<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 1996 Commission File Number: O-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 Number)
10 Speen Street, Framingham, MA 01701
- - ---------------------------------------- -----------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 508-626-2727
------------
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 September 30, 1996, there were 3,854,119 shares of Common Stock of
the Registrant outstanding.
<PAGE> 2
PART I
Item 1
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1996 1995
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 442,916 $ 404,026
Receivables - net 4,840,632 5,085,172
Computer hardware held for resale 98,599 238,624
Other current assets 914,843 748,221
----------- -----------
TOTAL CURRENT ASSETS 6,296,990 6,476,043
PROPERTY AND EQUIPMENT (less
depreciation of $4,945,194 and
$4,612,375, respectively) 4,626,181 4,705,105
SOFTWARE (less amortization of
$8,978,593 and $7,689,103,
respectively) 5,811,079 6,193,625
COST EXCEEDING NET ASSETS ACQUIRED
(less amortization of $1,556,910
and $1,362,750, respectively) 1,343,513 1,537,673
OTHER ASSETS 606,634 602,755
----------- -----------
$18,684,397 $19,515,201
=========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<PAGE> 3
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit and bank note $ 1,125,000 $ 1,025,000
Accounts payable 1,413,541 1,157,573
Accrued expenses 1,843,565 2,292,514
Other current liabilities 1,184,636 1,606,063
----------- -----------
TOTAL CURRENT LIABILITIES 5,566,742 6,081,150
LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES 2,519,543 2,707,459
DEFERRED TAXES 617,000 617,000
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common stock 39,839 39,173
Additional paid-in capital 7,742,952 7,681,675
Retained earnings 2,618,763 2,809,186
----------- -----------
10,401,554 10,530,034
Less: treasury stock, at cost 420,442 420,442
----------- -----------
9,981,112 10,109,592
----------- -----------
$18,684,397 $19,515,201
=========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<PAGE> 4
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
September 30,
--------------------------
1996 1995
--------------------------
(Unaudited)
<S> <C> <C>
REVENUE
Computer and add-on hardware $1,104,993 $2,237,548
Services 3,528,164 4,252,568
Product licenses 1,840,090 1,406,793
---------- ----------
NET REVENUE 6,473,247 7,896,909
COST OF REVENUE
Computer and add-on hardware 848,508 1,876,157
Services 2,318,764 2,964,142
Product licenses and development 899,324 724,833
---------- ----------
TOTAL COST OF REVENUE 4,066,596 5,565,132
EXPENSES
Marketing and sales 1,200,382 1,045,729
General and administrative 974,326 818,274
Amortization of goodwill 64,763 67,220
---------- ----------
TOTAL EXPENSES 2,239,471 1,931,223
EARNINGS FROM OPERATIONS 167,180 400,554
INTEREST EXPENSE - NET 87,542 124,279
---------- ----------
EARNINGS BEFORE INCOME TAXES 79,638 276,275
INCOME TAXES -- 195,000
---------- ----------
NET EARNINGS $ 79,638 $ 81,275
========== ==========
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE:
NET EARNINGS $ .02 $ .02
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 4,333,398 4,325,287
========== ==========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<PAGE> 5
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1996 1995
----------------------------
(Unaudited)
<S> <C> <C>
REVENUE
Computer and add-on hardware $ 3,189,092 $ 6,084,582
Services 11,881,517 12,489,271
Product licenses 3,750,965 4,165,500
----------- -----------
NET REVENUE 18,821,574 22,739,353
COST OF REVENUE
Computer and add-on hardware 2,620,284 5,109,574
Services 7,659,746 8,306,607
Product licenses and development 2,538,927 2,204,600
----------- -----------
TOTAL COST OF REVENUE 12,818,957 15,620,781
EXPENSES
Marketing and sales 2,974,953 3,266,447
General and administrative 2,699,920 2,517,061
Amortization of goodwill 194,201 196,660
----------- -----------
TOTAL EXPENSES 5,869,074 5,980,168
EARNINGS FROM OPERATIONS 133,543 1,138,404
INTEREST EXPENSE - NET 323,966 367,063
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (190,423) 771,341
INCOME TAXES - 545,000
----------- -----------
NET EARNINGS (LOSS) $ (190,423) $ 226,341
=========== ===========
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
NET EARNINGS ($.04) $.05
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 4,365,663 4,202,985
=========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<PAGE> 6
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1996 1995
---------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (190,423) $ 226,341
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation and amortization 1,766,338 1,634,543
Changes in assets and liabilities (306,547) (1,018,276)
----------- -----------
Total adjustments 1,459,791 616,267
