ASA INTERNATIONAL LTD.
10 Speen Street
Framingham, Massachusetts 01701
(508) 626-2727
November 13, 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 Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 2000.
This filing is being effected by direct transmission to the Commission's
Operational EDGAR System.
Very truly yours,
ASA INTERNATIONAL LTD.
/s/ Terrence C. McCarthy
Terrence C. McCarthy
Vice President and Treasurer
TCM/mb
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 2000 Commission File Number: O-14741
ASA International Ltd.
----------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 02-0398205
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Speen Street, Framingham, MA 01701
------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 508-626-2727
------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: __X__ No: _____
As of September 30, 2000, there were 3,015,397 shares of Common Stock of the
Registrant outstanding.
1
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash equivalents $ 1,911,212 $ 2,297,364
Marketable securities 29,750 3,365,737
Receivables - net 3,402,396 5,326,722
Other current assets 1,029,728 1,289,170
Net assets of SmartTime division -- 1,411,240
Assets held for future transactions 2,720,000 --
----------- -----------
TOTAL CURRENT ASSETS 9,093,086 13,690,233
PROPERTY AND EQUIPMENT (less
depreciation of $3,312,855 and
$3,092,487, respectively) 4,724,282 5,070,977
SOFTWARE (less amortization of
$3,671,324 and $2,822,289, respectively) 5,064,220 6,034,685
COST EXCEEDING NET ASSETS ACQUIRED
(less amortization of $1,424,989
and $1,411,455, respectively) 4,511 18,045
NOTE RECEIVABLE 1,700,000 1,700,000
OTHER ASSETS 1,166,644 1,356,345
----------- -----------
$21,752,743 $27,870,285
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable - bank $ -- $ 601,527
Note payable - other -- 3,200,000
Deferred option and license fees -- 2,460,000
Accounts payable 642,816 1,047,228
Accrued expenses 2,187,085 2,951,257
Deferred revenue 727,686 2,056,600
Other current liabilities 1,024,848 629,114
------------ ------------
TOTAL CURRENT LIABILITIES 4,582,435 12,945,726
LONG-TERM OBLIGATIONS, NET OF
CURRENT MATURITIES 3,763,350 3,915,331
LONG-TERM LIABILITES - OTHER -- 272,220
DEFERRED TAXES 1,578,000 497,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 45,109 43,845
Additional paid-in capital 7,931,506 7,801,387
Retained earnings 7,175,167 5,131,487
Accumulated other comprehensive income (loss):
Foreign currency translation -- (10,968)
Unrealized gain (loss) on marketable securities 850 (26,478)
------------ ------------
15,152,632 12,939,273
Less: treasury stock, at cost 3,323,674 2,699,265
------------ ------------
Total shareholders' equity 11,828,958 10,240,008
------------ ------------
$ 21,752,743 $ 27,870,285
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
----------------------------
2000 1999
----------------------------
(Unaudited)
<S> <C> <C>
REVENUE
Services $ 3,089,796 $ 3,233,545
Product licenses 1,519,127 1,101,531
Computer and add-on hardware 366,086 923,533
----------- -----------
NET REVENUE 4,975,009 5,258,609
----------- -----------
COST OF REVENUE
Services 2,131,706 2,350,975
Product licenses and development 1,239,498 654,992
Computer and add-on hardware 346,220 733,482
----------- -----------
TOTAL COST OF REVENUE 3,717,424 3,739,449
----------- -----------
EXPENSES
Marketing and sales 1,447,784 862,304
General and administrative 918,713 805,006
Amortization of goodwill 4,511 11,032
----------- -----------
TOTAL EXPENSES 2,371,008 1,678,342
----------- -----------
LOSS FROM OPERATIONS (1,113,423) (159,182)
INTEREST EXPENSE - NET (36,855) (32,132)
OTHER INCOME - NET 6,779,855 --
EQUITY IN LOSS FROM AFFILIATE (54,473) (16,828)
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES 5,575,104 (208,142)
INCOME TAXES (BENEFIT) 2,440,000 (125,000)
----------- -----------
NET EARNINGS (LOSS) $ 3,135,104 $ (83,142)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
BASIC $ 1.01 $ (0.03)
=========== ===========
DILUTED $ 0.95 $ (0.03)
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
September 30,
-----------------------------
2000 1999
-----------------------------
(Unaudited)
<S> <C> <C>
REVENUE
Services $ 9,965,685 $ 11,077,578
