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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
ADVANCED SYSTEMS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
NEVADA
(Jurisdiction of incorporation
or organization)
13-3953047
(I.R.S. Employer
Identification No.)
25300 TELEGRAPH ROAD, SUITE 455, SOUTHFIELD, MI 48034
(Address of principal executive offices)
(248) 263-0000
(Registrant's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH EACH CLASS
TO BE SO REGISTERED IS TO BE REGISTERED
------------------- ---------------------
<S> <C>
N/A N/A
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
COMMON STOCK, $.001 PAR VALUE
-----------------------------
<S> <C>
Title of Class
</TABLE>
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The discussion throughout this registration statement contains certain
forward-looking statements which involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, the uncertainty as to the
Company's future profitability; the uncertainty as to the demand for information
technology services and solutions; industry trends towards outsourcing
information technology services; increasing competition in the information
technology services market; the ability to hire, train and retain sufficient
qualified personnel; the ability to obtain financing on acceptable terms to
finance the Company's growth strategy; the ability to develop and implement
operational and financial systems to manage the Company's growth; and other
factors referenced in this registration statement.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Advanced Systems International, Inc. ("AdSys"), a Nevada corporation, is
the holding company for one operating subsidiary, Automatic Time Systems Corp.
("ATS"). References in this registration statement to "the Company" mean both
AdSys and ATS.
ATS is a developer and supplier of time and attendance and data integration
software applications. ATS' product offering includes the application software,
hardware, implementation services and ongoing support necessary for deployment
of enterprise-wide data management. ATS markets its products through direct
sales and in conjunction with strategic partners.
AdSys and ATS are headquartered in Southfield, Michigan, a suburb of
Detroit.
BACKGROUND
ATS was formed in 1995 to acquire substantially all the assets and certain
liabilities of Automated Time Systems Corp. This acquisition was completed in
early 1996.
AdSys was formed in October 1996, originally named Bennington Corporation.
From October 1996 to May 1997, Bennington had no assets, shareholders or
operations. In May 1997, Bennington issued 2,000,000 shares for aggregate
consideration of $20,000.
In June 1997, Bennington consummated an equity placement of 980,000 shares
for aggregate consideration of $980,000. On July 8, 1997, Bennington, then a
publicly-held (but not traded) shell company, acquired ATS via a "reverse
takeover" merger. In that transaction, the ATS shareholders received 4,906,667
(62%) of Bennington's then outstanding common shares, with the prior Bennington
shareholders retaining the balance of 2,980,000 shares (38%). Bennington then
changed its name to Advanced Systems International, Inc.
PRINCIPAL PRODUCTS
ATS has developed and markets two software products. The first product,
ATServer(R), is an application to track employee time and attendance data at
labor intensive companies. The second product, ATLink(TM), is an integration (or
bridging) application that allows various data collection devices (such as bar
code scanners) to send information on a vast array of transactions from the
warehouse or manufacturing floor to a central location. With these products,
employee and inventory data are provided in "real time", and are made available
to managers and supervisors throughout the organization. As a result, critical
business decisions for supply or labor allocations can be made based on current
and accurate data.
In order to provide a complete solution, ATS bundles implementation
services, on-going support for its products, and third-party hardware together
with its software products. Key markets include automotive, automotive supply,
packaged goods, pharmaceuticals, food processing and other manufacturing
industries.
For a typical implementation, ATS representatives work with customers to
develop a strategy that provides a tailored time and attendance and/or data
collection solution. Once that strategy is defined, a
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functional specification is developed, and the ATS professional services team
configures and modifies the existing software to meet requirements.
When the implementation is complete, ATS provides a full range of support
on an on-going, automatic renewal basis that the client can select to fit their
needs. Typical installations can take from 2 to 6 months depending on the
complexity of the management reporting requested, the number of sites and users,
and the timeline of the customer.
ATS's customers tend to be large industrial companies, and the initial
contracts tend to be for significant contract sizes. In 1997, one customer
accounted for 84% of ATS's revenues, and in 1998, 5 customers accounted for 72%
of total revenues. However, recurring revenues for a particular contract with a
customer after the initial sale and installation tend to be significantly lower
than in the initial phase, coming primarily from fees for support and
maintenance services.
ATSERVER(R)
ATServer(R) is a client/server time and attendance solution. The software
is linked to the traditional "punch-in time clock" or any other electronic
log-in device that employees use upon entering and exiting plants. ATServer(R)
instructs various hardware and peripherals by sending employee "coming and
going" information to the payroll department, supervisors and managers. The
result is that actual information can be compared to scheduled data, identifying
exceptions and alerting management. Therefore, the supervisor has the
flexibility to manage resources based on this "real time" comparison of
information.
ATServer(R) is best suited in labor intensive companies, where large groups
of employees on shift enter and leave their plant within short time frames.
Users are alerted to employees that are late, absent or are on leave. As
ATServer(R)automatically updates payroll information (including sick leave,
vacation time, etc.), it helps ensure that salary errors do not occur.
ATServer(R) meets critical user demands that software packages be reliable
and able to interface with other software solutions. It effectively reduces the
time and costs associated with supervisors performing normal employee allocation
tasks. ATS anticipates continued growth of the time and attendance industry
because of:
- companies investing to solve Y2K compliance problems,
- rapidly increasing demand for software solutions that provide accurate,
"real time" data, and
- increasing focus on compliance with labor and other regulations.
Typical functional areas linked by packaged software include warehouse
management, payroll, materials movement and human resources. These areas are
often referred to collectively as ERP (Enterprise Resource Planning).
In late 1998, ATS entered into a software marketing and license agreement
with Electronic Data Systems Corporation (commonly known as "EDS"). Under that
agreement, EDS may obtain and resell ATS's products, and may engage or
subcontract ATS to provide installation, consulting, development, support and
other services. It is still too early in this relationship to tell how much
sales or revenue volume will result from this alliance.
ATS worked with Perot Systems Inc. to develop ATS's ATServer(R) product to
fulfill a large contract with DaimlerChrysler Corporation. After the initial
installation of ATServer(R) at one DaimlerChrysler plant, DaimlerChrysler has
obtained a broad software license from ATS and now is rolling out installations
in several other plants using its own computer personnel.
ATSERVER(R) COMPETITIVE ADVANTAGES
ATServer(R) is designed in a Windows(TM) format (rather than DOS) and
utilizes some of the most popular software applications. Windows applications
are known to most users and can be linked to a variety of other
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programs. As a result, new users of the system are often familiar with its
"look", which helps expedite the learning process.
ATServer(R) is also non-proprietary and can link to various popular
hardware and software offerings. This is a distinct advantage, as many
competitors have developed their applications to run on specific hardware or
software, limiting their offering to those parameters.
ATSERVER(R) COMPETITION
The time and attendance industry can be categorized as mature. Two
companies dominate the sector: Kronos Incorporated and Simplex Time Recorder Co.
Kronos has released a client/server time and attendance application. As of this
date, Simplex has not released an open client/server time and attendance
solution.
Because the ATServer(R) was developed with Perot Systems for
DaimlerChrysler, ATS has gained a strong foundation, with several functioning
client/server sites in the Automotive and Automotive Supplier sectors. Some
current customers include Johnson Controls, Dana Corporation, Volvo Trucking and
New Venture Gear.
While ATS's main sales to date have been in the automotive industry, ATS
has recently begun to enter new vertical markets. New verticals include
manufacturing (Sauder Furniture), food processing (Sara Lee Foods) and paper
(Blandin Paper). Success in entering these new sectors indicates that
ATServer(R) can successfully operate in different sectors. As a result, the
Company expects to be able to continue to increase its market share of the time
and attendance industry.
ATLINK(TM)
ATLink(TM) carries information from data capture points in the enterprise
to other applications that require this data. Management is able to streamline
procurement and maintain inventory more efficiently with the help of ATLink(TM).
Software that facilitates communication of time sensitive information between
different software packages or between data collection devices and different
programs is commonly referred to as "Middleware."
ATLink(TM) has been certified by two levels of SAP R/3, the leading ERP
company (in terms of published revenue data). SAP R/3 produces a package
application that ties together the major business units of a company into
modules. These modules are Human Resources, Materials Management, Supply and
Finance. The two levels of certification are MM-MOB and PP-PDC. The criteria for
MM-MOB certification are to meet the data collection requirements within the
materials management module of SAP R/3. PP-PDC certification represents meeting
the requirements of the SAP human resources information module. ATS designed,
produced and achieved certification in less than 12 months. Meeting the
certification standards established by the major ERP companies is an important
step towards credibility and market acceptance of ATLink(TM).
ATLINK(TM) COMPETITION
ATLink(TM) falls under the distributed transaction processing ("DTP")
segment of Middleware. The segment is fragmented and mainly comprised of small
private and public companies. Three large competing companies are i2
Technologies, Teklogix and Epic Data.
ATLINK(TM) COMPETITIVE ADVANTAGES
ATS believes that companies (like ATS) that provide industry standard
non-proprietary solutions (i.e., products that can be used with most popular
hardware and software) will achieve high rates of growth in the DTP industry.
The primary benefits of non-proprietary packages are lower cost and a shorter
implementation time frame, whereas proprietary packages have a higher cost
because each implementation requires a new interface to be written between the
applications.
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ATS works closely with hardware manufacturers such as Intermec, Hand Held
Products, and Control Module to incorporate built-in interfaces to their
products. The development team focused on ease of integration, ease of use, and
low ownership costs as design criteria.
RESEARCH AND DEVELOPMENT
In 1996, 1997 and 1998, ATS invested $673,802, $1,772,537 and $610,782,
respectively, in research and development costs for the ATS products. In 1997,
the Company's primary development focus was to tailor its ATServer product for
the automotive manufacturing industry. In 1998, the Company continued to refine
and expand the ATServer offering for additional vertical markets, and amassed a
development effort to bring it's middleware offering, ATLink, to the market.
INTELLECTUAL PROPERTY RIGHTS
The name "ATServer(R)" is a registered tradename and mark. Registration
lasts for 10 years from the registration date in January 1998. The name
"ATLink(TM)" is not yet registered, although ATS claims common law tradename and
mark rights.
Y2K COMPLIANCE
Management believes that all of the ATS products, as well as its internal
systems, are fully "Y2K" compliant. ATS does not believe that Y2K issues will
adversely affect it. Rather, ATS believes that Y2K issues affecting customers
likely will enhance ATS' sales prospects. ATS has tested its hardware and
software systems which were provided by vendors, and believes they are all Y2K
compliant. ATS's material third-party vendors and suppliers have confirmed that
they, and the products they supply to ATS, are Y2K compliant. ATS intends to
continuously evaluate its vendor and supplier relationships and to develop
whatever contingency plans may be required to mitigate any negative effects on
ATS from the Y2K problems of its suppliers and vendors that may develop.
