ASA INTERNATIONAL LTD.
10 Speen Street
Framingham, Massachusetts 01701
(508) 626-2727
March 30, 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. O-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 Report on Form 10-K for the fiscal year ended December 31, 1999.
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
<PAGE>
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, 1999 0-14741
- ------------------------- ----------------------
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 No.)
10 Speen Street, Framingham, MA 01701
- ----------------------------------------- ----------
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 626-2727
- ------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
- ----------------------------------------------------------
Title of each class Name of each exchange
- ------------------- on which registered
---------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
- -----------------------------------------------------------
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. [ ].
<PAGE>
As of March 24, 2000, 3,092,285 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 $10,400,000.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part of Form 10-K Annual
Report in which Document
Document is Incorporated
- -------- ------------------------
Definitive Proxy Statement to be
supplied to Shareholders in conjunction
with the 2000 Annual Meeting of Shareholders Part III
<PAGE>
PART I
ITEM 1. Business
--------
GENERAL
Background
- ----------
ASA International Ltd. (the "Registrant" or the "Company") provides
networked automation systems and ongoing monthly support to approximately 1100
businesses in North and South America and Europe. The Company designs and
develops proprietary enterprise software for the following markets: tire dealer
and retreader, law firms, manufacturing companies in Italy, and software
companies, system integrators and e-focused companies. The Company installs its
software on a variety of computers and networks, and various Unix/Open Systems
hardware platforms, and provides implementation, education, custom development,
and long-term software support to its customers.
The Company has divested certain product lines in 1999 as more fully
described below under the heading "Recent Acquisitions and Divestitures."
The Company's current operations are comprised of four product lines and a
corporate services group which supports all four product lines. The four current
product lines are:
Tire Systems. Integrated offering of systems and services designed
specifically for the multi-user environments of today's tire and automotive
after-market businesses. ASA Tire Systems offers e-commerce and
business-to-business services through eTirePlace.com as well as ASP services.
e-Business Management Application Software Systems. Under the name
Khameleon(TM), the Company offers eBusiness management applications for
software, service, system integration and e-focused companies. Khameleon's
extensive ASP services are targeted to organizations looking to outsource their
critical front-office to back-office applications.
Legal Systems. Integrated accounting and practice management software
solutions for law firms in the United States and Latin America.
ERP Systems. Integrated client/server-based Enterprise Resource Planning
("ERP") systems for manufacturing companies in 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.
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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.
Recent Acquisitions and Divestitures
- ------------------------------------
Design Data
- -----------
In November 1999, the Company acquired the business of Design Data Systems
Corporation, a Florida corporation ("DDSC"), pursuant to that certain Asset
Purchase Agreement (the "Design Data Purchase Agreement") by and among the
Company, DDSC, individually (only with respect to certain sections of the Design
Data Purchase Agreement), and Eastern Bank, as Escrow Agent (the "Escrow Agent")
(only with respect to certain sections of the Purchase Agreement). The Design
Data Purchase Agreement provides that the transaction is effective as of
September 30, 1999 (the "Effective Date").
Pursuant to and as more fully set forth in the Design Data Purchase
Agreement, the Company had the right and obligation to purchase certain of the
assets and assume certain of the liabilities of DDSC for a purchase price of
$5,000,000 (the "Purchase Price"). Of the Purchase Price, $4,750,000 was paid on
the Closing Date and $250,000 was deposited with the Escrow Agent to be held
pursuant to the terms of the Design Data 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 DDSC
(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 among
the Company, DDSC and SQL (the "Assignment"). On the closing Date, the following
actions were completed:
1. SQL acquired the Replacement Property from DDSC in accordance with the Design
Data Purchase Agreement and the Assignment in exchange for a payment of
$4,300,000.
2. The Company acquired the remainder of DDSC's assets in accordance with the
Design Data 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.
5
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3. The Company loaned SQL $4,300,000 pursuant to the Exchange Agreement and SQL
executed a related promissory note in the principal amount of $4,300,000 due on
November 3, 2000 and bearing interest at the rate of 6.18% per annum. The
proceeds of the note 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.
SmartTime
- ---------
In August 1999, the Company granted to a company ("Optionee") an option to
purchase the Company's SmartTime product line, client/server enterprise-wide
payroll software. As per the terms of the Option Agreement, the Company
transferred the assets and liabilities of its SmartTime product line to a newly
formed LLC ("Newco"), of which the Company is the sole member and the Optionee
is the manager.
The Option Agreement provides that the Optionee has the option to purchase
the SmartTime product line from Newco at any time 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 terms and conditions of the acquisition
are set forth in an Asset Purchase Agreement dated as of August 2, 1999 (the
"Smart Time Purchase Agreement"). The SmartTime Purchase Agreement provides that
the sale will occur, if at all, within two days after exercise of the option and
the satisfaction of certain other conditions as specified in the SmartTime
Purchase Agreement. During the Option Period, the Optionee will employ the
employees of the SmartTime product line and will bear the risk of its financial
performance.
The Optionee paid an initial option fee in the amount of $1,660,000 upon
execution of the Option Agreement and is required to pay a second option fee on
August 1, 2000 in the amount of $540,000, unless the Optionee exercises the
option prior to such date. 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. Pursuant to 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, Newco has agreed to loan the Optionee an amount equal to the net cash
of Newco available after collection of Newco's accounts receivable and payment
of Newco's accounts payable.
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
Newco, would retain ownership of these assets.
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The net assets of the SmartTime product line are included in current assets
in the Company's balance sheet at December 31, 1999. The results for the
operations of this product line are shown in the Consolidated Statements of
Operations for the year ended December 31, 1999 under the caption "Equity in
Loss from Affiliate."
CommercialWare
- --------------
Effective March 3, 1999, the Company sold substantially all of the assets
of the Company's CommercialWare Division ("CWI") to CommercialWare, Inc., a
Delaware Corporation ("CW"). CWI provided enterprise order management and
fulfillment systems to consumer, business catalog, direct marketing and
electronic commerce firms. In connection therewith, the Company transferred to
CW 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 CW's
common stock, par value $.01 per share, and (v) one (1) share of CW's Series A
Preferred Stock.
International Trade and Transportation Systems Group
- ----------------------------------------------------
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 "TradePoint 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 of the Company. 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, except as noted
above, there has been no disposition of any material amount of the Registrant's
assets.
7
<PAGE>
BUSINESS
The following paragraphs describe in greater detail the business conducted
by the Registrant.
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
Business-to-Business ("B2B") via the Internet, 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
computer 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 computer systems in the United States.
Within this operating group, the Company also continues to maintain,
upgrade, and support legacy manufacturing management and control and accounting
software based primarily on the DEC hardware platform.
Legal Systems
- -------------
The Company provides integrated client/server-based financial management,
knowledge base management and file room management systems for mid-size law
firms and corporate legal departments throughout the United States and Latin
America. The Company's Visual Pyramid, Visual FastTrack and Visual One products
are a powerful, fully integrated suite of legal specific applications designed
to run on PC networks. The products are written using Microsoft development
tools and Microsoft relational database technology. Systems range in price
between approximately $50,000 and $200,000.
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. In July 1999, the Company acquired substantially all of the assets
of Chase Technologies Incorporated of Washington Crossing, Pennsylvania. The
Company believes it has an estimated 12% share of the mid-sized law firm market.
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e-Business Management Applications Software
- -------------------------------------------
The Company offers a modular suite of back- and front-office software
applications based on the Oracle platform, marketed under the name Khameleon
Software. The product, designed to meet the needs of software companies, systems
integrators, service and e-focused companies, includes the following modules:
Marketing & Sales Force Automation, Contracts & Logistics Management, Project
Accounting & Management, Customer Relationship Management and Financial
Accounting & Management. Systems range in price from $50,000 to $300,000.
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.
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, legal, ERP, and e-Business Management
Applications Software markets served by the Company, the total 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.
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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 such manufacturers would not have a material adverse
effect on the Company's business. 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 all of its computer hardware and peripheral equipment
from hardware vendors, and performs only software installation, testing, final
system configuration, and quality control. The Company believes there are
several alternative suppliers for system components used by the Company.
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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 certain legal clients may
also purchase "source" code. In addition, most Khameleon Software clients have
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 North and South
America and Italy.
Working Capital Items
- ---------------------
The Company does not have any unusual trade practices which would require
restrictions on working capital.
Revenue by Product Line
- -----------------------
During the fiscal years ended December 31, 1999, 1998 and 1997, the
Company's revenue by product line was approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ----------------
Product Line Revenue($) % Revenue($) % Revenue($) %
- ------------ ---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Tire Systems $10,741,000 42% $ 8,735,000 25% $ 5,877,000 23%
Legal Systems 6,222,000 24 5,150,000 15 4,205,000 16
e-Business Management
Applications Software 1,965,000 8 - -
ERP Systems 2,899,000 11 3,513,000 10 -
SmartTime Software/
Legacy products 3,796,000 15 6,870,000 19 7,822,000 31
ASA Consulting - 424,000 1 -
CommercialWare - 10,776,000 30 7,603,000 30
----------- ---- ----------- ---- ----------- ----
$25,623,000 100% $35,468,000 100% $25,507,000 100%
=========== ==== =========== ==== =========== ====
</TABLE>
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Backlog
- -------
Set forth below is information concerning the Company's backlog at December
31, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
Backlog at December 31,
-----------------------
1999 1998
------------------------- -------------------------
Support Support
Product Line Total Contracts Total Contracts
- ------------ ----- --------- ----- ---------
<S> <C> <C> <C> <C>
Tire Systems/Legacy Products $ 2,700,000 $ 2,000,000 $ 4,300,000 $ 1,900,000
Legal Systems .............. 2,200,000 1,700,000 2,900,000 1,600,000
ERP Systems ................ 600,000 500,000 1,100,000 600,000
e-Business Management
Applications Software .... 1,600,000 900,000 -- --
SmartTime Software ......... -- -- 2,700,000 1,100,000
----------- ----------- ----------- -----------
$ 7,100,000 $ 5,100,000 $11,000,000 $ 5,200,000
=========== =========== =========== ===========
</TABLE>
The Company expects that all of the backlog existing at December 31, 1999 will
be filled in fiscal year 2000. Support contracts are generally cancelable by the
Company or the Company's customers upon 90 days prior written notice.
Customers
- ---------
See Item 14(a)1 Note I in the Company's Notes to Consolidated Financial
Statements.