Product licenses 4,321,992 4,177,661
Computer and add-on hardware 1,036,451 3,406,305
------------ ------------
NET REVENUE 15,324,128 18,661,544
------------ ------------
COST OF REVENUE
Services 6,232,471 6,907,673
Product licenses and development 3,734,134 2,729,983
Computer and add-on hardware 883,066 2,566,531
------------ ------------
TOTAL COST OF REVENUE 10,849,671 12,204,187
------------ ------------
EXPENSES
Marketing and sales 3,975,132 3,065,301
General and administrative 2,726,397 2,637,280
Amortization of goodwill 13,534 33,095
------------ ------------
TOTAL EXPENSES 6,715,063 5,735,676
------------ ------------
EARNINGS (LOSS) FROM OPERATIONS (2,240,606) 721,681
INTEREST EXPENSE - NET (48,028) (80,066)
OTHER INCOME - NET 7,100,645 3,822,105
EQUITY IN LOSS FROM AFFILIATE (977,331) (16,828)
------------ ------------
EARNINGS BEFORE INCOME TAXES 3,834,680 4,446,892
INCOME TAXES 1,791,000 2,673,000
------------ ------------
NET EARNINGS $ 2,043,680 $ 1,773,892
============ ============
EARNINGS PER COMMON SHARE:
BASIC $ 0.65 $ 0.55
============ ============
DILUTED $ 0.61 $ 0.51
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
------------------------- -------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET EARNINGS (LOSS) $ 3,135,104 $ (83,142) $ 2,043,680 $ 1,773,892
OTHER COMPREHENSIVE INCOME (LOSS)
NET OF INCOME TAX:
Foreign currency translation 13,745 (45,409) 10,968 (55,412)
Unrealized gain (loss) on
marketable securities 4,646 -- 27,328 --
----------- ----------- ----------- -----------
COMPREHENSIVE EARNINGS (LOSS) $ 3,153,495 $ (128,551) $ 2,081,976 $ 1,718,480
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
-----------------------------
2000 1999
-----------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,043,680 $ 1,773,892
----------- -----------
Adjustments to reconcile net earnings
to net cash used for operating activities:
Depreciation and amortization 1,521,724 854,878
Changes in assets and liabilities 1,842,187 2,608,003
Gain on sale of product line (6,779,855) (3,824,420)
----------- -----------
Total adjustments (3,415,944) (361,539)
----------- -----------
Net cash used for operating activities (1,372,264) 1,412,353
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (307,385) (603,817)
Additions to software (452,920) (84,400)
Reduction in (additions to) marketable securities 3,363,315 (6,220,455)
Increase in sales-type leases (207,776) (3,051)
Net cash received from divestiture 1,696,916 3,437,382
Additions to assets held for future transactions (2,720,000) --
Other assets 283,479 181,061
----------- -----------
Net cash provided by (used for) investing activities 1,655,629 (3,293,280)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable -- 3,200,000
Decrease in long-term debt (120,011) (119,466)
Decrease in long-term liabilities (53,478) (27,755)
Purchase of treasury stock (624,409) (537,349)
Issuance of common stock 131,383 6,383
----------- -----------
Net cash provided by (used for) financing activities (666,515) 2,521,813
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH
AND CASH EQUIVALENTS (3,002) 3,987
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) (386,152) 644,873
Balance, beginning of year 2,297,364 4,262,438
----------- -----------
Balance, end of period $ 1,911,212 $ 4,907,311
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
------------------------------
As permitted by the rules of the Securities and Exchange Commission applicable
to quarterly reports on Form 10-Q, these notes are condensed and do not contain
all disclosures required by generally accepted accounting principles. Reference
should be made to the financial statements and related notes included in the
Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying financial statements reflect all
adjustments which were of a normal recurring nature necessary for a fair
presentation of the Company's results of operations for the three months and
nine months ended September 30, 2000 and September 30, 1999, respectively.
The results disclosed in the Condensed Consolidated Statement of Operations for
the three months and nine months ended September 30, 2000 are not necessarily
indicative of the results expected for the full year.
