SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file number:
December 31, 1998 0-14741
- ------------------------- ----------------------
ASA INTERNATIONAL LTD.
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(Exact name of registrant as specified in its charter)
Delaware 02-0398205
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Speen Street, Framingham, MA 01701
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(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 626-2727
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange
- ------------------- on which registered
---------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
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Title of Each Class
-------------------------------
Common Stock, $.01 par value
Preferred Stock Purchase Rights
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
As of March 24, 1999, 3,350,812 shares of Common Stock, $.01 par value per
share, were outstanding. The aggregate market value, held by non-affiliates, of
shares of the Common Stock, based upon the average of the bid and ask prices for
such stock on that date was approximately $6,460,000.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Document Part of Form 10-K Annual
- -------- Report in which Document
is Incorporated
Definitive Proxy Statement to be
supplied to Shareholders in conjunction
with the 1999 Annual Meeting of Shareholders Part III
<PAGE>
PART I
ITEM 1. Business
GENERAL
ASA International Ltd. (the "Registrant" or the "Company") provides
networked automation systems and ongoing monthly support to approximately 900
businesses in the United States, Canada, South America, Western Europe, and
Australia. The Company designs and develops proprietary enterprise and
point-solution software for the electronic time and labor management market, for
catalog direct marketers, and for the legal, Italian manufacturing, and tire
dealer markets. The Company installs its software on a variety of computers and
networks, including IBM Corporation ("IBM"), Hewlett Packard ("HP"), and various
Unix/Open Systems hardware platforms, and provides implementation, training,
custom development, and long-term software and hardware support to its clients.
The Company is comprised of five product lines and a corporate services
group. The Company's SmartTime Software Group provides electronic time recording
solutions for payroll and pay rules to companies with greater than 500 employees
and over $10 million in sales. The Tire Systems Group provides integrated
hardware and software solutions to independent tire dealers, wholesalers, and
retreaders. The Legal Systems Group provides integrated accounting and practice
management solutions to law firms. The CommercialWare Group, which was sold in
March 1999, specialized in delivering enterprise systems to consumer and
business direct marketing companies and companies engaging in e-commerce. The
ERP Systems Group provides integrated client/server based ERP (Enterprise
Resource Planning) systems to manufacturing companies throughout Italy.
The Company, founded in 1969, was organized as a Massachusetts corporation
on December 15, 1982 and was reincorporated as a Delaware corporation on May 5,
1986. As used in this Report, the term "Company" includes ASA International Ltd.
and its wholly owned subsidiaries, ASA Properties, Inc. ("Properties"), ASA
International Ventures, Inc. ("Ventures"), and ASA Italy, S.r.l. ASA Properties
Inc. is the sole and managing member of 10 Speen Street LLC, which is the owner
of the Company's corporate headquarters.
The Company's consulting and general business systems operations began in
1969 under the direction of the Company's founder and Chief Executive Officer,
Alfred C. Angelone.
Effective March 3, 1999, the Company sold substantially all of the assets
of the Registrant's CommercialWare Division ("CWI") to CommercialWare, Inc., a
Delaware Corporation (the Purchaser). In connection therewith, the Company
transferred to the Purchaser certain of the liabilities of CWI. The Company
received (i) cash in the amount of $4,000,000, (ii) a promissory note in the
amount of $1,700,000, (iii) a junior promissory note in the amount of $500,000,
(iv) 30,000 shares of the Purchaser's common stock, par value $.01 per share,
and (v) one (1) share of Purchaser's Series A Preferred Stock.
In December 1996, the Company completed the disposition of substantially
all of the assets and liabilities of the Company's International Trade and
Transportation Systems Group (the "International Group") to TradePoint Systems
LLC ("TradePoint"), a New Hampshire limited liability company. In exchange for
the assets of the International Group and the assumption of the International
Group's liabilities, the Company received a 16% membership interest in
TradePoint and a subordinated promissory note in the face amount of $600,000
from TradePoint (the "Note"). The remaining 84% interest in TradePoint is owned
by Christopher J. Crane, the former president of and a former director of the
Company. Simultaneously, with the completion of this transaction, Mr. Crane
resigned from all of his positions with the Company. In exchange for his
interest in TradePoint, Mr. Crane (i) contributed all of the Company's common
stock, $.01 par value per share (the "Common Stock") owned by him, totaling
665,597 shares; (ii) assigned to the Company a 16% partnership interest in the
ASA Investment Partnership, a partnership by and among Mr. Crane, the Company,
and Alfred C. Angelone, the Company's Chief Executive Officer and Chairman; and
(iii) canceled all of his options to purchase 245,000 shares of Common Stock.
The consideration to be paid was determined by negotiations between the parties
and was independently evaluated on behalf of the Company by Shields & Company,
Inc. The Company accounts for its investment in TradePoint under the cost
method.
In connection with the transaction, TradePoint granted to the Company an
irrevocable proxy covering the Company's Common Stock owned by TradePoint. The
Company has the right to cause TradePoint to redeem the 16% membership interest
in TradePoint held by the Company by notice given on or after March 1, 2002, in
exchange for the Company's Common Stock held by TradePoint and the fair market
value of the 16% membership interest in TradePoint. TradePoint has the right to
redeem the Company's membership interest by notice given on or after December
31, 2001 in exchange for the Company's Common Stock held by it and the greater
of $400,000 or the fair market value of the 16% membership interest in
TradePoint.
During the past year, there have been no bankruptcy proceedings,
receivership, or similar proceedings with respect to the Registrant, nor has
there been any merger or consolidation of the Registrant, and there has been no
disposition of any material amount of the Registrant's assets.
BUSINESS
The following paragraphs describe in greater detail the business conducted
by the Registrant.
SmartTime Software (Formerly ASA Business Systems)
- --------------------------------------------------
The Company designs, develops, markets, implements and supports
Client/Server Enterprise-Wide software that manages the "source-to-gross"
payroll process of its customers. The Company's SmartTime(R) product (first
introduced in 1993) facilitates the electronic collection of time, attendance,
and labor data (the source), which is then processed by automatically applying
the unique pay rules of the customer to produce gross hours for payroll
processing. The Company's SmartRules(R) product, an object-oriented developed
tool and calculation engine that interfaces with SmartTime, allows customers who
have a dynamic, complex pay rule environment, to maintain and modify those pay
rules without the need for custom programming. The Company believes that it
currently maintains approximately 10% market share in its target markets.
The Company offers a comprehensive set of professional and consulting
services to all of its customers, including training, implementation assistance,
operations and application support, and custom software development.
The Company also continues to maintain, upgrade, and support legacy
manufacturing management and control and accounting software based primarily on
the DEC hardware platform.
Tire Systems
- ------------
The Company provides integrated hardware and software multi-user solutions
on Sun, Compaq/DEC and Unix-based systems to independent tire dealers,
wholesalers, and retreaders in the United States, Canada and South America for
point-of-sale, work orders, inventory control, purchasing, and accounting
functions. The systems range in price between approximately $25,000 and
$300,000.
In September 1988, July 1989, September 1990, and November 1996,
respectively, the Company acquired Associated Software Consultants Organization,
Inc., Snyder Computing Systems, Computers Northwest, and certain assets of
Progressive Computer Systems, Inc., all of which specialized in supplying
systems to independent tire dealers. In recent years, the Company has
consolidated its position in the independent tire dealer marketplace. The
Company believes that it has the largest installed base of independent tire
retailer and distributor multi-user systems in the United States.
Legal Systems
- -------------
The Company provides integrated client/server-based financial management
systems for law firms throughout the United States. The Company's Visual Pyramid
product is a powerful, fully integrated suite of legal specific applications
designed to run on PC networks. The product is written using MS Visual Studio
for the front end and MS SQL Server for the back end. Systems range in price
between approximately $50,000 and $500,000.
The Company entered the legal systems marketplace in June 1991 by acquiring
Quorum Legal Systems of Plymouth Meeting, Pennsylvania from Control Data
Corporation. In January 1992, the Company acquired the fixed assets of Legal
Data Systems of Boston, Massachusetts. In November 1994, the Company acquired
certain software products of Precedent Technologies Incorporated of New Hope,
Pennsylvania. The Company believes it has an estimated 12% share of the
mid-sized law firm market.
ERP Systems
- -------------
The Company, through its ERP Systems Group located in Venice, Italy,
provides fully integrated client/server based ERP systems which run under the
UNIX and NT operating systems. The product line, called "GX," is targeted at
mid-range companies with 20 to 60 users throughout Italy. The products were
developed using C++ and operate with many popular relational databases including
Oracle, Microsoft SQL, and Informix.
CommercialWare
- --------------
As discussed above, the CommercialWare division was sold on March 3, 1999.
Prior to such time, the Company provided enterprise order management and
fulfillment systems to consumer, business catalog, direct marketing and
electronic commerce firms.
Marketing
- ---------
The Company markets its products and services to new prospects and existing
customers primarily using the Company's direct sales force, assisted by
technical personnel. These personnel are trained in the Company's product and
service offerings and in the operations of the Company's customers. The Company
uses its own personnel, rather than third-party distributors, because prospects
and the Company's customers often lack comprehensive computer and systems
technical expertise and require a "consultative" selling approach, involving a
long selling cycle.
More importantly, the Company's objective is to develop a direct, long-term
relationship with each customer. This marketing approach requires substantial,
specialized knowledge of the requirements of the Company's customers generally
not available from third-party distribution arrangements. These requirements
result from the intangible nature of applications software and related services,
the sophistication of the Company's products and the need for each customer to
understand how the Company's products and services will work to meet its
requirements. The Company's sales force is supported by marketing personnel who
develop advertising and marketing campaigns; produce product literature,
periodic newsletters, and direct mail campaigns; arrange attendance at trade
shows and conventions; and sponsor seminars.
Marketing to a new prospect consists of identifying the prospect,
qualifying the prospect and, if the prospect is qualified, preparing and
presenting a sales proposal. In the tire, direct marketing, and legal markets
served by the Company, the total domestic market is well defined through the
respective industry and professional organizations. In these markets, trade
shows and direct contacts are used to determine how prospects are satisfying
their information processing requirements. For the time and attendance product
line, the prospects for the Company's products are more diverse and difficult to
target. In these markets, the Company engages in "prospecting" to identify
interest in the Company's products by companies who are currently seeking
products or services of the type offered by the Company. The prospecting process
includes trade publication advertising, purchased mailing lists, telemarketing,
direct mail, seminars, and trade shows to generate appointments for the direct
sales force with qualified prospects.
Once a prospect is qualified as to interest in the Company's products
and/or services, the direct sales and, as required, support personnel, visit the
prospect to understand the prospect's specific requirements. This process
usually results in the preparation of a written proposal which describes the
hardware, software, and services that will meet the prospect's requirements.
This sales cycle can be long, ranging from six months to beyond one year. The
Company believes the success of its sales activities depends upon this
consultative approach.
The Company believes that its customer base presents continuing
opportunities for sales of additional software and services. The Company's
products and services generally become an integral part of the customer's
business. As a result, the quality of customer support is essential to selling
to existing customers.
The Company maintains frequent contact with customers through sales and
service representatives. The Company provides customer support lines to handle
customer system operational issues within a prescribed response time, and
continually communicates with its customers through newsletters and customer
seminars. Through frequent contact with its customers by marketing and service
activities, the Company believes that it can better understand customer
requirements and direct its product development activities toward developing and
enhancing products that should be well accepted by both existing customers and
new prospects.
Sources and Availability of Raw Materials
- -----------------------------------------
The Company's systems operate on computer hardware supplied by leading
hardware manufacturers pursuant to Original Equipment Manufacturer or Value
Added Reseller Agreements. These agreements are renewable on a year-to-year
basis, and entitle the Company to purchase equipment at various discounts based
upon volume and the type of equipment. The loss of the Company's ability to
purchase equipment from the manufacturer would not have an adverse effect on the
Company's business. The Company's products have been ported to run under the
Unix operating system. The Company could also continue to purchase from hardware
distributors, but on terms less favorable than from the original manufacturer.
The Company believes that its relationship with the hardware manufacturers is
satisfactory.
The Company purchases IBM hardware for certain of the Company's market
segments from IBM under Industry Remarketer Agreements. The Company believes
that its relationship with IBM is satisfactory based upon IBM's selection of the
Company as an Authorized Industry Remarketer for these segments.
The Company also purchases HP hardware for certain of the Company's market
segments from HP under a Value-Added Reseller Program. The Company believes that
its relationship with HP is satisfactory given the selection of the Company as a
Value-Added Reseller for these markets.
The Company purchases all of its computer hardware and peripheral equipment
from IBM, HP, or other vendors, and performs only software installation,
testing, final system configuration, and quality control. With the exception of
multi-user systems purchased from IBM and HP, the Company believes there are
several alternative suppliers for system components used by the Company.
Patents and Proprietary Technology
- ----------------------------------
The Company does not believe that patents are material to its business. The
Company relies primarily upon trade secrets, unpatented proprietary know-how,
and continuing technological innovation to develop and maintain its competitive
position. In particular, the Company generally provides only "run time" code for
its software to its tire and legal clients, although time recording/labor
management systems and certain legal clients may also purchase "source" code. In
addition, most catalogue dire ct marketing clients purchase source code
licenses. Insofar as the Company relies on trade secrets and unpatented
know-how, there can be no assurance that others may not independently develop
similar technology or that secrecy will not be breached. Certain product names
of the Company are recognized as trademarks in interstate commerce and are or
may be registered trademarks.
Seasonality
- -----------
The Company has not experienced material seasonality in its business, other
than that due to the economic fluctuation of the economies of the United States,
Canada, and Italy.
Working Capital Items
- ---------------------
The Company does not have any unusual trade practices which would require
restrictions on working capital.
Customers
- ---------
During fiscal year-ended December 31, 1998, the Company's revenue by
product line was approximately as follows:
Product Line Revenue($) %
- ------------ ----------- ---
SmartTime Software $ 6,870,000 19%
Tire Systems 8,735,000 25
Legal Systems 5,150,000 15
CommercialWare 10,776,000 30
ASA Italy 3,513,000 10
ASA Consulting 424,000 1
----------- ----
$35,468,000 100%
=========== ====
Backlog
- -------
Set forth below is information concerning the Company's backlog at December
31, 1998 and 1997, respectively:
Backlog at December 31,
-----------------------
1998 1997
---- ----
Support Support
Product Line Total Contracts Total Contracts
- ------------ ----- --------- ----- ---------
SmartTime Software $ 2,700,000 $1,100,000 $ 2,900,000 $1,100,000
Tire Systems 4,300,000 1,900,000 3,000,000 2,000,000
Legal Systems 2,900,000 1,600,000 2,400,000 1,500,000
ASA Italy 1,100,000 600,000 - -
CommercialWare - - 2,400,000 900,000
----------- ---------- ---------- ----------
$11,000,000 $5,200,000 $10,700,000 $5,500,000
=========== ========== =========== ==========
Support contracts are generally cancelable by the Company or the Company's
customers upon 90 days prior written notice.
Competition
- -----------
The Company's primary competitors in its target market for time and
attendance and labor reporting software are Kronos, JeTech, InTime Systems,
FasTech and ABI TruTrack. The Company believes the principal competitive factors
in this market are: management of complex pay rules; technological
sophistication and vision; scaleability; platform independence; and rapid
application deployment and development. The Company believes it competes
favorably with respect to all of these factors.
The Company's primary competitors for tire systems are Madden Co., Signal
Software and TireMaster. The Company believes the principal competitive factors
for tire systems are: complete point of sale functionality to assist sales
personnel to maximize gross margin on each sale; the ability to post data
automatically to the accounting system; the ability to track the manufacturing
process of tire retreaders; the ability to have electronic connectivity to
manufacturers; and the availability of marketing products which assist in
retaining and increasing existing customer business. The Company believes it
competes favorably with respect to all of these factors.
The legal systems market is highly competitive. The Company's primary
competitors for legal systems are CMS/DATA Corp., Elite Data Processing,
Barrister, Prolaw, and Omega. The Company believes that the principal
competitive factors in the legal systems business are: vendor reputation and
references; the ability to provide 32 bit client/server products with a GUI
front end and MS SQL Server back end; Year 2000 compliance; the ability to
easily interface with other Windows-based applications; the ability to run both
the "front office" and the "back office" applications on a single network;
product reliability; and the quality of professional services and support. The
Company believes it competes favorably with respect to all of these factors.
The mid-range ERP market in Italy is highly competitive with the principal
competition coming from highly competent and efficient local providers. The
principal competitive factors are market visibility, reputation and references,
solid technology, Year 2000 and EURO compliance, product functionality, and
quality of professional services. The Company believes it competes favorable
with respect to each of these factors.
Prior to its sale on March 3, 1999, CWI engaged in the direct marketing
systems market which is highly competitive. CWI's major competitors are
Smith-Gardner, Sigma Micro, and Computer Solutions. The direct marketing product
competed on price/performance, ease of use, and sophistication of software. CWI
believed it competed favorably with respect to all these factors. The next
generation product, Mozart, unveiled in 1994, was CASE-developed and competed
favorably with the products of competitors.
Research and Development
- ------------------------
During the last three fiscal years, the amounts spent by the Company on
Company-sponsored research and development activities and on customer-sponsored
research activities relating to the development of new products, services, or
techniques or the improvement of existing products, services, or techniques were
not material.