EMPLOYEES
The Company employs 56 full time employees. None of the employees is
represented by a union.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information in this section should be read together with the
consolidated financial statements and notes thereto that are included elsewhere
in this registration statement. These interim financial statements include all
adjustments deemed necessary by management in order to make them not misleading.
The Company has incurred losses since its inception during which time it
developed its two software applications and developed a level of experience and
resources which management believes should enable ATS to grow. AdSys achieved
revenue growth and profitability in the first quarter ended March 31, 1999.
AdSys anticipates continued positive earnings in 1999 resulting from
installations at Fortune 1000 Companies in industries such as automotive supply,
food processing, entertainment and furniture manufacturing, as well as paper
processing and other manufacturing sectors.
The Company has entered into a software marketing agreement with EDS
(Electronic Data Systems). The focus of the agreement is to reach Automotive,
Automotive Supplier, Entertainment and other Clients EDS has under management.
The Company believes that the agreement provides not only credibility for ATS
and ATServer(R), but revenue growth potential as the relationship matures.
The non-proprietary Distributed Transaction Processing Sector of the
Middleware industry is in its early stages and is experiencing high-growth.
Management anticipates successful entrance in this market, enhancing long-term
growth potential by providing two separate but compatible software products,
ATServer(R) and ATLink(TM).
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RESULTS OF OPERATIONS
Q1 1999 COMPARED TO Q1 1998
AdSys had net earnings of $306,341 in the first quarter of 1999 compared to
a net loss of $342,500 for the same period in 1998. This is largely explained by
a significant increase in sales ($1,762,260 in Q1 1999 compared to $314,001 for
the same period in 1998). This growth in sales reflects ATS's continued
expansion of its ATServer(R) customer list as well as further penetration at
existing client sites. Revenue for both periods relates entirely to ATServer(R)
software, hardware, and related implementation and maintenance.
Research and Development expenses increased from $59,192 in 1998 to
$102,481 in 1998, a net increase of $43,289. This increase results mainly from
an overall expansion of the Company's development team working on enhancing both
the ATServer and ATLink products.
General and Administrative expenses increased to $806,952 in Q1 1999 from
$386,778 for the same period in 1998, an increase of $420,174. The increase was
due primarily to a greater number of employees, additional travel costs
resulting from increased business activity, and the moving of corporate
headquarters to a new facility to accommodate ATS's expansion.
Sales and Marketing expenses increased from $152,597 in Q1 1998 to $412,526
for the same period in 1998, an increase of $259,929. This was primarily due to
a greater number of sales personnel, larger commissions due to higher revenues
and more clients, and more intense marketing efforts both in house and through
ATS's third party consultants.
Operating expenses increased dramatically in the first quarter of 1999
compared to the same period in 1998. This is due primarily to growth in
employees and sales and represented by increases in compensation and related
benefits ($759,334 in Q1 1999 vs. $333,431 in Q1 1998), as well as increased
travel related costs ($103,966 in Q1 1999 vs. $29,578 in Q1 1998) and increased
legal and accounting assistance ($75,105 in Q1 1999 vs. $22,366 in Q1 1998) in
preparation for the requirements of being a reporting public company. As a
result of the Company's expansion and occupation of new office space, premises
related costs were $73,845 in Q1 1999 vs. $17,800 for the same period in 1998.
1998 COMPARED TO 1997
The Company generated revenue of $2,379,987 in 1998 compared to $2,012,317
in 1997, as it moved from the development phase to the marketing phase in its
business cycle.
Research and Development expenses decreased from $1,772,537 in 1997 to
$314,587 in 1998, a net decrease of $1,457,950. In 1997, the Company's primary
development focus was to tailor its ATServer product for the automotive
manufacturing industry. In 1998, the Company continued to refine and expand the
ATServer offering for additional vertical markets, and amassed a development
effort to bring it's middleware offering, ATLink, to the market. In 1998, the
Company increased its focus on the development of its products through
commercial implementations and in-house developers rather than through third
parties. Reaching technological feasibility with ATLink(TM) allowed for
capitalization of $296,195 of costs, also contributing to the decrease in
development costs.
General and Administrative expenses increased to $2,294,668 in 1998 from
$1,227,894 in 1997, an increase of $1,066,774. The increase was due primarily to
a greater number of employees, additional travel costs resulting from increased
business activity, and the moving of Corporate Headquarters to a new facility to
accommodate the Company's expansion. Also, in 1998 the Company obtained
Directors & Officers Insurance, saw an increase in depreciation costs on the
Company's assets, and incurred employee moving expenses related to attracting
and retaining key personnel.
Sales and Marketing expenses increased from $485,020 in 1997 to $945,736 in
1998, an increase of $460,716. This was primarily due to a greater number of
sales personnel, larger commissions due to higher revenues and more clients, and
more intense marketing efforts both in house and through the Company's third
party consultants.
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LIQUIDITY AND CAPITAL RESOURCES
The Company converted $674,900 of principal and accrued interest on
outstanding debentures into common stock in 1998.
During 1998 and early 1999, AdSys received an aggregate of approximately
$2.4 million from investors through equity sales made pursuant to exemptions
from registration. AdSys continues to offer shares on a private-placement basis.
AdSys believes that operations will generate sufficient cash flow to fund
its anticipated short-term liquidity needs. AdSys currently has a liquidity
credit arrangement with a commercial bank to finance its accounts receivable, to
address liquidity needs pending customer payments. The maximum available to
AdSys under this arrangement is $1.8 million. As of August 1, 1999, AdSys had
drawn a balance of $1.3 million. Although the Company believes that operations
will yield sufficient liquidity to meet liquidity requirements, no assurance can
be given that additional sources will not be required. To take advantage of high
growth in the Middleware Industry, the Company plans to raise additional capital
in the second half of 1999 in the debt or equity markets based on an acceptable
strike price and certain business conditions. Circumstances in which the Company
would consider raising additional capital include a desire for a stronger
capital base, investment in product development, acquisitions of companies with
synergistic value, resource procurement based on a definable implementation
schedule or backlog, and/or office space expansion. The extent to which such
additional financing is available will affect the level to which AdSys pursues
these discretionary growth actions.
ITEM 3. DESCRIPTION OF PROPERTY
ATS currently leases a 8,472 square foot office facility in Southfield,
Michigan pursuant to a lease that expires on October 31, 2003. Rent for the
facility is approximately $164,000 per year.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of AdSys' Common Stock as of July 15, 1999, by (i) each person who, to
AdSys' knowledge, beneficially owned more than 5% of the Common Stock; (ii) each
AdSys director; (iii) each of the Named Executive Officers described in Item 6
below; and (iv) all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
------------------- ----------------------- ----------
<S> <C> <C>
Gerald A. Pesut............................................. 828,920(2) 6.7
25300 Telegraph Rd., Ste. 455
Southfield, MI 48034
Alexander D. Henry.......................................... 706,820(3) 5.8
533 Davenport Rd.
Toronto, ON Canada M5R 3R5
Mark O'Donoghue............................................. 62,948(4) *
Tropicana Bldg
Providenciales, Turks & Caicos Islands
British West Indies
John V. Williams............................................ 37,948(5) *
424 Clayton St.
Denver, CO 80206
Greg Farbolin............................................... 24,098(6) *
1905 Canadair Court
Daytona Beach, FL 32124
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
------------------- ----------------------- ----------
<S> <C> <C>
Carlos E. Bravo............................................. 18,056(7) *
1713 Skyhawk Ct.
Daytona Beach, FL 32124
Temple Securities Ltd....................................... 2,396,715(8) 19.6
Tropicana Bldg
Providenciales, Turks & Caicos Islands
British West Indies
914151 Ontario Limited...................................... 750,000(9) 6.4
Box 131, RR #2
Navan, ON Canada K4B 1H9
Roxborough Holdings Limited................................. 996,666(10) 8.2
First Canadian Place Ste 6250
Toronto, ON Canada M5X 1C7
All Officers and Directors as a Group (7 persons)........... 1,678,790 13.7
</TABLE>
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* Represents less than 1% of the outstanding shares of Common Stock.
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
rules and regulations promulgated under the Exchange Act, and accordingly,
may include securities owned by and for among others the spouse and/or
minor children of an individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or which such person
has the right to acquire within 60 days after the date of this filing
pursuant to the exercise of options, or otherwise. Beneficial ownership may
be disclaimed as to certain of the securities. This table has been prepared
based on 11,761,591 shares of Common Stock outstanding as of July 15, 1999,
plus as to each person shares issuable under rights to acquire shares
included in that person's holdings.
(2) Consists of 250,000 shares owned of record by Pesut & Associates, a company
wholly-owned by Mr. Pesut and 578,920 shares which Mr. Pesut has the right
to acquire pursuant to options. Does not include 54,081 shares under other
options which are not yet vested.
(3) Consists of 150,000 shares and 175,000 Units (resulting in the right to
acquire up to 350,000 shares)owned by Hampton Equity Holdings Inc., and
113,150 shares and 14,750 warrants to acquire shares owned by REVBEN
Management Corporation, affiliates of Mr. Henry, and 78,920 shares which
Mr. Henry has the right to acquire pursuant to options. Does not include
54,081 shares under options issued to Mr. Henry which are not yet vested.
(4) Consists of 25,000 shares owned of record by Temple Securities Ltd., a
company affiliated with Mr. O'Donoghue, and 37,948 shares which Mr.
O'Donoghue has the right to acquire pursuant to options. Does not include
95,052 shares under options issued to Mr. O'Donoghue which are not yet
vested.
(5) Consists of 37,948 shares which Mr. Williams has the right to acquire
pursuant to options. Does not include 95,052 shares under options issued to
Mr. Williams which are not yet vested.
(6) Consists of 24,058 shares which Mr. Farbolin has the right to acquire
pursuant to options. Does not include 108,942 shares under options issued
to Mr. Farbolin which are not yet vested.
(7) Consists of 8,056 shares which Mr. Bravo has the right to acquire pursuant
to options. Does not include 94,444 shares under an option issued to Mr.
Bravo which are not yet vested.
(8) Consists of 1,937,740 shares owned, and 458,975 shares which may be
acquired pursuant to warrants. Includes 25,000 shares also shown for Mr.
O'Donoghue above. Includes 1,387,740 held of record by Temple for various
client accounts (no account holds beneficial interests in excess of 5% of
AdSys' Common Stock). The principals of Temple are Hugh D. McLean, N.
