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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, 1996 0-14741
- ------------------------- ----------------------
ASA INTERNATIONAL LTD.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 02-0398205
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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 27, 1997, 3,292,963 shares of Common Stock, $.01 par value per
share, were outstanding. The aggregate market value, held by non-affiliates, of
shares of the Common Stock, based upon the average of the bid and ask prices for
such stock on that date was approximately $3,061,857.
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DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Document Part of Form 10-K Annual
- -------- Report in which Document
is Incorporated
Definitive Proxy Statement to be
supplied to Shareholders in conjunction
with the 1997 Annual Meeting of Shareholders Part III
Report on Form 8-K filed on November 27, 1996 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
Registration Statement on Form S-8
(File number 33-312933) 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 900
businesses in the United States, Canada and Australia. 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 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 four operating groups and a corporate services
group. The Company's Business Systems Group provides electronic time recording
solutions for payroll and pay rules for companies with more than 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.
and its wholly owned subsidiaries, ASA Properties, Inc. ("Properties"), and ASA
International Ventures, Inc. ("Ventures"). In 1995, the Company's Massachusetts
predecessor and its wholly owned subsidiaries, ASA Incorporated ("ASA, Inc."),
ASA Legal Systems Company, Inc. ("Legal") were merged.
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 DEC and its
Business Systems and Direct Marketing Systems Groups are IBM Authorized Industry
Remarketers for the data collection and catalog direct marketing industry
segments.
In December 1996, the Company completed the disposition of substantially
all of the assets and liabilities of the Company's International Trade and
Transportation Systems Group, (the "International Group") to TradePoint Systems
LLC ("TradePoint"), a New Hampshire limited liability company. In exchange for
the assets of the International Group and the assumption of the International
Group's liabilities, the Company received a 16% membership interest in
TradePoint and a subordinated promissory note in the face amount of $600,000
from TradePoint (the "Note"). The remaining 84% interest in
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TradePoint is owned by Christopher J. Crane, the former president of and a
former director of the Company. Simultaneously with the completion of this
transaction, Mr. Crane resigned all of his positions with the Company. In
exchange for his interest in TradePoint, Mr. Crane (i) contributed all of the
Company's common stock, $.01 par value per share (the "Common Stock") owned by
him, totaling 665,597 shares; (ii) assigned to the Company a 16% partnership
interest in the ASA Investment Partnership, a partnership by and among Mr.
Crane, the Company, and Alfred C. Angelone, the Company's Chief Executive
Officer and Chairman; 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
the Company by Shields & Company, Inc. The Company will account for its
investment in TradePoint under the cost method.
In connection with the transaction, TradePoint granted to the Company an
irrevocable proxy covering the Company's Common Stock owned by TradePoint. The
Company has the right to cause TradePoint to redeem the 16% membership interest
in TradePoint held by the Company by notice given on or after March 1, 2002, in
exchange for the Company's Common Stock held by TradePoint and the fair market
value of the 16% membership interest in TradePoint. TradePoint has the right to
redeem the Company's membership interest by notice given on or after December
31, 2001 in exchange for the Company's Common Stock held by it and the greater
of $400,000 or the fair market value of the 16% membership interest in
TradePoint.
Except as set forth above, 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 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.
Business Systems
- ----------------
The Company designs, develops, markets, implements and supports Client/
Server Enterprise-Wide software that manages the "source to gross" payroll
process of its clients. The Company's SmartTime(R) product (first introduced in
1993) facilitates the electronic collection of time, attendance, and labor data
(the source), which is then processed against the unique pay rules of the client
to produce gross hours for payroll processing. The Company's SmartRules(TM)
product, an object oriented developed tool that interfaces with SmartTime,
allows clients who are in a dynamic, complex pay rule environment to maintain
those pay rules without the need for custom programming.
The Company offers a comprehensive set of professional and consulting
services to all of its clients, including training, implementation support,
operations support, and custom software development.
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The Company also continues to maintain, upgrade, and support legacy
manufacturing management and control and accounting software based primarily on
the DEC hardware platform.
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, Canada and Latin America for point-of-sale,
work orders, inventory control, purchasing, and accounting functions. The
systems range in price between approximately $15,000 and $200,000.
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
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 and client/server-based 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 small to
mid-sized law firm, the product compliments the Company's existing offerings to
high-end market segments. In the 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, 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 order management systems to consumer, business
catalog, direct marketing and electronic commerce firms.
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Utilizing the IBM AS/400, the Company's Mozart(TM) product is a leading
industry standard for order fulfillment, customer service, and decision support
systems. The Company entered this marketplace in August 1993 when it acquired
CommercialWare, Inc. of Norwood, Massachusetts. The Company now believes it has
an estimated 3% 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, 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 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.
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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.