Note 2 - Divestitures
---------------------
In September 2000, the Company sold all of its shares of its Italian subsidiary,
ASA Italy S.r.l., an Italian limited company ("S.r.l.") to management of the
S.r.l. for nominal cash consideration. In connection with the sale, S.r.l.
acknowledged and agreed to pay a debt of approximately $9,000 incurred by the
Company on behalf of S.r.l.
In August 2000, the Company completed the sale of its SmartTime business to
InterPro Business Solutions, Inc. (formerly InterPro Expense Systems, Inc.), a
Delaware corporation ("InterPro"). Pursuant to an Option to Purchase Agreement
dated August 2, 1999 by and between the Company, InterPro, and ASA InterPro
SmartTime LLC, a Delaware limited liability company, InterPro exercised its
option to purchase the SmartTime business from the LLC for the aggregate
purchase price of $7,020,000 less the option fees paid on August 2, 1999 of
$1,660,000 and $540,000 paid on August 1, 2000. The terms and conditions of the
acquisition under the option are contained in the Asset Purchase Agreement dated
as of August 2, 1999 (the "Purchase Agreement"). As set forth in the Purchase
Agreement and Exhibits, on August 2, 1999, InterPro had loaned to the Company
$3,200,000 pursuant to a promissory note due on or before August 31, 2000 (the
"ASA Note"). Interest of $160,000 on the ASA Note was prepaid to August 1, 2000.
InterPro completed the transaction by paying the remaining $4,820,000 of the
purchase by (a) delivering the ASA Note (valued at $3,213,151 as a result of
interest accrued from August 1 through August 31, 2000), and (b) paying the
remainder of $1,606,849 in cash.
Note 3 - Assets Held for Future Transactions
--------------------------------------------
At September 30, 2000, the Company has $2,720,000 classified on the Balance
Sheet as current assets, under the caption, assets held for future transactions,
which are so held 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. This amount represents $7,020,000 in proceeds from the sale of
SmartTime, net of $4,300,000 in software and intellectual property exchanged in
the Design Data Systems Corporation transaction.
8
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Earnings per Share
---------------------------
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2000 1999 2000 1999
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net earnings (loss) $ 3,135,104 $ (83,142) $ 2,043,680 $ 1,773,892
=========== =========== =========== ===========
Numerator for diluted earnings (loss) per share -
net earnings (loss) $ 3,135,104 $ (83,142) $ 2,043,680 $ 1,773,892
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings (loss) per share -
Weighted average shares 3,107,266 3,211,562 3,152,387 3,243,270
Effect of dilutive securities:
Employee stock options 177,418 -- 192,981 214,627
----------- ----------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 3,284,684 3,211,562 3,345,368 3,457,897
=========== =========== =========== ===========
Basic Earnings (Loss) per share $ 1.01 $ (0.03) $ 0.65 $ 0.55
=========== =========== =========== ===========
Diluted Earnings (Loss) per share $ 0.95 $ (0.03) $ 0.61 $ 0.51
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
9
<PAGE>
ASA INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
-----------------------------------------------------------------------
In addition to the historical information contained herein, the discussions
contained in this document include forward-looking statements 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.
<TABLE>
<CAPTION>
Results of Operations
Third Quarter of 2000
compared to
Third Quarter of 1999
(000's omitted)
---------------------------------------------
Revenue Increase/(Decrease)
------------------ ----------------------
2000 1999 Amount Percentage
------------------ ----------------------
<S> <C> <C> <C> <C>
Services $ 3,090 $ 3,234 $ (144) (4%)
Product licenses 1,519 1,101 418 38%
Computer and add-on hardware 366 924 (558) (60%)
------- ------- -------
Net revenue $ 4,975 $ 5,259 $ (284) (5%)
======= ======= ======= =======
</TABLE>
REVENUE
-------
Net revenue. The Company designs and develops proprietary enterprise software
for the tire dealer, legal, ERP (enterprise resource planning) and e-Business
management software markets. The Company entered the enterprise management
software market in November 1999 with the acquisition of the business of Design
Data Corporation, a Florida corporation. The Company has renamed this product
line, formerly known as SQL*Time, Khameleon Software. The Company sold its ERP
business, which was based in Italy, on September 25, 2000. The Company's
revenues are derived from the licensing of the Company's software products, from
client service and support, and from the sale of third party computer and add-on
hardware. The Company's total revenues decreased by approximately $284,000, or
5%, for the three months ended September 30, 2000, compared to the same period
in 1999. Revenue from existing businesses increased by approximately $268,000,
or 6%, for the period, when approximately $552,000 in revenue from the Company's
SmartTime product line for the three months ended September 30, 1999 is
excluded.