Government Regulation
- ---------------------
There is presently no material government regulation with respect to the
Company's business. Approvals for computer hardware from Underwriter's
Laboratories and the Federal Communications Commission are obtained by the
hardware manufacturer. However, the extent to which future federal, state, or
local governmental regulations may regulate the Company's activities cannot be
predicted, and the Company may be subject to restrictions on export of its
computer systems to other countries if it seeks further expansion into non-U.S.
markets.
Employees
- ---------
As of December 31, 1998, the Company had 213 full time employees. Of these
employees, 10 are executive officers or senior managers, 33 are engaged in
marketing and sales, 82 in customer support and training, 63 in product/custom
development or engineering and 25 in general and administrative positions. The
Company's ability to develop, market and sell products and to establish and
maintain its competitive position in light of new technological developments
will depend, in large part, on its ability to attract and retain qualified
personnel. The Company believes that it has been successful to date in
attracting skilled personnel critical to its business. No employees are covered
by collective bargaining agreements. Management of the Company believes that its
relationship with its employees is satisfactory.
ITEM 2. Description of Properties
-------------------------
The Company's Corporate Headquarters are located in a 32,000 square foot
office building at 10 Speen Street, Framingham, Massachusetts. This property is
owned by 10 Speen Street LLC, a Delaware limited liability company. ASA
Properties, Inc., a wholly owned subsidiary of the Company is the managing and
sole member of the LLC. The SmartTime Software business is also located at this
facility. The Company occupies approximately 44% of the space in the building,
while tenants lease the remainder of the space. In September 1998, the Company
refinanced this facility with a $3,000,000 mortgage loan at 7.24% for 10 years
with 30 year amortization. The carrying costs for the building, which was
acquired in October 1991, include monthly principal and interest payments of
$20,445 along with operating costs and taxes.
The Company's Tire Systems operations are located in approximately 7,000
square feet of a 24,000 square foot office building at 615 Amherst Street,
Nashua, New Hampshire, purchased in December 1992. Approximately 12,000 square
feet of the facility is leased to TradePoint Systems, LLC under a long-term
lease. The carrying costs for the facility include approximately $10,000 per
month for principal and interest on twenty-year mortgage notes plus operating
costs and taxes.
The Company maintains the following additional offices:
Current Date of Lease
Location Monthly Rent Office Area Expiration
- -------- ------------ ----------- ----------------
Blue Bell, Pennsylvania $12,487 9,667 s.f. January 31, 2006
Kirkland, Washington $ 5,728 3,720 s.f. October 31, 2001
Udine, Italy $ 1,765 3,068 s.f. December 31, 2000
Venice, Italy $ 4,891 5,801 s.f. February 28, 2001
ITEM 3. Legal Proceedings
-----------------
There are no material pending legal proceedings to which the Company or any
of its subsidiaries is a party or of which any of their property is subject.
ITEM 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
(a) No matter was submitted to a vote of security-holders during the fourth
quarter of the fiscal-year ended December 31, 1998, through the solicitation of
proxies or otherwise.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
PART II
ITEM 5. Market Price of and Dividends on the Company's Common
Equity and Related Stockholder Matters
-------------------------------------------------------
The Common Stock of ASA International Ltd. is traded on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) under the
symbol ASAA. The table below indicates the high and low sales prices of the
Company's Common Stock during 1997 and 1998:
Calendar Year 1997 Low High
------------------ ------- --------
First Quarter $0.880 $1.625
Second Quarter $1.031 $1.313
Third Quarter $1.000 $3.375
Fourth Quarter $1.875 $2.813
Calendar Year 1998 Low High
------------------ ------- --------
First Quarter $1.750 $2.313
Second Quarter $1.750 $2.250
Third Quarter $1.719 $2.125
Fourth Quarter $2.000 $2.563
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions. There were 1,277 holders of record of the Company's outstanding
Common Stock as of March 24, 1999.
Under the terms of a share repurchase program authorized by the Company's
Board of Directors in June 1990 and August 1998, the Company is authorized to
repurchase up to $1,000,000 of its Common Stock. The Company repurchased shares
as follows for the months indicated:
1991 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
December 25,000 $1.06
1992 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
March 5,000 $1.15
May 10,000 $1.53
July 3,000 $1.81
August 6,700 $1.81
8,100 $2.00
September 45,000 $1.94
15,000 $2.00
5,000 $1.99
October 5,000 $1.88
1993 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
March 5,000 $1.54
August 10,000 $2.93
September 1,800 $3.02
1997 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
December 23,000 $2.29
1998 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
May 15,000 $2.15
June 20,000 2.05
July 15,000 2.03
August 80,000 1.99
September 55,000 1.97
October 25,000 2.13
---------- ------- -----
1998 Total 210,000 $2.02
Although it is not obligated to do so, the Company may continue to
repurchase shares of Common Stock when market conditions for the purchase of its
stock meet its requirements.
Since its organization, the Company has not paid any dividends on its
Common Stock and its Board of Directors does not contemplate declaring any
dividends in the foreseeable future. The declaration and payment of dividends in
the future will be determined by the Board of Directors in light of conditions
then existing, including the Company's earnings, its financial condition and
requirements (including working capital needs), any agreements restricting the
payment of dividends and other factors. The Company's current banking
arrangements prohibit the payment of dividends by the Company.
ITEM 6. Selected Consolidated Financial Data
----------------------------------------
(in thousands, except per share amounts)
The following selected consolidated financial data are derived from the
consolidated financial statements of the Company. The statement of operations
data for the years ended December 31, 1998, 1997, and 1996, and the balance
sheet data as of December 31, 1998 and 1997, are derived from and qualified by
reference to the consolidated financial statements and notes thereto included
herein and audited by BDO Seidman, LLP, the Company's independent certified
public accountants, as set forth in their report and also included elsewhere
herein.
The financial information set forth below should be read in conjunction
with, and is qualified in its entirety by, the detailed information in the
consolidated financial statements and notes thereto appearing elsewhere herein.
Years Ended December 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Operating Data:
- ---------------
Revenues $35,468 $25,507 $25,471 $31,032 $27,111
Costs and Expenses,
excluding income tax
expense 34,398 24,534 26,362 29,983 26,545
Earnings (Loss)
from Operations 1,532 1,485 (144) 1,502 920
Net Earnings (Loss) 417 388 (649) 457 166
Basic Earnings (Loss) per
Common Share $.12 $.12 $(.17) $.12 $.04
Diluted Earnings (Loss) per
Common Share $.11 $.11 $(.17) $.11 $.04
December 31,
------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance Sheet Data:
- -------------------
Total Assets $19,732 $17,826 $16,630 $19,515 $20,131
Long-Term Obligations 4,068 2,696 3,012 2,707 3,112
Long-Term Liabilities - other 305 - - - -
Shareholders' Equity 8,809 8,398 8,012 10,110 9,652
ITEM 7. 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, potential acquisitions, and Year 2000 implications.
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
- ---------------------
Comparison of 1998 to 1997
- --------------------------
(000's omitted)
---------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1998 1997 Amount Percentage
---- ---- -------- ----------
Product licenses $ 8,490 $ 6,178 $ 2,312 37%
Services 18,218 14,005 4,213 30%
Computer and add-on hardware 8,760 5,324 3,436 65%
------- ------- -------
Net Revenue $35,468 $25,507 $ 9,961 39%
======= ======= =======
REVENUE
In March 1999, the Company completed the disposition of its CommercialWare
Division (direct marketing systems product line). In the three years ended
December 31, 1998, 1997, and 1996, this group's revenues totaled approximately
$10,776,000, $7,603,000 and $6,530,000, or 30%, 30% and 26% of total Company
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 until the sale of its CommercialWare division in March
1999, and for the tire dealer, 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 licensing of the Company's software products, from client service and
support, and from the sale of third party computer and add-on hardware. The
Company's total revenues increased by approximately $9,961,000, or 39%, for the
year ended December 31, 1998, compared to the year ended December 31, 1997, with
the ERP systems product line acquired in January 1998 accounting for $3,513,000
or 14% of the increase in revenue.
Product licenses. The Company's software license revenues are derived
primarily from the licensing of the Company's enterprise and point-solution
products. Product license revenues increased by approximately $2,312,000, or
37%, for the year ended December 31, 1998, compared to the same period in 1997,
with the newly acquired ERP systems product accounting for $629,000 or 10% of
the increase in product license revenue. 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.
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 $4,213,000, or 30%, for the year ended December 31, 1998, compared
to the same period in 1997, with the newly acquired ERP systems product
accounting for $2,721,000, or 19%, of the increase in services revenue.
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 $3,436,000, or 65%, for the year ended December 31, 1998, compared
to the same period in 1997, with the newly acquired ERP systems product
accounting for $163,000, or 3%, of the increase in computer add-on hardware
revenue. 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
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 $1,325,000
for the year ended December 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.
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 $3,732,000
for the year ended December 31, 1998, compared to the same period in 1997. The
gross margin percentage for services for the year ended 1998 decreased to
approximately 36%, from 43% of revenue from services in the same period in 1997.
The Company's revenue and margin from services fluctuate from period to period
due to changes in the mix of contracts and projects.
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 $2,635,000, or 53%, for year ended December 31, 1998,
compared to the same period in 1997. The increase in dollar amount for the cost
of hardware revenues for the year ended December 31, 1998 was due primarily to
increased unit sales of hardware products accompanying increased product license
sales.
The gross margin percentage for hardware sales increased to 13% for the
year ended December 31, 1998, from 6%, 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 and uncertainty 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
$1,090,000, or 24%, for the year ended December 31, 1998, compared to the same
period 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 $1,027,000, or 35%, for the year ended December 31, 1998, compared
to the same period in 1997. The change primarily reflects additional expenses
related to the ERP, Tire Systems, and Direct Marketing product lines.
Net earnings for 1998 were approximately $417,000, as compared to net
earnings of approximately $388,000 in 1997. The change resulted from an increase
in earnings from operations of approximately $47,000, and a decrease in other
expense of approximately $184,000, partially offset by an increase in net
interest expense of approximately $134,000, and an increase in income tax
expense of approximately $68,000. Interest expense for the current year includes
a one-time charge of approximately $248,000 related to the early payoff of a
mortgage on Company-owned real estate, which was refinanced.
Comparison of 1997 to 1996
- --------------------------
(000's omitted)
---------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1997 1996 Amount Percentage
---- ---- -------- ----------
Product licenses $ 6,178 $ 4,831 $ 1,347 28%
Services 14,005 15,832 (1,827) (12%)
Computer and add-on hardware 5,324 4,808 516 11%
------- ------- -------
Net Revenue $25,507 $25,471 $ 36 0%
======= ======= =======
REVENUE
In December 1996, the Company completed the disposition of its
International Trade and Transportation Systems Group. In the two years ended
December 31, 1996 and 1995, this group's revenues totaled approximately
$6,718,000 and $6,968,000, or 26% and 22% of total Company revenue,
respectively.
Net revenue. The Company designs and develops proprietary enterprise and
point-solution software for the electronic time and labor management market, for
catalog direct marketers, and for the tire dealers and legal 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
service and support. The Company's net revenues remained approximately the same
for the year ended December 31, 1997, compared to the year ended December 31,
1996. Revenue from existing businesses increased by approximately $6,754,000, or
36%, for the period, when approximately $6,718,000 in revenue from the Company's
international trade product line, which was sold in December 1996, is excluded
from the results for 1996.
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 $1,347,000, or
28%, for the year ended December 31, 1997, compared to the same period in 1996.
Product license revenue from existing businesses increased by approximately
$2,566,000, or 71%, for the period, when compared to 1996, and the product
license revenue from the international trade product line of approximately
$1,219,000 for 1996 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.
Services. Services are comprised of fees generated from training,
consulting, custom development, and ongoing client support provided under
self-renewing maintenance agreements. Service revenues decreased by
approximately $1,827,000, or 12%, for the year ended December 31, 1997, compared
to the year ended December 31, 1996. Service revenue from existing businesses
increased by approximately $1,766,000, or 14%, for the period, when compared to
1996, and the service revenue from the international trade product line of
approximately $3,593,000 for 1996 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 customer base.
Computer and add-on hardware. Hardware revenues are derived from the resale
of third-party hardware products to the Company's customers in conjunction with
the licensing of the Company's software. Hardware revenues increased by
approximately $516,000, or 11%, for the year ended December 31, 1997, compared
to the same period in 1996. Hardware revenue from existing businesses increased
by approximately $2,423,000, or 84% for the period, when approximately
$1,907,000 in hardware revenue from the Company's international trade product
line is excluded from the results for 1996. The increase of hardware revenues
from existing businesses was due primarily to the increase of hardware unit
sales accompanying increased product license sales.
COST OF REVENUE
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 costs 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 related overhead costs. Cost of software
license revenues and development decreased by approximately $117,000 for the
year ended December 31, 1997, compared to the same period in 1996. The change
primarily reflects the elimination of the expenses of the international trade
product line. 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.
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 decreased by approximately $2,083,000
for the year ended December 31, 1997, compared to the same period in 1996. The
decrease primarily reflects the elimination of the cost of service related to
the international trade product line which was sold in December 1996. The gross
margin percentage for services for 1997 increased to approximately 43%, from
36%, of revenue from services in 1996. The Company's revenue and margin from
services fluctuate from period to period due to changes in the mix of contracts
and projects.
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 $918,000, or 23%, for the year ended December 31,
1997, compared to the prior year. The cost of hardware revenue from existing
businesses increased by approximately $2,479,000, or 99%, when approximately
$1,561,000 in cost of hardware from the Company's international trade product
line is excluded from the results for 1996. The increase in dollar amount for
the cost of hardware revenues for the year ended December 31, 1997 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 discussed below.
The gross margin percentage for hardware sales decreased to 6%, for the
year ended December 31, 1997, from 15% in the same period in 1996. Margins on
computer and add-on hardware fluctuate based on the mix of computer and
ancillary hardware products sold and that computer hardware has become a
commodity. 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 consist primarily of
employee salaries, benefits, commissions and related overhead costs, and the
cost of marketing programs such as direct mailings, trade shows, seminars, and
advertising. Marketing and sales expenses increased by approximately $361,000,
or 9%, for the year ended December 31, 1997, compared to the same period in
1996. The change in marketing and sales expenses primarily reflects increases in
sales staffing and the higher sales commissions associated with increased
revenues, offset by the elimination of expenses related to the international
trade product line.
General and administrative. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive, and
finance personnel and related overhead costs, as well as consulting, accounting,
and legal expenses. General and administrative expenses decreased by
approximately $643,000, or 18%, for the year ended December 31, 1997, compared
to the same period in 1996. The change primarily reflects the elimination of the
expenses related to the international trade product line.
Net earnings for the year ended December 31, 1997 were approximately
$388,000, as compared to a net loss of approximately $649,000 for the year ended
December 31, 1996. The change resulted from an increase in earnings from
operations of approximately $1,630,000, decreases in net interest expense and
other expense of approximately $96,000 and $138,000, respectively, partially
offset by an increase in income tax expense of $827,000.
Liquidity and Capital Resources
- -------------------------------
The Company had total cash and cash equivalents at December 31, 1998 of
approximately $4,262,000, an increase of approximately $2,980,000 from December
31, 1997. The Company and its subsidiaries currently have a maximum line of
credit totaling $1,500,000, all of which was available at December 31, 1998.
This line is scheduled to expire in 1999. The Company expects to renew the line
under approximately the same terms of which no assurance can be given.
In September of 1998, the Company refinanced its Corporate Headquarters
building in Framingham, Massachusetts. The mortgage loan, totaling $3,000,000
with interest at 7.24% for 10 years with 30 year amortization, provides for
monthly principal and interest payments of $20,445 through October 2008 with a
final principal payment of approximately $2,638,000 plus interest. The financing
required the payoff of the principal on a previous mortgage of $1,169,206 along
with a prepayment fee on the previous mortgage of approximately $248,000. The
proceeds of the loan were used to pay-off the Company's term loan with the
remainder retained for general corporate purposes.
In November 1998, the Company entered into a joint venture agreement with a
third party whereby the Company will sell and support software products in the
United States and Canada. The Company has agreed to provide $500,000 in funding
for this venture. No activity occurred under the Joint Venture Agreement during
1998.
Effective March 3, 1999, the Company sold substantially all of the assets
of the Registrant's CommercialWare Division ("CWI") to CommercialWare, Inc., a
Delaware Corporation (the Purchaser). In addition and pursuant to the Purchase
Agreement, the Company transferred to the Purchaser certain of the liabilities
of CWI. The Company received (i) cash in the amount of $4,000,000, (ii) a
promissory note in the amount of $1,700,000, (iii) a junior promissory note in
the amount of $500,000, (iv) 30,000 shares of the Purchaser's common stock, par
value $.01 per share, and (v) one (1) share of Purchaser's Series A Preferred
Stock.
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,
although the Company has no specific plans with regard to acquisitions and has
no commitments as of the date of this report.
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 prospect
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 order fails 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 technology, 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. The Company intends, as it has in
the past, to fund this development primarily from cash from operations and bank
debt.
Subject to the foregoing, the Company believes that based on the level of
operating revenue, cash on hand, and available bank debt, it has sufficient
capital to finance its ongoing business.
Inflation
- ---------
General inflation over the last three years has not had a material effect
on the Company's cost of doing business.