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 hardware for certain of the Company's market
segments from HP under a Value-Added Reseller Program. The Company believes that
its relationship with HP 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 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 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
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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
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, 1996, the Company's revenue by
product line was approximately as follows:
Product Line Revenue ($) %
- ------------ ----------- -----------
International Trade $ 6,718,000 26%
Business Systems 4,109,000 16
Tire Systems 3,698,000 15
Legal Systems 4,417,000 17
Direct Marketing Systems 6,529,000 26
----------- -----------
$25,471,000 100%
=========== ===========
Backlog
- -------
Set forth below is information concerning the Company's backlog at
December 31, 1996 and 1995, respectively:
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Backlog at December 31,
-----------------------
1996 1995
---- ----
Support Support
Product Line Total Contracts Total Contracts
- ------------ ---------- ---------- ---------- ----------
Business Systems $1,600,000 $1,000,000 $2,900,000 $1,400,000
Tire Systems 2,600,000 2,000,000 1,700,000 1,400,000
Legal Systems 2,400,000 1,600,000 2,600,000 1,600,000
Direct Marketing
Systems 1,300,000 800,000 2,200,000 800,000
---------- ---------- ---------- ----------
$7,900,000 $5,400,000 $9,400,000 $5,200,000
========== ========== ========== ==========
Support contracts are generally cancelable by the Company or the Company's
customers upon 90 days written notice.
Competition
- -----------
The Company's primary competitors for time and attendance and labor
reporting software are Kronos, JeTech, InTime Systems, FasTech and EAS. The
Company believes the principal competitive factors in this market are:
management of complex pay rules; technological sophistication and vision;
scaleability; platform independence; and rapid application deployment and
development. The Company believes it competes favorably with respect to all of
these factors.
The Company's primary competitors for tire systems are Madden Co., Signal
Software and TireMaster. 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; the ability to track the manufacturing
process of tire retreaders; and the availability of marketing products which
assist in retaining and increasing existing customer business. The Company
believes it competes favorably with respect to all of these factors.
The legal systems market is highly competitive and includes a number of
independent software vendors and service bureaus. The Company's primary
competitors for legal systems are 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.
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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, 1996, the Company had 151 full time employees. Of these
employees, 7 are executive officers or senior managers, 22 were engaged in
marketing and sales, 61 in customer support and training, 38 in product/custom
development or engineering and 23 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.
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
Systems 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,
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include monthly principal and interest payments of $14,815 on a fifteen-year
mortgage note along with operating costs and taxes.
The Company's Tire Systems operations are located in approximately 7,000
square feet of a 24,000 square foot office building at 615 Amherst Street,
Nashua, New Hampshire, purchased in December 1992. Approximately 12,000 square
feet of the facility is leased to TradePoint Systems, LLC under a long-term
lease. The carrying costs for the facility include approximately $10,000 per
month for principal and interest on twenty-year mortgage notes plus operating
costs and taxes.
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, 1997
Blue Bell, Pennsylvania(1) $12,891 9,214 s.f. February 1, 1999
Kirkland, Washington $ 5,913 3,720 s.f. October 31, 2001
(1) These amounts are net of $13,541 per month in rent collected on a sublease
of approximately 11,206 square feet of space. The sublease is
noncancellable through April 30, 1997 with additional consideration due
upon cancellation.
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, 1996, through the solicitation of
proxies or otherwise.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
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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 sales prices for the Company's Common Stock on the NASDAQ System
for the periods indicated, as furnished to the Company by NASDAQ.
Calendar Year 1995 Low High
------------------ ------- --------
First Quarter $ .906 $1.250
Second Quarter $ .875 $1.438
Third Quarter $1.250 $2.625
Fourth Quarter $1.250 $1.938
Calendar Year 1996 Low High
------------------ ------- --------
First Quarter $1.438 $2.688
Second Quarter $1.375 $6.500
Third Quarter $1.375 $2.563
Fourth Quarter $ .875 $1.813
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions. There were 1,384 holders of record of the Company's outstanding
Common Stock as of March 27, 1997.
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:
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
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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 statement of operations
data for the years ended December 31, 1996 and 1995 and the balance sheet data
as of December 31, 1996 and 1995 are derived from and qualified 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 statement of operations data for the year ended December 31, 1994 is
derived from the consolidated financial statements and notes thereto included
herein and audited by Deloitte & Touche LLP, the Company's then independent
auditors, as set forth in their report and also included elsewhere herein. The
statement of operations data for the years ended December 31, 1993 and 1992,
and the balance sheet data as of December 31, 1994, 1993, and 1992 are derived
from financial statements audited by Deloitte & Touche LLP not presented
herein.
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.
