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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, 1995 0-14741
- ------------------------- ----------------------
ASA INTERNATIONAL LTD
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(Exact name of registrant as specified in its charter)
Delaware 02-0398205
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Speen Street, Framingham, MA 01701
- ----------------------------------------- ----------
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 626-2727
- ------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange
- ------------------- on which registered
---------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
- -----------------------------------------------------------
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
As of March 22, 1996, 3,787,517 shares of Common Stock, $.01 par value per
share, were outstanding. The aggregate market value, held by non-affiliates, of
shares of the Common Stock, based upon the average of the bid and ask prices for
such stock on that date was approximately $9,241,541.
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DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Document Part of Form 10-K Annual
- -------- Report in which Document
is Incorporated
Report on Form 10-K filed on March 30, 1995 Part IV
Report on Form 10-K filed on March 30, 1994 Part IV
Report on Form 10-K filed on March 30, 1993 Part IV
Report on Form 10-K filed on March 26, 1992 Part IV
Report on Form 10-K filed on March 28, 1991 Part IV
Report on Form 10-K filed on March 30, 1990 Part IV
Report on Form 10-K filed on March 31, 1988 Part IV
Report on Form 8-K filed on August 31, 1995 Part IV
Report on Form 8-K filed on December 30, 1994 Part IV
Report on Form 8-K filed on September 29, 1993 Part IV
Registration Statement on Form S-18
(File number 33-3832-B) Part IV
Registration Statement on Form S-1
(File number 33-15381) Part IV
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PART I
ITEM 1. Business
--------
GENERAL
ASA International Ltd. (the "Registrant" or the "Company") provides
networked automation systems and ongoing monthly support to approximately 950
businesses in the United States and Canada. The Company designs and develops
proprietary enterprise and point solution software for the electronic time and
labor recording market, for catalog direct marketers, and for the legal,
international trade, and tire dealer markets. The Company installs this software
on a variety of computers and networks, including Digital Equipment Corporation
("DEC"), IBM Corporation ("IBM"), Hewlett Packard ("HP"), and Unix/Open Systems
hardware platforms and provides implementation, training, and long-term software
and hardware support to its clients.
The Company is comprised of five operating groups and a corporate services
group. The International Trade and Transportation Systems Group provides
integrated hardware and software solutions to customs house brokers, freight
forwarders, and other companies involved in international trade. The Company
believes it is now the leading supplier of computer solutions to customs house
brokers and freight forwarders in the United States. The Company's Business
Systems Group provides electronic time recording solutions for payroll and pay
rules for companies of over 500 employees and over $10 million in sales. The
Tire Systems Group provides integrated hardware and software solutions to
independent tire dealers, wholesalers, and retreaders. The Legal Systems Group
provides integrated accounting and practice management solutions to law firms.
Lastly, the Direct Marketing Systems Group, acquired in August 1993, specializes
in delivering turnkey management systems to consumer and business direct
marketing firms.
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., ASA Properties, Inc. ("Properties"), and ASA International Ventures, Inc.
("Ventures"). In 1995, its Massachusetts predecessor and its wholly owned
subsidiaries, ASA Incorporated ("ASA, Inc."), ASA Legal Systems Company, Inc.
("Legal") were merged into their parent corporation, ASA International Ltd.
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. The Company is a Value-Added Reseller for Digital, and its
International Trade and Transportation Systems, Business Systems, and Direct
Marketing Systems Groups are IBM Authorized Industry Remarketers for the
international trade, data collection, and catalog direct marketing industry
segments.
Except as set forth above, during the past year, there have been no
bankruptcy proceedings, receivership, or similar proceedings with
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respect to the Registrant, nor has there been any merger or consolidation of the
Registrant, and 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.
International Trade and Transportation Systems
- ----------------------------------------------
The Company's international trade solutions prepare import and export
documentation, support electronic communications (EDI) with U.S. and Canadian
Customs, track the movement of goods and paperwork, and perform invoicing and
general accounting functions. The Company believes it now has the largest number
of users for customs house brokerage systems in the United States. The Company's
customers are located in the United States, Canada, Puerto Rico, Bermuda, and
the Virgin Islands.
The Company installs systems on a range of DEC, IBM, and Unix-based
hardware platforms. The systems range in price between approximately $30,000 and
$500,000. The Company's computer solutions for Canada are similar in scope and
nature to its systems for United States customs brokers.
Business Systems
- ----------------
The Company designs, develops, supports, and markets software to collect
data for time and attendance and labor reporting. The SmartTime(TM) product for
electronic time recording of time and attendance for payroll was introduced in
September 1993. ShopKeeper(TM) is the Company's family of bar code data
collection applications for time and operations management and control. The
SmartTime and ShopKeeper product sets include data collection applications for
time and attendance, labor reporting, work-in-process, inventory movement, and
lot traceability. The SmartTime applications are based on the SmartLink
real-time software for interactive data collection. The Company also supports
legacy manufacturing management and control and accounting software products
based primarily on the DEC hardware platform.
The Company offers a range of consulting services to all of its clients,
including training, implementation support, operations support, custom software
development, and hardware dispatch support.
Tire Systems
- ------------
The Company provides integrated hardware and software multi-user solutions
on DEC and Unix-based systems to independent tire dealers, wholesalers, and
retreaders in the United States and Canada for point-of-sale, work orders,
inventory control, purchasing, and accounting
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functions. The systems range in price between approximately $15,000 and
$200,000.
In September 1988, July 1989, and September 1990, respectively, the Company
acquired Associated Software Consultants Organization, Inc. ("ASCO"), Snyder
Computing Systems, and Computers Northwest ("CNW"), all of which specialized in
supplying 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 systems in the United States.
Legal Systems
- -------------
The Company provides integrated networked financial management systems for
law firms throughout the United States. The Company's Pyramid product is a
powerful, fully integrated, set of legal specific applications designed to run
on PC networks. The product is written in a fourth generation, fully relational,
SQL compliant database. Targeted at the smaller-sized law firm, the product
compliments the Company's existing offerings to mid and high-end market
segments. In the mid to high-end market, the Company provides client/server
based systems which operate on servers such as the DEC VAX running Open VMS, the
DEC Alpha running OSF1, the DEC Intel-based 433 running SCO Unix, Intel 486 and
586 running DOS, and the HP 9000 running UX. The software applications form a
comprehensive set of all the components necessary to run a modern legal firm,
including accounting, word processing, practice management, and litigation
support. Systems range in price between approximately $25,000 and $500,000.
The Company entered the legal systems marketplace in June 1991 by acquiring
Quorum Legal Systems of Plymouth Meeting, Pennsylvania from Control Data
Corporation. In January 1992, the Company acquired the fixed assets of Legal
Data Systems of Boston, Massachusetts. In November 1994, the Company acquired
certain software products of Precedent Technologies Incorporated of New Hope,
Pennsylvania. The Company has approximately 250 clients in this market.
Direct Marketing Systems
- ------------------------
The Company provides turnkey management systems to consumer and business
catalog and direct marketing firms. Utilizing the IBM AS/400, the Company's
OASIS(SM) and Mozart (SM) products are leading industry standards for order
fulfillment, customer service, and decision support systems. The Company entered
this marketplace in August 1993 when it acquired CommercialWare of Norwood,
Massachusetts. The Company now believes it has an estimated 10% market share in
this marketplace.
Marketing
- ---------
The Company markets its products and services to new prospects and existing
clients primarily using the Company's direct sales force,
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assisted by technical personnel. These personnel are trained in the Company's
product and service offerings and in the operations of the Company's clients.
The Company uses its own personnel, rather than third-party distributors,
because prospects and the Company's clients 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 client. This marketing approach requires substantial,
specialized knowledge of the requirements of the Company's clients 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 client to
understand how the Company's products and services will work to meet its
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 international trade, tire, direct marketing,
and legal markets served by the Company, the total domestic market is well
defined through the respective industry and professional organizations. In these
markets, trade shows and direct contacts are used to determine how prospects are
satisfying their information processing requirements. For the time and
attendance product line, the prospects for the Company's products are more
diverse and difficult to target. In these markets, the Company engages in
"prospecting" to identify interest in the Company's products by companies who
are currently seeking products or services of the type offered by the Company.
