ASA INTERNATIONAL LTD.
10 Speen Street
Framingham, Massachusetts 01701
(508) 626-2727
August 14, 2000
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Attention: Filing Desk
RE: ASA INTERNATIONAL LTD.
SEC FILE NO. 0-14741
Pursuant to regulations of the Securities and Exchange Commission, submitted
herewith for filing on behalf of ASA International Ltd. (the "Company") is the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2000.
This filing is being effected by direct transmission to the Commission's
Operational EDGAR System.
Very truly yours,
ASA INTERNATIONAL LTD.
/s/ Terrence C. McCarthy
Terrence C. McCarthy
Vice President and Treasurer
TCM/mb
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 2000 Commission File Number: O-14741
ASA International Ltd.
----------------------
(Exact name of Registrant as specified in its Charter)
Delaware 02-0398205
------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Speen Street, Framingham, MA 01701
---------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 508-626-2727
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: __X__ No: _____
As of June 30, 2000, there were 3,129,585 shares of Common Stock of the
Registrant outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash equivalents $ 1,976,377 $ 2,297,364
Marketable securities 899,363 3,365,737
Receivables - net 4,869,563 5,326,722
Other current assets 2,680,105 1,289,170
Net assets of SmartTime division 488,383 1,411,240
----------- -----------
TOTAL CURRENT ASSETS 10,913,791 13,690,233
PROPERTY AND EQUIPMENT (less
depreciation of $3,324,717 and
$3,092,487, respectively) 5,026,917 5,070,977
SOFTWARE (less amortization of
$3,563,830 and $2,822,289, respectively) 5,728,397 6,034,685
COST EXCEEDING NET ASSETS ACQUIRED
(less amortization of $ 1,420,478
and $1,411,455, respectively) 9,023 18,045
NOTE RECEIVABLE 1,700,000 1,700,000
OTHER ASSETS 1,298,441 1,356,345
----------- -----------
$24,676,569 $27,870,28
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ 319,527 $ 601,527
Note payable - other 3,200,000 3,200,000
Deferred option and license fees 2,460,000 2,460,000
Accounts payable 793,211 1,047,228
Accrued expenses 2,191,818 2,951,257
Deferred revenue 1,365,265 2,056,600
Other current liabilities 686,635 629,114
------------ ------------
TOTAL CURRENT LIABILITIES 11,016,456 12,945,726
LONG-TERM OBLIGATIONS, NET OF
CURRENT MATURITIES 3,873,836 3,915,331
LONG-TERM LIABILITES - OTHER 240,631 272,220
DEFERRED TAXES 497,000 497,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 45,091 43,845
Additional paid-in capital 7,929,459 7,801,387
Retained earnings 4,040,063 5,131,487
Accumulated other comprehensive
loss:
Foreign currency translation (13,745) (10,968)
Unrealized loss on marketable securities (3,796) (26,478)
------------ ------------
11,997,072 12,939,273
Less: treasury stock, at cost 2,948,426 2,699,265
------------ ------------
9,048,646 10,240,008
------------ ------------
$ 24,676,569 $ 27,870,285
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
--------------------------
2000 1999
--------------------------
(Unaudited)
<S> <C> <C>
REVENUE
Services $ 3,358,457 $ 4,095,709
Product licenses 1,329,468 1,490,971
Computer and add-on hardware 337,931 1,409,392
----------- -----------
NET REVENUE 5,025,856 6,996,072
----------- -----------
COST OF REVENUE
Services 1,970,576 2,370,822
Product licenses and development 1,364,223 1,194,649
Computer and add-on hardware 241,722 1,018,343
----------- -----------
TOTAL COST OF REVENUE 3,576,521 4,583,814
----------- -----------
EXPENSES
Marketing and sales 1,327,059 1,059,531
General and administrative 649,585 1,002,212
Amortization of goodwill 4,511 11,032
----------- -----------
TOTAL EXPENSES 1,981,155 2,072,775
----------- -----------
EARNINGS (LOSS) FROM OPERATIONS (531,820) 339,483
INTEREST EXPENSE - NET 6,891 20,174
EQUITY IN LOSS FROM AFFILIATE (348,229) --
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (873,158) 359,657
INCOME TAXES (BENEFIT) (322,000) 216,000
----------- -----------
NET EARNINGS (LOSS) $ (551,158) $ 143,657
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
BASIC $ (0.17) $ 0.04
=========== ===========
DILUTED $ (0.17) $ 0.04
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