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Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Operating Data:
- ---------------
Revenues $ 25,471 $ 31,032 $ 27,111 $ 27,863 $ 31,448
Costs and Expenses 26,362 29,983 26,545 27,555 30,553
Earnings (Loss)
from Operations (144) 1,502 920 569 1,057
Earnings (Loss)
Before Cumulative Effect
of Adopting SFAS No. 109 (649) 457 166 98 400
Net Earnings (Loss) (649) 457 166 742 775
Earnings (Loss) per share
Before Cumulative Effect
of Adopting SFAS No. 109 (.17) .11 .04 .02 .10
Net Earnings (Loss) per share (.17) .11 .04 .18 .19
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Balance Sheet Data:
- -------------------
Total Assets $16,630 $19,515 $20,131 $20,826 $19,073
Long-Term Obligations 3,012 2,707 3,112 3,366 2,096
Shareholders' Equity 8,012 10,110 9,652 9,486 8,614
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Results of Operations
- ---------------------
Compare 1996 to 1995
- ---------------------
(000's omitted)
------------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1996 1995 Amount Percentage
---- ---- ------ ----------
Computer and add-on hardware $ 4,808 $ 8,444 $(3,636) (43%)
Services 15,832 16,654 (822) (5%)
Product licenses 4,831 5,934 (1,103) (19%)
Net Revenue 25,471 31,032 (5,561) (18%)
Revenue net of hardware costs $21,397 $24,112 $(2,715) (11%)
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Comparison of revenues and revenues net of hardware costs
- ---------------------------------------------------------
In December 1996, the Company completed the disposition of its
International Trade and Transportation Systems Group. In the three years ended
December 31, 1996, 1995, and 1994, this group's revenues totalled approximately
$6,718,000, $6,968,000, and $6,507,000, or 26%, 22%, and 24% of total Company
revenue, respectively.
The decrease in computer and add-on hardware revenue of approximately
$3,636,000 for the year ended December 31, 1996, compared to the same period in
1995, resulted primarily from a decrease in revenue from the international
trade, electronic time recording, legal and direct marketing systems product
lines. This decrease was partially offset by an increase for the same period in
computer and add-on hardware revenue from the tire systems product line.
Hardware margins decreased to approximately 15% for the year ended December
31, 1996, from approximately 18% in 1995. 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 decreased approximately $822,000, or 5%, for the
year. Service revenue decreases for the international trade, electronic time
recording and legal systems product lines were offset by revenue increases in
the tire and direct marketing systems product lines. Gross margin from services
increased to approximately 36% from 27%. The Company's revenue and margin from
services fluctuate from period to period due to the mix of contracts and
projects.
Product license revenue decreased by approximately $1,103,000, or 19%, for
the year ended December 31, 1996, compared to the same period in 1995. The
change was a result of revenue decreases from the international trade and
electronic time recording products lines, partially offset by increases from the
tire, legal and direct marketing systems product lines.
Sales and marketing expenses decreased by approximately $236,000, or 5%.
This change primarily reflects a decrease in advertising, marketing, and
commission-related expenses for the international trade, electronic time
recording and tire systems product lines. General and administrative expenses
for the year ended December 31, 1996 increased by approximately $366,000, or
11%, compared to the prior year. The change is the result of severance costs for
the international trade product line, increases in property taxes for
Company-owned facilities, and increased expense for computer equipment rental
and maintenance for the direct marketing systems product line.
Pretax loss from operations was approximately $144,000 for 1996, compared
to earnings of approximately $1,502,000 for 1995. The decrease in earnings
results from a decrease in contribution from the Company's international trade,
electronic time recording and direct marketing systems product lines.
Contribution increased in the tire and legal systems product lines.
The net loss for the year ended December 31, 1996 was approximately
$649,000, as compared to net earnings of approximately $457,000 for the
comparable period in 1995. The change results from the decrease in
16
16
earnings from operations of approximately $1,646,000, along with the loss on the
sale of TradePoint Systems, LLC of approximately $322,000. These changes were
partially offset by decreases in net interest and income tax expense of
approximately $28,000 and $834,000, respectively.
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
17
17
international trade, electronic time recording, and direct marketing 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
$457,000, 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 $192,000,
respectively. These changes were partially offset by an increase in earnings
from operations of approximately $582,000.
Liquidity and Capital Resources
- -------------------------------
The Company had total cash and cash equivalents at December 31, 1996 of
approximately $674,000, an increase of $270,000 from December 31, 1995. The
Company and its subsidiaries currently have a maximum line of credit totaling
$2,000,000 of which approximately $1,205,000 was available at December 31, 1996.
This line is scheduled to expire in 1997. 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 primarily 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
18
18
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, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." The Company has elected to continue to account for stock
options at their intrinsic value with disclosure of the effects of fair value
accounting on net earnings (loss) and earnings (loss) per share on a pro forma
basis.
