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: June 30, 1998 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.
X
Yes: ----- No: -----
As of June 30, 1998, there were 3,523,462 shares of Common Stock of the
Registrant outstanding.
<PAGE>
PART I
Item 1
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,603,863 $ 1,282,817
Receivables - net 7,168,216 5,926,610
Computer hardware held for resale 128,103 237,642
Other current assets 763,837 651,843
----------- -----------
TOTAL CURRENT ASSETS 9,664,019 8,098,912
PROPERTY AND EQUIPMENT (less
depreciation of $3,846,929 and
$3,617,402, respectively) 4,842,800 4,281,425
SOFTWARE (less amortization of
$7,279,416 and $6,634,296,
respectively) 3,411,336 3,496,798
COST EXCEEDING NET ASSETS ACQUIRED
(less amortization of $1,742,078
and $1,634,320, respectively) 755,086 695,755
OTHER ASSETS 1,259,484 1,252,812
----------- -----------
$19,932,725 $17,825,702
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,839,408 $ 2,263,573
Accrued expenses 2,794,697 1,575,813
Other current liabilities 3,017,361 2,276,734
------------ -----------
TOTAL CURRENT LIABILITIES 7,651,466 6,116,120
LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES 2,483,274 2,696,020
LONG-TERM LIABILITIES 268,442 -
DEFERRED TAXES 616,000 616,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 43,768 40,965
Additional paid-in capital 7,793,777 7,394,281
Retained earnings 2,717,221 2,548,013
Cumulative translation adjustments (1,703) -
------------ -----------
10,553,063 9,983,259
Less: treasury stock, at cost 1,639,520 1,585,697
------------ -----------
8,913,543 8,397,562
------------ -----------
$19,932,725 $17,825,702
============ ===========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
----------------------------
1998 1997
----------------------------
(Unaudited)
REVENUE
Services $ 4,560,532 $ 3,839,739
Product licenses 1,727,710 1,288,218
Computer and add-on hardware 1,232,746 1,474,089
------------ ------------
NET REVENUE 7,520,988 6,602,046
COST OF REVENUE
Services 2,813,833 2,183,155
Product licenses and development 1,126,154 812,191
Computer and add-on hardware 880,009 1,269,421
------------ ------------
TOTAL COST OF REVENUE 4,819,996 4,264,767
EXPENSES
Marketing and sales 1,318,256 1,085,373
General and administrative 958,116 744,153
Amortization of goodwill 55,969 58,251
------------ ------------
TOTAL EXPENSES 2,332,341 1,887,777
EARNINGS FROM OPERATIONS 368,651 449,502
INTEREST EXPENSE - NET (69,842) (86,359)
------------ ------------
EARNINGS BEFORE INCOME TAXES 298,809 363,143
INCOME TAXES 179,000 152,000
------------ ------------
NET EARNINGS $ 119,809 $ 211,143
============ ============
EARNINGS PER COMMON SHARE:
BASIC $.03 $.06
============ ============
DILUTED $.03 $.06
============ ============
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
June 30,
----------------------------
1998 1997
----------------------------
(Unaudited)
REVENUE
Services $ 8,667,889 $ 7,080,054
Product licenses 3,527,272 2,486,223
Computer and add-on hardware 2,971,383 2,115,525
------------ ------------
NET REVENUE 15,166,544 11,681,802
COST OF REVENUE
Services 5,278,154 4,017,840
Product licenses and development 2,212,066 1,547,952
Computer and add-on hardware 2,564,802 1,822,109
------------ ------------
TOTAL COST OF REVENUE 10,055,022 7,387,901
EXPENSES
Marketing and sales 2,635,325 2,104,668
General and administrative 1,804,894 1,455,368
Amortization of goodwill 107,757 115,179
------------ ------------
TOTAL EXPENSES 4,547,976 3,675,215
EARNINGS FROM OPERATIONS 563,546 618,686
INTEREST EXPENSE - NET (140,338) (198,023)
------------ ------------
EARNINGS BEFORE INCOME TAXES 423,208 420,663
INCOME TAXES 254,000 168,000
------------ ------------
NET EARNINGS $ 169,208 $ 252,663
============ ============
EARNINGS PER COMMON SHARE:
BASIC $.05 $.08
============ ============
DILUTED $.05 $.07
============ ============
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
----------------------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $ 169,208 $ 252,663
ADJUSTMENTS TO RECONCILE NET EARNINGS
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION AND AMORTIZATION 1,001,997 868,166
CHANGES IN ASSETS AND LIABILITIES (254,797) (909,972)
------------ ------------
TOTAL ADJUSTMENTS 747,200 (41,806)
------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 916,408 210,857
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY AND EQUIPMENT (527,193) (89,842)
ADDITIONS TO SOFTWARE (5,053) (40,082)
REDUCTION IN SALES-TYPE LEASES (17,846) (9,009)
CASH RECEIVED IN ACQUISITION,
OF CASH PAID 98,275 -
OTHER ASSETS (5,536) 101,194
------------ ------------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (457,353) (37,739)
CASH FLOWS FROM FINANCING ACTIVITIES:
DECREASE IN BANK AND OTHER NOTES - (700,000)
INCREASE (DECREASE) IN LONG-TERM DEBT (211,312) 250,000
INCREASE IN LONG-TERM LIABILITIES 268,442 -
CASH PAID IN LIEU OF STOCK (140,000) -
PURCHASE OF TREASURY STOCK (53,823) -
ISSUANCE OF COMMON STOCK 209 57,797
------------ ------------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (136,484) (392,203)
------------ ------------
EFFECT OF EXCHANGE RATES ON CASH &
CASH EQUIVALENTS (1,525) -
------------ ------------
CASH AND CASH EQUIVALENTS:
NET INCREASE (DECREASE) 321,046 (219,085)
BALANCE, BEGINNING OF YEAR 1,282,817 674,239
------------ ------------
BALANCE, END OF PERIOD $ 1,603,863 $ 455,154
============ ============
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
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 three months and six
months ended June 30, 1998 and June 30, 1997, respectively.
