<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1999
REGISTRATION NO. 333-91363
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
ADVANCED SYSTEMS INTERNATIONAL, INC.
(Exact name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
NEVADA 7372 13-3953047
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
25300 TELEGRAPH ROAD, SUITE 455, SOUTHFIELD, MICHIGAN 48034
(248) 263-0000
(Address and telephone number of principal executive offices)
-------------------------
MR. ROBERT C. DEMERELL
25300 TELEGRAPH ROAD, SUITE 455, SOUTHFIELD, MICHIGAN 48034
(248) 263-0000
(Name, address and telephone number of agent for service)
-------------------------
COPIES OF ALL COMMUNICATIONS TO:
DAVID D. WARNER
ERIC S. BRONSTEIN
JAFFE, RAITT, HEUER & WEISS, P.C.
ONE WOODWARD AVENUE, SUITE 2400, DETROIT, MICHIGAN 48226
TELEPHONE: (313) 961-8380
FACSIMILE: (313) 961-8358
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: from time to
time after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock(2)............................................. $4,020,573 $1,112.46
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457 under the Securities Act of 1933 solely for
the purpose of calculating the registration fee.
(2) Consists of 1,883,720 issued and outstanding shares of Common Stock, and
3,067,725 shares issuable upon exercise of options and warrants to acquire
Common Stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
DECEMBER 27, 1999
ADVANCED SYSTEMS INTERNATIONAL, INC.
4,951,445 SHARES OF COMMON STOCK
-------------------------
The Selling Securityholders identified in this Prospectus are selling up to
4,951,445 shares of our common stock. Of such shares, 1,883,720 shares are
currently outstanding and 3,067,725 shares will be issued upon exercise of
options and warrants which have been granted to certain Selling Securityholders.
The shares were issued, or are issuable upon the conversion or exercise of
securities which were issued, by us in private placement transactions.
The Selling Securityholders may sell all or a portion of their shares
through public or private transactions at prevailing market prices or at
privately negotiated prices. We will not receive any part of the proceeds from
the sale of these shares by the Selling Securityholders. However, we may receive
up to $2,034,703 in the event all of those options and warrants are exercised.
Our common stock is quoted on the Nasdaq OTCBB under the trading symbol
"ADSN."
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY
IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 3
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the United States Securities and Exchange Commission (the
"SEC"). You may read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also publicly available through the SEC's web site on
the Internet at http://www.sec.gov. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
Descriptions of any contract or other document referred to in this Prospectus
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement for a more complete description of the matter involved, each such
statement being qualified in its entirety by such reference. At your written or
telephonic request, we will provide you, without charge, a copy of any of the
information that is incorporated by reference herein (excluding exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Direct your request to the Company at
Advanced Systems International, Inc., 25300 Telegraph Road, Suite 455,
Southfield, Michigan 48034, Attention: Chief Financial Officer, telephone (248)
263-0000.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Capitalization.............................................. 10
Use of Proceeds............................................. 11
Market for Our Common Stock................................. 12
Management's Discussion and Analysis........................ 13
Business.................................................... 17
Management.................................................. 22
Certain Relationships and Related Transactions.............. 28
Principal Shareholders...................................... 29
Description of Securities................................... 31
Selling Securityholders..................................... 33
Plan of Distribution........................................ 35
Legal Matters............................................... 35
Experts..................................................... 36
Financial Statements........................................ F-1
</TABLE>
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information contained under the caption "Risk Factors",
"Business" and Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus does not give effect to the issuance of up to 5,446,892 shares
in the event of exercise of outstanding warrants and options, nor to the
issuance of up to 1,415,500 shares issuable upon exercise of future options
available for grant under our stock option plans.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements. You are urged to read this
Prospectus carefully and in its entirety.
THE COMPANY
Through Automatic Time Systems Corp., our wholly-owned operating
subsidiary, we develop and supply time and attendance and data integration
software applications. Our product offerings include software, hardware,
implementation services and the ongoing support necessary for deployment of
enterprise-wide data management. We market our products through direct sales and
in conjunction with strategic partners. References in this Prospectus to "we",
"us", or "AdSys" means Advanced Systems International, Inc., including our
wholly-owned operating subsidiary. References to "ATS" means our subsidiary,
Automatic Time Systems Corp. We own a federal trademark registration for the
mark ATServer, and we own trademark rights in the names ATLink and
LABORVIEW.com.
Our major products include:
- ATServer. ATServer is a leading time-and-attendance client/server
software package, originally developed for DaimlerChrysler Corporation in
conjunction with Perot Systems. ATServer efficiently and seamlessly
collects, processes and distributes key employee labor data throughout
the user's organization. We believe that ATServer is more flexible and
adaptive than the equivalent products offered by our key competition. As
a result, we have achieved considerable acceptance for ATServer in the
automotive and automotive-supplier industries, in part because of its
proven history in the industry. Our successes with ATServer in the
automotive industry have allowed us to place the product with
manufacturing companies, such as Sauder Furniture and with food
processing companies, such as Sara Lee Foods. Increasing our market share
in the time-and-attendance software industry is a key element of our
strategy.
