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 DECEMBER 31, 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 February 5, 2001 was 7,145,347. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ASI Solutions Incorporated Consolidated Balance Sheets December 31, 2000 and March 31, 2000 December 31, March 31, 2000 2000 (Unaudited) ---------------- -------------- ASSETS: Current Assets: Cash and cash equivalents $ 7,727,526 $12,155,795 Accounts receivable, net 15,617,752 14,479,377 Prepaid expenses and other current assets 817,127 765,721 Deferred income taxes 75,918 75,918 ----------- ----------- Total current assets 24,238,323 27,476,811 Property and equipment, net 5,216,018 5,042,982 Intangible assets, net 21,848,032 22,401,403 Investments 2,826,329 -- Deferred financing costs 298,694 375,160 Other assets 611,364 453,875 ----------- ----------- Total assets $55,038,760 $55,750,231 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Current portion, notes payable to bank $ 4,210,898 $ 3,462,363 Current portion, subordinated notes payable -- 1,666,667 Other debt -- 87,785 Accounts payable and accrued expenses 14,732,691 17,558,809 Income taxes payable 435,271 278,287 ----------- ----------- Total current liabilities 19,378,860 23,053,911 Deferred income taxes 690,765 690,765 Notes payable to bank, less current portion 4,606,579 7,762,537 Other liabilities 325,445 313,528 ----------- ----------- Total liabilities 25,001,649 31,820,741 Stockholders' Equity: Common stock 70,632 67,078 Additional paid in capital 13,221,931 11,477,820 Accumulated other comprehensive (loss) (258,865) (3,789) Retained earnings 17,003,413 12,388,381 ----------- ----------- Total stockholders' equity 30,037,111 23,929,490 ----------- ----------- Total liabilities & stockholders' equity $55,038,760 $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 and Nine Months Ended December 31, 2000 and 1999

~~September~~Three ~~30,~~Months ~~March~~Ended Nine Months Ended December 31, 2000 December 31, 1999 December 31, 2000 ~~(Unaudited)~~December 31, 1999 -------------------------------------- -------------------------------------- ~~ASSETS:~~Revenue ~~Current Assets: Cash and cash equivalents~~ $ 922,~~571~~704,~~451~~078 $1220,~~155~~252,~~795~~038 ~~Accounts receivable~~$63, ~~net 9~~692,~~837,341~~131 14$51,~~479~~390,~~377~~674 ~~Prepaid~~Cost ~~expenses~~of ~~and~~services ~~other current assets 758~~11,~~387~~723,460 ~~765~~10,~~721~~748,479 ~~Deferred income taxes 75~~33,~~918~~362,688 7527,~~918~~437,355 ------------ ----------- ~~Total~~----------- ~~current~~----------- ~~assets~~Gross 20profit 10,~~243~~980,~~097~~618 279,~~476~~503,~~811~~559 ~~Property~~30,329,443 23,953,319 Operating expenses: General and ~~equipment~~administrative 6,106,794 ~~net~~ 5,~~143~~753,~~199~~379 514,~~042~~806,~~982~~832 ~~Intangible~~13,537,010 ~~assets~~Sales and marketing 1,692,014 ~~net~~1,586,651 224,~~068~~969,~~603~~570 224,~~401~~382,~~403~~561 ~~Deferred~~Research ~~financing~~and ~~costs~~development ~~304~~503,~~818~~267 ~~375~~489,~~160~~765 ~~Other assets 398~~1,~~790~~661,851 ~~453~~1,~~875~~550,670 ------------ ----------- ~~Total~~----------- ~~assets~~----------- ~~$48~~Income from operations 2,~~158~~678,~~507~~543 ~~$55~~1,~~750~~673,~~231~~764 ~~=========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Current portion~~8, ~~notes payable to bank $ 3~~891,~~972,383~~190 ~~$ 3~~4,~~462~~483,~~363~~078 ~~Current~~Other ~~portion,~~expenses: ~~subordinated~~Investment ~~notes~~in ~~payable~~CyberU 1195,~~666,667~~500 ~~Other~~-- ~~debt 17~~195,~~110~~500 ~~87,785~~-- ~~Accounts~~Interest ~~payable~~expense, ~~and~~net ~~accrued expenses 9~~170,~~040,085~~313 17371,~~558,809~~476 ~~Income taxes payable 368~~640,~~062~~966 ~~278~~1,~~287~~152,744 ------------ ----------- ~~Total~~----------- ~~current~~----------- ~~liabilities~~Income ~~13,397,640~~before ~~23,053,911~~provision ~~Deferred~~for income taxes ~~690~~2,~~765~~312,730 ~~690~~1,~~765~~302,288 ~~Notes~~8,054,724 ~~payable~~3,330,334 toProvision ~~bank,~~for ~~less~~income ~~current~~taxes ~~portion~~971,674 5582,~~648,783~~995 73,~~762~~439,~~537~~692 ~~Other liabilities 323~~1,~~308 313~~428,~~528~~257 ------------ ----------- ~~Total~~----------- ~~liabilities~~----------- 20Net income $ 1,~~060~~341,~~496~~056 31$ 719,~~820~~293 $ 4,~~741~~615,032 ~~Stockholders'~~$ ~~Equity:~~1,902,077 ~~Common~~============ ~~stock~~============ ~~69,113~~=========== ~~67,078~~=========== ~~Additional~~Basic ~~paid~~earnings inper ~~capital~~share 12$ 0.19 $ 0.11 $ 0.68 $ 0.29 ============ ============ =========== =========== Diluted earnings per share $ 0.18 $ 0.11 $ 0.64 $ 0.28 ============ ============ =========== =========== Weighted average common shares outstanding: Basic shares 6,~~694~~989,~~188~~168 116,~~477~~639,~~820~~033 ~~Accumulated~~6,833,601 ~~other~~6,572,220 ~~comprehensive~~Diluted ~~(loss)~~effect ~~(327,647)~~of ~~(3,789)~~stock ~~Retained~~options ~~earnings~~and 15warrants 626,~~662~~083 46,~~357~~686 12331,~~388~~516 143,~~381~~115 ------------ ----------- ~~Total stockholders' equity 28,098,011 23,929,490~~ ----------- ----------- ~~Total~~Diluted ~~liabilities~~shares &7,615,251 ~~stockholders'~~6,685,719 ~~equity $48~~7,~~158~~165,~~507~~117 ~~$55~~6,~~750~~715,~~231~~334 ============ ============ =========== ===========

The accompanying notes are an integral part of these financial statements. ASI Solutions Incorporated Unaudited Consolidated Statements of Cash Flows For the Nine Months Ended December 31, 2000 and 1999 2000 1999 ------------- ------------ Cash flow from operating activities: Net income: $ 4,615,032 $ 1,902,077 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,582,834 1,954,103 (Gain) loss on fixed asset disposal (219) Provision for doubtful accounts 50,807 Investment in CyberU 195,500 Other 76,466 74,371 Changes in assets and liabilities: Accounts receivable (1,296,450) (802,968) Prepaid expenses and other current assets (47,050) (135,610) Other assets (149,458) (26,678) Accounts payable and accrued expenses (3,568,003) 3,538,369 Income taxes 1,163,606 (880,100) Other liabilities 23,513 52,709 ----------- ----------- Net cash provided by operating activities 2,646,797 5,676,054 ----------- ----------- Cash flow from investing activities: Fixed asset additions (997,838) (1,139,486) Purchase of minority stockholder interest (3,021,829) Other (292,977) (50,576) ----------- ----------- Net cash used in investing activities (4,312,644) (1,190,062) ----------- ----------- Cash flow from financing activities: Repayment of debt (4,161,875) (8,076,724) Payment of financing costs (15,000) Proceeds from issuance of common stock, net 1,747,667 227,964 Issuance of common stock-restricted from treasury 133,005 ----------- ----------- Net cash used in financing activities (2,414,208) (7,730,755) ----------- ----------- Effect of exchange rate changes on cash and cash equivalents (348,214) 86,322 Net decrease in cash and cash equivalents (4,428,269) (3,158,441) Cash and cash equivalents at beginning of period 12,155,795 7,595,366 ----------- ----------- Cash and cash equivalents at end of period $ 7,727,526 $ 4,436,925 =========== =========== The accompanying notes are an integral part of these financial statements. 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 inter-company 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 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 nine months ended December 31, 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 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. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities-an Amendment of FASB Statement No. 133" which addresses a limited number of issues causing implementation difficulties for numerous entities that apply 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 nine months ended December 31, 2000 is as follows:

