DRAFT
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
OR
--
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-22-309
ASI SOLUTIONS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-3903237
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
780 Third Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 319-8400
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 ____
-----
The number of shares of the registrant's Common Stock, par value $0.01 per
share, outstanding on July 25, 2000 was 6,738,122.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASI Solutions Incorporated
Consolidated Balance Sheets
June 30, 2000 and March 31, 2000
June 30, March 31,
2000 2000
(Unaudited)
----------------- -----------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,031,859 $12,155,795
Accounts receivable, net 14,813,654 14,479,377
Prepaid expenses and other current assets 652,303 765,721
Deferred income taxes 75,918 75,918
----------------- -----------------
Total current assets 18,573,734 27,476,811
Property and equipment, net 5,122,326 5,042,982
Intangible assets, net 22,209,503 22,401,403
Deferred financing costs 339,989 375,160
Other assets 405,695 453,875
----------------- -----------------
Total assets $46,651,247 $55,750,231
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion, notes payable to bank $ 3,717,315 $ 3,462,363
Current portion, subordinated notes payable 1,666,667
Other debt 52,837 87,785
Accounts payable and accrued expenses 7,660,499 17,558,809
Income taxes payable 1,427,082 278,287
----------------- -----------------
Total current liabilities 12,857,733 23,053,911
Deferred income taxes 690,765 690,765
Notes payable to bank, less current portion 6,706,316 7,762,537
Other liabilities 320,981 313,528
----------------- -----------------
Total liabilities 20,575,795 31,820,741
Stockholders' Equity:
Common stock 67,837 67,078
Additional paid in capital 11,686,652 11,477,820
Accumulated other comprehensive (loss) (249,657) (3,789)
Retained earnings 14,570,620 12,388,381
----------------- -----------------
Total stockholders' equity 26,075,452 23,929,490
------------------ -----------------
Total liabilities & stockholders' equity $46,651,247 $55,750,231
================= =================
The accompanying notes are an integral part of these financial statements.
ASI Solutions Incorporated
Unaudited Consolidated Statements of Income
For the Three Months Ended June 30, 2000 and 1999
2000 1999
---------------------- ----------------------
Revenue $23,086,614 $15,899,242
Cost of services 11,901,595 8,312,333
---------------------- ----------------------
Gross profit 11,185,019 7,586,909
Operating expenses:
General and administrative 4,594,587 3,639,977
Sales and marketing 1,908,228 1,321,365
Research and development 601,934 501,952
---------------------- ----------------------
Income from operations 4,080,270 2,123,615
Interest expense, net 290,300 399,075
---------------------- ----------------------
Income before provision for income taxes 3,789,970 1,724,540
Provision for income taxes 1,607,731 716,742
---------------------- ----------------------
Net income $ 2,182,239 $ 1,007,798
Basic earnings per share $0.32 $0.15
====================== ======================
Diluted earnings per share $0.32 $0.15
====================== ======================
Weighted average common shares outstanding:
Basic shares 6,738,122 6,538,813
Diluted effect of stock options and
warrants 46,602 206,526
---------------------- ----------------------
Diluted shares 6,784,724 6,745,339
====================== ======================
The accompanying notes are an integral part of these financial statements.
ASI Solutions Incorporated
Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended June 30, 2000 and 1999
2000 1999
-------------------- -------------------
Cash flow from operating activities:
Net income: $ 2,182,239 $ 1,007,798
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 699,094 631,962
Provision for doubtful accounts 50,818
Other 35,171 24,903
Changes in assets and liabilities:
Accounts receivable (469,019) (942,667)
Prepaid expenses and other current assets 118,642 58,203
Other assets 35,322 (3,774)
Accounts payable and accrued expenses (10,692,216) (4,093,152)
Income taxes 2,155,417 120,356
Other liabilities 11,223 23,918
-------------------- -------------------
Net cash used in operating activities (5,873,309) (3,172,453)
-------------------- -------------------
Cash flow from investing activities:
Fixed asset additions (570,639) (416,903)
Other (46,731)
-------------------- -------------------
Net cash used in investing activities (617,370) (416,903)
-------------------- -------------------
Cash flow from financing activities:
Repayment of debt (2,502,884) (3,060,364)
Payment of financing costs (15,000)
Proceeds from issuance of common stock, net 209,592 227,531
-------------------- -------------------
Net cash used in financing activities (2,293,292) (2,847,833)
-------------------- -------------------
Effect of exchange rate changes on cash and cash
equivalents (339,965) 67,361
Net decrease in cash and cash equivalents (9,123,936) (6,369,828)
Cash and cash equivalents at beginning of period 12,155,795 7,595,366
-------------------- -------------------
Cash and cash equivalents at end of period $ 3,031,859 $ 1,225,538
==================== ===================
The accompanying notes are an integral part of these financial statements.ASI
ASI Solutions Incorporated
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation:
--------------------------------------
On March 26, 1996, ASI Solutions Incorporated (the "Company") was incorporated
in the State of Delaware. Effective March 31, 1996, the Company issued
4,625,158 shares of Common Stock in exchange for substantially all of the issued
and outstanding shares of common stock of Proudfoot Reports Incorporated ("PRI")
and 95% of the common stock of Assessment Solutions Incorporated ("Assessment
Solutions"). During fiscal 1997, the remaining 5% of the outstanding common
stock of Assessment Solutions were redeemed. The initial stockholders of the
Company were also the principal stockholders of PRI and Assessment Solutions,
the two previously separate but commonly controlled companies. After the
reorganization, Assessment Solutions and PRI are wholly owned subsidiaries of
the Company. On August 29, 1997, the Company acquired the assets of Effective
Learning Systems. On November 13, 1997, the Company's newly created subsidiary
McLagan Partners Inc. ("McLagan Partners") acquired substantially all of the
assets and business operations of McLagan Partners Incorporated and
subsidiaries. The Company, Assessment Solutions, PRI and McLagan Partners are
hereinafter referred to collectively as the "Company."