Competition
- -----------
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: the ability to offer B2B products via the Internet; the
ability to offer web site development; 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; the ability to easily interface with other
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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. ASA Legal System's market share
in the mid-size law firm market is estimated to be 12%.
The E-Business Management Applications Software market is also highly
competitive. The primary competitors for the Company's Khameleon product line
are SOFTRAX, Great Plains, Solomon, Deltec and Lawson. The Company believes the
principal competitive factors for these systems are: cost; name recognition; the
quality of professional services and support; and the ability to manage business
processes that integrate customers; suppliers and business partners. While the
Company believes it competes favorably with respect to most of these factors, it
has embarked on a marketing campaign to increase the visibility of its product
in the marketplace.
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 favorably
with respect to each of these factors.
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, 1999, the Company had 212 full time employees. Of these
employees, 9 are executive officers or senior managers, 29 are engaged in
marketing and sales, 79 in customer support and training, 67 in product/custom
development or engineering and 28 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
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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.
Financial Information about Geographic Areas
- --------------------------------------------
See Item 14(a)i, Note J, in the Company's Notes to Consolidated Financial
Statements.
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 10 Speen Street LLC. The Company occupies approximately 17% 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 monthly principal and interest payments of
$20,445 through October 2008 and a final payment of approximately $2,638,000 of
principal, together with interest thereon.
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 $12,736 9,667 s.f. January 31, 2006
Kirkland, Washington $ 4,805 3,720 s.f. October 31, 2001
Clearwater, Florida $17,252 16,252 s.f. September 30, 2004
Udine, Italy $ 1,516 3,068 s.f. December 31, 2000
Venice, Italy $ 6,831 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.
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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, 1999, 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 1998 and 1999:
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
Calendar Year 1999 Low High
------------------ ------- --------
First Quarter $1.875 $2.750
Second Quarter $2.500 $2.719
Third Quarter $2.250 $2.313
Fourth Quarter $2.063 $3.000
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions. There were 1,200 holders of record of the Company's outstanding
Common Stock as of March 24, 2000. Each holder of Common Stock is also the
holder of a Preferred Stock Purchase Right which entitles the holder to purchase
one one-hundreth of a share of Series A Junior Participating Preferred Stock of
the Company for each share of Common Stock held by such person upon satisfaction
of certain conditions set forth in the Company's Shareholders Rights Plan.
Under the terms of a share repurchase program authorized by the Company's
Board of Directors in June 1990, August 1998, July 1999 and January 2000, the
Company is authorized to repurchase up to $2,000,000 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
1999 Number of Shares Per Share Purchase Price
---- ---------------- ------------------------
March 62,500 $2.26
April 60,000 2.63
May 62,000 2.69
June 22,500 2.69
September 3,877 3.00
October 5,000 2.30
November 35,000 2.43
December 20,200 2.72
------- -----
1999 Total 271,077 $2.50
16
<PAGE>
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, 1999, 1998, and 1997, and the balance
sheet data as of December 31, 1999 and 1998, 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 data for the statement of operations for the years ended
December 31, 1996 and 1995 and the balance sheet data as of December 31, 1997,
1996 and 1995 have been derived from the audited financial statements of the
Company (not included 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.
17
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operating Data:
- ---------------
<S> <C> <C> <C> <C> <C>
Revenues .................... $ 25,623 $ 35,468 $ 25,507 $ 25,471 $ 31,032
Costs, Expenses, and Other
excluding income tax
expense ................... 21,534 34,398 24,534 26,362 29,983
Earnings (Loss)
from Operations ........... 491 1,532 1,485 (144) 1,502
Net Earnings (Loss) ......... 2,167 417 388 (649) 457
Basic Earnings (Loss) per
Common Share .............. $ .67 $ .12 $ .12 $ (.17) $ .12
Diluted Earnings (Loss) per
Common Share .............. $ .63 $ .11 $ .11 $ (.17) $ .11
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data:
- -------------------
<S> <C> <C> <C> <C> <C>
Total Assets ................ $ 27,870 $ 19,732 $ 17,826 $ 16,630 $ 19,515
Long-Term Obligations ....... 3,915 4,068 2,696 3,012 2,707
Long-Term Liabilities - other 272 305 -- -- --
Shareholders' Equity ........ 10,240 8,809 8,398 8,012 10,110
</TABLE>
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 statements that constitute forward-looking
statements under the safe harbor provisions of the Private Securities Reform Act
of 1995. 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.
18
<PAGE>
Results of Operations
- ---------------------
<TABLE>
<CAPTION>
Comparison of 1999 to 1998
- --------------------------
(000's omitted)
---------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1999 1998 Amount Percentage
---- ---- -------- ----------
<S> <C> <C> <C> <C>
Product licenses $ 6,506 $ 8,490 $(1,984) (23%)
Services 15,064 18,218 (3,154) (17%)
Computer and add-on hardware 4,053 8,760 (4,707) (54%)
------- ------- -------
Net Revenue $25,623 $35,468 $(9,845) (28%)
======= ======= ========
</TABLE>
REVENUE
During 1999, the Company completed a product line disposition, a
discontinuation of a product line pending its sale, and one product line
acquisition. The revenues related to these product lines for the three years
ended December 31, 1999, 1998 and 1997 are as follows.
Disposition/Discontinuation:
============================
<TABLE>
<CAPTION>
(000's omitted)
Revenue for year-ended December 31,
Product Line Month 1999 1998 1997
- ------------ ----- ---------- ----------- -----------
<S> <C> <C> <C>
CommercialWare March 1999 - $10,776,000 $ 7,603,000
SmartTime Software August 1999 $2,915,000 5,890,000 6,412,000
---------- ----------- -----------
Total $2,915,000 $16,666,000 $14,015,000
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Acquisition:
============
Product Line Month 1999 1998 1997
- ------------ ----- ----------- ---------- ----------
<S> <C> <C> <C>
Khameleon Software November 1999 $1,965,000 - -
</TABLE>
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
19
<PAGE>
hardware. The Company's total revenues decreased by approximately $9,845,000, or
28%, for the period when compared to the year ended December 31, 1998. Revenue
from existing businesses increased by approximately $3,905,000, or 21% for the
period, when approximately $2,915,000 and $16,666,000 in revenue from the
Company's catalog direct marketing systems and SmartTime product lines for the
year ended December 31, 1999 and 1998, respectively, is excluded. Approximately
$1,965,000 of the increase in revenue from existing businesses is from the newly
acquired Khameleon product line for which there is no comparable amount in 1998.
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 $1,984,000, or 23%, for the year
ended December 31, 1999, compared to the same period in 1998. Product license
revenue from existing businesses increased by approximately $1,404,000, or 30%,
for the period, when compared to 1998, and the product license revenue from the
catalog direct marketing systems and SmartTime product lines of approximately
$458,000 and $3,846,000 for the 1999 and 1998 periods, respectively, are
excluded. Approximately $498,000 of the increase in product license revenue from
existing business is from the Khameleon product line for which there is no
comparable amount in 1998.
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 $3,154,000, or 17%, for the year ended December 31, 1999, compared
to the year ended December 31, 1998. Service revenue from existing businesses
increased by approximately $1,895,000, or 18%, for the period, when compared to
1998, and the service revenue from the catalog direct marketing systems and
SmartTime product lines of approximately $2,389,000 and $7,438,000 for the 1999
and 1998 periods, respectively, are excluded. Approximately $1,467,000 of the
increase 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, 1998.
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 $4,707,000, or 54%, for the year ended December 31, 1999, compared
to the same period in 1998. Hardware revenue from existing businesses increased
by approximately $607,000, or 18% for the period, when approximately $68,000 and
$5,382,000 hardware revenues from the Company's catalog direct marketing systems
and SmartTime product lines for the 1999 and 1998 periods are excluded. The
increase in hardware revenues from existing businesses was due primarily to the
increase of hardware unit sales by the Company's tire systems product 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
software license revenues and development decreased by approximately $194,000
for the year ended December 31, 1999, compared to the same period in 1998. Cost
of product license and development increased by approximately $1,411,000, or 63%
for the year when compared to 1998, and the cost of product licenses and
development from the catalog direct marketing systems and SmartTime product
20
<PAGE>
lines for the 1999 and 1998 periods are excluded. Approximately $907,000 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 1998. 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 $2,257,000
for the year ended December 31, 1999, compared to the same period in 1998. The
gross margin percentage for services for the year ended December 31, 1999
increased to approximately 37% from 36% of revenue from services in 1998. 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 $4,407,000, or 58%, for the year ended December 31,
1999, compared to the prior period. The cost of hardware revenue from existing
businesses increased by approximately $294,000, or 11%, when the cost of
hardware from the Company's catalog direct marketing systems and SmartTime
product lines is excluded from the results for the years ended December 31, 1998
and 1999. The increase in dollar amount for the cost of hardware revenues for
the year ended December 31, 1999 was due primarily to increased unit sales of
hardware products by the Company's tire systems product line.
The gross margin percentage for hardware sales increased to 21% for the year
ended December 31, 1999, from 13% in the same period in 1998. 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 decreased by
$1,221,000, or 22%, for the year ended December 31, 1999, compared to 1998. The
change in marketing and sales expenses reflects the elimination of the marketing
and sales expenses of the catalog direct marketing systems and SmartTime product
lines partially offset by increased sales and marketing expenses from the tire,
ERP systems and, the newly acquired Khameleon Software, product lines.
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 $432,000, or 11%, for the year ended December 31, 1999, compared
to the same period in 1998. The change primarily reflects the elimination of the
expenses related to the catalog direct marketing systems and SmartTime product
lines, partially offset by increased general and administrative expenses from
the tire, ERP, legal and, the newly acquired Khameleon Software, product lines.
21
<PAGE>
Net earnings for the year ended December 31, 1999 were approximately
$2,167,000, as compared to net earnings of approximately $417,000 for 1998. The
change results from the gain on the sale of CommercialWare of $3,824,000 and a
reduction in net interest expense of approximately $585,000, partially offset by
a decrease in earnings from operations of $1,041,000, a loss from the equity in
earnings from affiliate of approximately $166,000, an increase in other expense,
net of $183,000 and an increase in income tax expense of approximately
$1,269,000.
