten percent (10%) beneficial owners were
complied with during Fiscal 2003.
Audit Committee. The Company has a separately designated standing Audit
Committee established in accordance with Section 3(a)(58)(A) of the Exchange
Act. The members of the Audit Committee are James P. O'Halloran, William A.
Kulok, and Robert L. Voelk.
Audit Committee Financial Expert. The Board of Directors has determined that
James P. O'Halloran is an audit committee financial expert as defined by Item
401(h) of Regulations S-K of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and is independent within the meaning of Exchange Act,
Section 10A(m)(3).
Code of Conduct. The Company has adopted a Code of Conduct that applies to its
Chief Executive Officer, Chief Financial Officer, Corporate Controller, and
other senior financial officers. The Code of Conduct is posted on the Company's
website, http://www.asaint.com, under "Financial Information/ Code of Conduct."
The Company intends to satisfy the disclosure requirement regarding any
amendment to, or waiver from, a provision of the Code of Conduct that applies to
any senior financial officer by posting such information on its website.
ITEM 11. Executive Compensation
----------------------
Executive Officers Compensation
The following tables set forth the annual and long-term compensation for
services rendered to ASA during Fiscal 2003 and the fiscal years ended December
31, 2002 and 2001 ("Fiscal 2002" and "Fiscal 2001", respectively) paid to those
persons who were at December 31, 2003 (i) the chief executive officer and (ii)
each other executive officer of ASA whose annual compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------- ------
(a) (b) (c) (d) (e) (f)
Other
Annual Securities
Compen- Underlying
Name and Principal Position Year Salary $(1) Bonus $ sation $(2) Options (#)
- --------------------------- ---- ----------- ------- ---------- -----------
Alfred C. Angelone, 2003 425,000 78,150 96,059 ---
Chief Executive Officer and 2002 412,500 10,000 76,215 ---
President 2001 375,000 10,000 69,534 ---
Terrence C. McCarthy, 2003 135,000 5,000 6,000 ---
Vice President, Secretary and 2002 129,769 5,000 6,832 ---
Treasurer 2001 120,000 5,000 6,605 10,000
Wayne C. Croswell 2003 210,000 88,671 -0- ---
Group Vice President and President 2002 201,710 14,601 -0- ---
of ASA's Tire Systems 2001 176,492 0 -0- ---
Product Line
28
(1) Amounts shown indicate base salary received by executive officers, value
related to personal use of leased automobiles, and the imputed value of group
term life insurance ("GTL Value") provided to each employee and recorded as
compensation for tax purposes. All officers' salaries are subject to periodic
review by the Board of Directors.
(2) Includes automobile expenses, premium payments on insurance policies and
club dues. Each officer is also entitled to a car allowance, reimbursement of
business-related expenses, life insurance coverage and certain severance
benefits in the event of termination of employment. ASA does not have a pension
plan. In Fiscal 2003, 2002 and 2001, ASA made no awards of Restricted Stock and
did not have a Long-Term Incentive Plan. On July 21, 2000, ASA granted to Mr.
McCarthy incentive stock options to purchase 5,000 shares of Common Stock that
were exercisable through July 20, 2010 at an exercise price of $6.54 per share.
The option was cancelled on April 2, 2002. On October 1, 2001, ASA granted to
Mr. McCarthy incentive stock options to purchase 10,000 shares of Common Stock
that are exercisable through September 30, 2011 at an exercise price of $2.20
per share. On February 12, 2003, ASA granted to Mr. McCarthy incentive stock
options to purchase 2,500 shares of Common Stock that are exercisable through
February 11, 2013, at an exercise price of $2.06 per share. The following table
sets forth additional information concerning unexercised stock options to
purchase ASA's Common Stock held by Messrs. Angelone, McCarthy and Croswell as
of December 31, 2003.
AGGREGATED OPTION EXERCISES IN FISCAL 2003 AND
FISCAL YEAR-END OPTION VALUES
(a) (b) (c) (d) (e)
Number of
Securities Value of Unexercised
Underlying Options In-the-Money Options
Shares at Fiscal Year-End at Fiscal Year-End
Acquired On Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable(#) Unexercisable($)(1)(2)
- ---- ------------ ------------ ---------------- ----------------------
Alfred C. Angelone 0 --- 94,000/13,500 $67,230/12,420
Terrence C. McCarthy 0 --- 10,833/1,667 $10,841/1,884
Wayne C. Croswell 0 --- 7,500/0 $0/0
(1) "In-the-Money" options are those options for which the fair market value of
the Common Stock underlying the options is greater than the per share exercise
price of the option. Mr. Angelone currently has options to purchase (i) 25,000
shares of Common Stock, at a per share exercise price of $2.12 (see footnote 3
below for a discussion of the repricing of these options), all of which were
exercisable as of December 31, 2003, (ii) 25,000 shares of Common Stock, at a
per share exercise price of $5.08, all of which were exercisable as of December
31, 2003, and (iii) 57,500 shares of Common Stock, at a per share exercise price
of $2.27, of which 44,000 were exercisable as of December 31, 2003. Mr. Angelone
had an option to purchase 57,500 shares of Common Stock, at a per share exercise
price of $2.12, which expired on February 7, 2003. Mr. McCarthy currently has
options to purchase (i) 10,000 shares of Common Stock, at a per share exercise
price of $2.20, of which 10,000 were exercisable as of December 31, 2003, and
(ii) 2,500 shares of Common Stock, at a per share exercise price of $2.06, of
which 833 were exercisable as of December 31, 2003. Mr. Croswell currently has
options to purchase 7,500 shares of Common Stock, at a per share exercise price
of $5.06, all of which were exercisable as of December 31, 2003.
29
(2) The value of unexercised In-the-Money options is determined by multiplying
the number of options held by the difference in the fair market value of the
Common Stock underlying the options on December 31, 2003 ($3.19 per share) and
the applicable exercise price of the options granted.
(3) On March 4, 1996, ASA granted to Mr. Angelone non-qualified stock options to
purchase 25,000 shares of Common Stock that are exercisable through March 3,
2006 at an exercise price of $2.12 per share (the "1996 Grant"). The options
held by Mr. Angelone pursuant to the 1996 Grant were repriced on January 2,
1997, to an exercise price of $2.12 per share. On February 12, 2003, ASA granted
Mr. Angelone an incentive stock option to purchase 57,500 shares of Common Stock
that is exercisable through February 11, 2008 at an exercise price of $2.27 per
share. On February 12, 2003, ASA granted Mr. McCarthy an incentive stock option
to purchase 2,500 shares of Common Stock that is exercisable through February
11, 2008 at an exercise price of $2.06 per share.
OPTION GRANTS IN LAST FISCAL YEAR
Grant Date
Individual Grants Value(1)
-------------------------------------------- ----------
(a) (b) (c) (d) (e) (h)
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration Grant Date
Name Granted Fiscal Year ($/Sh) Date Present Value
- ---- ------- ----------- ------ ---- -------------
Terrence C. McCarthy 2,500 95% $2.06 2/11/13 $4,539
Alfred C. Angelone 57,500 4% $2.06 2/11/08 $103,842
(1) The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2001: dividend yield of 0% and expected
volatility of 100%, risk-free rate of 4.34% and expected life of 10 years.
Compensation of Executive Officers. In Fiscal 2003, Mr. Angelone received a base
salary of $425,000, Mr. McCarthy received a base salary of $135,000, and Mr.
Croswell received a base salary of $210,000. All officers' salaries are subject
to periodic review by the Board of Directors.