The prospecting process includes trade publication advertising, purchased
mailing lists, telemarketing, direct mail, seminars, and trade shows to generate
appointments for the direct sales force with qualified prospects.
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 client base presents continuing opportunities
for sales of additional software and services. The Company's products and
services generally become an integral part of the client's business. As a
result, the quality of customer support is essential to selling to existing
clients. Additionally, in the International Trade and Transportation Systems
Group, government mandated or sponsored changes require the Company to stay
current with
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governmental regulations and assist clients in maintaining their systems to meet
regulatory changes.
The Company maintains frequent contact with clients through sales and
service representatives. The Company provides customer support lines to handle
client system operational issues within a prescribed response time, and
continually communicates with its clients through newsletters and client
seminars. Through frequent contact with its clients by marketing and service
activities, the Company believes that it can better understand client
requirements and direct its product development activities toward developing and
enhancing products that should be well accepted by both existing clients and new
prospects.
Sources and Availability of Raw Materials
- -----------------------------------------
The Company's systems operate on computer hardware supplied by leading
hardware manufacturers pursuant to Original Equipment Manufacturer or Value
Added Reseller Agreements. These agreements are renewable on a year-to-year
basis, and entitle the Company to purchase equipment at various discounts based
upon volume and the type of equipment. The loss of the Company's ability to
purchase equipment from the manufacturer would not have an adverse effect on the
Company's business. The Company's products have been ported to run under the
Unix operating system. 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 IBM hardware for certain of the Company's market
segments from IBM under Industry Remarketer Agreements. The Company believes
that its relationship with IBM is satisfactory based upon IBM's selection of the
Company as an Authorized Industry Remarketer for these segments.
The Company also purchases HP and DEC hardware for certain of the Company's
market segments from HP and DEC under Value-Added Reseller Programs. The Company
believes that its relationship with HP and DEC is satisfactory given the
selection of the Company as a Value-Added Reseller for these markets.
The Company purchases all of its computer hardware and peripheral equipment
from DEC, IBM, HP, or other vendors, and performs only software installation,
testing, final system configuration, and quality control. With the exception of
multi-user systems purchased from DEC, IBM, and HP, the Company believes there
are several alternative suppliers for system components used by the Company.
Patents and Proprietary Technology
- ----------------------------------
The Company does not believe that patents are material to its business. The
Company relies primarily upon trade secrets, unpatented proprietary know-how,
and continuing technological innovation to develop and maintain its competitive
position. In particular, the Company
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generally provides only "run time" code for its software to its international
trade, tire, and legal clients, although manufacturing systems and certain legal
clients may also purchase "source" code. In addition, most catalogue direct
marketing clients purchase 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
- -----------
The Company has not experienced material seasonality in its business, other
than that due to the economic fluctuation of the economies of the United States
and Canada.
Working Capital Items
- ---------------------
The Company does not have any unusual trade practices which would require
restrictions on working capital.
Customers
- ---------
During fiscal year-ended December 31, 1995, the Company's revenue by
product line was as follows:
Product Line Revenue($) %
- ------------ ---------- ---
International Trade $ 6,968,000 22%
Business Systems 7,216,000 23
Tire Systems 3,301,000 11
Legal Systems 5,201,000 17
Direct Marketing Systems 8,346,000 27
----------- ---
$31,032,000 100%
=========== ===
Backlog
- -------
Set forth below is information concerning the Company's backlog at December
31, 1995 and 1994, respectively:
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Backlog at December 31,
-----------------------
1995 1994
---- ----
Support Support
Product Line Total Contracts Total Contracts
- ------------ ----- --------- ----- ---------
International Trade $ 3,200,000 $2,400,000 $ 3,700,000 $2,500,000
Business Systems 2,900,000 1,400,000 6,800,000 1,300,000
Tire Systems 1,700,000 1,400,000 1,700,000 1,400,000
Legal Systems 2,600,000 1,600,000 3,200,000 1,600,000
Direct Marketing Systems 2,200,000 800,000 1,200,000 500,000
----------- ---------- ----------- ----------
$12,600,000 $7,600,000 $16,600,000 $7,300,000
=========== ========== =========== ==========
Support contracts are generally cancelable by the Company or the Company's
customers upon 90 days written notice.
Competition
- -----------
The Company's competitors for international trade systems include Freight
Data Systems Ltd. and ITS. The Company believes that the principal competitive
factors in the international trade systems business are: ease of operation;
completeness and sophistication of software products; price/performance ratio;
the ability to expand and upgrade a system; product reliability; support for EDI
(Electronic Data Interchange); timely conformance to everchanging governmental
regulations; and service and support. The Company believes it competes favorably
with respect to all of these factors.
The Company's primary competitors for time and attendance, labor reporting,
and bar code data collection software are Kronos and JeTech. The Company
believes the principal competitive factors for bar code systems are:
technological sophistication; ease of handling complex payrules; real time
processing; unlimited ability for data validation; the ability to update
applications anywhere in the operation, independent of the hardware
manufacturer; and the ability to develop applications without writing new code.
The Company believes it competes favorably with respect to all of these factors.
The Company's primary competitors for tire systems are Signal Software and
Progressive Computer Systems. The Company believes the principal competitive
factors for tire systems are: complete point of sale functionality to assist
sales personnel to maximize gross margin on each sale; the ability to post data
automatically to the accounting system; and the ability to track the
manufacturing process of tire retreaders. The Company believes it competes
favorably with respect to all of these factors.
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The legal systems market is highly competitive and includes a number of
independent software vendors and service bureaus. The Company's primary
competitors for legal systems are Capsoft Development, CMS/DATA Corp., Elite
Data Processing, Barrister, Juris, and Omega. The Company believes that the
principal competitive factors in the legal systems business are: completeness
and sophistication of software products; vendor reputation and references;
price/performance ratio; the ability to expand and upgrade a system; the ability
to provide an open systems solution; the ability to run both the "front office"
and the "back office" applications on a single network; product reliability; and
service and support. The Company believes it competes favorably with respect to
all of these factors.
The direct marketing systems market is highly competitive. The Company's
major competitors are Smith-Gardner, Sigma Micro, and Computer Solutions. The
direct marketing product competes on price/performance, ease of use, and
sophistication of software. The Company believes it competes favorably with
respect to all these factors. The next generation product, Mozart, unveiled in
1994, is CASE-developed and competes favorably with the products of competitors,
as well as provides a foundation for future development.
Research and Development
- ------------------------
During the last three fiscal years, the amounts spent by the Company on
Company-sponsored research and development activities and on customer-sponsored
research activities relating to the development of new products, services, or
techniques or the improvement of existing products, services, or techniques were
not material.
Government Regulation
- ---------------------
There is presently no material government regulation with respect to the
Company's business. Approvals for computer hardware from Underwriter's
Laboratories and the Federal Communications Commission are obtained by the
hardware manufacturer. However, the extent to which future federal, state, or
local governmental regulations may regulate the Company's activities cannot be
predicted, and the Company may be subject to restrictions on export of its
computer systems to other countries if it seeks to expand into non-U.S. markets.
Employees
- ---------
As of December 31, 1995, the Company had 186 full time employees. Of these
employees, 12 are executive officers or senior managers, 20 were engaged in
marketing and sales, 79 in customer support and training, 47 in custom/product
development or engineering, 4 in Legal System's service bureau, and 24 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
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has been successful to date in attracting highly 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.
ITEM 2. Description of Properties
-------------------------
The Company's Corporate Headquarters are located in a 32,000 square foot
office building at 10 Speen Street, Framingham, Massachusetts. The Business and
Direct Marketing Systems product operations are also located at this facility.
The Company occupies approximately 80% of the space in the building, while
tenants lease the remainder of the space. The carrying costs for the building,
which was acquired in October 1991, include monthly principal and interest
payments of $14,815 on a fifteen-year mortgage note along with operating costs
and taxes.
The Company's International Trade and Tire Systems operations are located
in a 24,000 square foot office building at 615 Amherst Street, Nashua, New
Hampshire, purchased in December 1992. The carrying costs for the facility
include approximately $10,000 per month for principal and interest on
twenty-year mortgage notes plus operating costs and taxes.
