<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998.
OR
--
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-22-309
ASI SOLUTIONS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-3903237
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
780 Third Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area (212) 319-8400
code:
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
----- -----
The number of shares of the registrant's Common Stock, par value $0.01 per
share, outstanding on January 29, 1999 was 6,497,631.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASI Solutions Incorporated
Consolidated Balance Sheets
December 31, 1998 and March 31, 1998
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
(Unaudited)
--------------------- ---------------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,688,366 $ 964,106
Restricted cash 1,891,821
Accounts receivable, net 13,643,112 10,706,699
Prepaid expenses and other current assets 474,755 678,531
Deferred income taxes 106,158 106,158
--------------------- ---------------------
Total current assets 17,912,391 14,347,315
Property and equipment, net 5,077,010 5,318,524
Intangible assets, net 23,487,681 24,132,292
Deferred financing costs, net 391,629 460,075
Other assets 328,206 302,706
--------------------- ---------------------
Total assets $47,196,917 $44,560,912
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion, notes payable to bank $ 2,189,245 $ 4,951,602
Current portion, subordinated notes payable 1,666,666 1,666,666
Other acquisition debt 66,917 267,667
Accounts payable and accrued expenses 9,457,853 4,129,877
Accrued income taxes 486,832 171,864
--------------------- ---------------------
Total current liabilities 13,867,513 11,187,676
Deferred income taxes 423,140 423,140
Notes payable to bank, less current portion 12,025,001 13,668,558
Subordinated notes payable, less current portion 1,666,667 3,333,334
Other liabilities 409,037 252,663
--------------------- ---------------------
Total liabilities 28,391,358 28,865,371
Stockholders' Equity:
Common stock 65,432 65,123
Additional paid in capital 11,038,250 10,841,728
Accumulated other comprehensive income 33,657 9,382
Retained earnings 8,060,951 5,172,039
Treasury stock, 45,534 shares, at cost (392,731) (392,731)
--------------------- ---------------------
Total stockholders' equity 18,805,559 15,695,541
--------------------- ---------------------
Total liabilities & stockholders' equity $47,196,917 $44,560,912
===================== =====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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ASI Solutions Incorporated
Unaudited Consolidated Statements of Income
For the Three and Nine Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenue $18,057,585 $9,385,226 $44,914,435 $21,990,577
Cost of services 9,072,737 4,528,056 22,150,368 11,291,997
---------------------------- -----------------------------
Gross profit 8,984,848 4,857,170 22,764,067 10,698,580
Operating expenses:
General and administrative 4,673,560 2,270,606 10,955,818 4,907,233
Sales and marketing 1,452,106 805,081 4,002,451 2,251,051
Research and development 487,190 392,799 1,403,696 1,228,043
---------------------------- -----------------------------
Income from operations 2,371,992 1,388,684 6,402,102 2,312,253
Interest expense, net 423,635 235,698 1,378,506 122,457
---------------------------- -----------------------------
Income before provision for income taxes 1,948,357 1,152,986 5,023,596 2,189,796
Provision for income taxes 827,709 494,784 2,134,684 944,676
---------------------------- -----------------------------
Net income $ 1,120,648 $ 658,202 $ 2,888,912 $ 1,245,120
============================ =============================
Basic earnings per share $0.17 $0.10 $0.45 $0.20
============================ =============================
Diluted earnings per share $0.17 $0.10 $0.44 $0.19
============================ =============================
Weighted average common shares
outstanding:
Basic shares 6,497,631 6,437,534 6,483,724 6,308,257
Diluted effect of stock
options and warrants 63,373 193,863 112,273 169,094
---------------------------- -----------------------------
Diluted shares 6,561,004 6,631,397 6,595,997 6,477,351
============================ =============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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ASI Solutions Incorporated
Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended December, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------ -------------------
<S> <C> <C>
Cash flow from operating activities:
Net income: $ 2,888,912 $ 1,245,120
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,855,574 785,167
Provision for doubtful accounts 65,216 38,000
Loss on fixed asset disposal 512
Accrual of straight-line rent 68,859
Other (3,540)
Changes in assets and liabilities:
Accounts receivable (2,976,988) (2,659,896)
Prepaid expenses and other current assets 131,302 74,798
Other assets (2,532) (4,923)
Accounts payable and accrued expenses 4,921,607 1,229,564
Income taxes 928,574 (1,046,584)
Other liabilities (53,573)
------------------ -------------------
Net cash provided by (used in) operating activities 7,758,604 (273,435)
------------------ -------------------
Cash flow from investing activities:
Fixed asset additions (861,417) (3,598,057)
Acquisition of businesses (23,229,683)
Other (40,333)
------------------ -------------------
Net cash used in investing activities (901,750) (26,827,740)
------------------ -------------------
Cash flow from financing activities:
(Repayment of debt) Proceeds from borrowings (6,273,331) 14,214,338
Restricted cash 1,891,821
Issuance of note payable 5,000,000
Proceeds from issuance of common stock, net 196,832 10,721,352
------------------ -------------------
Net cash (used in) provided by financing activities (4,184,678) 29,935,690
------------------ -------------------
Effect of exchange rate changes on cash and cash
equivalents 52,084 (11,550)
Net increase in cash and cash equivalents 2,724,260 2,822,965
Cash and cash equivalents at beginning of period 964,106 60,190
------------------ -------------------
Cash and cash equivalents at end of period $ 3,688,366 $ 2,883,155
================== ===================
</TABLE>
Supplemental disclosures of non-cash investing and
financing activities: Transfer of common stock back to the
Company in full satisfaction of Shareholder debt of
$389,191 in 1997.