New Accounting Standards Not Yet Adopted
- ----------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative and Hedging Activities" ("SFAS 133"). SFAS 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet, or to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk, or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to affect its financial statements.
Other Information; Year 2000 Issue Disclosure
- ----------------------------------------------
The Company has continued to evaluate the potential impact of the Year 2000
Issue, which concerns the inability of computer hardware and software programs
to properly recognize and process date-sensitive information relating to the
21st century. Certain of the Company's internal use software and existing
products are currently Year 2000 compliant, while others have required
modification so that the software will function properly with respect to dates
in the Year 2000 and thereafter. In addition, the Company has been, and is
currently, providing customers upgrade alternatives to Year 2000 compliant
versions of the Company's products. The total cost of compliance measures is not
estimated to be material and is being funded through operating cash flows and
expensed as incurred. The Company presently believes that due to its use of
currently Year 2000 compliant systems, along with the modification of
non-compliant software and products, the Year 2000 issue will not pose
significant operational problems for the Company or its customers. Although the
Company believes its systems and software are, or will be, Year 2000 compliant
in all material respects, there can be no assurance that the Company's current
systems and products do not contain undetected errors or defects with Year 2000
date functions that may result in material costs to the Company.
The Company has also contacted certain of its significant vendors to
determine the extent to which the Company's products are vulnerable to those
third parties' failure to correct their own Year 2000 issues. Generally,
computer systems and software provided by third parties and included in the
Company's systems are developed by leading suppliers with Year 2000 programs in
process. There can be no guarantee that the systems and software of other
companies, on which the Company's systems rely, will be timely or properly
converted. Failure of these third party products to operate properly with regard
to the Year 2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
the Company's business, results of operations, and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Risk. The Company is exposed to the impact of interest rate changes and
foreign currency fluctuations.
Interest Rate Risk. The Company's exposure to market rate risk for changes
in interest rates relates primarily to the Company's cash equivalent
investments. The Company has not used derivative financial instruments. The
Company invests its excess cash in short-term floating rate instruments which
carry a degree of interest rate risk. These instruments may produce less income
than expected if interest rates fall.
Foreign Currency Risk. International revenues from the Company's foreign
subsidiary and other foreign sources were approximately 12% of all revenues.
International sales are made primarily from the Company's foreign subsidiary in
Italy and are denominated in the local currency. Accordingly, the foreign
subsidiary uses the local currency as its local currency. The Company's
international business is subject to risk typical of an international business,
including, but not limited to, differing economic conditions, changes in
political climate, differing tax structures, other regulations and restrictions,
and foreign exchange rate volatility. Accordingly, the Company's future results
could be materially adversely impacted by changes in these or other factors. The
Company is exposed to foreign currency exchange rate fluctuations as the
financial results of its foreign subsidiary are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall profitability. The effect of
foreign exchange rate fluctuations on the Company in 1998 was not material.
ITEM 8. Financial Statements and Supplementary Data
-------------------------------------------
The financial statements and supplementary data are listed under Part IV,
Item 14, in this Report.
ITEM 9. Disagreements with Accountants on Accounting and
Financial Disclosure
------------------------------------------------
Not applicable.
PART III
Items 10-13 are incorporated herein by reference from the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports On
Form 8-K
------------------------------------------------------
(a)1. Financial Statements.
---------------------
The Consolidated Financial Statements required to be filed herein are as
follows:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules.
-----------------------------
None
(a)3. Exhibits.
---------
The following exhibits are filed with this report:
10 Lease for 475 Sentry Parkway, Blue Bell, Pennsylvania, dated August 26,
1998.
21 Subsidiaries of Registrant.
23 Consent of BDO Seidman, LLP, independent certified public accountants.
27 Financial Data Schedule.
A) The following exhibits were filed with the Registrants: Form 10-Q on
November 16, 1998 and are incorporated herein by reference:
10-1 Commercial Lease dated September 15, 1998, between 10 Speen Street, LLC
as Lessor, and ASA International Ltd., as Lessee, for the property
located at 10 Speen Street, Framingham, MA.
10-2 Indemnification Agreement made September 21, 1998, by 10 Speen Street,
LLC and ASA International Ltd., as Indemnitors, for the benefit of John
Hancock Real Estate Finance, Inc., as Mortgagee.
10-3 Guarantee Agreement effective September 21, 1998 by ASA International
Ltd., as Guarantor, in favor of John Hancock Real Estate Finance, Inc.
B) The following exhibits were filed with the Registrant's Form 8-K on November
4, 1998 and are incorporated herein by reference:
10-1 Rights Agreement, dated as of October 21, 1998 between the Registrant and
American Securities Transfer & Trust, Inc., as Rights Agent, which
includes as Exhibit B thereto the Form of Rights Certificate.
10-2 Letter to the holders of the Registrant's Common Stock, dated November 4,
1998 (including summary of Rights).
10-3 Press release, dated October 22, 1998.
C) The following exhibit was filed with the Registrant's Form 10-Q filed on
August 13, 1998 and is incorporated herein by reference:
10-1 Promissory Note (Revolver) between ASA International Ltd. and CoreStates
Bank, N.A., dated June 30, 1998.
D) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 31, 1997:
10-1 Amendment Letter dated December 10, 1996 to the Loan Agreement between
ASA International Ltd., ASA Incorporated and ASA Legal Systems Company,
Inc., and CoreStates Bank, N.A., dated November 3, 1994.
10-2 Promissory Note (Term) between ASA International Ltd. and CoreStates
Bank, N.A., dated December 10, 1996.
10-4 Security Agreement between ASA International Ventures, Inc. and
CoreStates Bank, N.A., dated December 10, 1996.
10-5 Guarantee between ASA International Ltd. and CoreStates Bank, N.A., dated
December 10, 1996.
E) The following exhibits and Financial Statements were filed with the
Registrant's Form 8-K on January 15, 1997 and are incorporated herein by
reference:
2(b) Pro forma financial information for the Registrant.
The following unaudited pro forma condensed consolidated financial
statements are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet at
September 30, 1996 F-1 to F-2
Pro Forma Condensed Consolidated Statements of Operations.
Year Ended December 31, 1995 F-3
Nine Months Ended September 30, 1996 F-4
The Pro Forma Condensed Consolidated Balance Sheet of the Registrant as
of September 30, 1996 reflects the financial position of the Registrant
after giving effect to the disposition of the assets and assumption of
the liabilities discussed in Item 2 and assumes the disposition took
place on September 30, 1996. The Pro Forma Condensed Consolidated
Statements of Operations for the fiscal year ended December 31, 1995 and
the nine months ended September 30, 1996 assume that the disposition
occurred on January 31, 1995, and are based on the operations of the
Registrant for the year ended December 31, 1995, and the nine months
ended September 30, 1996, respectively.
The unaudited pro forma condensed consolidated financial statements have
been prepared by the Registrant based upon assumptions deemed proper by
it. The unaudited pro forma condensed consolidated financial statements
are not necessarily indicative of the future financial position or
results of operations or actual results that would have occurred had the
transactions been in effect as of the dates presented.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the Registrant's historical financial
statements and related notes.
2(c) Reorganization Agreement by and between the Registrant, TradePoint
Systems LLC and Christopher J. Crane.
F) The following exhibits were filed with the Registrant's Form 8-K on November
27, 1996 and are incorporated herein by reference:
2(a) First Amendment to the Asset Purchase Agreement (the "Purchase
Agreement") by and between the Company and Progressive Computer Systems,
Inc. dated October 18, 1996.
2(b) Second Amendment to the Purchase Agreement dated November 15, 1996.
G) The following exhibits were filed with the Registrant's Form 8-K on
September 20, 1996 and are incorporated herein by reference:
2 Agreement by and between the Registrant and Progressive Computer Systems,
Inc. dated as of August 30, 1996.
H) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 28, 1996:
2-1 The Commonwealth of Massachusetts Articles of Merger Merging ASA
Incorporated and ASA Legal Systems Company, Inc. into ASA International
Ltd., dated December 28, 1995.
2-2 Certificate of Ownership and Merger Merging ASA Incorporated and ASA
Legal Systems Company, Inc. into ASA International Ltd., dated December
28, 1995.
3a Certificate of Incorporation of ASA International Ventures, Inc., dated
December 28, 1995.
3b Bylaws of ASA International Ventures, Inc.
10-3 Consent to Assignment of Lease for 960 Harvest Drive, Blue Bell,
Pennsylvania.
10-4 Agreement for Purchase and Sale of Assets between ASA International
Ventures, Inc. and ASA Incorporated, dated December 29, 1995.
10-5 Agreement for Purchase and Exchange of Assets between ASA International
Ventures, Inc. and ASA International Ltd., dated December 29, 1995.
10-6 Agreement for Exchange of Intangibles between ASA International Ventures,
Inc. and ASA International Ltd., dated December 29, 1995.
I) The following document is incorporated by reference to the Registrant's Form
8-K filed on August 31, 1995:
16 The Registrant announced that it had retained BDO Seidman, LLP, as its
new independent accountants, replacing its prior independent accountants,
Deloitte & Touche LLP.
J) The following documents are incorporated by reference to the registrant's
Report on Form 10-K filed on March 30, 1995:
10-1 Loan Agreement between ASA International Ltd., ASA Incorporated and ASA
Legal Systems Company, Inc., and CoreStates Bank, N.A., dated November 3,
1994.
10-4 Security Agreement between ASA International Ltd. and CoreStates Bank,
N.A., dated November 3, 1994.
K) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 30, 1994:
10-5 Promissory Note between ASA Properties, Inc., and Granite State
Development Corporation, dated December 23, 1992.
10-6 Servicing Agent Agreement between ASA Properties, Inc., and Colson
Services Corporation, dated May 12, 1993.
10-15 Amendment to Merger Agreement by and among the Company, ASA Incorporated,
CommercialWare, Donald Askin, and Jonathan Ellman, dated September 15,
1993.
L) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 30, 1993:
10-4 Mortgage and Security Agreement between ASA Properties, Inc. and Sun Life
Assurance Company of Canada.
10-5 Promissory Note of ASA Properties, Inc. in favor of Sun Life Assurance
Company of Canada.
M) The following document is incorporated by reference to the Registrant's Form
8-K filed on September 29, 1993:
10-1 Agreement and Plan of Merger by and among the Company, ASA Incorporated,
CommercialWare, Donald Askin, and Jonathan Ellman, dated as of August 31,
1993.
N) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 31, 1988:
3b Bylaws, as amended.
O) The following documents are incorporated by reference to the Company's
Registration Statement on Form S-18 (File number 33-5832-B):
4c Specimen Convertible Note.
P) The following documents are incorporated by reference to the Company's
Registration Statement on Form S-1 (File number 33-15381):
3a Certificate of Incorporation, as amended.
(b) Reports on Form 8-K.
--------------------
On November 4, 1998, the Company filed a report on Form 8-K in which the
Company announced the approval of a Shareholder Rights Plan by its Board of
Directors.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASA INTERNATIONAL LTD.
By /s/ Alfred C. Angelone
-----------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, report
has been signed below by the following persons on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Alfred C. Angelone Director, Chief March 30, 1999
- -------------------------- Executive Officer,
Alfred C. Angelone and President
(principal executive
officer and principal
accounting officer)
/s/ James P. O'Halloran Director March 30, 1999
- --------------------------
James P. O'Halloran
/s/ Gordon J. Rollert Director March 30, 1999
- --------------------------
Gordon J. Rollert
/s/ Alan J. Klitzner Director March 30, 1999
- --------------------------
Alan J. Klitzner
/s/ William A. Kulok Director March 30, 1999
- --------------------------
William A. Kulok
/s/ Robert L. Voelk Director March 30, 1999
- --------------------------
Robert L. Voelk
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ASA INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheets of ASA
International Ltd. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ASA International
Ltd. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
As discussed in the Summary of Significant Accounting Policies, the Company
changed its method of recognizing revenue in 1998 with the adoption of Statement
of Position 97-2, "Software Revenue Recognition."
/s/ BDO Seidman, LLP
Boston, Massachusetts
March 6, 1999
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------
1998 1997
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,262,438 $ 1,282,817
Receivables -- net 5,187,076 5,926,610
Computer hardware held for resale 202,487 237,642
Other current assets 502,126 651,843
Net assets of CommercialWare division 1,312,962 -
----------- -----------
TOTAL CURRENT ASSETS 11,467,089 8,098,912
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings 4,018,949 3,863,351
Computer equipment 3,278,879 2,883,864
Office furniture and equipment 934,032 856,224
Leasehold improvements 36,574 36,574
Vehicles 463,402 258,814
----------- -----------
8,731,836 7,898,827
Accumulated depreciation
and amortization 3,889,322 3,617,402
----------- -----------
NET PROPERTY AND EQUIPMENT 4,842,514 4,281,425
----------- -----------
SOFTWARE
(less cumulative amortization
of $6,480,122 and $6,634,296) 1,908,723 3,496,798
COST EXCEEDING NET ASSETS ACQUIRED
(less cumulative amortization
of $1,369,222 and $1,634,320) 60,278 695,755
OTHER ASSETS 1,453,751 1,252,812
----------- -----------
$19,732,355 $17,825,702
=========== ===========
See notes to consolidated financial statements.
December 31,
------------
1998 1997
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,174,792 $2,263,573
Accrued expenses 2,735,837 1,575,813
Accrued commissions 539,628 538,558
Customer deposits 789,705 497,190
Deferred revenue 726,117 820,563
Current maturities of
long-term obligations 152,571 420,423
---------- -----------
TOTAL CURRENT LIABILITIES 6,118,650 6,116,120
---------- -----------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES 4,067,797 2,696,020
---------- -----------
LONG-TERM LIABILITIES - Other 304,769 -
---------- -----------
DEFERRED INCOME TAXES 432,000 616,000
---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value
$.01 per share: Authorized
and unissued, 1,000,000 shares,
60,000 shares of which are designated
as Series A Junior Participating
Preferred Stock - -
Common stock, par value
$.01 per share: Authorized, 6,000,000
shares; issued 4,376,858 and 4,096,502
shares; outstanding, 3,348,462 and
3,278,106 shares 43,768 40,965
Additional paid-in capital 7,793,774 7,394,281
Retained earnings 2,964,622 2,548,013
Accumulated other comprehensive income 17,026 -
----------- -----------
10,819,190 9,983,259
Less treasury stock, at cost 2,010,051 1,585,697
----------- -----------
8,809,139 8,397,562
----------- -----------
$19,732,355 $17,825,702
=========== ===========
See notes to consolidated financial statements.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--Years Ended December 31,--
1998 1997 1996
---- ---- ----
REVENUES
Product licenses $ 8,490,301 $ 6,177,507 $ 4,830,947
Services 18,217,434 14,005,494 15,831,948
Computer and add-on hardware 8,760,421 5,323,734 4,808,082
------------ ------------ ------------
NET REVENUE 35,468,156 25,506,735 25,470,977
------------ ------------ ------------
COST OF REVENUE
Product licenses and development 4,650,739 3,326,174 3,442,981
Services 11,742,580 8,010,547 10,093,562
Computer and add-on hardware 7,626,820 4,992,025 4,073,528
------------ ------------ ------------
TOTAL COST OF REVENUE 24,020,139 16,328,746 17,610,071
------------ ------------ ------------
EXPENSES
Marketing and sales 5,577,389 4,487,320 4,126,394
General and administrative 4,002,374 2,974,900 3,617,931
Amortization of goodwill 336,183 230,360 260,833
------------ ------------ ------------
TOTAL EXPENSES 9,915,946 7,692,580 8,005,158
------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 1,532,071 1,485,409 (144,252)
INTEREST EXPENSE (603,299) (419,039) (424,738)
INTEREST INCOME 140,837 90,780 -
OTHER EXPENSE - (184,000) (322,333)
------------ ------------ ------------
EARNINGS (LOSS) BEFORE
INCOME TAXES (CREDIT) 1,069,609 973,150 (891,323)
INCOME TAXES (CREDIT) 653,000 585,000 (242,000)
------------ ------------ ------------
NET EARNINGS (LOSS) $ 416,609 $ 388,150 $ (649,323)
============ ============ ============
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $.12 $.12 $(.17)
============ ============ ============
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
NET EARNINGS (LOSS) $.11 $.11 $(.17)
============ ============ ============
See notes to consolidated financial statements.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
--Years Ended December 31,--
1998 1997 1996
---- ---- ----
NET INCOME (LOSS) $ 416,609 $ 388,150 $ (649,323)
OTHER COMPREHENSIVE INCOME
NET OF INCOME TAX:
Foreign currency translation 17,026 - -
----------- ----------- ------------
COMPREHENSIVE INCOME (LOSS) $ 433,635 $ 388,150 $ (649,323)
============ ============ ============
See notes to consolidated financial statements.
<PAGE>
ASA INTERNATIONAL LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accum.
