10-Q 1 asa10q_06-03.txt JUNE 30, 2003 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: Commission File Number: June 30, 2003 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: . --------- ---------- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes: No: X . --------- --------- As of June 30, 2003 there were 1,988,720 shares of Common Stock of the Registrant outstanding. PART I FINANCIAL INFORMATION Item 1. Financial Statements -------------------- ASA INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2003 2002 ---- ---- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,181,712 $ 4,509,686 Marketable securities 26,758 22,780 Receivables: Trade-net 1,726,722 2,042,798 Related parties 23,832 31,239 Other 80,916 166,840 Current portion of note receivable 403,937 293,163 Other current assets 740,622 443,075 ----------- ----------- TOTAL CURRENT ASSETS 6,184,499 7,509,581 ----------- ----------- PROPERTY AND EQUIPMENT: Land and buildings 5,020,628 4,990,823 Computer equipment 2,357,889 2,342,072 Office furniture and equipment 1,027,713 1,027,713 Leasehold improvements 115,846 115,846 Vehicles and other 1,123,874 574,138 Capital leases 85,266 85,266 ----------- ----------- 9,731,216 9,135,858 Accumulated depreciation and amortization 4,332,480 4,132,869 ----------- ----------- NET PROPERTY AND EQUIPMENT 5,398,736 5,002,989 ----------- ----------- SOFTWARE (less cumulative amortization of $6,157,402 and $5,701,690 in 2002) 1,708,340 2,164,053 RECEIVABLES FROM RELATED PARTIES - net of current portion 301,287 338,931 NOTES RECEIVABLE - net of current portion 1,956,369 2,192,791 NOTE RECEIVABLE - related party -- 175,000 GOODWILL 1,154,733 1,257,686 MARKETABLE SECURITIES 728,769 -- OTHER ASSETS 1,185,065 1,255,034 ----------- ----------- $18,617,798 $19,896,065 =========== =========== See notes to condensed consolidated financial statements. 2 ASA INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

~~September~~June 30, December 31, 2003 2002 ~~2001~~ ----~~---------~~ ----~~-------~~ LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) ~~ASSETS~~ CURRENT ~~ASSETS~~LIABILITIES: ~~Cash~~Notes ~~and~~payable ~~cash~~- ~~equivalents~~other -- $ 590,~~258,449~~000 $Current 4maturities of long-term obligations 153,~~024~~252 105,~~254~~402 ~~Marketable~~Accounts ~~securities~~payable 22521,~~406~~893 24402,~~072~~566 ~~Receivables~~Accrued -expenses ~~net 2~~1,~~224~~610,~~864~~053 12,~~782~~093,~~294~~120 ~~Note~~Accrued ~~receivable~~commissions -205,313 ~~short~~385,621 ~~term~~Customer ~~262~~deposits 219,~~388~~785 73297,~~333~~301 ~~Other~~Deferred ~~current~~revenue ~~assets 411~~924,~~182~~055 ~~492~~1,~~789~~179,563 ------------ ------------ TOTAL CURRENT ~~ASSETS~~LIABILITIES 83,~~179~~634,~~289~~351 64,~~396~~553,~~742~~573 ------------ ------------ ~~PROPERTY~~LONG-TERM ~~AND EQUIPMENT: Land and building 4~~OBLIGATIONS,~~990,822~~ ~~4,312,795~~NET ~~Computer~~OF ~~equipment~~CURRENT ~~2,412,445~~MATURITIES 23,~~178~~931,~~272~~622 ~~Office furniture and equipment 1~~3,~~027~~596,~~713~~237 ~~996,322 Leasehold improvements 115,846 115,846 Vehicles 574,138 574,138~~ ------------ ------------ ~~9,120,964~~DEFERRED ~~8,177,373~~INCOME ~~Accumulated~~TAXES ~~depreciation and amortization 4~~466,~~017,053~~000 3466,~~688,077~~000 ------------ ------------ ~~NET~~COMMITMENTS ~~PROPERTY~~ AND ~~EQUIPMENT~~CONTINGENCIES 5COMMON STOCK SUBJECT TO REPURCHASE 458,~~103,911~~033 4533,~~489,296~~031 ------------ ------------ ~~SOFTWARE~~SHAREHOLDERS' ~~(less~~EQUITY: ~~cumulative~~Preferred ~~amortization~~stock, ofpar value $5.01 per share: Authorized and unissued,~~441~~ 1,~~176~~000,000 atshares, ~~9/30/02~~60,000 ~~and~~shares of which are designated as Series A Junior Participating Preferred Stock -- -- Common stock, par value $4.01 per share: Authorized,~~851~~ 8,~~488~~000,000 atshares; ~~12/31/01)~~issued 2,~~259~~485,~~050~~477 1and 2,~~907~~921,~~457~~280 ~~NOTE~~shares; ~~RECEIVABLE~~outstanding, 1,988,720 and 2,~~222~~150,~~114~~386 1shares 24,~~700~~855 29,~~000~~213 ~~INTEREST~~Additional ~~INCOME~~paid-in ~~RECEIVABLE~~capital 6,957,059 8,830,972 Retained earnings 4,903,330 5,260,095 Accumulated other comprehensive loss: Unrealized gain (loss) on marketable securities 49,751 (6,120) ------------ ~~432~~------------ 11,~~954~~934,995 ~~OTHER~~14,114,160 ~~ASSETS~~Less treasury stock, at cost 1,~~688~~807,~~860~~203 13,~~821~~366,~~798~~936 ------------ ------------ ~~$19~~TOTAL SHAREHOLDERS' EQUITY 10,~~453~~127,792 10,747,224 ------------ ------------ $16 18,~~748~~617,~~247~~798 $ 19,896,065 ============ ============