Compensation of Directors. During Fiscal 2003, Messrs. Blalack, O'Halloran,
Kulok, Klitzner, and Voelk each received cash compensation of $1,000, plus
travel expenses, per meeting attended, for their services as Directors. No other
Directors received any cash compensation for their services as Directors.
Compensation Committee Interlocks and Insider Participation. Mr. Angelone serves
as a director of Klitzner Industries, Inc. No other executive officers of ASA
have served on the board of directors of any other entity that has had any of
such entity's officers serve on ASA's Board of Directors. The Compensation
Committee was disbanded by the Board of Directors in Fiscal 1996. During Fiscal
2003, the entire Board of Directors participated in deliberations concerning
executive officer compensation.
Report on Executive Compensation. The Board of Directors is responsible for
setting and administering the policies that govern annual compensation as well
as short-term and long-term incentives for ASA's executive officers. All issues
pertaining to executive compensation are submitted to the Board of Directors for
approval.
30
The Board of Directors believes that the primary objectives of ASA's
compensation policies are to attract and retain a management team that can
effectively implement and execute ASA's strategic business plan. These
compensation policies include (a) an overall management compensation program
that is competitive with management compensation programs at companies of
similar size; and (b) long-term incentive compensation in the form of stock
options and other long-term equity compensation that will encourage management
to continue to focus on stockholder return.
The goal of the Board of Directors is to use compensation policies to closely
align the interests of ASA with the interests of stockholders in that ASA's
management has incentives to achieve short-term performance goals while building
long-term value for ASA's stockholders. The Board of Directors will review its
compensation policies from time to time in order to determine the reasonableness
of ASA's compensation programs and to take into account factors that are unique
to ASA.
In the past, the Board of Directors has reviewed compensation studies prepared
by national accounting firms as well as reported compensation packages for
officers of companies in the New England area. The Board of Directors did not
compare compensation paid to executive officers in ASA's industry group as many
of these businesses are much larger than ASA. Based upon these studies, the
Board of Directors believes that the compensation package proposed for ASA's
senior management is at mid-level for officers of similar-sized companies.
Compensation for Chief Executive Officer. The compensation for Mr. Angelone, as
described above, is based upon careful analysis of the compensation of chief
executive officers of other comparable public companies and Mr. Angelone's
efforts on behalf of ASA. In addition to directing the affairs of ASA, Mr.
Angelone was instrumental in the following areas: identifying strategic
acquisitions, disposition of product lines, and establishing critical strategic
partnerships with vendors and distribution channels. These changes were also
designed to reward Mr. Angelone for future economic performance based upon
improvements in profitability and increased values in ASA's Common Stock.
Board of Directors:
Alfred C. Angelone
Chas B. Blalack
Alan J. Klitzner
William A. Kulok
James P. O'Halloran
Robert L. Voelk
Performance Graph
The following graph compares the cumulative total stockholder return (assuming
reinvestment of dividends) from investing $100 on January 1, 1999, and plotted
at the end of each of Fiscal 2003, 2002, 2001, 2000, and 1999, in each of (i)
ASA's common stock; (ii) the NASDAQ Market Index of Companies (the "NASDAQ
Market Index"); and (iii) a Peer Group Index (the "Peer Group Index"), which
consists of Delphi Information Systems Inc., a company in the information
systems market.
[PERFORMANCE GRAPH OMITTED]
1998 1999 2000 2001 2002 2003
ASA INTERNATIONAL LTD. 100.00 123.08 61.54 49.23 41.85 65.44
PEER GROUP INDEX 100.00 129.62 10.02 16.33 8.07 18.86
NASDAQ MARKET INDEX 100.00 176.37 110.86 88.37 61.64 92.68
31
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth, as of March 22, 2004, certain information
concerning stock ownership of ASA by (i) each person known by ASA to own of
record or be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each of ASA's Directors and nominees to become Directors, (iii) each
executive officer of ASA; and (iv) all Directors and nominees and executive
officers as a group. Except as otherwise indicated, the stockholders listed on
the table have sole voting and investment power with respect to the shares
indicated. As of March 22, 2004, ASA had 383 registered stockholders.
Percentage of
Name and Address Number of Shares Outstanding
of Beneficial Owner (1) Beneficially Owned Common Stock (2)
- ----------------------- ------------------ ---------------
Alfred C. Angelone(3)(4) 376,686 18.1%
Chas B. Blalack(5) 6,666 *
Alan J. Klitzner (6) 5,000 *
William A. Kulok (7) 10,000 *
James P. O'Halloran(8) 13,500 *
Robert L. Voelk(9) 7,500 *
Terrence C. McCarthy(10) 15,202 *
Wayne C. Croswell(11) 7,500 *
ASA Investment Partnership 345,070 (12)
Harry W. Margolis(13) 70,839 3.4%
All Directors and officers as a group
(8 persons) (1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11) 442,054 21.3%
* Less than 1%.
(1) The address for ASA Investment Partnership and for Messrs. Angelone,
Blalack, Klitzner, Kulok, O'Halloran, Voelk, McCarthy and Croswell is c/o ASA
International Ltd., 10 Speen Street, Framingham, Massachusetts 01701.
(2) Except as otherwise indicated, ASA believes that each person named in the
table has sole voting and investment power with respect to all shares of Common
Stock beneficially owned by him. Pursuant to the rules of the Securities and
Exchange Commission, shares of Common Stock which an individual or group has a
right to acquire within 60 days pursuant to the exercise of presently
exercisable or outstanding options, warrants or conversion privileges are deemed
to be outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
Information with respect to beneficial ownership is based upon information
furnished by such stockholder.
(3) Does not include 345,070 shares of Common Stock owned by ASA Investment
Partnership, of which Mr. Angelone and ASA are general partners. The shares
owned by ASA Investment Partnership are treated as treasury shares and will not
be counted for quorum or approval purposes at the Annual Meeting. Under SEC
rules Mr. Angelone may be deemed to beneficially own all 345,070 shares. Mr.
Angelone holds an approximately 1.21% interest in the partnership and disclaims
beneficial ownership with respect to 340,895 of such shares for all other
purposes.
(4) Includes 25,000 shares of Common Stock underlying non-qualified stock
options that are exercisable and 82,500 shares of Common Stock underlying
incentive options that are exercisable.
(5) Includes 6,666 shares of Common Stock underlying non-qualified stock options
that are exercisable, but excludes an additional 3,334 shares of Common Stock
underlying non-qualified options that are not exercisable.
(6) Includes 5,000 shares of Common Stock underlying non-qualified stock options
that are exercisable.
(7) Includes 10,000 shares of Common Stock underlying non-qualified stock
options that are exercisable.
(8) Includes 12,500 shares of Common Stock underlying non-qualified stock
options that are exercisable.
(9) Includes 5,000 shares of Common Stock underlying non-qualified stock options
that are exercisable.
(10) Includes 11,666 shares of Common Stock underlying incentive options that
are exercisable, but excludes an additional 834 shares of Common Stock
underlying incentive options that are not exercisable.
(11) Includes 7,500 shares of Common Stock underlying incentive options that are
exercisable.
(12) The shares owned by ASA Investment Partnership are treated as treasury
shares and will not be counted for quorum or approval purposes at the Annual
Meeting.
(13) The address for Mr. Margolis is 27 Stonebrier Way, Frisco, Texas 75034.