Gregory McNally, Mark O'Donoghue and Christian Papachristou.
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(9) Consists of 600,000 shares owned, and 150,000 which may be acquired
pursuant to an option. The principal of 914151 is James Petrie.
(10) Consists of 596,666 shares owned, and 400,000 which may be acquired
pursuant to warrants. The principal of Roxborough is David A. Williams.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth certain information regarding each of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION TERM AS DIRECTOR
---- --- -------- ----------------
<S> <C> <C> <C>
Gerald A. Pesut............... 59 President, CEO July 1997
John Williams................. 55 Director August 1998
Greg Farbolin................. 39 Director December 1999
Alexander Henry............... 52 Director July 1997
Mark O'Donoghue............... 34 Director August 1998
Carlos E. Bravo............... 40 Director July 1999
Howard Tarnoff................ 50 VP Sales & Marketing
Robert C. DeMerell............ 31 CFO, Secretary, Treasurer and Controller
</TABLE>
GERALD PESUT, PRESIDENT & CEO
Prior to joining Advanced Systems International in 1996, Mr. Pesut was
President & CEO of Distributed Systems Division Inc., a subsidiary of Storage
Technology Corporation (1993-1996), where he managed the $240 million integrator
of midrange and network systems, comprised of 500 employees.
Mr. Pesut was President of a $55 million assembly integration and
warehousing division of Storage Technology from 1991 - 1993. After five years of
continuous losses prior to his taking over the position, he guided the division
to eight profitable quarters. Prior to that, he held a number of senior
management positions throughout the technology industry.
This multifaceted background has provided Mr. Pesut with the ability to
understand market developments and advances, while establishing corporate
direction to meet the ever-changing demands of the market.
Mr. Pesut is a graduate of the York University Accelerated MBA program.
JOHN WILLIAMS, DIRECTOR
John Williams has 35 years of experience in sales, sales management and
business management. His career has included both domestic and international
responsibilities, requiring him to live in Europe for a portion of his career.
Companies he has worked for are Memorex (1970-1973), Magnuson Computer Systems
(1980-1982), GriD Systems (1982-1990), and Storage Technology Corporation
(1972-1980, 1990-1997).
His last position before retirement with Storage Technology was as a
Corporate Officer (Senior Executive Vice President) responsible for World-Wide
Field Operations (sales, marketing and service).
At Storage Technology, Mr. Williams' organization originally consisted of
5,000 people located in 15 countries around the world, with additional indirect
distribution into another 12 countries. During his tenure as an executive at
Storage Technology, revenues increased from $700 million to over $2.0 billion,
expanding world coverage directly to 20 countries and indirectly to 21
countries.
Mr. Williams is currently consulting to major international corporations
with his new company, the CSO Forum.
GREG FARBOLIN, DIRECTOR
Mr. Farbolin has served in various management positions since 1973 with The
HoneyBaked Ham Company, a company founded by his family in 1949. Over a 20-year
period, the business grew to $130 million
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in sales with 150 locations. In 1994, Mr. Farbolin personally spearheaded the
project to overhaul the corporate IT based infrastructure components for the
entire organization. The reporting components from each store, through data
warehouse for all departments, were installed on a Windows based retail
management system. HoneyBaked was one of the first successful high-profile
installs on Windows. The software application was developed with the assistance
of Virtual Systems.
Mr. Farbolin was a Director for Virtual Systems between 1995 and 1997. Over
that period, Virtual was awarded Microsoft's prestigious Retail Application
Developer (RAD) in 1996 and 1997. As a member of the board at Virtual, Mr.
Farbolin was responsible for developing a distribution model by creating a
resellers network, as well as managing their relationships with major Hardware,
Software and End Users.
Today Mr. Farbolin is actively involved in the IT industry including being
on the Association of Retail Technology Standard (ARTS) board. He interacts in
many areas as a conduit between Microsoft and others, and the vertical markets
that they serve including retail and manufacturing. This interaction is to the
benefit of both end user as well as vendor.
ALEXANDER HENRY, DIRECTOR
Mr. Henry qualified as a Chartered Accountant with Touche Ross & Co. (now,
Deloitte & Touche) in Toronto, Ontario in 1973. From 1973 to 1981, he continued
in public practice. While in public practice, he directed his attention toward
the areas of taxation, real estate and financial planning. During this time, Mr.
Henry lectured and published on these subjects.
In 1981, Mr. Henry left public practice to concentrate, both as a principal
and a promoter, on the syndication of real estate tax sheltered investment
vehicles, commercial real estate and real estate debt/ mortgage investments.
In 1991, Mr. Henry joined LOM & Associates, the "small cap" group at
Loewen, Ondaatje, McCutcheon to organize and manage various tax-assisted and
otherwise unique real estate offerings. In 1993, Mr. Henry joined Hampton Equity
Management Inc. (which he had formed in 1991 with certain other principals of
LOM & Associates) on a full-time basis to organize financings for computer
software developers that were primarily tax-assisted and seed capital financings
for other emerging companies.
Mr. Henry sits on the boards of several companies, including
MusicMusicMusic Inc. (an electronic commerce company delivering music selections
and applications via the internet) and Jax Mold & Machine, Inc. (a high-tech
machine shop company providing molds to the tire and rubber industry). He is
active in fund raising for various charitable and non-profit organizations.
MARK O'DONOGHUE, DIRECTOR
Mr. O'Donoghue is currently (since 1997) the Chief Executive Officer
managing the rapid growth and expansion of Temple Securities Ltd., a full
service investment dealer. From 1993 to 1997, he was a Trust Officer and
Investment Advisor to Temple Trust Company Ltd. Mr. O'Donoghue possesses a
comprehensive multinational background and provides ATS with financial guidance
for business growth issues and international development. Mr. O'Donoghue holds
his Canadian Chartered Accountant designation. While with Ernst & Young, his
team provided client services and related corporate support to a wide range of
industries.
CARLOS E. BRAVO, DIRECTOR
Mr. Bravo joined the ADSys board in July 1999. Mr. Bravo is currently
(since 1998) a Vice President of USinternetworking Inc., with general management
duties. USi is a pioneer in the Internet-based outsourcing of leading
Applications (PeopleSoft, Siebel, Sagent, Broadvision, Electronic Commerce,
Complex Web Hosting) for a flat monthly fee. USi's services allow companies to
quickly deploy enterprise applications without the associated cost and burden of
owning, managing or supporting the applications or underlying infrastructure.
USi built its own global network of enterprise data centers to interconnect with
major Internet backbone providers through contractual PriorityPeering(SM)
relationships that ensure fast and reliable connections.
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<PAGE> 11
Before joining USi, Mr. Bravo was a co-owner of IIT Inc. (1997-1998), a
global IT consulting and systems integration boutique (PeopleSoft Global
Implementation Partner) specializing in PeopleSoft implementations to Fortune
500 clients. During his tenure at IIT, the business grew from 6 employees to
over 80 consultants with offices in Coral Gables, Los Angeles, San Francisco,
Chicago and Caracas. In 1998 Mr. Bravo led IIT's negotiations for a merger with
USi.
Prior to his tenure at IIT (1995-1997), Mr. Bravo was a principal, Vice
President and co-founder of Comdisco Inc.'s Systems Integration Business unit, a
startup 100% funded by Comdisco. In this project, Comdisco began to move to
distributed system services, away from its traditional business of leasing
mainframes.
Since 1989, Mr. Bravo has been a founder, Chairman and CEO of Bravo
International Corporation, a manufacturer of toys and sporting goods which
successfully merged its operations with Toydeca, a global manufacturer of
consumer products based in Venezuela. From 1989 to 1994, Mr. Bravo was also
co-founder and Chief Operating Officer of Amcotech, Inc., a diversified
manufacturer of consumer and industrial products and a pioneer in the design of
automated manufacturing systems. During his tenure at Amcotech, in 1992 Mr.
Bravo also acted as lead strategist in organizing another startup, International
Industrial Systems. From 1983 to 1989, Mr. Bravo held several technology
management posts at General Electric and Snap-on Tools.
Mr. Bravo attended the University of Florida and Northwestern University.
He holds advanced degrees in Aerospace Engineering, Applied Mathematics and
Business.
HOWARD TARNOFF, VP SALES & MARKETING
Mr. Tarnoff has 21 years of experience in the Time and Attendance industry.
He brings to Advanced Systems International experience in general management,
business development, operations and sales and marketing.
Mr. Tarnoff worked at Simplex Time Recorder Co., as a Director of Time/Data
Systems Division, from 1993 until joining Advanced Systems International in
December 1998. While at Simplex, he developed advanced business, operations,
sales and marketing solutions, and infused cutting edge management,
communications and technological systems. Mr. Tarnoff was successful at
spearheading and maintaining a 70% annual growth rate while increasing the sales
force to 113 from 12.
From 1985 to 1993, Mr. Tarnoff held numerous staff and line management
positions at Kronos Incorporated. As Product and Industry Marketing Manager, he
led the marketing development of a labor/job costing product family and
developed new offerings to expand products beyond the scope of Time and
Attendance. In his field management capacity, Mr. Tarnoff ran a highly
successful dealership that was a model for the Kronos direct sales and service
organization.
Mr. Tarnoff is a graduate of the University of Wisconsin.
ROBERT C. DEMERELL, CHIEF FINANCIAL OFFICER, SECRETARY, TREASURER AND CONTROLLER
Mr. DeMerell possesses a diversified background with proven abilities in
both professional and academic environments. He brings to Advanced Systems
International excellent technical and analytical skills, highly effective
communication abilities and is a focused team builder. Moreover, he has played a
critical role in building the financial reporting and accounting systems of two
high growth start-up companies.
From 1995 until the end of 1997, Mr. DeMerell worked as Controller at FAME
Information Services, Inc. He played a pivotal role in the development and
implementation of the financial controls as the company rapidly grew to $25
million in annual sales from $5 million over a two-year period. In addition, Mr.
DeMerell oversaw the implementation of the financial controls as the company
established operations in both the U.K. and in Asia.
Mr. DeMerell worked as an Auditor for Ernst & Young from 1992 to 1994. His
primary role was the auditing of a variety of small businesses including
manufacturing, financial services and health care. In
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<PAGE> 12
addition, he gained extensive experience auditing employee pension, 401(k),
ESOP, and Health and Welfare Benefit Plans.
Mr. DeMerell holds an MBA from the University of Notre Dame Graduate School
of Business. He is a Certified Public Accountant (CPA). He completed his BA in
Economics at the University of Michigan with a concentration in Public Finance.