Other
Common Stock Additional Compre- Treasury Stock
-------------- Paid-in Retained hensive ---------------
Shares Amount Capital Earnings Income Shares Amount Total
------ ------- ---------- -------- ----- ------ ------ -----
BALANCES,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/96 3,917,316 $39,173 $7,681,675 $2,809,186 $- 129,799 $ (420,442)$10,109,592
Exercise of
stock
options 66,921 669 61,589 - - - - 62,258
Reacquisition
of stock on
sale of
TradePoint - - - - - 665,597 (1,112,000) (1,112,000)
Surrender of
stock options
on sale of
TradePoint - - (398,700) - - - - (398,700)
Net loss - - - (649,323) - - - (649,323)
--------- ------- ----------- ---------- ------ ------- ------------ -----------
BALANCES,
12/31/96 3,984,237 39,842 7,344,564 2,159,863 - 795,396 (1,532,442) 8,011,827
Exercise of
stock
options 8,143 82 7,847 - - - - 7,929
Issuance of
contingent
shares 104,122 1,041 51,870 - - - - 52,911
Purchase of
Treasury
Stock - - - - - 23,000 (53,255) (53,255)
Repurchase of
stock
options - - (10,000) - - - - (10,000)
Net earnings - - - 388,150 - - - 388,150
--------- ------- ----------- ---------- ------ -------- ------------ -----------
BALANCES,
12/31/97 4,096,502 40,965 7,394,281 2,548,013 - 818,396 (1,585,697) 8,397,562
Exercise of
stock
options 210 2 205 - - - - 207
Issuance of
contingent
shares 80,146 801 26,288 - - - - 27,089
Purchase of
Treasury
Stock - - - - - 210,000 (424,354) (424,354)
Issuance of
share for
Cedes
acquisition 200,000 2,000 373,000 - - - - 375,000
Net earnings - - - 416,609 - - - 416,609
Foreign
currency
translation - - - - 17,026 - - 17,026
--------- ------- ---------- ---------- ------- --------- ----------- ----------
BALANCES,
12/31/98 4,376,858 $43,768 $7,793,774 $2,964,622 $17,026 1,028,396 $(2,010,051) $8,809,139
========= ======= ========== ========== ======= ========= ============ ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--Years Ended December 31,--
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 416,609 $ 388,150 $ (649,323)
------------ ----------- -------------
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,316,093 1,864,730 2,397,313
Deferred taxes (184,000) 236,000 (237,000)
Doubtful receivables provision 203,131 125,381 32,546
Loss on sale of TradePoint - - 322,333
Changes in assets and liabilities,
net of effects of acquisitions:
Receivables (2,383,472) (2,298,020) 604,265
Computer hardware held for resale (39,591) (149,892) 150,874
Other current assets 210,744 58,287 (55,759)
Accounts payable (1,274,586) 902,988 316,633
Accrued expenses 3,416,443 629,577 (496,868)
Customer deposits 450,277 119,640 (381,817)
Deferred revenue 473,952 7,192 498,942
------------ ----------- ------------
Total adjustments 3,188,991 1,495,883 3,151,462
------------ ----------- ------------
Net cash provided by operating
activities 3,605,600 1,884,033 2,502,139
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,040,547) (249,743) (302,729)
Additions to software (8,283) (39,967) (1,506,559)
Reductions (increases) in
sales-type leases (582) - 146,002
Cash received in acquisition,
net of cash paid 98,272 - -
Cash transferred upon
sale of TradePoint - - (718,197)
Other assets (350,893) 257,623 56,912
------------ ----------- ------------
Net cash used for investing
activities (1,302,033) (32,087) (2,324,571)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank and
other notes - (795,000) (230,000)
Reduction in long-term debt (2,084,463) (643,042) (414,613)
Increase in long-term debt 3,182,042 250,000 675,000
Increase in long-term liabilities (8,748) - -
Issuance of common stock 207 7,929 62,258
Purchase of Treasury Stock (424,354) (53,255) -
Repurchase of stock options - (10,000) -
------------ ----------- ------------
Net cash provided by (used for)
financing activities 664,684 (1,243,368) 92,645
------------ ----------- -----------
EFFECT OF EXCHANGE RATES ON
CASH & CASH EQUIVALENTS 11,370 - -
------------ ----------- ------------
cash and cash equivalents:
Net increase 2,979,621 608,578 270,213
Balance, beginning of year 1,282,817 674,239 404,026
------------ ----------- ------------
Balance, end of year $4,262,438 $1,282,817 $ 674,239
============ =========== ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1997, the Company acquired $102,634 of equipment through a capital lease
transaction.
During 1998 and 1997, the Company issued contingently issuable common stock in
the amount of $27,089 and $52,911.
During 1998, the Company acquired substantially all of the assets of Cedes
S.r.l. and SIPI-U S.r.l. (now known as ASA Italy). Assets acquired, liabilities
assumed, and consideration paid for this acquisition were as follows:
Fair value of assets acquired
excluding cash received
of $306,733 $ 1,356,742
Liabilities assumed (1,080,014)
Issuance of common stock (375,000)
------------
Net cash received $ (98,272)
============
See notes to consolidated financial statements.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997, 1996
A. Summary of Significant Accounting Policies:
Business description and principles of consolidation The Company develops,
markets, and provides services for its proprietary enterprise and point-solution
software products and distributes computer hardware to its software customers.
The consolidated financial statements include the accounts of ASA International
Ltd. and its wholly owned subsidiaries, ASA Properties, Inc., ASA International
Ventures, Inc., and ASA Italy S.r.l., after elimination of all material
inter-company balances and transactions.
Cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. On a cash basis,
interest income received approximates the amounts reported on the statements of
operations. The Company had approximately $2,473,000 and $642,000 invested in
money market funds at December 31, 1998 and 1997, respectively.
Concentration of credit risks
Concentration of credit risk with respect to accounts receivable is limited due
to the large number of customers comprising the Company's customer base.
Customers' financial condition is reviewed on an ongoing basis, and collateral
is not required. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not exceeded management's expectations.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Many of the Company's estimates and assumptions used in the financial statements
relate to the Company's products, which are subject to rapid technological
change. It is possible that changes may occur in the near term that would affect
management's estimates with respect to capitalized software.
Computer hardware held for resale
Inventory is stated at the lower of cost (first-in, first-out method) or market.
Property and equipment
Property and equipment are stated at cost. Depreciation for equipment and
vehicles is recorded on the straight-line method, based on the estimated useful
lives of the related assets (ranging from 3 to 7 years). Buildings are
depreciated over 40 years. Equipment under capital leases and leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful lives of the assets.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
approximately $653,000, $513,000, and $475,000 in the years ending December 31,
1998, 1997, and 1996, respectively.
Costs exceeding net assets acquired
Costs exceeding net assets of businesses acquired are amortized on a
straight-line basis over periods of 10 and 20 years. On an annual basis, the
Company reviews the carrying value of the costs exceeding net assets acquired
against projections of undiscounted cash flows and, if necessary, records
impairment.
Revenue recognition
The Company is engaged as a seller and licensor of software. Effective January
1, 1998, the Company adopted Statement of Position ("SOP") 97-2, Software
Revenue Recognition" for purposes of recognizing revenue on software
transactions. In accordance with SOP 97-2, revenue is recognized when all of the
following are met: pervasive evidence of an arrangement exists; delivery has
occurred; the vendor's fee is fixed and determinable; and collectibility is
probable. For multiple-element license arrangements, the license fee is
allocated to the various elements based on fair value. When a multiple-element
arrangement includes rights to a post-contract customer support, the portion of
the license fee allocated to such support is recognized ratably over the term of
the arrangement. For arrangements to deliver software that requires significant
modification or customization, revenue is recognized on the
percentage-of-completion method. The effect of adopting SOP 97-2 on the 1998
Statement of Operations was to decrease income before income taxes and net
income by approximately $446,000 and $174,000, respectively.
During 1998, SOP 98-9 was issued. The provisions of SOP 98-9 amend certain
provisions of SOP 98-4 and SOP 97-2. The adoption of these standards had no
material effect on the Company's financial position or results of operations.
Prior to adoption of SOP 97-2, the Company followed SOP 91-1 for purposes of
recognizing revenue for software transactions. In accordance with SOP 91-1,
product license revenue was recognized upon shipment to the client provided that
no significant vendor obligation remained in connection with software being
licensed and the collectibility of the sale was probable.
Computer hardware revenue is recognized upon shipment of product to the client.
Service revenues include post-contract client support, consulting, and training
support. Post-contract client support is generally provided under self-renewing
maintenance agreements. Revenue on these maintenance agreements is recognized
ratably over the contract term. Consulting and training services revenue is
recognized in the period the service is rendered.
Research and development
The Company expenses research and development costs as incurred. Costs incurred
other than capitalized costs for software were not material.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Software
The Company accounts for the costs of computer software developed in accordance
with Statement of Financial Accounting Standard No. 86. Accordingly, the costs
of purchased software, and of that software developed internally (once
technological feasibility is established) associated with coding new
applications or modules and enhancing and porting existing applications software
are capitalized. Amortization of these costs is based on the greater of the
charge resulting from the application of either the straight-line method over
five years or the proportion of current sales to estimated future revenues of
each product. Total amortization of software charged to operations was
approximately $1,446,000, $1,201,000, and $1,655,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
Income taxes
Deferred tax assets or liabilities are recognized for the estimated tax effects
of temporary differences between the tax and financial reporting basis of the
Company's assets and liabilities and for loss carryforwards based on enacted tax
laws and rates.
Comprehensive income
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes
rules for the reporting of comprehensive income and its components.
Comprehensive income consists of net income and foreign currency translation
adjustments and is presented in the consolidated statements of comprehensive
income. The adoption of SFAS No. 130 had no impact on total shareholders'
equity.
Net earnings (loss) per share
The Company follows SFAS No. 128 "Earnings per Share." Under SFAS 128, Basic
Earnings Per Share (EPS) excludes the effect of any dilutive options, warrants
or convertible securities and is computed by dividing the net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed by dividing the net income
(loss) available to common shareholders by the sum of the weighted average
number of common shares and common share equivalents computed using the average
market price for the period under the treasury stock method.
Foreign currency translation
The Company has determined that the local currency of its Italian Subsidiary is
the functional currency. In accordance with Statement of Financial Accounting
Standard No. 52, "Foreign Currency Translation," the assets and liabilities
denominated in foreign currency are translated into U.S. dollars at the current
rate of exchange existing at period-end and revenues and expenses are translated
at average monthly exchange rates. Related translation adjustments are reported
as a separate component of shareholders' equity, whereas, gains or losses
resulting from foreign currency transactions are included in results of
operations.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
New Accounting Standards Not Yet Adopted
- ----------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative and Hedging Activities" ("SFAS 133"). SFAS 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet, or to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk, or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. The Company does not expect
adoption of this new standard to affect its financial statements.
B. Business Acquisitions and Divestitures:
Acquisitions
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 in cash, assumption of certain liabilities, and issuance of 200,000
shares of the Company's Common Stock in exchange 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
estimate of these values.
The acquisition price of CommercialWare, Inc. (CWI) in December 1993,
contemplated a contingent future payment in Company stock or cash (an adjustment
to purchase price) based on the future performance of CWI and the market value
of the Company's stock. Certain former owners of CWI received in March 1997 and
1998 deficiency payments in Company stock amounting to 104,122 shares and 80,146
shares, respectively, based on the difference between the market price for the
measurement period, as defined, and $5 per share.
Divestitures
In December 1996, the Company disposed of substantially all of the assets and
liabilities of the Company's international trade product line (Product).
Product's revenues totaled approximately $6,718,000, or 26%, of total Company
revenue for the year ended December 31, 1996. In exchange for the assets of
Product and the assumption of its liabilities, the Company received a 16%
membership interest in TradePoint Systems, LLC (Trade), the acquiring
corporation, and a subordinated promissory note in the face amount of $600,000
from Trade. The note bears interest of 12%, is due on December 31, 2002, and is
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
being repaid in monthly installments of principal and interest of $11,730.
Included in other assets at December 31, 1998 and 1997 was the outstanding
balance on this note of $460,000 and $534,000, respectively. The remaining 84%
interest in Trade is owned by the former President and Director of the Company
(Buyer). In exchange for his interest in Trade, Buyer (i) contributed all of the
Company's common stock, $.01 par value per share (the "Common Stock") owned by
him, totaling 665,597 shares; (ii) assigned to the Company a 16% partnership
interest in the ASA Investment Partnership, a partnership by and among Buyer the
Company, and the Company's Chief Executive Officer and Chairman; and (iii)
canceled all of his options to purchase 245,000 shares of Common Stock. The
Company recorded a loss on the transaction of $322,333, based on the fair value
of the consideration received, less the book value of the net assets exchanged.
The consideration to be paid was determined by negotiations between the parties
and was independently evaluated on behalf of the Company by an investment
banking firm. The Company's investment in Trade, which is valued at $500,000, is
accounted for under the cost method and is included in other assets at December
31, 1998 and 1997.
In connection with the transaction, Trade granted to the Company an irrevocable
proxy covering the Company's Common Stock owned by Trade. The Company has the
right to cause Trade to redeem the 16% membership interest in Trade held by the
Company by notice given on or after March 1, 2002, in exchange for the Company's
Common Stock held by Trade, and the fair market value of the 16% membership
interest in Trade. Trade has the right to redeem the Company's membership
interest by notice given on or after December 31, 2001, in exchange for the
Company's Common Stock held by it, and the greater of $400,000, or the fair
market value of the 16% membership interest in Trade.
In 1990, the Company sold the assets of its BIT unit which provided computer
systems to the hardgoods distribution market segment. A portion of the
consideration paid consisted of a promissory note for $300,000, with a five-year
term at 6% interest (discounted value of $272,000 at 10% interest), and 10,000
shares of Class B Non-Voting Stock of the acquiring corporation, Distribution
Management Systems, Inc. (DMS). The note was paid in full during 1995. The DMS
shares, originally valued at $334,000, included under the category of other
assets at December 31, 1998 and 1997, were written down to a net realizable
value of approximately $150,000 during 1997. The writedown of approximately
$184,000 is recorded in other expense for the year ended December 31, 1997.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
C. Receivables:
December 31,
------------
1998 1997
---- ----
Trade $5,198,384 $5,954,179
Amounts due from officers
and employees 204,572 117,498
Other 15,340 18,375
---------- ----------
5,418,296 6,090,052
Less allowance for
doubtful accounts 231,220 163,442
---------- ----------
$5,187,076 $5,926,610
========== ==========
Amounts due from officers and employees represent unsecured periodic advances
reduced by repayments. There is no interest charged on these advances.
The allowance for doubtful accounts at December 31, 1995 was $60,246. During the
three years ending December 31, 1998, 1997, and 1996, the provisions for
doubtful accounts were $203,131, $145,886 and $236,830, and write-offs were
$135,353, $75,236 and $204,284, respectively.
D. Notes Payable, Long-Term Obligations, Commitments, and
Contingencies:
December 31,
------------
1998 1997
---- ----
Long-term obligations
Term loans $ 182,041 $ 750,000
Mortgage notes 3,948,071 2,213,391
Capital lease obligations 90,256 153,052
---------- ----------
4,220,368 3,116,443
Less current maturities 152,571 420,423
---------- ----------
$4,067,797 $2,696,020
========== ==========
The current carrying value of long-term obligations approximate their fair
market value.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revolving credit note
The Company has a revolving credit agreement for $1,500,000 (which cannot exceed
80% of acceptable accounts receivable), all of which was available at December
31, 1998. The agreement, which extends through June 30, 1999, stipulates
interest at prime (7.75% at December 31, 1998), plus .5%. Short-term borrowings
under the revolving credit agreement, at and for the year ended December 31, are
as follows:
December 31,
------------
1998 1997 1996
---- ---- ----
Balance outstanding at
December 31 $ - $ - $ 795,000
=========== =========== ===========
Interest rate at
December 31 8.25% 9.50% 9.25%
=========== =========== ===========
Maximum amount outstanding
during the year $ - $1,055,000 $1,935,000
=========== =========== ===========
Average amount outstanding
during the year $ - $ 337,000 $1,342,000
=========== =========== ===========
Weighted average interest
rate during the year
based on average
month-end balances - 9.44% 9.29%
=========== =========== ===========
This credit facility requires the Company to maintain a stated tangible net
worth amount and debt service coverage. Payment of dividends is prohibited under
the terms of this agreement. This note is secured by the personal property of
the Company.
Term loans
The term loan outstanding at December 31, 1998, is due on December 31, 2003 and
payable in semi-annual installments of approximately $37,000, plus interest at
3.8%.
The term loan outstanding at December 31, 1997, dated December 10, 1996, and due
on December 1, 2000 was paid in full in 1998.
Mortgage notes
The Company has three mortgage notes outstanding at December 31, 1998. In
September 1998, the Company completed the refinancing of its mortgage related to
its Corporate Headquarters in Framingham, Massachusetts. The new mortgage note,
in the original amount of $3,000,000, with interest at 7.24% for 10 years
provides for monthly principal and interest payments of $20,445 through October
2008 with a final principal payment of approximately $2,638,000 plus interest.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The financing required a prepayment fee to the prior lender for early pay-off on
the existing mortgage of $248,000. This fee was recorded as interest expense in
the Statement of Operations for the year ended December 31, 1998. A note on a
second building acquired in December 1992 requires monthly principal and
interest (at 9.5%) payments of $5,710 over twenty years. In May 1993, the
Company received $507,000 in mortgage financing for the improvement and updating
of this facility under a note from the Small Business Administration. The twenty
year note, with interest at approximately 6.6%, calls for monthly principal and
interest payments of $4,277. Each of these notes is collateralized by the
buildings which they financed.