The exchange described above has been accounted for as a reorganization since
all entities involved were under common control. The consolidated financial
statements reflect the interests attributable to the one controlling shareholder
of both combined entities at their historical basis of accounting. The
remaining interests have been accounted for as a purchase of minority interests
and the excess of the purchase price over the related historical cost of
$1,063,000 has been allocated to intangible assets. All intercompany accounts
and transactions have been eliminated in consolidation.
Effective April 16, 1997, the Company sold 1.8 million shares of common stock to
the public at a price of $6 per share in an initial public offering and pursuant
to an over-allotment option, the underwriter purchased 270,000 shares of common
stock at a price of $6 per share (the "Offering"). Proceeds from the Offering,
net of underwriters' discount and offering costs, were approximately $9,034,000.
Effective on the Offering date, the Company's Certificate of Incorporation (the
"Certificate") was restated to increase the number of authorized shares of
Common Stock to 18 million shares.
The accompanying unaudited interim financial statements of ASI Solutions
Incorporated have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and note
disclosures normally included in annual financial statements have been condensed
or omitted pursuant to those rules and regulations. In the opinion of
management, all adjustments, consisting of normal, recurring adjustments
considered necessary for a fair presentation, have been included. Although
management believes that the disclosures made are adequate to ensure that the
information presented is not misleading, it is suggested that these financial
statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000.
The results of the three months ended June 30, 2000 and 1999 are not necessarily
indicative of the results of operations for the entire year.
The financial statements of foreign subsidiaries, where the local currency is
the functional currency, are translated into U.S. dollars using exchange rates
in effect at period end for assets and liabilities and average exchange rates
during each reporting period for results of operations. Adjustments resulting
from translation of financial statements are reflected as a separate component
of stockholders' equity.
2. Operations:
----------
The Company
ASI Solutions Incorporated (the "Company") is a leading national provider of
human resources outsourcing services for large organizations seeking to hire,
train and develop a higher quality, more effective workforce. The Company's
services are organized into three core areas: performance improvement services,
employment process outsourcing and compensation services and market share
studies. The Company believes these services position the Company as a single-
source solution for many organizations that outsource all or a portion of their
human resources functions. The Company markets its services principally to
Fortune 500 companies for which customer service, sales and call center
functions are critical components of their businesses. Industries served by the
Company include telecommunications, financial services, information technology,
consumer products and healthcare.
Impact of Recently Issued Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of Statement
133," which postponed the adoption of SFAS No. 133. The Company does not
anticipate the statement to have a significant effect on its current financial
reporting and disclosure requirements.
3. Stockholders' Equity:
---------------------
A summary of the changes in Stockholders' Equity for the three months ended June
30, 2000 is as follows:
Accumulated
Additional Other
Common Paid-In Comprehensive Retained
Shares Stock Capital Income Earnings Total
- ------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 6,662,183 $67,078 $11,477,820 $ (3,789) $12,388,381 $23,929,490
Issuance of Common Stock for
Employee Stock Purchase Plan 75,939 759 208,832 209,591
Translation adjustment (245,868) (245,868)
Net Income 2,182,239 2,182,239
--------------------------------------------------------------------------------
Balance, June 30, 2000 6,738,122 $67,837 $11,686,652 $( 249,657) $14,570,620 $26,075,452
================================================================================
4. Acquisitions:
------------
On November 13, 1997, the Company acquired substantially all of the assets
(primarily fixed assets of $483,978) and businesses of McLagan Partners
Incorporated and its related entities (collectively, "McLagan"). The
consideration paid by the Company for the assets of McLagan included (i) $15.5
million paid in cash; (ii) $5 million in subordinated notes bearing interest at
8 percent per annum and payable in three equal principal installments on each of
April 30, 1998, April 30, 1999 and April 30, 2000; and (iii) 50,000 shares of
the common stock, par value $.01 per share, of the Company. The Company
incurred $828,188 of costs associated with the acquisition. The Company also
discharged approximately $1 million of McLagan's outstanding liabilities and
agreed to make deferred payments in an aggregate amount of $1 million, on April
30, 2000, to certain employees of McLagan, provided that such employees continue
to be employed by the McLagan subsidiaries as of such date.