22
<PAGE>
<TABLE>
<CAPTION>
Comparison of 1998 to 1997
- --------------------------
(000's omitted)
---------------------------------------
Revenue Increase/(Decrease)
------------------ -------------------
1998 1997 Amount Percentage
---- ---- -------- ----------
<S> <C> <C> <C> <C>
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%
======= ======= =======
</TABLE>
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'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. 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. 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 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.
23
<PAGE>
COST OF REVENUE
Product licenses and development. 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 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 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 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 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 catalog 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, net 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.
24
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company had total cash and cash equivalents, at December 31, 1999 of
approximately $2,297,000, a decrease of approximately $1,965,000 from December
31, 1998. At December 31, 1999, the Company had approximately $3,366,000
invested in marketable securities. In October 1999, the Company entered into a
new revolving demand loan agreement totaling $1,500,000 at prime minus 1/2%,
which expires on June 30, 2000. In addition, the Company arranged a $3,000,000
acquisition line of credit at prime minus 1/2% which is convertible on or before
June 30, 2000 to a five-year term at a fixed rate equal to two and one-quarter
(2.25%) over the average yield on US Treasury securities. The credit facility
was fully available at 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 "Effective 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.
25
<PAGE>
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 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 is required to pay a second option fee on
August 1, 2000 in the amount of $540,000, unless the Optionee exercises the
option prior to such date. 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.
In March 1999, the Company sold substantially all of the assets of its
catalog direct marketing systems product line to CommercialWare, Inc., a
Delaware Corporation (the Purchaser). Under the terms of the sale, the Company
transferred to the Purchaser certain of the liabilities of the product line. The
Company received (i) cash in the amount of $4,000,000, (ii) a promissory note
due in three years 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.
26
<PAGE>
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. These
acquisitions could present challenges to the Company's management, such as
integrating and incorporating new operations, product lines, technologies and
personnel. If the Company's management is unable to manage these challenges, the
Company's business, financial condition or results of operations could be
materially adversely affected. Any acquisition, depending on its size, could
result in significant dilution to the Company's stockholders. Furthermore, there
can be no assurance that any acquired products will gain acceptance in the
Company's markets.
The Company has experienced significant fluctuations in its quarterly
operating results and anticipates such fluctuations in the future. Quarterly
revenues and operating results depend on the volume and timing of orders
received during the quarter which are difficult to forecast. Large orders for
the Company's products often have a lengthy sales cycle while the customer
evaluates and receives approvals for the purchase of the products. It may be
difficult to accurately predict the sales cycle of any large order. If one or
more large orders fail to close as forecasted in a fiscal quarter, the Company's
revenues and operating results could be materially adversely affected. In
addition, the Company typically receives a substantial portion of its product
orders in the last month of the quarter. Orders are shipped as received and, as
a result, the Company often has little or no backlog except for support and
service revenue. The Company acknowledges the potential adverse impact that such
fluctuations and general economic uncertainty could have on its ability to
maintain liquidity and raise additional capital.
The Company's future financial performance is also dependent in large part
on the successful development, introduction, and customer acceptance of new and
enhanced versions of its software products. Due to the rapid change in vendor
hardware platforms, operating systems, and updated versions, the complexity and
expense of developing, testing, and maintaining the Company's products has
increased. The Company intends, as it has in the past, to fund this development
primarily from its cash from operations and bank debt. There can be no assurance
that these efforts will be successful or result in significant product
enhancements.
Subject to the foregoing, the Company believes that based on the level of
operating revenue, cash on hand, and available bank debt, it has sufficient
capital to finance its ongoing business.
Inflation
- ---------
General inflation over the last three years has not had a material effect
on the Company's cost of doing business.
27
<PAGE>
New Accounting Standards Not Yet Adopted
- ----------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure them at their fair
values. 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 assets or liability 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 No. 133, as amended by SFAS No. 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative 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
- ---------------------------------------------
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
The Company is exposed to the impact of interest rate changes and foreign
currency fluctuations and changes in the value of its investments.
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 11% of all revenues.
International sales are made primarily from the Company's foreign subsidiary in
28
<PAGE>
Italy and are denominated in the local currency. Accordingly, the foreign
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 1999 and 1998 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.
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' Reports
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
29
<PAGE>
(a)2. Financial Statement Schedules.
-----------------------------
None
(a)3. Exhibits.
---------
The following exhibits are filed with this report:
10-1 Revolving Demand Note between ASA International Ltd./ASA International
Ventures, Inc. and Eastern Bank dated 10/20/99.
10-2 Acquisition Line of Credit Agreement between ASA International
Ltd./ASA International Ventures, Inc. and Eastern Bank dated 10/20/99.
21 Subsidiaries of Registrant.
23-1 Consent of BDO Seidman, LLP, independent certified public accountants.
23-2 Consent of Deloitte & Touche, LLP, independent certified public
accountants.
27 Financial Data Schedule.
A) The following exhibits were filed with the Registrant's Form 8-K on
November 15, 1999 and are incorporated herein by reference:
2 Asset Purchase Agreement dated November 4, 1999.
10-1 Assignment and Assumption Agreement dated November 4, 1999.
10-2 Bill of Sale and General Assignment of Assets dated November 4, 1999.
10-3 Assignment of Trademarks dated November 4, 1999.
10-4 Assignment of Copyrights dated November 4, 1999.
10-5 Asset Acquisition and Exchange Cooperation Agreement dated November 4,
1999.
10-6 Promissory Note dated November 4, 1999.
10-7 Security Agreement dated November 4, 1999.
10-8 Intellectual Property License Agreement dated November 4, 1999.
10-9 Assignment Agreement dated November 4, 1999.
10-10 Bill of Sale and General Assignment of Assets dated November 4, 1999.
10-11 Assignment of Trademarks dated November 4, 1999.
10-12 Assignment of Copyrights dated November 4, 1999.
30
<PAGE>
B) The following exhibits were filed with the Registrant's Form 8-K on
August 13, 1999 and are incorporated herein by reference:
10-1 Option to Purchase Agreement dated as of August 2, 1999.
10-2 Asset Purchase Agreement dated as of August 2, 1999.
10-3 Operating Agreement dated as of August 2, 1999.
10-4 Sublease and Consent Agreement dated as of August 2, 1999.
10-5 Revolving Promissory Note dated as of August 2, 1999.
10-6 Customer Intangibles License Agreement dated as of August 2, 1999.
10-7 Intellectual Property License Agreement dated as of August 2, 1999.
10-8 Promissory Note dated as of August 2, 1999.
C) The following exhibits were filed with the Registrant's Form 8-K on
March 18, 1999 and are incorporated herein by reference:
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, 1998 F-1 to F-2
Pro forma Condensed Consolidated Statements of Operations.
Year Ended December 31, 1997 F-3
Nine Months Ended September 30, 1998 F-4
The pro forma condensed consolidated balance sheet of the Registrant as of
September 30, 1998, 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, 1998. The pro forma condensed consolidated statements of
operations for the fiscal year ended December 31, 1997, and the nine months
ended September 30, 1998, assume that the disposition occurred on December
31, 1996, and are based on the operations of the Registrant for the year
ended December 31, 1997 and the nine months ended September 30, 1998,
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 transaction
been in effect as of the dates presented.
31
<PAGE>
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the Registrant's historical financial statements
and related notes.
c. Exhibits
2 Asset Purchase Agreement dated as of March 3, 1999.
4-1 Shareholder Agreement dated as of March 3, 1999.
4-2 Promissory Note dated as of March 3, 1999.
4-3 Security Agreement dated as of March 3, 1999.
4-4 Trademark Assignment dated as of March 3, 1999.
4-5 Trademark Security Agreement dated as of March 3, 1999.
4-6 Sub-Lease and Consent Agreement dated as of March 3, 1999.
4-7 Subordinated Promissory Note dated as of March 3, 1999.
D) The following documents are incorporated by reference to the Registrant's
Report on Form 10-K filed on March 30, 1999:
10 Lease for 475 Sentry Parkway, Blue Bell, Pennsylvania, dated August 26,
1998.
E) The following exhibits were filed with the Registrant's 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.
32
<PAGE>
10-3 Guarantee Agreement effective September 21, 1998 by ASA International Ltd.,
as Guarantor, in favor of John Hancock Real Estate Finance, Inc.
F) 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.
G) 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.
H) 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.
33
<PAGE>
2(b) Second Amendment to the Purchase Agreement dated
November 15, 1996.
I) 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.
J) 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.
10-4 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.
34
<PAGE>
10-6 Agreement for Exchange of Intangibles between ASA International
Ventures, Inc. and ASA International Ltd., dated December 29,
1995.
K) 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.
L) 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.
M) 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.
N) 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.
O) 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.
P) 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.
Q) 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.
--------------------
Form 8-K filed on November 11, 1999 reporting the acquisition by the Company
of the business of Data Design Systems Corporation.
35
<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
(principal executive officer and
principal financial 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, 2000
- -------------------------- Executive Officer,
Alfred C. Angelone and President
(principal executive
officer and principal
accounting officer)
/s/ James P. O'Halloran Director March 30, 2000
- --------------------------
James P. O'Halloran
/s/ Alan J. Klitzner Director March 30, 2000
- --------------------------
Alan J. Klitzner
/s/ William A. Kulok Director March 30, 2000
- --------------------------
William A. Kulok
/s/ Robert L. Voelk Director March 30, 2000
- --------------------------
Robert L. Voelk
36
<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, 1999 and 1998 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, 1999. 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 did not audit the 1999 financial
statements of the Company's foreign subsidiary, which statements reflect total
assets of approximately $2,056,000 as of December 31, 1999 and total revenues of
approximately $2,899,000 for the year then ended. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for such subsidiary, is based
solely on the report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, 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 11, 2000
37
<PAGE>
February 15, 2000
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
ASA ITALY S.r.l.
We have audited the financial statements of ASA Italy S.r.l., consisting of a
balance sheet as at December 31, 1999 and the related statement of operations,
income statement, shareholder's equity and cash flows for the year ended
December 31, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the reporting schedules are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the reporting schedules. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation. We believe that our
audit provides a reasonable basis for our opinion.
The financial statements referred to above, present fairly, in all material
respects, the financial position of ASA Italy S.r.l. at December 31, 1999 and
the results of their operations and cash flows for the year ended December 31,
1999, in conformity with generally accepted accounting principles.