The results disclosed in the Condensed Consolidated Statement of Operations for
the three months and six months ended June 30, 1998 are not necessarily
indicative of the results expected for the full year.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Earnings per Share
- - ---------------------------
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
NUMERATOR:
NET INCOME $ 119,809 $ 211,143 $ 169,208 $ 252,663
=========== =========== =========== ===========
NUMERATOR FOR DILUTED EARNINGS
PER SHARE - INCOME AVAILABLE
TO COMMON SHAREHOLDERS $ 119,809 $ 211,143 $ 169,208 $ 252,663
=========== =========== =========== ===========
DENOMINATOR:
DENOMINATOR FOR BASIC EARNINGS
PER SHARE - WEIGHTED AVERAGE
SHARES 3,548,740 3,292,963 3,509,221 3,259,807
EFFECT OF DILUTIVE SECURITIES:
EMPLOYEE STOCK OPTIONS 171,378 60,542 172,396 71,305
CONTINGENTLY ISSUABLE SHARES - 80,146 - 80,146
----------- ----------- ----------- -----------
DILUTIVE POTENTIAL COMMON SHARES
DENOMINATOR FOR DILUTED
EARNINGS PER SHARE -
ADJUSTED WEIGHTED
AVERAGE SHARES AND
ASSUMED CONVERSIONS 3,720,118 3,433,651 3,681,617 3,411,258
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $.03 $.06 $.05 $.08
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $.03 $.06 $.05 $.07
=========== =========== =========== ===========
</TABLE>
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Comprehensive Income
- - -----------------------------
The Company adopted SFAS No. 130, Reporting Comprehensive Income, which requires
that all components of comprehensive income and total comprehensive income be
reported on one of the following: a statement of income and comprehensive
income, a statement of comprehensive income or a statement of stockholders'
equity. Comprehensive income is comprised of net income and all changes to
stockholders' equity, except those due to investments by owners (changes in
paid-in capital) and distributions to owners (dividends). For interim reporting
purposes, SFAS 130 requires disclosure of total comprehensive income.
Total comprehensive income is as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Net income $119,809 $211,143 $169,208 $252,663
Foreign currency
translation adjustments 5,866 - (1,703) -
--------- --------- --------- ---------
Comprehensive income $125,675 $211,143 $167,505 $252,663
========= ========= ========= =========
<PAGE>
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.
Results of Operations
Second Quarter of 1998
compared to
Second Quarter of 1997
(000's omitted)
--------------- --------------------
Revenue Increase/(Decrease)
--------------- --------------------
1998 1997 Amount Percentage
---- ---- ------ ----------
Services $ 4,560 $ 3,840 $ 720 19%
Product licenses 1,728 1,288 440 34%
Computer and add-on
hardware 1,233 1,474 (241) (16%)
-------- -------- -------- --------
Net revenue $ 7,521 $ 6,602 $ 919 14%
======== ======== ======== ========
REVENUE
Net revenue. 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 automotive, legal, and ERP (enterprise
resource planning) markets. The Company entered the ERP market in January 1998
with the acquisition of substantially all the assets of Cedes S.r.l. and SIPI-U
S.r.l., subsidiaries of the Findest Group of Padova, Italy. The Company's
revenues are derived from the sale of third party computer and add-on hardware,
from the licensing of the Company's software products, and from client service
and support. The Company's total revenues increased by approximately $919,000,
or 14%, for the quarter ended June 30, 1998, compared to the quarter ended June
30, 1997. Revenue from existing businesses remained the same for the period,
when approximately $917,000 in revenue from the Company's ERP systems product
line, which was acquired in January 1998, is excluded.