SIGNIFICANT EMPLOYEES
PAUL F. ABRAHAM, MANAGER OF ENGINEERING
Mr. Abraham, who joined AdSys in 1998, has over 10 years experience in the
high tech industry. He has made significant contributions during the various
stages of development, sales and implementation process of data transaction and
application software.
Mr. Abraham was a member of the team that laid the foundation for the
current Data Transaction Processing Middleware industry at Epic Data, as a
Senior Systems Analyst between 1991-1997. Mr. Abraham was instrumental in the
design and development of Epic Data's interface to SAP R/3. Utilizing his
experience as a core member of the development team, Mr. Abraham became a
Project Lead at Epic Data. As a Project Lead, he was instrumental in the design
of system requirements for various SAP R/3 customers in addition to basis
administration and configuration during implementations and system support.
In 1997 and 1998, Mr. Abraham was System Engineering Manager and Senior
Systems Consultant at Epic Data. He managed an implementation team that
consisted of 18 system engineers and programmers. During this two-year period,
he was responsible for all aspects of System Implementations for Epic Data.
Mr. Abraham is an Honors graduate of Humber College Computer Science
Program.
SHAWN RECHKEMMER, DIRECTOR SUPPORT SERVICES
Mr. Rechkemmer possesses comprehensive systems engineering and management
experience. His professional background has provided him with the necessary
capacity to perform tasks on all levels as required for providing effective
management of 'hands-on' product support. His expertise includes analysis in
various Client/Server database environments.
Prior to joining ATS in 1997, Mr. Rechkemmer worked at EDS for seven years.
During his final three years he was Project Manager responsible for managing the
Client/Server software development project. Responsibilities at that position
included: creating and implementing an annual business plan with project
initiatives, staffing plans for GM customers, managing a team of 12 technical
support staff, and leading the support and development of applications for
customers.
Mr. Rechkemmer also worked as a Systems Engineer and Database Administrator
at EDS. In this position, he set up new databases for clients in Germany and
Sweden and provided support for the users. He was also a member of the Design
and Prototype team charged with utilizing Object Oriented technology to develop
automobile diagnostics for use in GM dealerships. Mr. Rechkemmer is a graduate
of Taylor University with a B.Sc. in Management Information Systems.
DIRECTORS COMPENSATION
AdSys compensates its directors for their services as directors solely via
stock options. Prior to July 15, 1999, on joining the board, each director
received a one-time grant of an option to acquire 100,000 shares at the market
price on the date of grant. Effective July 15, 1999, each year each director
also receives a grant of an option to acquire 33,000 shares at the market price
on the grant date. These options vest monthly over 3 years starting on the grant
date.
Both Mr. Farbolin and Mr. Bravo have been engaged to consult with the ATS
management team as to general and specific information relating to marketing
ATS's products, gathering and analyzing market and competitive data, and
locating, introducing and referring ATS in respect of sales and partnering
opportunities.
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<PAGE> 13
Mr. Farbolin receives fees of $5,000 per month. Mr. Bravo receives an option
each quarter to acquire a number of AdSys shares equal to $12,500 divided by the
then market price for the shares. Both consulting arrangements are terminable at
the end of any agreement calendar quarter.
ITEM 6. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to or accrued by the Company's Chief Executive Officer and all
other executive officers who earned more than $100,000 (salary and bonus) (the
"Named Executive Officers") for all services rendered in all capacities to the
Company during the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
NAME AND ------------ -------------------
PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS(#)
------------------ ---- ------ ---------------
<S> <C> <C> <C>
Gerald A. Pesut.................................... 1998 $199,992 600,000
President and Chief Executive Officer
Richard A. Penington(1)............................ 1998 $126,000 500,000(2)
(Former Chief Financial Officer, Secretary,
Treasurer)
Martin Young, VP................................... 1998 $126,000 -0-
Technical Sales
</TABLE>
- ---------------
(1) Mr. Penington resigned to pursue other opportunities in December 1998.
(2) Does not include other options which lapsed on executive's resignation.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR
NAME GRANTED(#) FISCAL YEAR BASE PRICE($/SH) EXPIRATION DATE
---- ------------ ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Gerald A. Pesut.......... 500,000 15.1% $0.50 7/8/2017
50,000 1.5% $0.50 7/8/2007
50,000 1.5% $0.50 8/6/2008
Richard A.
Penington(1)........... 500,000 15.1% $0.50 7/8/2017
Martin Young............. -0- -0- N/A N/A
</TABLE>
- ---------------
(1) Mr. Penington resigned to pursue other opportunities in December 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
SHARES AT FY-END(#) FY-END($)
ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- -------------- ----------------- --------------------- ---------------
<S> <C> <C> <C> <C>
Gerald A. Pesut........... -0- -0- 500,000/100,000(1) $75,000/$44,500(1)
Richard A. Penington(2)... -0- -0- 500,000/0 $80,000/$0
Martin Young.............. -0- -0- -0- N/A
</TABLE>
- ---------------
(1) Vesting of options was amended April 15, 1999.
(2) Mr. Penington resigned to pursue other opportunities in December 1998.
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<PAGE> 14
EMPLOYMENT AGREEMENTS
ATS entered into an employment agreement with Gerald A. Pesut dated
November 15, 1996 (amended March 13, 1998). Under the agreement, Mr. Pesut was
engaged to serve as Chief Executive Officer for salary at the rate of $200,000
per year. Mr. Pesut is entitled to bonuses based on ATS' achievement of certain
sales targets. Pursuant to the agreement, Mr. Pesut also received options to
acquire up to 500,000 shares of AdSys stock at the price of $1.00 per share
(repriced to $.50 per share in September, 1998). The agreement may be terminated
by the Company at any time for any reason, either with or without cause.
Similarly, Mr. Pesut may terminate his employment at any time. If the Company
terminates the agreement other than for cause or if Mr. Pesut terminates the
agreement for good cause (as defined in the employment agreement), Mr. Pesut is
entitled to severance compensation equal to 12 months salary together with any
bonus accrued up to the date of termination. In computing the bonus under the
severance arrangement, ATS is deemed to have attained 100% of the bonus targets
for the performance period in which the termination occurs. Upon a change in
control of AdSys, Mr. Pesut's options will accelerate and vest 100%. The
employment agreement also contains a covenant not to compete, which would
prohibit Mr. Pesut from engaging in activities in competition with ATS or AdSys
for a two year period commencing on the date of termination of his employment.
ATS entered into an agreement with Howard Tarnoff dated July 22, 1998. Mr.
Tarnoff was engaged as Vice President of Sales, at a salary rate of $145,000 per
year. Mr. Tarnoff is entitled to bonuses of $50,000 each year if revenue goals
are met, with a guaranteed bonus of $50,000 for the first year. Mr. Tarnoff also
received options to acquire up to 200,000 shares of AdSys stock at the market
price on the date of grant (repriced to $0.50 per share in September 1998), and
will receive options for an additional 100,000 shares at the end of 1999 if
revenue goals are met. Mr. Tarnoff's employment is "at will." However, Mr.
Tarnoff is entitled to severance compensation if ATS terminates his employment
(up to 12 months if termination is in the first contract year, 6 months if in
the second year, and 60 days if thereafter). The employment agreement also
contains a covenant not to compete, which would prohibit Mr. Tarnoff from
engaging in competition with ATS for a 2 year period commencing on the date of
termination of his employment.
ATS entered into an employment agreement with Robert DeMerell dated January
8, 1999. Mr. DeMerell was originally engaged as Corporate Controller
(subsequently promoted to CFO, Secretary and Treasurer), at a salary rate of
$80,000 per year. Mr. DeMerell may receive quarterly bonuses of $5,000, based on
goals and targets to be established from time to time. Mr. DeMerell also
received options to acquire up to 150,000 shares of AdSys stock at $.50 per
share. Mr. DeMerell's employment is "at will." However, Mr. DeMerell is entitled
to 30 days severance pay if ATS terminates the employment. The employment
agreement also contains a covenant not to compete, which would prohibit Mr.
DeMerell from engaging in competition with ATS for a 2 year period commencing on
the date of termination of his employment.
STOCK OPTION PLANS
AdSys currently maintains two stock option plans: the 1997 Employee Stock
Option Plan, and the 1997 Director Stock Option Plan.
The Employee Plan was adopted and approved by the Board and the
Shareholders as of July 1, 1997. The Employee Plan was amended April 15, 1999 to
cover a maximum of 4.5 million shares. Under its terms, participants in the plan
include officers and other employees of AdSys or ATS having managerial,
supervisory or similar responsibilities or who are key administrative employees
and managers, and who are not covered by any collective bargaining agreement. In
addition, the Compensation Committee may grant awards under the Employee Plan to
non-employees who, in the judgment of the Compensation Committee, render or have
rendered significant services to AdSys or ATS.
The Employee Plan is currently administered by the Compensation Committee
of the Board, composed of two outside directors. Subject to the provisions of
the Employee Plan, the Compensation Committee has full power and authority to
determine, from among the persons eligible for grants or awards under the
Employee Plan: (i) the individuals to whom grants or awards will be made, (ii) a
combination of grants or awards to participants, and (iii) the specific terms of
each grant or award. The plan authorizes a wide variety of stock based
compensatory awards, including options (both "incentive stock options" under
Section 422 of
14
<PAGE> 15
the Internal Revenue Code or otherwise), stock appreciation rights, restricted
stock awards or other stock based awards (i.e., other awards that are valued in
whole or in part by reference to, or are otherwise based on, AdSys Common
Stock). The plan has no set termination date, although no incentive stock option
may be granted after July 1, 2007. As of July 1, 1999, there were a total of
2,654,000 options outstanding under the Employee Plan to a total of
approximately 50 employees and outside service providers.
The Director Plan was adopted and approved by the Board and the
Shareholders as of July 1, 1997 (amended August 6, 1998, April 15, 1999 and July
15, 1999). Under the Director Plan, options to acquire up to a maximum of
1,000,000 shares may be granted to members of the AdSys Board of Directors. The
plan is administered by the Board of Directors. Under the Director Plan, upon
the date a person first becomes a member of the AdSys Board, the director is
automatically granted a non-qualified stock option to acquire 100,000 shares. On
July 15 of each year, each director receives an option to acquire 33,000 shares.
The purchase price for each share which may be purchased upon exercise of an
option is the fair market value of the AdSys Common Stock on the date of grant.