Fausto Zanon
Partner
Deloitte & Touche, LLP
Treviso, Italy
38
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
-------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................. $ 2,297,364 $ 4,262,438
Marketable securities ..................... 3,365,737 --
Receivables -- net ........................ 5,326,722 5,187,076
Other current assets ...................... 1,289,170 704,613
Net assets of CommercialWare division ..... -- 1,312,962
Net assets of SmartTime division .......... 1,411,240 --
----------- -----------
TOTAL CURRENT ASSETS ........................... 13,690,233 11,467,089
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings ........................ 4,192,882 4,018,949
Computer equipment ........................ 2,249,005 3,278,879
Office furniture and equipment ............ 1,162,820 934,032
Leasehold improvements .................... 142,766 36,574
Vehicles .................................. 415,991 463,402
----------- -----------
8,163,464 8,731,836
Accumulated depreciation
and amortization ........................ 3,092,487 3,889,322
----------- -----------
NET PROPERTY AND EQUIPMENT ..................... 5,070,977 4,842,514
----------- -----------
SOFTWARE
(less cumulative amortization
of $2,822,289 and $6,480,122) ................ 6,034,685 1,908,723
COST EXCEEDING NET ASSETS ACQUIRED
(less cumulative amortization
of $1,411,455 and $1,369,222) ................ 18,045 60,278
NOTE RECEIVABLE ................................ 1,700,000 --
OTHER ASSETS ................................... 1,356,345 1,453,751
----------- -----------
$27,870,285 $19,732,355
=========== ===========
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank ....................... $ 601,527 $ --
Note payable - other ....................... 3,200,000 --
Deferred option and license fees ........... 2,460,000 --
Accounts payable ........................... 1,047,228 1,174,792
Accrued expenses ........................... 2,514,673 2,735,837
Accrued commissions ........................ 436,584 539,628
Customer deposits .......................... 514,723 789,705
Deferred revenue ........................... 2,056,600 726,117
Current maturities of long-term obligations 114,391 152,571
------------ ------------
TOTAL CURRENT LIABILITIES ....................... 12,945,726 6,118,650
------------ ------------
LONG-TERM OBLIGATIONS,
NET OF CURRENT MATURITIES ..................... 3,915,331 4,067,797
------------ ------------
LONG-TERM LIABILITIES - Other ................... 272,220 304,769
------------ ------------
DEFERRED INCOME TAXES ........................... 497,000 432,000
------------ ------------
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 4,384,458 and 4,376,858
shares; outstanding, 3,084,985 and
3,348,462 shares ............................ 43,845 43,768
Additional paid-in capital .................... 7,801,387 7,793,774
Retained earnings ............................. 5,131,487 2,964,622
Accumulated other comprehensive income (loss):
Foreign currency translation .................. (10,968) 17,026
Unrealized loss on marketable securities ...... (26,478) --
------------ ------------
12,939,273 10,819,190
Less treasury stock, at cost .................. 2,699,265 2,010,051
------------ ------------
10,240,008 8,809,139
------------ ------------
$ 27,870,285 $ 19,732,355
============ ============
</TABLE>
See notes to consolidated financial statements ..
40
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
--Years Ended December 31,--
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Product licenses ............... $ 6,506,376 $ 8,490,301 $ 6,177,507
Services ....................... 15,062,870 18,217,434 14,005,494
Computer and add-on hardware ... 4,053,289 8,760,421 5,323,734
------------ ------------ ------------
NET REVENUE ...................... 25,622,535 35,468,156 25,506,735
------------ ------------ ------------
COST OF REVENUE
Product licenses and development 4,456,953 4,650,739 3,326,174
Services ....................... 9,485,924 11,742,580 8,010,547
Computer and add-on hardware ... 3,219,535 7,626,820 4,992,025
------------ ------------ ------------
TOTAL COST OF REVENUE ............ 17,162,412 24,020,139 16,328,746
------------ ------------ ------------
EXPENSES
Marketing and sales ............ 4,356,610 5,577,389 4,487,320
General and administrative ..... 3,570,022 4,002,374 2,974,900
Amortization of goodwill ....... 42,234 336,183 230,360
------------ ------------ ------------
TOTAL EXPENSES ................... 7,968,866 9,915,946 7,692,580
------------ ------------ ------------
EARNINGS FROM OPERATIONS ......... 491,257 1,532,071 1,485,409
INTEREST EXPENSE ................. (386,396) (603,299) (419,039)
INTEREST INCOME .................. 508,793 140,837 90,780
GAIN ON SALE OF COMMERCIALWARE ... 3,824,420 -- --
OTHER EXPENSE, NET ............... (183,237) -- (184,000)
EQUITY IN LOSS FROM AFFILIATE .... (165,972) -- --
------------ ------------ ------------
EARNINGS BEFORE
INCOME TAXES .................. 4,088,865 1,069,609 973,150
INCOME TAXES ..................... 1,922,000 653,000 585,000
------------ ------------ ------------
NET EARNINGS ..................... $ 2,166,865 $ 416,609 $ 388,150
============ ============ ============
BASIC EARNINGS PER
COMMON SHARE:
NET EARNINGS ................. $ .67 $ .12 $ .12
============ ============ ============
DILUTED EARNINGS PER
COMMON SHARE:
NET EARNINGS ................. $ .63 $ .11 $ .11
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
--Years Ended December 31,--
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET INCOME .......................... $ 2,166,865 $ 416,609 $ 388,150
OTHER COMPREHENSIVE INCOME (LOSS)
NET OF INCOME TAX:
Foreign currency translation ........ (27,994) 17,026 --
Unrealized loss on
marketable securities ......... (26,478) -- --
----------- ----------- -----------
COMPREHENSIVE INCOME ................ $ 2,112,393 $ 433,635 $ 388,150
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
ASA INTERNATIONAL LTD AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumu-
lated
Other
Common Stock Additional Compre- Treasury Stock
---------------------- Paid-in Retained hensive -------------------------
Shares Amount Capital Earnings Income Shares Amount Total
--------- --------- ------------ ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
1/1/97 ............ 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
shares 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
43
<PAGE>
Exercise of
stock
options ........... 7,600 77 7,613 -- -- -- -- 7,690
Purchase of
Treasury
Stock ............. -- -- -- -- -- 271,077 (689,214) (689,214)
Net earnings ........ -- -- -- 2,166,865 -- -- -- 2,166,865
Foreign
currency
translation ....... -- -- -- -- (27,994) -- -- (27,994)
Unrealized
loss on
marketable
securities ........ -- -- -- -- (26,478) -- -- (26,478)
---------- --------- ------------ ------------ ---------- ---------- ------------ ----------
4,384,458 $ 43,845 $ 7,801,387 $ 5,131,487 $( 37,446) 1,299,473 $( 2,699,265) $10,240,008
========== ========= ============ ============ ========== ========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
44
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--Years Ended December 31,--
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ......................... $ 2,166,865 $ 416,609 $ 388,150
----------- ----------- -----------
Adjustments to reconcile net
earnings to net cash
provided by operating
activities:
Depreciation and amortization ...... 1,735,286 2,316,093 1,864,730
Deferred taxes ..................... 65,000 (184,000) 236,000
Doubtful receivables provision ..... 348,538 203,131 125,381
Gain on sale of CommercialWare ..... (3,824,420) -- --
Changes in assets and liabilities,
net of effects of acquisitions:
Receivables ....................... (430,991) (2,383,472) (2,298,020)
Other current assets .............. (601,710) 171,153 (91,605)
Accounts payable .................. (162,825) (1,274,586) 902,988
Accrued expenses .................. (601,084) 3,416,443 629,577
Customer deposits ................. (302,346) 450,277 119,640
Deferred revenue .................. 2,647,606 473,952 7,192
----------- ----------- -----------
Total adjustments .................. (1,126,946) 3,188,991 1,495,883
----------- ----------- -----------
Net cash provided by operating
activities .......................... 1,039,919 3,605,600 1,884,033
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .. (717,521) (1,040,547) (249,743)
Additions to software ................ (90,817) (8,283) (39,967)
Increases in sales-type leases ....... (575) (582) --
Cash received from divestiture,
net of cash paid .................... 3,437,382 98,272 --
Cash paid in acquisition
of Design Data Systems .............. (5,094,507) -- --
Additions to marketable securities ... (3,392,215) -- --
Other assets ......................... 83,574 (350,893) 257,623
----------- ----------- -----------
Net cash used for investing
activities .......................... (5,774,679) (1,302,033) (32,087)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank notes .... 481,473 -- (795,000)
Increase in note payable - other 3,200,000 -- --
Reduction in long-term debt .......... (142,939) (2,084,463) (643,042)
Increase in long-term debt ........... -- 3,182,042 250,000
Decrease in long-term liabilities .... (32,549) (8,748) --
Issuance of common stock ............. 7,690 207 7,929
Purchase of Treasury Stock ........... (689,214) (424,354) (53,255)
Repurchase of stock options .......... -- -- (10,000)
----------- ----------- -----------
45
<PAGE>
Net cash provided by (used for)
financing activities ................ 2,824,461 664,684 (1,243,368)
----------- ----------- -----------
EFFECT OF EXCHANGE RATES ON
CASH & CASH EQUIVALENTS .............. (54,775) 11,370 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) .............. (1,965,074) 2,979,621 608,578
Balance, beginning of year ........... 4,262,438 1,282,817 674,239
----------- ----------- -----------
Balance, end of year .................. $ 2,297,364 $ 4,262,438 $ 1,282,817
=========== =========== ===========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION.
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.
Acquisitions:
During 1999, the Company acquired substantially all the assets of Design Data
Systems Corporation. Assets acquired, liabilities assumed and consideration paid
for this acquisition were as follows:
Fair value of assets acquired $ 7,776,332
Liabilities assumed (2,681,825)
------------
Net cash paid $ 5,094,507
============
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.
46
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998, 1997
A. Summary of Significant Accounting Policies:
Business description and principles of consolidation
The Company develops, markets, and provides services for its proprietary
enterprise software products and distributes computer hardware to its software
customers. The Company considers its operations to be a single reporting
segment. 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 $864,000 and $2,473,000 invested in
money market funds at December 31, 1999 and 1998, 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.
47
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Marketable securities
At December 31, 1999 the Company holds an investment in a senior, secured,
floating rate loan, mutual fund. The Company accounts for this investment as
available-for-sale in accordance with Statement of Financial Accounting
Standards No. 115 ("SFAS No. 115"), "Accounting for Certain Investment in Debt
and Equity Securities," which requires that debt and marketable equity
securities be classified as trading, available-for-sale, or held-to-maturity.