--------------------------
2000 1999
--------------------------
(Unaudited)
<S> <C> <C>
REVENUE
Services $ 6,875,889 $ 7,844,033
Product licenses 2,802,865 3,076,131
Computer and add-on hardware 670,365 2,482,771
------------ ------------
NET REVENUE 10,349,119 13,402,935
------------ ------------
COST OF REVENUE
Services 4,100,765 4,556,698
Product licenses and development 2,494,636 2,074,990
Computer and add-on hardware 536,846 1,833,051
------------ ------------
TOTAL COST OF REVENUE 7,132,247 8,464,739
------------ ------------
EXPENSES
Marketing and sales 2,527,348 2,202,997
General and administrative 1,807,684 1,832,273
Amortization of goodwill 9,023 22,063
------------ ------------
TOTAL EXPENSES 4,344,055 4,057,333
------------ ------------
EARNINGS (LOSS) FROM OPERATIONS (1,127,183) 880,863
------------ ------------
INTEREST EXPENSE - NET (11,173) (47,934)
OTHER INCOME - NET 320,790 3,822,105
EQUITY IN LOSS FROM AFFILIATE (922,858) --
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (1,740,424) 4,655,034
INCOME TAXES (BENEFIT) (649,000) 2,798,000
------------ ------------
NET EARNINGS (LOSS) $ (1,091,424) $ 1,857,034
============ ============
EARNINGS (LOSS) PER COMMON SHARE:
BASIC $ (0.34) $ 0.57
============ ============
DILUTED $ (0.34) $ 0.53
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
-------------------------- --------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ (551,158) $ 143,657 $(1,091,424) $ 1,857,034
OTHER COMPREHENSIVE INCOME (LOSS)
NET OF INCOME TAX:
Foreign currency translation (2,200) (8,558) (2,777) (10,003)
Unrealized gain (loss) on marketable securities (340) -- 22,682 --
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (553,698) $ 135,099 $(1,071,519) $ 1,847,031
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
June 30,
--------------------------
2000 1999
--------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(1,091,424) $ 1,857,034
Adjustments to reconcile net earnings
to net cash used for operating activities:
Depreciation and amortization 1,008,467 607,670
Changes in assets and liabilities (1,634,708) 416,168
Gain on sale of product line -- (3,824,420)
------------ ------------
Total adjustments (626,241) (2,800,582)
------------ ------------
Net cash used for operating activities (1,717,665) (943,548)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (210,510) (412,196)
Additions to software (435,253) --
Increase in sales-type leases -- (12,890)
Cash received in divestiture -- 3,437,382
Reduction in securities 2,481,614 --
Other assets 54,571 (1,841,085)
------------ ------------
Net cash provided by investing activities 1,890,422 1,171,211
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in long-term debt (339,535) (84,623)
Decrease in long-term liabilities (31,588) (13,781)
Purchase of treasury stock (249,161) (492,083)
Issuance of common stock 129,318 2,294
------------ ------------
Net cash used for financing activities (490,966) (588,193)
------------ ------------
EFFECT OF EXCHANGE RATES ON CASH
AND CASH EQUIVALENTS (2,778) 35,163
------------ ------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) (320,987) (325,367)
Balance, beginning of year 2,297,364 4,262,438
------------ ------------
Balance, end of period $ 1,976,377 $ 3,937,071
============ = ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
7
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
------------------------------
As permitted by the rules of the Securities and Exchange Commission applicable
to quarterly reports on Form 10-Q, these notes are condensed and do not contain
all disclosures required by generally accepted accounting principles. Reference
should be made to the financial statements and related notes included in the
Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying financial statements reflect all
adjustments which were of a normal recurring nature necessary for a fair
presentation of the Company's results of operations for the three months and six
months ended June 30, 2000 and June 30, 1999, respectively.
The results disclosed in the Condensed Consolidated Statement of Operations for
the three months and six months ended June 30, 2000 are not necessarily
indicative of the results expected for the full year.