10
<PAGE>
Approximately $2,422,000 of the change in revenue from existing businesses is
from the newly acquired Khameleon product line for which there is no comparable
amount in 1999.
Product licenses. The Company's software license revenues are derived primarily
from the licensing of the Company's enterprise products. Software license
revenues increased by approximately $418,000, or 38%, for the three months ended
September 30, 2000, compared to the same period in 1999. Approximately
$1,175,000 of the change in product license revenue from existing business is
from the Khameleon product line for which there is no comparable amount in 1999.
Services. Services are comprised of fees generated from training, consulting,
software modifications, and ongoing client support provided under maintenance
agreements that renew automatically unless either party gives prior notice as
specified in the agreements. Service revenues decreased by approximately
$144,000, or 4%, for the three months ended September 30, 2000, compared to the
same period in 1999. Service revenue from existing businesses increased by
approximately $379,000, or 14%, for the three months ended September 30, 2000,
when compared to the same period in 1999, and the service revenue from the
SmartTime product line of approximately $523,000 for the same period in 1999 is
excluded. Approximately $1,247,000 of the change in service revenue from
existing businesses is from the newly acquired Khameleon product line for which
there is no comparable amount in 1999.
Computer and add-on hardware. Hardware revenues are derived from the resale of
third-party hardware products to the Company's clients in conjunction with the
licensing of the Company's software. Hardware revenues decreased by
approximately $558,000, or 60%, for the three months ended September 30, 2000,
compared to the same period in 1999. The decrease in hardware revenue was due
primarily to decreased unit sales of hardware products by the Company's tire
systems 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 product
license revenues and development increased by approximately $585,000, or 89%,
for the three months ended September 30, 2000, compared to the same period in
1999. Cost of product license and development increased by approximately
$682,000, or 122%, for the three months ended September 30, 2000 when compared
to the same period in 1999, and the cost of product licenses and development
from the SmartTime product line of approximately $97,000 for the same period in
1999 is excluded. Approximately $645,000 of the increase in the cost of product
licenses and development from the Company's existing businesses is attributable
to the newly acquired Khameleon product line for which there is no comparable
amount in 1999. The cost of product licenses as a percentage of product license
revenue may fluctuate from period to period due to the mix of sales of
third-party software products in each period contrasted with certain fixed
expenses such as the amortization of capitalized software.
Services. Cost of services consists of the costs incurred in providing client
training, consulting, and ongoing support as well as other client
service-related expenses. Cost of services decreased by approximately $219,000,
or 9%, for the three months ended September 30, 2000, compared to the same
period in 1999. The gross margin percentage for services for the three months
ended September 30, 2000 increased to approximately 31% from approximately 27%
for the same period in 1999. The Company's revenue and margin from services
fluctuate from period to period due to changes in the mix of contracts and
projects.
Computer and add-on hardware. Cost of hardware revenues consists primarily of
the costs of third-party hardware products. Cost of hardware revenues decreased
by approximately $387,000, or 53%, for the three months ended September 30,
2000, compared to the same period in 1999. The decrease in dollar amount for the
cost of hardware revenues for the three months ended September 30, 2000 was due
primarily to decreased unit sales of hardware products by the Company's tire
systems product line.
11
<PAGE>
The gross margin percentage for hardware sales decreased to approximately 5% for
the three months ended September 30, 2000, from 20% in the same period in 1999.
Margins on computer and add-on hardware can fluctuate based on the mix of
computer and ancillary hardware products sold. Accordingly, the Company expects
hardware gross margins to continue to fluctuate in the future. The Company
continues to direct its efforts toward building service and license revenues to
offset the historical decline in hardware revenue and margins.
EXPENSES
--------
Marketing and sales. Marketing and sales expenses consist primarily of employee
salaries, benefits, commissions and associated overhead costs, and the cost of
marketing programs such as direct mailings, trade shows, seminars, and related
communication costs. Marketing and sales expenses increased by approximately
$585,000, or 68%, for the three months ended September 30, 2000, compared to the
same period in 1999. The change in marketing and sales expenses reflects the
increased sales and marketing expenses from the newly acquired Khameleon
Software product line, partially offset by the elimination of the marketing and
sales expenses related to the SmartTime product line, and a decrease in
marketing and sales expenses in the tire systems product line.