See notes to condensed consolidated financial statements. 3 ASA INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Three Months Ended June 30, --------------------------- 2003 2002 --------------------------- (Unaudited) REVENUES Services $ 3,191,481 $ 2,506,056 Product licenses 650,832 1,217,567 Computer and add-on hardware 253,882 515,560 ----------- ----------- NET REVENUE 4,096,195 4,239,183 ----------- ----------- COST OF REVENUE Services 1,623,495 1,202,970 Product licenses and development 886,488 684,129 Computer and add-on hardware 199,729 402,659 ----------- ----------- TOTAL COST OF REVENUE 2,709,712 2,289,758 ----------- ----------- EXPENSES Marketing and sales 818,785 684,767 General and administrative 950,252 852,729 ----------- ----------- TOTAL EXPENSES 1,769,037 1,537,496 ----------- ----------- EARNINGS (LOSS) FROM OPERATIONS (382,554) 411,929 INTEREST INCOME (EXPENSE) - NET 4,818 155,747 OTHER INCOME (EXPENSE), NET 13,746 46,838 ----------- ----------- EARNINGS (LOSS) BEFORE INCOME TAXES (363,990) 614,514 INCOME TAXES (114,000) 276,000 ----------- ----------- NET EARNINGS (LOSS) $ (249,990) $ 338,514 =========== =========== BASIC EARNINGS (LOSS) PER COMMON SHARE NET EARNINGS (LOSS) $ (0.12) $ 0.23 =========== =========== DILUTED EARNINGS (LOSS) PER COMMON SHARE NET EARNINGS (LOSS) $ (0.12) $ 0.22 =========== =========== See notes to condensed consolidated financial statements. 4 ASA INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Six Months Ended June 30, -------------------------- 2003 2002 -------------------------- (Unaudited) REVENUES Services $ 6,410,470 $ 4,921,889 Product licenses 1,477,233 1,937,403 Computer and add-on hardware 503,656 834,805 ----------- ----------- NET REVENUE 8,391,359 7,694,097 ----------- ----------- COST OF REVENUE Services 3,285,533 2,379,299 Product licenses and development 1,764,916 1,278,606 Computer and add-on hardware 391,756 644,598 ----------- ----------- TOTAL COST OF REVENUE 5,442,205 4,302,503 ----------- ----------- EXPENSES Marketing and sales 1,690,106 1,389,481 General and administrative 1,876,316 1,539,484 ----------- ----------- TOTAL EXPENSES 3,566,422 2,928,965 ----------- ----------- EARNINGS (LOSS) FROM OPERATIONS (617,268) 462,629 INTEREST INCOME (EXPENSE) - NET 36,140 83,760 LICENSE FEE - DIVESTITURE -- 100,000 MANAGEMENT FEE -- 123,720 OTHER INCOME (EXPENSE), NET 62,363 13,118 ----------- ----------- EARNINGS (LOSS) BEFORE INCOME TAXES (518,765) 783,227 INCOME TAXES (162,000) 352,000 ----------- ----------- NET EARNINGS (LOSS) $ (356,765) $ 431,227 =========== =========== BASIC EARNINGS (LOSS) PER COMMON SHARE NET EARNINGS (LOSS) $ (0.17) $ 0.29 =========== =========== DILUTED EARNINGS (LOSS) PER COMMON SHARE NET EARNINGS (LOSS) $ (0.17) $ 0.28 =========== =========== See notes to condensed consolidated financial statements. 5 ASA INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

~~September~~Three ~~30,~~Months ~~December~~Ended ~~31,~~Six ~~2002~~Months ~~2001~~Ended ~~--------------~~June ~~------------ (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations $ 85~~30,~~187~~ $June 8030,~~357~~ ~~Accounts payable 325,071 288,727 Accrued expenses 2,408,705 1,955,948 Customer deposits 374,112 259,731 Deferred revenue 421,755 387,689~~ ------------ ------------ ~~TOTAL CURRENT LIABILITIES 3,614,830 2,972,452~~ ------------ ------------ ~~LONG-TERM~~2003 ~~OBLIGATIONS,~~2002 ~~NET~~2003 OF2002 ~~CURRENT MATURITIES 3,649,858 3,661,475~~ ------------ ------------ ~~DEFERRED INCOME TAXES 709,000 709,000~~ ------------ ------------ ~~COMMITMENTS~~(Unaudited) ~~AND~~(Unaudited) ~~CONTINGENCIES~~NET ~~COMMON~~EARNINGS ~~STOCK~~(LOSS) ~~SUBJECT TO REPURCHASE 595~~$(249,~~530~~990) ~~SHAREHOLDERS'~~$ ~~EQUITY: Preferred stock~~338,514 ~~par value~~ $~~.01 per share: Authorized and unissued~~(356,765) ~~1,000,000~~$ ~~shares~~431,227 ~~60,000~~OTHER ~~shares~~COMPREHENSIVE ofINCOME ~~which~~(LOSS) ~~designated~~NET asOF ~~Series~~INCOME ~~A Junior Participating Preferred Stock Common stock, par value $.01 per share~~TAX: ~~Authorized~~Unrealized ,gain 8,000,000 shares; issued 5,881,342 at 9/30/02 and 4,510,870 shares at 12/31/01; outstanding, 4,352,869 at 9/30/02 and 2,982,397 shares at 12/31/01 58,813 45,109 Additional paid-in capital 8,858,750 7,931,501 Retained earnings 5,358,393 4,851,994 Accumulated other comprehensive (loss) ~~Unrealized loss~~ on marketable securities (653,~~494)~~899 (~~4,828~~340) 55,871 408 ---------~~---~~ ---------~~---~~ ~~14,269,462 12,823,776 Less: treasury stock, at cost 3,418,456 3,418,456~~ ---------~~---~~ ---------~~---~~ ~~TOTAL~~COMPREHENSIVE ~~SHAREHOLDERS'~~EARNINGS ~~EQUITY~~(LOSS) 11$(196,~~446,536~~091) 9$ 338,~~405,320~~174 ~~------------ ------------~~ $ 19(300,~~420,224~~894) $ 16431,~~748,247~~635 ========= ========= ========= =========

See notes to condensed consolidated financial statements. 6 ASA INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~Three~~Six Months Ended ~~Nine~~June ~~Months Ended September~~ 30, ~~September 30,~~ -------------------------- 2003 2002 -------------------------- ~~2002~~(Unaudited) ~~2001~~CASH ~~2002~~FLOWS ~~2001~~FROM OPERATING ACTIVITIES: Net earnings (loss) ($356,765) $ 431,227 Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 655,958 582,043 Changes in assets and liabilities, net of effects of acquisitions: Receivables 379,896 (455,066) Other current assets (297,547) (61,940) Accounts payable 119,330 238,269 Accrued expenses (663,378) 340,497 Customer deposits (77,516) 52,393 Deferred revenue (255,508) 870 ----------- ----------- Total adjustments (138,765) 697,066 ----------- ----------- Net cash provided by (used for) operating activities (495,530) 1,128,293 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment-net (~~Unaudited~~595,991) (~~Unaudited~~136,015) ~~NET~~Additions ~~EARNINGS~~to marketable securities (~~LOSS~~676,875) $-- 75Payments on (additions to) notes receivable 300,~~172~~648 $(858,197) ~~194~~Decrease in sales-types leases 29,~~899~~513 $26,760 ~~506~~Other Assets 210,~~399~~565 $751,635 ----------- ----------- Net cash used for investing activities (54732,~~846~~140) ~~OTHER~~(215,817) ~~COMPREHENSIVE~~----------- ~~EARNINGS~~----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (~~LOSS~~decrease) ~~NET~~in OFlong-term ~~INCOME~~debt ~~TAX:~~446,500 ~~Unrealized~~59,368 ~~loss~~Payments onof ~~marketable~~long-term ~~securities~~debt (263,~~074~~266) (240,~~210~~271) Purchase of treasury stock (1234,~~666~~921) -- Decrease in other notes (190,~~402~~000) -- Cash paid in reverse split (158,617) -- ----------- ----------- Net cash provided by (used for) financing activities (100,304) 19,097 ----------- ----------- ~~COMPREHENSIVE~~CASH ~~EARNINGS~~AND CASH EQUIVALENTS: Net increase (~~LOSS~~decrease) $(1,327,974) 73931,~~098~~573 $Balance, ~~192~~beginning of period 4,~~689~~509,686 4,024,254 ----------- ----------- Balance, end of period $ ~~504~~3,~~733~~181,712 $ ~~(56~~4,~~248)~~955,827 ========= ==~~=======~~ ========= ==~~=======~~