The Company maintains the following additional offices:
Current Date of Lease
Location Monthly Rent Office Area Expiration
- -------- ------------ ----------- ----------------
Tucker, Georgia $ 1,569 1,395 s.f. July 31, 1996
Blue Bell, Pennsylvania $24,907 20,420 s.f. February 1, 1998
ITEM 3. Legal Proceedings
-----------------
In November 1995, the Company commenced an action against a customer for
breach of contract and other charges for an amount in excess of $2,000,000. In
answering the complaint, the client alleged counterclaims for alleged breach of
contract and other charges seeking damages and attorneys' fees of an unspecified
amount. The Company intends to vigorously pursue its claim and defend the
counterclaim. In the opinion of management of the Company, this action can be
successfully defended without material adverse effect on the financial condition
of the Company.
ITEM 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
(a) No matter was submitted to a vote of security-holders during the
fourth quarter of the fiscal-year ended December 31, 1995, through the
solicitation of proxies or otherwise.
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(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
PART II
ITEM 5. Market Price of and Dividends on the Company's Common
Equity and Related Stockholder Matters
-------------------------------------------------------
The Company's Common Stock has been traded on the over-the-counter market
(NASDAQ symbol: ASAA) since June 25, 1986. The following table shows the range
of low and high bid quotations for the Company's Common Stock on the NASDAQ
System for the periods indicated, as furnished to the Company by NASDAQ.
Calendar Year 1994 Low Bid High Bid
------------------ ------- --------
First Quarter $1.188 $1.938
Second Quarter $1.063 $1.438
Third Quarter $ .750 $1.125
Fourth Quarter $ .688 $1.188
Calendar Year 1995 Low Bid High Bid
------------------ ------- --------
First Quarter $ .906 $1.188
Second Quarter $ .875 $1.313
Third Quarter $1.250 $2.375
Fourth Quarter $1.125 $1.750
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions. There were 1,422 holders of record of the Company's outstanding
Common Stock as of March 22, 1996.
Under the terms of a share repurchase program authorized by the Company's
Board of Directors in June 1990, the Company is authorized to repurchase up to
$500,000 of its Common Stock. In December 1991, the Company repurchased 25,000
shares at a cost of approximately $1.06 per share. The Company also repurchased
shares as follows for the months indicated:
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1992 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
March 5,000 $1.15
May 10,000 $1.53
July 3,000 $1.81
August 6,700 $1.81
8,100 $2.00
September 45,000 $1.94
15,000 $2.00
5,000 $1.99
October 5,000 $1.88
1993 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
March 5,000 $1.54
August 10,000 $2.93
September 1,800 $3.02
Although it is not obligated to do so, the Company may continue to
repurchase shares of Common Stock when market conditions for the purchase of its
stock meet its requirements.
Since its organization, the Company has not paid any dividends on its
Common Stock and its Board of Directors does not contemplate declaring any
dividends in the foreseeable future. The declaration and payment of dividends in
the future will be determined by the Board of Directors in light of conditions
then existing, including the Company's earnings, its financial condition and
requirements (including working capital needs), any agreements restricting the
payment of dividends and other factors. The Company's current banking
arrangements prohibit the payment of dividends by the Company.
ITEM 6. Selected Consolidated Financial Data
----------------------------------------
(in thousands, except per share amounts)
The following selected consolidated financial data are derived from the
consolidated financial statements of the Company. The income statement data for
the year ended December 31, 1995 and the balance sheet data as of December 31,
1995 are derived from and qualifed by reference to the consolidated financial
statements and notes thereto included herein and audited by BDO Seidman, LLP,
the Company's independent certified public accountants, as set forth in their
report and also included elsewhere herein. The income statement data for the
years ended December 31, 1994, and 1993, and the balance sheet data as of
December 31, 1994, are derived from the consolidated financial statements and
notes thereto included herein and audited by Deloitte & Touche LLP, the
Company's then independent certified public accountants, as set forth in their
report and also included elsewhere herein. The statement of operations data for
the years ended December 31, 1992 and 1991, and the balance sheet data as of
December 31, 1993, 1992, and 1991 are derived from financial statements audited
by Deloitte & Touche LLP.
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The financial information set forth below should be read in conjunction
with, and is qualified in its entirety by, the detailed information in the
consolidated financial statements and notes thereto appearing elsewhere herein.
Years Ended December 31,
------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Operating Data:
- ---------------
Revenues $31,032 $27,111 $27,863 $31,448 $23,463
Costs and Expenses 29,983 26,545 27,555 30,553 23,056
Earnings from Operations 1,502 920 569 1,057 489
Earnings
Before Cumulative Effect
of Adopting SFAS No. 109 457 166 98 400 125
Net Earnings 457 166 742 775 336
Earnings per share
Before Cumulative Effect
of Adopting SFAS No. 109 .11 .04 .02 .10 .03
Net Earnings per share .11 .04 .18 .19 .09
December 31,
------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Balance Sheet Data:
- -------------------
Total Assets $19,515 $20,131 $20,826 $19,073 $16,888
Long-Term Obligations 2,707 3,112 3,366 2,096 1,143
Shareholders' Equity 10,110 9,652 9,486 8,614 8,026
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
As described in the notes to the consolidated financial statements, the
Company, during the three years ended December 31, 1995, acquired
CommercialWare, Inc., for its direct marketing division.
The above transaction was accounted for under the purchase method of
accounting. As such, the results of the acquired company are included in the
Company's consolidated financial statements beginning at the date of
acquisition, September 1, 1994.
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Results of Operations
- ---------------------
Compare 1995 to 1994
- ---------------------
(000's omitted)
---------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1995 1994 Amount Percentage
---- ---- ------ ----------
Computer and add-on hardware $ 8,444 $ 5,553 $2,891 52%
Services 16,654 16,138 516 3%
Product licenses 5,934 5,420 514 9%
Net Revenue 31,032 27,111 3,921 14%
Revenue net of hardware costs $24,112 $22,153 $1,959 9%
Comparison of revenues and revenues net of hardware costs
- ---------------------------------------------------------
The increase in computer and add-on hardware revenue of approximately
$2,891,000 for the year ended December 31, 1995, compared to the same period in
1994, resulted primarily from an increase in revenue from the international
trade and direct marketing systems product lines. This increase was partially
offset by a decrease for the same period in computer and add-on hardware revenue
from the electronic time recording, tire, and legal systems product lines.
Hardware margins increased to approximately 18% for the year ended December
31, 1995, from approximately 11% in 1994. Margins on computer and add-on
hardware do fluctuate based on the mix of computer hardware and add-on hardware
products sold. Accordingly, the Company expects hardware gross margins in the
future to continue to fluctuate. The Company continues to direct its efforts
toward building service and product license revenue to offset the historical
decline in hardware revenue and margins.
Revenue from services increased approximately $516,000, or 3%, for the
year. Service revenue increases for the electronic time recording and direct
marketing systems product lines were offset by revenue decreases in the
international trade, tire, and legal systems product lines. Gross margin from
services decreased to approximately 27% from 36%. The Company's revenue and
margin from services fluctuate from period to period due to the mix of contracts
and projects.
Product license revenue increased by approximately $514,000, or 9%, for the
year ended December 31, 1995, compared to the same period in 1994. The change
was a result of revenue increases from the international trade, electronic time
recording, and direct marketing
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systems products lines, partially offset by decreases from the tire and legal
systems product lines.
Sales and marketing expenses decreased by approximately $409,000, or 9%.
This change primarily reflects a decrease in advertising, marketing, and
commission-related expenses for the electronic time recording, tire, and legal
systems product lines. General and administrative expenses for the year ended
December 31, 1995 decreased by approximately $703,000, or 18%, compared to the
prior year. These changes reflect the cost reductions and controls enacted by
the Company in the prior year. The cost reductions and controls included
severing specific employees, not replacing employees as they left voluntarily,
delaying hiring decisions previously budgeted, changing long-distance carriers,
combining of functions between divisions at the point in time when an employee
left, and hiring temporary employees as opposed to full-time employees (thus
reducing employee benefits costs).
Pretax earnings from operations were approximately $1,502,000 for 1995,
compared to approximately $920,000 for 1994. The increase in earnings results
from an increase in contribution from the Company's legal systems and direct
marketing systems product lines. Contribution decreased in the electronic time
recording and tire systems product lines.
The net earnings for the year ended December 31, 1995 were approximately
$504,000, as compared to net earnings of approximately $166,000 for the
comparable period in 1994. The change results from the increases in net interest
expense and net income tax expense of approximately $99,000 and $145,000,
respectively. These changes were partially offset by an increase in earnings
from operations of approximately $582,000.