The accompanying notes are an integral part of these financial statements.
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ASI Solutions Incorporated
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation:
--------------------------------------
On March 26, 1996, ASI Solutions Incorporated (the "Company") was incorporated
in the State of Delaware. Effective March 31, 1996, the Company issued
4,625,158 shares of Common Stock in exchange for substantially all of the issued
and outstanding shares of common stock of Proudfoot Reports Incorporated ("PRI")
and 95% of the common stock of Assessment Solutions Incorporated ("Assessment
Solutions"). During fiscal 1997, the remaining 5% of the outstanding common
stock of Assessment Solutions was redeemed. The initial stockholders of the
Company were also the principal stockholders of PRI and Assessment Solutions,
the two previously separate but commonly controlled companies. After the
reorganization, Assessment Solutions and PRI are wholly owned subsidiaries of
the Company. C3 Solutions Incorporated ("C3") was formed on September 16, 1996
as a wholly owned subsidiary of the Company. On August 29, 1997, the Company's
newly created subsidiary, T3 Solutions Incorporated ("T3"), acquired the assets
of Effective Learning Systems. On November 13, 1997, the Company's newly created
subsidiaries ("McLagan Partners") acquired substantially all of the assets and
business operations of McLagan Partners Incorporated and related entities. The
Company, Assessment Solutions, PRI, C3, T3 and McLagan Partners are hereinafter
referred to collectively as the "Company."
Effective April 16, 1997, the Company sold 1.8 million shares of common stock to
the public at a price of $6 per share in an initial public offering and pursuant
to an over-allotment option, the underwriter purchased 270,000 shares of common
stock at a price of $6 per share (the "Offering"). Proceeds from the Offering,
net of underwriters' discount and offering costs, were approximately $9,034,000.
Effective on the Offering date, the Company's Certificate of Incorporation (the
"Certificate") was restated to increase the number of authorized shares of
Common Stock to 18 million shares. In addition, effective on the Offering date,
the Board of Directors of the Company was authorized to issue up to 2 million
shares of Preferred Stock in one or more classes or series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, and the number of shares constituting any series or the designation
of such series. However, pursuant to the Certificate, the holders of Preferred
Stock would not have cumulative voting rights with respect to the election of
directors. Any such Preferred Stock issued by the Company may rank prior to the
Common Stock as to dividend rights, liquidation preference or both, may have
full or limited voting rights and may be convertible into shares of Common
Stock.
The exchange described above has been accounted for as a reorganization since
all entities involved were under common control. The consolidated financial
statements reflect the interests attributable to the one controlling shareholder
of both combined entities at their historical basis of accounting. The
remaining interests have been accounted for as a purchase of minority interests
and the excess of the purchase price over the related historical cost of
$1,063,000 has been allocated to intangible assets. All intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying unaudited interim financial statements of ASI Solutions
Incorporated have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and note
disclosures normally included in annual financial statements have been condensed
or omitted pursuant to those rules and regulations. In the opinion of
management, all adjustments, consisting of normal, recurring adjustments
considered necessary for a fair presentation, have been included. Although
management believes that the disclosures made are adequate to ensure that the
information presented is not misleading, it is suggested that these financial
1
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statements be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998. The results of the nine months ended December 31, 1998
and 1997 are not necessarily indicative of the results of operations for the
entire year.