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
issued by the Financial Accounting Standards Board is effective for financial
statements for fiscal years ending after December 15, 1997. The new standard
establishes standards for computing and presenting earnings per share.
The effect of adopting Statement of Financial Accounting Standards No. 128,
"Earnings per Share," ("FAS No. 128") has not been estimated. The Company is
required to adopt the disclosure requirements of FAS No. 128 during the year
ended December 31, 1997.
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 period in the last two fiscal years in which Deloitte &
Touche LLP served as the Company's independent accountants, and the subsequent
interim period preceding such replacement, there were no disagreements between
the Company and Deloitte & Touche LLP 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
19
19
Deloitte & Touche LLP, 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 from the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission.
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:
Reports of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules.
-----------------------------
None
(a)3. Exhibits.
---------
The following exhibits are filed with this report:
10-1 Amendment Letter dated December 10, 1996 to the 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 December 10, 1996.
10-3 Promissory Note (Revolver) between ASA International Ltd. and
CoreStates Bank, N.A., dated December 10, 1996.
10-4 Security Agreement between ASA International Ventures, Inc. and
CoreStates Bank, N.A., dated December 10, 1996.
20
20
10-5 Guaranty between ASA International Ltd. and CoreStates Bank,
N.A., dated December 10, 1996.
11 Statement of Computation of Net Earnings per Share.
21 Subsidiaries of Registrant.
23 Consent of BDO Seidman, LLP, independent certified public
accountants.
27 Financial Data Schedule
A) The following exhibits were filed with the Registrant's Form 8-K
on November 27, 1996 and are incorporated herein by reference:
2(a) First Amendment to the Asset Purchase Agreement (the "Purchase
Agreement") by and between the Company and Progressive Computer
Systems, Inc. dated October 18, 1996.
2(b) Second Amendment to the Purchase Agreement dated
November 15, 1996.
B) The following exhibits were filed with the Registrant's Form 8-K
on September 20, 1996 and are incorporated herein by reference:
2 Agreement by and between the Registrant and Progressive Computer
Systems, Inc. dated as of August 30, 1996.
C) The following documents are incorporated by reference to the
Registrant's Report on Form 10-K filed on March 28, 1996:
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.
10-2 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.
21
21
10-5 Agreement for Purchase and Exchange of Assets between ASA
International Ventures, Inc. and ASA International Ltd., dated
December 29, 1995.
10-6 Agreement for Exchange of Intangibles between ASA International
Ventures, Inc. and ASA International Ltd., dated December 29,
1995.
D) The following document is incorporated by reference to the
Registrant's Form 8-K filed on August 31, 1995:
16 The Registrant announced that it had retained BDO Seidman, LLP, as its
new independent accountants, replacing its prior independent accountants,
Deloitte & Touche LLP.
E) 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.
10-4 Security Agreement between ASA International Ltd. and CoreStates
Bank, N.A., dated November 3, 1994.
F) 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.
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.
10-15 Amendment to Merger Agreement by and among the Company, ASA Incorporated,
CommercialWare, Donald Askin and Jonathan Ellman, dated September 15,
1993.
G) 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.
22
22
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.
H) 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.
I) 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.
J) 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.
K) 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.
(b) Reports on Form 8-K.
--------------------
During the year ended December 31, 1996, the Company filed the following
Reports:
1. On November 27, 1996, the Registrant filed a current report on Form 8-K
reporting the purchase of certain assets from Progressive Computer
Systems, Inc.
2. On September 20, 1996, the Registrant filed a current report on Form 8-K
reporting that it had entered into an asset purchase agreement with
Progressive Computer Systems, Inc.
23
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASA INTERNATIONAL LTD.
By /s/ Alfred C. Angelone
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, report
has been signed below by the following persons on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Alfred C. Angelone Director, Chief March 31, 1997
- -------------------------- Executive Officer,
Alfred C. Angelone President and Treasurer
(principal executive
officer and principal
accounting officer)
/s/ James P. O'Halloran Director March 31, 1997
- --------------------------
James P. O'Halloran
/s/ Gordon J. Rollert Director March 31, 1997
- --------------------------
Gordon J. Rollert
/s/ William A. Kulok Director March 31, 1997
- --------------------------
William A. Kulok
/s/ Robert L. Voelk Director March 31, 1997
- --------------------------
Robert L. Voelk
24
24
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheets of ASA
International Ltd. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years 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 audits.