Note 2 - Notes Payable - Bank and Debt
--------------------------------------
In July 2000, the Company renewed only its revolving demand loan agreement with
a bank for up to $1,500,000 which bears interest at prime plus 1/2%.
Note 3 - Subsequent Event
--------------------------
The Company is seeking to sell its ERP product line located in Italy. Should the
Company not find a buyer for this business within a short period of time,
however, it plans to discontinue the operations of this business. The Company is
uncertain as to the costs that it may incur in connection with this business
unit.
8
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Earnings per Share
---------------------------
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2000 1999 2000 1999
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (551,158) $ 143,657 $(1,091,424) $ 1,857,034
============ =========== ============ ===========
Numerator for diluted earnings (loss) per share -
income available to common shareholders $ (551,158) $ 143,657 (1,091,424) $ 1,857,034
============ =========== ============ ===========
Denominator:
Denominator for basic earnings (loss) per share -
Weighted average shares 3,175,297 3,264,273 3,186,697 3,282,594
Effect of dilutive securities:
Employee stock options -- 224,958 -- 211,639
------------ ----------- ----------- ------------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 3,175,297 3,489,231 3,186,697 3,494,233
============ =========== ============ ===========
asic Earnings (Loss) per share $ (0.17) $ 0.04 $ (0.34) $ 0.57
============ =========== ============ ===========
Diluted Earnings (Loss) per share $ (0.17) $ 0.04 $ (0.34) $ 0.53
============ =========== ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
9
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
----------------------------------------------------------------------
In addition to the historical information contained herein, the discussions
contained in this document include forward-looking statements. By way of
example, the discussions include statements regarding revenues, gross margins,
future marketing efforts, 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.
<TABLE>
<CAPTION>
Results of Operations
Second Quarter of 2000
compared to
Second Quarter of 1999
(000's omitted)
--------------------------------------------------------
Revenue Increase / (Decrease)
---------------------- --------------------------
2000 1999 Amount Percentage
------- ------- -------- -------
<S> <C> <C> <C> <C>
Services $ 3,358 $ 4,096 $ (738) (18%)
Product licenses 1,330 1,491 (161) (11%)
Computer and add-on hardware 338 1,409 (1,071) (76%)
------- ------- --------
Net revenue $ 5,026 $ 6,996 $(1,970) (28%)
======= ======= ======== =======
</TABLE>
REVENUE
-------
Net revenue. The Company designs and develops proprietary enterprise software
for the tire dealer, legal, ERP (enterprise resource planning) and e-Business
management software markets. The Company entered the enterprise management
software market in November 1999 with the acquisition of the business of Design
Data Corporation, a Florida corporation. The Company has renamed this product
line, formerly known as SQL* Time, Khameleon Software. 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 decreased by approximately $1,970,000, or
28%, for the three months ended June 30, 2000, compared to the three months
ended June 30, 1999. Revenue from existing businesses decreased by approximately
$842,000, or 14% for the period, when approximately $1,128,000 in revenue from
the Company's SmartTime product line for the three months
10
<PAGE>
ended June 30, 1999 is excluded. Approximately $1,798,000 of the change in
revenue from existing businesses is from the newly acquired Khameleon product
line for which there is no comparable amount in 1999.
Product licenses. The Company's software license revenues are derived primarily
from the licensing of the Company's enterprise products. Software license
revenues decreased by approximately $161,000, or 11%, for the three months ended
June 30, 2000, compared to the same period in 1999. Product license revenue from
existing businesses decreased by approximately $135,000, or 9%, for the period,
when compared to 1999, and the product license revenue from the SmartTime
product line of approximately $26,000 for the 1999 period is excluded.
Approximately $511,000 of the change in product license revenue from existing
business is from the Khameleon product line for which there is no comparable
amount in 1999.
Services. Services are comprised of fees generated from training, consulting,
software modifications, and ongoing client support provided under maintenance
agreements that renew automatically unless either party gives prior notice as
specified in the agreements. Service revenues decreased by approximately
$738,000, or 18%, for the three months ended June 30, 2000, compared to the
three months ended June 30, 1999. Service revenue from existing businesses
increased by approximately $362,000, or 12%, for the period, when compared to
1999, and the service revenue from the SmartTime product line of approximately
$1,100,000 for the 1999 period is excluded. Approximately $1,287,000 of the
change in service revenue from existing businesses is from the newly acquired
Khameleon product line for which there is no comparable amount in service
revenue for the year ended December 31, 1999.