Services. Services are comprised of fees generated from training,
consulting, software modifications, and ongoing client support provided under
self-renewing maintenance agreements. Service revenues increased by
approximately $720,000, or 19%, for the three months ended June 30, 1998,
compared to the three months ended June 30, 1997. Service revenue from existing
businesses remained the same for the period, when compared to the second quarter
of 1997, and the service revenue from the ERP systems product line of
approximately $715,000 for the 1998 period is excluded.
Product licenses. The Company's software license revenues are derived
primarily from the licensing of the Company's enterprise and point-solution
products. Software license revenues increased by approximately $440,000, or 34%,
for the second quarter of 1998, compared to the same period in 1997. Product
license revenue from existing businesses increased by approximately $312,000, or
24%, for the period, when compared to the second quarter of 1997, and the
product license revenue from the ERP systems product line of approximately
$128,000 for the 1998 period is excluded. The increase in dollar amount was
primarily due to increased market acceptance of the Company's software products,
and the increased capacity created by growth in the Company's direct sales force
and marketing efforts.
Computer and add-on hardware. Hardware revenues are derived from the resale
of third-party hardware products to the Company's clients in conjunction with
the licensing of the Company's software. Hardware revenues decreased by
approximately $241,000, or 16%, for the three months ended June 30, 1998,
compared to the same period in 1997. The decrease in hardware revenue reflects
the mix of products sold during the period and the declining price of computer
hardware.
COST OF REVENUE
Services. Cost of services consists of the costs incurred in providing
client training, consulting, and ongoing support as well as other client
service-related expenses. Cost of services increased by approximately $631,000
for the three months ended June 30, 1998, compared to the second quarter of
1997. The increase reflects the addition of the cost of services related to the
ERP systems product line which was acquired in January 1998. The gross margin
percentage for services for the second quarter of 1998 decreased to
approximately 38% from 43% of revenue from services in the second quarter of
1997. The Company's revenue and margin from services fluctuate from period to
period due to changes in the mix of contracts and projects.
Product licenses and development. Cost of software license revenues
consists of the costs of amortization of capitalized software costs, and the
costs of sublicensing third-party software products. The amount also includes
the expenses associated with the development of new products and the enhancement
of existing products (net of capitalized software costs), which consist
primarily of employee salaries, benefits, and associated overhead costs. Cost of
software license revenues and development increased by approximately $314,000
for the quarter ended June 30, 1998, compared to the same period in 1997. The
change primarily reflects the costs associated with license revenue increases
from the electronic time recording, tire, and legal systems product lines. The
cost of product licenses as a percentage of product license revenue may
fluctuate from period to period due to the mix of sales of third-party software
products in each period contrasted with certain fixed expenses such as the
amortization of capitalized software.
Computer and add-on hardware. Cost of hardware revenues consists primarily
of the costs of third-party hardware products. Cost of hardware revenues
decreased by approximately $389,000, or 31%, for the three months ended June 30,
1998, compared to the prior period. The decrease in dollar amount for the cost
of hardware revenues for the three months ended June 30, 1998 was due primarily
to a decrease in sales of hardware products accompanying the increased product
license sales.
The gross margin percentage for hardware sales increased to 29% for the
three months ended June 30, 1998, from 14%, in the same period in 1997. Margins
on computer and add-on hardware do fluctuate based on the mix of computer and
ancillary hardware products sold. Accordingly, the Company expects hardware
gross margins to fluctuate in the future. The Company continues to direct its
efforts toward building service and license revenues to offset the historical
decline in hardware revenue and margins.
EXPENSES
Marketing and sales. Marketing and sales expenses consist primarily of
employee salaries, benefits, commissions and associated overhead costs, and the
cost of marketing programs such as direct mailings, trade shows, seminars, and
related communication costs. Marketing and sales expenses increased by $233,000,
or 21%, for the quarter ended June 30, 1998, compared to the second quarter in
1997. The change in marketing and sales expenses primarily reflects increases in
sales staffing, the higher sales commissions associated with increased revenues,
and the additional expenses related to the newly acquired ERP systems product
line.
General and administrative. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive, and
finance personnel and associated overhead costs, as well as consulting,
accounting, and legal expenses. General and administrative expenses increased by
approximately $210,000, or 28%, for the three months ended June 30, 1998,
compared to the same period in 1997. The change primarily reflects the
additional expenses related to the ERP systems product line.
Net earnings for the second quarter of 1998 were approximately $120,000, as
compared to net earnings of approximately $211,000 for the second quarter of
1997. The change resulted from a decrease in earnings from operations of
approximately $81,000, an increase in income tax expense of $27,000, partially
offset by a decrease in net interest expense of approximately $17,000.