See notes to condensed consolidated financial statements. 7 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 accounting principles generally accepted in the United States. 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, all of which were of a normal recurring nature necessary for a fair presentation of the Company's results of operations for the three and six months ended June 30, 2003 and June 30, 2002, respectively. The results disclosed in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2003 are not necessarily indicative of the results expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002. Note 2. Forward Reverse Stock Split On May 16, 2003, the stockholders of the Company approved a reverse/forward split of the Company's common stock which resulted in a one-for-two reverse split and a cash out of stockholders who owned fewer than 200 shares before the reverse/forward split. A total of approximately $159,000 was paid out for cashed out and fractional shares held which totaled approximately 71,600 post-split shares. All share and per share data appearing in the Company's Condensed Consolidated Financial Statements and Notes thereto have been retroactively restated to reflect the reverse stock split. 8 ASA INTERNATIONAL LTD. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Note 3. Earnings (Loss) per Share The weighted average number of common shares outstanding used in the computation of earnings (loss) per share is summarized as follows:

~~Nine~~Three Months Ended ~~September~~Six Months Ended June 30, June 30, --------------------------- ~~2002 2001~~ --------------------------- ~~(Unaudited)~~2003 ~~CASH~~2002 ~~FLOWS~~2003 ~~FROM~~2002 ~~OPERATING ACTIVITIES: Net Earnings (Loss) $ 506,399 $ (54,846)~~ ----------- -~~----------~~ Adjustments to reconcile net earnings/(loss) to net cash provided by operating activities: Depreciation and Amortization 918,659 941,770 Changes in Assets and Liabilities: Receivables (129,117) 647,952 Other Current Assets 175,318 (112,358) Accounts Payable and Accrued Expenses (145,295) (757,700) Other (160,168) (168,686) ----------- ----------- ~~Total adjustments 659,397 550,978~~ ----------- ~~-----------~~Numerator: Net ~~cash~~earnings ~~provided~~(loss) by$ (~~used for~~249,990) ~~operating~~$ ~~activities~~338,514 1$ (356,~~165,796~~765) ~~496~~$ 431,~~132~~227 ~~-----------~~Numerator ~~-----------~~for ~~CASH~~diluted ~~FLOWS~~earnings ~~FROM~~(loss ~~INVESTING~~per ~~ACTIVITIES:~~share ~~Additions~~- income available to ~~property~~common ~~and~~shareholders ~~equipment~~$ (~~185~~249,~~692~~990) ~~(87~~$ 338,~~476)~~514 ~~Additions~~$ ~~to software --~~ (9356,~~400~~765) ~~Decrease~~$ ~~in sales-type leases 26~~431,~~760~~227 ~~81,932~~Denominator: ~~Cash~~Denominator ~~received~~for inbasic ~~acquisition~~and ofdiluted ~~CompuTrac~~loss ~~1,956,812~~per share -- ~~Cash~~Weighted ~~paid~~average ~~for~~shares ~~CompuTrac~~2,044,452 ~~merger~~1,491,199 ~~expenses~~2,092,472 ~~(257~~1,~~338)~~491,199 --Effect ~~Reductions~~of indilutive ~~assets~~securities: ~~held~~Employee ~~for~~stock ~~future~~options ~~transactions~~ -- 223,~~720,000~~023 ~~Additions to Notes Receivable (827,253)~~ -- ~~Other assets 787~~21,~~305~~822 ~~(551,458)~~ ----------- ----------- ~~Net cash provided by investing activities 1,500,594 2,153,598~~ ----------- ----------- ~~CASH~~Dilutive ~~FLOWS~~potential ~~FROM~~common ~~FINANCING~~shares ~~ACTIVITIES:~~Denominator ~~Increase~~for indiluted ~~long-term~~earnings ~~debt~~per ~~64,367~~share -- ~~Payments~~adjusted ofweighted ~~long-term~~average ~~debt~~shares ~~(71,154)~~and ~~(55,661)~~assumed ~~Cash~~conversions ~~paid~~2,044,452 to1,514,222 ~~CompuTrac~~2,092,472 ~~Shareholders (~~1,~~425~~513,~~408)~~021 --=========== ~~-----------~~=========== ~~-----------~~=========== ~~Net~~=========== ~~cash~~Basic ~~used~~earnings ~~for~~(loss) ~~financing~~per ~~activities~~share ~~(1,432,195)~~$ (~~55,661~~0.12) ~~-----------~~$ ~~-----------~~0.23 ~~CASH~~$ ~~AND~~(0.17) ~~CASH~~$ ~~EQUIVALENTS:~~0.29 ~~Net~~=========== ~~increase~~=========== ~~1,234,195~~=========== ~~2,594,069~~=========== ~~Balance,~~Diluted ~~beginning~~earnings of(loss) ~~period~~per ~~4,024,254~~share ~~1,178,048~~$ ~~-----------~~(0.12) ~~-----------~~$ ~~Balance,~~0.22 ~~end~~$ of(0.17) ~~period~~ $ ~~5,258,449~~0.28 $=========== ~~3,772,117~~=========== =========== ===========

9 The following table summarizes securities which were outstanding as of June 30, 2003 and 2002 but not included in the calculation of diluted loss per share because such shares are antidilutive: Three Months Ended June 30, ------------------------------------- 2003 2002 ---------------- ---------------- Employee Stock Options 186,265 - Note 4. Stock Options ------------- At June 30, 2003, the Company has four stock based compensation plans. 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 those plans consistent with the method of FASB Statement No. 123, "Accounting for Stock-Based Compensation", the Company's net earnings (loss) and earnings (loss) per share would have been adjusted to the pro forma amounts indicated below:

~~Cash~~Six toMonths ~~CompuTrac~~Ended ~~Shareholders~~Six $Months ~~1,425,408~~Ended ~~Fair~~\ ~~value~~June ~~of ASA common stock issued 1~~30,~~536,485~~ ~~Direct~~June ~~acquisition costs 257~~30,~~338~~ ------------- Total purchase price $ 3,219,231 ============= Fair value of net tangible assets: Cash To CompuTrac Shareholders $ 1,425,408 To be paid to H. Margolis 349,000 To be paid for costs related to the transaction 45,798 To be paid to ASA (RainMaker) under Mgmt Agreement 136,606 --------------~~-------------~~ ~~1,956,812 Receivables~~-~~net 308,758 Other current assets 24,045 Noncompete Agreement 275,000 less: Effect of pro rata allocation of excess of fair value of net assets acquired over the purchase price (101,551)~~ ------------------------~~---~~ ~~173,449~~2003 ~~Property~~2002 ~~and~~2003 ~~Equipment~~2002 ~~1,201,629 less: Effect of prorata allocation of excess of fair value of net assets acquired over the purchase price (443,734)~~ ---- ---- ---- ----~~-----------~~ ~~757,895~~Net ~~Accrued~~earnings ~~expenses~~ (~~358,683~~loss) ~~Payments~~As ~~due~~reported to$ ~~H. Margolis~~ (~~349~~249,~~000~~990) ~~Premium~~$ ~~for~~338,514 ~~directors and officers tail policy~~ $(15356,~~750~~765) ~~Deferred~~$ ~~revenue~~431,227 &Pro ~~customer~~forma ~~deposits~~ (~~210~~274,~~069~~566) ~~Accounts~~329,771 ~~payable~~ (9397,~~508~~816) ~~--------------------------~~413,596 ~~Value~~Basic ofearnings ~~net~~(loss) ~~tangible~~per ~~assets~~share ~~2,277,949~~As ~~Estimated~~reported ~~fair~~$ ~~value~~(0.12) of$ ~~identifiable~~0.23 ~~intangible~~$ ~~assets~~(0.17) ~~1,492,386~~$ ~~less:~~0.29 ~~Effect~~Pro offorma ~~prorata~~(0.13) ~~allocation~~0.22 of(0.19) ~~excess~~0.28 ofDiluted ~~fair~~earnings ~~value~~(loss) ofper ~~net~~share ~~assets~~As ~~acquired~~reported ~~over~~$ ~~the purchase price~~ (~~551,104~~0.12) ~~--------------------------~~$ ~~Value~~0.22 of$ ~~net~~(0.17) ~~identifiable~~$ ~~intangible~~0.28 ~~assets~~Pro ~~941,282~~forma ~~-------------~~(0.13) $0.22 ~~3,219,231~~(0.19) ~~=============~~0.27

Note 5. Purchase of Omtool Shares The Company accounts for its investments under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). This standard requires the following: o Securities that a company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. o Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. o Securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders' equity. 10 Management has determined that the appropriate classification of its investments in marketable securities is as "available-for-sale" securities. Pursuant to a Stock Purchase Agreement, dated as of May 23, 2003 (the "Agreement"), by and among the Company, Summit Investors III, L.P. and Summit Ventures IV, L.P. (the "Selling Stockholders"), the Company purchased an aggregate of 225,625 shares of Common Stock of Omtool Ltd., a Delaware corporation ("Omtool"), from the Selling Stockholders. The aggregate purchase price of the 225,625 shares of Common Stock was $676,875. The Agreement provides that if within twelve (12) months of the date thereof the Company or any of its subsidiaries directly or indirectly acquires, enters into a letter of intent or definitive agreement or similar document to purchase, or otherwise agrees in writing to purchase (whether or not such transaction closes within such 12-month period), any shares of Common Stock of Omtool from Omtool or from a third party in a private or public transaction at a per share price (without giving effect to any stock split, stock dividend or other transaction affecting the Common Stock occurring after the date thereof) in excess of $3.00 per share (any such purchase or agreement, a "Purchase Event"), the Company shall pay to the Selling Stockholders as soon as reasonably possible, but not longer than within three (3) business days of the closing of the transaction contemplated by the Purchase Event by wire transfer of immediately available funds the "Additional Purchase Amount". For purposes of the Agreement, the Additional Purchase Amount paid to Selling Stockholders shall be the product obtained by multiplying (x) the difference obtained by subtracting $3.00 from the per share price paid by the Company in the Purchase Event (without giving effect to any stock split, dividend or other transaction affecting the Common Stock occurring after the date hereof), by (y) 50%, by (z) 225,625. The foregoing provisions shall not apply if at the time of such Purchase Event, the Common Stock is no longer registered pursuant to the Securities Exchange Act of 1934, as amended. As of June 30, 2003, the Company owns approximately 13% of the shares of Common Stock of Omtool outstanding, based upon 1,746,113 shares of Common Stock outstanding, which is the total number of shares of Common Stock outstanding as of March 31, 2003 as reported in Omtool's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003. The Company currently holds its interest in Omtool for investment purposes. Note 6. Employee Stock Ownership Plan ----------------------------- During the quarter ended June 30, 2003, the Company established an Employee Stock Ownership Plan ("ESOP") effective January 1, 2003. The ESOP is designed to enable Company employees to accumulate ownership of Company stock. All employees on the payroll of the Company over the age of 21 and with at least 1,000 hours of Company service during a plan year are eligible to participate in the ESOP. The ESOP has a five-year cliff vesting, with credit given for service prior to the ESOP effective date. Benefits may be paid in a lump sum or installments, in Company stock, cash or a combination of both. The Company may, but is not required to, make contributions to the ESOP in cash or Company stock. The ESOP may borrow money to purchase Company stock. Employee contributions are not permitted. Company contributions may be used by the ESOP to repay any current loan obligation incurred to purchase Company stock, to purchase Company stock from existing shareholders, or to purchase Company stock directly from the Company. The ESOP may also invest in assets other than Company stock, or may hold ESOP assets in cash. As of June 30, 2003, no contributions have been made to the ESOP. Note 7. Recently Issued Accounting Pronouncement ---------------------------------------- In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how companies classify and measure, in their statement of financial position, certain financial instruments with characteristics of both liabilities and equities. SFAS No. 150 is effective for financial 11 instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Note 8. Notes Receivable ---------------- As provided under the terms of the Note for $2,448,197.26, dated June 3, 2002, the borrower, CommercialWare, has elected to defer the July 2003 payment due under the Note. The payment, which totals $50,000, is to be paid by September 30, 2003, and is subject to a 5% penalty under the terms of the Note. Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations -------------- This Quarterly report on Form 10-Q contains forward-looking information about the Company. In addition to the historical information contained herein, the discussions in this document include statements that constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including with respect to the Company's revenues, gross margins, acquisitions and expected cash flow. The Company is hereby setting forth statements identifying important factors that may cause the Company's actual results to differ materially from those set forth in any forward-looking statements made by the Company. Some of the most significant factors include: the risks associated with acquisitions; the ability of the Company to adapt to the rapid changes in the software industry and compete with companies with significantly greater financial and technical resources; the loss of executive officers and key personnel who are critical to the Company's business; the volume and timing of orders received during the period, which are difficult to forecast; the successful completion and sale of new products and enhancements to existing products; the availability of additional capital in the future and financial market volatility; and general economic and business conditions. Management believes these forward-looking statements are reasonable. However, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made. Accordingly, there can be no assurances that any anticipated future results will be achieved and the forward-looking statements contained herein should not be relied upon as predictions of future results. Furthermore, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 12 Results of Operations Second Quarter of 2003 compared to Second Quarter of 2002 ------------------------------------------------- (000's omitted) Revenue Increase / (Decrease) ------------------- ----------------------- 2003 2002 Amount Percentage ------ ------ ------- ---------- Services $3,191 $2,506 $ 685 27% Product licenses 651 1,218 (567) (47%) Computer and add-on hardware 254 515 (261) (51%) ------ ------ ------ Net revenue $4,096 $4,239 $ (143) (3%) ====== ====== ====== ====== During 2002, the Company completed the acquisition of two product lines. The revenues related to these product lines for the three and six months ended June 30, 2003 are as follows:

~~Three~~Revenue ~~Months Ended Nine Months Ended September 30, September 30,~~ ------------------------- --------- ASA Acquisition Three Months Six Months --- Line Acquired Product Line Date ended June 30, ended June 30, ------------- --- ~~2002 2001 2002 2001~~ --------- ---- -------------- ------------ -- From 2003 2003 ---- ---- ---- ~~Revenues~~CompuTrac, $Inc. ~~4,461,459~~Legal August $ 4561,~~810,716~~000 $ 141,~~019~~204,~~020~~000 $2002 ~~14,592,748~~PowerCerv ~~Net~~Corporation ~~earnings~~Manufacturing ~~48,329~~& ~~209,315~~November ~~516~~477,~~956~~000 (1,~~394~~014,~~684)~~000 ~~Net~~Distribution ~~earnings~~2002 ~~per~~---------- ~~share:~~----------- ~~Basic~~Total $ ~~0.01~~1,038,000 $ ~~0.05~~2,218,000 $=========== ~~0.16 $ (0.32) Diluted $ 0.01 $ 0.05 $ 0.16 $ (0.32)~~===========

The product line acquired from CompuTrac, Inc. has been combined as part of the Company's Legal Systems product line which has been renamed Rainmaker Software product line. The product line acquired from PowerCerv Corporation remains as a separate manufacturing and distribution software product line operating under the name of Verticent. REVENUE Net revenue. The Company designs and develops proprietary enterprise software for the tire dealer, legal, e-Business management, and manufacturing and distribution software markets. 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 $143,000, or 3%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002. Revenue from existing businesses decreased by approximately $1,118,000, or 28%, for the period ended June 30, 2003, when approximately $1,038,000 in revenue from the products acquired from CompuTrac and PowerCerv is excluded. 13 Services. The Company's 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 increased by approximately $685,000 or 27%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002. Services revenue from existing businesses decreased approximately $300,000, or 12% for the period when approximately $985,000 in services revenue from the products acquired from CompuTrac and PowerCerv is excluded. Service revenues decreased for all the Company's product lines for the second quarter of 2002 when compared to the second quarter of 2003. The decrease in service revenues from the Company's existing businesses was due primarily to decreases in software license revenues which were accompanied by reduced client requirements for training and consulting services. 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 $567,000 or 47%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002. Product license revenues decreased for all product lines from the second quarter of 2002 when compared to the second quarter of 2003. Product license revenue from existing businesses decreased by approximately $621,000, or 51% for the period when approximately $54,000 in product license revenue from the products acquired from CompuTrac and PowerCerv is excluded. The decrease in license revenue from the second quarter of 2002 to the second quarter of 2003 was primarily attributable to overall continuing economic uncertainty and a persisting delay in decisions by customers to make expenditures on information technology. Computer and add-on hardware. The Company's 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 $261,000, or 51%, for the three months ended June 30, 2003, compared to the same three months ended June 30, 2002. The decrease in hardware revenues was due to decreased hardware sales by the tire systems product line. COST OF REVENUE Services. The Company's cost of services consists of the costs incurred in providing client training, consulting, and ongoing support as well as other client service-related expenses. Cost of services increased by approximately $420,000, or 35%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002. The increase includes approximately $241,000 in cost of services from the newly acquired manufacturing and distribution software product line. The gross margin percentage for services for the period decreased from approximately 52% in 2002 to 49% in 2003. The Company's revenue and margin from services fluctuate from period to period due to changes in the mix of contracts and projects. Product licenses and development. The Company's cost of software license revenues consists of the costs of amortization of capitalized software costs, and the costs of sublicensing third-party software products. The amount also includes the expenses associated with the development of new products and the enhancement of existing products (net of capitalized software costs), which consist primarily of employee salaries, benefits, and associated overhead costs. Cost of software license revenues and development increased by approximately $202,000, or 30%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002. The cost of product licenses and development increased for all existing product lines except for the e-Business management product from the second quarter of 2002 when compared to the second quarter of 2003. The increase also includes approximately $73,000 in cost from the newly acquired manufacturing and distribution software product line for which there is no comparable amount in the period ended June 30, 2002. In addition, 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. 14 Computer and add-on hardware. The Company's cost of hardware revenues consists primarily of the costs of third-party hardware products for the Company's tire dealer product line. Cost of hardware revenues decreased by approximately $203,000, or 50%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002. The gross margin percentage for hardware sales decreased to 21% for the three months ended June 30, 2003, from 22% for the three months ended June 30, 2002. 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. EXPENSES Marketing and sales. The Company's 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 $134,000, or 20%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002. The change in marketing and sales expenses is comprised of an increase in expense of approximately $181,000 from the newly acquired manufacturing and distribution software product line for which there is no comparable amount in 2002 period. This change, along with an increase in sales and marketing expenses for the legal and e-Business Management product lines was partially offset by a decrease in such expenses from the Company's tire systems product line for the three months ended June 30, 2003 compared to the similar period ended June 30, 2002. General and administrative. The Company's 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 $98,000, or 11%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002. The change primarily reflects the general and administrative expenses from the newly acquired manufacturing and distribution software produce line, and increased expenses related to corporate overhead and the legal systems product line. The net loss for the three months ended June 30, 2003 was approximately $250,000, compared to net earnings of approximately $339,000 for the three months ended June 30, 2002. The change results from a decrease in earnings from operations of approximately $794,000, and a decrease in interest income-net and other income-net of approximately $184,000, which were partially offset by a decrease in income tax expense of approximately $390,000.

~~Three~~Results ~~Months~~of ~~Ended~~Operations ~~Nine~~Six Months Ended ~~September~~June 30, ~~September~~2003 compared to Six Months Ended June 30, ~~-------------------------~~2002 ------------------------ ~~2002 2001 2002 2001~~ ----------- ----------- ----~~-------~~ ~~----------- Numerator: Net earnings~~ (~~loss~~000's omitted) $Revenue ~~75,172~~Increase $/ ~~194,899 $ 506,399 $~~ (~~54,846~~Decrease) ----------- ----------- ----------- ----------- ~~Numerator for diluted earnings (loss) per share~~ - ~~income~~2003 ~~available~~2002 toAmount ~~common~~Percentage ~~shareholders $ 75,172 $ 194,899 $ 506,399 $ (54,846)~~ --------~~---~~ -------~~----~~ --------~~---~~ ----------- ~~Denominator~~Services ~~for~~$ ~~basic~~6,410 ~~earnings~~$ ~~per~~4,922 ~~share~~$ -1,488 ~~weighted~~30% ~~average~~Product ~~shares~~licenses 31,~~795,644~~477 21,~~982,397~~937 ~~3,255,480~~(460) ~~2,982,397~~(24%) ~~Effect~~Computer ofand ~~dilutive~~add-on ~~securities:~~hardware ~~Employee~~504 ~~stock~~835 ~~options~~(331) ~~18,854~~(40%) ~~46,528 36,195~~ -- -----~~------~~ -------~~----~~ --------~~---~~ ~~-----------~~Net ~~Denominator~~revenue ~~for~~$ ~~diluted earnings per share - adjusted weighted average shares and assumed conversions 3~~8,~~814,498~~391 ~~3,028,925~~$ 37,~~291,675~~694 ~~2,982,397 =========== =========== =========== =========== Basic earnings (loss) per share~~ $ ~~0.02~~697 $9% ~~0.07 $ 0.16 $ (0.02)~~ =======~~====~~ =======~~====~~ ========~~===~~ =====~~====== Diluted earnings (loss) per share $ 0.02 $ 0.06 $ 0.15 $ (0.02) =========== =========== =========== ===========~~