The financial statements of foreign operations, where the local currency is the
functional currency, are translated into U.S. dollars using exchange rates in
effect at period end for assets and liabilities and average exchange rates
during each reporting period for results of operations. Adjustments resulting
from translation of financial statements are reflected as a separate component
of stockholders' equity.
2. Operations:
----------
The Company
ASI Solutions Incorporated is a leading national provider of a comprehensive
range of human resources outsourcing services for large organizations seeking to
hire, train and develop a higher quality, more effective workforce. The
Company's services are organized into five core areas; assessment and selection,
training and development, customer contact monitoring, employment process
administration and compensation research and consulting services. The Company
believes these services position the Company as a single-source solution for
many organizations that outsource all or a portion of their human resources
functions. The Company markets its services principally to Fortune 500
companies for which customer service, sales and call center functions are
critical components of their businesses. Industries served by the Company
include telecommunications, financial services, information technology, consumer
products and healthcare.
Impact Of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 has been adopted by the Company in fiscal 1999.
There are no significant differences between comprehensive income and net income
in the periods presented.
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), which changes the way public companies report
information about segments. SFAS 131, which is based on the management approach
to segment reporting, includes requirements to report selected segment
information quarterly and entity-wide disclosures about products and services,
major customers, and the material countries in which the entity holds and
reports revenues. SFAS 131 becomes effective in fiscal 1999.
2
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3. Stockholders' Equity:
---------------------
A summary of the changes in Stockholders' Equity for the nine months ended
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Additional Accumulated
Common Paid-In Other Retained Treasury
Shares Stock Capital Comprehensive Earnings Stock Total
Income
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998 6,466,701 $65,123 $10,841,728 $ 9,382 $5,172,039 $(392,731) $15,695,541
Issuance of Common Stock for
Employee Stock Purchase Plan 30,930 309 196,522 196,831
Translation Adjustment 24,275 24,275
Net Income 2,888,912 2,888,912
----------------------------------------------------------------------------------------------
Balance, December 31, 1998 6,497,631 $65,432 $11,038,250 $33,657 $8,060,951 $(392,731) $18,805,559
==============================================================================================
</TABLE>
4. Acquisitions:
------------
On November 13, 1997, the Company acquired substantially all of the assets
(primarily fixed assets of $483,978) and businesses of McLagan Partners
Incorporated and its related entities (collectively, "McLagan"). The
consideration paid by the Company for the assets of McLagan included (i) $15.5
million paid in cash; (ii) $5 million in subordinated notes bearing interest at
8 percent per annum and payable in three equal principal installments on each of
April 30, 1998, April 30, 1999 and April 30, 2000; and (iii) 50,000 shares of
the common stock, par value $.01 per share, of ASI, and the Company incurred
$828,188 of costs associated with the acquisition. The Company also discharged
approximately $1 million of McLagan's outstanding liabilities and agreed to make
deferred payments in the aggregate amount of $1 million, on April 30, 2000, to
certain employees of McLagan, provided that such employees continue to be
employed by McLagan as of such date.
The acquisition has been accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets purchased
based upon the fair values at the date of the acquisition. As a result,
$22,294,210 of the purchase price has been allocated to goodwill, customer lists
and other intangibles which are being amortized on a straight line basis over
periods from 5 to 40 years. As described in more detail below, the Company
has an incentive compensation program with former officers of McLagan which
provides for payments to such officers when certain milestone earnings are
attained. At the request of the officers, $841,278 in connection with this
incentive compensation program was paid to employees in fiscal 1998.
In November 1997, the Company entered into employment agreements with four key
executives of McLagan Partners, Inc. that expire on March 31, 2000. The
agreements provide for aggregate base salaries of $600,000 and aggregate annual
incentive payments if certain performance targets are met. Aggregate incentive
payments for the period January 1, 1998 through March 31, 1999 amount to 100% of
McLagan's operating income between $4.5 million and $6.75 million and 60% of the
operating income in excess of $6.75 million. At December 31, 1998, a total of $7
million has been accrued for McLagan related incentive payments. This $7 million
accrual is comprised of $3.8 million pursuant to the terms of the aforementioned
employment agreements with the four key executives, $2.7 million for incentives
scheduled to be paid to other staff members as part of their normal
compensation, and $500,000 related to the deferred payments mentioned in
paragraph 1 of Note 4.
On August 29, 1997, the Company acquired the assets of Effective Learning
Systems, a New Jersey based training organization, for approximately $1,000,000.