33
ITEM 13. Certain Relationships and Related Transactions
----------------------------------------------
Prior to the prohibition on loans to insiders by the Sarbanes-Oxley Act of 2002,
ASA made short-term advances in Fiscal 2002 and prior years to Mr. Angelone,
ASA's Chairman, Chief Executive Officer and President. ASA has not made any
short term advances to Mr. Angelone since the prohibition on loans to insiders
by Sarbanes-Oxley. As of March 22, 2004, the outstanding balance of short-term
advances owed by Mr. Angelone to ASA totaled approximately $243,600. Short-term
advances made to Mr. Angelone by ASA do not bear interest.
On January 5, 2000, ASA loaned $175,000 to Mr. Angelone pursuant to a promissory
note that accrued interest at 6.4% per annum, in order to enable Mr. Angelone to
exercise certain stock options for 110,000 shares of common stock. On March 31,
2003, Mr. Angelone sold 110,000 shares of common stock to ASA and used the
proceeds of such sale, together with an amount paid to Mr. Angelone by ASA as a
bonus on March 31, 2003, to satisfy the promissory note in full.
In December 1996, ASA disposed of substantially all of the assets and
liabilities of ASA's International Trade and Transportation Systems Division
(the "International Division"). In exchange for the assets of the International
Division and the assumption of the International Division's liabilities, ASA
received a 16% membership interest in TradePoint Systems LLC ("TradePoint"), a
New Hampshire limited liability company, and a subordinated promissory note in
the principle amount of $600,000.00 from TradePoint (the "Note"). The remaining
84% interest in TradePoint was owned by Christopher J. Crane, formerly the
President and a Director of ASA. Simultaneously with the completion of the
transaction, Mr. Crane resigned from all of his positions with ASA. In exchange
for his interest in TradePoint, Mr. Crane (i) contributed all of the Common
Stock owned by him, totaling 332,799 shares; (ii) assigned to ASA a 16%
partnership interest in the ASA Investment Partnership, a partnership by and
among Mr. Crane, ASA, and Mr. Angelone; and (iii) canceled all of his options to
purchase 245,000 shares of Common Stock. The consideration to be paid was
determined by negotiations between the parties and was independently evaluated
on behalf of ASA by Shields & Company, Inc.
In connection with the transaction, TradePoint granted to ASA an irrevocable
proxy covering the Common Stock owned by TradePoint. ASA had the right to cause
TradePoint to redeem the 16% membership interest in TradePoint held by ASA by
notice given on or after March 1, 2002, in exchange for the Common Stock held by
TradePoint and the fair market value of the 16% membership interest in
TradePoint. TradePoint had the right to redeem ASA's membership interest by
notice given on or after December 31, 2001 in exchange for the Common Stock held
by it and the greater of $400,000 or the fair market value of the 16% membership
interest in TradePoint. In October 2002, ASA transferred a 10.51% membership
interest in TradePoint to ASA Investment Partnership.
On November 1, 2002, ASA and ASA Investment Partnership exchanged their
respective 5.49% and 10.51% membership interests in TradePoint for $400,000 and
332,799 shares of ASA's common stock, respectively. Also on November 1, 2002,
ASA paid to TradePoint $400,000 in full satisfaction of certain of ASA's
obligations to TradePoint pursuant to a lease by TradePoint from ASA of office
space at ASA's Nashua, New Hampshire facility.
ITEM 14. Principal Accounting Fees and Services
--------------------------------------
The Audit Committee of the Board of Directors of the Company has appointed
Sansiveri, Kimball & McNamee, L.L.P., as independent auditors to audit the
consolidated financial statements of the Company for the year ended December 31,
2003.
Audit Fees. The aggregate fees billed or to be billed by Sansiveri, Kimball &
McNamee for each of the last two fiscal years for professional services rendered
for the audit of the Company's annual financial statements and reviews of
financial statements included in the Company's Quarterly Reports on Form 10-Q
and services that were provided in connection with statutory and regulatory
filings or engagements were $55,000 for 2003 and $56,000 for 2002.
Audit-Related Fees. The Company was not billed by Sansiveri, Kimball & McNamee
for any fees for non audit-related services for 2003 or 2002.
Tax Fees. The Company was not billed by Sansiveri, Kimball & McNamee for any tax
fees for 2003 or 2002.
All Other Fees. The Company was not billed by Sansiveri, Kimball & McNamee for
any other fees for 2003 or 2002.
Policy on Pre-Approval of Services Provided by Independent Auditor. Pursuant to
the requirements of the Sarbanes-Oxley Act of 2002, the terms of the engagement
of Sansiveri, Kimball & McNamee are subject to the specific pre-approval of the
Audit Committee of the Company. All audit and permitted non-audit services to be
performed by Sansiveri, Kimball & McNamee for the Company require pre-approval
by the Audit Committee in accordance with pre-approval procedures established by
the Audit Committee. The procedures require all proposed engagements of
Sansiveri, Kimball & McNamee for services to the Company of any kind to be
submitted for approval to the Audit Committee prior to the beginning of any
services.
34
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
(a)2. Financial Statement Schedules.
------------------------------
Schedule II - Valuation and Qualifying Accounts
Other 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, 2003:
On October 24, 2003, the Company reported the sale of its office building
located in Nashua, NH.
35
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., included as
Annex A to the Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4, 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.
36
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+ Office Building Lease between 615 Amherst Street, LLC and ASA
International Ltd., dated October 24, 2003 incorporated by reference to
exhibit 10.1 previously filed with the Registrant's Current Report on
Form 8-K filed with the SEC on October 24, 2003.
10.2+ Office Building Lease between Colonnade Ashley and Verticent, Inc.,
dated June 1, 2003. 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, 2003 filed with the SEC on
August 7, 2003.
10.3+ Stock Purchase Agreement, dated as of May 23, 2003 (the "Agreement"),
by and among ASA, Summit Investors III, L.P. and Summit Ventures IV,
L.P. incorporated by reference to exhibit 10.1 previously filed with
the Registrant's Current Report on Form 8-K filed with the SEC on June
3, 2003.
10.4+ Employee Ownership Stock Option Plan 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 March 31, 2003 filed with
the SEC on May 15, 2003
10.5+ Employee Stock Ownership Trust by reference to exhibit 10.2 previously
filed with the Registrant's Quarterly Report on Form 10-Q filed for the
fiscal quarter ended March 31, 2003 filed with the SEC on May 15, 2003
10.6+ Promissory Note made payable to Regions Bank by ASA Aircraft LLC and
RSR Aircraft LLC, executed on January 15, 2003.
10.7+ Business Loan Agreement by and between Regions Bank, ASA Aircraft LLC
and RSR Aircraft LLC, executed on January 15, 2003.
10.8+ Commercial Guaranty between Regions Bank, ASA Aircraft LLC, RSR
Aircraft LLC and ASA International Ltd., executed on January 15, 2003.
10.9+ FAA Aircraft Registry, Aircraft Security Agreement between Regions
Bank, ASA Aircraft LLC and RSR Aircraft LLC, dated executed on January
15, 2003.
10.10+ 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.
10.11+ 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.
10.12+ 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.
37
10.13+ 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.
10.14+ 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.
10.15+ 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.
10.16+ 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.
10.17+ 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.
10.18+ 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.
10.19+ 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.
10.20+ 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.
10.21+ 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.
10.22+ 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.
10.23+ 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.
38
10.24+ 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.
10.25+ 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.
10.26+ 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.
10.27+ 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.
10.28+ 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.
10.29+ 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.
10.30+ 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.
10.31+ 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.
