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: March 31, 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 March 31, 1998, there were 3,558,462 shares of Common Stock of the
Registrant outstanding.
<PAGE>
PART I
Item 1
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,256,913 $ 1,282,817
Receivables - net 5,995,507 5,926,610
Computer hardware held for resale 210,818 237,642
Other current assets 781,842 651,843
------- -------
TOTAL CURRENT ASSETS 8,245,080 8,098,912
PROPERTY AND EQUIPMENT (less
depreciation of $3,729,744 and
$3,617,402, respectively) 4,697,883 4,281,425
SOFTWARE (less amortization of
$6,962,854 and $6,634,296,
respectively) 3,722,843 3,496,798
COST EXCEEDING NET ASSETS ACQUIRED
(less amortization of $1,686,110
and $1,634,320, respectively) 811,054 695,755
OTHER ASSETS 1,304,637 1,252,812
--------- ---------
$18,781,497 $17,825,702
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 1,515,991 $ 2,263,573
Accrued expenses 2,753,184 1,575,813
Other current liabilities 2,213,775 2,276,734
--------- ---------
TOTAL CURRENT LIABILITIES 6,482,950 6,116,120
LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES 2,589,757 2,696,020
LONG-TERM LIABILITIES 251,099 -
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 2,597,412 2,548,013
Cumulative translation adjustments (7,569) -
----------- -----------
10,427,388 9,983,259
Less: treasury stock, at cost 1,585,697 1,585,697
--------- ---------
8,841,691 8,397,562
--------- ---------
$18,781,497 $17,825,702
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1998 1997
----------------------------
(Unaudited)
REVENUE
<S> <C> <C>
Computer and add-on hardware $ 1,738,637 $ 641,436
Services 4,107,357 3,240,315
Product licenses 1,799,563 1,198,005
--------- ---------
NET REVENUE 7,645,557 5,079,756
COST OF REVENUE
Computer and add-on hardware 1,684,793 552,688
Services 2,464,321 1,834,684
Product licenses and development 1,085,911 735,762
--------- -------
TOTAL COST OF REVENUE 5,235,025 3,123,134
EXPENSES
Marketing and sales 1,317,069 1,019,295
General and administrative 846,778 711,215
Amortization of goodwill 51,789 56,928
------ ------
TOTAL EXPENSES 2,215,636 1,787,438
EARNINGS FROM OPERATIONS 194,896 169,184
INTEREST EXPENSE - NET (70,497) (111,664)
------- --------
EARNINGS BEFORE INCOME TAXES 124,399 57,520
INCOME TAXES 75,000 16,000
------ ------
NET EARNINGS $ 49,399 $ 41,520
=========== ===========
EARNINGS PER COMMON SHARE:
BASIC $.01 $.01
=========== ===========
DILUTED $.01 $.01
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1998 1997
----------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 49,399 $ 41,520
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 503,464 421,159
Changes in assets and liabilities (395,345) (114,898)
------------ ------------
Total adjustments 108,119 306,261
------------ ------------
Net cash provided by operating
activities 157,518 347,781
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (264,315) (12,740)
Additions to software - (40,082)
Reduction in sales-type
leases 6,283 47,491
Cash received in acquisition, net
of cash paid 97,375 -
Other assets (28,415) 36,349
------------ ------------
Net cash provided by (used for)
investing activities (189,072) 31,018
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank and
other notes - (195,000)
Decrease in long-term debt (107,279) (94,200)
Increase in long-term liabilities 260,227 -
Cash paid in lieu of stock (140,000) -
Issuance of common stock 290 -
------------ ------------
Net cash provided by (used for)
financing activities 13,157 (289,200)
------------ ------------
EFFECT OF EXCHANGE RATES ON CASH &
CASH EQUIVALENTS (7,507) -
------------ ------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) (25,904) 89,599
Balance, beginning of year 1,282,817 674,239
------------ ------------
Balance, end of period $ 1,256,913 $ 763,838
============ ============
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<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 ended
March 31, 1998 and March 31, 1997, respectively.
The results disclosed in the Condensed Consolidated Statement of Operations for
the three months ended March 31, 1998 are not necessarily indicative of the
results expected for the full year.
NOTE 2 - ACQUISITION
In January 1998, the Company acquired substantially all of the assets of Cedes
S.r.l. and SIPI-U S.r.l. ("Cedes"), subsidiaries of the Findest Group of Padova,
Italy. Cedes sells enterprise resource planning (ERP) software to mid-range
companies in Italy. The transaction involved an exchange of approximately
$30,000 US in cash, assumption of certain liabilities, and 200,000 shares of the
Company's Common Stock for the assets of Cedes.