While the effect of this acquisition on the reported financial statements of the
Company was not significant, the Company did enter into three promissory notes,
requiring monthly payments through March 31, 1999 and bearing interest at a
monthly rate of 0.75%.
3
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Quarterly Comparison of Results of Operations
The Company's third quarter revenue increased 92.4% to $18.1 million from $9.4
million in the third quarter of fiscal 1998. 1999 third quarter net income was
$1.1 million, or 6.2% of revenue, up 70.3% from $0.7 million, or 7.0% of
revenue, in the third quarter of fiscal 1998. The increase in net income is
primarily due to increased volume, particularly in the Compensation Survey and
Consulting business area, which was acquired in November 1997. The third
quarter is traditionally the strongest quarter for Compensation Surveys and
Consulting as final surveys are delivered. Employment Process Administration
revenue growth was also strong.
Assessment and Selection revenue was $2.6 million, an increase of $0.1 million,
or 4.8%, from the third quarter of last year. Volume with existing clients plus
the addition of new clients accounted for the increase.
Employment Process Administration revenue was $5.4 million, an increase of $2.3
million, or 75.7%, over last year's third quarter, due principally to higher
volume with a large telecommunications client and the expansion of services
provided to that client. Several smaller clients were also added.
Customer Contact Monitoring revenue was $0.8 million, an increase of $0.2
million, or 46.7% from the third quarter of last year. This is a new business
area and the increase was due to services provided to several new clients, as
the customer base continues to expand.
Training and Development revenue was $0.6 million, an increase of $0.1 million,
or 12.5% over last year's third quarter. Revenue from new programs introduced in
connection with the August 1997 acquisition of Effective Learning Systems
contributed to the increase along with services provided to a large technology
client. Several new clients have also been added.
Revenue for Compensation Surveys and Consulting, a new business area resulting
from the McLagan acquisition, was $8.7 million, an increase of $5.9 million or
211.5% over last year's third quarter during which McLagan was owned for
approximately one half of the quarter. The third quarter is traditionally the
strongest revenue quarter for this business area. Strong international revenue
growth within the Compensation Surveys and Consulting area also contributed to
the increase.
Cost of services increased $4.5 million, or 100.4%, to $9.1 million. The new
Compensation Survey and Consulting area accounted for $2.7 million of the
increase in expense, the largest component of which is compensation expense,
used to generate the $8.7 million in revenue. The remainder of the increase was
due to personnel additions, and telecommunication and depreciation expenses
associated with higher business volume. As a percentage of revenue, cost of
services was 50.2% compared to 48.2% in last year's third quarter.
General and administrative expense increased $2.4 million, or 105.8%, to $4.7
million. Compensation Surveys and Consulting accounted for most of the increase
with expenses totaling $2.9 million.
4
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Compensation expense was the largest single component and was used to generate
the $8.7 million in Compensation Surveys and Consulting revenue. Overall,
compensation, professional fees and goodwill amortization were the largest
expense items. As a percentage of revenue, general and administrative expense
increased from 24.2% to 25.9%.
Sales and marketing expense increased by $0.6 million, or 80.4%, to $1.5 million
principally due to the addition of sales staff and to higher spending incurred
to promote business volume. Compensation Surveys and Consulting accounted for
$0.2 million of the increase. As a percentage of revenue, sales and marketing
expense decreased from 8.6% to 8.0%, as revenue growth exceeded sales and
marketing spending increases. Compensation Surveys and Consulting, which
accounted for 48% of the quarter's revenues, has a relatively lower amount of
sales and marketing expense.
Research and development expense was $0.5 million, up $0.1 million from last
year. As a percentage of revenue, research and development expense was 2.7%,
down from 4.2% last year due to the fact that Employment Process Administration,
which accounts for a large portion of the revenue increase, has a relatively
lower amount of research and development expense, and Compensation Survey and
Consulting services, which also accounts for a large portion of the revenue
increases, has no research and development expense.
Net interest expense was $424,000 compared to $236,000 last year. The interest
expense was primarily due to interest on the debt incurred in the acquisition of
McLagan and to interest related to the line of credit.
As a percentage of pre-tax income, the provision for income taxes declined
slightly to 42.5% from 42.9%. The addition of Compensation Surveys and
Consulting results in lower state income tax expense.
(Percentages are based on actual amounts as opposed to the rounded amounts shown
above.)