10.32+ 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.
10.33+ 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.
10.34+ 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.
10.35+ 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.
10.36+ 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.
39
10.37+ 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.
10.38+ 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.
10.39+ 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.
10.40+ 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.
10.41+ 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.
10.42+ 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.
10.43+ 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.
10.44+ 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.
10.45+ 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.
10.46+ 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.
10.47+ 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.
10.48+ 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.
40
10.49+ 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.
10.50+ 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.
10.51+ 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.
10.52+ 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 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.
10.53+ 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.
10.54+ 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.
10.55*+ 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.
10.56*+ 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.
10.57*+ 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.
10.58*+ 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+ 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# Consent of Sansiveri, Kimball & McNamee, LLP, Independent Auditors.
31.1# Certification of Alfred C. Angelone, Director, Chief Executive Officer
and President of the Registrant pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2# Certification of Terrence C. McCarthy, Vice President, Secretary,
Treasurer and Chief Financial Officer of the Registrant pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1# Certification of Alfred C. Angelone, Director, Chief Executive Officer
and President of the Registrant pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2# Certification of Terrence C. McCarthy, Vice President, Secretary,
Treasurer and Chief Financial Officer of the Registrant pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
+ Previously filed.
# Filed with this report.
* Management contracts or compensatory plans or arrangements covering
executive officers or directors of the Registrant.
41
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.
/s/ Alfred C. Angelone
By ----------------------
Alfred C. Angelone
Chief Executive Officer
Date: March 30, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, report
has been signed below by the following persons on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Alfred C. Angelone Director, Chief March 30, 2004
- -------------------------- Executive Officer,
Alfred C. Angelone and President
(principal executive
officer and principal
accounting officer)
/s/ James P. O'Halloran Director March 30, 2004
- --------------------------
James P. O'Halloran
/s/ Alan J. Klitzner Director March 30, 2004
- --------------------------
Alan J. Klitzner
/s/ William A. Kulok Director March 30, 2004
- --------------------------
William A. Kulok
/s/ Robert L. Voelk Director March 30, 2004
- --------------------------
Robert L. Voelk
/s/ Chas B. Blalack Director March 30, 2004
- --------------------------
Chas B. Blalack
42
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 for the years ended December 31, 2003 and 2002 and the
related consolidated statement of operations, stockholders' equity and
comprehensive income, and cash flows for the years ended December 31, 2003,
2002, and 2001. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
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 audits 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, 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. Also,
in our opinion, the related Financial Statement Schedule, when considered in
relation to the basic Consolidated Financial Statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Sansiveri, Kimball & McNamee, LLP
Providence, Rhode Island
February 27, 2004
43
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
2003 2002
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,745,899 $ 4,509,686
Marketable securities -- 22,780
Receivables:
Trade (net of allowance for doubtful
accounts of $122,646 in 2003
and $188,949 in 2002) 1,466,719 2,042,798
Related parties 37,942 31,239
Other 26,348 166,840
Current portion of note receivable 475,157 293,163
Other current assets 153,369 443,075
----------- -----------
TOTAL CURRENT ASSETS 6,905,434 7,509,581
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings 3,449,660 4,990,823
Computer equipment 2,382,102 2,342,072
Office furniture and equipment 1,026,689 1,027,713
Leasehold improvements 115,846 115,846
Vehicles and aircraft 1,141,710 574,138
Capital leases 93,146 85,266
----------- -----------
8,209,153 9,135,858
Accumulated depreciation and amortization 4,221,458 4,132,869
----------- -----------
NET PROPERTY AND EQUIPMENT 3,987,695 5,002,989
----------- -----------
SOFTWARE
(less cumulative amortization
of $6,613,115 in 2003 and $5,701,690 in 2002) 1,252,628 2,164,053
RECEIVABLES FROM RELATED PARTIES -
net of current portion 255,093 338,931
NOTE RECEIVABLE - net of current portion 1,689,867 2,192,791
NOTE RECEIVABLE - Related party -- 175,000
GOODWILL 942,795 1,257,686
MARKETABLE SECURITIES 1,669,625 --
OTHER ASSETS 1,095,417 1,255,034
----------- -----------
$17,798,554 $19,896,065
=========== ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
44
December 31,
-----------------------------
2003 2002
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - other $ -- $ 90,000
Current maturities of long-term obligations 83,982 105,402
Accounts payable 418,946 402,566
Accrued expenses 1,559,554 2,093,120
Accrued commissions 141,780 385,621
Customer deposits 278,747 297,301
Deferred revenue 838,464 1,179,563
------------ ------------
TOTAL CURRENT LIABILITIES 3,321,473 4,553,573
------------ ------------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 3,210,434 3,596,237
------------ ------------
DEFERRED INCOME TAXES 447,100 466,000
------------ ------------
COMMON STOCK SUBJECT TO REPURCHASE 383,044 533,031
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value
$.01 per share: Authorized and unissued,
1,000,000 shares, 60,000 shares of which are
designated as Series A Junior Participating
Preferred Stock -- --
Common stock, par value
$.01 per share: Authorized, 8,000,000 shares;
issued 2,485,477 and 2,926,270 shares;
outstanding, 1,924,653 and 2,150,386 shares 24,855 29,263
Additional paid-in capital 7,101,709 8,830,922
Retained earnings 4,745,346 5,260,095
Accumulated other comprehensive income (loss):
Unrealized gain (loss) on marketable securities 595,650 (6,120)
------------ ------------
12,467,560 14,114,160
Less treasury stock, at cost 2,031,057 3,366,936
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 10,436,503 10,747,224
------------ ------------
$ 17,798,554 $ 19,896,065
============ ============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
45
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
--------------------------------------------
2003 2002 2001
REVENUES
Services $ 12,168,806 $ 10,915,630 $ 10,139,008
Product licenses 2,781,905 3,606,338 3,395,016
Computer and add-on hardware 965,654 1,533,833 1,210,946
------------ ------------ ------------
NET REVENUE 15,916,365 16,055,801 14,744,970
------------ ------------ ------------
COST OF REVENUE
Services 6,521,681 5,420,486 5,332,616
Product licenses and development 3,358,083 3,158,268 3,045,072
Computer and add-on hardware 770,392 1,160,369 944,250
------------ ------------ ------------
TOTAL COST OF REVENUE 10,650,156 9,739,123 9,321,938
------------ ------------ ------------
EXPENSES
Marketing and sales 3,055,780 2,905,838 3,071,138
General and administrative 3,686,275 3,115,549 3,282,407
Impairment loss on goodwill 171,000 -- --
------------ ------------ ------------
TOTAL EXPENSES 6,913,055 6,021,387 6,353,545
------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS (1,646,846) 295,291 (930,513)
INTEREST EXPENSE (331,686) (321,952) (337,361)
INTEREST INCOME 341,372 437,519 605,910
GAIN ON SALE OF PRODUCT LINES -- -- 22,820
MANAGEMENT FEE -- 149,125 --
OTHER INCOME (EXPENSE), NET 52,102 113,118 190,430
GAIN ON SALE OF BUILDING 654,309 -- --
------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (930,749) 673,101 (448,714)
INCOME TAXES (416,000) 265,000 (140,000)