The acquisition has been accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets purchased
based upon the fair values at the date of the acquisition. As a result,
$22,294,210 of the purchase price has been allocated to goodwill, customer lists
and other intangibles which are being amortized on a straight-line basis over
periods from 5 to 40 years. The Company has an incentive compensation program
with former officers of McLagan which provides for payments to such officers
when certain milestone earnings are attained.
5. Industry Segment Information:
-----------------------------
ASI Solutions' reportable segments are performance improvement services,
employment process outsourcing and compensation services and market share
studies.
Revenues and profits in the performance improvement services segment are
generated by designing custom solutions for a client where ASI assesses job
candidates, trains existing employees and measures employee
performance through monitoring customer contact. Fees charged are generally
based on the number of people and calls processed plus a fee for the development
of a customized solution.
Revenues and profits in the employee process outsourcing segment are generated
by providing the following services: advertising for and recruiting of
applicants; establishing automated telephonic voice response systems to screen
prospective applicants; arranging for the physical facilities and equipment
necessary for the pre-screening process and performing background checks on
applicants. For larger engagements, the Company generally charges a fixed
minimum monthly fee that may increase based on the total number of people
processed. For other assignments, such as background checks, revenue is based
on a fixed fee for each candidate processed.
Revenues and profits in the compensation services and market share studies
segment are generated by providing survey services to the financial and
securities industries. These include compensation as well as market share
survey services for retail operations within the financial services industry.
Only participating clients may purchase surveys. The Company also provides
compensation services where revenue is generated based on a fee per assignment
basis.
ASI Solutions evaluates the performance of its segments and allocates resources
to them based on their operating contribution, which represents segment revenues
less direct costs of operation, excluding the allocation of corporate expenses.
Identifiable assets of the operating segments principally consist of net
accounts receivable associated with the segment activities. Accounts receivable
from performance improvement services and employment process outsourcing are
managed on a combined basis. All other identifiable assets not attributable to
industry segments are included in corporate assets. The Company does not track
expenditures for long-lived assets on a segment basis.
The table below presents information on the revenues and operating contribution
for each segment for the three months ended June 30, 2000 and 1999, and items
which reconcile segment operating contribution to the Company's reported pre-tax
income.
Three Months Ended June 30,
2000 1999
(in thousands)
Revenue:
Performance Improvement Services $ 7,186 $ 4,506
Employment Process Outsourcing 10,038 6,683
Compensation Services and Market Share Studies 5,863 4,710
-------------- -------------
$23,087 $15,899
============== =============
Operating contribution:
Performance Improvement Services $ 2,378 $ 1,518
Employment Process Outsourcing 4,328 2,606
Compensation Services and Market Share Studies 1,371 998
-------------- -------------
$ 8,077 $ 5,122
-------------- -------------
Consolidated expenses:
Interest, net $ 290 $ 400
Depreciation and Amortization 702 632
Selling, General and Administrative and
Research and Development 3,295 2,365
-------------- -------------
$ 4,287 $ 3,397
-------------- -------------
Income before income taxes $ 3,790 $ 1,725
============== =============
Identifiable Assets:
Performance Improvement and Employment Process
Outsourcing $14,272 $14,141
Compensation Services and Market Share Studies 6,070 5,217
Corporate 3,760 2,045
-------------- -------------
$24,102 $21,403
============== =============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Quarterly Comparison of Results of Operations
Revenue increased $7.2 million, or 45.2%, to $23.1 million in the first quarter
of fiscal 2001 from $15.9 million in the first quarter of fiscal 2000.
Performance Improvement Services revenue increased 59.5% to $7.2 million in
fiscal 2001's first quarter from $4.5 million in the first quarter of fiscal
2000. Assessment and Selection volume, resulting from very high levels of
client hiring and strong demand for Training and Development programs, accounted
for much of the increase. Continued revenue expansion in Performance
Measurement also contributed to the increase.
Employment Process Outsourcing revenue increased by 50.2% to $10 million in
fiscal 2001's first quarter from $6.7 million in the first quarter of fiscal
2000. The increase was the result of exceptionally high client hiring levels and
increased volume in background investigations.