Year to Date Comparison of Results of Operations
The Company's year to date revenue increased 104.2% to $44.9 million from $22
million in the first nine months of fiscal 1998. Year to date net income was
$2.9 million, or 6.4% of revenue, up 132% from $1.2 million, or 5.7% of revenue,
in the first nine months of fiscal 1998. The increase in revenue and net income
is primarily due to increased volume, particularly in Employment Process
Administration, and the inclusion of McLagan, the new compensation survey and
consulting business acquired in November 1997.
Assessment and Selection revenue was $7.5 million, a decrease of $0.2 million,
or 2.0%, from the first nine months of last year. While volume dropped
slightly, several new clients have been added.
Employment Process Administration revenue was $16.1 million, an increase of $7.7
million, or 91.1%, over the first nine months of last year, due principally to
higher volume with a large
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telecommunications client and the expansion of services provided to that client.
Several new clients have also been added.
Customer Contact Monitoring revenue was $2.1 million, an increase of 40.4% from
the first nine months of last year. This is a new business area and the
increase was due to services provided to several new clients, as the customer
base continues to expand.
Training and Development revenue was $2.3 million, an increase of 37%. Revenue
from new programs introduced in connection with the August 1997 acquisition of
Effective Learning Systems contributed to the increase along with services
provided to a large technology client and the addition of new clients.
Revenue for Compensation Surveys and Consulting, a new business area resulting
from the McLagan acquisition, was $16.9 million consisting of compensation
surveys for the financial services industry and related consulting services.
This compares to $2.8 million during the first nine months of fiscal 1998 when
McLagan was acquired in November 1997.
Cost of services increased $10.9 million, or 96.2%, to $22.2 million. The new
Compensation Surveys and Consulting area accounted for $5.9 million of the
increase. The remainder of the increase was due to personnel additions and
telecommunications and depreciation expenses associated with higher business
volume. As a percentage of revenue, cost of services was 49.3% compared to
51.3% in last year's first nine months.
General and administrative expense increased $6 million, or 123.3%, to $11.0
million. Compensation Surveys and Consulting accounted for the majority of the
increase. Compensation and goodwill amortization were the largest expense
items. As a percentage of revenue, general and administrative expense
increased from 22.3% to 24.4% due to a higher percentage of expense at McLagan.
Sales and marketing expense increased by $1.8 million, or 77.8%, to $4.0 million
principally due to the addition of sales staff and to higher spending incurred
to promote business volume. As a percentage of revenue, sales and marketing
expense decreased from 10.2% to 8.9%, as revenue growth exceeded sales and
marketing spending increases. Compensation Surveys and Consulting has a
relatively lower amount of sales and marketing expense.
Research and development expense was $1.4 million, an increase of 14.3% over
last year. As a percentage of revenue, research and development expense was
3.1%, down from 5.6% last year due to the fact that Employment Process
Administration, which accounts for a large portion of the revenue increase, has
a relatively lower amount of research and development expense, and Compensation
Survey and Consulting services which also accounts for a large portion of the
revenue increase has no research and development expense.
Net interest expense was $1.4 million compared to $123,000 last year. The
interest expense was primarily due to interest on the debt incurred in the
acquisition of McLagan and to the outstanding line of credit.
6
<PAGE>
As a percentage of pre-tax income, the provision for income taxes declined
slightly to 42.5% from 43.1% due to lower state income tax expense related to
Compensation Surveys and Consulting.
(Percentages are based on actual amounts as opposed to the rounded amounts shown
above.)
Liquidity and Capital Resources
The Company's liquidity needs arise from capital requirements, capital
expenditures and principal and interest payments on debt. The Company funds its
operating and capital needs with cash flow generated from operations and
supplemented by short-term borrowings under bank lines of credit and long-term
equipment financing.
Cash flow provided by operations was $7.8 million in the first nine months of
fiscal 1999 due to income generated from operations and increases in accounts
payable and accrued expenses. Cash flow used in investing activities of $.9
million was primarily for fixed asset additions. Cash flow used in financing
activities of $4.2 million was primarily for repayment of debt.
In November 1997, a new bank Credit Agreement was established which provided a
$15.0 million term loan and a $5.0 million revolving credit facility. The
revolving credit facility was subsequently increased to $10.0 million in
December 1998. This agreement expires November 13, 2002. On December 31, 1998,
there were no borrowings against the revolving credit facility and $13.5 million
was outstanding on the term loan. The Company also has two equipment notes
payable to a bank with a balance of $.7 million at December 31, 1998.