15 REVENUE Net revenue. The Company's total revenues increased by approximately $697,000, or 9%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002. Revenue from existing businesses decreased by approximately $1,521,000 or 20% for the six months ended June 30, 2003, when compared to the same period in 2002 and approximately $2,218,000 in revenue from the products acquired from CompuTrac and PowerCerv is excluded. Services. Service revenues increased by approximately $1,488,000, or 30%, for the six months ended June 30, 2003 compared to the six months ended June 30, 2002. Service revenue decreases for the legal and e-business systems product lines were partially offset by an increase in service revenues from the tire systems product line. The decrease in service revenues was due primarily to reduced client requirements for training and consulting services. Services revenue from existing businesses decreased approximately $474,000, or 10% for the period when approximately $1,968,000 in service revenue from the products acquired from CompuTrac and PowerCerv is excluded. A service revenue decrease from the e-Business Management product line was partially offset by an increase in services revenue from the tire dealer and legal systems for the six months ended June 30, 2003 when compared to the same period in 2002. Product licenses. Software license revenues decreased by approximately $460,000, or 24%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002. Product license revenues increased for all product lines except for e-business management systems from the first six months of 2003 when compared to the first six months of 2002. Product license revenue from existing businesses decreased by approximately $712,000, or 37% for the period when approximately $54,000 in product license revenue from the products acquired from CompuTrac and PowerCerv is excluded. The decrease in license revenue for the six months ended June 30, 2003 compared to the same period in 2002 was primarily attributable to overall continuing economic uncertainty and a persisting delay in decisions by customers to make expenditures on information technology. Computer and add-on hardware. Hardware revenues decreased by approximately $331,000, or 40%, for the six months ended June 30, 2003, compared to the same six months ended June 30, 2002. The increase in hardware revenues from existing businesses was due primarily to increased hardware sales by the tire systems product line. COST OF REVENUE Services. The Company's cost of services consists of the costs incurred in providing client training, consulting, and ongoing support as well as other client service-related expenses. Cost of services increased by approximately $906,000, or 38%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002. The increase includes approximately $481,000 in cost of services from the newly acquired manufacturing and distribution software product line. The gross margin percentage for services for the period decreased to approximately 49% from 52% of revenue from services for the same period in 2002. The Company's revenue and margin from services fluctuate from period to period due to changes in the mix of contracts and projects. Product licenses and development. Cost of software license revenues and development increased by approximately $486,000, or 38%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002. The increase includes approximately $178,000 in product license and development cost from the newly acquired manufacturing and distribution software product line for which there is no comparable amount in the period ended June 30, 2002. 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. 16 Computer and add-on hardware. Cost of hardware revenues decreased by approximately $253,000, or 39%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002. The increase in dollar amount for the cost of hardware revenues was due to increased sales of hardware products by the Company's tire systems product line. The gross margin percentage for hardware sales decreased to 22% for the six months ended June 30, 2003, from 23% for the six months ended June 30, 2002. 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. EXPENSES Marketing and sales. Marketing and sales expenses increased by approximately $301,000, or 22%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002. The change in marketing and sales expenses is comprised of an increase in expense of approximately $362,000 from the newly acquired manufacturing and distribution software product line for which there is no comparable amount in 2002 period. This change, along with an increase in sales and marketing expenses for the legal product line was partially offset by a decrease in such expenses from the Company's tire systems and e-Business Management product lines for the six months ended June 30, 2003 compared to the similar period ended June 30, 2002. General and administrative. General and administrative expenses increased approximately $337,000, or 22%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002. The change primarily reflects the general and administrative expenses from the newly acquired manufacturing and distribution software product line, and increased expenses related to corporate overhead and the legal systems product line. The net loss for the six months ended June 30, 2003 was approximately $357,000, as compared to a net earnings of approximately $431,000 for the six months ended June 30, 2002. The change results from a decrease in earnings from operations of approximately $1,080,000, a decrease in license and management fees and other income-net of approximately $174,000 and a decrease in interest income-net of approximately $48,000, partially offset by a decrease in income tax expense of approximately $514,000. LIQUIDITY AND CAPITAL RESOURCES The Company had total cash and cash equivalents at June 30, 2003 of approximately $3,182,000, a decrease of approximately $1,328,000 from December 31, 2002. The Company and its subsidiaries had a maximum line of credit totaling $1,500,000 which was available at June 30, 2003. At June 30, 2003, the Company had approximately $27,000 invested in marketable securities, which is approximately the same as the amount invested at December 31, 2002. On May 23, 2003, as more fully described in Note 5 to the financial statements contained in this filing, the Company purchased 225,625 shares of common stock of Omtool Ltd. The aggregate purchase price of the shares was $675,875. The shares were purchased under a Stock Purchase Agreement with two third parties which requires that the Company pay, under certain conditions, an additional amount under a formula to the third parties should the Company subsequently purchase additional shares of Omtool stock. On May 16, 2003, the Company's stockholders approved a reverse/forward split of the Company's common stock which resulted in a one-for-two reverse split and a cash out of stockholders who own fewer than 200 shares. A total of approximately $159,000 was paid out for cashed out and fractional shares, which totaled approximately 71,600 post-split shares. In January 2003, the Company co-signed and guaranteed a Promissory Note on behalf of a newly -formed 100% owned subsidiary, ASA Aircraft, LLC. The note for $893,000 was signed under a Demand Loan and Security Agreement with a bank for the purchase of a 50% interest in an aircraft. The total purchase price of the aircraft was $900,000. The Company is obligated for 50% of the $893,000 note, 17 and is a guarantor on the remaining 50%. The co-borrower on the note is an unrelated party that is liable for 50% of the note and is also a guarantor of the Company's liability. The 5-year note with interest at prime (4.25% at June 30, 2003) plus .25% calls for monthly principal and interest payments of $6,861 through December 2007 with a final payment of approximately $666,869 plus interest due in December 2007. The Promissory Note is collateralized by the aircraft with cross guarantees by each of the borrowers. Under the provisions of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others", management of the Company has determined that the fair value of the guarantee related to the note is nominal and not material to the Company's financial statements. On December 1, 2002, the Company completed the purchase of substantially all of the assets of PowerCerv Corporation. Under the terms of an Asset Purchase Agreement (the "PowerCerv Purchase Agreement"), in addition to assuming certain PowerCerv liabilities, the Company paid PowerCerv $500,000 cash ($100,000 of which had been advanced to PowerCerv as a loan) and issued a $90,000 note at 1.81% per annum. The total amount due on this Note of approximately $90,800 was paid in June 2003. The purchase price was also increased by approximately $16,000 for adjustments specified under the terms of the PowerCerv Purchase Agreement which was paid in the first quarter of 2003. 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. Accurately predicting the sales cycle of any large order may be difficult. 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. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's discussion and analysis of the Company's financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements 18 requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates estimates, including those related to the allowance for doubtful accounts, software, acquired software and other acquired intangibles, the likelihood of the utilization of certain tax loss carry-backs and carry-forwards for certain of the transactions completed by the Company, and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. For a detailed discussion on the application of these and other accounting policies, see Note A in the notes to the consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2002. Accounts Receivable. Accounts receivable balances are evaluated on a continual basis and allowances are provided for potentially uncollectible accounts based on management's estimate of the collectability of customer accounts. If the financial condition of a customer were to deteriorate, resulting in an impairment of its ability to make payments, an additional allowance may be required. Allowance adjustments are charged to operations in the period in which the facts that give rise to the adjustments become known. The accounts receivable balance at June 30, 2003 was $1,831,468 net of an allowance of $250,335 and at December 31, 2002 was $2,240,877 net of an allowance for doubtful accounts of $188,949. Revenue Recognition. The Company recognizes revenue in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position ("SOP") 97-2, "Software Revenue Recognition," and SOP 98-9 "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions". Revenue is recognized when all of the following are met: pervasive evidence of an arrangement exists; delivery has occurred; the vendor's fee is fixed and determinable; and collectibility is probable. For multiple-element license arrangements, the license fee is allocated to the various elements based on fair value. When a multiple-element arrangement includes rights to a post-contract customer support, the portion of the license fee allocated to such support is recognized ratably over the term of the arrangement. For arrangements to deliver software that requires significant modification or customization, revenue is recognized on the percentage-of-completion method. 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. Based on the Company's reading and interpretation of these SOPs, the Company believes that its current sales contract terms and business arrangements have been properly reported. However, the AICPA and its Software Revenue Recognition Task Force continue to issue interpretations and guidance for applying the relevant standards to a wide range of sales contract terms and business arrangements that are prevalent in the software industry. Also, the Securities and Exchange Commission (SEC) has issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," which provides guidance related to revenue recognition based on interpretations and practices followed by the SEC. Future interpretations of existing accounting standards or changes in the Company's business practices could result in future changes in its revenue accounting policies that could have a material adverse effect on its business, financial condition and results of operations. The Company's revenue recognition policy is significant because the Company's revenue is a key component of its results of operations. In addition, the Company's revenue recognition determines the timing of certain expenses, such as 19 commissions and license costs. The Company follows very specific and detailed guidelines in measuring revenue; however, certain judgments affect the application of the Company's revenue policy. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause the Company's operating results to vary significantly from quarter to quarter and could result in future operating losses. 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. The Company periodically reviews the carrying value of its software to determine whether an impairment exists. Relevant cash flow and profitability information, including estimated future operating results, trends, and other available information are considered in assessing whether the carrying value of the software can be recovered. If it is determined that the carrying value of the software will not be recovered from the undiscounted cash flows, the carrying value of the software would be considered impaired and reduced by a charge to operations in the amount of the impairment. An impairment charge is measured as any deficiency in the amount of undiscounted future cash flows available to recover the carrying value related to the software. Future adverse changes in market conditions could result in an inability of the Company to recover the carrying value of the software, thereby possibly requiring an impairment charge in the future. Goodwill and other acquired intangibles. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect the Company's consolidated financial statements. As a result of the adoption of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"), the Company annually reviews goodwill and other intangible assets that have indefinite lives for impairment and when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Fair value is determined using discounted cash flow analysis, which requires the Company to make certain assumptions and estimates regarding industry economic factors and future profitability of acquired businesses. If actual results are not consistent with these assumptions and judgments, the Company could be exposed to a material impairment charge. Long-Lived Assets. The Company accounts for long-lived assets in accordance with SFAS 144, and accordingly, reviews its long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In performing the review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles would be based on the fair value of the asset. The Company has identified the policies below as critical to the Company's business operations and the understanding of the Company's results of operations. The impact and any associated risks related to these policies on the Company's business operations is discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect the Company's reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note A in the Notes to the Consolidated Financial Statements in Item 14 of the Company's Annual Report on Form 10-K. Note that the Company's preparation of the Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Company's financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. 20 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS ASA is heavily dependent on the software industry and changes in the industry could harm ASA's business and operating results. The software industry is subject to economic cycles and has in the past experienced, and is likely in the future to experience, recessionary periods. In particular, many sectors of the software industry are currently experiencing the effects of a downturn in economic conditions. This downturn is leading to reduced demand for the services provided by software companies like ASA. These changes in demand and in economic conditions have resulted and may continue to result in customer cancellation or rescheduling of orders, which could affect ASA's results of operations. In addition, a protracted general recession in the software industry could have a material adverse effect on ASA's business, financial condition and results of operations. ASA's operating results may fluctuate substantially, which may cause its stock price to fall. ASA's quarterly and annual results of operations have varied in the past, and ASA's operating results may vary significantly in the future due to a number of factors including, but not limited to, the following: o timing of orders from major customers; o mix of products and services; o pricing and other competitive pressures; o delays in new product development, which could cause ASA to be unable to meet customer delivery schedules; o economic conditions in the software industry; and o ASA's ability to time expenditures in anticipation of future revenues. ASA is subject to risks associated with acquisitions, and these risks could harm ASA's operating results and cause its stock price to decline. ASA has historically pursued a strategy of growth through acquisitions. These acquisitions have primarily involved acquisitions of entire companies. Acquisitions of companies and businesses and expansion of operations involve certain risks, including the following: o the potential inability to successfully integrate acquired operations, product lines, technologies, personnel and businesses or to realize anticipated synergies, economies of scale or other value; o diversion of management's attention; o difficulties in coordinating management of operations at new sites; o difficulties associated with managing and integrating operations in distant geographic locations; o the possible need to restructure, modify or terminate customer relationships of the acquired company; and o loss of key employees of acquired operations. ASA may experience problems in integrating operations previously acquired by ASA or operations associated with any future acquisition. ASA cannot assure you that any recent or future acquisition will result in a positive contribution to ASA's results of operations. In particular, the successful combination of ASA with any business ASA acquires in the future will require substantial effort for each company, including the integration and coordination of marketing and sales efforts. The diversion of the attention of management and any difficulties encountered in the transition process, including the interruption of, or a loss of momentum in, the activities of any future acquisition, problems associated with integration of management information and reporting systems, and delays in implementation of consolidation plans, could harm ASA's ability to realize the