We conducted our audits 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 audits provide 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, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
Boston, Massachusetts
March 7, 1997
25
25
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated statements of operations,
statements of shareholders' equity and cash flows of ASA International Ltd.
and subsidiaries for the year 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 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 provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of ASA
International Ltd. and subsidiaries for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
March 16, 1995
Boston, Massachusetts
26
26
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 674,239 $ 404,026
Receivables -- net 3,753,971 5,085,172
Computer hardware held for resale 87,750 238,624
Other current assets 710,130 748,221
----------- -----------
TOTAL CURRENT ASSETS 5,226,090 6,476,043
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings 3,857,021 3,804,194
Computer equipment 2,548,511 4,137,949
Office furniture and equipment 842,659 1,077,060
Leasehold improvements 36,574 36,574
Vehicles 262,458 261,703
----------- -----------
7,547,223 9,317,480
Accumulated depreciation
and amortization 3,194,815 4,612,375
----------- -----------
NET PROPERTY AND EQUIPMENT 4,352,408 4,705,105
----------- -----------
SOFTWARE
(less cumulative amortization
of $5,433,284 and $7,689,103) 4,657,840 6,193,625
COST EXCEEDING NET ASSETS ACQUIRED
(less cumulative amortization
of $1,403,960 and $1,362,750) 873,205 1,537,673
OTHER ASSETS 1,520,435 602,755
----------- -----------
$16,629,978 $19,515,201
=========== ===========
See notes to consolidated financial statements.
27
27
December 31,
----------------------------
1996 1995
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit note $ 795,000 $ 1,025,000
Accounts payable 1,360,585 1,157,573
Accrued expenses 1,484,794 2,292,514
Customer deposits 377,550 822,365
Deferred revenue 813,371 344,693
Current maturities of
long-term obligations 394,875 439,005
----------- -----------
TOTAL CURRENT LIABILITIES 5,226,175 6,081,150
----------- -----------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 3,011,976 2,707,459
----------- -----------
DEFERRED INCOME TAXES 380,000 617,000
----------- -----------
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 3,984,237 and 3,917,316
shares; outstanding, 3,188,841
and 3,787,517 shares 39,842 39,173
Additional paid-in capital 7,344,564 7,681,675
Retained earnings 2,159,863 2,809,186
----------- -----------
9,544,269 10,530,034
Less treasury stock, at cost 1,532,442 420,442
----------- -----------
8,011,827 10,109,592
----------- -----------
$16,629,978 $19,515,201
=========== ===========
See notes to consolidated financial statements.
28
28
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--Years Ended December 31,--
1996 1995 1994
------------ ------------ ------------
REVENUES
Computer and add-on hardware $ 4,808,082 $ 8,443,995 $ 5,553,320
Services 15,831,948 16,654,125 16,137,785
Product licenses 4,830,947 5,934,237 5,420,224
------------ ------------ ------------
NET REVENUE 25,470,977 31,032,357 27,111,329
------------ ------------ ------------
COST OF REVENUE
Computer and add-on hardware 4,073,528 6,920,796 4,958,818
Services 10,093,562 12,136,916 10,306,546
Product licenses and development 3,442,981 2,598,035 1,938,125
------------ ------------ ------------
TOTAL COST OF REVENUE 17,610,071 21,655,747 17,203,489
------------ ------------ ------------
EXPENSES
Marketing and sales 4,126,394 4,362,178 4,771,300
General and administrative 3,617,931 3,252,290 3,954,673
Amortization of goodwill 260,833 260,523 262,215
------------ ------------ ------------
TOTAL EXPENSES 8,005,158 7,874,991 8,988,188
------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS (144,252) 1,501,619 919,652
INTEREST EXPENSE (424,738) (463,199) (375,241)
INTEREST INCOME -- 10,894 21,493
OTHER EXPENSE (322,333) -- --
------------ ------------ ------------
EARNINGS (LOSS) BEFORE
INCOME TAXES (CREDIT) (891,323) 1,049,314 565,904
INCOME TAXES (CREDIT) (242,000) 592,000 400,000
------------ ------------ ------------
NET EARNINGS (LOSS) $ (649,323) $ 457,314 $ 165,904
============ ============ ============
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
NET EARNINGS (LOSS) $ (.17) $ .11 $ .04
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 3,934,893 4,224,503 4,179,298
============ ============ ============
See notes to consolidated financial statements.
29
29
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,
1/1/94 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
Exercise of
stock options 66,921 669 61,589 -- -- -- 62,258
Reacquisition
of stock on sale
of TradePoint -- -- -- -- 665,597 (1,112,000) (1,112,000)
Surrender of
stock options
on sale of
TradePoint -- -- (398,700) -- -- -- (398,700)
Net Loss -- -- -- (649,323) -- -- (649,323)
------------ ------------ ------------ ------------ ------------ ------------ ------------
3,984,237 $ 39,842 $ 7,344,564 $ 2,159,863 795,396 $(1,532,442) $ 8,011,827
============ ============ ============ ============ ============ ============ ============
See notes to consolidated financial statements.