Computer and add-on hardware. Hardware revenues are derived from the resale of
third-party hardware products to the Company's clients in conjunction with the
licensing of the Company's software. Hardware revenues decreased by
approximately $1,071,000, or 76%, for the three months ended June 30, 2000,
compared to the same period in 1999. The decrease in hardware revenue was due
primarily to decreased unit sales of hardware products by the Company's tire
systems produce line.
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 product
license revenues and development increased by approximately $170,000 for the
three months ended June 30, 2000, compared to the same period in 1999. Cost of
product license and development increased by approximately $534,000, or 64% for
the three months when compared to 1999, and the cost of product licenses and
development from the SmartTime product line of $362,000 for the 1999 period is
excluded. Approximately $909,000 of the increase in the cost of product licenses
and development from the Company's existing businesses is attributable to the
newly acquired Khameleon product line for which there is no comparable amount in
1999. 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 $400,000
for the three months ended June 30, 2000, compared to the same period in 1999.
The gross margin percentage for services for the three months ended June 30,
2000 decreased to approximately 41% from 42% of revenue from services in 1999.
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 decreased
by approximately $777,000, or 76%, for the three months ended June 30, 2000,
compared to the prior period. The decrease in dollar amount for the cost
11
<PAGE>
of hardware revenues for the three months ended June 30, 2000 was due primarily
to decreased unit sales of hardware products by the Company's tire systems
product line.
The gross margin percentage for hardware sales remained at approximately 28% for
the three months ended June 30, 2000, compared to the same period in 1999.
Margins on computer and add-on hardware can fluctuate based on the mix of
computer and ancillary hardware products sold. Accordingly, the Company expects
hardware gross margins to continue to fluctuate in the future. The Company
continues to direct its efforts toward building service and license revenues to
offset the historical decline in hardware revenue and margins.
EXPENSES
--------
Marketing and sales. Marketing and sales expenses 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 $268,000, or 25%,
for the three months ended June 30, 2000, compared to the same period in 1999.
The change in marketing and sales expenses reflects the increased sales and
marketing expenses from the newly acquired Khameleon Software product line
partially offset by the elimination of the marketing and sales expenses of the
SmartTime product line and a decrease in marketing and sales expenses in the
tire system 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 decreased by
approximately $353,000, or 35%, for the three months ended June 30, 2000,
compared to the same period in 1999. The change primarily reflects decreased
general and administrative expense in all the Company's product lines, partially
offset by increased general and administrative expenses from the newly acquired
Khameleon Software product line.
The net loss for the three months ended June 30, 2000 was approximately
$551,000, as compared to net earnings of approximately $144,000 for the same
period in 1999. The change results from a decrease in earnings from operations
of $872,000, a loss from the equity in earnings from affiliate of approximately
$348,000, and a decrease in interest income, net of approximately $13,000,
partially offset by a decrease in income tax expense of approximately $538,000.
12
<PAGE>
Item 2
- continued -
<TABLE>
<CAPTION>
Results of Operations
Six Months Ended June 30, 2000
compared to
Six Months Ended June 30, 1999
(000's omitted)
-------------------------------------------------------
Revenue Increase / (Decrease)
---------------------- --------------------------
2000 1999 Amount Percentage
------- ------- -------- -------
<S> <C> <C> <C> <C>
Services $ 6,876 $ 7,844 $ (968) (12%)
Product licenses 2,803 3,076 (273) (9%)
Computer and add-on hardware 670 2,483 (1,813) (73%)
------- ------- --------
Net revenue $10,349 $13,403 $(3,054) (23%)
======= ======= ======== =======
</TABLE>
Net revenue. The Company's total revenues decreased by approximately $3,054,000,
or 23%, for the six months ended June 30, 2000, compared to the six months ended
June 30, 1999. Revenue from existing businesses decreased by approximately
$538,000, or 5% for the period, when approximately $2,516,000 in revenue from
the Company's SmartTime product line for the six months ended June 30, 1999 is
excluded. Approximately $3,881,000 of the change in revenue from existing
businesses is from the newly acquired Khameleon product line for which there is
no comparable amount in 1999.