----------- -----------
Net cash provided by operating
activities 1,269,368 842,608
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (253,895) (269,929)
Additions to software (849,313) (821,998)
Reduction of sales-type leases 78,710 140,998
Other assets (36,894) 7,500
----------- -----------
Net cash used for investing
activities (1,061,392) (943,429)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank and other notes 100,000 500,000
Reduction in long-term debt (331,033) (386,287)
Issuance of common stock 61,947 --
----------- -----------
Net cash provided by (used for)
financing activities (169,086) 113,713
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase 38,890 12,892
Balance, beginning of year 404,026 10,381
----------- -----------
Balance, end of period $ 442,916 $ 23,273
=========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<PAGE> 7
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
- - ------------------------------
As permitted by the rules of the Securities and Exchange Commission applicable
to quarterly reports on Form 10-Q, these notes are condensed and do not contain
all disclosures required by generally accepted accounting principles. Reference
should be made to the financial statements and related notes included in the
Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying financial statements reflect all
adjustments which were of a normal recurring nature necessary for a fair
presentation of the Company's results of operations for the nine months ended
September 30, 1996 and September 30, 1995, respectively.
The results disclosed in the Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1996 are not necessarily indicative of the
results expected for the full year.
<PAGE> 8
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
In addition to the historical information contained herein, the discussions
contained in this document include forward-looking statements. By way of
example, the discussions include statements regarding revenues, gross margins,
future marketing efforts and potential acquisitions. Such statements involve a
number of risks and uncertainties, including but not limited to those discussed
below and those identified from time to time in the Company's filings with the
Securities and Exchange Commission. These risks and uncertainties could cause
actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements. The
Company assumes no obligation to update these forward-looking statements to
reflect events or circumstances arising after the date hereof.
<TABLE>
Results of Operations
Third Quarter of 1996
compared to
Third Quarter of 1995
<CAPTION>
(000's omitted)
----------------- ----------------------
Revenue Increase/(Decrease)
----------------- ----------------------
1996 1995 Amount Percentage
---- ---- ------ ----------
<S> <C> <C> <C> <C>
Computer and add-on hardware $1,105 $2,238 $(1,133) (51)%
Services 3,528 4,252 (724) (17)%
Product licenses 1,840 1,407 433 31 %
------ ------ ------- ---
Net revenue $6,473 $7,897 $(1,424) (18)%
====== ====== ======= ===
Revenue net of hardware costs $5,624 $6,021 $ (397) (7)%
====== ====== ======= ===
</TABLE>
The decrease of approximately $1,133,000 in computer and add-on hardware revenue
for the third quarter of 1996, compared to the third quarter of 1995, resulted
from decreases in hardware revenue from the electronic time recording and the
direct marketing systems product lines. This decrease was partially offset by
increases in computer and add-on hardware revenue from the international trade,
tire, and legal systems product lines.
Hardware margins increased to approximately 23% in the third quarter of 1996,
from approximately 16% in the same period in 1995. Margins on computer and
add-on hardware do fluctuate based on the mix of computer hardware and ancillary
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 downward trend in hardware revenue and margins.
<PAGE> 9
Item 2
- continued -
Revenue from services decreased by approximately $724,000 or 17%. Gross margin
from services increased to approximately 34% from 30% of revenue from services.
The Company's revenue and margin from services fluctuate from period to period
due to changes in the mix of contracts and projects.
Product license revenues increased by approximately $433,000 or 31% in the third
quarter of 1996 compared to the same period in 1995. The change was a result of
increases from all company product lines except legal systems.
Revenue net of hardware costs decreased by approximately $397,000 or 7% for the
three months ended September 30, 1996, compared to the same period in the prior
year. Revenue net of hardware costs increased in the international trade, tire,
and direct marketing systems product lines while revenue net of hardware costs
decreased for the electronic time recording and legal systems product lines.