30
30
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---Years Ended December 31,---
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (649,323) $ 457,314 $ 165,904
----------- ----------- -----------
Adjustments to reconcile net
earnings (loss) to net cash provided
by operating
activities:
Depreciation and amortization 2,397,313 2,167,419 1,823,072
Deferred taxes (237,000) 500,000 372,000
Doubtful receivables provision 32,546 (62,621) (252,571)
Loss on sale of TradePoint 322,333 -- --
Changes in assets and liabilities,
net of effects of acquisitions:
Receivables 604,265 122,798 878,150
Computer hardware held for resale 150,874 75,212 (73,486)
Other current assets (55,759) 450,421 52,058
Accounts payable 316,633 (836,530) (810,212)
Accrued expenses (427,170) (431,211) (87,321)
Other current liabilities 47,427 (180,863) 254,266
----------- ----------- -----------
Total adjustments 3,151,462 1,804,625 2,155,956
----------- ----------- -----------
Net cash provided by operating
activities 2,502,139 2,261,939 2,321,860
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (302,729) (429,637) (254,788)
Additions to software (1,506,559) (1,054,043) (2,119,113)
Reductions of
sales-type leases 146,002 112,152 93,161
Cash transferred upon
sale of TradePoint (718,197) -- --
Other assets 56,912 (50,127) 28,958
----------- ----------- -----------
Net cash used in investing
activities (2,324,571) (1,421,655) (2,251,782)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank and
other notes (230,000) 50,000 25,000
Reduction in long-term debt (414,613) (496,682) (1,099,843)
Increase in long-term debt 675,000 -- 650,000
Issuance of common stock 62,258 43 --
----------- ----------- -----------
Net cash provided by (used for)
financing activities 92,645 (446,639) (424,843)
----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) 270,213 393,645 (354,765)
Balance, beginning of year 404,026 10,381 365,146
----------- ----------- -----------
Balance, end of year $ 674,239 $ 404,026 $ 10,381
=========== =========== ===========
See notes to consolidated financial statements.
31
31
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, 1994
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.
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
statements of operations.
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 expectations.
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.
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.
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 capital leases and leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful lives of the assets.
32
32
ASA INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
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."
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.
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. Total amortization of software charged to operations was
approximately $1,655,000, $1,346,000 and $984,000 for the years ended
December 31, 1996, 1995, and 1994, 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 1996 and 1995 amounted to approximately $25,000 and
$60,000, respectively.
33
33
ASA INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 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 and 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, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation". The Company has elected to continue to account for stock options
at their intrinsic value with disclosure of the effects of fair value
accounting on net earnings (loss) and earnings (loss) per share on a pro forma
basis.
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
issued by the Financial Accounting Standards Board is effective for financial
statements for fiscal years ending after December 15, 1997. The new standard
establishes standards for computing and presenting earnings per share.
The effect of adopting Statement of Financial Accounting Standards No. 128,
"Earnings per Share," ("FAS No. 128") has not been estimated. The Company is
required to adopt the disclosure requirements of FAS No. 128 during the year
ended December 31, 1997.
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, 1996.
The Company's consolidated statements of operations include the operating
results of this entity from its 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
34
34
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
software products. As of December 31, 1996 the Company has not exceeded the
gross revenues necessary for the payment of additional consideration.
The acquisition price of CommercialWare, Inc. (CWI) in December 1993,
contemplated 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, 1996, CWI has not met the targeted contribution level and,
therefore, no contingent payments were made. Certain former owners of CWI
received a deficiency payment in company stock based on the difference between
the December 31, 1996 market price and $5 per share. The remaining former CWI
owners will receive a deficiency payment, if any, in cash or stock, on or before
March 31, 1998, based on the Company's stock price at December 31, 1997. In
March 1997, the Company issued a total of 104,122 shares as a deficiency payment
to certain former owners of CWI based on the Company's stock price at
December 31, 1996.
Divestitures
In December 1996 the Company disposed of substantially all of the assets and
liabilities of the Company's international trade product line (Product).
Product's revenues totaled approximately $6,718,000, $6,968,000, and
$6,507,000, or 26%, 22% and 24% of total Company revenue for the three years
ended December 31, 1996, 1995, and 1994, respectively. In exchange for the
assets of Product and the assumption of its liabilities, the Company received a
16% membership interest in TradePoint Systems, LLC (Trade), the acquiring
corporation, and a subordinated promissory note in the face amount of $600,000
from Trade which is included in other assets at December 31, 1996. The
remaining 84% interest in Trade is owned by the former president and director
of the Company (Buyer). In exchange for his interest in Trade, Buyer (i)
contributed all of the Company's common stock, $.01 par value per share (the
"Common Stock") owned by him, totaling 665,597 shares; (ii) assigned to the
Company a 16% partnership interest in the ASA Investment Partnership, a
partnership by and among Buyer, the Company, and the Company's Chief Executive
Officer and Chairman; and (iii) canceled all of his options to purchase 245,000
shares of Common Stock. The Company recorded a loss on the transaction of
$322,333 based on the fair value of the consideration received less the book
value of the net assets exchanged. The consideration to be paid was determined
by negotiations between the parties and was independently evaluated on behalf
of the Company by an investment banking firm. The Company's investment in
Trade, which is valued at $500,000, will be accounted for under the cost method
and is included in other assets at December 31, 1996.