------------ ------------ ------------
NET EARNINGS (LOSS) $ (514,749) $ 408,101 $ (308,714)
============ ============ ============
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $ (0.25) $ 0.12 $ (0.10)
============ ============ ============
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $ (0.25) $ 0.11 $ (0.10)
============ ============ ============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
46
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
-----------------------------------
2003 2002 2001
---- ---- ----
NET EARNINGS (LOSS) $(514,749) $ 408,101 $(308,714)
OTHER COMPREHENSIVE INCOME (LOSS)
NET OF INCOME TAX:
Unrealized gain (loss) on marketable securities,
net of deferred income tax of
approximately $397,000 in 2003 601,770 (1,292) (1,640)
--------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ 87,021 $ 406,809 $(310,354)
========= ========= =========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
47
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Treasury Stock
--------------------- - -----------------------
Accumulated
Other
Compre-
Additional hensive
Paid-in Retained Income/
Shares Amount Capital Earnings (Loss) Shares Amount Total
----------------------------------------------------------------------------------------------------------
BALANCES
12/31/00 2,255,435 $ 22,555 $ 7,954,060 $ 5,160,708 $ (3,188) 764,237 $ (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 2,255,435 22,555 7,954,055 4,851,994 (4,828) 764,237 (3,418,456) 9,405,320
CompuTrac
Acquisition 682,335 6,823 928,272 - - - - 935,095
Repurchase
of shares
guaranteed in
CompuTrac
Acquisition - - - - - 23,147 - -
Cancellation of
Treasury Shares (11,500) (115) (51,405) - - (11,500) 51,520 -
Net earnings 408,101 408,101
Unrealized
loss on
marketable
securities - - - - (1,292) - - (1,292)
----------------------------------------------------------------------------------------------------------
BALANCES
12/31/02 2,926,270 29,263 8,830,922 5,260,095 (6,120) 775,884 (3,366,936) 10,747,224
Repurchased and
partial shares resulting
from reverse/
forward stock split (71,793) (718) (157,897) - - - - (158,615)
Reacquisition of
stock in payment of
officer note - - - - - 55,000 (144,650) (144,650)
Purchase of Treasury
Stock - - - - - 43,392 (94,477) (94,477)
Repurchase of
shares guaranteed
in CompuTrac
Acquisition - - - - - 55,548 - -
Cancellation of
Treasury Shares (369,000) (3,690) (1,571,316) - - (369,000) 1,575,006 -
Net loss (514,749) (514,749)
Unrealized gain
on marketable
securities - - - - 601,770 - - 601,770
----------------------------------------------------------------------------------------------------------
BALANCES
12/31/03 2,485,477 $ 24,855 $ 7,101,709 $ 4,745,346 $ 595,650 560,824 $ (2,031,057) $ 10,436,503
=========================================================================================================
See accompanying summary of accounting policies and notes to consolidated
financial statements.
48
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
-----------------------------------------
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (514,749) $ 408,101 $ (308,714)
----------- ----------- -----------
Adjustments to reconcile net earnings (loss)
to net cash provided by (used for) operating activities:
Depreciation and amortization 1,378,177 1,294,989 1,284,547
Deferred taxes (416,000) (243,000) (16,000)
Gain on sale of building (654,309) -- --
Loss on sale of property and equipment 43,692 -- --
Doubtful receivables provision (66,303) (102,542) 364,388
Charge for impairment of goodwill 171,000 -- --
Changes in assets and liabilities, net
of effects of acquisitions:
Receivables 731,903 64,062 1,044,638
Other current assets 247,908 157,264 296,916
Accounts payable 41,755 (53,880) (388,023)
Accrued expenses (614,580) (475,504) (653,079)
Customer deposits 112 21,734 (140,088)
Deferred revenue (341,099) (217,110) (271,251)
----------- ----------- -----------
Total adjustments 522,256 446,013 1,522,048
----------- ----------- -----------
Net cash provided by operating activities 7,507 854,114 1,213,334
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (700,873) (200,585) (328,940)
Additions to software -- -- (9,400)
Additions to marketable securities (647,975) -- --
Decrease (increase) in sales-types leases 44,269 56,273 94,624
Cash proceeds from sale of building 1,896,671 -- --
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 to assets held for future transactions -- -- 2,720,000
Payments on notes receivable 495,929 -- --
Payments on related party receivables 83,838 88,733 123,857
Other assets 101,801 111,990 (892,921)
----------- ----------- -----------
Net cash provided by investing activities 1,273,660 1,159,417 1,707,220
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable - other (90,000) -- --
Increase in long-term obligations 454,380 -- --
Reduction in long-term obligations (861,603) (40,193) (74,348)
Cash paid to CompuTrac shareholders -- (1,425,408) --
Cash paid to shareholders for reverse split (158,617) -- --
Repurchase of common stock subject to repurchase (149,987) (62,498) --
Purchase of treasury stock (239,127) (62,498) --
----------- ----------- -----------
Net cash used for financing activities (1,044,954) (1,528,099) (74,348)
----------- ----------- -----------
CASH & CASH EQUIVALENTS:
Net increase 236,213 485,432 2,846,206
Balance, beginning of year 4,509,686 4,024,254 1,178,048
----------- ----------- -----------
Balance, end of year $ 4,745,899 $ 4,509,686 $ 4,024,254
=========== =========== ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
49
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NON-CASH INVESTING AND FINANCING ACTIVITIES
In April 2001, the Company recorded accrued interest receivable related to a
change in interest rate on a note receivable, which totaled $217,447. 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 685,340
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
============
During 2003, the Company had an unrealized gain on marketable securities of
$992,750.
See accompanying summary of accounting policies and notes to consolidated
financial statements.
50
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002, 2001
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., Khameleon
Software Inc., ASA Aircraft LLC, and Pilot Services Inc., after elimination
of all material inter-company balances and transactions. 10 Speen Street
LLC is a wholly owned subsidiary of ASA Properties, Inc.
Financial Instruments
Financial instruments consist of cash and cash equivalents, marketable
securities, accounts receivable, note receivable, accounts payable and
long-term obligations. The carrying value of these financial instruments
approximate their fair value.
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 invested in money market funds at December 31,
2002 and none at December 31, 2003.
Marketable Securities
At December 31, 2003, the Company held an investment in 225,625 shares of
Omtool, Ltd. stock. At December 31, 2002, the Company held investments in a
senior secured, floating rate loan, mutual fund. The Company accounts for
these investments as available-for-sale in accordance with Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for
Certain Investment in Debt and Equity Securities," which requires that debt
and marketable equity securities be classified as trading,
available-for-sale, or held-to-maturity. Available-for-sale securities are
reported in the balance sheet at fair value with unrealized gains or losses
included in a separate component of shareholders' equity.
The shares of Omtool stock were purchased by the Company in May 2003 at an
aggregate purchase price of $676,875. The shares were acquired under a
Stock Purchase Agreement with two third parties which requires that the
Company pay, under certain conditions, an additional amount under a formula
to the third parties should the Company subsequently purchase additional
shares of Omtool stock. At the current time, no additional purchases of
Omtool Ltd.'s common stock by the Company are contemplated. Mr. Robert
Voelk, who is Chairman and CEO of Omtool Ltd., is a member of the Company's
Board of Directors.
At December 31, 2003, the fair market value of the Omtool shares was
approximately $1,670,000 and the fair market value of the mutual fund at
December 31, 2002 was approximately $23,000. Accumulated unrealized gains
as of December 31, 2003 were approximately $993,000, while accumulated
unrealized losses as of December 31, 2002 were approximately $6,000. The
shares in the mutual fund were sold in 2003 at a loss of approximately
$2,000.
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,
51
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, goodwill, the recorded value of investments in equity
instruments, and the carrying value of the note receivable.