Compare 1994 to 1993
- ---------------------
(000's omitted)
----------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1994 1993 Amount Percentage
---- ---- ------ ----------
Computer and add-on hardware $ 5,553 $ 8,709 $(3,156) (36%)
Services 16,138 16,207 (69) 0%
Product licenses 5,420 2,947 2,473 84%
Net Revenue 27,111 27,863 (752) (3%)
Revenue net of hardware costs $22,153 $20,900 $ 1,253 6%
17
17
Comparison of revenues and revenues net of hardware costs
- ---------------------------------------------------------
The decrease in computer and add-on hardware revenue of $3,156,000 results
from decreases in sales from all product lines of the Company except for the
direct marketing systems product line, acquired in 1993, for which there is no
comparable amount. Hardware margins decreased to 11% in 1994, from 20% in 1993.
These decreases reflect the continuing deterioration of computer hardware prices
in the market caused by the combination of constant technological change,
dominance of open systems, and the commodity nature of computer hardware.
Product license revenue increased by approximately 84%, or $2,473,000. The
increase is a result of revenue increases from all of the Company's existing
product lines, except for tire, as well as from revenue generated by the direct
marketing systems product line for which there was no comparable amount in 1993.
Revenue from services remained approximately the same as in the prior year; a
decrease of $874,000, or approximately 6% from previously existing product lines
was partially offset by the service revenue produced by the newly acquired
direct marketing systems product line. Gross margin from services declined to
36% from 45%. This change results from decreased margin from services from each
of the Company's product lines except for international trade. The Company's
revenue and margin from services fluctuate from period to period due to the mix
of contracts and projects.
Sales and marketing expenses increased by approximately $90,000, or 2%.
This change primarily reflects an increase in advertising, marketing, and
commission-related expenses for the electronic time recording product line and
the expenses of the direct marketing systems product line, for which there was
no comparable amount in the prior year. General and administrative expenses for
the year ended December 31, 1994 decreased by approximately $265,000, or 6%,
when compared to 1993. The decrease reflects cost reductions and controls
enacted throughout 1994 and the elimination of certain general and
administrative expenses related to the newly acquired direct marketing system
product line.
Pretax earnings from operations were approximately $920,000 for 1994,
compared to pretax earnings from operations of approximately $569,000 for 1993.
The increase in earnings results from an increase in contribution from the
Company's international trade and legal systems product lines, coupled with a
decrease in the loss associated with the newly acquired direct marketing systems
product line. Contribution decreased in the electronic time recording and tire
systems product lines.
The net earnings for the year ended December 31, 1994 were approximately
$166,000, as compared to net earnings of approximately $742,000 for the
comparable period in 1993. The change results from the effect of the
implementation of Statement of Financial Accounting Standards (SFAS) No. 109,
which increased 1993 first quarter net earnings by approximately $644,000 and
increases in net interest expense and net income tax expense of approximately
$93,000 and $190,000, respectively. These changes were partially offset by an
increase in income from operations of $351,000.
18
18
Liquidity and Capital Resources
- -------------------------------
The Company had total cash and cash equivalents at December 31, 1995 of
approximately $404,000, an increase of $394,000 from December 31, 1994. The
Company and its subsidiaries currently have a maximum line of credit totaling
$2,350,000, of which approximately $1,325,000 was available at December 31,
1995. This line is scheduled to expire in 1996. The Company expects to renew the
line under approximately the same terms.
Over the past three years, the Company has expended significant working
capital on the development of a new generation of software products. The level
of these expenditures has decreased in the current year. However, due to the
continuing rapid changes in software technology, the Company will have to
continue to fund product development in order to retain existing clients and to
attract new clients. The Company intends, as it has in the past, to fund this
development from its cash from operations.
The Company's hardware and software license revenues can fluctuate as a
result of a number of factors, particularly trends in the overall economy,
client buying patterns, and hardware and software technological developments.
Consequently, the Company could be subject to material variations in operating
results. As the uncertainties of the economy are incalculable, the Company
acknowledges the potential adverse impact that economic uncertainty could have
on its ability to maintain liquidity and raise additional capital. 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.
New Accounting Standards
- ------------------------
Effective January 1, 1995, the Company adopted Statement of Financial
Acounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of (SFAS No. 121) issued by the
Financial Accounting Standards Board (FASB). The new standards established new
guidelines regarding when impairment losses on long-lived assets, which include
plant and equipment, certain identifiable intangible assets and goodwill, should
be recognized and how impairment losses should be measured. The adoption of this
standard did not have a material effect on financial position or results of
operations of the Company.
19
19
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a new, fair value-based method of
measuring stock-based compensation, but does not require an entity to adopt the
new method for preparing its basic financial statements. For entities not
adopting the new method for preparing basic financial statements, SFAS No. 123
requires disclosure in the footnotes of pro forma net earnings and earnings per
share information as if the fair value-based method had been adopted. Adoption
of SFAS No. 123 is required no later than the Company's year ending December 31,
1996. The disclosure requirements of SFAS No. 123 are effective for financial
statements for financial years beginning after December 15, 1995. The Company
will comply with the disclosure requirements of SFAS No. 123 in its financial
statements for its year ending December 31, 1996.
ITEM 8. Supplementary Financial Information
-----------------------------------
Not applicable.
ITEM 9. Disagreements with Accountants on Accounting and
Financial Disclosure
------------------------------------------------
Effective August 28, 1995, the Company retained as its new independent
accountants BDO Seidman, LLP, replacing its prior independent accountants,
Deloitte & Touche, LLP ("Deloitte & Touche"). Deloitte & Touche's report on the
financial statements for the two most recent fiscal years contained no adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles. No action on the decision to
change accountants has been taken by the Board of Directors of the Company.
During the last two fiscal years and the subsequent interim period
preceding such replacement, there were no disagreements between the Company and
Deloitte & Touche on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Deloitte & Touche, would
have caused it to make a reference to the subject matter of the disagreements in
connection with its reports.
None of the "reportable events" described in Item 304(a)(1)(v) occurred
with respect to the Company within the last two fiscal years and the subsequent
interim period to the date of the change in accountants.
PART III
Items 10-13 are incorporated herein by reference to the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission.
20
20
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports On
Form 8-K
------------------------------------------------------
(a)1. Financial Statements.
---------------------
The Consolidated Financial Statements required to be filed herein
are as follows:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules.
-----------------------------
None
(b) Exhibits.
---------
The following exhibits are filed with this report:
2-1 The Commonwealth of Massachusetts Articles of Merger Merging
ASA Incorporated and ASA Legal Systems Company, Inc. into ASA
International Ltd., dated December 28, 1995.
2-2 Certificate of Ownership and Merger Merging ASA Incorporated and
ASA Legal Systems Company, Inc. into ASA International Ltd.,
dated December 28, 1995.
3a Certificate of Incorporation of ASA International Ventures, Inc.,
dated December 28, 1995.
3b ByLaws of ASA International Ventures, Inc.
10-1 Promissory Note (Revolver) between ASA International Ltd. and
CoreStates Bank, N.A., dated June 30, 1995.
10-2 Lease for DeKalb Corners Office Center, Tucker, Georgia.
10-3 Consent to Assignment of Lease for 960 Harvest Drive, Blue Bell,
Pennsylvania.
10-4 Agreement for Purchase and Sale of Assets between ASA
International Ventures, Inc. and ASA Incorporated, dated
December 29, 1995.
10-5 Agreement for Purchase and Exchange of Assets between ASA
International Ventures, Inc. and ASA International Ltd., dated
December 29, 1995.
21
21
10-6 Agreement for Exchange of Intangibles between ASA International
Ventures, Inc. and ASA International Ltd., dated December 29,
1995.
11 Statement of Computation of Net Earnings per Share.
21 Subsidiary of Registrant Formed in 1995.
The following documents are incorporated by reference to the Registrant's Report
on Form 10-K filed on March 30, 1995:
10-1 Loan Agreement between ASA International Ltd., ASA Incorporated
and ASA Legal Systems Company, Inc., and CoreStates Bank, N.A.,
dated November 3, 1994.