Available-for-sale securities are reported in the balance sheet at fair value
with unrealized gains or losses included in a separate component of
stockholders' equity.
At December 31, 1999, the fair market value of this investment was approximately
$3,366,000. Accumulated unrealized losses for the year ended December 31, 1999
were approximately $26,000.
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.
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
approximately $519,000, $653,000, and $513,000 in the years ending December 31,
1999, 1998, and 1997, 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
48
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (continued)
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.
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 $1,305,000, $1,446,000, and $1,201,000 for the years ended
December 31, 1999, 1998, and 1997, 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.
49
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, foreign currency translation
adjustments and unrealized loss on marketable securities 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 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 earnings
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed by dividing the net earnings
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 Standards 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.
New Accounting Standards Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure them at their fair
values. 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 assets or liability 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 No. 133, as amended by SFAS No. 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
50
<PAGE>
Historically, the Company has not entered into derivative 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.
B. Business Acquisitions and Divestitures:
Acquisitions
In November 1999, the Company acquired the business of Design Data Systems
Corporation, a Florida corporation, pursuant to that certain 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 "Effective
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
assumed 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"). The Exchange Agreement
provides the Company with the option to purchase the Replacement Property within
twelve months of the Closing Date for a purchase price of $4,300,000 plus
interest incurred by SQL on the promissory note due November 3, 2000. 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.
51
<PAGE>
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.
Due to the existence of the Exchange Agreement between the Company and SQL,
the Company obtained control of the net assets of Design Data Systems.
Accordingly, the Company recorded the acquisition of Design Data Systems by SQL
as if the purchase had been completed by the Company at a purchase price
consisting of the $4,300,000 promissory note with SQL, the $700,000 payment to
Design Data Systems, the assumption of certain liabilities of Design Data
Systems and direct costs of the acquisition. The net assets acquired consisting
of approximately $5,900,000 of software, $1,700,000 of other assets, and the
assumption of approximately $2,500,000 of liabilities were recorded at their
fair values based on the Company's estimate of these values.
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.
Unaudited pro forma consolidated revenues, net income and net income per
basic and diluted share for the years ended December 31, 1999 and 1998, would
have been approximately as follows if the 1999 acquisition had occurred on
January 1, 1998. The unaudited pro forma financial information is not
necessarily indicative of future results of operations of the Company because it
does not give effect to what might have occurred had the restructured and
combined operations been functioning on January 1, 1998.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues $30,775,000 $42,381,000
Net income 2,333,000 305,000
Net income per share:
Basic $.72 $.09
Diluted $.68 $.08
</TABLE>
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
52
<PAGE>
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 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
note with interest at 7.06% maturing March 2003, a 10% interest in a newly
formed entity, CommercialWare, Inc., and a $500,000 Junior Note. The Company did
not reflect the $500,000 Junior Note as part of the proceeds due to the
uncertainty of the ultimate collection of this Note. Through December 31, 1999,
the Company had collected approximately $255,000 on the Junior Note which is
recorded as Income in the 1999 Statement of Operations. A pretax gain on the
sale of CWI of approximately $3,824,000 is included in the Consolidated
Statement of Operations for the year ended December 31, 1999. Financial data
relative to the CWI operation is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $10,776,000 $7,603,000
Net earnings 278,000 553,000
Basic earnings per share .08 .17
Diluted earnings per share .08 .16
</TABLE>
Assets applicable to CWI, net of related liabilities assumed, have been
segregated in the December 31, 1998 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:
<TABLE>
<S> <C>
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
============
</TABLE>
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 had agreed to provide $500,000 in funding
for this venture. No activity occurred under the joint venture agreement during
1998. During 1999, the Company contributed approximately $156,000 in funding to
the venture. In January 2000, the joint venture was terminated with all assets,
net of liabilities sold to a third party. The Company received a payment of
$17,500 in January 2000 with a payment of $52,500 plus interest at 6% due on or
before December 31, 2000. The Company has recorded a loss of approximately
$86,000 in Other Expense, net in the Consolidated Statements of Operations for
the year ended December 31, 1999.
53
<PAGE>
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
being repaid in monthly installments of principal and interest of $11,730.
Included in other assets at December 31, 1999 and 1998 was the outstanding
balance on this note of $369,000 and $460,000, 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, 1999 and 1998.
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. In
November 1999, the shares were redeemed by DMS for $25,000 with the remaining
balance of approximately $125,000 written-off and recorded under Other Expense,
net in the Consolidated Statement of Operations for the year ended December 31,
1999.
54
<PAGE>
Option to Purchase
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 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 Agreement provides 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 terms and conditions of the acquisition
are set forth in an Asset Purchase Agreement dated as of August 2, 1999 (the
"Purchase Agreement"). The Purchase Agreement provides that the sale will occur,
if at all, within two days after exercise of the option and the satisfaction of
certain other conditions as specified in the Purchase Agreement. During the
Option Period, the Optionee will employ the employees of the SmartTime product
line and will bear the risk of its financial performance.
The Optionee paid an initial option fee in the amount of $1,660,000 upon
execution of the Agreement and is required to pay a second option fee on August
1, 2000 in the amount of $540,000, unless the Optionee exercises the option
prior to such date. 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. Pursuant to the 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.
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.
Assets applicable to the SmartTime division net of liabilities assumed have
been segregated in the Company's balance sheet at December 31, 1999 and shown as
net assets of the SmartTime division. The initial option fee of $1,660,000 and
license fees aggregating $800,000 paid by the optionee are included in the
accompanying 1999 balance sheet as deferred option and license fees. The results
for the operations of this product line are shown in the Consolidated Statements
of Operations for the year ended December 31, 1999 under the caption "Equity in
Loss from Affiliate."
A summary of net assets of SmartTime at December 31, 1999 is as follows:
<TABLE>
<S> <C>
Current assets $1,293,103
Property and equipment 198,237
Software 643,923
Liabilities (724,023)
-----------
Net Assets $1,411,240
===========
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
C. Receivables:
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Trade $4,747,089 $5,198,384
Amounts due from officers
and employees 230,243 204,572
Other 739,147 15,340
---------- ----------
5,716,479 5,418,296
Less allowance for
doubtful accounts 389,757 231,220
---------- ----------
$5,326,722 $5,187,076
========== ==========
</TABLE>
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, 1996 was $92,792.
During the three years ended December 31, 1999, 1998, and 1997, the provisions
for doubtful accounts were $348,538, $203,131, and $145,886 and write-offs were
$190,001, $135,353, and $75,236, respectively.
<TABLE>
<CAPTION>
D. Notes Payable, Long-Term Obligations, Commitments, and Contingencies:
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Short-term obligations
Note payable $3,200,000 $ -
========== ==========
Long-term obligations
Term loans $ 144,310 $ 182,041
Mortgage notes 3,884,373 3,948,071
Capital lease obligations 1,039 90,256
---------- ----------
4,029,722 4,220,368
Less current maturities 114,391 152,571
---------- ----------
$3,915,331 $4,067,797
========== ==========
</TABLE>
The current carrying value of short-term and long-term obligations approximate
their fair market value.
56
<PAGE>
Note Payable
Under the terms of the August 1999 Option to Purchase Agreement for the
Company's SmartTime product line, the Company borrowed $3,200,000 at a fixed
rate of 5% per annum. The note is due on August 31, 2000. The interest on the
note totaling $160,000 was prepaid upon the execution of the Option to Purchase
Agreement.
Revolving demand note
In October 1999, the Company entered into (i) a revolving demand loan
agreement with a bank for up to $1,500,000, bearing interest at a rate
approximating prime (8.5% at December 31, 1999) minus .5%, which extends through
June 30, 2000, and (ii) a $3,000,000 acquisition line of credit under which
advances will bear interest at a rate approximating prime minus 1/2% until a
conversion date upon which the outstanding principal balance of advances will be
amortized on a straight-line basis over five (5) years at a fixed interest rate
equal to two and one-quarter (2.25%) over the average yield on US Treasury
securities. The acquisition line of credit is available for use by the Company
based upon the lesser of $3,000,000 or the sum of 75% of the value (lower of
purchase price or appraised value) of any business acquired by the Company. This
credit facility requires the Company to maintain stated tangible net worth as
well as, stated debt service coverage and debt to tangible net worth ratios.
Payment of dividends is prohibited under the terms of this agreement. The loans
are secured by the personal property of the Company along with a first priority
perfected security interest in all business assets acquired by the Company.
Prior to this arrangement, the Company had a revolving credit agreement for
$1,500,000 (which could not exceed 80% of acceptable accounts receivable). The
agreement stipulated interest at prime plus .5%. Short-term borrowings under the
revolving credit and demand agreements, at and for the year ended December 31,
are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance outstanding at
December 31 $ - $ - $ -
=========== =========== ===========
Interest rate at
December 31 - - 9.50%
=========== =========== ===========
Maximum amount outstanding
during the year $ - $ - $1,055,000
=========== =========== ===========
Average amount outstanding
during the year $ - $ - $ 337,000
=========== =========== ===========
Weighted average interest
rate during the year
based on average
month-end balances - - 9.44%
=========== =========== ===========
</TABLE>
57
<PAGE>
Term loans
The term loan outstanding at December 31, 1999, is due on December 31, 2003
and payable in semi-annual installments of approximately $37,000, plus interest
at 3.8%.
Mortgage notes
The Company has three mortgage notes outstanding at December 31, 1999. 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.
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 $386,000, $603,000, and $383,000, for the
years ended December 31, 1999, 1998, and 1997, 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 $433,000, $270,000, and $240,000, in 1999, 1998, and
1997, respectively.
At December 31, 1999, long-term obligations and minimum rental commitments
under noncancellable operating and capital leases with initial terms of one year
or more are as follows:
<TABLE>
<CAPTION>
Capital Leases Long-Term Obligations Operating Leases
-------------- --------------------- ----------------
<S> <C> <C> <C>
2000 $1,978 $ 113,353 $ 517,435
2001 - 107,680 424,377
2002 - 113,680 365,779
2003 - 116,647 368,954
2004 - 93,084 320,435
Thereafter - 3,484,239 182,529
------- ---------- ----------
1,978 4,028,683 2,179,509
------- ---------- ----------
Less
imputed
interest 939 - -
------- ---------- ----------
$ 1,039 $4,028,683 $2,179,509
======= ========== ==========
</TABLE>
58
<PAGE>
The amount recorded under capital leases included in computer equipment was
approximately $172,000 and $358,000, at December 31, 1999 and 1998,
respectively. Accumulated depreciation and amortization was approximately
$172,000 and $300,000, at December 31, 1999 and 1998, respectively.