Equipment loans and capital lease obligations
The Company purchases or leases various vehicles and computer equipment under
loan and capital lease agreements. The agreements require monthly or quarterly
payments of varying amounts and expire through 2000.
Interest paid was approximately $603,000, $383,000, and $425,000, for the years
ended December 31, 1998, 1997, and 1996, respectively. The Company and its
subsidiaries lease office and warehouse facilities under operating leases
expiring on various dates through January 2006. Total rent expense charged to
operations approximated $270,000, $240,000, and $229,000, in 1998, 1997, and
1996, respectively.
At December 31, 1998, long-term obligations and minimum rental commitments under
noncancellable operating and capital leases with initial terms of one year or
more are as follows:
Capital Leases Long-Term Obligations Operating Leases
-------------- --------------------- ----------------
1999 $60,937 $ 95,487 $ 311,622
2000 34,090 105,106 326,840
2001 - 111,233 219,590
2002 - 117,233 158,750
2003 - 123,730 161,925
Thereafter - 3,577,323 347,692
------- ---------- ----------
95,027 4,130,112 1,526,419
Less
imputed
interest 4,771 - -
------- ---------- ----------
$90,256 $4,130,112 $1,526,419
======= ========== ==========
The amount recorded under capital leases included in computer equipment is
approximately $358,000 at December 31, 1998 and 1997. Accumulated depreciation
and amortization was approximately $300,000 and $244,000, at December 31, 1998
and 1997, respectively.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. Income Taxes (Credits):
Income (loss) from operations before income taxes is as follows:
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Domestic $ 922,066 $ 973,150 $(891,323)
Foreign 147,543 - -
----------- --------- ----------
Total $1,069,609 $ 973,150 $(891,323)
=========== ========= ==========
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Current:
Federal $ 394,000 $ 108,000 $ (5,000)
State 308,000 241,000 -
Foreign 135,000 - -
Deferred (184,000) 236,000 (237,000)
---------- ---------- ----------
$ 653,000 $ 585,000 $(242,000)
========== ========== ==========
A non-US subsidiary computes taxes at rates in effect in Italy. Earnings from
this subsidiary may also be subject to additional income and withholding taxes
when they are distributed as dividends. These earnings are not expected to be
remitted because they are permanently reinvested locally by the subsidiary.
Undistributed earnings of the non-US subsidiary deemed to be permanently
invested were approximately $12,000 at December 31, 1998.
On a cash basis, income taxes paid in 1998, 1997, and 1996 were
approximately $633,000, $64,000, and $60,300, respectively.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income taxes are reconciled with the U.S. federal statutory rate as
follows:
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Income taxes (credits) at
U.S. statutory federal rate $364,000 $331,000 $(303,000)
State income tax (credit),
net of federal income
tax benefit 117,000 133,000 (30,000)
Non-deductible amortization
of intangibles 81,000 78,000 86,000
Foreign tax differential 85,000 - -
Other, net 6,000 43,000 5,000
--------- --------- ----------
$653,000 $585,000 $(242,000)
========= ========= ==========
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes and (b) operating loss and tax
credit carryforwards. The tax effects of significant items comprising the
Company's net deferred tax liability as of December 31, 1998 and 1997 are as
follows:
1998 1997
---- ----
Deferred tax liabilities:
Software development
deducted for tax, not book $ 833,000 $ 1,295,000
Differences between book
and tax basis of property 29,000 2,000
Deferred gain on divestiture 175,000 175,000
Other 8,000 16,000
------------ ------------
1,045,000 1,488,000
Deferred tax assets:
Operating loss carryforwards - 22,000
Tax credit carryforwards 366,000 614,000
Accruals/reserves 217,000 203,000
Other 30,000 33,000
------------ ------------
613,000 872,000
------------ ------------
Net deferred tax liability $ (432,000) $ (616,000)
============ ============
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has available at December 31, 1998 general business credit
carryforwards of $267,000, which expire through the year 2012, and an
alternative minimum tax credit carryforward of $99,000, which does not expire.
F. Capital Transactions:
Series A Junior Participating Preferred Stock
In October 1998 the Company's Board of Directors adopted a Shareholders Rights
Plan (the "Plan"), which provides a dividend of one preferred share purchase
right (a "Right") for each outstanding share of the Company's common stock, par
value $.01 per share. Except as set forth below and subject to adjustment as set
forth in the Plan, each Right will entitle the holder to buy one one-hundredth
of a share of authorized Series A Junior Participating Preferred Stock, par
value $.01 per share ("Series A Preferred Stock") at a purchase price of $10 per
right. Initially, the Rights will attach to all Common Stock Certificates
representing shares then outstanding, and may not be traded apart from the
stock. The Rights become exercisable on the tenth day after public announcements
that a person or group has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the Company's outstanding common stock,
commencement of a tender or exchange offer that would result in a beneficial
ownership by a person or group of 20% or more of the Company's common stock, or
a person or group acquired 10% or more of the outstanding common stock and is
deemed an Adverse Person under the terms of the Plan. If, after the Rights
become exercisable, the Company is a party to certain merger or business
combination transactions, or transfers 50% or more of its assets or earnings
power, or if an acquirer engages in certain self-dealing transactions, each
Right (except those held by the acquirer) will entitle its holder to buy a
number of shares of the Company's Series A Preferred Stock or, in certain
circumstances, a number of shares of the acquiring company's common stock, in
either case having a market value equal to two times the exercise price of the
Right. The Rights may be redeemed by the Company at any time up to ten days
after a person or group acquires 20% or more of the Company's common stock at a
redemption price of $.01 per Right. The Rights will expire on October 20, 2008.
The Company has reserved 60,000 shares of Series A Junior Participating
Preferred Stock for the exercise of the Rights.
Treasury Stock
Approximately $343,000 of the balance in treasury stock represents the Company's
75% investment in a partnership which consists of shares of its own common
stock. The Chief Executive Officer holds the remaining 25% of the investment.
Stock options
At December 31, 1998, the Company has four stock-based compensation plans, which
are described below. The Company applies APB Opinion 25, Accounting for Stock
Issued to Employees, and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock option
plans. Had compensation cost for the Company's four stock option plans been
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, Accounting for
Stock-Based Compensation, the Company's net income (loss) and earnings (loss)
per share would have been adjusted to the pro forma amounts indicated below:
1998 1997 1996
---- ---- ----
Net income (loss) As reported $416,609 $388,150 $(649,323)
Pro forma $384,132 $348,771 $(680,665)
Basic Earnings (loss)
per share As reported $.12 $.12 $(.17)
Pro forma $.11 $.11 $(.18)
Diluted Earnings (loss)
per share As reported $.11 $.11 $(.17)
Pro forma $.10 $.10 $(.18)
The Company's four stock option plans, the 1986, 1988, 1993, and 1995 Stock
Option Plans, provide for the granting of incentive stock options and
nonqualified stock options to purchase an aggregate of 980,000 shares of common
stock at a price not less than fair market value on the date the option is
granted.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997, and 1996, respectively: dividend
yield of 0% for all years, and expected volatility of 46% for 1998, 47% for
1997, and 30% for 1996, risk-free rates ranging from 5.50% to 5.80% for 1998,
5.76% to 6.73% for 1997, and 5.88% to 6.67% for 1996, and expected lives ranging
from 12 to 18 months for 1998, from 12 to 48 months for 1997, and 18 to 24
months for 1996.
A summary of the status of the Company's stock option plans as of December 31,
1998, 1997, and 1996, and changes during the years ending on those dates, is
presented below:
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ------------------------ -----------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ----------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING
AT BEGINNING
OF YEAR 359,749 $1.05 366,097 $1.37 607,186 $1.28
GRANTED 60,300 1.90 22,700 1.46 101,700 1.47
EXERCISED 210 1.00 8,143 .97 66,922 .93
CANCELED 4,087 1.13 20,905 1.08 275,867 1.32
------- ------- -------
OUTSTANDING AT
END OF YEAR 415,752 $1.17 359,749 $1.05 366,097 $1.37
======= ===== ======= ===== ======= =====
OPTIONS
EXERCISABLE
AT YEAR-END 319,735 $1.03 306,799 $1.02 318,613 $1.34
======= ===== ======= ===== ======= =====
WEIGHTED-
AVERAGE FAIR
VALUE OF
OPTIONS
GRANTED
DURING THE
YEAR $1.07 $ .59 $ .72
===== ===== =====
</TABLE>
As of December 31, 1998, the 415,752 options outstanding under the Plan have
exercise prices between $.88 and $2.63, and a weighted-average remaining
contractual life of approximately 5 years.
As of December 31, 1998 the 319,735 exercisable options outstanding under the
Plan have exercise prices between $.88 and $2.63 and a weighted-average
remaining contractual life of approximately 3 1/2 years.
Common stock reserved
At December 31, 1998, the Company has reserved 964,252 shares of its common
stock for incentive and nonqualified stock options.
G. Earnings per Share:
The weighted average number of common shared outstanding used in the computation
of earnings (loss) per share is summarized as follows:
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1998 1997 1996
---- ---- ----
Denominator:
Denominator for basic
earnings per share -
weighted average shares 3,456,362 3,278,689 3,830,771
Effect of dilutive
securities:
Employee stock options 178,546 135,919 -
Contingently issuable
shares - 80,146 -
----------- ----------- -----------
Dilutive potential
common shares
Denominator for
diluted earnings per
share - adjusted
weighted average
shares and assumed
conversions 3,634,908 3,494,754 3,830,771
=========== =========== ===========
The following table summarizes securities that which were outstanding as of
December 31, 1998, 1997, and 1996, but not included in the calculation of
diluted net earnings (loss) per share because such shares are antidilutive:
Year Ended December 31,
--------------------------
1998 1997 1996
---- ---- ----
Employee stock options 3,900 4,000 626,000
Contingently issuable shares - - 184,000
H. Transactions with Major Suppliers:
In 1998, 1997, and 1996, the Company made significant purchases from two
hardware suppliers totaling approximately $2,900,000, $2,700,000, and
$3,581,000, respectively.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
I. Major Customers:
The Company had sales to one customer approximating 13% of gross sales for the
fiscal year ended December 31, 1997. Accounts receivable relating to this
customer was 7% of total accounts receivable at December 31, 1997. There were no
major customers in 1998 and 1996 from which the Company derived sales in excess
of 10%.
J. Geographic Information:
The following is a summary of selected geographic information as of December 31,
1998, 1997, and 1996.
Revenues:
1998 1997 1996
---- ---- ----
United States $31,500,000 $25,000,000 $24,700,000
Italy 3,500,000 - -
Other 500,000 500,000 800,000
----------- ----------- -----------
Total $35,500,000 $25,500,000 $25,500,000
=========== =========== ===========
Revenues are attributed to countries based on location of customers.
Long-lived assets:
1998 1997 1996
---- ---- ----
United States $7,528,000 $9,727,000 $11,404,000
Italy 737,000 - -
Other - - -
---------- ---------- -----------
Total $8,265,000 $9,727,000 $11,404,000
========== ========== ===========
K. Commitments:
The Company maintains a defined contribution benefit plan covering substantially
all its employees. The Company makes contributions to the plan at the discretion
of the Board of Directors based upon a percentage of employee compensation as
provided by the terms of the plan. Contributions charged to operations in 1998,
1997, and 1996 were approximately $132,000, $62,000, and $168,000, respectively.
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The long term liability amount outstanding in the December 31, 1998 balance
sheet represents an employee severance liability as calculated in conformance
with Italian law. The liability is computed on the basis of: the category of
employee, their length of service, annual compensation, and includes the effect
of inflation. The Company's liability under the law is fully accrued at December
31, 1998.
In November 1998, the Company entered into a joint venture agreement with a
third party whereby the Company will sell and support software products in the
United States and Canada. The Company has agreed to provide $500,000 in funding
for this venture. No activity occurred under the joint venture agreement during
1998.
L. Subsequent Event:
In March 1999, the Company exchanged the assets and liabilities of its
CommercialWare Division (CWI) for approximately $4,000,000 in cash, a
$1,700,000 three year note at 7.06%, a 10% interest in a newly formed entity,
CommercialWare, Inc., and a $500,000 Junior Note. The Company will not reflect
the $500,000 Junior Note as part of the proceeds due to the uncertainty of the
ultimate collection of this Note. Financial data relative to the CWI operation
is as follows:
Year Ended December 31,
--------------------------
1998 1997 1996
---- ---- ----
Revenues $10,776,000 $7,603,000 $6,530,000
Net earnings 278,000 553,000 367,000
Basic earnings per share .08 .17 .10
Diluted earnings per share .08 .16 .10
Assets applicable to CWI, net of related liabilities assumed, have been
segregated in the accompanying balance sheet and shown as net assets of
CommercialWare division.
A summary of net assets of CWI division at December 31, 1998, is as follows:
Current assets $ 3,510,543
Property and equipment 239,804
Excess of cost over net assets acquired 562,578
Other assets 657,503
Current liabilities (3,657,466)
------------
Net assets $ 1,312,962
============
EXHIBIT 10
AGREEMENT OF LEASE
between
ONE SENTRY PARKWAY LIMITED PARTNERSHIP, Landlord
and
ASA INTERNATIONAL, LTD, Tenant
Section Page
- ------- ----
1. Reference Data . . . . . . . . . . . . . . . . . . . . . . 2
2. Demise . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Construction by Landlord . . . . . . . . . . . . . . . . . 3
4. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. Rental Adjustments . . . . . . . . . . . . . . . . . . . . 5
7. Maintenance of Premises . . . . . . . . . . . . . . . . . 8
8. No Other Services by Landlord; Utilities . . . . . . . . . 9
9. Insurance. . . . . . . . . . . . . . . . . . . . . . . . .10
10. Casualty . . . . . . . . . . . . . . . . . . . . . . . . .10
11. Condemnation . . . . . . . . . . . . . . . . . . . . . . .11
12. Tenant's Fixtures. . . . . . . . . . . . . . . . . . . . .12
13. Alterations. . . . . . . . . . . . . . . . . . . . . . . .12
14. Mechanic's Liens . . . . . . . . . . . . . . . . . . . . .13
15. Use of Premises. . . . . . . . . . . . . . . . . . . . . .13
16. Environmental Matters. . . . . . . . . . . . . . . . . . .14
17. Rules and Regulations . . . . . . . . . . . . . . . . . .15
18. Governmental Regulations . . . . . . . . . . . . . . . . .16
19. Signs. . . . . . . . . . . . . . . . . . . . . . . . . . .16
20. Landlord's Entry . . . . . . . . . . . . . . . . . . . . .16
21. Indemnification . . . . . . . . . . . . . . . . . . . . .16
22. Curing Tenant's Defaults . . . . . . . . . . . . . . . . .17
23. Default . . . . . . . . . . . . . . . . . . . . . . . . .17
24. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . .22
25. Assignment and Subletting . . . . . . . . . . . . . . . .22
26. Subordination . . . . . . . . . . . . . . . . . . . . . .23
27. Tenant's Certificates . . . . . . . . . . . . . . . . . .23
28. Acceptance; Surrender . . . . . . . . . . . . . . . . . .23
29. Holding Over . . . . . . . . . . . . . . . . . . . . . . .24
30. Notices. . . . . . . . . . . . . . . . . . . . . . . . . .24
31. Broker . . . . . . . . . . . . . . . . . . . . . . . . . .24
32. Definition of Parties . . . . . . . . . . . . . . . . . .25
33. Entire Agreement; Interpretation . . . . . . . . . . . . .25
34. Security Deposit . . . . . . . . . . . . . . . . . . . . .25
35. Relocation Clause. . . . . . . . . . . . . . . . . . . . .26
ONE SENTRY PARKWAY, 475 SENTRY PARKWAY, BLUE BELL
AGREEMENT OF LEASE made this 26th day of August, 1998, by and between
ONE SENTRY PARKWAY LIMITED PARTNERSHIP, a Pennsylvania limited partnership, with
its principal place of business c/o Parec Realty, Inc., 731 Skippack Pike, P.O.
Box 1205, Blue Bell, Pennsylvania 19422 ("Landlord"), party of the first part,
and ASA INTERNATIONAL, LTD, a Delaware corporation, with a place of business at
10 Speen Street, Framingham, MA 01701 ("Tenant"), party of the second part.
WITNESSETH THAT, for and in consideration of the rents, covenants and
agreements herein contained and intending to be legally bound hereby, the
parties hereto covenant and agree as follows:
1. Reference Data. As used in this Lease, the following terms shall be
defined as indicated and refer to the data set forth in this section 1.
PREMISES: that 9,667 rentable square foot portion of the One Sentry Parkway
Office Building (the "Building") constructed on certain land (the
"Land") located at 475 Sentry Parkway, Blue Bell, with C1 zoning in
Montgomery County, Pennsylvania, as further identified in Exhibit "A",
attached hereto.
TERM: Seven (7) years.
COMMENCEMENT DATE: February 1, 1999.
BASE RENT: Year 1: $149,838.50 annually; payable in twelve equal monthly
installments of $12,486.54.
Year 2: $152,835.27 annually; payable in twelve equal monthly
installments of $12,736.27.
Year 3: $155,891.98 annually; payable in twelve equal monthly
installments of $12,991.00.
Year 4: $159,009.81 annually; payable in twelve equal monthly
installments of $13,250.82.
Year 5: $162,190.01 annually; payable in twelve equal monthly
installments of $13,515.83.