Marketing and sales expenses increased by approximately $155,000 or 15%. This
change primarily reflects increases in sales staffing and increased commission
expenses for the international trade, tire, and direct marketing systems product
lines. Commission expenses increased as a result of the higher level of revenue
net of hardware costs for these product lines in the three months ended
September 30, 1996, when compared to the same period in 1995. General and
administrative expenses increased by approximately $156,000 or 19%, compared to
the third quarter of 1995. The change is a result of increases in maintenance
expenses and property taxes for Company-owned facilities and increased expense
for computer equipment rental and maintenance for the direct marketing systems
product line.
Pretax income from operations was approximately $167,000 for the third quarter
of 1996, compared to pretax earnings from operations of approximately $401,000
for the third quarter of 1995. The decrease in earnings resulted from a decrease
in contribution from the electronic time recording and legal systems product
lines, partially offset by increases in contribution from the international
trade, tire, and direct marketing systems product lines.
Net earnings for the third quarter of 1996 were approximately $80,000, as
compared to net earnings of approximately $81,000 for the third quarter of 1995.
The change resulted from a decrease in earnings from operations of approximately
$233,000, partially offset by a decrease in net interest and income tax expense
of approximately $37,000 and $195,000, respectively.
<PAGE> 10
Item 2
- continued -
<TABLE>
Nine Months Ended September 30, 1996
compared to
Nine Months Ended September 30, 1995
<CAPTION>
(000's omitted)
---------------- ----------------------
Revenue Increase/(Decrease)
---------------- ----------------------
1996 1995 Amount Percentage
---- ---- ------ ----------
<S> <C> <C> <C> <C>
Computer and add-on hardware $ 3,189 $ 6,085 $(2,896) (48)%
Services 11,882 12,489 (607) (5)%
Product licenses 3,751 4,165 (414) (10)%
------- ------- ------- ----
Net revenue $18,822 $22,739 $(3,917) (17)%
======= ======= ======= ====
Revenue net of hardware costs $16,201 $17,630 $(1,429) (8)%
======= ======= ======= ====
</TABLE>
The decrease of approximately $2,896,000 in computer and add-on hardware revenue
for the first nine months of 1996, compared to the first nine months of 1995,
resulted primarily from decreases in hardware revenue from all Company product
lines.
Hardware margins increased to approximately 18% in the first nine months of
1996, from approximately 16% in the same period in 1995. Margins on computer and
add-on hardware do fluctuate based on the mix of computer hardware and ancillary
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 downward trend in hardware revenue and margins.
Revenue from services decreased approximately $607,000, or 5%, for the first
nine months of 1996. Service revenue increases for the tire and direct marketing
systems product lines were offset by revenue decreases in the international
trade, electronic time recording, and legal systems product lines. Gross margin
from services increased to approximately 35% from 33%. The Company's revenue and
margin from services fluctuate from period to period due to the mix of contracts
and projects.
<PAGE> 11
Item 2
- continued -
Product license revenue decreased by approximately $414,000 or 10% in the first
nine months of 1996 compared to the same period in 1995. The change was a result
of revenue decreases from the international trade systems and electronic time
recording product lines, partially offset by increases from the tire, legal, and
direct marketing systems product lines.
Revenue net of hardware cost decreased by approximately $1,429,000 or 8%, in the
nine months ended September 30, 1996 compared to the same period in the prior
year. Revenue net of hardware costs increased in the tire and direct marketing
systems product lines, while revenue net of hardware costs decreased for the
electronic time recording, international trade, and legal systems product lines.
Marketing and sales expenses decreased by approximately $291,000 or 9%. This
change primarily reflects sales staffing decreases due to turnover and reduced
commission expenses for the electronic time recording product line. Commission
expenses decreased as a result of the lower level of revenue for this product
line in the nine months ended September 30, 1996, when compared to the same
period in 1995. General and administrative expenses increased by approximately
$183,000 or 7%, compared to the first nine months of 1995. The change is the
result of 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 earnings from operations were approximately $134,000 for the first nine
months of 1996, compared to earnings from operations of approximately $1,138,000
for the first nine months of 1995. The decrease in earnings resulted from a
decrease in contribution from the Company's electronic time recording and legal
systems product lines. This decrease was partially offset by increases in
contribution from the Company's international trade, tire, and direct marketing
systems product lines.