The acquisition was recorded using the purchase method of accounting whereby the
net assets acquired were recorded at their fair values based on the Company's
preliminary estimate of these values.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1998 1997
----------------------------
(Unaudited)
Numberator:
<S> <C> <C>
Net income $ 49,399 $ 41,520
=========== ===========
Numerator for diluted earnings per share -
income available to common shareholders $ 49,399 $ 41,520
=========== ===========
Denominator:
Denominator for basic earnings per
share - weighted average shares 3,466,053 3,225,108
Effect of dilutive securities:
Employee stock options 173,309 81,786
Contingently issuable shares - 80,146
----------- -----------
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 3,639,362 3,387,040
=========== ===========
Basic Earnings per share $.01 $.01
=========== ===========
Diluted Earnings per share $.01 $.01
=========== ===========
</TABLE>
NOTE 4 - 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:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Net income $49,399 $41,520
Foreign currency translation adjustments (7,569) -
-------- --------
Comprehensive income $41,830 $41,520
======== ========
</TABLE>
<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
First Quarter of 1998
compared to
First Quarter of 1997
(000's omitted)
--------------- --------------------
Revenue Increase/(Decrease)
--------------- --------------------
1998 1997 Amount Percentage
---- ---- ------ ----------
Computer and add-on
hardware $ 1,739 $ 641 $1,098 171%
Services 4,107 3,240 867 27%
Product licenses 1,800 1,198 602 50%
-------- -------- -------- --------
Net revenue $ 7,646 $ 5,079 $2,567 51%
======== ======== ======== ========
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 markets. 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
$2,567,000, or 51%, for the quarter ended March 31, 1998, compared to the
quarter ended March 31, 1997. Revenue from existing businesses increased by
approximately $1,703,000, or 34% for the period, when approximately $864,000 in
revenue from the Company's ERP systems product line, which was acquired in
January 1998, is excluded.
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 increased by
approximately $1,098,000, or 171%, for the three months ended March 31, 1998,
compared to the same period in 1997. Hardware revenue from existing businesses
increased by approximately $1,061,000, or 166% for the period, when
approximately $37,000 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.
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 $867,000, or 27%, for the three months ended March 31, 1998,
compared to the three months ended March 31, 1997. Service revenue from existing
businesses increased by approximately $235,000, or 7%, for the period, when
compared to the first quarter of 1997, and the service revenue from the ERP
systems product line of approximately $632,000 for the 1998 period is
eliminated. 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. 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 $602,000, or 50%,
for the first quarter of 1998, compared to the same period in 1997. Product
license revenue from existing businesses increased by approximately $407,000, or
34%, for the period, when compared to the first quarter of 1997, and the product
license revenue from the ERP systems product line of approximately $195,000 for
the 1998 period is eliminated. 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.
COST OF REVENUE
Computer and add-on hardware. Cost of hardware revenues consists primarily
of the costs of third-party hardware products. Cost of hardware revenues
increased by approximately $1,132,000, or 205%, for the three months ended March
31, 1998, compared to the prior period. The cost of hardware revenue from
existing businesses increased by approximately $1,102,000, or 200%, when
approximately $30,000 in cost of hardware from the Company's newly acquired ERP
systems product line is excluded from the first quarter results for 1998. The
increase in dollar amount for the cost of hardware revenues for the three months
ended March 31, 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 decreased to 3% for the
three months ended March 31, 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 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.
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 $630,000
for the three months ended March 31, 1998, compared to the first 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 first quarter of 1998 decreased to approximately
40% from 43% of revenue from services in the first 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 $350,000
for the quarter ended March 31, 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.
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 $298,000,
or 29%, for the quarter ended March 31, 1998, compared to the first 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 $136,000, or 19%, for the three months ended March 31, 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 first quarter of 1998 were approximately $49,000, as
compared to net earnings of approximately $42,000 for the first quarter of 1997.
The change resulted from an increase in earnings from operations of
approximately $25,000, a decrease in net interest expense of approximately
$41,000, partially offset by an increase in income tax expense of $59,000.
Liquidity and Capital Resources
The Company had total cash and cash equivalents at March 31, 1998 of
approximately $1,257,000, a decrease of approximately $26,000 from December 31,
1997. The Company and its subsidiaries currently have a maximum line of credit
totaling $2,000,000, all of which was available at March 31, 1998.
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 significant working capital on
the development of a new generation of software products. The level of these
expenditures decreased by approximately $40,000, in the first three months of
1998, compared to the same period in 1997. However, 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 and bank debt.
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. 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
The following exhibits are filed with this report:
27 Financial Data Schedule.
(b) Reports on Form 8-K -
On January 28, 1998, the Company announced that it had acquired
substantially all of the assets of Cedes S.r.l. and SIPI-U S.r.l.
("Cedes"), subsidiaries of the Findest Group of Padova, Italy.
<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)
5/15/98 /s/ Alfred C. Angelone
- - ------------ ------------------------------
(Date) (Signature)
Alfred C. Angelone
Chief Executive Officer
5/15/98 /s/ Terrence C. McCarthy
- - ------------ ------------------------------
(Date) (Signature)
Terrence C. McCarthy
Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 CONDENSED CONSOLIDATED
INCOME STATEMENT FOR THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B)
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,256,913
<SECURITIES> 0
<RECEIVABLES> 6,169,351
<ALLOWANCES> 173,844
<INVENTORY> 210,818
<CURRENT-ASSETS> 8,245,080
<PP&E> 8,427,627
<DEPRECIATION> 3,729,744
<TOTAL-ASSETS> 18,781,497
<CURRENT-LIABILITIES> 6,482,950
<BONDS> 2,589,757
0
0
<COMMON> 43,768
<OTHER-SE> 8,797,923
<TOTAL-LIABILITY-AND-EQUITY> 18,781,497
<SALES> 7,645,557
<TOTAL-REVENUES> 7,645,557
<CGS> 1,684,793
<TOTAL-COSTS> 5,235,025
<OTHER-EXPENSES> 2,215,636
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,497
<INCOME-PRETAX> 124,399
<INCOME-TAX> 75,000
<INCOME-CONTINUING> 49,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,399
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