Year 6: $165,433.81 annually; payable in twelve equal monthly
installments of $13,786.15.
Year 7: $168,742.49 annually; payable in twelve equal monthly
installments of $14,061.87.
The first monthly installment shall be paid on or before November 15, 1998.
ADDITIONAL RENT: Sums not including Base Rent which Tenant is obligated
to pay to Landlord from time to time pursuant to the terms of
this Lease.
PERMITTED USES: Tenant shall use and occupy the Premises for general
office use only.
SECURITY DEPOSIT: $12,000.00 paid upon execution of this Lease
Agreement.
ACTIVE BROKER: Rod Neary, Gola Corporate Real Estate.
EXHIBITS: The following exhibits shall be attached to this Lease and
incorporated herein and made a part hereof:
Exhibit A Space Plan
Exhibit B Specifications to Space Plan
Exhibit C Rules and Regulations
2. Demise. Landlord hereby demises and lets to Tenant and Tenant hereby
leases from Landlord the Premises for the Term, upon the conditions and
limitations set forth herein. This Lease shall not be binding upon Landlord
unless Landlord's mortgagee shall have approved this Lease within ten (10) days
from the date hereof.
3. Construction by Landlord.
A. Landlord shall, without cost to Tenant, complete, alter or improve
the Premises in accordance with the memorandum of work, plans and specifications
attached hereto as Exhibit "A" and Exhibit "B" (the "Plans and Specifications")
and made a part hereof. Tenant hereby approves the Memorandum of Work and Plans
and Specifications attached hereto as Exhibit "A" and Exhibit "B".
B. If Landlord deems any changes, additions or alterations in the
Plans and Specifications necessary in connection with the construction of the
Premises, such changes, additions or alterations shall be submitted to Tenant
for approval, which approval shall not be unreasonably withheld or delayed and
shall be deemed to be given if not disapproved in writing within seven (7) days
after Landlord's submission of the same to Tenant. Any dispute as to the content
of such changes, additions or alterations may, at the option of either party
hereto, be conclusively determined by the independent architect or engineer
retained by Landlord for the construction of the Building.
C. The Premises shall be substantially completed on or before the
Commencement Date provided that the equivalent to any time lost by Landlord due
to strikes, labor disputes, governmental restrictions or limitations, scarcity
of or inability to obtain labor or materials, accidents, fire or other
casualties, weather conditions, or any other similar cause beyond the reasonable
control of Landlord shall result in the equivalent extension of the Commencement
Date (and accordingly, the expiration of the Term); provided, however, that if
such extension shall last more than sixty (60) days beyond the commencement
date, the Tenant, at its sole option, may terminate this agreement, in which
event all monies paid on account shall be returned, together with interest
earned thereon. All the aforesaid work shall be done in compliance with
applicable laws and lawful ordinances.
D. Tenant, its agents, employees and contractors, shall at all times
prior to the commencement of the Term have the right, at Tenant's own risk and
responsibility, to enter the Premises for the purpose of taking measurements and
installing its furnishings and equipment, provided that such entry shall not
interfere with or delay the work to be performed hereunder by Landlord and that
Tenant shall use licensed and insured contractors, and provided further that
prior to the making of such installations, Tenant shall have obtained Landlord's
written consent thereto (which consent shall not unreasonably be withheld).
4. Term. The Term shall commence on the later of: (a) the Commencement
Date; (b) the date when Tenant, with Landlord's consent, assumes possession of
the Premises or any part thereof; or (c) the fifth consecutive business day
following Landlord's notice to Tenant that the Premises are substantially
completed. The Premises shall be substantially completed when the construction
work and other items of work for which Landlord is responsible under Section 3
hereof have been completed to the extent that the Premises may be fully occupied
by Tenant for its intended use, subject only to completion of minor finishing
and adjustment of equipment. The commencement and expiration dates of the Term,
when determined as above provided, shall be confirmed by an addendum to this
Lease.
5. Rent.
A. Tenant shall pay to Landlord during the Term the Base Rent, without
notice or demand, in the monthly installments specified in Section 1, in advance
on the first day of each calendar month of the Term. If the Term commences other
than on the first day of a calendar month, then the installments of Base Rent
for the first calendar month during which Tenant is obligated to pay Base Rent
hereunder and the last calendar month of the Term shall be adjusted
proportionately.
B. If Tenant fails to pay when due any Rent or any other sum within
ten (10) days after its due date, then Tenant shall pay a late charge in the
amount of five percent (5%) of the amount of such delinquent payment or
payments, as the case may be. Such late charge is intended to compensate
Landlord for additional expenses incurred by Landlord in processing such late
payments. The late charge provided for herein is in addition to and is
cumulative with all other rights and remedies of Landlord provided for
hereunder. Nothing herein contained is intended to violate any applicable law,
code or regulation, and in all instances all such charges shall be automatically
reduced to any maximum applicable legal rate or charge. Such charge shall be
imposed monthly for each late payment.
6. Rental Adjustments.
(Paragraph Intentionally Deleted)
7. Maintenance of Premises.
(a) Landlord shall be responsible, at its sole cost and expense, to
keep the exterior foundations and walls of the Building in good order and
repair; provided that Tenant shall give Landlord reasonable notice of the need
for such repair. Landlord shall be responsible, as an Operating Expense, to keep
the roof, floors, sewage system, any other underground utilities, plumbing,
electrical, heating and air conditioning systems, all down spouts, gutters,
sidewalks, the parking lot, driveways, all common interior portions of the
Building and all common fixtures and appurtenances therein, all windows, doors,
ceilings and landscaping in and about the premises and the building of which it
is a part in good order and repair, and shall be responsible for snow removal in
and about the premises and the sidewalks and parking areas associated with it.
(b) Tenant shall, throughout the term, and at its sole cost and
expense, take good care of the Premises and the other improvements now or
hereafter comprising all or any part of the Premises, the electrical systems and
facilities located in the Premises, and the fixtures and appurtenances therein
and maintain the same in good order and condition, and promptly at Tenant's own
cost and expense make all repairs necessary to maintain such good order and
condition, except for repairs which Landlord agrees to make pursuant to the
previous paragraph. Tenant shall, at its sole cost and expense, repair and
replace all damage or injury to the Premises, including any portion of the
Premises which Landlord is obligated to maintain pursuant to the previous
paragraph of this Section 7, caused by (i) the negligence or willful conduct of
Tenant or its employees, agents, invitees, licensees, subtenants, or
contractors, or (ii) as the result of all or any of them moving in or out of the
Premises or by installation or removal of furniture, fixtures or other property,
which repairs and replacements shall be in quality and class equal to the
original work or installations. If Tenant fails to make such repairs or
replacements after fifteen (15) days' prior written notice from Landlord (with
the exception of emergencies, which shall not require prior notice), the same
may be made by Landlord and such expense shall be collectible as Additional Rent
and paid by Tenant within fifteen (15) days after rendition of a bill therefor.
(c) Landlord shall not be liable by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations, additions or improvements in or to the Premises or to any
appurtenances or equipment therein, except to the extent such repairs, etc., are
necessitated by the negligence or willful act of Landlord, its agents, employees
or contractors. Except as expressly provided in sections 10 and 11 hereof, there
shall be no abatement of rent because of such repairs, alterations, additions or
improvements.
(d) Landlord shall provided janitorial services for Tenant's suite,
Monday through Friday nights.
8. No Other Services by Landlord; Utilities.
A. Landlord shall not be required to render any services to Tenant or
to make any repairs or replacements to the Premises, except as provided in
sections 7 hereof.
B. Tenant shall be solely responsible for and shall promptly pay all
rents, costs and charges for electricity, telephone, security systems, and any
other service used or consumed in or servicing the Premises and all other costs
and expenses involved in the care, management and use thereof.
C. Landlord shall supply the Premises with reasonable electric service
for heat, air conditioning, lighting and power to operate business machines and
equipment. Landlord shall furnish and install a meter to measure Tenant's
electric usage and Tenant shall pay the utility company direct for such usage.
9. Insurance.
A. Tenant, at Tenant's expense, and Landlord, at Landlord's expense,
shall maintain in effect throughout the Term, insurance against claims for
personal injury (including death) and property damage, under a policy of general
public liability insurance, in amounts not less than $1,000,000 combined single
limit in respect of bodily injury (Including death) and $1,000,000 for property
damage.
B. Prior to the commencement of the Term, Tenant shall provide
Landlord with certificates of the insurance policies herein required of Tenant.
All policies shall provide that coverage thereunder may not be reduced or
terminated without at least thirty (30) days prior written notice to Landlord.
Tenant shall furnish to Landlord throughout the Term replacement certificates at
least thirty (30) days prior to the expiration date of the then current policies
and, upon request of Landlord, shall supply to Landlord copies of all policies
herein required of Tenant. The insurance policy referred to in subsection A
above shall name both Landlord and Tenant as insured parties. Landlord's
obligation with respect to the Tenant pursuant to this paragraph shall be the
same as the Tenant's obligation with respect to the Landlord.
C. Each of the parties hereto hereby releases the other from all
liability for all injury, loss or damage which may be inflicted upon persons or
the property of such party, even if such liability results from the negligence
of the other party; provided, however, that this release shall be effective only
(i) during such time as the applicable insurance policy carried by such party
names the other party as a co-insured or contains a clause to the effect that
this release shall not affect said policy or the right of the insured to recover
thereunder, and (ii) to the extent of the coverage of such policy. If any policy
does not permit such a waiver, and if the party to benefit therefrom requests
that such a waiver be obtained, the other party agrees to obtain an endorsement
to its insurance policies permitting such waiver of subrogation, if available,
and if an additional premium is charged for such waiver, the party benefiting
therefrom shall pay same promptly upon being billed therefor.
10. Casualty.
A. If the Premises shall be damaged or destroyed by fire or other
casualty, Tenant shall promptly notify Landlord, and Landlord shall repair the
damaged portions of the Premises (but not any of the Tenant's property therein
or improvements or alterations made by the Tenant), except that if, in
Landlord's reasonable judgment, the damage would require more than sixty days
work to repair, or if the insurance proceeds (excluding rent insurance) which
Landlord anticipates receiving must be applied to repay any mortgages
encumbering the Building or are otherwise inadequate to pay the cost of such
repair, then the Landlord shall have the right to terminate this Lease by so
notifying Tenant, which notice shall specify a termination date not less than
fifteen (15) days after its transmission. If Landlord is so required to repair,
the work shall be commenced promptly and completed with due diligence, taking
into account the time required by Landlord to effect a settlement with, and
procure insurance proceeds from, the insurer, except for delays due to
governmental regulation, scarcity of or inability to obtain labor or materials,
or causes beyond Landlord's reasonable control.
B. During the period when Tenant shall be deprived of possession of
the Premises by reason of such damage, Tenant's obligation to pay Base Rent
under Section 5 shall abate as of the date of the casualty in the proportion
which the damaged area of the Premises bears to the entire Premises.
C. If Landlord does not restore the Premises or the affected portion
to tenantability within one hundred eighty (180) days after such casualty
(provided that the nature of the damage is such that it reasonably could be
repaired within one hundred eighty [180] days after commencement of work), or so
commences restoration and pursues the same with due diligence if restoration
cannot be completed within such one hundred eighty (180) days, Tenant may then
terminate this Lease, retroactive to the date of casualty; provided, however,
such one hundred eighty (180) day period shall be extended by causes delaying
the work of restoration which are beyond Landlord's reasonable control.
11. Condemnation.
A. If all or a substantial portion of the Premises is taken through
the exercise of the power of eminent domain, this Lease shall terminate on the
date when possession of the Premises is required by the condemning authority. If
only part of the Premises is taken, then (i) if the condemnation award is
insufficient to restore the remaining portion of the Premises or if such award
must be applied to repay any mortgages encumbering the Premises, or (ii) if a
substantial portion of the Premises is so taken, and it is commercially
impossible for Tenant to continue its business within the Premises, then
Landlord in the case of (i) above and Tenant in the case of (ii) above shall
have the right to terminate this Lease on the date when the condemned portion of
the Premises is required to be delivered to the condemning authority, which
right shall be exercisable by the exercising party so notifying the other party
no later than thirty (30) days prior to such date; provided, however, that in
the event Tenant elects to terminate this Lease because parking areas have been
condemned, Landlord shall have the right to negate Tenant's election to
terminate by replacing the parking spaces so condemned with additional parking
spaces located on land contiguous to the Premises.
B. If this Lease is not so terminated after a partial condemnation,
then after the date when the condemned portion of the Premises is delivered to
the condemnor, the Base Rent shall be reduced effective as of the date of
delivery in the proportion which the condemned area bears to the entire area of
the Premises.
C. Tenant shall have the right to claim against the condemnor only for
removal and moving expenses and business dislocation damages which may be
separately payable to tenants in general under Pennsylvania law, provided such
payment does not reduce the award otherwise payable to Landlord. Subject to the
foregoing, Tenant hereby waives all claims against Landlord with respect to a
condemnation, and hereby assigns to Landlord all claims against the condemnor
including, without limitation, all claims for leasehold damages and diminution
in the value of Tenant's leasehold estate. Tenant shall also have the right to
make claim for the loss of leasehold improvements and fixtures installed by
Tenant at its expense so long as the payment for the taking of such leasehold
improvements or fixtures does not reduce the award otherwise payable to
Landlord.
12. Tenant's Fixtures. Tenant shall have the right to install trade
fixtures, machinery and equipment (excluding alterations, improvements and
additions which are governed by Section 13) required by Tenant or used by it in
its business, provided that same do not impair the structural strength of the
Building and further provided that such trade fixtures, machinery and equipment
shall be limited to items normally used in an office/warehouse building. Tenant
shall remove all such trade fixtures, machinery and equipment prior to the end
of the Term, and Tenant shall repair and restore any damage to the Premises
caused by such installation or removal.
13. Alterations. Tenant shall not, without on each occasion, first
obtaining Landlord's prior written consent, which approval shall not be
unreasonably withheld or delayed and shall be deemed to be given if not
disapproved in writing within seven (7) days of submission of the same to the
Landlord, make any alterations, improvements or additions to the Premises,
except that Tenant may, without the consent of Landlord but with prior written
notice to Landlord, make minor improvements to the interior of the Premises
provided that they do not impair the structural strength, operation or value of
the Premises. Tenant agrees to pay for such alterations, etc. and to indemnify,
save and hold Landlord harmless from any cost, expense or liens arising in
connection therewith. All alterations, improvements and additions, except for
minor alterations and improvements as aforesaid, upon completion of construction
thereof, shall become part of the Premises and the property of Landlord without
payment therefor by Landlord and shall be surrendered to Landlord at the end of
the Term; provided, however, that Tenant shall, prior to the end of the Term,
remove all such alterations and improvements, or the parts thereof specified by
Landlord, from the Premises and shall repair all damage caused by installation
and removal. For purposes of this Section 13, "minor improvements" shall be
defined as those improvements costing no more than $2,000.
14. Mechanics' Liens. Tenant shall not, in the making of any repairs or
alterations, suffer or permit any mechanic's laborer's or materialman's lien to
be filed against the Premises or any part thereof by reason of labor or
materials supplied or claimed to have been supplied to Tenant; and if any such
lien shall be filed, Tenant, within thirty days after notice of filing, shall
cause it to be discharged of record (by payment, payment into court or bonding).
15. Use of Premises. Tenant shall use the Premises only for the Permitted
Use. Tenant will not occupy or use the Premises, or permit any portion of the
Premises to be occupied or used, for any business or purpose other than the
Permitted Use or for any use or purpose which is unlawful, in part or in whole,
disreputable in any manner, or extra hazardous on account of fire, nor permit
anything to be done which shall in any way cause substantial noise, vibrations,
fumes, or increase the rate of insurance on the Building or contents or cause
any cancellation of any insurance policy covering the Building or any portion of
its contents; and in the event that there shall be any increase in the rate of
insurance on the Building or contents created by Tenant's acts or conduct of
business, Tenant hereby agrees to pay to Landlord the amount of such increase on
demand. Tenant will conduct its business and control its agents, employees and
invitees in such a manner as not to create any nuisance, nor interfere with or
disturb the possession of other tenants or Landlord in the management of the
Building.
Except as provided herein, Tenant shall not, without the prior written
consent of Landlord, which may be granted or withheld in Landlord's sole
discretion, but which granting or withholding shall not be unreasonably delayed,
paint, install lighting or decorations, or install any signs, window or door
lettering or advertising media of any type on or about the Premises or any part
thereof. All signs installed by Tenant shall be removed by Tenant at its expense
upon the expiration or sooner termination of this Lease.
16. Environmental Matters. Without limiting the generality of Section 15
hereof, Tenant shall conduct all activity in compliance with all federal, state,
and local laws, statutes, ordinances, rules, regulations, orders and
requirements of common law concerning protection of the environment or human
health ("Environmental Law"). Tenant shall also cause its subtenants (if
subtenants are permitted by this Lease), licenses, invitees, agents,
contractors, subcontractors and employees to comply with all Environmental Laws.
Tenant and its permitted subtenants, licensees, invitees, agents, contractors
and subcontractors shall obtain, maintain, and comply with all necessary
environmental permits, approvals, registrations and licenses.