anticipated benefits of any future acquisition. Any failure by ASA to realize the anticipated benefits of its acquisitions could harm its business, financial condition and operating results, and could cause the price of ASA's common stock 21 to decline. In addition, future acquisitions may result in significantly dilutive issuances of equity securities, the incurrence of additional debt, large one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense or impairment charges. These factors could harm ASA's business, financial condition and operating results and cause the price of ASA's common stock to decline. Some executive officers and key personnel are critical to ASA's business and these officers and key personnel may not remain with ASA in the future. ASA's success depends upon the continued service of some executive officers and other key personnel. Generally, ASA's employees are not bound by employment or non-competition agreements, and there can be no assurance that ASA will retain its officers and key employees. If ASA loses the services of Alfred C. Angelone, chairman and chief executive officer of ASA, or one or more of its other executive officers or key employees, or if one or more of these individuals decides to join a competitor or otherwise compete with ASA, ASA's business, operating results and financial condition could be seriously harmed. ASA may need additional capital in the future, which may not be available. ASA has entered into a revolving demand loan agreement with a bank for up to $1,500,000 (which cannot exceed 80% of qualified accounts receivables), bearing interest at a rate approximating prime plus .5%, which extends through June 30, 2004. The revolving demand loan is subject to certain terms and conditions, including maintenance of a stated tangible net worth, stated debt service coverage and debt to tangible net worth ratios. Payment of dividends is prohibited under the terms of the agreement. Borrowings are secured by the personal property of ASA. Although ASA has no indebtedness under the revolving demand loan agreement, ASA may need to borrow money in the future. If ASA is unable to borrow under the agreement, ASA may be unable to raise sufficient additional capital when needed, on favorable terms, or at all. If ASA's borrowings under the agreement are insufficient, the agreement includes provisions and covenants that would restrict ASA's ability to incur further indebtedness. If ASA's capital resources are insufficient to meet future capital requirements, ASA will have to raise additional funds. The sale of equity or convertible debt securities in the future may be dilutive to ASA's stockholders. If ASA is unable to obtain adequate funds on reasonable terms, ASA may be required to curtail operations significantly or to obtain funds by entering into financing agreements on unattractive terms. ASA may need to refinance its headquarters in the future, which may not be possible. ASA has a mortgage related to its corporate headquarters in Framingham, Massachusetts. The 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 payment of approximately $2,638,000 plus interest. If ASA's capital resources are insufficient to meet the monthly or final payment obligations, ASA will have to raise additional funds or relocate its headquarters, which may not be possible on attractive or reasonable terms. ASA's operating results are subject to fluctuations. ASA has historically experienced significant fluctuations in its quarterly operating results and anticipates such fluctuations in the future. ASA's 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 ASA's products often have a lengthy sales cycle while the customer evaluates and receives approvals for the purchase of the products. Accurately predicting the sales cycle of any large order may be difficult. If one or more large orders fail to close as forecasted in a fiscal quarter, ASA's revenues and operating results could be materially adversely affected. In addition, ASA typically receives a substantial portion of its product orders in the last month of a quarter. Orders are shipped as received and, as a result, ASA often has little or no backlog except for support and service revenue. Such fluctuations and general economic uncertainty could have a material adverse impact on ASA's ability to maintain liquidity and raise additional capital. 22 Failure to manage ASA's growth may seriously harm its business. ASA's business has grown in recent years through both internal expansion and acquisitions, and continued growth may cause a significant strain on ASA's infrastructure and internal systems. To manage ASA's growth effectively, ASA must continue to improve and expand its management information systems. Future acquisitions could place additional strains on ASA's management infrastructure. If ASA is unable to manage growth effectively, its results of operations could be harmed. The trading price of ASA's common stock may be volatile. The trading prices of ASA's common stock has been and could in the future be subject to significant fluctuations in response to variations in quarterly operating results, developments in the software industry, changes in general economic conditions and economic conditions in the software industry changes in securities analysts' recommendations regarding ASA's securities, and other factors. In addition, the stock market in recent years has experienced significant price and volume fluctuations which have affected the market prices of technology companies and which have been unrelated to or disproportionately impacted by the operating performance of those companies. These broad market fluctuations may cause the market price of ASA's common stock to decline. Item 3. Quantitative And Qualitative Disclosure About Market Risk --------------------------------------------------------- The Company is exposed to the impact of interest rate changes 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 certain of 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. 23 Item 4. Controls and Procedures ----------------------- Within the 90 days prior to the date of this report, the company carried out an evaluation, under the supervision and with the participation of the company's management, including the company's chief executive officer and chief financial officer, of the effectiveness of the design and operation of the company's disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the company's disclosure controls and procedures are effective in timely alerting them to material information relating to the company (including its consolidated subsidiaries) required to be included in the company's periodic SEC filings. There have been no significant changes in the company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the company carried out its evaluation. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders --------------------------------------------------- On May 16, 2003, the Company held an Annual Meeting of Stockholders (the "Annual Meeting") to vote on the following proposals: 1. To elect six (6) members to the Board of Directors ("Proposal No. 1"). Nominees for Director were: (a) Alfred C. Angelone; (b) Chas B. Blalack; (c) Alan J. Klitzner, (d) William A. Kulok; (e) James P. O'Halloran; and (f) Robert L. Voelk; and 2. To ratify and confirm the appointment of Sansiveri, Kimball and McNamee, LLP, as the independent auditors for the Company for the fiscal year ending December 31, 2003 ("Proposal No. 2"). 3. To approve an amendment to the Restated Certificate of Incorporation of the Company to effect a reverse/forward split of the Company's common stock. 24 Of the 4,272,995 shares of the Company's Common Stock of record as of March 20, 2003 able to be voted at the Annual Meeting, a total of approximately 3,939,841 shares were voted, or approximately 92% of the Company's issued and outstanding shares of Common Stock entitled to vote on these matters. Proposals No. 1, No. 2 and No. 3 were adopted with the vote totals as follows: Shares Shares Vote Voting Proposal Voting For Against Withheld -------- ---------- ------- -------- Proposal No. 1 (a) Alfred C. Angelone 3,814,210 125,631 (b) Chas B. Blalack 3,813,506 126,335 (c) Alan J.Klitzner 3,813,610 126,231 (d) William J. Kulok 3,813,610 126,231 (e) James P. O'Halloran 3,814,190 125,651 (f) Robert L. Voelk 3,814,210 125,631 Proposal No. 2 3,887,321 23,651 28,869 Proposal No. 3 2,492,447 196,873 1,228,460 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- 10.1 Office Building Lease between Colonnade Ashley and Verticent, Inc., dated June 1, 2003. 31.1 Section 302 Certification of Chief Executive officer. 31.2 Section 302 Certification of Chief Financial Officer. 32.1 Section 906 Certification of Chief Executive Officer. 32.2 Section 906 Certification of Chief Financial Officer. (b) Reports on Form 8-K ------------------- The Registrant filed one Current Report on Form 8-K during the three months ended June 30, 2003. On May 23, 2003, the Registrant filed a Form 8-K reporting under Item 5 the purchase of an aggregate of 225,625 shares of Common Stock of Omtool Ltd., a Delaware corporation. 25 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) 08/07/03 /s/ Alfred C. Angelone -------- --- ------------------ Alfred C. Angelone Chief Executive Officer 08/07/03 /s/ Terrence C. McCarthy -------- ------------------------ Terrence C. McCarthy Vice President, Secretary, and Treasurer 26

Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Employee Stock Options -- 122,580 -- 122,563

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