10-2 Promissory Note (Term) between ASA International Ltd. and
CoreStates Bank, N.A., dated November 3, 1994.
10-3 Promissory Note (Revolver) between ASA International Ltd. and
CoreStates Bank, N.A., dated November 3, 1994.
10-4 Security Agreement between ASA International Ltd. and CoreStates
Bank, N.A., dated November 3, 1994.
10-5 Security Agreement between ASA Incorporated and CoreStates Bank,
N.A., dated November 3, 1994.
10-6 Security Agreement between ASA Legal Systems Company, Inc., and
CoreStates Bank, N.A., dated November 3, 1994.
10-7 Guaranty between ASA Incorporated and CoreStates Bank, N.A.,
dated November 3, 1994.
10-8 Guaranty between ASA Legal Systems Company, Inc., and CoreStates
Bank, N.A., dated November 3, 1994.
11 Statement re: Computation of Per Share Earnings.
23 Consent of Deloitte & Touche LLP, independent certified public
accountants.
The following documents are incorporated by reference to the Registrant's Report
on Form 10-K filed on March 30, 1994:
10-1 Promissory Note between ASA Properties, Inc., and Berkshire Life
Insurance Company, dated September 28, 1993.
10-2 Mortgage and Security Agreement between ASA Properties, Inc. and
Berkshire Life Insurance Company, dated September 28,1993.
10-3 Collateral Assignment of Leases between ASA Properties, Inc., and
Berkshire Life Insurance Company, dated September 28, 1993.
22
22
10-4 Collateral Assignment and Security Agreement between ASA
Properties, Inc., and Berkshire Life Insurance Company, dated
September 28, 1993.
10-5 Promissory Note between ASA Properties, Inc., and Granite State
Development Corporation, dated December 23, 1992.
10-6 Servicing Agent Agreement between ASA Properties, Inc., and
Colson Services Corporation, dated May 12, 1993.
10-7 Promissory Note and First Amendment to Promissory Note between
ASA Incorporated, and the Economic Stabilization Trust, dated
October 29, 1993 and December 15, 1993, respectively.
10-8 Loan and Security Agreement between ASA, Inc., and the Economic
Stabilization Trust, dated October 29, 1993.
10-9 Guaranty between ASA International Ltd. and the Economic
Stabilization Trust dated October 29, 1993.
10-10 Intercreditor Agreement between Worcester County Institution for
Savings and the Economic Stabilization Trust as to their loans to
ASA Incorporated, dated October 29, 1993.
10-15 Amendment to Merger Agreement by and among the Company, ASA
Incorporated, CommercialWare, Donald Askin and Jonathan Ellman,
dated September 15, 1993.
The following documents are incorporated by reference to the Registrant's Report
on Form 10-K filed on March 30, 1993:
10-3 Lease for 960 Harvest Drive, Blue Bell, Pennsylvania.
10-4 Mortgage and Security Agreement between ASA Properties, Inc. and
Sun Life Assurance Company of Canada.
10-5 Promissory Note of ASA Properties, Inc. in favor of Sun Life
Assurance Company of Canada.
The following document is incorporated by reference to the Registrant's Form 8-K
filed on September 29, 1993:
10-1 Agreement and Plan of Merger by and among the Company, ASA
Incorporated, CommercialWare, Donald Askin, and Jonathan Ellman,
dated as of August 31, 1993.
The following documents are incorporated by reference to the Registrant's Report
on Form 10-K filed on March 26, 1992:
10-1 Asset Purchase Agreement by and between Control Data Company and
ASA Legal Systems Company, Inc., dated June 28, 1991.
10-7 Agreement by and between ASA International Ltd. and The Data
Group, dated January 1, 1992.
23
23
21 Subsidiaries of the Registrant Formed in 1991.
The following documents are incorporated by reference to the Registrant's Report
on Form 10-K filed on March 30, 1990:
10-1 Agreement of Merger by and between the Registrant and Associated
Software Consultants Organization, Inc.
10-2 Agreement between the Registrant and ISI re: FASBE Software.
10-3 Agreement between the Registrant and Intermec.
21 Subsidiaries of the Registrant.
The following documents are incorporated by reference to the Registrant's Report
on Form 10-K filed on March 31, 1988:
3b Bylaws, as amended.
10-8 Directors' and Officers' Insurance Policy.
The following documents are incorporated by reference to the Company's
Registration Statement on Form S-18 (File number 33-5832-B):
4c Specimen Convertible Note.
The following documents are incorporated by reference to the Company's
Registration Statement on Form S-1 (File number 33- 15381):
3a Certificate of Incorporation, as amended.
(c) Reports on Form 8-K.
--------------------
During the year ended December 31, 1995, the Company filed the following Report
on Form 8-K:
1. August 31, 1995 - The Registrant announced that it had retained
BDO Seidman, LLP, as its new independent accountants, replacing
its prior independent accountants, Deloitte & Touche, LLP.
24
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASA INTERNATIONAL LTD.
By /s/ Alfred C. Angelone
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, report
has been signed below by the following persons on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Alfred C. Angelone Director, Chief March 29, 1996
- -------------------------- Executive Officer
Alfred C. Angelone and Treasurer
(principal executive
officer and principal
accounting officer
/s/ Christopher J. Crane Director March 29, 1996
- --------------------------
Christopher J. Crane
/s/ James P. O'Halloran Director March 29, 1996
- --------------------------
James P. O'Halloran
/s/ Gordon J. Rollert Director March 29, 1996
- --------------------------
Gordon J. Rollert
/s/ William A. Kulok Director March 29, 1996
- --------------------------
William A. Kulok
25
25
Board of Directors and Shareholders
ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheet of ASA International
Ltd. and Subsidiaries as of December 31, 1995 and the related consolidated
statements of income, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ASA International
Ltd. and Subsidiaries at December 31, 1995 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
Boston, Massachusetts
March 15, 1996
26
26
Board of Directors and Shareholders
ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheet of ASA International
Ltd. and subsidiaries as of December 31, 1994, the related consolidated income
statements, consolidated statements of shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of ASA International Ltd. and
subsidiaries as of December 31, 1994, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 1994
in conformity with generally accepted accounting principles.
As discussed in Note A, in 1993 the Company changed its method of accounting for
income taxes to conform with Statement of Financial Accounting Standards No.
109.
/s/ Deloitte & Touche, LLP
March 16, 1995
Boston, Massachusetts
27
27
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------
1995 1994
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 404,026 $ 10,381
Receivables -- net 5,085,172 5,228,384
Computer hardware held for resale 238,624 313,836
Other current assets 748,221 901,642
----------- -----------
TOTAL CURRENT ASSETS 6,476,043 6,454,243
PROPERTY AND EQUIPMENT:
Land and buildings 3,804,194 3,730,196
Computer equipment 4,137,949 3,855,015
Office furniture and equipment 1,077,060 1,126,211
Leasehold improvements 36,574 107,631
Vehicles 261,703 220,980
----------- -----------
9,317,480 9,040,033
Accumulated depreciation
and amortization 4,612,375 4,226,580
----------- -----------
4,705,105 4,813,453
SOFTWARE
(less cumulative amortization
of $7,689,103 and $6,342,913) 6,193,625 6,485,771
COST EXCEEDING NET ASSETS ACQUIRED
(less cumulative amortization
of $1,362,750 and $1,104,704) 1,537,673 1,795,718
OTHER ASSETS 602,755 581,745
----------- -----------
$19,515,201 $20,130,930
=========== ===========
See notes to consolidated financial statements.
28
28
December 31,
-------------
1995 1994
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit note $ 1,025,000 $ 975,000
Accounts payable 1,157,573 1,994,103
Accrued expenses 2,292,514 2,368,444
Customer deposits 822,365 634,809
Deferred revenue 344,693 771,394
Current maturities of
long-term obligations 439,005 506,040
----------- -----------
TOTAL CURRENT LIABILITIES 6,081,150 7,249,790
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 2,707,459 3,111,905
DEFERRED INCOME TAXES 617,000 117,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value
$.01 per share: Authorized
and unissued, 1,000,000 shares - -
Common stock, par value
$.01 per share: Authorized, 6,000,000
shares; issued 3,917,316 and 3,917,268
shares; outstanding, 3,787,517
shares and 3,787,469 39,173 39,173
Additional paid-in capital 7,681,675 7,681,632
Retained earnings 2,809,186 2,351,872
----------- -----------
10,530,034 10,072,677
Less treasury stock, at cost 420,442 420,442
----------- -----------
10,109,592 9,652,235
----------- -----------
$19,515,201 $20,130,930
=========== ===========
See notes to consolidated financial statements.