Tenant shall not use or store Hazardous Materials (as hereafter defined) in
the Premises except for such Hazardous Materials of the types and quantities as
are commonly used in business offices similar to Tenant's, including by way of
example and not limitation, photocopier toner fluid and correction fluid (the
"Excepted Materials"). In addition to and not in limitation of the foregoing,
Tenant, its permitted subtenants, licensees, invitees, agents, contractors,
subcontractors and employees shall not generate, refine, produce, transfer,
process or transport Hazardous Materials on, above, beneath or near the Premises
of the Building, provided that nothing herein is intended to prohibit the lawful
transfer to and from the Premises of the Excepted Materials. As used herein, the
term "Hazardous Materials" shall include, without limitation, all of the
following: (1) hazardous substances, as such term is defined in the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. Section 9601 (14), as amended by the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (Oct. 17, 1986)
("SARA"); (2) regulated substances, within the meaning of Title I of the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 69916991(I), as
amended by SARA; (3) any element, compound or material which can pose a threat
to the public health or the environment when released into the environment; (4)
hazardous waste as defined in the Pennsylvania Solid Waste Management Act, PA
Stat. Ann. Title 35 Section 6018.103 (Purdon Supp. 1987); (5) hazardous material
designated under the Pennsylvania Hazardous Materials Transportation Act Pa.
Stat. Ann Title 75 Sections 8303 Purdon Supp. 1987); (6) any substance which may
be the subject of liability pursuant to the Pennsylvania Clean Streams Law, Pa
Stat. Ann. Title 35, Sections 691.1 to 691.1001 (Purdon Supp. 1987); (7) an
object or material which is contaminated with any of the foregoing; (8) any
other substance designated by any of the Environmental Laws or a federal, state
or local agency as detrimental to public health, safety and the environment.
a. Tenant, its permitted subtenants, licensees, invitees, agents,
contractors, subcontractors and employees shall not release, spill, pump, pour,
emit, empty, dump or otherwise discharge or allow to escape Hazardous Materials
into the environment, and Tenant shall take all action necessary to remedy the
results of any such release, spillage, pumping, pouring, emission, emptying,
dumping, discharge or escape.
b. Tenant shall protect, indemnify and save Landlord harmless from and
against any and all liability, loss, damage, cost or expense (including
reasonable attorneys' fees) that Landlord may suffer or incur as a result of any
claims, demands, damages, losses, liabilities, costs, charges, suits, orders,
judgments or adjudications asserted, assessed, filed or entered against Landlord
or the Building, by any third-party, including without limitation, any
governmental authority, arising from the breach of Environmental Laws by Tenant,
its subtenants, licensees, or otherwise arising from the alleged generation,
refining, production, storage, handling, use, transfer, processing,
transportation, release, spillage, pumping, pouring, emission, emptying,
dumping, discharge or escape of Hazardous Materials on, from or affecting the
Premises or the Building as the result of the act or omission of Tenant, its
subtenants, licenses, invitees, agents, contractors, subcontractors and/or
employees including, without limitation, liability for costs and expenses of
abatement, correction, clean-up or other remedy, fines, damages, bodily injury
(including death) and property damage.
c. Tenant shall supply Landlord with copies of any written
communication between Tenant and any governmental agency or instrumentality
concerning or relating to Environmental Laws.
17. Rules and Regulations. Tenant covenants and agrees that Tenant, its
employees, agents, invitees, licensees and other visitors, shall observe
faithfully, and comply strictly with, such reasonable Rules and Regulations as
Landlord or Landlord's agents may, after notice to Tenant, from time to time
adopt with respect to the Building and common areas, and which have been
provided to Tenant in writing no less than thirty (30) days before the effective
date thereof.
18. Governmental Regulations. Tenant shall throughout the term of this
Lease, at Tenant's sole cost and expense, promptly comply with all laws and
ordinances and notices, orders, rules, regulations and requirements of all
federal, state and municipal governments and appropriate departments,
commissions, boards and officers thereof, and notices, orders, rules and
regulations of the National Board of Fire Underwriters, or any other body now or
hereafter constituted exercising similar functions, relating to the Premises,
exterior as well as interior, foreseen or unforeseen, ordinary as well as
extraordinary, or to the use or manner of use of the Premises, or to the
fixtures and equipment thereof; provided, however, that Tenant shall not be
required to comply with the foregoing laws, ordinances and notices with respect
to the exterior walls unless the need for such compliance arises out of Tenant's
use, manner of use or occupancy of, or installations within or upon the
Premises. Without limiting the generality of the foregoing, Tenant shall keep in
force at all times all licenses, consents and permits necessary for the lawful
use of the Premises for the purposes herein provided and Tenant shall pay all
personal property taxes, income taxes, license fees, and other taxes which are
or may be assessed, levied or imposed upon Tenant in connection with Tenant's
operation of its business upon the Premises. Tenant shall likewise observe and
comply with the requirements of all policies of public liability, fire and other
policies of insurance at any time in force with respect to the Premises.
19. Signs. Except for signs which are located wholly within the interior of
the Premises and which are not visible from the exterior of the Premises, no
signs shall be placed, erected or maintained at any place upon the Premises or
the Building. Landlord shall provide Premises door and lobby marque signage.
20. Landlord's Entry. Landlord and its agents, contractors and invitees
shall have the right to enter the Premises at all reasonable times to inspect
the same, to exhibit same to prospective purchasers, tenants and mortgagees, and
to make any necessary repairs thereto. Landlord shall not be liable in any
manner to Tenant by reason of such entry or the performance of repair work in
the Premises and the obligations of Tenant hereunder shall not thereby be
affected.
21. Indemnification.
A. The parties hereto shall each indemnify the other from and against
any and all losses, costs (including reasonable counsel fees), claims, suits,
actions and causes of action, whether legal or equitable, sustained or arising
by reason of the indemnifying party's default in any of its obligations
hereunder, or of the fault or neglect of the indemnifying party or of the
failure by the indemnifying party or any of its officers, agents, employees or
invitees to fulfill any duty toward the public, or any person or persons
whomsoever, which the indemnifying party, by reason of its occupancy or use of
the Premises, may owe.
B. Tenant shall protect, indemnify and save Landlord harmless from and
against any and all liability, damages, costs or expenses that Landlord may
suffer or incur as a result of any claims, suits, actions, demands, damages,
losses, liabilities, costs, charges, suits, orders, judgments or adjudications
asserted, assessed, filed or entered against Landlord by any third party,
including any governmental authority, arising from or in any way related to the
alleged generation, manufacture, production, processing, refining, handling,
treatment, storage, deposit, disposal, burial, dumping, injecting, spilling,
leaking or other use, placement or release in, on or affecting the Premises or
any adjoining property owned by Landlord of a Hazardous Substance or otherwise
arising from any other alleged violation of any of the Environmental Laws,
including, but not limited to, liability for costs and expenses of abatement,
correction or clean-up, fines, damages, response costs or penalties, or
liability for personal injury or property damage.
22. Curing Tenant's Defaults. If Tenant shall default in performing any of
its obligations hereunder, Landlord may (but shall not be so obliged), in
addition to Landlord's other rights and remedies and without waiver of such
default, cure such default on behalf of Tenant, thereby entering and possessing
the Premises if deemed necessary by Landlord, provided that Landlord shall have
first given Tenant written notice of such default and Tenant shall have failed
within fifteen (15) days following said written notice to cure or diligently to
pursue the cure of said default (which notice and opportunity to cure shall not
be required in case of emergency). Tenant, upon demand of Landlord, shall
reimburse Landlord for all costs (including reasonable counsel fees) incurred by
Landlord with respect to such default, and, if Landlord so elects, Landlord's
efforts to cure the same, which costs shall be deemed Additional Rent hereunder.
23. Default.
A. Events of Default. If
i) Tenant fails to pay any installment of Base Rent when due and
such failure continues for a period of five (5) days after notice by or on
behalf of Landlord; provided, however, that Landlord need not give any such
notice, and Tenant shall not be entitled to any such period of grace, more than
twice in any twelve (12) month period,
ii) Tenant fails to pay any Operating Expense Excess or
Additional Rent when due and such failure continues for a period of ten (10)
days after written notice from Landlord,
iii) Tenant vacates the Premises,
iv) Tenant fails to observe or perform any of Tenant's other
obligations herein contained and such failure continues for more than fifteen
(15) days after written notice from Landlord,
v) Tenant makes an assignment for the benefit of creditors,
vi) Tenant commits an act of bankruptcy or files a petition or
commences any proceeding under any bankruptcy or insolvency law,
vii) a petition is filed or any proceeding is commenced against
Tenant under any bankruptcy or insolvency law and is not dismissed within thirty
(30) days,
viii) Tenant is adjudicated a bankrupt,
ix) a receiver or other official is appointed for Tenant or for a
substantial part of Tenant's assets or for Tenant's interests in this Lease, or
x) any attachment or execution is filed or levied against a
substantial part of Tenant's assets or Tenant's interests in this Lease or any
of Tenant's property in the Premises, then, in any such event, an Event of
Default shall be deemed to Exist and Tenant shall be in default hereunder.
B. Landlord's Remedies. If an Event of Default occurs hereunder, at
the option of Landlord:
i) the balance of the Base Rent and all Additional Rent and all
other sums to which Landlord is entitled hereunder shall be deemed to be due,
payable and in arrears, as if payable in advance hereunder. Any acceleration of
the rent by Landlord shall not constitute a waiver of any right or remedy of
Landlord, and if Tenant shall fail to pay the accelerated rent upon Landlord's
demand, then Landlord may thereafter terminate this Lease, as aforesaid.
OR
ii) this Lease and the Term shall, without waiver of Landlord's
other rights and remedies, terminate without any right of Tenant to save the
forfeiture. Immediately upon such termination by Landlord, Landlord shall have
the right to recover possession of the Premises with or without legal process,
breaking locks and replacing locks, and removing Tenant's and any third party's
property therefrom, and making any disposition thereof as Landlord may deem
commercially reasonable.
C. Damages. Unless and until Landlord shall have terminated this Lease
under subsection 23.B above, Tenant shall remain fully liable and responsible to
perform all of the covenants and to observe all of the conditions of this Lease
throughout the remainder of the Term; and, in addition, Tenant shall pay to
Landlord, upon demand and as Additional Rent, the total sum of all reasonable
costs, losses and expenses, including reasonable counsel fees, as Landlord
incurs, directly or indirectly, because of any Event of Default having occurred.
If Landlord terminates Tenant's leasehold estate and this Lease as provided
in subsection 23.B above, Landlord shall have the unrestricted right to relet
the Premises or any part(s) thereof, to such Tenant(s), on such provisions and
for such period(s) as Landlord may deem appropriate. It is understood that
Landlord shall have no obligation to have the Premises available for reletting
or otherwise endeavor to relet so long as Landlord (or any related entity) has
other comparable vacant space or property available for leasing to others in the
general geographical area of the Premises; and that notwithstanding
nonavailability of other space or property, Landlord's obligation to mitigate
damages shall be limited to such efforts as Landlord, in its sole reasonable
judgment, deems appropriate.
The damages which Landlord shall be entitled to recover from Tenant in such
case shall be the sum of:
i) all Base Rent and Additional Rent accrued and unpaid as of the
termination date;
ii) a) all reasonable costs and expenses incurred by Landlord in
recovering possession of the Premises, including removal and storage of Tenant's
property, improvements and alterations therefrom,
b) the reasonable costs and expenses of restoring the Premises
to the condition in which the same were to have been surrendered by Tenant as of
the expiration of the Term, or, in lieu thereof, the costs and expenses of
remodeling or altering the Premises or any part for reletting the same,
c) the reasonable costs of reletting (exclusive of those covered
by the foregoing b) including brokerage fees and reasonable counsel fees, and
d) general overhead and advertising expenses not in excess of
one percent (1%) of the total Base Rent otherwise to be paid by Tenant over the
remainder of the Term, for each month or part thereof between the date of
termination and the reletting of the entire Premises; AND
iii) all Base Rent and other charges (including Additional Rent
when the same can be determined) otherwise payable by Tenant over the remainder
of the Term:
---LESS---
iv) all rent, including Additional Rent to the extent that the
same would have been payable by Tenant, as Landlord may receive from other
tenant(s) by reason of the leasing of the Premises or part thereof during or
attributable to any period falling within the otherwise remainder of the Term.
The damage sums payable by Tenant under the preceding provisions
of this subsection 23.C. shall be payable on demand from time to time as the
amounts are determined; and if from Landlord's subsequent receipt of rent as
aforesaid from reletting, there be any excess payment(s) by Tenant by reason of
the crediting of such rent thereafter received, the excess payment(s) shall be
refunded by Landlord to Tenant, without interest.
D. Interest Due on Unpaid Amounts. Any sums payable by Tenant
hereunder which are not paid within ten (10) days after the same shall be due
shall bear interest from that day until paid at the rate of two percent (2%)
over the then prime rate being charged by CoreStates Bank for ninety (90) day
loans to major corporate borrowers (unless such rate be usurious as applied to
Tenant, in which case the highest permitted legal rate shall apply).
E. Confession of Judgment. The following paragraphs set forth
warrants of authority for an attorney to confess judgments against Tenant. In
granting these warrants or attorney to confess judgments against Tenant, Tenant
hereby knowingly, intentionally, voluntarily, and unconditionally waives any and
all rights Tenant has or may have with respect to prior notice and an
opportunity for hearing under the respective constitutions and laws of the
United States and the Commonwealth of Pennsylvania.
If any rental or other sum payable by Tenant hereunder remains
unpaid after the due date (whether by acceleration or otherwise) therefor,
Tenant hereby empowers any prothonotary or attorney of any court of record to
appear for Tenant in any and all actions which may be brought for said
arrearages, to sign for Tenant an agreement for entering in any competent court
an action or actions for the recovery of such arrearages, or, as Landlord may
elect, to accept service and process for, to appear for and to confess judgment
against Tenant for all such arrearages, interest and cost, together with an
attorney's commission of five percent (5%). Such authority shall not be
exhausted by one exercise thereof, but judgment may be confessed as aforesaid
from time to time as often as said rent and other charges shall be in arrears.
For the purpose of proceeding under this subsection, this Lease shall be a
sufficient warrant, and a true and correct copy of this Lease may be filed with
the court in lieu of filing an original copy hereof. When the Term shall end by
expiration or by termination thereof on account of Tenant's default, it shall be
lawful for any attorney, as attorney for Tenant, to file an agreement for
entering in any competent court an action in confession of judgment in ejectment
against Tenant and all persons claiming under Tenant for the recovery by
Landlord of possession of the Premises, for which this Lease shall be a
sufficient warrant, whereupon a writ of possession may issue forthwith, without
any prior proceedings whatsoever; if for any reason after such action shall have
been commenced, the same shall have been terminated and possession of the
Premises shall remain in or be restored to Tenant, Landlord shall have the right
upon subsequent default or upon termination of this Lease to bring one or more
amicable actions as aforesaid to recover possession.
Tenant acknowledges that it has had the assistance of legal
counsel in the review and execution of this lease and further acknowledges that
the meaning and effect of the foregoing provisions concerning confession of
judgments have been fully explained to Tenant by such counsel.
F. Waivers by Landlord, etc. No act or forbearance by Landlord
shall be deemed a waiver or election of any right or remedy by Landlord with
respect to Tenant's obligations hereunder, unless and to the extent that
Landlord shall execute and deliver to Tenant a written instrument to such
effect, and any such written waiver by Landlord shall not constitute a waiver or
relinquishment for the future of any obligation of Tenant. Landlord's acceptance
of any payment from Tenant (regardless of any endorsement on any check or any
writing accompanying such payment) may be applied by Landlord to Tenant's
obligations then due hereunder, in any priority as Landlord may elect, and such
acceptance by Landlord shall not operate as an accord and satisfaction or
constitute a waiver of any right or remedy of Landlord with regard to Tenant's
obligations hereunder.
24. Quiet Enjoyment. So long as Tenant is not in default under the
covenants and agreements of this Lease, Tenant's quiet and peaceful enjoyment of
the Premises shall not be disturbed or interfered with by Landlord or by any
person claiming by, through or under Landlord, nor shall Landlord permit any
person to interfere with Tenant's quiet and peaceful enjoyment of the premises.
25. Assignment and Subletting. Tenant shall not assign, pledge, mortgage or
otherwise transfer or encumber this Lease, nor sublet all or any part of the
Premises or permit the same to be occupied or used by anyone other than Tenant
or its employees or any subsidiary, parent or affiliated company of Tenant
without Landlord's prior written approval, which Landlord agrees not
unreasonably to withhold. It will not be unreasonable for Landlord to withhold
consent if the reputation, financial responsibility, or business of a proposed
assignee or subtenant is unsatisfactory to Landlord.
Tenant's request for approval shall be in writing and contain the name,
address and description of the business of the proposed assignee or subtenant,
its most recent financial statement and other evidence of financial
responsibility, its intended use of the Premises, and the terms and conditions
of the proposed assignment or subletting.
Within fifteen (15) days from receipt of such request, Landlord shall
either:
A. grant consent, or
B. refuse consent, or
C. require Tenant to execute an assignment or lease or sublease of
Tenant's interest hereunder to Landlord or its designee upon the same terms and
conditions as are contained herein, together with an assignment of Tenant's
interest as sublessor in any such proposed sublease, or
D. if the request is for consent to a proposed assignment of this
Lease, terminate this Lease and the Term hereof effective as of the last day of
the month in which the request was received.