Six Months Ended June 30, 1998
compared to
Six Months Ended June 30, 1997
(000's omitted)
--------------- --------------------
Revenue Increase/(Decrease)
--------------- --------------------
1998 1997 Amount Percentage
---- ---- ------ ----------
Services $ 8,668 $ 7,080 $ 1,588 22%
Product licenses 3,527 2,486 1,041 42%
Computer and add-on
hardware 2,971 2,116 855 40%
-------- -------- -------- --------
Net revenue $15,166 $11,682 $ 3,484 30%
======== ======== ======== ========
REVENUE
Net revenue. The Company's total revenues increased by approximately
$3,484,000, or 30%, for the period when compared to the first six months of
1997. Revenue from existing businesses increased by approximately $1,703,000, or
15% for the period, when approximately $1,781,000 in revenue from the Company's
ERP systems product line, which was acquired in January 1998, is excluded.
Services. Service revenues increased by approximately $1,588,000, or 22%,
for the six months ended June 30, 1998, compared to the six months ended June
30, 1997. Service revenue from existing businesses increased by approximately
$240,000, or 3%, for the period, when compared to the first six months of 1997,
and the service revenue from the ERP systems product line of approximately
$1,348,000 for the 1998 period is excluded. The change was due to increases in
software license revenues which were accompanied by client requirements for
training and consulting services, and to the increase in support revenues as a
result of a larger installed client base.
Product licenses. Software license revenues increased by approximately
$1,041,000, or 42%, for the first six months of 1998, compared to the same
period in 1997. Product license revenue from existing businesses increased by
approximately $719,000, or 29%, for the period, when compared to the first six
months of 1997, and the product license revenue from the ERP systems product
line of approximately $322,000 for the 1998 period is excluded. The increase
in dollar amount was primarily due to increased market acceptance of the
Company's software products, and the increased capacity created by growth in the
Company's direct sales force and marketing efforts.
Computer and add-on hardware. Hardware revenues increased by approximately
$855,000, or 40%, for the six months ended June 30, 1998, compared to the same
period in 1997. Hardware revenue from existing businesses increased by
approximately $744,000, or 35% for the period, when approximately $111,000 in
hardware revenue from the Company's newly acquired ERP systems product line is
excluded. The increase in hardware revenues from existing businesses was due
primarily to the increase of hardware unit sales accompanying increased product
license sales.
COST OF REVENUE
Services. Cost of services increased by approximately $1,260,000 for the
six months ended June 30, 1998, compared to the first six months of 1997. The
increase reflects the addition of the cost of services related to the ERP
systems product line which was acquired in January 1998, along with increases in
cost of services for the electronic time recording, tire, and direct marketing
product lines. The gross margin percentage for services for the six months ended
June 30, 1998 decreased to approximately 39% from 43% of revenue from services
in the first six months of 1997. The Company's revenue and margin from services
fluctuate from period to period due to changes in the mix of contracts and
projects.
Product licenses and development. Cost of software license revenues and
development increased by approximately $664,000 for the six months ended June
30, 1998, compared to the same period in 1997. The change primarily reflects the
costs associated with license revenue increases from the electronic time
recording, tire, and legal systems product lines. The cost of product licenses
as a percentage of product license revenue may fluctuate from period to period
due to the mix of sales of third-party software products in each period
contrasted with certain fixed expenses such as the amortization of capitalized
software.
Computer and add-on hardware. Cost of hardware revenues increased by
approximately $743,000, or 41%, for the six months ended June 30, 1998, compared
to the prior period. The cost of hardware revenue from existing businesses
increased by approximately $656,000, or 36%, when approximately $87,000 in cost
of hardware from the Company's newly acquired ERP systems product line is
excluded from the results of the first six months of 1998. The increase in
dollar amount for the cost of hardware revenues for the six months ended June
30, 1998 was due primarily to increased unit sales of hardware products
accompanying increased product license sales and a decrease in gross margin on
hardware product sales as highlighted below.
The gross margin percentage for hardware sales remained the same at 14% for
the six months ended June 30, 1998, compared to the same period in 1997. Margins
on computer and add-on hardware can fluctuate based on the mix of computer and
ancillary hardware products sold. Accordingly, the Company expects hardware
gross margins to continue to fluctuate in the future. The Company continues to
direct its efforts toward building service and license revenues to offset the
historical decline in hardware revenue and margins.
EXPENSES
Marketing and sales. Marketing and sales expenses increased by $531,000, or
25%, for the six months ended June 30, 1998, compared to the first six months in
1997. The change in marketing and sales expenses primarily reflects increases in
sales staffing, the higher sales commissions associated with increased revenues,
and the additional expenses related to the newly acquired ERP systems product
line.