Product licenses. Software license revenues decreased by approximately $273,000,
or 9%, for the six months ended June 30, 2000, compared to the same period in
1999. Product license revenue from existing businesses increased by
approximately $154,000, or 6%, for the period, when compared to 1999, and the
product license revenue from the SmartTime product line of approximately
$427,000 for the 1999 period is excluded. Approximately $1,223,000 of the change
in product license revenue from existing business is from the Khameleon product
line for which there is no comparable amount in 1999.
Services. Service revenues decreased by approximately $968,000, or 12%, for the
six months ended June 30, 2000, compared to the six months ended June 30, 1999.
Service revenue from existing businesses increased by approximately $1,092,000,
or 19%, for the period, when compared to 1999, and the service revenue from the
SmartTime product line of approximately $2,060,000 for the 1999 period is
excluded. Approximately $2,658,000 of the change in service revenue from
existing businesses is from the newly acquired Khameleon product line for which
there is no comparable amount in service revenue for the year ended December 31,
1999.
Computer and add-on hardware. Hardware revenues decreased by approximately
$1,813,000, or 73%, for the six months ended June 30, 2000, compared to the same
period in 1999. The decrease in hardware revenue was due primarily to decreased
unit sales of hardware products by the Company's tire systems produce line.
13
<PAGE>
COST OF REVENUE
---------------
Product licenses and development. Cost of product license revenues and
development increased by approximately $420,000 for the six months ended June
30, 2000, compared to the same period in 1999. Cost of product license and
development increased by approximately $1,092,000, or 78% for the six months
when compared to 1999, and the cost of product licenses and development from the
SmartTime product line for the 1999 period is excluded. Approximately $1,466,000
of the increase in the cost of product licenses and development from the
Company's existing businesses is attributable to the newly acquired Khameleon
product line for which there is no comparable amount in 1999. 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 decreased by approximately $456,000 for the six
months ended June 30, 2000, compared to the same period in 1999. The gross
margin percentage for services for the six months ended June 30, 2000 decreased
to approximately 40% from 42% of revenue from services in 1999. 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 decreased by
approximately $1,296,000, or 71%, for the six months ended June 30, 2000,
compared to the prior period. The decrease in dollar amount for the cost of
hardware revenues for the six months ended June 30, 2000 was due primarily to
decreased unit sales of hardware products by the Company's tire systems product
line.
The gross margin percentage for hardware sales decreased to 20% for the six
months ended June 30, 2000, from 26% in the same period in 1999. Margins on
computer and add-on hardware can fluctuate based on the mix of computer and
ancillary hardware products sold. Accordingly, the Company expects hardware
gross margins to continue to fluctuate in the future. The Company continues to
direct its efforts toward building service and license revenues to offset the
historical decline in hardware revenue and margins.
EXPENSES
--------
Marketing and sales. Marketing and sales expenses increased by $324,000, or 15%,
for the six months ended June 30, 2000, compared to the same period in 1999. The
change in marketing and sales expenses reflects the increased sales and
marketing expenses from the newly acquired Khameleon Software product line
partially offset by the elimination of the marketing and sales expenses of the
SmartTime product line and a decrease in marketing and sales expenses for the
ERP and tire systems product lines.
General and administrative. General and administrative expenses decreased by
approximately $25,000, or 1%, for the six months ended June 30, 2000, compared
to the same period in 1999. The change primarily reflects increased general and
administrative expenses from the newly acquired Khameleon Software product line
partially offset by the elimination of the expenses related to the SmartTime
product line, and a decrease in general and administrative expenses for the tire
and legal systems product lines.
The net loss for the six months ended June 30, 2000 was approximately
$1,091,000, as compared to net earnings of approximately $1,857,000 for the same
period in 1999. The change results from a decrease in earnings from operations
of $2,007,000, a loss from the equity in earnings from affiliate of
approximately $923,000, and a decrease in other income, net of approximately
$3,501,000, partially offset by a decrease in interest expense, net of
approximately $36,000 and a decrease in income tax expense of approximately
$3,447,000. Other income, net for the six months ended June 30, 1999 included a
pretax gain of approximately $3,824,000 on the sale of the Company's
CommercialWare division.