Each assignee or sublessee of Tenant's interest hereunder shall assume and
be deemed to have assumed this Lease and shall be and remain liable jointly and
severally with Tenant for all payments and for the due performance of all terms,
covenants, conditions and provisions herein contained on Tenant's part to be
observed and performed. No assignment shall be binding upon Landlord unless the
assignee shall deliver to Landlord an instrument in recordable form containing a
covenant or assumption by the assignee, but the failure or refusal of an
assignee to execute the same shall not release assignee from its liability as
set forth herein.
Any assignment or subletting to any party other than an affiliate,
subsidiary or parent company, shall terminate any right of Tenant (as may
otherwise be provided for herein) to renew or extend the Term of this Lease or
any right of expansion to new or additional space, and shall likewise terminate
and render void and of no effect any prior exercise of any of the rights
enumerated above (except and only to the extent that a renewal term is then in
effect).
Any consent by Landlord hereunder shall not constitute a waiver of strict
future compliance by Tenant of the provisions of this Section 25 or a release of
Tenant from the full performance by Tenant of any of the terms, covenants,
provisions or conditions in this Lease contained.
26. Subordination. This Lease is and shall be subject and subordinate at
all times to all mortgages and other encumbrances now or hereafter placed upon
the Premises without the necessity of any further instrument or act on the part
of Tenant to effectuate such subordination. Tenant shall from time to time
execute and deliver within ten (10) days following the request of Landlord or
Landlord's mortgagee, grantee or lessor, recordable instruments evidencing such
subordination and Tenant's agreement to attorn to the holder of such prior
right. Notwithstanding the foregoing, any mortgagee may, at any time,
subordinate its mortgage to this Lease, without Tenant's consent, by notice in
writing to Tenant, whereupon this Lease shall be deemed prior to such mortgage
without regard to their respective dates.
27. Tenant's Certificates. Tenant shall, from time to time, within fifteen
(15) days after Landlord's request, execute and deliver to Landlord a recordable
written instrument(s) certifying that this Lease is unmodified and in full
effect (or if there have been modifications, that it is in effect as modified),
and the dates to which rental charges have been prepaid by Tenant, if any, and
whether or not Landlord is in default of any of its obligations hereunder.
Tenant agrees that such statement may be relied upon by any mortgagee, purchaser
or assignee of Landlord's interest in this Lease or the Premises.
28. Acceptance; Surrender. By entry and possession of the Premises, Tenant
hereby acknowledges that Tenant has examined the Premises and accepts the same
as being in the condition called for by this Lease, with the exception that
Tenant shall have the right within thirty (30) days after entry and possession
of the premises to present to the Landlord a "punch list" of corrections to the
improvements made to the premises on Tenant's behalf, which items shall be
corrected to Tenant's satisfaction within thirty (30) days of the presentation
of the list. Tenant shall, at the end of the Term, promptly surrender the
Premises in good order and condition and in conformity with the applicable
provisions of this Lease, excepting only reasonable wear and tear and damage by
fire or other insured casualty.
29. Holding Over. This Lease shall expire absolutely and without notice on
the last day of the Term, provided that if Tenant, with the prior written
consent of Landlord, retains possession of the Premises or any part thereof
after the termination of this Lease by expiration of the Term or otherwise, a
month-to-month tenancy shall be deemed to exist, and Tenant shall continue to
pay the Base Rent and Additional Rent due hereunder. If such holding over exists
without Landlord's prior written consent, Tenant shall pay Landlord, as partial
compensation for such unlawful retention, an amount calculated on a per diem
basis for each day of such continued unlawful retention, equal to twice the Base
Rent for the time Tenant thus remains in possession. Such payments for unlawful
retention shall not limit any rights or remedies of Landlord resulting by reason
of the wrongful holding over by Tenant or create any right in Tenant to continue
in possession of the Premises.
30. Notices. All notices, requests and consents herein required or
permitted from either party to the other shall be in writing and shall be deemed
given when received or rejected by the addressee, registered or certified mail,
return receipt requested, postage prepaid, addressed to Landlord at its address
aforesaid, with a copy to any mortgagee designated by Landlord, or, as the case
may be, addressed to Tenant c/o its President at its address aforesaid, or to
such other address as the party to receive same may designate by notice to the
other.
31. Broker. Landlord represents and warrants to Tenant that Landlord has
not dealt with any broker or agent in connection with the negotiation for or the
obtaining of this Lease, other than a representative of Penn-American Real
Estate Company acting as agent for Landlord and the Active Broker. Landlord
agrees to indemnify and hold Tenant harmless from and against all cost,
liability or claim for commission or other compensation by any broker or agent
claiming to be employed or contracted by Landlord other than Penn-American Real
Estate Company with respect to the Premises.
Tenant represents and warrants to Landlord that Tenant has not dealt with
any broker or agent in connection with the negotiations for or the obtaining of
this Lease, other than Penn-American Real Estate Company and Active Broker, and
Tenant agrees to indemnify and hold Landlord harmless from and against any and
all cost, liability or claim for commission or other compensation by any broker
or agent, other than Active Broker, claiming to be employed by Tenant or
claiming to have called the Premises to Tenant's attention.
32. Definition of Parties. The word "Landlord" is used herein to include
the Landlord named above and any subsequent person who succeeds to the rights of
Landlord herein, each of whom shall have the same rights and remedies as he
would have had had he originally signed this Lease as Landlord, but neither
Landlord nor any such person shall have any liability hereunder after he ceases
to hold a fee or leasehold interest in the Premises, except for obligations
which may have theretofore accrued; and in all events, Tenant shall look solely
to the Premises and rent derived therefrom for enforcement of any obligation
hereunder or by law assumed or enforceable against Landlord or such other
person. The word Tenant is used herein to include the party named above as
Tenant as well as its or their respective heirs, personal representatives,
successors and assigns, each of whom shall be under the same obligations, and
disabilities and have only such rights, privileges and powers as he would have
possessed had he originally signed this Lease as Tenant.
33. Entire Agreement; Interpretation. This Lease constitutes the entire
agreement between the parties hereto with respect to the Premises and there are
no other agreements or understandings. This Lease shall not be modified except
by written instrument executed by both parties. The captions used herein are for
convenience only, and are not part of the Lease. This Lease shall be construed
in accordance with the laws of the Commonwealth of Pennsylvania.
34. Security Deposit. As additional security for the covenants of this
Lease, the sum of Twelve Thousand and XX/100 dollars ($12,000.00) which shall
not constitute Rent for any month (unless so applied by Landlord on account of
Tenant's default). During the Term, Landlord may, if Landlord so elects, have
recourse to such security deposit, to make good any default by Tenant in which
event Tenant shall, upon demand, promptly restore the security deposit to its
original amount. To the extent that Landlord has not applied said sum on account
of a default, the security deposit shall be returned (without interest) to
Tenant within thirty (30) days after termination of the Lease. Liability to
repay the security deposit to Tenant shall run with the reversion and title to
the Building, whether any change in ownership thereof be by voluntary alienation
or as the result of judicial sale, foreclosure or other proceedings or the
exercise of a right of taking or entry by any mortgagee. Landlord shall assign
or transfer said security, for the benefit of Tenant, to any subsequent owner or
holder of the reversion or title to the Building, in which case the assignee
shall become liable for the repayment thereof as herein provided, and the
assignor shall be deemed to be released by Tenant from all liability to return
such security.
35. Expansion Option. Tenant shall have an option to expand into additional
adjacent space, if it becomes available. Tenant shall be notified in writing of
such availability and the terms under which the space is being offered to third
parties. If Tenant does not accept the additional space within seven (7) days of
receipt of notice, Tenant shall be conclusively presumed to have declined this
option. This option shall be subject to all other existing Tenant's expansion
options and rights that are in effect as of the signing date of this Lease.
36. Parking. Tenant shall have two (2) reserved covered parking spaces for
the exclusive use of Tenant.
37. Access. Tenant shall have access at all times to the common areas,
including common restrooms.
38. Renewal Option. Tenant shall have a right to renew this Lease for an
additional term of five (5) years following the initial term, at a rate not to
exceed 95% of the market rate. Such option shall be exercised not less than six
(6) months prior to the end of the original term.
IN WITNESS WHEREOF, the parties hereto have executed this Lease, under seal,
as of the day and year first above written.
LANDLORD:
One Sentry Parkway Limited Partnership
By: Parec Realty Partners, its
ATTEST: General Partner
By: Parec Realty, Inc.
General Partner
By: /s/ Suzanne M. Scherer By: /s/ David S. Gray
------------------------------ -------------------------------
Assistant Secretary Name: David S. Gray
Title: Vice President
(CORPORATE SEAL)
TENANT:
ASA International Ltd.
ATTEST:
By: /s/ Kim Robinson By: /s/ Katpady Shenoy
- ------------------------------- --------------------------------
Name: Katpady Shenoy
Title: President
<PAGE>
EXHIBIT B
---------
1. Electrical Requirements for Computer Room/Phone Room
100 Amps panel in the computer room with
- 120/208 3-phase 4 wire + ground
- 2-hots #3 THHN Copper, 1 1/4" Conduit
- 1-neutral #3 THHN Copper, 1 1/4" Conduit
- 1-ground #8 THHN Copper, 1 1/4" Conduit
100 Amp single phase 120/240 V would also be OK.
(20) 20 Amp Circuit Breaker, (1) 30 Amp Circuit Breaker
10 Quad outlets and
10 Duplex Outlets in assorted locations under a
raised floor in the computer room
2. Electrical Requirements for Offices
Minimum (3) standard duplex electric outlets per office.
Minimum (5) standard duplex electric outlets in the Executive office,
conference room, and training room
3. Electrical Requirements for Cubes
(1) 20 Amp circuit per 4 cubes, total 10 circuits
4. Electrical Requirements for Kitchen
- Standard duplex electric outlets every two feet on the kitchen
counter, total 4 outlets
- (3) standard duplex electric outlets on the wall
5. Electrical Requirements for Copy/Fax/Storage
Standard number of electric outlets.
(1) 20 Amp circuit
6. Two quad electric outlets by the reception desk and two duplex electric
outlets on the wall in the reception area
7. Additional supply air to be provided in computer room
8. Flooring
- Vinyl in the copy room, computer room and kitchen
- Standard carpeting for all other areas
9. Kitchen
- 10 ft upper and lower cabinets on the back wall in the kitchen, 6 ft
opening for the refrigerator and the vending machine
10. Training Room
- 10 ft upper and lower cabinets on the back wall
11. Coat Closet in the Reception Area
12. Wall Paper
In the executive rooms, conference room, training room and reception
area
13. Lighting schemes for open space to be discussed
14. Shade system for the skylight
15. Egg crate Diffusers in the executive offices, conference room and
training room
<PAGE>
EXHIBIT C
---------
RULES AND REGULATIONS
1. The entire building is a non-smoking building, and no smoking shall be
permitted in the Premises.
2. Landlord may from time to time adopt appropriate systems and procedures for
the security or safety of the building, any persons occupying, using, or
entering the building, or any equipment, finishings, or contents of the
building, and tenant will comply with landlord's reasonable requirements
relative to such systems and procedures.
3. The sidewalks, entrance, passages, courts, elevators, vestibules, stairways,
corridors and public parts of the Building shall not be obstructed or encumbered
by Tenant or used by Tenant for any purpose other than ingress and egress. If
the Premises are situated on the ground floor with direct access to the street,
then Landlord shall, at Landlord's expense, keep the sidewalks and curbs
directly in front of the Premises clean and free from ice, snow and refuse.
4. Windows in the Premises shall not be covered or obstructed by Tenant. No
bottles, parcels or other articles shall be placed on the window sills, in the
halls, or in any other part of the Building other than the Premises. No article
shall be thrown out of the doors or windows of the Premises.
5. No awnings, air-conditioning units, or other fixtures shall be attached to
the outside walls or the window sills of the Building or otherwise affixed so as
to project from the Building, without prior written consent of Landlord.
6. No sign or lettering shall be affixed by Tenant to any part of the outside of
the Premises, or any part of the inside of the Premises so as to be clearly
visible from the outside of the Premises, without the prior written consent of
Landlord. However, Tenant shall have the right to place its name on any door
leading into the Premises the size, color and style thereof to be subject to the
Landlord's approval not to be unreasonably withheld. Tenant shall not have the
right to have additional names placed on the Building directory without
Landlord's prior written consent.
7. Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or odors and shall not interfere with other tenants or those having
business with them. Tenant will keep all mechanical apparatus in the Premises
free of vibration and noise which may be transmitted beyond the limits of the
Premises.
8. If Tenant shall add any additional locks or bolts of any kind on any of the
doors or windows, then Tenant shall immediately deliver any necessary keys
and/or combinations required to unlock same to Landlord. Tenant shall, on the
termination of Tenant's tenancy, deliver to Landlord all keys to any space
within the Building either furnished to or otherwise procured by Tenant, and in
the event of the loss of any keys furnished, Tenant shall pay to Landlord the
cost thereof. Tenant, before closing and leaving the Premises, shall ensure that
all windows are closed and entrance doors locked. Nothing in this Paragraph 8
shall be deemed to prohibit Tenant from installing a burglar alarm within the
Premises, provided: (1) Tenant obtains Landlord's consent which will not be
unreasonably withheld or delayed; (2) Tenant supplies Landlord with copies of
the plans and specifications of the system; (3) such installation shall not
damage the Building; and (4) all costs of installation shall be borne solely by
Tenant.
9. No Tenant will employ any person or persons other than the cleaning service
of Landlord for the purpose of cleaning the premises, unless otherwise agreed to
by Landlord in writing. Except with the written consent of Landlord, no person
or persons other than those approved by Landlord will be permitted to enter the
building for the purpose of cleaning it. No Tenant will cause any unnecessary
labor by reason of such Tenant's carelessness or indifference in the
preservation of good order and cleanliness. Should Tenant's actions result in
any increased expense for any required cleaning, Landlord reserves the right to
assess Tenant for such expenses.
10. The toilet rooms, toilets, urinals, wash bowls and other plumbing fixtures
will not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other foreign substances will
be thrown in such plumbing fixtures. All damages resulting from any misuse of
the fixtures will be borne by the Tenant who, or whose servants, employees,
agents, visitors, or licensees, caused the same.
11. Canvassing, peddling, soliciting, and distributing handbills or any other
written materials in the building are prohibited, and each Tenant will cooperate
to prevent the same.
12. Landlord reserves the right to prescribe the weight and position of all
safes and other heavy equipment so as to distribute properly the weight thereof
and to prevent any unsafe condition from arising.
13. Landlord shall have the right to prohibit any advertising by Tenant which in
Landlord's reasonable opinion tends to impair the reputation of the Building or
its desirability as a building for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
14. Landlord hereby reserves to itself any and all rights not granted to Tenant
hereunder, including, but not limited to, the following rights which are
reserved to Landlord for its purposes in operating the Building:
a. the exclusive right to the use of the name of the Building for all
purposes, except that Tenant may use the name as its business address and for no
other purposes; and
b. the right to change the name or address of the Building, upon
reasonable prior notice to Tenant, without incurring any liability to Tenant for
doing so; and
c. the right to install and maintain a sign on the exterior of the
Building; and
d. the exclusive right to use or dispose of the use of the roof of the
Building; and
e. the right to limit the space on the directory of the Building to be
allotted to Tenant; and
f. the right to grant to anyone the right to conduct any particular
business or undertaking in the Building.
15. The Tenant shall be responsible for initiating, maintaining and supervising
all health and safety precautions and/or programs required by Law in connection
with the Tenant's use and occupancy of the Premises.
16. The Tenant shall not store, introduce or otherwise permit any material known
to be hazardous within the Premises. Any material within the Premises which is
determined to be hazardous shall be removed and properly disposed of by the
Tenant at the Tenant's sole expense.
EXHIBIT 21
ASA INTERNATIONAL LTD.
SUBSIDIARIES OF THE REGISTRANT
ASA Properties, Inc. a Massachusetts Corporation
ASA International Ventures, Inc., a Delaware Corporation
ASA Italy, S.r.l., an Italian Corporation
10 Speen Street, LLC, a Delaware limited liability company
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ASA International Ltd.
Framingham, Massachusetts
We hereby consent to the incorporation by reference in Registration
Statement No. 33-312933 of ASA International Ltd. on Form S-8 of our report
dated March 6, 1999, relating to the consolidated financial statements of ASA
International Ltd. appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Boston, Massachusetts
March 30, 1999
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998, CONDENSED
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
</LEGEND>
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<EXCHANGE-RATE> 1
<CASH> 4,262,438
<SECURITIES> 0
<RECEIVABLES> 5,418,296
<ALLOWANCES> 231,220
<INVENTORY> 202,487
<CURRENT-ASSETS> 11,467,089
<PP&E> 8,731,836
<DEPRECIATION> 3,889,322
<TOTAL-ASSETS> 19,732,355
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0
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<COMMON> 43,768
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<TOTAL-LIABILITY-AND-EQUITY> 19,732,355
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<TOTAL-REVENUES> 35,468,156
<CGS> 7,626,820
<TOTAL-COSTS> 24,020,139
<OTHER-EXPENSES> 9,915,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 462,462
<INCOME-PRETAX> 1,069,609
<INCOME-TAX> 653,000
<INCOME-CONTINUING> 416,609
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