E. Income Taxes (Credits):
Income before income taxes is as follows:
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Domestic $ 4,397,409 $ 922,066 $ 973,150
Foreign (308,544) 147,543 --
----------- ----------- -----------
Total .. $ 4,088,865 $ 1,069,609 $ 973,150
=========== =========== ===========
Components of income taxes (credits) are as follows:
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Current:
Federal $1,290,000 $ 394,000 $ 108,000
State . 499,000 308,000 241,000
Foreign 68,000 135,000 --
Deferred ... 65,000 (184,000) 236,000
---------- ---------- ----------
$1,922,000 $ 653,000 $ 585,000
========== ========== ==========
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.
At December 31, 1999, there were no undistributed earnings of the non-US
subsidiary due to cumulative losses.
On a cash basis, income taxes paid in 1999, 1998, and 1997 were
approximately $1,170,000, $633,000, and $64,000, respectively.
59
<PAGE>
Income taxes are reconciled with the U.S. federal statutory rate as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes at
U.S. statutory federal rate $1,390,000 $364,000 $331,000
State income tax,
net of federal income
tax benefit 284,000 117,000 133,000
Non-deductible amortization
of intangibles 14,000 81,000 78,000
Foreign tax differential 173,000 85,000 -
Other, net 61,000 6,000 43,000
--------- -------- --------
$1,922,000 $653,000 $585,000
========= ======== ========
</TABLE>
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, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax liabilities:
Software development
deducted for tax, not book $ 183,000 $ 833,000
Differences between book
and tax basis of property 57,000 29,000
Deferred gain on CommercialWare 479,000 -
Deferred gain on divestiture 175,000 175,000
Other 3,000 8,000
---------- ----------
897,000 1,045,000
---------- ----------
Deferred tax assets:
Tax credit carryforwards - 366,000
Accruals/reserves 370,000 217,000
Other 30,000 30,000
---------- ----------
400,000 613,000
---------- ----------
Net deferred tax liability $ 497,000 $ 432,000
========== ==========
</TABLE>
60
<PAGE>
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, 1999, 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 determined based on the fair value at the grant dates for awards under
61
<PAGE>
those plans consistent with the method of FASB Statement 123, Accounting for
Stock-Based Compensation, the Company's net earnings and earnings per share
would have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income As reported $2,166,865 $416,609 $388,150
Pro forma 2,119,701 $384,132 $348,771
Basic Earnings
per share As reported $.67 $.12 $.12
Pro forma $.66 $.11 $.11
Diluted Earnings
per share As reported $.63 $.11 $.11
Pro forma $.62 $.10 $.10
</TABLE>
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 1999, 1998, and 1997, respectively: dividend
yield of 0% for all years, and expected volatility of 46% for 1999 and 1998, and
47% for 1997, risk-free rates ranging from 5.18% to 6.15% for 1999, 5.50% to
5.80% for 1998, and 5.76% to 6.73% for 1997, and expected lives ranging from 12
to 48 months for 1999, 1998, and 1997.
62
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of the status of the Company's stock option plans as of December
31, 1999, 1998, and 1997, and changes during the years ending on those dates, is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ------------------------ -----------------------
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 415,752 $1.17 359,749 $1.05 366,097 $1.37
Granted 90,000 2.50 60,300 1.90 22,700 1.46
Exercised 7,600 1.16 210 1.00 8,143 .97
Canceled 47,860 1.86 4,087 1.13 20,905 1.08
------- ------- -------
Outstanding at
end of year 450,292 $1.36 415,752 $1.17 359,749 $1.05
======= ===== ======= ===== ======= =====
Options
exercisable
at year-end 337,518 $1.07 319,735 $1.03 306,799 $1.02
======= ===== ======= ===== ======= =====
Weighted-
average fair
value of
options
granted
during the
year $1.42 $1.07 $ .59
===== ===== =====
</TABLE>
As of December 31, 1999, the 450,292 options outstanding under the Plan
have exercise prices between $.88 and $2.63, and a weighted-average remaining
contractual life of approximately 4 years.
As of December 31, 1999 the exercisable options outstanding under the Plan
have exercise prices between $.88 and $2.63 and a weighted-average remaining
contractual life of approximately 3 years.
Common stock reserved
At December 31, 1999, the Company has reserved 908,792 shares of its common
stock for incentive and nonqualified stock options.
G. Earnings per Share:
The weighted average number of common shares outstanding used in the
computation of earnings (loss) per share is summarized as follows:
63
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Denominator:
Denominator for basic
earnings per share -
weighted average shares 3,218,291 3,456,362 3,278,689
Effect of dilutive
securities:
Employee stock options 211,553 178,546 135,919
Contingently issuable
shares - - 80,146
---------- ---------- ---------
Denominator for diluted
earnings per share -
adjusted weighted
average shares and
assumed conversions 3,429,844 3,634,908 3,494,754
========== =========== ===========
</TABLE>
The following table summarizes securities which were outstanding as of
December 31, 1999, 1998, and 1997, but not included in the calculation of
diluted net earnings per share because such shares are antidilutive:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Employee stock options 36,000 3,900 4,000
</TABLE>
H. Transactions with Major Suppliers:
In 1998 and 1997, the Company made significant purchases from two hardware
suppliers totaling approximately $2,900,000, and $2,700,000, respectively.
64
<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. There were no major customers in 1999
and 1998 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, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
Revenues:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $22,200,000 $31,500,000 $25,000,000
Italy 2,900,000 3,500,000 -
Other 500,000 500,000 500,000
----------- ----------- -----------
Total $25,600,000 $35,500,000 $25,500,000
=========== =========== ===========
</TABLE>
Revenues are attributed to countries based on location of customers.
<TABLE>
<CAPTION>
Long-lived assets:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $13,543,000 $7,528,000 $9,727,000
Italy 637,000 737,000 -
---------- ---------- -----------
Total $14,180,000 $8,265,000 $9,727,000
=========== ========== ===========
</TABLE>
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 1999, 1998, and 1997 were approximately $149,000, $132,000, and
$62,000, respectively.
The long-term liability amount outstanding in the December 31, 1999 and
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, 1999 and 1998.
65
EXHIBIT 10-1
REVOLVING DEMAND NOTE
$1,500,000.000 October 20, 1999 Boston, Massachusetts
ON DEMAND, for value received, the undersigned, ASA International Ltd. and
ASA International Ventures, Inc. (hereinafter, collectively, the "Borrower"),
jointly and severally, promise to pay to Eastern Bank ("Bank"), or order, the
principal sum of One Million Five Hundred Thousand ($1,500,000.00) Dollars, or
if less, such amount as may be the aggregate unpaid principal amount of all
loans or advances made by the Bank to the Borrower, together with interest from
the date of the Bank's first advance to the Borrower on the aggregate unpaid
principal balance from time to time outstanding.
The aggregate principal balance outstanding shall bear interest (computed
on the basis of the actual number of days elapsed over a year of 360 days)
thereon at a per annum rate equal to one-half of one (.50%) percent per annum
below the rate from time to time announced and made effective by the Bank as its
Base Rate, payable monthly in arrears on the first business day of each month,
commencing on the first of such dates next succeeding the date hereof. Each
change in the rate of interest payable hereon shall be effective on the date of
any change in such Base Rate.
The term "Base Rate" as used herein and in any supplement and amendment
hereto shall mean the rate of interest announced from time to time by Bank, at
its head office, as its Base Rate, it being understood that such rate is a
reference rate and not necessarily the lowest rate of interest charged by the
Bank.
This Note is a revolving note and, subject to the foregoing, the Borrower
may, at its option, at any time prior to demand borrow, pay, prepay and reborrow
hereunder, all in accordance with the provisions hereof; provided, however, that
the principal balance outstanding shall at no time exceed the face amount of the
Note.
This Note represents indebtedness for one or more loans made by the Bank to
the Borrower pursuant to a Demand Loan and Security Agreement (All Assets) of
even date herewith (the "Agreement") and the holder of this Note is entitled to
all of the benefits and rights of the Bank under the Agreement.
In addition to the payment of interest as provided above, the Borrower
shall, from and after the date of demand for payment of this Note, pay to the
holder of this Note interest, payable on demand, at a rate per annum of three
(3%) percent in excess of the rate of interest then being charged to the
Borrower.
66
<PAGE>
Any deposits or other sums at any time credited by or due from the Bank to
the Borrower or any guarantor hereof, and any securities or other property of
the Borrower or any such guarantor, in the possession of the Bank, may at any
and all times be held and treated as security for the payment of the liabilities
hereunder; and the Bank may apply or set off such deposits or other sums, at any
time, and without notice to the Borrower or to any such guarantor, against any
of such liabilities, whether or not the same have matured, and whether or not
other collateral is available to the Bank.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every other maker and every endorser or guarantor of this Note,
regardless of the time, order or place of signing, waives presentment, demand,
protest and notices of every kind and assents to any extension or postponement
of the time of payment or any other indulgence, to any substitution, exchange or
release of collateral, and to the addition or release of any other party or
person primarily or secondarily liable.
The Borrower agrees to pay all costs of collection of the principal of and
interest on this Note; including, without limitation, reasonable attorneys'
fees.
This Note is secured pursuant to the terms of the Agreement.
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. Borrower
hereby certifies that neither Bank nor any of its representatives, agents or
counsel has represented, expressly or otherwise, that Bank would not, in the
event of any such suit, action or proceeding, seek to enforce this waiver of
right to trial by jury. Borrower acknowledges that Bank has been induced to make
revolving loans to Borrower by, among other things, this waiver. Borrower
acknowledges that it has read the provisions of this Note and in particular,
this section; has consulted legal counsel; understands the right it is granting
in this section and is waiving in this section in particular; and makes the
above waiver knowingly, voluntarily and intentionally.
Borrower and Bank agree that any action or proceeding to enforce or arising
out of this Note may be commenced in any court of the Commonwealth of
Massachusetts sitting in the counties of Suffolk, Norfolk or Middlesex, or in
the District Court of the United States for the District of Massachusetts, and
Borrower waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and confer personal jurisdiction if served by registered or certified
mail to Borrower, or as otherwise provided by the laws of the Commonwealth of
Massachusetts or the United States of America.