General and administrative. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive, and
finance personnel and associated overhead costs, as well as consulting,
accounting, and legal expenses. General and administrative expenses increased by
approximately $114,000, or 14%, for the three months ended September 30, 2000,
compared to the same period in 1999. The change primarily reflects increased
general and administrative expenses from the tire and legal systems product
lines and from the newly acquired Khameleon Software product line, partially
offset by the elimination of the marketing and sales expenses related to the
SmartTime product line, and a decrease in general and administrative expense in
the Company's ERP product line.
Net earnings for the three months ended September 30, 2000 was approximately
$3,135,000, as compared to a net loss of approximately $83,000 for the same
period in 1999. The change primarily results from a net gain on the sale of the
SmartTime and ERP businesses of approximately $6,780,000, partially offset by a
decrease in earnings from operations of approximately $954,000, an increase in
interest expense-net of approximately $5,000, an increase in equity in loss from
affiliate of $38,000, and an increase in income taxes of $2,565,000.
12
<PAGE>
Item 2
- continued -
Results of Operations
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
compared to
Nine Months Ended September 30, 1999
(000's omitted)
---------------------------------------------
Revenue Increase/(Decrease)
------------------ ----------------------
2000 1999 Amount Percentage
------------------ ----------------------
<S> <C> <C> <C> <C>
Services $ 9,966 $ 11,078 $ (1,112) (10%)
Product licenses 4,322 4,178 144 3%
Computer and add-on hardware 1,036 3,406 (2,370) (70%)
-------- -------- --------
Net revenue $ 15,324 $ 18,662 $ (3,338) (18%)
======== ======== ======== =====
</TABLE>
Net revenue. The Company's total revenues decreased by approximately $3,338,000,
or 18%, for the nine months ended September 30, 2000, compared to the same
period in 1999. Revenue from existing businesses increased by approximately
$291,000, or 2%, for the period, when approximately $3,629,000 in revenue from
the Company's SmartTime product line for the nine months ended September 30,
1999 is excluded. Approximately $6,302,000 of the change in revenue from
existing businesses is from the newly acquired Khameleon product line for which
there is no comparable amount in 1999.
Product licenses. Software license revenues increased by approximately $144,000,
or 3%, for the nine months ended September 30, 2000, compared to the same period
in 1999. Product license revenue from existing businesses increased by
approximately $602,000, or 16%, for the nine months ended September 30, 2000,
when compared to the same period in 1999, and the product license revenue from
the SmartTime product line of approximately $458,000 for the same period in 1999
is excluded. Approximately $2,397,000 of the change in product license revenue
from existing business is from the Khameleon product line for which there is no
comparable amount in 1999.
Services. Service revenues decreased by approximately $1,112,000, or 10%, for
the nine months ended September 30, 2000, compared to the same period in 1999.
Service revenue from existing businesses increased by approximately $1,858,000,
or 23%, for the nine months ended September 30, 2000, compared to the same
period in 1999, and the service revenue from the SmartTime product line of
approximately $2,970,000 for the same period in 1999 is excluded. Approximately
$3,904,000 of the change in service revenue from existing businesses is from the
newly acquired Khameleon product line for which there is no comparable amount in
1999.
Computer and add-on hardware. Hardware revenues decreased by approximately
$2,370,000, or 70%, for the nine months ended September 30, 2000, compared to
the same period in 1999. The decrease in hardware revenue was due primarily to
decreased unit sales of hardware products by the Company's tire systems product
line.
13
<PAGE>
COST OF REVENUE
---------------
Product licenses and development. Cost of product license revenues and
development increased by approximately $1,004,000, or 37%, for the nine months
ended September 30, 2000, compared to the same period in 1999. Cost of product
license and development increased by approximately $1,821,000, or 95%, for the
nine months ended September 30, 2000 when compared to the same period in 1999,
and the cost of product licenses and development from the SmartTime product line
of approximately $817,000 for the same period in 1999 is excluded. Approximately
$2,111,000 of the increase in the cost of product licenses and development from
the Company's existing businesses is attributable to the newly acquired
Khameleon product line for which there is no comparable amount in 1999. The cost
of product licenses as a percentage of product license revenue may fluctuate
from period to period due to the mix of sales of third-party software products
in each period contrasted with certain fixed expenses such as the amortization
of capitalized software.