General and administrative. General and administrative expenses increased
by approximately $346,000, or 24%, for the six months ended June 30, 1998,
compared to the same period in 1997. The change primarily reflects the
additional expenses related to the ERP systems product line.
Net earnings for the six months ended June 30, 1998 were approximately
$169,000, as compared to net earnings of approximately $252,000 for the first
six months of 1997. The change resulted from a decrease in earnings from
operations of approximately $55,000, an increase in income tax expense of
$86,000, partially offset by a decrease in net interest expense of approximately
$58,000.
<PAGE>
Liquidity and Capital Resources
The Company had total cash and cash equivalents at June 30, 1998 of
approximately $1,604,000, an increase of approximately $321,000 from December
31, 1997. The Company and its subsidiaries had a maximum line of credit totaling
$2,000,000, all of which was available at June 30, 1998. In June, the Company
renewed its line of credit for a maximum of $1,500,000 at an interest rate of
one half of one percent (1/2%) over prime.
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.
The Company has experienced significant fluctuations in its quarterly operating
results and anticipates such fluctuations in the future. Quarterly revenues and
operating results depend on the volume and timing of orders received during the
quarter which are difficult to forecast. Large orders for the Company's products
often have a lengthy sales cycle while the customer evaluates and receives
approvals for the purchase of the products. It may be difficult to accurately
predict the sales cycle of any large order. If one or more large orders fail to
close as forecasted in a fiscal quarter, the Company's revenues and operating
results could be materially adversely affected. In addition, the Company
typically receives a substantial portion of its product orders in the last month
of the quarter. Orders are shipped as received and, as a result, the Company
often has little or no backlog except for support and service revenue. The
Company acknowledges the potential adverse impact that such fluctuations and
general economic uncertainty could have on its ability to maintain liquidity and
raise additional capital.
The Company's future financial performance is also dependent in large part on
the successful development, introduction, and customer acceptance of new and
enhanced versions of its software products. Due to the rapid change in vendor
hardware platforms, operating systems, and updated versions, the complexity and
expense of developing, testing, and maintaining the Company's products has
increased. The Company intends, as it has in the past, to fund this development
primarily from its cash from operations and bank debt. There can be no assurance
that these efforts will be successful or result in significant product
enhancements.
Subject to the foregoing, the Company believes that based on the level of
operating revenue, cash on hand, and available bank debt, it has sufficient
capital to finance its ongoing business.
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
On May 8, 1998, the Company held an Annual Meeting of Stockholders (the "Annual
Meeting") to vote on the following proposals:
1. To elect five (5) members to the Board of Directors. Nominees for
Director were: (a) Alfred C. Angelone; (b) William A. Kulok; (c) James P.
O'Halloran; (d) Gordon J. Rollert; and (e) Robert L. Voelk; and
2. To ratify and confirm the appointment of BDO Seidman, LLP, as the
independent accountants for the Company for the fiscal year ending December 31,
1998 ("Proposal No. 2").
Of the 4,168,448 shares of the Company's Common Stock of record as of March 20,
1998 able to be voted at the Annual Meeting, a total of approximately 3,298,771
shares were voted, or approximately 76.79% of the Company's issued and
outstanding shares of Common Stock entitled to vote on these matters. Proposals
No. 1 and No. 2 were adopted with the vote totals as follows:
SHARES
SHARES VOTING
PROPOSAL VOTING FOR AGAINST WITHHOLD
- - -------- ---------- ------- ---------
PROPOSAL NO. 1
--------------
(A) ALFRED C. ANGELONE 3,239,506 4,487 54,778
(B) WILLIAM A. KULOK 3,238,521 5,987 54,263
(C) JAMES P. O'HALLORAN 3,240,121 4,387 54,263
(D) GORDON J. ROLLERT 3,240,021 4,487 54,263
(E) ROBERT L. VOELK 3,239,921 4,487 54,363
PROPOSAL NO. 2
--------------
3,237,833 44,188 16,750
Item 5. Other Information
-----------------
At a meeting on July 21, 1998, the Company named Alan J. Klitzner, the Chairman
of the Board of Klitzner Industries of Providence, Rhode Island, to its Board of
Directors.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits -
The following exhibits are filed with this report:
10-1 Promissory Note (Revolver) between ASA International
Ltd. and CoreStates Bank, N.A., dated June 30, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K - None
<PAGE>
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)
8/13/98 /s/ Alfred C. Angelone
- - ------------ ------------------------------
(Date) (Signature)
Alfred C. Angelone
Chief Executive Officer
8/13/98 /s/ Terrence C. McCarthy
- - ------------ ------------------------------
(Date) (Signature)
Terrence C. McCarthy
Vice President and Treasurer
EXHIBIT 10.1
COMMERCIAL PROMISSORY NOTE CoreStates
$1,500,000.00 June 30, 1998
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more
than one (hereinafter collectively referred to as "Borrower"), promises to pay
to the order of CORESTATES BANK, N.A.*, a national banking association (the
"Bank"), at any of its banking offices in Pennsylvania, the principal amount of
ONE MILLION FIVE HUNDRED THOUSAND and 00/100 DOLLARS, in lawful money of the
United States, plus interest, to be paid as follows:
Said principal or the aggregated unpaid principal amount of all loans then
outstanding under this note shall be payable in full on June 30, 1999. Interest
shall accrue at the Prime Rate plus 1/2% and shall be payable on the first day
of each month commencing August 1, 1998, with a final payment on June 30, 1999.