Options vest in equal monthly amounts over the first three years after the date
of grant. The Director Plan has no outside termination date, and will remain in
effect until all shares authorized have been issued, or unless the Director Plan
is earlier terminated or abandoned by action of the Board of Directors. As of
July 15, 1999, options to acquire a total of 765,000 shares were outstanding, of
which 223,622 had vested or were exercisable.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997 and 1998, KIF Capital Corp. rendered corporate financial advisory
consulting services to AdSys pursuant to a consulting agreement. Consulting fees
paid during 1997 and 1998 were $130,000 and $91,000, respectively. Also pursuant
to that agreement, KIF Capital Corp. was granted an option to acquire 100,000
shares of common stock under the employee plan. The exercise price under this
option was $.50 per share. This option was not exercised, and expired in March
1999. In 1997 and 1998, AdSys paid KIF Capital Corp. (a Canadian entity with no
US presence) $26,278 and $40,470, respectively, for its assistance in connection
with certain sales of common stock made outside the United States. KIF Capital
Corp. is owned by Mr. Kenneth MacAlpine, who was a member of the AdSys Board of
Directors until August, 1998.
During 1998, AdSys paid $35,352 in cash and granted warrants to acquire up
to 376,000 shares of common stock in respect of sales of securities outside the
United States, to Temple Securities Ltd., a company affiliated with Mark
O'Donoghue, a member of the AdSys Board of Directors.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
AdSys is authorized to issue 20,000,000 shares of Common Stock, $.001 par
value per share, of which 11,646,590 are issued and outstanding as of March 15,
1999.
Holders of Common Stock have equal rights to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available therefor.
Holders of Common Stock have one vote for each share held of record and do not
have cumulative voting rights.
Holders of Common Stock are entitled upon liquidation of AdSys to share
ratably in the net assets available for distribution, subject to the rights, if
any, of holders of any preferred stock then outstanding. Shares of Common Stock
are not redeemable and have no preemptive or similar rights. All outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
Within the limits and restrictions provided in the Restated Articles of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 10,000,000 shares of preferred stock, $.001
par value per share (the "Preferred Stock"), in one or more series, and to fix,
as to any such series, the dividend rate, redemption prices, preferences on
liquidation or dissolution, sinking fund terms,
15
<PAGE> 16
conversion rights, voting rights, and any other preference or special rights and
qualifications. There are presently no shares of Preferred Stock outstanding.
Shares of Preferred Stock issued by the Board of Directors could be
utilized, under certain circumstances, to make an attempt to gain control of
AdSys more difficult or time consuming. For example, shares of Preferred Stock
could be issued with certain rights that might have the effect of diluting the
percentage of Common Stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid that the
Board of Directors determines is not in the best interest of AdSys and its
stockholders. The existence of Preferred Stock may, therefore be viewed as
having possible anti-takeover effects. A takeover transaction frequently affords
stockholders the opportunity to sell their shares at a premium over current
market prices. The Board of Directors has not authorized the issuance of any
series of Preferred Stock.
DIVIDEND POLICY
AdSys has not paid any cash dividends to date, and has no intention to pay
any cash dividends on its Common Stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the Board
of Directors and to certain limitations imposed by the Nevada corporate laws.
The timing, amount and form of dividends, if any, will depend, among other
things, on AdSys' results of operations, financial condition, cash requirements
and other factors deemed relevant by Board of Directors.
MISCELLANEOUS
AdSys common shares are "penny stock" as defined by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq National Market, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The Commission has adopted
rules that regulate broker-dealer practices in connection with transactions in
penny stocks. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and
compensation information, must be given to the customer orally or in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
such rules the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that is subject to the penny stock rules and therefore make
it more difficult to sell those shares.
AdSys' articles of incorporation and bylaws do not contain any provision
that would delay, defer or prevent a change in control.
TRANSFER AGENT
The transfer agent for the Common Stock is Interstate Transfer Company, 874
E. 5900 South, Suite 101, Salt Lake City, Utah 84107, 801-281-9746.
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<PAGE> 17
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
AdSys' Common Stock is listed for quotation by the National Quotation
Bureau "pink sheets" under the symbol "ADSN". However, the market for such
shares is extremely limited. No assurance can be given that a significant
trading market for the Common Stock will develop or, if developed, will be
sustained. AdSys has been advised by its market makers that the market makers
will file NASD Form 211 in the near future, so that the common stock will be
quoted over the Nasdaq OTCBB, the electronic bulletin board maintained by
Nasdaq. From January 25, 1998 through July 1, 1999, the common stock was quoted
over the Nasdaq OTCBB, moving to the NQB "pink sheets" on July 2, 1999.
The following table sets forth the range of the high and low closing bid
prices of the Company's common stock during each of the calendar quarters
identified below. These bid prices were obtained from the Nasdaq OTCBB and do
not necessarily reflect actual transactions, retail markups, mark downs or
commissions. The transactions include inter-dealer transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
1st Quarter................................................. 2 1/2 1 3/4
2nd Quarter................................................. 2 1/4 1 5/8
3rd Quarter................................................. 1 7/8 7/16
4th Quarter................................................. 1 7/16
</TABLE>
<TABLE>
<S> <C> <C>
1999
1st Quarter................................................. 7/16 1 11/16
2nd Quarter................................................. 1 15/16 9/16
</TABLE>
The last bid price of the Company's Common Stock on July 15, 1999 was $0.97
per share. On that date, there were approximately 113 holders of record of
Common Stock.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, although it
is involved from time to time in routine litigation incident to its business.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In connection with its organization in late 1995 and early 1996, ATS issued
a net total of 2,720 shares of common stock to its original organizers all of
whom were sophisticated business people actively involved in organizing and
managing ATS, and who had full access to all information regarding ATS (914151
Ontario Ltd (James Petrie), KIF Capital Corp. (Kenneth MacAlpine), 859754
Ontario Limited (John Totten), Martin Young and Greg O'Hara), for contributions
in the aggregate amount of approximately $20,000. ATS also issued warrants to
acquire up to 400 shares (subsequently reduced to 300 shares)at $1,000 per share
(converted in the merger described below to warrants to acquire 300,000 shares
at $1 per share) to 914151 Ontario Ltd. and KIF Capital Corp. No underwriters
were used for these transactions. Exemption from registration is claimed
pursuant to Section 4(2) of the Securities Act, no public offering having been
involved.
At various times from June, 1996 through April, 1997, ATS sold a net total
of 2,186.667 shares (converted in the merger described below to 2,186,667
shares) for aggregate proceeds of approximately
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<PAGE> 18
$2,000,000 to 22 non-U.S. persons. No underwriters were engaged, although
finders fees of approximately $200,000 were paid to certain non-U.S. persons and
warrants to acquire up to 740 shares (converted in the merger described below to
warrants to acquire 740,000 shares) were issued to Hampton Equity Management
Inc., Roxborough Holdings Ltd. James Hogan and Eric Boyd (non-U.S. persons) as
finders fees for sales activities. Subsequently, in payment for finders services
rendered in connection with the foregoing ATS sales, ADSys issued options to
acquire (a) 35,000 shares at an exercise price of $1 per share to Joe Charland
(September 1997), (b) 75,000 shares at an exercise price of $1 per share to
Logicom SARL (September 1997), and (c) 150,000 shares at an exercise price of
$.50 per share to Madikwe Capital Ltd. (September 1998). Exemption from
registration is claimed pursuant to Regulation S, for offers and sales made
outside the United States to non-U.S. persons.
On May 15, 1997, AdSys (at the time named Bennington Corporation) offered
and sold a total of 2,000,000 shares for aggregate proceeds of $20,000, to fund
its start-up and other costs associated with structuring and closing the RTO
merger described below. No underwriters or sales agents were used for this
transaction. Exemption from registration was claimed pursuant to Rule 504 of
Regulation D.
On June 30, 1997, AdSys (at the time named Bennington Corporation) offered
and sold 980,000 units for aggregate proceeds of $980,000 to 24 persons, to fund
working capital needs. Each unit consisted of one common share plus a warrant to
acquire one-half common share at an exercise price of $2.00 per share. No
warrants were exercised, and all have expired. No underwriters were used for
this offering. Exemption from registration is claimed pursuant to Rule 504 of
Regulation D.
On July 8, 1997, AdSys issued an aggregate of 4,906,667 shares to the
former ATS shareholders (26 persons) and warrants to acquire up to 1,040,000
shares to six ATS warrantholders as consideration in the RTO merger acquisition
by AdSys of ATS. The warrants carry exercise prices varying from $0.50 to $1.88
per share. None of the warrants have been exercised. No underwriters were used
for this transaction, and no commissions were paid. Exemption from registration
was claimed pursuant to Regulation S, for offers and sales made outside the
United States to 23 non-U.S. persons. Exemption from registration for issuance
of shares to three former executive officers is claimed under Section 4(2), no
public offer being involved.
On October 1, 1997, AdSys sold 250,000 shares to Temple Securities Ltd. for
$300,000. No underwriters were engaged, and no commissions were paid. Exemption
from registration is claimed under Regulation S (for an offer and sale made
outside the United States to a non-U.S. person).
In March, 1998, AdSys sold 267,000 shares at a sales price of $1.60 per
share to 15 foreign investors. A total of approximately $17,088 was paid in
finders fees to non-U.S. persons. Exemption from registration is claimed
pursuant to Regulation S, for offers and sales made outside the United States to
non-U.S. persons.
At various times from August, 1998 through January, 1999, AdSys sold an
aggregate of 1,424,001 common shares for aggregate proceeds of $959,013, in an
offering of no more than $1,000,000 of shares. Exemption from registration is
claimed pursuant to Rule 504 of Regulation D. All investors were "accredited
investors." No underwriters were involved in these offers and sales.
At various times from August, 1998 through March, 1999, AdSys sold an
aggregate of 1,561,920 shares of common stock for aggregate proceeds of
$1,018,075. Exemption from registration is claimed pursuant to Regulation S, for
offers and sales made outside the U.S. to non-U.S. persons. No underwriters were
involved in these offers and sales.
In connection with offers and sales made outside the U.S. to non-U.S.
persons described above, AdSys paid $143,712 in finders fees to various non-U.S.
persons.
In April 1999, AdSys approved the issuance of warrants and options to
acquire 1,009,500 shares to 13 non-U.S. persons. The exercise price under these
warrants and options is $0.75 per share, the market value of the shares at the
time of the grants. AdSys issued these options and warrants to compensate the
recipients, who had identified and introduced certain non-U.S. persons to AdSys
as investors. The warrants and options issuances were exempt from registration
pursuant to Regulation S, for offers and sales made outside the US to non-US
persons. None of the warrants and options have been exercised.