Services. Cost of services decreased by approximately $675,000, or 10%, for the
nine months ended September 30, 2000, compared to the same period in 1999. The
gross margin percentage for services for the nine months ended September 30,
2000 decreased to approximately 37% from approximately 38% for the same period
in 1999. The Company's revenue and margin from services fluctuate from period to
period due to changes in the mix of contracts and projects.
Computer and add-on hardware. Cost of hardware revenues decreased by
approximately $1,683,000, or 66%, for the nine months ended September 30, 2000,
compared to the same period in 1999. The decrease in dollar amount for the cost
of hardware revenues for the nine months ended September 30, 2000 was due
primarily to decreased unit sales of hardware products by the Company's tire
systems product line.
The gross margin percentage for hardware sales decreased to approximately 15%
for the nine months ended September 30, 2000, from approximately 25% in the same
period in 1999. Margins on computer and add-on hardware can fluctuate based on
the mix of computer and ancillary hardware products sold. Accordingly, the
Company expects hardware gross margins to continue to fluctuate in the future.
The Company continues to direct its efforts toward building service and license
revenues to offset the historical decline in hardware revenue and margins.
EXPENSES
--------
Marketing and sales. Marketing and sales expenses increased by approximately
$910,000, or 30%, for the nine months ended September 30, 2000, compared to the
same period in 1999. The change in marketing and sales expenses reflects the
increased sales and marketing expenses from the newly acquired Khameleon
Software product line, partially offset by the elimination of the marketing and
sales expenses of the SmartTime product line, and a decrease in marketing and
sales expenses for the tire and ERP systems product lines.
General and administrative. General and administrative expenses increased by
approximately $89,000, or 3%, for the nine months ended September 30, 2000,
compared to the same period in 1999. The change primarily reflects increased
general and administrative expenses from the newly acquired Khameleon Software
product line, partially offset by the elimination of the expenses related to the
SmartTime product line, and a decrease in general and administrative expenses in
all the Company's product lines.
Net earnings for the nine months ended September 30, 2000 were approximately
$2,044,000, as compared to net earnings of approximately $1,774,000 for the same
period in 1999. The change primarily results from an increase in other income of
approximately $3,278,000, a decrease in interest expense-net of approximately
$33,000, and a decrease in income taxes of $882,000, partially offset by a
decrease in earnings from operations of approximately $2,962,000 and an increase
in equity in loss from affiliate of $961,000. Other income-net for the nine
months ended September 30, 1999 includes a pretax gain of approximately
$3,824,000 on the sale of the Company's CommercialWare division. Other
14
<PAGE>
income-net for the nine months ended September 30, 2000 includes pretax gains of
approximately $6,716,000 and $64,000 on the sale of the Company's SmartTime and
ERP businesses, respectively.
Liquidity and Capital Resources
The Company had total cash and cash equivalents at September 30, 2000 of
approximately $1,911,000, a decrease of approximately $386,000 from December 31,
1999. At September 30, 2000, the Company also had $2,720,000 segregated as
assets held for future transactions as described in Note 3. The Company had a
maximum line of credit totaling $1,500,000 available at September 30, 2000. At
September 30, 2000, the Company had approximately $30,000 invested in marketable
securities, a decrease of approximately $3,336,000 from December 31, 1999.
In September 2000, the Company sold all of its shares of its Italian subsidiary,
ASA Italy S.r.l., an Italian limited company ("S.r.l.") to management of the
S.r.l. for nominal cash consideration. In connection with the sale, S.r.l.
acknowledged and agreed to pay a debt of approximately $9,000 incurred by the
Company on behalf of S.r.l.
In August 2000, the Company completed the sale of its SmartTime business to
InterPro Business Solutions, Inc. (formerly InterPro Expense Systems, Inc.), a
Delaware corporation ("InterPro"). Pursuant to an Option to Purchase Agreement
dated August 2, 1999 by and between the Company, InterPro, and ASA InterPro
SmartTime LLC, a Delaware limited liability company, InterPro exercised its
option to purchase the SmartTime business from the LLC for the aggregate
purchase price of $7,020,000 less the option fees paid on August 2, 1999 of
$1,660,000 and $540,000 paid on August 1, 2000. The terms and conditions of the
acquisition under the option are contained in the Asset Purchase Agreement dated
as of August 2, 1999 (the "Purchase Agreement"). As set forth in the Purchase
Agreement and Exhibits, on August 2, 1999, InterPro had loaned to the Company
$3,200,000 pursuant to a promissory note due on or before August 31, 2000 (the
"ASA Note"). Interest of $160,000 on the ASA Note was prepaid to August 1, 2000.