This Note is in substitution and amendment of Borrower's Commercial Promissory
Note dated November 3, 1994 and is secured by a Security Agreement (Accounts,
Inventory, and Equipment) of said date.
ADDITIONAL TERMS OF THIS NOTE - Each of the following provisions shall apply to
this Note, to any extension of modification hereof and to the indebtedness
evidenced hereby, except as otherwise expressly stated above or in a separate
writing signed by Bank and Borrower.
INTEREST - Interest shall be calculated on the basis of a 360-day year and shall
be charged for the actual number of days elapsed. Accrued interest shall be
payable monthly. Accrued interest shall also be payable when the entire
principal balance of this Note becomes due and payable (whether by demand,
stated maturity or acceleration) or, if earlier, when such principal balance is
actually paid to Bank. If the rate at which interest accrues is based on the
"Prime Rate," that term is defined as the rate of interest for loans established
by Bank from time to time as its prime rate. Said per annum rate of interest
shall change each time Bank's prime rate shall change, effective on and as of
the date of the change. Interest shall accrue on each disbursement hereunder
from the date such disbursement is made by Bank, provided however, that to the
extent this Note represents a replacement, substitution, renewal or refinancing
of existing indebtedness, interest shall accrue from the date hereof. Interest
shall accrue on the unpaid balance hereof at the rate provided for in this Note
until the entire unpaid balance has been paid in full, notwithstanding the entry
of any judgment against Borrower.
PREPAYMENT - If this Note bears interest at a floating or variable rate and no
floor or minimum rate is specified, Borrower may prepay all or any portion of
the principal balance of this Note at any time, without premium or penalty. If
not permitted under the preceding sentence, any prepayment of principal
(including any principal repayment as a result of acceleration by Bank of this
Note) shall require immediate payment to Bank of a prepayment fee equal to the
amount, if any, by which the aggregate present value of scheduled principal and
interest payments eliminated by the prepayment exceeds the principal amount
being prepaid. Said present value shall be calculated by application of a
discount rate determined by Bank in its reasonable judgment to be the
yield-to-maturity at the time of prepayment on U.S. Treasury securities having a
maturity which most closely approximates the final maturity date of the
principal balance then outstanding. Whether or not a prepayment fee is required
hereunder, prepayments shall be applied to scheduled installments of principal
in the inverse order of their maturity, shall be accompanied by payment of
accrued interest on the principal amount being prepaid and, unless this Note has
been accelerated by Bank, shall not be permitted in an amount less than the
scheduled principal installment immediately prior to final maturity of the
outstanding principal balance.
COLLATERAL - As security for all indebtedness to Bank now or hereafter incurred
by Borrower, under this Note or otherwise, Borrower grants Bank a lien upon and
security interest in any securities, instruments or other personal property of
Borrower now or hereafter in Bank's possession and in any deposit balances now
or hereafter held by Bank for Borrower's account, and in all proceeds of any
such personal property or deposit balances. Such liens and security interest
shall be independent of Bank's right of setoff. This Note and the indebtedness
evidenced hereby shall be additionally secured by any lien or security interest
evidenced by a writing (whether now existing or hereafter executed) which
contains a provision to the effect that such lien or security interest is
intended to secure (a) this Note or indebtedness evidenced hereby or (b) any
category of liabilities, obligations or indebtedness of Borrower to Bank which
included this Note or the indebtedness evidenced hereby, and all property
subject to any such lien or security interest shall be collateral for this Note.