~~Three~~Accumulated ~~Months~~Additional ~~Ended~~Other ~~Six~~Common ~~Months~~Paid-In ~~Ended~~Comprehensive ~~September~~Retained ~~30,~~Shares ~~September~~Stock ~~30,~~Capital ~~September~~Income ~~30,~~Earnings ~~September~~Total ~~30, 2000 1999 2000 1999~~ -------------------------------- -------------------------------- ~~Revenue $17,901,439 $15,239,394 $40,988,053 $31,138,636 Cost of services 9,737,633 8,376,543 21,639,228 16,688,876~~ ------------------------------ -------------------~~-----------~~ ~~Gross~~Balance, ~~profit~~March 831,~~163,806~~ 2000 6,~~862~~662,~~851~~183 19$67,~~348,825~~078 14$11,~~449~~477,~~760~~820 ~~Operating~~$ ~~expenses: General and administrative 4~~(3,~~105,451~~789) 4$12,~~143~~388,~~654~~381 8$23,~~700~~929,~~038~~490 ~~7,783,631~~Issuance ~~Sales~~of ~~and~~Common ~~marketing~~Stock 1for Employee Stock Purchase Plan 131,~~369,328~~501 1,~~474,545~~315 3397,~~277,556~~187 2398,~~795,910~~502 ~~Research~~Exercise of Stock Options and ~~development~~warrants ~~556~~223,~~650~~902 ~~558~~2,~~953~~239 1,~~158~~346,~~584~~924 1,~~060~~349,~~905~~163 ~~------------------------------~~Translation ~~------------------------------~~adjustment ~~Income from operations 2~~(255,~~132,377~~076) ~~685~~(255,~~699~~076) ~~6,212,647~~Net ~~2,809,314~~Income ~~Interest expense~~4, ~~net 180~~615,~~353~~032 ~~382~~4,~~193 470~~615,~~653~~032 ~~781,268~~ ------------------------------ ------------------------------ ~~Income before provision for income taxes 1,952,024 303,506 5,741,994 2,028,046 Provision for income taxes 860,287 128,520 2,468,018 845,262~~ -------------------~~-----------~~ ~~------------------------------~~Balance, ~~Net~~December ~~income~~31, $2000 17,~~091~~017,~~737~~586 $ ~~174~~70,~~986~~632 $ 313,~~273~~221,~~976~~931 $(258,865) 1$17,~~182~~003,~~784~~413 ~~============================== ============================== Basic earnings per share~~ $30,037,111 ~~0.16 $ 0.03 $ 0.48 $ 0.18~~ ============================== ============================== ~~Diluted earnings per share $ 0.15 $ 0.03 $ 0.46 $ 0.18~~ ============================== ============================== Weighted average common shares outstanding: Basic shares 6,772,498 6,538,813 6,755,402 6,538,813 Diluted effect of stock options and warrants 591,943 205,521 319,273 194,611 ------------------------------ ------------------------------ Diluted shares 7,364,441 6,744,334 7,074,675 6,733,424 ============================== ==============================

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 nine months ended December 31, 2000 and 1999, and items which reconcile segment operating contribution to the Company's reported pre-tax income. Nine Months Ended December 31, 2000 1999 (in thousands) Revenue: Performance Improvement Services $16,439 $13,738 Employment Process Outsourcing 22,617 18,160 Compensation Services and Market Share Studies 24,636 19,493 ------- ------- $63,692 $51,391 ======= ======= Operating contribution: Performance Improvement Services $ 5,234 $ 4,673 Employment Process Outsourcing 7,733 5,537 Compensation Services and Market Share Studies 6,403 3,773 ------- ------- $19,370 $13,983 ------- ------- Consolidated expenses: Interest, net $ 641 $ 1,153 Depreciation and Amortization 2,387 1,951 Selling, General and Administrative and Research and Development 8,287 7,549 ------- ------- $11,315 $10,653 ------- ------- Income before income taxes $ 8,055 $ 3,330 ======= ======= Identifiable Assets: Performance Improvement and Employment Process Outsourcing $ 8,971 $10,648 Compensation Services and Market Share Studies 12,474 9,105 Corporate 11,447 6,214 ------- ------- $32,892 $25,967 ======= ======= 6. Investment: ---------- On October 6, 2000 the Company closed a $3 million equity financing of CyberU, Inc., a California based Delaware corporation. The Company obtained a 25.6% equity interest (on a fully diluted and converted basis) of CyberU, Inc., a comprehensive source of online education and training for corporations, small business and individuals. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Quarterly Comparison of Results of Operations Revenue increased $2.4 million, or 12.1%, to $22.7 million in the third quarter of fiscal 2001 from $20.3 million in the third quarter of fiscal 2000. Performance Improvement Services revenue decreased 6.1% to $4.3 million in fiscal 2001's third quarter from $4.5 million in the third quarter of fiscal 2000. Assessment and Selection revenue increased while revenue decreased in Performance Measurement and Training and Development, where delays in program rollouts impacted reported revenue. Employment Process Outsourcing revenue decreased by $.3 million, or 5.8%, to $5.5 million in the third quarter of fiscal 2001 from $5.8 million in the third quarter of fiscal 2000. Background investigation revenue increased, while revenue from employment outsourcing was negatively impacted by lower volume. Compensation Services and Market Share Studies revenue increased by $3.1 million, or 31%, to $13 million in the third quarter of fiscal 2001 from $9.9 million in fiscal 2000's third quarter. Revenue increased for both surveys and consulting in both domestic and international markets. Cost of services increased by $1 million, or 9.1%, to $11.7 million in the third quarter of fiscal 2001 from $10.7 million in the third quarter of fiscal 2000. As in prior quarters, higher personnel expenses accounted for the increase. As a percentage of revenue, cost of services was 51.6% in the third quarter of fiscal 2001 compared to 53.1% in fiscal 2000's third quarter. The lower rate in 2001 results from a higher proportion of revenue in Compensation and Market Share Studies, which has a relatively lower cost of services percentage. General and administrative expense increased by $.3 million, or 6.1%, to $6.1 million in the third quarter of fiscal 2001 from $5.8 million in the third quarter of fiscal 2000. Higher personnel expenses accounted for the increase. As a percentage of revenue, general and administrative expense was 26.9% in fiscal 2001's third quarter compared to 28.4% in the third quarter of fiscal 2000. Sales and marketing expense increased by $.1 million, or 6.6%, to $1.7 million in the third quarter of fiscal 2001 from $1.6 million in the third quarter of fiscal 2000. As a percentage of revenue, sales and marketing expense was 7.5% in the third quarter of fiscal 2001 compared to 7.8% in fiscal 2000's third quarter. Research and development expense was $.5 million in both the third quarters of fiscal 2001 and 2000. As a percentage of revenue research and development expense was 2.2% in fiscal 2001's third quarter and 2.4% in the third quarter of fiscal 2000. Charges related to the investment in CyberU were $.2 million in the third quarter of fiscal 2000. The investment was made in October, 2001. Net interest expense decreased to $.2 million in the third quarter of fiscal 2001 from $.4 million the third quarter of fiscal 2000 due to lower average debt outstanding and to interest income on cash balances maintained in the third quarter of fiscal 2001. The provision for income taxes as a percentage of pre-tax income was 42% in the third quarter of fiscal 2001 compared to 44.7% in the third quarter of fiscal 2000. The lower rate resulted from lower state taxes and a small adjustment recorded in fiscal 2000's third quarter. (Percentages are based on actual amounts as opposed to the rounded amounts shown above.) Year to Date Comparison of Results of Operations Revenue increased $12.3 million, or 23.9%, to $63.7 million in the first nine months of fiscal 2001 from $51.4 