29
29
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
--Years Ended December 31,--
1995 1994 1993
---- ---- ----
REVENUES
Computer and add-on hardware $ 8,443,995 $ 5,553,320 $ 8,708,608
Services 16,654,125 16,137,785 16,206,951
Product licenses 5,934,237 5,420,224 2,947,356
----------- ----------- -----------
NET REVENUE 31,032,357 27,111,329 27,862,915
COST OF REVENUE
Computer and add-on hardware 6,920,796 4,958,818 6,963,237
Services 12,136,916 10,306,546 8,858,718
Product licenses and development 2,598,035 1,938,125 2,357,138
----------- ----------- -----------
TOTAL COST OF REVENUE 21,655,747 17,203,489 18,179,093
EXPENSES
Marketing and sales 4,362,178 4,771,300 4,681,292
General and administrative 3,252,290 3,954,673 4,219,496
Amortization of goodwill 260,523 262,215 213,997
----------- ----------- -----------
TOTAL EXPENSES 7,874,991 8,988,188 9,114,785
EARNINGS FROM OPERATIONS 1,501,619 919,652 569,037
INTEREST EXPENSE (463,199) (375,241) (286,861)
INTEREST INCOME 10,894 21,493 25,699
----------- ----------- -----------
EARNINGS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT
OF ADOPTING SFAS NO. 109 1,049,314 565,904 307,875
INCOME TAXES 592,000 400,000 210,000
----------- ----------- -----------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ADOPTING SFAS NO. 109 457,314 165,904 97,875
CUMULATIVE EFFECT OF ADOPTING
SFAS NO. 109 - - 644,000
----------- ----------- -----------
NET EARNINGS $ 457,314 $ 165,904 $ 741,875
=========== =========== ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
EARNINGS BEFORE CUMULATIVE
EFFECT OF ADOPTING SFAS NO. 109 $.11 $.04 $.02
=========== =========== ===========
CUMULATIVE EFFECT OF ADOPTING
SFAS NO. 109 - - $.16
=========== =========== ===========
NET EARNINGS $.11 $.04 $.18
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,224,503 4,179,298 4,020,068
=========== =========== ===========
See notes to consolidated financial statements.
30
30
ASA INTERNATIONAL LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------
Common Stock Treasury Stock
------------ --------------
Additional
Paid-in Retained
Shares Amount Capital Earnings Shares Amount Total
------ ------ ---------- -------- ------ ------ -----
BALANCES,
1/01/93 3,916,999 $39,170 $7,681,386 $1,519,804 169,451 $(586,080) $ 8,654,280
Purchase of
Company stock - - - - 16,800 (42,401) (42,401)
Exercise of
stock options 269 3 (18,704) (75,711) (43,500) 146,300 51,888
CommercialWare
Acquisition - - 18,950 - (135,000) 436,050 455,000
Stock awarded as
compensation
to employee - - - - (6,000) 19,440 19,440
Reacquisition
of stock in
payment of
officers notes - - - - 128,048 (393,751) (393,751)
Net earnings - - - 741,875 - - 741,875
--------- ------- ---------- ---------- ------- --------- -----------
BALANCES,
12/31/93 3,917,268 39,173 7,681,632 2,185,968 129,799 (420,442) 9,486,331
Net earnings - - - 165,904 - - 165,904
--------- ------- ---------- ---------- ------- --------- -----------
BALANCES,
12/31/94 3,917,268 39,173 7,681,632 2,351,872 129,799 (420,442) 9,652,235
Exercise of
stock options 48 - 43 - - - 43
Net earnings - - - 457,314 - - 457,314
--------- ------- ---------- ---------- ------- --------- -----------
BALANCES,
12/31/95 3,917,316 $39,173 $7,681,675 $2,809,186 129,799 $(420,442) $10,109,592
========= ======= ========== ========== ======= ========= ===========
See notes to consolidated financial statements.
31
31
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---Years Ended December 31,---
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 457,314 $ 165,904 $ 741,875
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Cumulative effect of change in
accounting principle - - (644,000)
Depreciation and amortization 2,167,419 1,823,072 1,769,959
Deferred taxes 500,000 372,000 210,000
Doubtful receivables provision (62,621) (252,571) 132,272
Changes in assets and liabilities,
net of effects of acquisitions:
Receivables 122,798 878,150 2,279,260
Computer hardware held for resale 75,212 (73,486) 92,843
Other current assets 450,421 52,058 (136,489)
Accounts payable (836,530) (810,212) (799,144)
Accrued expenses (431,211) (87,321) (1,124,390)
Other current liabilities (180,863) 254,266 266,361
----------- ----------- -----------
Total adjustments 1,804,625 2,155,956 2,046,672
----------- ----------- -----------
Net cash provided by operating
activities 2,261,939 2,321,860 2,788,547
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (429,637) (254,788) (922,140)
Additions to software (1,054,043) (2,119,113) (2,454,424)
Reductions of (increases to)
sales-type leases 112,152 93,161 (2,778)
Cash paid for acquisitions - - (139,932)
Other assets (50,127) 28,958 (116,473)
----------- ----------- -----------
Net cash used for investing
activities (1,421,655) (2,251,782) (3,635,747)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank and other notes 50,000 25,000 191,959
Reduction in long-term debt (496,682) (1,099,843) (1,342,714)
Increase in long-term debt - 650,000 2,102,046
Issuance of common stock 43 - 249
Purchase of treasury stock - - (42,401)
Proceeds from sale of treasury stock - - 17,800
----------- ----------- -----------
Net cash provided by (used for)
financing activities (446,639) (424,843) 926,939
----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) 393,645 (354,765) 79,739
Balance, beginning of year 10,381 365,146 285,407
----------- ----------- -----------
Balance, end of year $ 404,026 $ 10,381 $ 365,146
=========== =========== ===========
See notes to consolidated financial statements.
32
32
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, 1993
A. Summary of Significant Accounting Policies:
Business description and principles of consolidation
The Company develops, markets, and provides services for its proprietary
enterprise and point solution software products and distributes computer
hardware to its software customers. The consolidated financial statements
include the accounts of ASA International Ltd. and its wholly owned
subsidiaries, ASA Properties, Inc. and ASA International Ventures, Inc. after
elimination of all material intercompany balances and transactions. In 1995, two
wholly owned subsidiaries, ASA, Inc. and ASA Legal Systems Company, Inc. were
merged into the parent corporation, ASA International Ltd.
Cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. On a cash basis,
interest income received approximates the amounts reported on the income
statements.
Concentration of Credit Risks
Concentration of credit risk with respect to accounts receivable is limited due
to the large number of customers comprising the Company's customer base. Ongoing
credit reviews of customers' financial condition are performed, and collateral
is not required. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not exceeded management's expectation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Computer hardware held for resale
Inventory is stated at the lower of cost (first-in, first-out method) or market.
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 5 to 7 years). Buildings are
depreciated over 40 years. Equipment under
33
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ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
capital leases and leasehold improvements are amortized over the shorter of the
lease term or the estimated useful lives of the assets.
Costs exceeding net assets acquired
Costs exceeding net assets of businesses acquired are amortized on a
straight-line basis over periods of 10 and 20 years. On an annual basis, the
Company reviews the carrying value of the costs exceeding net assets acquired
against projections of undiscounted cash flows and, if necessary, records
impairment.
Revenue recognition
Computer hardware revenue is recognized upon shipment of the product to the
client. Product license revenue is recognized upon shipment to the client
provided that no significant vendor obligations remain in connection with the
software being licensed and the collectability of the sale is probable in
accordance with Statement of Position 91-1 "Accounting for Software Revenue
Recognition."
The Company renders services in the areas of implementation and training,
consulting to existing clients, and post-contract client support.
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.
Sales-type leases
Long-term computer system leases, whereby the Company transfers all the benefits
and risks incident to the ownership of the hardware, are recorded as sales-type
leases. All other leases have been accounted for as operating leases, which
recognize lease revenue as earned over the lives of the leases.
Research and development
The Company expenses research and development costs as incurred.