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 $9,000
at December 31, 2003, and $101,000 at December 31, 2002. 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.
52
Goodwill
The Company has recorded goodwill resulting from business acquisitions
which represents the excess of purchase price over the fair value of the
net assets acquired. Goodwill is reviewed for impairment at least annually
and may be reviewed more frequently if certain events occur or
circumstances change. During the fourth quarter of 2003, the Company
performed the test for impairment of goodwill on its manufacturing and
distribution software product line. The test was applied utilizing the
estimated fair value of this reporting unit as of December 31, 2003
determined based on a combination of the manufacturing and distribution
software product line's discounted cash flows and acquisition multiples of
comparable businesses. As a result of this analysis, the Company recorded a
non-cash impairment charge of $171,000, or ($0.08) per share.
The Company's goodwill balance was $942,795 as of December 31, 2003 after
the $171,000 adjustment for impairment.
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
approximately $401,000, $419,000 and $316,000, in the years ended December
31, 2003, 2002, and 2001, 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
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.
53
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 marketable securities and is presented in the
consolidated statements of comprehensive income.
Stock Based Compensation
At December 31, 2003, 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 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,
-----------------------
2003 2002 2001
---- ---- ----
Net earnings (loss):
As reported $ (514,749) $ 408,101 $ (308,714)
Pro forma (604,383) 363,627 (360,141)
Net earnings (loss) per common and common
equivalent share:
Basic as reported $ (0.25) $ 0.12 $ (.10)
Diluted as reported (0.25) 0.11 (.10)
Proforma - Basic (0.30) 0.11 (.12)
Proforma - Diluted (0.30) 0.10 (.12)
Employee Stock Ownership Plan
In June 2003, the Company established an Employee Stock Ownership Plan
("ESOP") effective January 1, 2003. The ESOP is designed to enable Company
employees to accumulate ownership of Company stock. All employees on the
payroll of the Company over the age of 21 and with at least 1,000 hours of
Company service during a plan year are eligible to participate in the ESOP.
The ESOP has a five-year cliff vesting, with credit given for service prior
to the ESOP effective date. Benefits may be paid in a lump sum or
installments, in Company stock, cash or a combination of both.
The Company may, but is not required to, make contributions to the ESOP in
cash or Company stock. The ESOP may borrow money to purchase Company stock.
Employee contributions are not permitted. Company contributions may be used
by the ESOP to repay any current loan obligation incurred to purchase
Company stock, to purchase Company stock from existing shareholders, or to
purchase Company stock directly from the Company. The ESOP may also invest
in assets other than Company stock, or may hold ESOP assets in cash. As of
December 31, 2003, no contributions have been made to the ESOP.
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.
54
Recently Issued Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." This Interpretation
clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from other
parties. FIN 46 requires an enterprise to consolidate a variable interest
entity if that enterprise will absorb a majority of the entity's expected
losses, is entitled to receive a majority of the entity's expected residual
returns, or both. FIN 46 also requires disclosures about unconsolidated
variable interest entities in which an enterprise holds a significant
variable interest. FIN 46 is currently effective for variable interest
entities created or entered into after January 31, 2003. FASB Staff
Position 46-6, which was issued in October 2003, delayed the effective date
of FIN 46 to the first reporting period ending after December 15, 2003 for
variable interest entities in which an enterprise holds a variable interest
that it acquired before February 1, 2003. The adoption of FIN 46 did not
have a material effect on the Company's results of operations or financial
position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement clarifies
under what circumstances a contract with an initial net investment meets
the characteristics of a derivative, clarifies when a derivative contains a
financing component, amends the language used in FIN 45, and amends certain
other existing pronouncements. The provisions of SFAS No. 149 are effective
for contracts entered into or modified after June 30, 2003. The adoption of
SFAS No. 149 did not have a material effect on the Company's results of
operations or financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset
in some circumstances), which, under previous guidance, may have been
classified as equity. The provisions of SFAS No. 150 are effective for
financial instruments entered into or modified after May 31, 2003 and
otherwise shall generally be effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No. 150
did not have a material effect on the Company's results of operations or
financial position.
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").
55
The Exchange Agreement provided the Company with the option to purchase the
Replacement Property within twelve months of the Closing Date for a
purchase price of $4,300,000 plus interest incurred by SQL on the
promissory note due November 3, 2000.
On the Closing Date, the following actions were completed:
1. SQL acquired the Replacement Property from Seller in accordance with
the Purchase Agreement and the Assignment in exchange for a payment of
$4,300,000.
2. The Company acquired the remainder of Seller's assets in accordance
with the Purchase Agreement in exchange for (a) the payment of
$700,000 (of which $250,000 was deposited with the Escrow Agent) and
(b) the assumption of certain of Seller's liabilities.
3. The Company loaned SQL $4,300,000 pursuant to the Exchange Agreement
and a related promissory note due on November 3, 2000 and bearing
interest at the rate of 6.18% per annum. The funds were used by SQL to
acquire the Replacement Property.
4. SQL granted a license to the Company to use the Replacement Property
until November 3, 2000 pursuant to a License Agreement between the
Company and SQL, in exchange for a one-time license fee of $285,000.
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 685,340 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 682,335 due to approximately 3,000 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 $2.70 per share for the 222,213
shares covered under the Stock Repurchase Agreement and a value of
approximately $2.02 for the 460,223 remaining shares issued. The $2.02
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, 2003, 78,701 shares of Company stock had been
repurchased by the Company under the Stock Repurchase Agreement at a cost
of approximately $212,500.
The share/per share amounts for the merger have been restated to reflect
the May 30, 2003 reverse/forward split of the Company's Common Stock.
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
consisted of approximately $1,114,000 of goodwill, $232,000 of software,
$360,000 of other assets, and the assumption of approximately $1,019,000 of
liabilities were recorded at their fair values based on the Company's
estimate of these values.
56
The business acquired now comprises the Company's manufacturing and
distribution software product line. Goodwill was tested for impairment
during the fourth quarter of 2003. The test was applied utilizing the
estimated fair value of this product line as of December 31, 2003
determined based on a combination of the manufacturing and distribution
software product line's discounted cash flows and acquisition multiples of
comparable businesses. As a result of this analysis, the Company recorded a
non-cash impairment charge of $171,000 or ($0.08) per share.
Unaudited pro forma consolidated revenues, net earnings (loss) and net
earnings (loss) per basic and diluted shares for the year ended December
31, 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 $ 25,549,000
Net earnings (loss) 121,000 (2,163,000)
Net earnings (loss) per share:
Basic $ 0.03 $ (0.50)
Diluted $ 0.03 $ (0.50)
Divestitures
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
$278,000 and $381,000 has been received and recorded in the Statements of
Operations for the years ended December 31, 2003 and 2002, respectively.
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 332,799 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
57
the 332,799 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 purchase122,500 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 332,799 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, 2003 and December 31, 2002 after the transfer of the
shares to AIP.
Nashua, New Hampshire Building. In October 2003, the Company sold its
25,600 square foot office building in Nashua, New Hampshire for $2,300,000
in cash. Approximately $960,000 of the proceeds was used to satisfy
mortgage loan obligations for the building. The sale resulted in a pretax
gain of approximately $650,000. Concurrent with the sale of the building,
the Company signed a five-year lease for approximately 10,000 square feet
of the building currently used by the Tire Systems product line for office
space.
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.