EVENTS OF DEFAULT - Each of the following shall be an Event of Default
hereunder: a) Within 10 days of becoming due, the nonpayment of any amount
payable under this Note or under any obligation or indebtedness to Bank of
Borrower or any person liable, either absolutely or contingently, for payment of
any indebtedness evidenced hereby, including endorsers, guarantors and sureties
(each such person is referred to as an "Obligor"); (b) if Borrower or any
Obligor has failed to observe or perform any other existing or future agreement
with Bank of any nature whatsoever; (c) if any representation, warranty,
certificate, financial statement or other information made or given by Borrower
or any Obligor to Bank is materially incorrect or misleading; (d) if Borrower or
any Obligor shall become insolvent or make an assignment for the benefit of
creditors or if any petition shall be filed by or against Borrower or any
Obligor under any bankruptcy or insolvency law; (e) the entry of any uninsured
judgment greater than $100,000 against Borrower or any Obligor which remains
unsatisfied for 15 days or the issuance of any attachment, tax lien, levy or
garnishment against any property of material value in which Borrower or any
Obligor has an interest; (f) if any attachment, levy, garnishment or similar
legal process is served upon Bank as a result of any claim against Borrower or
any Obligor or against any property of Borrower or any Obligor; (g) the
dissolution, merger, consolidation or change in control (as control is defined
in Rule 12b-2 under the Securities Exchange Act of 1934), of any Borrower which
is a corporation or partnership, or the sale or transfer of any substantial
portion of any of Borrower's assets, or if any agreement for such dissolution,
merger, or consolidation, change in control, sale or transfer is entered into by
Borrower without the written consent of Bank; (h) the death of any Borrower or
Obligor who is a natural person; (i) if Bank determines reasonably and in good
faith that an event has occurred or a condition exists which has had, or is
likely to have, a material adverse effect on the financial condition or
creditworthiness of Borrower or any Obligor, or on the ability of Borrower or
any Obligor to perform its obligation evidenced by this Note; (j) if Borrower
shall fail to remit promptly when due to the appropriate government agency or
authorized depository, any amount collected or withheld from any employee of
Borrower for payroll taxes, Social Security payments or similar payroll
deductions; (k) if any Obligor shall attempt to terminate or disclaim such
Obligor's liability for the indebtedness evidenced by this Note; (l) if Bank
shall reasonably and in good faith determine and notify Borrower that any
collateral for his Note or for the indebtedness evidenced hereby is insufficient
as to quality or quantity; (m) if Borrower shall fail to pay when due any
material indebtedness for borrowed money other than to Bank; or (n) if Borrower
shall be notified of the failure of Borrower or any Obligor to provide financial
and other information promptly when reasonably requested by Bank. If this Note
is payable on demand, Bank's right to demand payment hereof shall not be
restricted or impaired by the absence, non-occurrence or waiver of an Event of
Default, and it is understood that if this Note is payable on demand, Bank may
demand payment at any time.
BANK'S REMEDIES - Upon the occurrence of one or more Events of Default
(including, if this Note is payable on demand, any Event of Default resulting
from Borrower's failure to make any payment hereunder when demanded), unless
Bank elects otherwise, the entire unpaid balance of this Note and all accrued
interest shall be immediately due and payable without notice to Borrower or any
Obligor, and Bank may, immediately or at any time thereafter, exercise any or
all of its rights and remedies hereunder or under any agreement or otherwise
under applicable law against Borrower, any Obligor and any collateral. Bank may
exercise its rights and remedies in any order and may, at its option, delay in
or refrain from exercising some or all of its rights and remedies without
prejudice thereto. Upon the occurrence of any such Event of Default or at any
time thereafter, Bank may, at its option, and upon five days written notice to
Borrower, begin accruing interest on this Note, at a rate not to exceed five
percent (5%) per annum in excess of the greater of (a) the rate of interest
provided for above, or (b) the Prime Rate in effect from time to time on the
unpaid principal balance hereof; provided, however, that no interest shall
accrue hereunder in excess of the maximum rate permitted by law. All such
additional interest shall be payable on demand.
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower and each Obligor
when addressed to Borrower and deposited in the mail, postage prepaid, for
delivery by first class mail at Borrower's mailing address as it appears on
Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of this Note, or any portion thereof,
may be credited by Bank to the deposit account of Borrower, or disbursed in any
other manner requested by Borrower and approved by Bank. If Borrower so
requests, Bank may, at its option, disburse the proceeds of this Note in more
than one disbursement on the same or different dates, but except as otherwise
agreed by Bank in writing, no action taken by Bank in response to any such
request shall be deemed to create or shall imply the existence of any commitment
or obligation to pay or credit the undisbursed portion of this Note. All
payments due under this Note are to be made in immediately available funds. If
Bank accepts payment in any other form, such payment shall not be deemed to have
been made until the funds comprising such payment have actually been received by
or made available to Bank. If Borrower is not an individual, Borrower authorizes
Bank (but Bank shall have no obligation) to charge any deposit account in
Borrower's name for any and all payments of principal, interest, or any other
amounts due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest payable hereunder,
Borrower agrees to pay Bank, on demand, all costs and expenses (including
reasonable attorney's fees and disbursements) which may be incurred by Bank in
the collection of this Note or the enforcement of Bank's rights and remedies
hereunder.