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 technology
feasibility is established) associated with coding new applications or modules
and enhancing and
34
34
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
porting existing applications software are capitalized. Amoritization 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. Total amortization of
software charged to operations was approximately $1,346,000, $984,000, and
$1,035,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
Capitalized interest
Interest costs incurred on borrowed funds during the period of software
capitalization are capitalized as a component of the costs of software. Interest
costs capitalized in 1995 and 1994 amounted to approximately $60,000 and
$130,000, respectively.
Income taxes
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," effective January 1, 1993. This statement
supersedes Accounting Principles Board No. 11, "Accounting for Income Taxes,"
which was used previously by the Company. The cumulative effect of adopting SFAS
No. 109 on the Company's financial statements was to increase income by $644,000
($.16 per share) for the year ended December 31, 1993.
Deferred tax assets or liabilities are recognized for the estimated tax effects
of temporary differences between the tax and financial reporting bases of the
Company's assets and liabilities and for loss carryforwards based on enacted tax
laws and rates.
Net earnings per share
Net earnings per common share are computed using the weighted average number of
common equivalent shares outstanding during the year as calculated under the
treasury stock method. Common equivalents include outstanding warrants and
options, when dilutive, as well as contingent shares issuable as a result of a
business acquisition. The number of contingent shares issuable are determined
based upon the difference between the market value of the stock at the end of
the year and the guaranteed minimum value of that stock.
New Accounting Standards
Effective January 1, 1995, the Company adopted Statement of Financial Acounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of (SFAS No. 121) issued by the Financial
Accounting Standards Board (FASB). The new standards established new guidelines
regarding when impairment losses on long-lived assets, which include plant and
equipment, certain
35
35
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. The adoption of this standard did not have
a material effect on financial position or results of operations of the Company.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a new, fair value-based method of
measuring stock-based compensation, but does not require an entity to adopt the
new method for preparing its basic financial statements. For entities not
adopting the new method for preparing basic financial statements, SFAS No. 123
requires disclosure in the footnotes of pro forma net earnings and earnings per
share information as if the fair value based method had been adopted. Adoption
of SFAS No. 123 is required no later than the Company's year ending December 31,
1996. The disclosure requirements of SFAS No. 123 are effective for financial
statements for financial years beginning after December 15, 1995. The Company
will comply with the disclosure requirements of SFAS No. 123 in its financial
statements for its year end December 31, 1996.
B. Business Acquisitions and Divestitures:
Acquisitions
The Company has consummated the following business combination using the
purchase method of accounting during the three years ended December 31, 1995.
The Company's consolidated income statements include the operating results of
this entity from its respective acquisition date.
Consideration
-----------------------------------------------------
Stock Notes
----- ------
Cost Exceeding
Date of Rate/ Net Assets
Company Acquisition Cash Shares Value Amount Term Total Acquired
- ------- ----------- ---- ------ ----- ------ ---- ----- --------
CommercialWare August 1993 $140,000 135,000 $455,000 - - $595,000 $848,000
The acquisition price of CommercialWare, Inc. (CWI) contemplates a contingent
future payment in Company stock or cash (an adjustment to purchase price) based
on the future performance of CWI and the market value of the Company's stock. Up
to 100,000 additional shares are issuable to the former owners of CWI over the
three years ending December 31, 1996, based upon CWI attaining at least 80% of
yearly targeted contribution levels. As of December 31, 1995, CWI has not met
the targeted contribution level and, therefore, no contingent payments
36
36
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
were made. In addition, should the Company's stock price be less than $5 per
share on December 31, 1997, the Company will pay to the former owners of CWI, at
its option in cash or stock, the difference between the existing market price
and $5 per share. The payment will be based on the number of shares still owned
by the former owners of CWI on that date and would include the 135,000 shares
exchanged on the date of the original transaction and any of the 100,000
contingent shares issued. The stock was adjusted to reflect the estimated
present value of the market price guarantee at the acquisition date.
In November 1994, the Company completed the acquisition of certain software
products of Precedent Technologies Incorporated. The purchase agreement called
for an initial payment of $297,000 ($70,000 in cash and $227,000 in short-term
notes) and potential contingent consideration of an additional $400,000 over
three years, based upon a percentage of the gross revenues received by the
Company through the licensing of these software products. As of December 31,
1995 the Company has not exceeded the gross revenues necessary for the payment
of additional consideration.
Divestitures
In 1990, the Company sold the assets of its BIT unit which provided computer
systems to the hardgoods distribution market segment. A portion of the
consideration paid consisted of a promissory note for $300,000 with a five-year
term at 6% interest (discounted value of $272,000 at 10% interest) and 10,000
shares of Class B Non-Voting Stock of the acquiring corporation, Distribution
Management Systems, Inc. (DMS). The DMS shares, valued at $334,000 as of
December 31, 1995, are recorded at cost and are included under the category of
Other Assets on the Balance Sheet, since the investment is intended by
management to be of a long-term nature. The note was paid in full during 1995.
37
37
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
C. Receivables:
December 31,
------------
1995 1994
---- ----
Trade $4,774,530 $4,941,904
Net investment
in sales-type leases --
current portion 99,906 182,941
Amounts due from officers
and employees 270,982 226,406
---------- ----------
5,145,418 5,351,251
Less allowance for
doubtful accounts 60,246 122,867
---------- ----------
$5,085,172 $5,228,384
========== ==========
Amounts due from officers and employees represent unsecured periodic advances
reduced by repayments. There is no interest charged on these advances.
The allowance for doubtful accounts at December 31, 1992 was $297,912. During
the three years ending December 31, 1995, the provisions for doubtful accounts
were $334,250, $118,016, and $357,161, and write-offs were $256,724, $370,587,
and $419,782, respectively.
D. Sales-type Leasing and Rental Operations:
The Company's leasing and rental operations consist of the leasing and rental of
computer systems. The leases are classified as either operating or sales-type
leases and expire during the next five years. The Company does not anticipate
any residual value on this leased equipment.
Information relating to sales-type leases is as follows:
38
38
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1995 1994
---- ----
Minimum lease payments $182,000 $311,000
Unearned income (29,000) (46,000)
-------- --------
$153,000 $265,000
======== ========
Property held for
sale or lease $ - $ 6,000
======== ========
As of December 31, 1995, the minimum lease payments receivable under leases with
initial terms of one year or more were approximately as follows:
Sales-type Operating
Year ending December 31 Leases Leases
----------------------- ---------- ---------
1996 $123,000 $5,000
1997 47,000 1,000
1998 12,000 -
-------- ------
$182,000 $6,000
======== ======
E. Notes Payable, Long-Term Obligations, Commitments, and
Contingencies:
December 31,
------------
1995 1994
---- ----
Revolving credit note $1,025,000 $ 975,000
========== ==========
Long-term obligations
Term loans $ 602,292 $ 905,125
Mortgage notes 2,390,845 2,470,591
Equipment loans 4,554 23,382
Capital lease obligations 136,374 202,160
Other 12,399 16,687
---------- ----------
3,146,464 3,617,945
Less current maturities 439,005 506,040
---------- ----------
$2,707,459 $3,111,905
========== ==========
39
39
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The current carrying value of long-term obligations approximate their fair
market value.
Revolving credit note
The Company has a revolving credit agreement for $2,350,000 (which cannot exceed
75% of acceptable accounts receivable). The agreement, which extends through
June 30, 1996, stipulates interest at prime (8.5% at December 31, 1995), plus
1%. At December 31, 1995, $1,025,000 was outstanding and $1,325,000 was
available under the agreement. The weighted average interest rates on
outstanding borrowings for the years ended December 31, 1995, 1994, and 1993
were 9.79%, 8.41%, and 7.30%, respectively.
This credit facility, which includes the Company's $650,000 term loan, requires
the Company to maintain a stated tangible net worth amount and debt service
coverage. Payment of dividends is prohibited under the terms of this agreement.
This note is secured by the personal property of the Company.
Term loans
The Company has two term loans outstanding at December 31, 1995. The first is a
bank loan for $650,000, dated November 3, 1994, which is due on December 1,
1998, and is payable in monthly installments of $13,542 plus interest at 10%.