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts, and this Note shall be deemed to be under seal.
WITNESS: ASA INTERNATIONAL LTD.
/s/ Michael J. Ruberto By:/s/ Terrence C. McCarthy
- ---------------------- ---------------------------
Vice President and Treasurer
ASA INTERNATIONAL VENTURES, INC.
/s/ Michael J. Ruberto By:/s/ Terrence C. McCarthy
- ---------------------- ---------------------------
Vice President and Treasurer
67
EXHIBIT 10-2
ACQUISITION LINE OF CREDIT AGREEMENT
October 20, 1999
ASA International Ltd.
ASA International Ventures, Inc.
c/o ASA International Ltd.
10 Speen Street
Framingham, Massachusetts 01701
Gentlemen:
We (hereinafter "Bank") are pleased to advise you (hereinafter collectively
referred to as the "Borrower") that Bank has established a line of credit of up
to Three Million ($3,000,000.00) Dollars (hereinafter the "Credit Limit") for
Borrower to be used exclusively for the acquisition of the stock of corporations
and/or the assets of such corporations or other entities. This line of credit
will be subject to the following terms and conditions:
Any advances, extensions of credit, or loan of funds pursuant to this line
of credit (hereinafter collectively and separately referred to as the "Loan")
will be made only if in the opinion of Bank (a) there has been no material
adverse change of circumstances; (b) there exists no Event(s) of Default (as
hereinafter defined); (c) Bank is granted a lien upon and a security interest in
all assets, whether real or personal, acquired by Borrower pursuant to this
Agreement; and (d) the loan is structured in a manner which is satisfactory to
Bank and its counsel. No advances, extensions of credit, or loan of funds will
be made after the first to occur of: (a) the date on which outstanding principal
balance of the Loans equals the Credit Limit; or (b) on June 30, 2000 (the
"Conversion Date"). Any sums repaid hereunder shall not be readvanced.
Borrower agrees that each monthly or other statement of account mailed or
delivered by Bank to Borrower pertaining to the outstanding balance of the Loan,
the amount of interest due thereon, fees, and costs and expenses shall be final,
conclusive and binding on Borrower and Bank and shall constitute an "account
stated" with respect to the matters contained therein unless within forty-five
(45) calendar days from when such statement is mailed or if not mailed,
delivered to Borrower, Borrower shall deliver to Bank written notice of any
objections which it may have as to such statement of account and in such event,
only the terms to which objection is expressly made in such notice shall be
considered to be disputed by Borrower.
Prior to the Conversion Date, interest will be charged to Borrower at a
rate which is the daily equivalent to the Base Rate in effect from time to time,
minus one-half of one (.50%) percent per annum, or such other rate as Bank and
Borrower may from time to time agree to, upon any balance owing to Bank at the
close of each day. The rate of interest payable by Borrower shall be changed
effective as of that date in which a change in the Base Rate becomes effective.
Interest shall be computed on the basis of the actual number of days elapsed
over a year of three hundred sixty (360) days. Such interest shall be payable
monthly in arrears on the first (1st) day of each month, commencing on the first
of such dates next succeeding the date hereof. Upon the occurrence of an Event
of Default hereunder, interest on unpaid balances shall thereafter be payable at
68
<PAGE>
a fluctuating interest rate per annum equal to three (3%) percent greater than
the rate of interest specified herein.
The term "Base Rate" as used herein shall mean the rate of interest
announced by Bank from time to time, at its head office, as its Base Rate, it
being understood that such rate is a reference rate, and not necessarily the
lowest rate of interest charged by Bank.
On the Conversion Date, Borrower may elect to have interest accrue at a
fixed interest rate equal to two and one-quarter (2.25%) (i.e., 225 basis
points) over the average yield on five-year United States Treasury securities
(rounded up to the nearest one-eighth of one percent), provided, however,
Borrower may not elect a fixed rate of interest on the Conversion Date if Bank
has accelerated the obligations of Borrower pursuant to this Agreement.
The Borrower hereby authorizes Bank to charge the amount of all interest,
principal payments and fees, when due and payable hereunder, against Borrower's
loan account created pursuant to Borrower's Demand Loan and Security Agreement
(All Assets) with the Bank of even date herewith (the "Loan Agreement").
Each Loan made pursuant to this Agreement shall be evidenced by a note in
the form of Exhibit A attached hereto (collectively, the "Interim Notes"). The
Loan, together with interest thereon, is secured pursuant to the Loan Agreement.
The aggregate principal amount of any Loan made pursuant to this Agreement
shall not exceed seventy-five (75%) percent of the lower of the purchase price
or appraised value of any business acquired nor, when added to existing loans
made pursuant to this Agreement, exceed the Credit Limit.
In connection with any proposed acquisition, Borrower will submit to Bank a
copy of the proposed purchase and sale agreement, pro forma balance sheet,
income statement and statement of cash flows at the time of any acquisition
after giving effect to such acquisition, together with any other information
relating to the acquisition that Bank may reasonably request. Any acquisition
will be subject to the underwriting criteria established from time to time by
Bank and will be subject to the customary due diligence procedures of Bank. Bank
may require that any loans made pursuant to this Agreement be guaranteed.
Borrower will pay or reimburse Bank for all reasonable and necessary
expenses, including reasonable and necessary attorneys' fees, which Bank may in
any way incur in connection with this Agreement or any other agreement between
Borrower and Bank or with any Loan or which result from any claim or action by
any third person against Bank which would not have been asserted were it not for
Bank's relationship with Borrower hereunder or otherwise.
This Agreement shall be converted into a term loan agreement on the
Conversion Date. On the Conversion Date, if Borrower elects to have interest
accrue at a fixed rate of interest as provided above, Bank, at Borrower's
request, will cancel the Interim Notes and Borrower will execute and deliver to
Bank a secured term note in substantially the form of Exhibit B attached hereto,
with appropriate insertions in the spaces provided reflecting the actual amount
of the Loan. The Loan shall then mature and bear interest as provided in the
secured term note and shall otherwise be subject to the terms and conditions of
the secured term note and of this Agreement.
Upon the occurrence of any one or more of the following events (hereinafter
"Events of Default"), any and all obligations of Borrower to Bank shall become
immediately due and payable, at the option of Bank and without notice or demand.
69
<PAGE>
The occurrence of any such Event of Default shall also constitute, without
notice or demand, a default under all other agreements between Bank and Borrower
and instruments and papers given Bank by Borrower, whether such agreements,
instruments, or papers now exist or hereafter arise.
(a) The failure by Borrower to pay when due any amount due under this
Agreement.
(b) The termination of the Loan Agreement or the occurrence of an Event of
Default as described in the Loan Agreement.
(c) The occurrence of one or more of the events of default in the secured
term note referred to in Paragraph 9 above, after the Borrower has
elected to convert this Agreement into a term loan agreement.
Borrower agrees that notwithstanding anything contained herein, the Loan
Agreement or otherwise, if the Borrower shall pay off all amounts due under the
Loan Agreement and shall release Bank from its obligation to make advances under
the Loan Agreement or any successor agreement, Bank shall have the right to
demand the immediate payment of the balance due under this Agreement.
The execution, delivery and performance of this Agreement, any note or any
other instrument or document at any time required in respect hereof or of the
Loan are within the corporate powers of Borrower, and not in contravention of
law, the Articles of Organization or ByaLaws of Borrower or any amendment
thereof, or of any indenture, agreement or undertaking to which Borrower is a
party or may otherwise be bound, and each such instrument and document
represents a valid and binding obligation of Borrower and is fully enforceable
according to its terms. Borrower will, concurrently with the execution of this
Agreement, furnish Bank with the opinion of counsel for Borrower with respect to
any or all of the foregoing or other matters, such opinion to be in substance
and form satisfactory to Bank.
This Agreement is supplementary to each and every other agreement between
Borrower and Bank and shall not be so construed as to limit or otherwise
derogate from any of the rights or remedies of Bank or any of the liabilities,
obligations or undertakings of Borrower under any such agreement, nor shall any
contemporaneous or subsequent agreement between Borrower and Bank be construed
to limit or otherwise derogate from any of the rights or remedies of Bank or any
of the liabilities, obligations or undertakings of Borrower hereunder unless
such other agreement specifically refers to this Agreement and expressly so
provides.
This Agreement and the covenants and agreements herein contained shall
continue in full force and effect and shall be applicable not only in respect of
the Loan, but also to all other obligations, liabilities and undertakings of
Borrower to Bank whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising or acquired, until all such
obligations, liabilities and undertakings have been paid or otherwise satisfied
in full. No delay or omission on the part of Bank in exercising any right
hereunder shall operate as a waiver of such right or any other right and waiver
on any one or more occasions shall not be construed as a bar to or waiver of any
right or remedy of Bank on any future occasion. This Agreement is intended to
take effect as a sealed instrument, shall be governed by and construed according
to the laws of the Commonwealth of Massachusetts, shall be binding upon
Borrower's successors and assigns and shall inure to the benefit of Bank's
successors and assigns.
70
<PAGE>
THE BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT THEY MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
The Borrower hereby certifies that neither Bank nor any of its representatives,
agents or counsel has represented, expressly or otherwise, that Bank would not,
in the event of any such suit, action or proceeding, seek to enforce this waiver
of right to trial by jury. The Borrower acknowledges that it has read the
provisions of this Agreement and in particular, this Section; has consulted
legal counsel; understands the right it is granting in this Agreement and is
waiving in this Section in particular; and makes the above waiver knowingly,
voluntarily and intentionally.
The Borrower and Bank agree that any action or proceeding to enforce or
arising out of this Agreement may be commenced in any court of the Commonwealth
of Massachusetts sitting in the counties of Suffolk or Middlesex, or in the
District Court of the United States for the District of Massachusetts, and the
Borrower waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and confer personal jurisdiction if served by registered or certified
mail to the Borrower, or as otherwise provided by the laws of the Commonwealth
of Massachusetts or the United States of America.
The loan is secured pursuant to the terms of the Loan Agreement.
Very truly yours,
EASTERN BANK
By: /s/John R. O'Brien
- -----------------------
John R. O'Brien, Vice President
ACCEPTED:
ASA INTERNATIONAL LTD.