InterPro completed the transaction by paying the remaining $4,820,000 of the
purchase by (a) delivering the ASA Note (valued at $3,213,151 as a result of
interest accrued from August 1 through August 31, 2000), and (b) paying the
remainder of $1,606,849 in cash.
In November 1999, the Company acquired the business of Design Data Systems
Corporation, a Florida corporation, pursuant to an Asset Purchase Agreement (the
"Purchase Agreement") by and among the Company, the Seller, individually (only
with respect to certain sections of the Purchase Agreement), and the Company's
Bank, as Escrow Agent (the "Escrow Agent") (only with respect to certain
sections of the Purchase Agreement). The Purchase Agreement provides that the
transaction is effective as of September 30, 1999 (the "Closing Date"). Pursuant
to and as more fully set forth in the Purchase Agreement, the Company had the
right and obligation to purchase certain of the assets and assume certain of the
liabilities of Seller for a purchase price of $5,000,000 (the "Purchase Price").
Of the Purchase Price, $4,750,000 was due and payable on the Closing Date and
$250,000 was to be deposited with the Escrow Agent to be held pursuant to the
terms of the Purchase Agreement. Also on the Closing Date, the Company entered
into a certain Asset Acquisition and Exchange Cooperation Agreement (the
"Exchange Agreement") with SQL Acquisition LLC, a Delaware limited liability
company ("SQL"), Fidelity National 1031 Exchange Services, Inc., a California
corporation, and Pacific American Property Exchange Corporation, a California
corporation and sole member and manager of SQL. The Company 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 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 Company
completed the like-kind exchange involving $4,300,000 of Replacement Property on
September 15, 2000.
15
<PAGE>
Subject to the foregoing, the Company believes that based on the level of
operating revenue, cash on hand, and available bank debt, it has sufficient
capital to finance its ongoing business.
Year 2000 Implications
Prior to December 31, 1999, where necessary, the Company had provided its
customers upgrade alternatives to its Year 2000 non-compliant software and to
date has experienced only minor Year 2000 problems related to its products. The
majority of computer hardware and software the Company uses in its internal
operations did not require replacement or modification as a result of Year 2000
non-compliance. The Company believes that its significant vendors and service
providers are Year 2000 compliant and has not, to date, been made aware that any
of its significant vendors or service providers have suffered Year 2000
disruptions in their systems. Accordingly, the Company does not anticipate
incurring material expenses or experiencing any material operational disruptions
as a result of any Year 2000 problems. The total cost of the Company's Year 2000
compliance measures was not material and was funded through operating cash flows
and expensed as incurred.
Item 3. Quantitative And Qualitative Disclosure About Market Risk
---------------------------------------------------------
The Company is exposed to the impact of interest rate changes, foreign currency
fluctuations, and investment changes.
Interest Rate Risk. The Company's exposure to market rate risk for changes in
interest rates relates primarily to the Company's cash equivalent investments.
The Company has not used derivative financial instruments. The Company invests
its excess cash in short-term floating rate instruments and senior secured
floating rate loan funds which carry a degree of interest rate risk. These
instruments may produce less income than expected if interest rates fall.
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.
16
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits -
The following exhibits are filed with this report:
27 Financial Data Schedule.
(b) Reports on Form 8-K
On October 10, 2000, the Company announced the sale of ASA Italy
S.r.l. and filed related proforma financial statements.
On October 20, 2000, the Company announced the completion of the sale
of its SmartTime business and filed related proforma financial
statements.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASA International Ltd.
----------------------
(Registrant)
11/13/00 /s/ Alfred C. Angelone
(Date) ----------------------
(Signature)
Alfred C. Angelone
Chief Executive Officer
11/13/00 /s/ Terrence C. McCarthy
(Date) ----------------------
(Signature)
Terrence C. McCarthy
Vice President and Treasurer
18
<PAGE>
EXHIBIT 27