At December 31, 2002, the Note Receivable - related party represents a
demand note bearing interest at an annual rate of 6.4%. In March 2003, the
Company received 55,000 shares of the Company's Common Stock from the
Chairman of the Company as consideration for the note and related accrued
interest which totaled approximately $211,000. The shares received were
recorded as treasury stock at the then current market value of $2.63 with
the difference of approximately $66,000 recorded as a bonus. 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, 2000 was $515,200.
During the three years ended December 31, 2003, 2002, and 2001, the
provisions for doubtful accounts were $215,259, $188,830, and $364,388, and
write-offs were $281,562, $239,372, and $640,097, 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
$278,000 and $381,000 has been received and recorded in the Statements of
Operations for the years ended December 31, 2003 and 2002, respectively.
Principal payments during 2003 and 2002 of approximately $293,000 and
$142,000, respectively, have been made in accordance with the payment
schedule called for under the second note.
58
The balances related to this note are as follows:
December 31,
--------------------------
2003 2002
---- ----
Note receivable $ 2,122,791 $ 2,415,954
=========== ===========
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. As of December 31, 2003, the outstanding balance
on the note was approximately $42,000.
D. Other Assets:
The balance in Other Assets includes the following:
December 31,
------------
2003 2002
---- ----
Covenant not to compete, net of amortization $ 116,000 $ 173,000
Cash surrender value of life insurance 755,000 655,000
Other 224,000 427,000
---------- -----------
$1,095,000 $ 1,255,000
========== ===========
E. Notes Payable and Long-Term Obligations:
December 31,
---------------------------
2003 2002
Long-term obligations:
Mortgage note $ 2,840,884 $ 3,661,476
Demand note 425,168 -
Capital leases 28,364 40,163
------------ ------------
3,294,416 3,701,639
Less current maturities 83,982 105,402
------------ ------------
Long-term portion $ 3,210,434 $ 3,596,237
============ ============
The current carrying value of long-term obligations approximate their fair
value.
59
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% at
December 31, 2003) plus .5%, which extends through June 30, 2004. 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 2003, 2002, and 2001.
Mortgage Note
The Company has one mortgage note outstanding at December 31, 2003. 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.
In October 2003, the Company sold its 25,600 square foot office building in
Nashua, New Hampshire, for $2,300,000 in cash. Approximately $960,000 of
the proceeds was used to satisfy mortgage loan obligations for the
building. The sale resulted in a pretax gain of approximately $650,000.
Concurrent with the sale of the building, the Company signed a five-year
lease for approximately 10,000 square feet of the building currently used
by the Tire Systems product line for office space.
Demand Note
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
five-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 $95,000 based on 100 hours estimated
usage. Fixed costs for the aircraft approximate $31,000 annually.
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 2006.
Interest paid for notes payable and long-term debt obligations was
approximately $332,000, $322,000, and $337,000, for the years ended
December 31, 2003, 2002, and 2001, respectively.
60
At December 31, 2003, 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
------------------------------
2004 $ 26,575 $ 59,869
2005 3,078 64,351
2006 1,539 68,536
2007 - 402,340
2008 - 2,670,956
Thereafter - -
--------- -----------
31,192 3,266,052
Less imputed interest 2,828 -
--------- -----------
$ 28,364 $ 3,266,052
======== ===========
F. Income Taxes (Credits):
Components of income taxes (credits) are as follows:
Years Ended December 31,
---------------------------------------
2003 2002 2001
---- ---- ----
Current:
Federal - $ 361,000 $ (160,000)
State - 147,000 36,000
Foreign - - -
Deferred (416,000) (243,000) (16,000)
----------- ---------- -----------
$ (416,000) $ 265,000 $ (140,000)
=========== ========== ===========
On a cash basis, net income taxes refunded in 2003 were approximately
$456,000, and income taxes paid in 2002 and 2001 were approximately
$555,000 and $125,000, 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.
61
Income taxes are reconciled with the U.S. federal statutory rate as follows:
Years Ended December 31,
------------------------------------
2003 2002 2001
Income taxes at statutory
federal rate $(316,000) $ 229,000 $(153,000)
State income tax, net of federal
income tax benefit (57,000) 94,000 23,000
Other, net (43,000) (58,000) (10,000)
--------- --------- ---------
$(416,000) $ 265,000 $(140,000)
========= ========= =========
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, 2003 and 2002 are as follows:
2003 2002
Deferred tax liabilities:
Capitalized software deducted for tax, not book $ -- $ 226,000
Differences between book and tax basis of property 90,000 260,000
Deferred gain on divestitures 485,000 553,000
Unrealized gain on marketable securities 397,100 --
Other -- 25,000
----------- -----------
972,100 1,064,000
----------- -----------
Deferred tax assets:
Accruals/reserves 292,000 225,000
Federal net operating loss and capital loss carry-forwards 718,000 1,071,000
Valuation allowance - Federal net operating
loss and capital loss carry forwards (718,000) (711,000)
Differences between book and tax basis of
capitalized software 71,000 --
Differences between book and tax basis of intangibles 155,000 --
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 7,000 13,000
----------- -----------
525,000 598,000
----------- -----------
Net deferred tax liability $ 447,100 $ 466,000
=========== ===========
These Federal net operating loss carry-forwards of $1,400,000 expire at
various dates through 2023.
The Company, in filing its 2002 corporate tax returns, utilized
approximately $1.4 million of capital losses and $1.2 million of ordinary
deductions that resulted from theTradePoint Systems, LLC 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
62
deductions could be disallowed. Due to this uncertainty, a valuation
allowance has been provided for the tax effect of such capital losses and
ordinary deductions which are now included with the net operating and
capital loss carry forwards for 2003.
G. Capital Transactions:
Reverse/Forward Stock Split
On May 16, 2003, the Company's stockholders approved a reverse/forward
split of the Company's common stock which resulted in a one-for-two reverse
split and a cash out of stockholders who own fewer than 200 shares. A total
of approximately $159,000 was paid out for cashed out and fractional
shares, which totaled approximately 71,600 post-split shares. All figures
including per share data appearing in the Company's Consolidated Financial
Statements and Notes to the Consolidated Financial Statements have been
retroactively restated for the reverse/forward stock split.
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.
During 2003, the Company received 55,000 shares of its Common stock as
consideration for a note receivable and accrued interest due from the
Chairman of the Company. Also, the Company purchased 43,392 shares of
Treasury stock in addition to 55,548 shares purchased under the Stock
Repurchase Agreement related to the Computrac acquisition.
In 2003 and 2002, the Company cancelled 369,000 and 11,500 shares of
Treasury Stock valued at $1,575,006 and $51,520, respectively.
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:
63
2003 2002 2001
---- ---- ----
Net earnings (loss) As reported $ (514,749) $ 408,101 $ (308,714)
Pro forma (604,383) 363,627 (360,141)
Basic earnings (loss)
per share As reported $ (0.25) $ 0.12 $ (0.10)
Pro forma (0.30) 0.11 (0.12)
Diluted earnings (loss)
per share As reported $ (0.25) $ 0.11 $ (0.10)
Pro forma (0.30) 0.10 (0.12)
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 2003, 2002, and 2001, respectively: dividend
yield of 0% for all years, and expected volatility of 100% for 2003, 62%
for 2002, and 65% for 2001, risk-free rates ranging from 3.86% to 7.15% for
2003, 4.69% to 4.72% for 2002, and 4.33% for 2001, and expected lives
ranging from 12 to 48 months for 2003, 2002, and 2001, respectively.