The loan is secured by the personal property of the Company. The second term
loan for $350,000, which was funded through a state agency and dated December
15, 1993, is due October 31, 1996. Monthly interest payments are at prime plus
1-1/2% on the outstanding balance. Monthly principal payments of $11,667 plus
interest commenced in May 1994. The loan which is subordinate to the interest of
the Company's existing lender, is secured by certain of the Company's assets and
is guaranteed by the Company.
Mortgage notes
The Company has three mortgage notes outstanding at December 31, 1995. In
September 1993, the Company completed the refinancing of its Corporate
Headquarters in Framingham, Massachusetts. The mortgage note, in the original
amount of $1,450,000 at 9.125% for 15 years, provides for monthly principal and
interest payments of $14,815. A note on a second building acquired in December
1992 requires monthly principal and interest (at 9-1/2%) payments of $5,710 over
twenty years. In May 1993, the Company received $507,000 in mortgage financing
for the improvement and updating of this facility under a note from the Small
Business Administration. The twenty year note with interest at approximately
6.6% calls for monthly principal and interest payments of $4,277. Each of these
notes is collateralized by the buildings which they financed.
40
40
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Equipment loans and capital lease obligations
The Company purchases or leases various vehicles and computer equipment under
loan and capital lease agreements. The agreements require monthly or quarterly
payments of varying amounts and expire through 1999.
Interest paid was approximately $523,000, $505,000, and $371,000 for the years
ended December 31, 1995, 1994, and 1993, respectively. The Company and its
subsidiaries lease office and warehouse facilities under operating leases
expiring on various dates through February 1, 1998. Total rent expense charged
to operations approximated $356,000, $411,000, and $395,000 in 1995, 1994, and
1993, respectively.
At December 31, 1995, long-term obligations and minimum rental commitments under
noncancelable operating and capital leases with initial terms of one year or
more are as follows:
Capital Leases Long-Term Obligations Operating Leases
-------------- --------------------- ----------------
1996 $ 56,102 $ 394,795 $ 347,464
1997 47,857 257,439 317,712
1998 33,310 252,563 324,066
1999 24,914 113,070 27,500
2000 - 123,413 -
Thereafter - 1,868,810 -
-------- ---------- ----------
162,183 3,010,090 1,016,742
Less
imputed
interest 25,809 - -
-------- ---------- ----------
$136,374 $3,010,090 $1,016,742
======== ========== ==========
Amounts recorded under capital leases included in computer equipment are
approximately, $466,000 and $441,000 at December 31, 1995 and 1994,
respectively. Accumulated depreciation and amortization was approximately
$232,000 and $88,000 at December 31, 1995 and 1994, respectively.
Litigation
The Company is involved in various disputes and legal proceedings. In the
opinion of the Company, although the outcome of any litigation cannot be
predicted with certainty, the ultimate liability of the Company in connection
with pending litigation will not have a material adverse effect on the Company's
financial position.
41
41
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F. Income Taxes:
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Current:
Federal $ 28,000 $ - $ -
State 64,000 28,000 -
Deferred 500,000 372,000 210,000
-------- -------- --------
$592,000 $400,000 $210,000
======== ======== ========
On a cash basis, income taxes paid in 1995, 1994, and 1993 were
approximately $33,700, $73,700, and 194,000, respectively.
Income taxes are reconciled with the federal statutory rate as follows:
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Income taxes at statutory
federal rate $357,000 $192,000 $108,000
State income tax, net of
federal income tax benefit 66,000 34,000 19,000
Non-deductible amortization
of intangibles 88,000 105,000 81,000
Other, net 81,000 69,000 2,000
-------- -------- --------
$592,000 $400,000 $210,000
======== ======== ========
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes, and (b) operating loss and tax
credit carryforwards. The tax effects of significant items comprising the
Company's net deferred tax liability as of December 31, 1995 and 1994 are as
follows:
42
42
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1995 1994
---- ----
Deferred tax liabilities:
Software development
deducted for tax, not book $1,798,000 $1,657,000
Differences between book
and tax basis of property 4,000 73,000
Other 57,000 53,000
---------- ----------
1,859,000 1,783,000
Deferred tax assets:
Reserves not currently deductible - 33,000
Operating loss carryforwards 866,000 1,244,000
Tax credit carryforwards 494,000 494,000
Other 66,000 79,000
---------- ----------
1,426,000 1,850,000
Net deferred tax asset (liability) (433,000) 67,000
Less valuation allowance (184,000) (184,000)
---------- ----------
Net deferred tax liability $ (617,000) $ (117,000)
========== ==========
As a result of applying SFAS No. 109, previously unrecorded tax benefits from
operating loss carryforwards and tax credit carryforwards incurred by the
Company were recognized at January 1, 1993 as part of the cumulative effect of
adopting the statement. The Company increased its valuation allowance in 1993 to
reflect purchased net operating losses that may not be realized.
The Company has available operating loss carryforwards primarily for Federal
purposes of $2,131,000 at December 31, 1995, that expire through 2009, some of
which are losses of purchased subsidiaries and whose use is limited.
G. Capital Transactions:
Approximately $343,000 of the balance in treasury stock represents the Company's
50% investment in a partnership which consists of shares of its own common
stock. The Chief Executive Officer and the President hold the remaining 50% of
the investment.
In June 1993, a former officer of the Company exercised options for 23,500
shares in exchange for a note for $33,840 at 6% interest. Subsequent to this
transaction, the officer resigned. Pursuant to the officer's resignation, the
Company received 31,929 shares (which the
43
43
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
officer already owned outright), in payment for this note and a $40,000 note
issued under a prior stock purchase agreement. The notes plus accrued interest
totaled $95,786. The shares received were recorded as treasury stock at the then
current market value of $3.00. In September 1993, the Company received 55,405
and 40,714 shares from the Chairman and President of the Company, respectively,
as consideration for notes, accrued interest and advances due the Company
totaling $171,755 and $126,214, respectively. The shares received were recorded
as treasury stock at the then current market value of $3.10 per share.
During 1993 the Company utilized treasury shares to satisfy stock option
exercises, stock awards, and acquisition consideration. In instances where the
cost basis of the treasury stock was greater than the transaction price,
retained earnings was charged.
Stock options
The Company has stock option plans which provide for the granting of incentive
stock options and nonqualified stock options to purchase an aggregate of 680,000
shares of common stock at a price not less than fair market value on the date
the option is granted.
Incentive stock options Nonqualified options
----------------------- --------------------
Number Price Number Price
of shares per share of shares per share
--------- --------- --------- ---------
BALANCE,
January 1, 1993 159,158 $ .89-8.00 105,000 $ .89-1.75
Granted 49,243 1.44-2.63 240,000 1.44-2.69
Exercised (43,769) .89-1.44 - -
Canceled (63,839) .89-8.00 (55,000) .89
------- ---------- ------- ----------
BALANCE,
December 31, 1993 100,793 .89-2.63 290,000 .89-2.69
Granted 9,050 .88-1.57 - -
Canceled (4,607) .88-2.63 - -
------- ---------- ------- ----------
BALANCE,
December 31, 1994 105,236 .88-2.63 290,000 .89-2.69
Granted 8,150 .92-1.07 - -
Exercised (48) .89 - -
Canceled (16,152) .88-2.63 - -
------- ---------- ------- ----------
BALANCE,
December 31, 1995 97,186 $ .88-2.63 290,000 $ .89-2.69
======= ========== ======= ==========
44
44
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 1995, options for 353,438 shares are exercisable at an
average exercise price of $1.45 per share.
The Chairman and President of the Company have additional nonqualified options
outstanding to purchase an aggregate of 220,000 shares at $.89 per share. These
options are fully vested but can be used only to purchase unregistered stock.
Common stock reserved
At December 31, 1995, the Company has reserved 1,126,575 shares of its common
stock for incentive and nonqualified stock options.
H. Employee Benefit Plan:
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 1995
and 1993 were approximately $63,000 and $59,000, respectively. The Company did
not make a contribution to the plan in 1994.
I. Transactions with Major Suppliers:
In 1995 and 1994, the Company purchased a significant amount of hardware from
two suppliers totaling $6,129,000 and $5,667,000, respectively. Previously, in
1993 the Company had purchases from one supplier totaling approximately
$4,061,000.
J. Major Customers:
Sales to one customer, a United States governmental agency, were approximately
$4,292,000 in 1993. Transactions with this customer for 1995 and 1994 were not
significant.
45