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Liquidity and Capital Resources
The Company had total cash and cash equivalents at June 30, 2000 of
approximately $1,976,000, a decrease of approximately $321,000 from December 31,
1999. The Company and its subsidiaries had a maximum line of credit totaling
$1,500,000 available at June 30, 2000. At June 30, 2000, the Company had
approximately $899,000 invested in marketable securities, a decrease of
approximately $2,466,000 from December 31, 1999.
In November 1999, the Company acquired the business of Design Data Systems
Corporation, a Florida corporation, pursuant to an Asset Purchase Agreement (the
"Purchase Agreement") by and among the Company, the Seller, individually (only
with respect to certain sections of the Purchase Agreement), and the Company's
Bank, as Escrow Agent (the "Escrow Agent") (only with respect to certain
sections of the Purchase Agreement). The Purchase Agreement provides that the
transaction is effective as of September 30, 1999 (the "Closing Date").
Pursuant to and as more fully set forth in the Purchase Agreement, the Company
had the right and obligation to purchase certain of the assets and assume
certain of the liabilities of Seller for a purchase price of $5,000,000 (the
"Purchase Price"). Of the Purchase Price, $4,750,000 was due and payable on the
Closing Date and $250,000 was to be deposited with the Escrow Agent to be held
pursuant to the terms of the Purchase Agreement.
Also on the Closing Date, the Company entered into a certain Asset Acquisition
and Exchange Cooperation Agreement (the "Exchange Agreement") with SQL
Acquisition LLC, a Delaware limited liability company ("SQL"), Fidelity National
1031 Exchange Services, Inc., a California corporation, and Pacific American
Property Exchange Corporation, a California corporation and sole member and
manager of SQL. The Company has entered into the Exchange Agreement for the
purpose of seeking the ability to effectuate a like-kind exchange pursuant to
Section 1031 of the Internal Revenue Code of 1986, as amended. Pursuant to and
as more fully set forth in the Exchange Agreement, the Company has reserved the
right to exchange certain software and related intellectual property of Seller
(the "Replacement Property") for certain other relinquished property of the
Company. In connection therewith, the Company assigned to SQL the Company's
right and obligation under the Purchase Agreement to acquire the Replacement
Property pursuant to a certain Assignment Agreement dated the Closing Date
between the Company, Seller and SQL (the "Assignment"). On the Closing Date, the
following actions were completed:
1. SQL acquired the Replacement Property from Seller in accordance with the
Purchase Agreement and the Assignment in exchange for a payment of $4,300,000.
2. The Company acquired the remainder of Seller's assets in accordance with the
Purchase Agreement in exchange for (a) the payment of $700,000 (of which
$250,000 was deposited with the Escrow Agent) and (b) the assumption of certain
of Seller's liabilities.
3. The Company loaned SQL $4,300,000 pursuant to the Exchange Agreement and a
related promissory note due on November 3, 2000 and bearing interest at the rate
of 6.18% per annum. The funds were used by SQL to acquire the Replacement
Property.
4. SQL granted a license to the Company to use the Replacement Property until
November 3, 2000 pursuant to a License Agreement between the Company and SQL, in
exchange for a one-time license fee of $285,000.
The Company anticipates that it will seek to complete a like-kind exchange
involving the Replacement Property on or before November 3, 2000, although there
can be no assurance that such an exchange will be completed.
In August 1999, the Company granted to a company ("Optionee") an option to
purchase the Company's SmartTime product line. As per the terms of the Option
Agreement, the Company transferred the assets and
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liabilities of its SmartTime product line to a newly formed LLC, of which the
Company is the sole member and the Optionee is the manager.
The terms of the Option Agreement provide that the Optionee has the option to
purchase the SmartTime product line from the LLC at anytime from August 1, 2000
through August 31, 2000 (the "Option Period"), or at such earlier date as agreed
to by the parties, for an aggregate purchase price of $7,020,000, less any
option fee paid to date (the "Purchase Price").
The Optionee paid an initial option fee in the amount of $1,660,000 upon
execution of the Option Agreement and a second option fee of $540,000 was paid
on August 1, 2000. The option fees are non-refundable to the Optionee in the
event that the Optionee does not exercise the option to purchase the SmartTime
product line, as to which there can be no assurance. Also under the terms of the
Option Agreement, the Optionee has loaned to the Company the sum of $3,200,000
(with respect to which the Company has prepaid $160,000 in interest). In
addition, the LLC has agreed to loan the Optionee an amount equal to the net
cash of the LLC available after collection of the LLC's accounts receivable and
payment of the LLC's accounts payable.