A summary of the status of the Company's stock option plans as of December
31, 2003, 2002, and 2001, and changes during the years ended on those
dates, is presented below:
2003 2002 2001
------------------------------ --------------------------- ---------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------------------------ --------------------------- ---------------------------
Outstanding at
beginning of year 185,690 $ 2.96 169,218 $ 3.22 170,090 $ 3.20
Granted 70,875 2.25 25,000 2.20 11,715 2.20
Exercised -- -- -- -- --
Canceled 72,825 2.14 8,528 5.74 12,587 2.12
------- ------- -------
Outstanding at
end of year 183,740 $ 3.01 185,690 $ 2.96 69,218 $ 3.22
======= ======== ======= ======== ======= ========
Options exercisable
at year-end 164,655 $ 3.10 171,540 $ 3.01 55,003 $ 3.20
======= ======== ======= ======== ======= ========
Weighted-average
fair value of options
granted during
the year $ 1.83 $ 1.54 $ 1.52
======== ======== ========
As of December 31, 2003, the 183,740 options outstanding under the Plan
have exercise prices between $1.76 and $5.62, and a weighted-average
remaining contractual life of approximately 6 years.
As of December 31, 2003 the exercisable options outstanding under the Plan
have exercise prices between $1.76 and $5.62 and a weighted-average
remaining contractual life of approximately 6 years.
64
Common Stock Reserved
At December 31, 2003, the Company has reserved 299,525 shares of its common
stock for incentive and nonqualified stock options.
H. Earnings per Share:
The weighted average number of common shares outstanding used in the
computation of earnings per share is summarized as follows:
2003 2002 2001
---- ---- ----
Denominator for basic earnings per share -
weighted average shares 2,025,335 1,761,894 1,491,199
Effect of dilutive securities:
Employee stock options -- 15,172 --
--------- --------- ---------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 2,025,335 1,777,066 1,491,199
========= ========= =========
The following table summarizes securities which were outstanding as of the
years ended December 31, 2003, 2002, and 2001 but not included in the
calculation of diluted net earnings per share because such shares are
antidilutive:
2003 2002 2001
---- ---- ----
Employee stock options 52,675 55,030 61,290
I. Geographic Information:
The following is a summary of selected geographic information for the years
ended December 31, 2003, 2002, and 2001:
Revenues: 2003 2002 2001
--------- ---- ---- ----
United States $15,166,000 $15,898,000 $14,557,000
Canada 694,000 117,000 127,000
Other 56,000 41,000 61,000
----------- ----------- -----------
Total $15,916,000 $16,056,000 $14,745,000
=========== =========== ===========
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,
2003, 2002, and 2001.
65
J. Commitments:
The Company and its subsidiaries lease office and warehouse facilities
under operating leases expiring on various dates through 2008. Total rent
expense charged to operations approximated $619,000, $429,000, and
$440,000, in 2003, 2002, and 2001, respectively.
At December 31, 2003, minimum rental commitments under noncancellable
operating leases with initial terms of one year or more are as follows:
Operating
Leases
-----------
2004 $ 599,000
2005 611,000
2006 451,000
2007 373,000
2008 354,000
Thereafter -
-----------
$ 2,388,000
===========
The Company, through its real estate subsidiary, ASA Properties Inc.,
leases office facilities to third parties under operating leases expiring
on various dates through 2008. Total rental income included in operations
approximated $740,000, $764,000, and $798,000, in 2003, 2002, and 2001,
respectively.
At December 31, 2003, future minimum rental payments to be received on
operating leases are as follows:
Operating
Leases
---------
2004 $ 399,554
2005 162,812
2006 79,304
2007 76,299
2008 73,927
Thereafter -
---------
$ 791,896
=========
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 2003, 2002, and 2001 were approximately $84,000,
$69,000, and $77,000, respectively.
In June 2003, the Company established an Employee Stock Ownership Plan
("ESOP") effective January 1, 2003. The ESOP is designed to enable Company
employees to accumulate ownership of Company stock. All employees on the
payroll of the Company over the age of 21 and with at least 1,000 hours of
Company service during a plan year are eligible to participate in the ESOP.
The ESOP has a five-year cliff vesting, with credit given for service prior
to the ESOP effective date. Benefits may be paid in a lump sum or
installments, in Company stock, cash or a combination of both.
The Company may, but is not required to, make contributions to the ESOP in
cash or Company stock. The ESOP may borrow money to purchase Company stock.
Employee contributions are not permitted. Company contributions may be used
by the ESOP to repay any current loan obligation incurred to purchase
Company stock, to purchase Company stock from existing shareholders, or to
purchase Company stock directly from the Company. The ESOP may also invest
in assets other than Company stock, or may hold ESOP assets in cash. As of
December 31, 2003, no contributions have been made to the ESOP.
66
K. Concentration of Credit Risks:
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash
equivalents, trade accounts receivable, notes receivable and marketable
securities.
At December 31, 2003, the Company's cash deposits were fully covered by
FDIC/DIF insurance. The Company maintains 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 Company 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.
Approximately $2,123,000 of the Notes Receivable at December 31, 2003 is
due from CommercialWare, Inc., a former division of the Company which was
sold in March 1999. The Company reviews Notes Receivables 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. Measurement
of an impairment loss for the Note would be based on the fair value of the
asset.
At December 31, 2003, the Company held an investment in 225,625 shares of
Omtool, Ltd. stock. The shares of Omtool stock were purchased by the
Company in May 2003 at an aggregate purchase price of $676,875. At December
31, 2003, the shares had a fair market value of was approximately
$1,670,000. The Company regularly reviews the operating performance of
Omtool and current trading value of its stock to assess the carrying values
of this available-for-sale security and report it at its fair value.
L. Quarterly Financial Data (unaudited):
Earnings (loss) Basic Diluted
from Net earnings earnings (loss) earnings (loss)
Revenue operations (loss) per share per share
------- ---------- ------ --------- ---------
2003
- ----
First quarter $ 4,295,000 $ (235,000) $ (107,000) $ (0.04) $ (0.04)
Second quarter 4,096,000 (383,000) (250,000) (0.12) (0.12)
Third quarter 3,666,000 (585,000) (428,000) (0.22) (0.22)
Fourth quarter 3,859,000 (444,000) 270,000 0.14 0.14
2002
- ----
First quarter $ 3,455,000 $ 50,000 $ 92,000 $ 0.06 $ 0.06
Second quarter 4,239,000 412,000 339,000 0.23 0.22
Third quarter 4,218,000 97,000 75,000 0.04 0.04
Fourth quarter 4,144,000 (264,000) (98,000) (0.05) (0.05)
The basic and diluted earnings (loss) per share amounts for 2002 have been
restated to reflect the May 30, 2003 forward/reverse split of the Company's
Common Stock.
The basic and diluted earnings (loss) per share amounts for the Third and
Fourth Quarters of 2002 include the effect of the 682,335 additional shares
in the CompuTrac, Inc. acquisition completed in August 2002.
67
ASA International Ltd.
Schedule II
Valuation and Qualifying Accounts
For the years ended December 31, 2003, December 31, 2002, and December 31, 2001
Balance at Charged to
Beginning of Costs and Charged to Balance at End
Period Expenses Other Accounts Deductions of Year
------ -------- -------------- ---------- -------
2001
Allowance for
doubtful
accounts $515,200 $364,388 - $640,097 $239,491
2002
Allowance for
doubtful
accounts $239,491 $110,222 $78,608 $239,372 $188,949
2003
Allowance for
doubtful
accounts $188,949 $215,259 - $281,562 $122,646