By:/s/ Terrence C. McCarthy
- ----------------------
Vice President and Treasurer
ASA INTERNATIONAL VENTURES, INC.
By:/s/ Terrence C. McCarthy
- ----------------------
Vice President and Treasurer
71
<PAGE>
EXHIBIT A
SECURED TERM NOTE
$ -------------------
Date
Boston, Massachusetts
For value received, the undersigned promises to pay to Eastern Bank
("Bank"), or order, at its office, the principal sum of (insert amount due
pursuant to the Line of Credit Agreement for the Acquisition of Equipment) in
sixty (60) installments as follows: (insert 1/60th of the amount outstanding
pursuant to the Line of Credit Agreement for the Acquisition of Equipment) on
August 1, 2000, and the same amount (except the last installment which shall be
the unpaid balance) on the first day of each month thereafter until this Note is
fully paid, with interest from the date hereof on the said principal sum from
time to time outstanding at the Base Rate minus one-half of one (.50%) percent
per annum.
Such interest shall be payable monthly in arrears on the first day of each
month, commencing on the first of such dates next succeeding the date hereof.
Interest shall be calculated on the basis of actual days elapsed and a 360aday
year. If this Note is not paid in full on the date of maturity or upon the
exercise by Bank of its rights in the event of the undersigned's default,
interest on unpaid balances shall thereafter be payable at a fluctuating
interest rate per annum equal to three (3%) percent greater than the rate of
interest specified herein.
The term "Base Rate" as used herein shall mean the rate of interest
announced by Bank from time to time, at its head office, as its Base Rate, it
being understood that such rate is a reference rate, and not necessarily the
lowest rate of interest charged by Bank.
The undersigned hereby authorizes Bank to charge the amount of all monthly
interest and principal payments, when due and payable hereunder, against the
undersigned's loan account created pursuant to a Demand Loan and Security
Agreement (All Assets) dated October 20, 1999 (the "Agreement").
At the option of the holder, this Note shall become immediately due and
payable without notice or demand upon the occurrence at any time of (i) a
default of any liability, obligation or undertaking of the undersigned,
hereunder or otherwise, including failure to pay in full and when due any
installment of principal or interest hereunder; (ii) an Event of Default as
defined in the Agreement; or (iii) termination of the Agreement.
Any deposits or other sums at any time credited by or due from Bank to the
undersigned or any guarantor hereof, and any securities or other property of the
undersigned or any such guarantor, in the possession of Bank, may at any and all
times be held and treated as security for the payment of the liabilities
hereunder; and Bank may apply or set off such deposits or other sums, at any
time, and without notice to the undersigned or to any such guarantor, against
any of such liabilities, whether or not the same have matured, and whether or
not other collateral is available to Bank.
The undersigned agrees to pay all costs of collection including reasonable
fees of attorney.
72
<PAGE>
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. Every
one of the undersigned and every indorser or guarantor of this Note regardless
of the time, order or place of signing waives presentment, demand, protest and
notices of every kind and assents to any one or more extensions or postponements
of the time of payment or any other indulgences, to any substitutions, exchanges
or releases of collateral if at any time there be available to the holder
collateral for this Note, and to the additions or releases of any other parties
or persons primarily or secondarily liable.
This Note is secured pursuant to the terms of the Agreement.
This Note represents amounts loaned to Borrower pursuant to an Acquisition
Line of Credit Agreement dated October 20, 1999.
THE UNDERSIGNED AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT THEY MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE. The undersigned hereby certifies that neither Bank nor any of its
representatives, agents or counsel has represented, expressly or otherwise, that
Bank would not, in the event of any such suit, action or proceeding, seek to
enforce this waiver of right to trial by jury. The undersigned acknowledges that
it has read the provisions of this Note and in particular, this Section; has
consulted legal counsel; understands the right it is granting in this Note and
is waiving in this Section in particular; and makes the above waiver knowingly,
voluntarily and intentionally.
The undersigned and Bank agree that any action or proceeding to enforce or
arising out of this Note may be commenced in any court of the Commonwealth of
Massachusetts sitting in the counties of Suffolk or Middlesex, or in the
District Court of the United States for the District of Massachusetts, and the
undersigned waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and confer personal jurisdiction if served by registered or certified
mail to the undersigned, or as otherwise provided by the laws of the
Commonwealth of Massachusetts or the United States of America.
All rights and obligations hereunder shall be governed by the law of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
Witness: ASA INTERNATIONAL LTD.
__________________________ By:____________________________
ASA INTERNATIONAL VENTURES, INC.
_________________________ By:_____________________________
73
<PAGE>
EXHIBIT B
SECURED TERM NOTE
$ June ____, 2000
Boston, Massachusetts
For value received, the undersigned promises to pay to Eastern Bank
("Bank"), or order, at its office, the principal sum of (insert amount due
pursuant to the Line of Credit Agreement for the Acquisition of Equipment) in
sixty (60) installments as follows: (insert 1/60th of the amount outstanding
pursuant to the Line of Credit Agreement for the Acquisition of Equipment) on
August 1, 2000, and the same amount (except the last installment which shall be
the unpaid balance) on the first day of each month thereafter until this Note is
fully paid, with interest from the date hereof on the said principal sum from
time to time outstanding at [select (a) or (b)]
(a) the Base Rate minus one-half of one (.50%) percent per annum; or
(b) the fixed rate of ________ (____%) percent per annum.
Such interest shall be payable monthly in arrears on the first day of each
month, commencing on the first of such dates next succeeding the date hereof.
Interest shall be calculated on the basis of actual days elapsed and a 360aday
year. If this Note is not paid in full on the date of maturity or upon the
exercise by Bank of its rights in the event of the undersigned's default,
interest on unpaid balances shall thereafter be payable at a fluctuating
interest rate per annum equal to three (3%) percent greater than the rate of
interest specified herein.
The term "Base Rate" as used herein shall mean the rate of interest
announced by Bank from time to time, at its head office, as its Base Rate, it
being understood that such rate is a reference rate, and not necessarily the
lowest rate of interest charged by Bank.
The undersigned hereby authorizes Bank to charge the amount of all monthly
interest and principal payments, when due and payable hereunder, against the
undersigned's loan account created pursuant to a Demand Loan and Security
Agreement (All Assets) dated October 20, 1999 (the "Agreement").
At the option of the holder, this Note shall become immediately due and
payable without notice or demand upon the occurrence at any time of (i) a
default of any liability, obligation or undertaking of the undersigned,
hereunder or otherwise, including failure to pay in full and when due any
installment of principal or interest hereunder; (ii) an Event of Default as
defined in the Agreement; or (iii) termination of the Agreement.
Any deposits or other sums at any time credited by or due from Bank to the
undersigned or any guarantor hereof, and any securities or other property of the
undersigned or any such guarantor, in the possession of Bank, may at any and all
times be held and treated as security for the payment of the liabilities
hereunder; and Bank may apply or set off such deposits or other sums, at any
time, and without notice to the undersigned or to any such guarantor, against
any of such liabilities, whether or not the same have matured, and whether or
not other collateral is available to Bank.
74
<PAGE>
The undersigned agrees to pay all costs of collection including reasonable
fees of attorney.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. Every
one of the undersigned and every indorser or guarantor of this Note regardless
of the time, order or place of signing waives presentment, demand, protest and
notices of every kind and assents to any one or more extensions or postponements
of the time of payment or any other indulgences, to any substitutions, exchanges
or releases of collateral if at any time there be available to the holder
collateral for this Note, and to the additions or releases of any other parties
or persons primarily or secondarily liable.
This Note is secured pursuant to the terms of the Agreement.
This Note represents amounts loaned to Borrower pursuant to an Acquisition
Line of Credit Agreement dated October 20, 1999.
THE UNDERSIGNED AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT THEY MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE. The undersigned hereby certifies that neither Bank nor any of its
representatives, agents or counsel has represented, expressly or otherwise, that
Bank would not, in the event of any such suit, action or proceeding, seek to
enforce this waiver of right to trial by jury. The undersigned acknowledges that
it has read the provisions of this Note and in particular, this Section; has
consulted legal counsel; understands the right it is granting in this Note and
is waiving in this Section in particular; and makes the above waiver knowingly,
voluntarily and intentionally.
The undersigned and Bank agree that any action or proceeding to enforce or
arising out of this Note may be commenced in any court of the Commonwealth of
Massachusetts sitting in the counties of Suffolk or Middlesex, or in the
District Court of the United States for the District of Massachusetts, and the
undersigned waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and confer personal jurisdiction if served by registered or certified
mail to the undersigned, or as otherwise provided by the laws of the
Commonwealth of Massachusetts or the United States of America.
All rights and obligations hereunder shall be governed by the law of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
Witness: ASA INTERNATIONAL LTD.
________________________ By:____________________________
ASA INTERNATIONAL VENTURES, INC.
_________________________ By:____________________________
75
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
76
EXHIBIT 23.1
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 11, 2000, 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, 1999.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Boston, Massachusetts
March 30, 2000
77
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ASA International Ltd.
Framingham, Massachusetts
We hereby consent to the incorporation by ASA International Ltd. of our report
dated February 15, 2000, relating to the financial statements of ASA Italy
S.r.l. appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
/s/ Deloitte & Touche, LLP
Deloitte & Touche, LLP
Treviso, Italy
March 30, 2000
78
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999, CONDENSED
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,297,364
<SECURITIES> 3,365,737
<RECEIVABLES> 5,716,479
<ALLOWANCES> 389,757
<INVENTORY> 0
<CURRENT-ASSETS> 13,690,233
<PP&E> 8,163,464
<DEPRECIATION> 3,092,487
<TOTAL-ASSETS> 27,870,285
<CURRENT-LIABILITIES> 12,945,726
<BONDS> 3,915,331
<COMMON> 43,845
0
0
<OTHER-SE> 10,196,163
<TOTAL-LIABILITY-AND-EQUITY> 27,870,285
<SALES> 25,622,535
<TOTAL-REVENUES> 25,622,535
<CGS> 3,219,535
<TOTAL-COSTS> 17,162,412
<OTHER-EXPENSES> 7,968,866
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (122,397)
<INCOME-PRETAX> 4,088,865
<INCOME-TAX> 1,922,000
<INCOME-CONTINUING> 2,166,865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,166,865
<EPS-BASIC> 0.67
<EPS-DILUTED> 0.63
</TABLE>