Compensation and Market Share Studies revenue increased by 24.5% to $5.9 million
in fiscal 2001's first quarter from $4.7 million in the first quarter of fiscal
2000. Increased survey and consulting revenue accounted for the increase.
International business continues to grow and accounted for 31% of total revenue
in fiscal 2001's first quarter.
Cost of Services increased by $3.6 million, or 43.2%, from $8.3 million in the
first quarter of fiscal 2000 to $11.9 million in fiscal 2001's first quarter.
The increase in expense was directly related to the increase in business volume.
Higher personnel, service delivery, professional fees and travel expenses
accounted for the increase. As a percentage of revenue, cost of services was
51.6% in the first quarter of fiscal 2001 compared to 52.3% in fiscal 2000's
first quarter. The higher business volume resulted in a better absorption of
fixed costs, thus reducing cost of services as a percentage of revenue.
General and administrative expense increased by $1 million, or 26.2%, to $4.6
million in the first quarter of fiscal 2001 from $3.6 million in fiscal 2000's
first quarter. Higher incentive accruals related to business performance account
for the majority of the increase. As a percentage of revenue, general
administrative expense decreased to 19.9% from 22.9% in fiscal 2000's first
quarter.
Sales and marketing expense increased by $0.6 million, or 44.4%, from $1.3
million in the first quarter of fiscal 2000 to $1.9 million in the first
quarter of fiscal 2001. The increase resulted from more intensive business
development activities including advertising, conferences and increased sales
headcount. As a percentage of revenue, sales and marketing expense was 8.3% in
the first quarter, of both, fiscal 2001 and 2000.
Research and development expense increased by $0.1 million, or 20%, from $0.5
million in the first quarter of fiscal 2000 to $0.6 million in the first fiscal
quarter of 2001. Higher incentive accruals related to business performance
account for the increase. As a percentage of revenue, research and development
expense declined from 3.2% in the first quarter of fiscal 2000 to 2.6% in fiscal
2001's first quarter.
Net interest expense decreased from $0.4 million in the first quarter of fiscal
2000 to $0.3 million in the first quarter of fiscal 2001 due to lower borrowings
outstanding, partially offset by higher interest rates.
The provision for income taxes as a percentage of pre tax income increased from
41.6% in the first quarter of fiscal 2000 to 42.4% in the first quarter of
fiscal 2001 due to a change in mix of business by state.
(Percentages are based on actual amounts as opposed to the rounded amounts shown
above.)
Liquidity and Capital Resources
The Company's liquidity needs arise from capital requirements, capital
expenditures and principal and interest payments on debt. Historically, the
Company's source of liquidity has been cash flow generated internally from
operations, supplemented by short-term borrowings under bank lines of credit and
long-term equipment financing.
Cash flow used in operating activities in the first quarter of fiscal 2001 was
$5,873,309, on net income of $2,182,239, due to increases in accounts receivable
and reductions in accounts payable and accrued expenses. Cash flow used in
investing activities of $617,370 in fiscal 2001 was primarily for fixed asset
additions. Cash flow used in financing activities was $2,293,292 in fiscal 2001
and was primarily attributable to the repayment of outstanding debt.
In November 1997, the Company entered into a new bank credit agreement (the
"Credit Facility") which provides a $15 million term loan and a $5 million
revolving credit facility. The revolving credit facility was subsequently
increased to $10 million in December 1998. This agreement expires November 13,
2003. At June 30, 2000, borrowings under the term loan were $10,000,000 and
there were no borrowings under the revolving credit facility. The Company also
had borrowings at June 30, 2000 under an equipment lease facility of
approximately $423,600. The Credit Facility contains various financial and
other covenants and conditions, including, but not limited to, limitations on
capital expenditures and paying dividends, making acquisitions and incurring
additional indebtedness.
Management believes its working capital, line of credit and cash flows from
operations will be sufficient to meet expected future working capital
requirements.
Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk, i.e. the risk of loss arising from
adverse changes in interest rates and foreign currency exchange rates.
Note on Forward-Looking Statements
Certain statements in this Form 10-Q and written and oral statements made by the
Company may contain, in addition to historical information, forward-looking
statements within the meaning of section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The words "believe", "expect", "intend", "estimate" and
"anticipate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Any such statements are subject to risks and
uncertainties that could cause the actual results to differ materially from
those projected in such statements, including negative developments relating to
unforeseen project cancellations or the effect of a customer delaying a project,
negative developments relating to the Company's significant customers, a
reduction in the demand for the Company's services which could impact capacity
utilization as well as sales volume, the impact of intense competition, changes
in the industry, and changes in the general economy such as inflationary
pressure. The Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report:
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ASI SOLUTIONS INCORPORATED
Date: August 11, 2000 By: /s/ MICHAEL J. MELE
--------------------
Michael J. Mele
Senior Vice President and Chief Financial Officer
(on behalf of the registrant and as principal
financial and accounting officer)