REPRESENTATIONS BY BORROWER - If Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants that
the execution, delivery and performance of this Note are within Borrower's
corporate powers, have been duly authorized by all necessary action by
Borrower's Board of Directors, and are not in contravention of the terms of
Borrower's charter, by-laws, or any resolution of its Board of Directors. If
Borrower is a general or limited partnership, Borrower represents and warrants
that the execution, delivery and performance of this Note have been duly
authorized and are not in conflict with any provision of Borrower's partnership
agreement or certificate of limited partnership. Borrower further represents and
warrants that this Note has been validly executed and is enforceable in
accordance with its terms, that the execution, delivery and performance by
Borrower of this Note are not in contravention of law and do not conflict with
any indenture, agreement of undertaking to which Borrower is a party or is
otherwise bound, and that no consent or approval of any governmental authority
or any third party is required in connection with the execution, delivery and
performance of this Note.
WAIVERS, ETC. - Borrower and each Obligor waive presentment, dishonor, notice of
dishonor, protest and notice of protest. Neither the failure nor any delay on
the part of Bank to exercise any right, remedy, power or privilege hereunder
shall operate as a waiver or modification thereof. No consent, modification, or
waiver of the terms of this Note shall be effective unless set forth in writing
signed by Bank and Borrower. All rights and remedies of Bank are cumulative and
concurrent and no single or partial exercise of any power or privilege shall
preclude any other or further exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights or
remedies against any collateral in which it holds a lien or security interest or
against which it has a right of setoff or against any particular Obligor. All
representations, warranties and agreements herein are made jointly and severally
by each Borrower. If any provision of this Note shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. To the extent that this Note represents a replacement,
substitution, renewal or refinancing of a pre-existing note or other evidence of
indebtedness, the indebtedness represented by such pre-exiting note or other
instrument shall not be deemed to have been extinguished hereby. In the event
that any due date specified or otherwise provided for in this Note shall fall on
a day on which Bank is not open for business, such due date shall be postponed
until the next banking day, and interest and any fees or similar charges shall
continue to accrue during such period of postponement. This Note has been
delivered in and shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania without regard to the law of conflicts. This
Note shall be binding upon each Borrower and each Obligor and upon their
personal representatives, heirs, successors and assigns, and shall benefit Bank
and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN ANY
COUNTY OR THE COMMONWEALTH OF MASSACHUSETTS AND AGREES NOT TO RAISE ANY
OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE VENUE OF
ANY SUCH PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE
OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY
THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK
TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
<PAGE>
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as of
the day and year first above written.
- - ------------------------------------------------------------------------------
Name of Corporation
or Partnership ASA International LTD.
- - ------------------------------------------------------------------------
By: /s/ Terrence C. McCarthy By:
- - -------------------------------- ---------------------------------
(Signature of Authorized Signer} (Signature of Authorized Signer}
Terrence C. McCarthy
Vice President and Treasurer
- - -------------------------------- --------------------------------
(Print or Type Name and Title of (Print or Type Name and Title of
Signer Above) Signer Above)
INDIVIDUALS SIGN BELOW
- - -------------------------------- -------------------------------(Seal)
(Signature of Witness) (Signature of Individual Borrower)
- - -------------------------------- -------------------------------------
(Print or Type Name of Above (Print or Type Name of Borrower
Witness) Signing Above)
- - -------------------------------- -------------------------------(Seal)
(Signature of Witness) (Signature of Individual Borrower)
- - -------------------------------- -------------------------------------
(Print or Type Name of Above (Print or Type Name of Borrower
Witness) Signing Above)
- - -------------------------------------------------------------------------------
*CoreStates Bank, N.A. also conducts business as Philadelphia National Bank, as
CoreStates First Pennsylvania Bank and as CoreStates Hamilton Bank. 8979-C 10/93
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998, CONDENSED CONSOLIDATED
INCOME STATEMENT FOR SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B)
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,603,863
<SECURITIES> 0
<RECEIVABLES> 7,366,945
<ALLOWANCES> 198,729
<INVENTORY> 128,103
<CURRENT-ASSETS> 9,664,019
<PP&E> 8,689,729
<DEPRECIATION> 3,846,929
<TOTAL-ASSETS> 19,932,725
<CURRENT-LIABILITIES> 7,651,466
<BONDS> 2,483,276
<COMMON> 43,768
0
0
<OTHER-SE> 8,869,775
<TOTAL-LIABILITY-AND-EQUITY> 19,932,725
<SALES> 15,166,544
<TOTAL-REVENUES> 15,166,544
<CGS> 2,564,802
<TOTAL-COSTS> 10,055,022
<OTHER-EXPENSES> 4,547,976
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,338
<INCOME-PRETAX> 423,208
<INCOME-TAX> 254,000
<INCOME-CONTINUING> 169,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,208
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