In addition, the Optionee has purchased exclusive licenses to use the customer
intangibles and intellectual property of the SmartTime product line during the
Option Period for $300,000 and $500,000, respectively. In the event that the
Optionee does not exercise the option to purchase the SmartTime product line
prior to the expiration of the Option Period, the Optionee's rights under the
above-mentioned license agreements would terminate and the Company, through the
LLC, would retain ownership of these assets.
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.
Year 2000 Implications
Prior to December 31, 1999, where necessary, the Company had provided its
customers upgrade alternatives to its Year 2000 non-compliant software and to
date has experienced only minor Year 2000 problems related to its products. The
majority of computer hardware and software the Company uses in its internal
operations did not require replacement or modification as a result of Year 2000
non-compliance. The Company believes that its significant vendors and service
providers are Year 2000 compliant and has not, to date, been made aware that any
of its significant vendors or service providers have suffered Year 2000
disruptions in their systems. Accordingly, the Company does not anticipate
incurring material expenses or experiencing any material operational disruptions
as a result of any Year 2000 problems. The total cost of the Company's Year 2000
compliance measures was not material and was funded through operating cash flows
and expensed as incurred.
Item 3. Quantitative And Qualitative Disclosure About Market Risk
---------------------------------------------------------
The Company is exposed to the impact of interest rate changes, foreign currency
fluctuations, and investment changes.
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 and senior secured
floating rate loan funds 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 10% 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
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subsidiary uses the local currency as its functional 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 the first two quarters of
2000 and 1999 was not material.
Investment Risk. The Company has invested, and may invest in the future, in
equity instruments of privately held companies for business and strategic
purposes. These investments are included in other long-term assets and are
accounted for under the cost method when ownership is less than 20%. For these
non-quoted investments, the Company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The Company identifies and records impairment
losses on long-lived assets when events or circumstances indicate that such
assets might be impaired.
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PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
On June 21, 2000, the Company held an Annual Meeting of Stockholders (the
"Annual Meeting") to vote on the following proposals:
1. To elect five (5) members to the Board of Directors. Nominees for Director
were: (a) Alfred C. Angelone; (b) Alan J. Klitzner; (c) William A. Kulok; (d)
James P. O'Halloran; and (e) Robert L. Voelk; and
2. To ratify and confirm the appointment of BDO Seidman, LLP, as the independent
accountants for the Company for the fiscal year ending December 31, 2000
("Proposal No. 2").
3. To adopt and approve an amendment to the Corporation's Certificate of
Incorporation to change the Corporation's name to "Vertapro Inc." ("Proposal No.
3").
Of the 4,387,228 shares of the Company's Common Stock of record as of 3/24/00
able to be voted at the Annual Meeting, a total of approximately 3,624,115
shares were voted, or approximately 82.61% of the Company's issued and
outstanding shares of Common Stock entitled to vote on these matters. Proposals
No. 1, No. 2, and No. 3 were adopted with the vote totals as follows:
Shares
Shares Voting
Voting For Against Withhold
---------- ------- --------
Proposal
--------
Proposal No. 1
--------------
(a) Alfred C. Angelone 3,603,175 20,940
(b) Alan J. Klitzner 3,603,694 20,421
(c) William A. Kulok 3,603,934 20,181
(d) James P. O'Halloran 3,613,834 10,281
(e) Robert L. Voelk 3,613,894 15,221
Proposal No. 2
--------------
3,608,158 12,381 3,576
Proposal No. 3
--------------
3,584,867 26,812 12,436
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits -
The following exhibits are filed with this report:
27 Financial Data Schedule.
(b) Reports on Form 8-K - None.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASA International Ltd.
----------------------
(Registrant)
8/14/00 /s/ Alfred C. Angelone
(Date) ----------------------
(Signature)
Alfred C. Angelone
Chief Executive Officer
8/14/00 /s/ Terrence C. McCarthy
(Date) ------------------------
(Signature)
Terrence C. McCarthy
Vice President and Treasurer
20