Net loss for the nine months ended September 30, 1996 was approximately
$190,000, as compared to net earnings of approximately $226,000 for the
comparable period in 1995. The change resulted from a decrease in earnings from
operations of approximately $1,004,000, which was partially offset by a decrease
in net interest expense of approximately $43,000 and a decrease in income tax
expense of approximately $545,000.
In recent years due to several recurring permanent book-tax differences, the
Company has recorded effective tax expense well in excess of statutory rates.
<PAGE> 12
Liquidity and Capital Resources
The Company had total cash and cash equivalents at September 30, 1996 of
approximately $443,000, an increase of approximately $39,000 from December 31,
1995. The Company and its subsidiaries currently have a maximum line of credit
totaling $2,350,000, of which approximately $1,225,000 was available at
September 30, 1996.
In September 1996, the Company entered into an Asset Purchase Agreement with
Progressive Computer Systems, Inc., a provider of computer systems to the
Independent Tire Dealers marketplace. The purchase price is $400,000, which
shall be adjusted downward in accordance with any reduction in Progressive's
accounts receivable at the time of closing as compared to Progressive's accounts
receivable on August 30, 1996. The Company has secured financing for the
purchase through it existing lender. The closing is expected to occur in
December 1996.
In October 1996, the Company announced that it had reached an agreement in
principle to effect a corporate reorganization which would result in a
spin-off of the Company's wholly owned subsidiary, TradePoint Systems, Inc. to
Christopher J. Crane, the Company's President, in exchange for Mr. Crane's
equity ownership in the Company and certain other consideration. TradePoint
Systems, Inc. holds certain assets and liabilities of the Company's
International Trade and Transportation Division. The proposed reorganization is
subject to a number of factors, including the negotiation and execution of a
definitive reorganization agreement and a ruling from the Internal Revenue
Service regarding the tax-free nature of the transaction.
The Company expects to continue to pursue strategic acquisitions. These
acquisitions have been and are expected to continue to be, financed in a number
of ways. Management believes, subject to the conditions of the financial
markets, that it should be able to continue its program of acquisitions.
Over the past two years, the Company has expended signficant working capital on
the development of a new generation of software products. The level of these
expenditures decreased by approximately $27,000 or 2% in the first nine months
of 1996 compared to the same period in 1995. As rapid change in software
technology continues, the Company will fund further 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 economy, client
buying patterns, and hardware and software technological changes. 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.
<PAGE> 13
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - None
(b) Reports on Form 8-K -
On September 20, 1996, the Company announced that it had entered
into an Asset Purchase Agreement with Progressive Computer Systems,
Inc., a Washington Corporation.
On October 10, 1996, the Company announced that it reached an
Agreement in principal to effect a corporate reorganization which
would result in a spin-off of the Company's wholly owned subsidiary,
TradePoint Systems, Inc., to Christopher J. Crane, the Company's
President.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities and 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.
------------------------------
(Registrant)
11/14/96 /s/ Alfred C. Angelone
- - ------------ ------------------------------
(Date) (Signature)
Alfred C. Angelone
Chief Executive Officer
11/14/96 /s/ Terrence C. McCarthy
- - ------------ ------------------------------
(Date) (Signature)
Terrence C. McCarthy
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 CONDENSED CONSOLIDATED INCOME
STATEMENT FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE BY SUCH.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 442,916
<SECURITIES> 0
<RECEIVABLES> 5,001,027
<ALLOWANCES> 160,395
<INVENTORY> 98,599
<CURRENT-ASSETS> 6,296,990
<PP&E> 9,574,633
<DEPRECIATION> 4,948,451
<TOTAL-ASSETS> 18,684,397
<CURRENT-LIABILITIES> 5,566,743
<BONDS> 2,519,543
<COMMON> 39,834
0
0
<OTHER-SE> 9,941,277
<TOTAL-LIABILITY-AND-EQUITY> 18,684,397
<SALES> 18,821,574
<TOTAL-REVENUES> 18,821,574
<CGS> 2,620,284
<TOTAL-COSTS> 12,818,959
<OTHER-EXPENSES> 5,869,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 323,966
<INCOME-PRETAX> (190,423)
<INCOME-TAX> 0
<INCOME-CONTINUING> (190,423)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (190,423)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