18
<PAGE> 19
In April 1999, AdSys approved the issuance of 93,725 warrants to acquire
shares at an exercise price of $0.625 per share to certain debenture holders in
partial satisfaction of their debentures. AdSys claims exemption from
registration for the warrant issuance under Regulation S, for offers and sales
made outside the United States to non-U.S. persons.
From August 1, 1997 through August 1, 1999, AdSys issued options to acquire
common stock to various employees pursuant to the employee option plan. All
options were granted at the market price of the shares as of the grant date. In
April 1999, AdSys issued one restricted stock grant to a member of its outside
legal firm in recognition of legal services not involving fund raising or market
relations activities. The stock award was exercised, and 11,905 shares were sold
for $10,000, which was the fair market value of the shares as of the grant date.
AdSys claims exemption for the foregoing issuances pursuant to Rule 701. The
table below depicts salient information relating to the option grants.
<TABLE>
<CAPTION>
DATE NUMBER OF OPTIONS STRIKE PRICE
---- ----------------- ------------
<S> <C> <C>
August 1, 1997 405,000 $1.00
September 22, 1997 20,000 1.00
October 22, 1997 10,000 1.00
November 10, 1997 17,000 1.00
December 8, 1997 100,000 1.00
December 20, 1997 50,000 1.00
January 5, 1998 10,000 1.00
January 28, 1998 10,000 1.00
March 2, 1998 55,000 1.63
March 9, 1998 150,000 1.63
March 17, 1998 25,000 1.63
June 8, 1998 10,000 1.94
September 17, 1998 182,000 0.50
November 1, 1998 5,000 0.81
April 8, 1999 7,500 1.30
April 12, 1999 7,500 1.69
April 15, 1999 175,000 1.35
April 19, 1999 10,000 1.35
April 26, 1999 5,000 1.25
May 3, 1999 25,000 1.16
May 17, 1999 25,000 1.10
May 24, 1999 35,000 1.27
June 1, 1999 17,500 1.04
July 15, 1999 12,500 1.00
</TABLE>
From July 8, 1997 through August 1, 1999, AdSys issued options to acquire
common stock to various executive officers and directors pursuant to the
employee and director option plans. All options were granted at the market price
of the shares as of the grant date. AdSys claims exemption for the issuances
pursuant to Section 4(2), no public offering having been involved. By virtue of
their positions as executive officers and
19
<PAGE> 20
directors, each recipient had access to detailed financial information relating
to AdSys. The table below depicts salient information relating to these option
grants.
<TABLE>
<CAPTION>
DATE NUMBER OF OPTIONS STRIKE PRICE
---- ----------------- ------------
<S> <C> <C>
July 8, 1997 1,300,000 $1.00
August 6, 1998 400,000 .63
September 17, 1998 400,000 0.50
January 8, 1999 150,000 0.50
January 13, 1999 100,000 0.50
July 15, 1999 265,000 1.00
</TABLE>
From July 8, 1997 through August 1, 1999, AdSys issued options to acquire
common stock to various outside consultants pursuant to the employee option
plan. All options were granted at the market price of the shares as of the grant
date. AdSys claims exemption for the issuances pursuant to Section 4(2), no
public offering having been involved. Each recipient is sophisticated and
experienced in investment matters. By virtue of their relationship with AdSys
and their engagements, each recipient had access to detailed financial
information relating to AdSys. The table below depicts salient information
relating to these option grants.
<TABLE>
<CAPTION>
STRIKE
CONSULTANT DATE NUMBER PRICE SERVICES
---------- ---- ------ ------ --------
<S> <C> <C> <C> <C>
Jaffe, Raitt, Heuer & Weiss, P.C. 7/8/1997 50,000 1.00 Legal
Jaffe, Raitt, Heuer & Weiss, P.C. 8/6/1998 50,000 0.63 Legal
Jaffe, Raitt, Heuer & Weiss, P.C. 7/15/1999 33,000 1.00 Legal
KIF Capital Corp. 8/6/1998 100,000 0.63 Corporate finance
Frank Gerardi 9/17/1998 100,000 0.50 Investor relations and market
information support
Atlantis Bancorp., Inc. 11/16/1998 150,000 0.81 Investor relations and market
information support
Barry Kaplan Associates 3/12/1999 100,000 1.06 Investor relations and market
information support
</TABLE>
20
<PAGE> 21
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The AdSys Articles of Incorporation and Bylaws reflect the adoption of the
provisions of Section 78.037 of the Nevada General Corporation Law, which
eliminates or limits the personal liability of a director to the company or its
stockholders for monetary damages for breach of fiduciary duty under certain
circumstances. The company's Articles of Incorporation and Bylaws also provide
that the company shall indemnify any person, who was or is a party to a
proceeding by reason of the fact that he is or was a director or officer of the
company, or is or was serving at the request of the company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be or not opposed to the
best interests of the Company, in accordance with, and to the full extent
permitted by, the Nevada General Corporation Law. In addition, the Bylaws
authorize the company to maintain insurance to cover such liabilities. AdSys
currently has a directors' and officers' insurance policy in effect.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in a successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
21
<PAGE> 22
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statement of Stockholders' Deficit........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 23
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Advanced Systems International, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Systems International, Inc. (a Nevada corporation) and Subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanced
Systems International, Inc. and Subsidiaries as of December 31, 1998 and 1997
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Grant Thornton LLP
Southfield, Michigan
February 25, 1999
F-2
<PAGE> 24
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1999 1998 1997
--------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 339,091 $ 225,491 $ 68,132
Accounts receivable, less allowance for doubtful accounts
of $8,700 at December 31, 1998 and March 31, 1999....... 1,699,438 494,063 387,910
Loan receivable -- stockholder............................ -- -- 72,917
Inventory................................................. 42,560 23,642 14,370
Prepaid expenses.......................................... 332 9,169 1,544
----------- ----------- -----------
Total Current Assets.................................. 2,081,421 752,365 544,873
Property and equipment -- At cost
Computer equipment........................................ 256,178 185,148 66,108
Office equipment.......................................... 69,810 68,126 36,609
Leasehold improvements.................................... 33,111 27,477 --
----------- ----------- -----------
359,099 280,751 102,717
Less accumulated depreciation and amortization........ (103,354) 83,139 29,530
----------- ----------- -----------
256,745 197,612 73,187
Other assets
Deposits.................................................. 32,836 62,292 32,368
Software development costs................................ 355,719 296,195 --
Organization costs, less accumulated amortization of
$24,255 at March 31, 1999, $21,628 and $14,165 at
December 31, 1998 and 1997, respectively................ 13,048 15,675 23,139
----------- ----------- -----------
$ 2,738,769 $ 1,324,139 $ 673,567
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Line of credit............................................ $ -- $ -- $ 550,000
Current maturities of long-term obligations............... 328,013 328,013 378,795
Current maturities of long-term obligations to related
parties................................................. 258,000 88,000 375,000
Customer deposits......................................... 456,193 96,638 92,209
Accounts payable..........................................
Trade................................................... 416,555 356,497 196,941
Related parties......................................... -- -- 10,122
----------- ----------- -----------
416,555 356,497 207,063
Accrued liabilities
Payroll................................................. 313,057 235,615 --
Payroll taxes........................................... 85,267 24,840 3,574
Interest................................................ 3,728 3,851 38,126
Other................................................... 156,485 -- 8,169
----------- ----------- -----------
558,537 264,306 49,869
----------- ----------- -----------
Total current liabilities............................. 2,017,298 1,133,454 1,652,936
Long-term obligations, less current maturities.............. 269,980 319,922 120,067
Long-term obligations to related parties, less current
maturities................................................ 46,322 62,822 96,000
Lease commitment (Note E)................................... -- --
Stockholders' deficit
Preferred stock -- $.001 par value; authorized, 10,000,000
shares; none issued and outstanding..................... -- -- --
Common stock -- $.001 par value; authorized, 20,000,000
shares; 11,157,672 and 8,136,667 shares issued and
outstanding in 1998 and 1997, respectively.............. 11,689 11,158 8,137
Additional paid-in capital................................ 5,647,131 5,356,775 2,866,744
Accumulated deficit....................................... (5,253,651) (5,559,992) (4,070,317)
----------- ----------- -----------
405,169 (192,059) (1,195,436)
----------- ----------- -----------
$ 2,738,769 $ 1,324,139 $ 673,567
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 25
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- --------------------------
1999 1998 1998 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales...................................... $ 1,762,260 $ 314,001 $ 2,379,987 $ 2,012,317
Cost of sales.............................. 118,833 26,612 155,147 304,564
----------- ---------- ----------- -----------
Gross profit.......................... 1,643,427 287,389 2,224,840 1,707,753
Operating expenses
Sales & marketing........................ 412,526 152,597 945,736 485,020
Research and development................. 102,481 59,192 314,587 1,772,537
General and administrative............... 806,956 386,778 2,294,668 1,227,894
----------- ---------- ----------- -----------
1,321,963 598,567 3,554,991 3,485,451
----------- ---------- ----------- -----------
Earnings (Loss) from operations....... 321,464 (311,178) (1,330,151) (1,777,698)
Other expense
Interest................................. 15,123 31,322 122,728 113,770
Loss on settlement....................... -- -- 26,250 --
Loss on disposal of assets............... -- -- 8,305 3,681
Sundry................................... -- -- 2,241 343
----------- ---------- ----------- -----------
15,123 31,322 159,524 117,794
----------- ---------- ----------- -----------
Net earnings (loss)................... $ 306,341 $ (342,500) $(1,489,675) $(1,895,492)
=========== ========== =========== ===========
Net earnings (loss) per share -- basic..... $ 0.03 $ (0.04) $ (.17) $ (.28)
=========== ========== =========== ===========
Net earnings (loss) per share -- diluted... $ 0.02 $ (0.03) $ (.17) $ (.28)
=========== ========== =========== ===========
Weighted average number of shares
outstanding.............................. 11,489,391 8,136,667 8,870,550 6,739,167
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 26
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1997..................... $ 4,907 $1,569,974 $(2,174,825) $ (599,944)
Issuance of 2,980,000 shares of stock in
connection with reverse acquisition and
recapitalization (Note A).................... 2,980 997,020 -- 1,000,000
Issuance of 250,000 shares of stock............ 250 299,750 -- 300,000
Net loss....................................... -- -- (1,895,492) (1,895,492)
------- ---------- ----------- -----------
Balance at December 31, 1997................... 8,137 2,866,744 (4,070,317) (1,195,436)
Issuance of 2,194,082 shares of stock.......... 2,194 1,888,875 -- 1,891,069
Conversion of debentures and interest to
899,840 shares of stock...................... 900 674,000 -- 674,900
Foreclosure on loan receivable -- stockholder
(72,917 shares).............................. (73) (72,844) -- (72,917)
Net loss....................................... -- -- (1,489,675) (1,489,675)
------- ---------- ----------- -----------
Balance at December 31, 1998................... 11,158 5,356,775 (5,559,992) (192,059)
Issuance of 531,002 shares of stock............ 531 290,356 290,887
Net Earnings................................... -- -- 306,341 306,341
------- ---------- ----------- -----------
Balance at March 31, 1999 (unaudited).......... $11,689 $5,647,131 $(5,253,651) $ 405,169
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 27
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTERS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
----------------------- -------------------------
1999 1998 1998 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)........................... $ 306,341 $(342,500) $(1,489,675) $(1,895,492)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities
Depreciation and amortization............ 22,842 14,463 68,533 30,867
Loss on disposal of property and
equipment.............................. 8,305 3,681
Conversion of interest on debentures to
common stock........................... 60,900 --
Change in assets and liabilities
Increase/(decrease) in accounts
receivable.......................... (1,194,801) 115,759 (106,153) (335,921)
Decrease (increase) in loan
receivable.......................... 72,917 (72,917)
Decrease in purchased contracts........ -- 226,715
Increase in inventories................ (18,918) (234) (9,272) (11,370)
(Increase)/decrease in deposits........ 29,456 (2,912) (29,924) (29,456)
Increase in prepaid expenses........... 8,837 31,622 (7,625) (1,544)
Increase (decrease) in accounts
payable............................. 60,059 (110,885) 149,434 (30,895)
Increase (decrease) in accrued
liabilities......................... 294,230 190,264 214,437 (27,884)
Increase in customer deposits.......... 359,555 113,847 4,429 92,209
----------- --------- ----------- -----------
Net cash provided (used in)
operating activities.............. (132,399) 9,424 (1,063,694) (2,052,007)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.......... (88,924) (15,860) (193,799) (68,189)
Increase in software development costs...... (59,524) (7,805) (296,195) --
Increase in organization costs.............. -- (760)
----------- --------- ----------- -----------
Net cash used in investing
activities........................ (148,448) (23,665) (489,994) (68,949)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of obligations....... 17,600 143,880
Repayment of obligations.................... (42,590) (94,527) (50,852)
Proceeds from issuance of obligations to
related parties.......................... 170,000 100,000 100,000 471,000
Proceeds from issuance of common stock...... 283,536 86,107 1,818,152 1,629,724
Repayments of related party obligations..... (16,500) (23,233) (130,178) (30,000)
----------- --------- ----------- -----------
Net cash provided by financing
activities........................ 394,446 162,874 1,711,047 2,163,752
----------- --------- ----------- -----------
Net increase in cash.......................... 113,600 148,633 157,359 42,796
Cash at beginning of period................... 225,491 68,132 68,132 25,336
----------- --------- ----------- -----------
Cash at end of period......................... $ 339,091 $ 216,765 $ 225,491 $ 68,132
=========== ========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest...... $ 9,904 $ 38,706 $ 157,003 $ 97,062
=========== ========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES
During 1998, common stock was issued upon
the conversion of $614,000 of long-term
debt and common stock was retired upon
the foreclosure of a loan
receivable-stockholder of $72,917.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 28
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows.
ORGANIZATION AND BASIS OF PRESENTATION
Advanced Systems International, Inc. (formerly Automatic Time Systems
Corp.) ("the Company") commenced operations on February 1, 1996. The Company
develops and sells high technology time and attendance software applications to
accompany their customers' hardware configurations in the United States.
On July 8, 1997 Advanced Systems International, Inc. acquired all of the
outstanding common stock of Automatic Time Systems Corp. The acquisition has
been accounted for as a recapitalization of Automatic Time Systems Corp. with
Automatic Time Systems Corp. as the acquirer (reverse acquisition). Accordingly,
stockholders' deficit has been restated to reflect the issuance of common stock
in connection with the merger. The historical financial statements prior to July
8, 1997 are those of Automatic Time Systems Corp.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Automatic Time Systems Corp. and ASI
Automatic Systems International Ltd. All significant intercompany balances and
transactions have been eliminated.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. The Company uses accelerated
methods for depreciation based on useful lives ranging from 3 to 7 years.
Depreciation expense was $61,069 and $23,402 for the years ended December 31,
1998 and 1997, respectively, and $22,083 and $15,000 for the three months ended
March 31, 1999 and 1998, respectively.
Expenditures for major repairs and improvements that extend the useful life
of property and equipment are capitalized and are depreciated or amortized over
the life of the improvement or the life of the lease whichever is shorter.
Expenditures for maintenance and repairs are charged to expense as incurred.
ORGANIZATION COSTS
The organization costs are amortized on the straight line method over a 60
month period.
SOFTWARE DEVELOPMENT
Software development costs are capitalized once technological feasibility
has been achieved. Costs incurred prior to achieving technological feasibility
are charged to research and development expense as incurred. The Company had
capitalized software of $296,195 relating to the development efforts on the
Company's middleware product, ATLink, as of December 31, 1998. Capitalized
software was $355,719 at March 31, 1999.
INCOME TAXES
The Company accounts for income taxes on the asset and liability method.
Deferred tax assets and liabilities are recorded based upon the differences
between the tax bases of assets and liabilities and their carrying amounts for
financial statement purposes. Current taxes are measured by applying the
provision of enacted tax laws to taxable earnings to determine the amount of
taxes payable.
F-7
<PAGE> 29
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
NET EARNINGS (LOSS) PER SHARE
During 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which is effective for financial statements issued after December 15,
1997. The new standard eliminates primary and fully diluted earnings per share
and requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. Basic loss per share
excludes dilution and is computed by dividing loss available to common
shareholders by the weighted-average common shares outstanding for the period.
Diluted loss per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock or resulted in the issuance of common stock that then shared
in the loss of the entity. The Company adopted this pronouncement at December
31, 1997. Common stock equivalents have been excluded from the calculation of
net loss per share due to their antidilutive effect.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes the fair value of the Company's financial instruments
approximates their carrying value. The fair value of long-term obligations
approximate their carrying values based on current rates for instruments with
similar characteristics.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
STOCK BASED COMPENSATION
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS 123 establishes financial accounting and reporting standards
for stock-based employee compensation plans. It defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans and include the cost in the income statement
as compensation expense. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to account
for compensation cost for stock option plans in accordance with APB Opinion No.
25.
NEW PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components (revenues, expense, gains, and losses) in a full set
of financial statements. This statement also requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This statement is effective
for fiscal years beginning after December 15, 1997. Earlier application is
permitted. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The adoption of SFAS 130 does not have an
effect on the consolidated financial statements.
F-8
<PAGE> 30
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information", which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement requires the reporting of financial and descriptive information about
an enterprise's reportable operating segments. This statement is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of adoption, comparative information for earlier years is to be
restated. The adoption of SFAS 131 does not have an effect on the consolidated
financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to 1997 to conform to the 1998
presentation.
NOTE B -- LINE OF CREDIT
On August 20, 1998 the Company converted its line of credit to a note
payable.
F-9
<PAGE> 31
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------
1999 1998 1997
------------ ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank with interest at 1.5% above the
bank's prime rate (9.25% at December 31, 1998), and
payable in monthly installments of $10,000 plus
interest through August 31, 1999; monthly installments
of $15,000 plus accrued interest from September 1,
1999 through maturity and a principal payment of
$160,000 due July 1, 1999. the note is due on February
19, 2001 and is collateralized by all of the assets of
the Company........................................... $480,000 $510,000 $ --
Note payable to bank with interest at 2% above the
bank's prime rate (9.75% at December 31, 1998), and
payable in monthly installments of $1,590 plus
interest The note is due on February 19, 2001 and is
collateralized by all of the assets of the Company.... 36,584 41,354 60,440
Note payable to bank with interest at 1.5% above the
bank's prime rate (9.25% at December 31, 1998), and
payable in monthly installments of $2,606 plus
interest. the note is due on February 19, 2001 and is
collateralized by all of the assets of the Company.... 55,953 67,762 99,035
Debenture payable, with interest at 6% (converted to
common stock in 1998)................................. -- 300,000
Debenture payable, with interest at 18% (converted to
common stock in 1998)................................. -- 25,000
Lease payable to bank, payable in monthly installments
of $388, including interest at 11.5%, due October 30,
2001.................................................. 10,055 11,219 14,387
Settlement payable to former employee, payable in
monthly installments of $733, due December 7, 2000.... 15,401 17,600 --
-------- -------- --------
597,993 647,935 498,862
Less current maturities................................. 328,013 328,013 378,795
-------- -------- --------
$269,980 $319,922 $120,067
======== ======== ========
</TABLE>
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------
<S> <C> <C>
1999............................................................. $328,013
2000............................................................. 243,167
2001............................................................. 76,755
--------
$647,935
========
</TABLE>
F-10
<PAGE> 32
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- INCOME TAXES
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, --------------------------
1999 1998 1997
--------- ---- ----
<S> <C> <C> <C>
Net operating losses.................... $ 1,853,000 $ 1,957,000 $ 1,380,000
Capitalized software.................... (121,000) (101,000) --
Valuation allowance..................... (1,732,000) (1,856,000) (1,380,000)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
The income tax provision reconciled to the tax computed at the statutory
federal rate for continuing operations was as follows:
<TABLE>
<CAPTION>
QUARTERS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------------------
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tax expense (benefit) at statutory rates
applied to loss before federal income
tax....................................... $(104,000) $(116,000) $(506,000) $(644,000)
Effect of nondeductible items............... -- -- 30,000 2,000
Use of net operating loss carryforward...... 104,000 116,000
Valuation allowance......................... -- 476,000 642,000
--------- --------- --------- ---------
$ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
The net operating loss carryforwards expire through 2018
NOTE E -- LEASE COMMITMENT
The Company leases office space under an operating lease which expires on
October 31, 2003. Approximate future minimum rental payments under this lease
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------
<S> <C> <C>
1999............................................................. $164,063
2000............................................................. 166,435
2001............................................................. 168,807
2002............................................................. 171,179
2003............................................................. 144,298
--------
$814,782
========
</TABLE>
Rent expense was approximately $73,600 and $41,600 for the periods ended
December 31, 1998 and 1997, respectively. Rent expense was approximately $42,900
and $17,800 for the three months ended March 31, 1999 and 1998, respectively.