In connection with the transaction, Trade granted to the Company an irrevocable
proxy covering the Company's Common Stock owned by Trade. The Company has the
right to cause Trade to redeem the 16% membership interest in Trade held by the
Company by notice given on or after March 1, 2002, in exchange for the Company's
Common Stock held by Trade and
35
35
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the fair market value of the 16% membership interest in Trade. Trade has the
right to redeem the Company's membership interest by notice given on or after
December 31, 2001 in exchange for the Company's Common Stock held by it and the
greater of $400,000 or the fair market value of the 16% membership interest in
Trade.
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, 1996, 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.
C. Receivables:
December 31,
------------
1996 1995
---------- ----------
Trade $3,801,041 $4,774,530
Amounts due from officers
and employees 42,689 270,982
Other 3,033 99,906
---------- ----------
3,846,763 5,145,418
Less allowance for
doubtful accounts 92,792 60,246
---------- ----------
$3,753,971 $5,085,172
========== ==========
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, 1993 was $375,438. During
the three years ending December 31, 1996, 1995, and 1994, the provisions for
doubtful accounts were $236,830, $357,161 and $118,016, and write-offs were
$204,284, $419,782 and $370,587, respectively.
36
36
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
D. Notes Payable, Long-Term Obligations, Commitments, and
Contingencies:
December 31,
------------
1996 1995
---------- ----------
Revolving credit note $ 795,000 $1,025,000
========== ==========
Long-term obligations
Term loans $1,000,000 $ 602,292
Mortgage notes 2,307,172 2,390,845
Equipment loans -- 4,554
Capital lease obligations 99,679 136,374
Other -- 12,399
---------- ----------
3,406,851 3,146,464
Less current maturities 394,875 439,005
---------- ----------
$3,011,976 $2,707,459
========== ==========
The current carrying value of long-term obligations approximate their fair
market value.
Revolving credit note
The Company has a revolving credit agreement for $2,000,000 (which cannot exceed
80% of acceptable accounts receivable). The agreement, which extends through
June 30, 1997, stipulates interest at prime (8.25% at December 31, 1996), plus
1%. At December 31, 1996, $795,000 was outstanding and $1,205,000 was available
under the agreement. The weighted average interest rates on outstanding
borrowings for the years ended December 31, 1996, 1995, and 1994 were 9.29%,
9.79% and 8.41%, respectively.
This credit facility, which includes the Company's $1,000,000 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 term loan outstanding at December 31, 1996, dated December 10, 1996 is due
on December 1, 2000 and is payable in monthly installments of $20,833 plus
interest at 10%. This loan is secured by the personal property of the Company.
Mortgage notes
The Company has three mortgage notes outstanding at December 31, 1996. In
September 1993, the Company completed the refinancing of its Corporate
Headquarters in Framingham, Massachusetts. The mortgage note,
37
37
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 9.5%)
payments of $5,710 over twenty years. In May 1993, the Company received $507,000
in mortgage financing for the improvement and updating of this facility under a
note from the Small Business Administration. The twenty year note with interest
at approximately 6.6% calls for monthly principal and interest payments of
$4,277. Each of these notes is collateralized by the buildings which they
financed.
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 $425,000, $523,000 and $505,000 for the years
ended December 31, 1996, 1995, and 1994, respectively. The Company and its
subsidiaries lease office and warehouse facilities under operating leases
expiring on various dates through October 31, 2001. Total rent expense charged
to operations approximated $229,000, $356,000 and $411,000 in 1996, 1995 and
1994, respectively.
At December 31, 1996, long-term obligations and minimum rental commitments under
noncancellable operating and capital leases with initial terms of one year or
more are as follows:
Capital Leases Long-Term Obligations Operating Leases
---------- ---------- ----------
1997 $ 54,676 $ 348,242 $ 248,809
1998 33,946 353,604 395,022
1999 24,279 363,070 96,240
2000 -- 373,413 57,660
2001 -- 134,713 48,050
Thereafter -- 1,734,130 --
---------- ---------- ----------
112,901 3,307,172 845,781
Less
imputed
interest 13,222 -- --
---------- ---------- ----------
$ 99,679 $3,307,172 $ 845,781
========== ========== ==========
Amounts recorded under capital leases included in computer equipment are
approximately, $255,000 and $466,000 at December 31, 1996 and 1995,
respectively. Accumulated depreciation and amortization was approximately
$186,000 and $232,000, at December 31, 1996 and 1995, respectively.