million in the first nine months of fiscal 2000. Performance Improvement Services revenue increased $2.7 million, or 19.7%, to $16.4 million in the first nine months of fiscal 2001 from $13.7 million in the first nine months of fiscal 2000. Revenue increased for Assessment and Selection, Performance Improvement Services and Training and Development. Employment Process Outsourcing revenue increased by $4.5 million, or 24.5%, to $22.6 million in the first nine months of fiscal 2001 from $18.2 million in the first nine months of fiscal 2000. Revenue increased for both background investigation and employment outsourcing. Compensation Services and Market Share Studies revenue increased $5.1 million, or 26.4%, to $24.6 million in the first nine months of fiscal 2001 from $19.5 million in the first nine months of fiscal 2000. Revenues increased for both surveys and consulting. Cost of services increased $5.9 million, or 21.6%, to $33.4 million in the first nine months of fiscal 2001 from $27.4 million in the first nine months of fiscal 2000. Higher personnel and outside service expenses, associated with higher volume, account for the increase. As a percentage of revenue, cost of services were 52.4% in the first nine months of fiscal 2001 compared to 53.4% in the first nine months of fiscal 2000. General and Administrative expense increased $1.3 million, or 9.4% to $14.8 million in the first nine months of fiscal 2001 from $13.5 million in the first nine months of fiscal 2000. Higher personnel expenses and professional fees, associated primarily with information technology initiatives, account for the increase. As a percentage of revenue, general and administrative expense was 23.3% in the first nine months of fiscal 2001 compared to 26.3% in the first nine months of fiscal 2000. Sales and marketing expense increased $.6 million, or 13.4% to $5 million in the first nine months of fiscal 2001 from $4.4 million in the first nine months of fiscal 2000. Higher personnel, advertising and other business development expenses accounted for the increase. As a percentage of revenue, sales and marketing expense was 7.8% in the first nine months of fiscal 2001 compared to 8.5% in the first nine months of fiscal 2000. Research and Development expense increased by $.1 million, or 7.2%, to $1.7 million in the first nine months of fiscal 2001 from $1.6 million in the first nine months of fiscal 2000. Higher professional fees accounted for the increase. As a percentage of revenue, research and development expense was 2.6% in the first nine months of fiscal 2001 compared to 3% in the first nine months of fiscal 2000. Charges related to the investment in CyberU were $.2 million in the first nine months of fiscal 2001. Net interest expense decreased by $.5 million, to $.6 million, in the first nine months of fiscal 2001 from $1.2 million in the first nine months of fiscal 2000 due to lower debt balances outstanding as well as higher interest income earned on cash balances invested. As a percentage of pretax income, the provision for income taxes was 42.7% in the first nine months of fiscal 2001 compared to 42.9% in the first nine months of fiscal 2000. (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 provided by operating activities during the first nine months of fiscal 2001 was $2,646,797, due to increases in accounts receivable and reductions in accounts payable and accrued expenses. Cash flow used in investing activities of $4,312,644 in the first nine months of 2001 was primarily for the investment in CyberU and fixed asset additions. Cash flow used in financing activities was $2,414,208 in the first nine months of 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, 2002. At December 31, 2000, borrowings under the term loan were $8,500,000 and there were no borrowings under the revolving credit facility. The Company also had borrowings at December 31, 2000 under an equipment lease facility of approximately $317,000. 