Management believes its working capital, line of credit and cash flows from
operations will be sufficient to meet expected working capital
requirements for the near future.
Year 2000 Compliance
The Company has conducted a review of its information systems at its ASI and
Proudfoot operations to identify those areas which could be affected by the
"Year 2000" issue. Key financial, informational and operational systems have
been inventoried and assessed, and detailed plans were developed for the
required systems modifications or replacements. Due to significant expansion
experienced by the Company during the last two years, the Company has created
new software or modified existing software to continue providing superior
customer service. Through that process the systems used by the ASI and Proudfoot
operations have become Year 2000 compliant. Also, as part of the expansion, the
Company has purchased new hardware and software that are certified by their
manufacturers as Year 2000 compliant. Remaining hardware and software that are
not compliant is minimal and will be phased out by March 31, 1999, the Company's
fiscal year end.
The Company is in the process of assessing and evaluating its information
systems at its McLagan Partners Incorporated subsidiary, which was acquired in
November 1997, as disclosed in Note 4 to the Financial
7
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Statements. The review process is similar to the one conducted at ASI and
Proudfoot, and it is anticipated that Year 2000 compliance will be substantially
achieved by June 30, 1999.
The Company estimates that there are no significant costs associated with the
finalization of its Year 2000 compliance plans and believes that any costs
incurred will be internal, non-incremental costs. In addition third party
customers and suppliers are in the process of providing written assurances for
the Company that they expect to be Year 2000 compliant over the next 12 months.
The Company has received assurance from the vast majority of these third parties
that they will be compliant. Management believes that third party non-
compliance will not materially impact the Company's operations.
Note on Forward-Looking Statements
Certain statements in this Form 10-Q and written and oral statements made by the
Company may contain, in addition to historical information, forward-looking
statements within the meaning of section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
The words "believe", "expect", "intend", "estimate" and "anticipate" and other
expressions which are predictions of or indicate future events and trends and
which do not relate to historical matters identify forward-looking statements.
In addition, the Company's discussion above regarding Year 2000 compliance
contains several forward-looking statements, including without limitation, the
Company's expectations as to when the phase out of non-compliant software and
hardware will be completed, its estimates of the costs involved in achieving
year 2000 readiness and its belief that third-party non-compliance would not
materially impact the Company's operations. Any such statements are subject to
risks and uncertainties that could cause the actual results to differ materially
from those projected in such statements, including negative developments
relating to unforeseen project cancellations or the effect of a customer
delaying a project, negative developments relating to the Company's significant
customers, a reduction in the demand for the Company's services which could
impact capacity utilization as well as sales volume, the impact of intense
competition, changes in the industry, changes in the general economy such as
inflationary pressure, the availability of Year 2000 compliant replacement
software and hardware as well as qualified personnel and other information
technology resources and the actions of third parties and governmental agencies
with respect to Year 2000 issues. The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
PART II -- OTHER INFORMATION
8
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report:
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule.
9
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
ASI SOLUTIONS INCORPORATED
Date: January 29, 1999 By: /s/ MICHAEL J. MELE
--------------------
Michael J. Mele
Senior Vice President and Chief Financial Officer
(on behalf of the registrant and as principal
financial and accounting officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1998 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 3,688,366 2,883,155
<SECURITIES> 0 0
<RECEIVABLES> 13,830,895 6,859,195
<ALLOWANCES> 187,783 52,413
<INVENTORY> 0 0
<CURRENT-ASSETS> 17,912,391 9,964,504
<PP&E> 8,375,118 7,052,956
<DEPRECIATION> 3,298,108 1,834,670
<TOTAL-ASSETS> 47,196,917 40,113,545
<CURRENT-LIABILITIES> 13,867,513 7,410,615
<BONDS> 0 0
0 0
0 0
<COMMON> 65,432 65,123
<OTHER-SE> 18,740,127 14,739,954
<TOTAL-LIABILITY-AND-EQUITY> 47,196,917 40,113,545
<SALES> 44,914,435 21,990,577
<TOTAL-REVENUES> 44,914,435 21,990,577
<CGS> 22,150,368 11,291,997
<TOTAL-COSTS> 38,512,333 19,678,324
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 75,000 38,000
<INTEREST-EXPENSE> 1,395,091 313,215
<INCOME-PRETAX> 5,023,596 2,189,796
<INCOME-TAX> 2,134,684 944,676
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,888,912 1,245,120
<EPS-PRIMARY> .45 .20
<EPS-DILUTED> .44 .19
</TABLE>