F-11
<PAGE> 33
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- MAJOR CUSTOMERS
The Company had the following customers representing more than 10% of
sales:
<TABLE>
<CAPTION>
QUARTERS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------ ------------
1999 1998 1998 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A........................................ --% --% --% 84%
Customer B........................................ -- -- 19 --
Customer C........................................ -- 23 16 --
Customer D........................................ -- -- 14 --
Customer E........................................ -- -- 12 --
Customer F........................................ -- 57 11 --
Customer G........................................ 30 -- -- --
Customer H........................................ 19 -- -- --
Customer I........................................ 12 -- -- --
-- -- -- --
61% 80% 72% 84%
== == == ==
</TABLE>
Included in accounts receivable, is $180,000 and $255,000 at December 31,
1998 and 1997, respectively, related to these customers. At March 31, 1999,
875,556 related to these customers.
NOTE G -- RELATED PARTY TRANSACTIONS
During the years ending December 31, 1998 and 1997, approximately $211,000
and $272,000 was paid to related parties for consulting services. Also, during
the year ended December 31, 1998, approximately $92,000 was paid to related
parties for commissions on stock subscriptions and approximately $73,000 for the
three months ended March 31, 1999.
Long-term obligations to related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
AT MARCH 31, --------------------
1999 1998 1997
------------ ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Subordinated non-interest bearing note payable to
stockholder, collateralized by all the assets of the
Company, due December 2000............................ $134,322 $150,822 $196,000
Short term note payable to stockholder, bearing interest
at 24%, payable at April 30, 1999..................... 170,000 -- --
Debentures payable to stockholders, bearing interest at
18% (converted to common stock in 1998)............... -- -- 275,000
-------- -------- --------
304,322 150,822 471,000
Less current maturities................................. 258,000 88,000 375,000
-------- -------- --------
$ 46,322 $ 62,822 $ 96,000
======== ======== ========
</TABLE>
F-12
<PAGE> 34
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
Maturities of related party obligations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------
<S> <C>
1999............................................................. $ 88,000
2000............................................................. 62,822
--------
$150,822
========
</TABLE>
NOTE H -- COMMON STOCK
During 1998, the Company entered into agreements with certain stockholders
that if additional shares were sold at a price per share which was less than the
price paid by these stockholders, then the Company would issue additional shares
to them to cause the effective price per share paid by them to equal the lowest
effective price per share for sales of stock through February 19, 1999.
At December 31, 1998, the Company anticipates that approximately 72,000
additional shares will be issued under these agreements. At March 31, 1999,
these shares have been issued.
NOTE I -- STOCK OPTION PLANS
The 1997 Employee Stock Option Plan ("Employee Plan") and the 1997 Director
Stock Option Plan ("Director Plan") were approved by stockholders on July 1,
1997.
During 1998, the Employee Plan was amended to provide for 3,500,000 shares
of common stock to be reserved for options that may be issued under the plan.
The plan provides that the option price is not less than the fair market value
at the date of grant. The options granted under the plan become exercisable on
the second anniversary of the date of grant. Options granted under the plan have
a term of ten to twenty years.
During 1998, the Director Plan was amended to provide for 1,000,000 shares
of common stock to be reserved for options that may be issued under the plan.
The plan provides that the option price is not less than the fair market value
at the date of grant. The plan provides that each director, on the date such
person becomes a director, will be granted options to purchase 100,000 shares of
stock. The options granted under the plan become exercisable on the second
anniversary of the date of grant for options granted prior to August 6, 1998 and
the third anniversary for options granted on or after August 6, 1998. Options
granted under the plan have a term of ten years.
The Company also issues stock options to outside consultants for services
provided. During 1998, 410,000 shares with an exercise price ranging from $.50
to $1.00 were issued and an expense of $163,000 was recorded by the Company.
During 1998, the Company revised the option price for all options
outstanding at December 31, 1997 from $1.00 to $.50 per share.
The weighted average remaining life of the stock options is approximately
thirteen years.
F-13
<PAGE> 35
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- STOCK OPTION PLANS -- (CONTINUED)
The following table summarizes the changes in the number of common shares
under stock options granted pursuant to the preceding plans:
<TABLE>
<CAPTION>
EMPLOYEE PLAN DIRECTOR PLAN
------------------------- ------------------------
AVERAGE AVERAGE
SHARES OPTION SHARES OPTION
UNDER PRICE UNDER PRICE
OPTION PER SHARE OPTION PER SHARE
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997................ -- --
Granted during the 1997....................... 1,525,000 $.50 300,000 $.50
Cancelled during 1997......................... (100,000) $.50 --
--------- --------
Outstanding at December 31, 1997.............. 1,425,000 $.50 300,000 $.50
Granted during the year....................... 1,155,055 $.50 400,000 $.50
Cancelled during the year..................... (375,000) $.50 (200,000) $.50
--------- --------
Outstanding at December 31, 1998.............. 2,205,055 $.50 500,000 $.50
Granted during the quarter.................... 1,373,945 $.61 100,000 $.50
Cancelled during the quarter.................. (495,000) $.54 -- --
--------- --------
Outstanding at March 31, 1999 (unaudited)..... 3,084,000 $.54 600,000 $.50
========= ========
</TABLE>
The Company also has issued warrants to purchase common stock. These
warrants expire three years from the date of issuance. The following table
summarizes the changes in the number of common shares under warrants:
<TABLE>
<CAPTION>
WARRANTS
TO PURCHASE AVERAGE
SHARES OF EXERCISE PRICE
COMMON STOCK PER SHARE
------------ --------------
<S> <C> <C>
Outstanding at January 1, 1997.................... 1,285,000 $1.11
Granted during 1997............................... 590,000 $1.98
Cancelled during 1997............................. (302,083) $1.00
---------
Outstanding at December 31, 1997.................. 1,572,917 $1.46
---------
Granted during 1998............................... 15,000 $1.00
Cancelled during 1998............................. (232,917) $1.00
---------
Outstanding at December 31, 1998.................. 1,355,000 $1.53
--------- -----
Granted during the quarter........................ -- --
Cancelled during the quarter...................... -- --
Outstanding at March 31, 1999 (unaudited)......... 1,355,000 $1.53
=========
</TABLE>
F-14
<PAGE> 36
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- STOCK OPTION PLANS -- (CONTINUED)
The Company accounts for the stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." No compensation costs have been
recognized. Had compensation cost for the plan been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS No.
123, the Company's net loss and loss per share would have been as follows:
<TABLE>
<CAPTION>
FOR THE QUARTERS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -----------------------------
NET EARNINGS (LOSS) 1999 1998 1998 1997
------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As reported........... $306,341 $(342,500) $(1,489,675) $(1,895,492)
Pro forma............. $279,395 $(359,280) $(1,563,334) $(2,386,367)
LOSS PER SHARE --
BASIC
As reported........... $ 0.03 $ (0.04) $ (.17) $ (.28)
Pro forma............. $ 0.02 $ (0.04) $ (.18) $ (.34)
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED
MARCH 31,
1999 1998 1997
--------------- ---- ----
<S> <C> <C> <C>
Dividend yield...................... 0% 0% 0%
Expected volatility................. 36.0% 34.5% 22.0 - 63.6%
Risk-free interest rate............. 5.3 - 6.7% 4.9 - 6.4% 5.8 - 6.5%
Expected lives...................... 10 years 10 years 10 - 20 years
</TABLE>
F-15
<PAGE> 37
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of Advanced
Systems International, Inc.*
3.2 Bylaws of Advanced Systems International, Inc.*
4.1 Specimen Stock Certificate*
10.1 Merger Agreement with Bennington Corporation*
10.2 Director Stock Option Plan*
10.3 Employee Stock Option Plan*
10.4 Employment Agreement between registrant and Gerald Pesut
dated as of November 15, 1996.*
10.5 Employment Agreement between registrant and Richard
Penington dated as of March 5, 1997.*
10.6 Employment Agreement between registrant and Howard H.
Tarnoff dated as of July 22, 1998.*
10.7 Employment Agreement between registrant and Robert C.
DeMerell dated as of January 8, 1999.*
10.8 Consulting Agreement between registrant and KIF
International dated as of November 15, 1996.*
10.9 Consulting Agreement between Advanced Systems International,
Inc. and Gregory J. Farbolin dated as of February 4, 1999.*
10.10 Stock Option Agreement -- Pesut*
10.11 Stock Option Agreement -- Penington*
10.12 Unit -- Hampton*
10.13 Warrants -- Temple*
10.14 Warrants -- Revben*
10.15 Lease for Southfield headquarters facility*
10.16 Receivables Financing Agreement between registrant and Ionia
County National Bank dated April 23, 1999*
10.17 Master Software License Agreement between registrant and
Electronic Data Systems Corporation dated November 13, 1998*
10.18 Carlos E. Bravo Consulting Agreement*
27.1 Financial Data Schedule*
</TABLE>
* Previously filed.
ITEM 2. DESCRIPTION OF EXHIBITS (See Item 1 above)
<PAGE> 38
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
ADVANCED SYSTEMS INTERNATIONAL, INC.
By: /s/ GERALD A. PESUT
------------------------------------
Gerald A. Pesut
President and Chief Executive
Officer
Date: August 7, 1999
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of Advanced
Systems International, Inc.*
3.2 Bylaws of Advanced Systems International, Inc.*
4.1 Specimen Stock Certificate*
10.1 Merger Agreement with Bennington Corporation*
10.2 Director Stock Option Plan*
10.3 Employee Stock Option Plan*
10.4 Employment Agreement between registrant and Gerald Pesut
dated as of November 15, 1996.*
10.5 Employment Agreement between registrant and Richard
Penington dated as of March 5, 1997.*
10.6 Employment Agreement between registrant and Howard H.
Tarnoff dated as of July 22, 1998.*
10.7 Employment Agreement between registrant and Robert C.
DeMerell dated as of January 8, 1999.*
10.8 Consulting Agreement between registrant and KIF
International dated as of November 15, 1996.*
10.9 Consulting Agreement between Advanced Systems International,
Inc. and Gregory J. Farbolin dated as of February 4, 1999*
10.10 Stock Option Agreement -- Pesut*
10.11 Stock Option Agreement -- Penington*
10.12 Unit -- Hampton*
10.13 Warrants -- Temple*
10.14 Warrants -- Revben*
10.15 Lease for Southfield headquarters facility*
10.16 Receivables Financing Agreement between registrant and Ionia
County National Bank dated April 23, 1999*
10.17 Master Software License Agreement between registrant and
Electronic Data Systems Corporation dated November 13, 1998*
10.18 Carlos E. Bravo Consulting Agreement*
27.1 Financial Data Schedule*
</TABLE>
* Previously filed.