38
38
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Litigation
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.
E. Income Taxes (Credits):
Years Ended December 31,
------------------------
1996 1995 1994
--------- --------- ---------
Current:
Federal $ (5,000) $ 28,000 $ --
State -- 64,000 28,000
Deferred (237,000) 500,000 372,000
--------- --------- ---------
$(242,000) $ 592,000 $ 400,000
========= ========= =========
On a cash basis, income taxes paid in 1996, 1995, and 1994 were
approximately $60,300, $33,700 and $73,700, respectively.
Income taxes are reconciled with the federal statutory rate as follows:
Years Ended December 31,
------------------------
1996 1995 1994
--------- --------- ---------
Income taxes (credits) at
statutory federal rate $(303,000) $ 357,000 $ 192,000
State income tax (credit),
net of federal income
tax benefit (30,000) 66,000 34,000
Non-deductible amortization
of intangibles 86,000 88,000 105,000
Other, net 5,000 81,000 69,000
--------- --------- ---------
$(242,000) $ 592,000 $ 400,000
========= ========= =========
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
39
39
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 1996 and 1995 are as follows:
1996 1995
----------- -----------
Deferred tax liabilities:
Software development
deducted for tax, not book $ 1,555,000 $ 1,798,000
Differences between book
and tax basis of property 118,000 4,000
Deferred gain on divestiture 275,000 --
Other 18,000 241,000
----------- -----------
1,966,000 2,043,000
Deferred tax assets:
Operating loss carryforwards 1,017,000 866,000
Tax credit carryforwards 515,000 494,000
Other 54,000 66,000
----------- -----------
1,586,000 1,426,000
----------- -----------
Net deferred tax liability $ (380,000) $ (617,000)
=========== ===========
The Company has available operating loss carryforwards primarily for Federal
purposes of $2,526,000 at December 31, 1996, that expire through 2011, some of
which are losses of purchased subsidiaries and whose use is limited.
F. Capital Transactions:
Approximately $343,000 of the balance in treasury stock represents the Company's
75% investment in a partnership which consists of shares of its own common
stock. The Chief Executive Officer holds the remaining 25% of the investment.
40
40
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock options
At December 31, 1996, 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 123, Accounting for
Stock-Based Compensation, the Company's net income (loss) and earnings (loss)
per share would have been adjusted to the pro forma amounts indicated below:
1996 1995
---- ----
Net income (loss) As reported $(649,323) $ 457,314
Pro forma (680,665) 454,555
Earnings (loss)
per share As reported $ (.17) $ .11
Pro forma (.17) .11
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 1996 and 1995, respectively: dividend yield of 0%
for both years and expected volatility of 30% for both years, risk free rates
ranging from 5.88% to 6.67% for 1996, and 7% to 7.75% for 1995, and expected
lives ranging from 18 to 24 months for 1996, and 12 to 19 months for 1995.
A summary of the status of the Company's stock option plans as of December 31,
1996, 1995, and 1994, and changes during the years ending on those dates is
presented below:
41
41
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1996 1995 1994
------------------------ ------------------------ ------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ ---------------- ------ ---------------- ------ ----------------
Outstanding
at beginning
of year 387,186 $1.51 395,236 $1.51 390,793 $1.52
Granted 101,700 1.47 8,150 .99 9,050 1.14
Exercised 66,921 .93 48 .89 -- --
Canceled 165,868 1.61 16,152 1.37 4,607 1.75
------- ----- ------- ----- ------- -----
Outstanding at
end of year 256,097 $1.58 387,186 $1.51 395,236 $1.51
======= ===== ======= ===== ======= =====
Options
exercisable
at year-end 208,613 353,438 331,356
Weighted-
average fair
value of
options
granted
during the
year $.72 $.55
As of December 31, 1996 the 256,097 options outstanding under the Plan have
exercise prices between $.88 and $2.66 and a weighted-average remaining
contractual life of 5.4 years.
The Chairman of the Company has additional nonqualified options outstanding to
purchase an aggregate of 110,000 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, 1996, the Company has reserved 1,046,022 shares of its common
stock for incentive and nonqualified stock options.
G. 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 1996
and 1995 were approximately $168,000 and $63,000, respectively. The Company did
not make a contribution to the plan in 1994.
H. Transactions with Major Suppliers:
In 1996, 1995 and 1994, the Company purchased a significant amount of hardware
from two suppliers totaling approximately $3,581,000, $6,129,000 and $5,667,000,
respectively.
42