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. Interest Rate Exposure: The Company has entered into an interest rate swap at a fixed rate of 9% per annum on borrowings under its credit facility of up to $5,000,000. Foreign Exchange Exposure: Portions of the Company's operations are conducted in Hong Kong, Japan and the United Kingdom. Exchange rate fluctuations between the US dollar/Hong Kong dollar, US dollar/Japanese Yen and the US dollar/Pound Sterling result in fluctuations in the amounts relating to the Hong Kong, Japan and United Kingdom operations reported in the Company's consolidated financial statements. The Company has not entered into hedging transactions with respect to its foreign currency exposure, but may do so in the future. 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: February 12, 2001 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)

2000 1999 ----------- ----------- Cash flow from operating activities: Net income: $ 3,273,976 $ 1,182,784 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,430,275 1,281,819 Provision for doubtful accounts 50,814 Other 70,342 49,152 Changes in assets and liabilities: Accounts receivable 4,477,531 1,781,751 Prepaid expenses and other current assets 17,544 6,561 Other assets 31,744 (14,649) Accounts payable and accrued expenses (9,253,420) (1,949,456) Income taxes 1,096,397 (1,082,128) Other liabilities 17,415 41,093 ----------- ----------- Net cash provided by operating activities 1,212,618 1,296,927 ----------- ----------- Cash flow from investing activities: Fixed asset additions (1,098,787) (840,051) Other (138,231) (19,882) ----------- ----------- Net cash used in investing activities (1,237,018) (859,933) ----------- ----------- Cash flow from financing activities: Repayment of debt (3,341,076) (7,514,280) Payment of financing costs (15,000) Proceeds from issuance of common stock, net 1,218,405 227,531 ----------- ----------- Net cash used in financing activities (2,122,671) (7,301,749) ----------- ----------- Effect of exchange rate changes on cash and cash equivalents (437,273) 69,285 Net decrease in cash and cash equivalents (2,584,344) (6,795,470) Cash and cash equivalents at beginning of period 12,155,795 7,595,366 ----------- ----------- Cash and cash equivalents at end of period $ 9,571,451 $ 799,896 =========== ===========

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 Exercise of Stock Options 127,530 1,276 1,007,536 1,008,812 Translation adjustment (323,858) (323,858) Net Income 3,273,976 3,273,976 ------------------------------------------------------------------------------- Balance, September 30, 2000 6,865,652 $69,113 $12,694,188 $(327,647) $15,662,357 $28,098,011 ===============================================================================

Six Months Ended September 30, 2000 1999 (in thousands) Revenue: Performance Improvement Services $12,190 $ 9,211 Employment Process Outsourcing 17,118 12,325 Compensation Services and Market Share Studies 11,680 9,603 ------- ------- $40,988 $31,139 ======= ======= Operating contribution: Performance Improvement Services $ 4,176 $ 3,193 Employment Process Outsourcing 6,559 3,982 Compensation Services and Market Share Studies 2,850 2,027 ------- ------- $13,585 $ 9,202 ------- ------- Consolidated expenses: Interest, net $ 471 $ 781 Depreciation and Amortization 1,436 1,220 Selling, General and Administrative and Research and Development 5,936 5,173 ------- ------- $ 7,843 $ 7,174 ------- ------- Income before income taxes $ 5,742 $ 2,028 ======= ======= Identifiable Assets: Performance Improvement and Employment Process Outsourcing $10,154 $11,570 Compensation Services and Market Share Studies 5,225 5,349 Corporate 10,406 2,255 ------- ------- $25,785 $19,174 ======= =======

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