- ATLink. ATLink is a flexible data distribution and access product that is
designed to reduce enterprise resource planning implementation cycles and
costs by eliminating the need for multiple point-to-point interfaces.
ATLink provides a seamless universal interface among the automated shop
floor, warehouse data capture and resource planning modules, packaged
application integration software, bolt-on applications, and legacy
systems which require that data. Using our Microsoft Windows NT-based
graphic user interface, users can rapidly automate data-capture tasks
involving a variety of data-collection devices, and then distribute
accurate, reliable data throughout their business. We worked closely with
third-party data collection terminal
3
<PAGE> 5
manufacturers such as Intermec, Hand Held Products and Control Module to
incorporate built-in ATLink interfaces to their products. We believe our
existing time-and-attendance customers present ideal subjects for
introducing ATLink to potential clients in both the warehousing and
manufacturing sectors.
In September 1999, we introduced a new Internet-based product,
LABORVIEW.com, which allows employers to collect labor data from workers
anywhere in the world, using a standard Web browser. As part of our strategy to
expand our markets, we believe this product offers attractive new features to
businesses with mobile workforces.
Our fiscal year-end is December 31. Our headquarters is in Southfield,
Michigan, a suburb of Detroit. Our subsidiary ATS was formed in 1995 to acquire
assets and liabilities of Automated Time Systems Corp. That acquisition was
completed in early 1996. We then formed our corporation in 1996, and on July 8,
1997 we acquired ATS via a "reverse takeover" merger and made it our operating
subsidiary. In the merger, former shareholders of ATS received 62% of our
shares, with our prior shareholders retaining the remaining 38%.
SEE "RISK FACTORS," "MANAGEMENT," "BUSINESS" AND "CERTAIN TRANSACTIONS" FOR
A DISCUSSION OF FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING US AND OUR
BUSINESS.
4
<PAGE> 6
THE OFFERING
Securities Offered by Selling
Securityholders............... 4,951,445 Shares
Common Stock Outstanding:
Prior to the Offering......... 11,700,579 Shares
After the Offering............ 11,700,579 Shares
Trading Symbol for
Common Stock.................. ADSN
Risk Factors.................... The Offering involves a high degree of risk.
See "Risk Factors."
5
<PAGE> 7
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1997 and
1998 have been derived from our financial statements, which have been audited by
Grant Thornton LLP, independent certified public accountants, whose report for
the two years ended December 31, 1998 is included elsewhere in this prospectus.
The statement of operations for the nine months ended September 30, 1999 and the
balance sheet as of September 30, 1999, are unaudited and, in our opinion,
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the information. The results of operations
for the nine months ended September 30, 1999 are not necessarily indicative of
results to be expected for any future period. You should read the selected
financial data set forth below with the financial statements and related notes
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -----------------------
1997 1998 1998 1999
--------- --------- --------- ----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 2,012 $ 2,380 $ 1,829 $ 6,097
Cost of revenues.................... 305 155 110 695
--------- --------- --------- ----------
Gross profit (loss)................. 1,707 2,225 1,719 5,402
Operating expenses:
Research and development.......... 1,773 315 229 755
Sales and marketing............... 485 946 635 1,537
General and administrative........ 1,228 2,295 1,249 2,283
--------- --------- --------- ----------
Total operating expenses............ 3,485 3,555 2,113 4,574
--------- --------- --------- ----------
Earnings (loss) from operations..... (1,778) (1,330) (395) 828
Other expense....................... 118 160 85 125
Net earnings (loss)................. $ (1,895) $ (1,490) $ (479) $ 703
========= ========= ========= ==========
Earnings (loss) per common share
Basic............................. $ (.28) $ (.17) $ (.06) $ .06
========= ========= ========= ==========
Diluted........................... $ (.28) $ (.17) $ (.06) $ .04
========= ========= ========= ==========
Weighted average common shares
outstanding (basic)............... 6,739,167 8,870,550 8,468,521 11,558,062
Weighted average common shares
outstanding (diluted)............. 6,739,167 8,870,550 8,468,521 17,083,887
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
--------------- SEPTEMBER 30,
1997 1998 1999
------ ----- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 68 $ 225 $ 66
Working capital (deficit).......................... 1,108 (381) 253
Total current assets............................... 545 752 2,343
Long-term obligations, including current portion... 970 799 370
Total stockholders' equity (deficit)............... (1,195) (192) 812
</TABLE>
6
<PAGE> 8
RISK FACTORS
An investment in our securities is speculative in nature and involves a
high degree of risk. In addition to the other information contained in this
Prospectus, you should carefully consider the following factors in evaluating us
and our business before purchasing the securities offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause or contribute to such differences include, without limitation,
those discussed below and elsewhere in this Prospectus.
WE HAVE A HISTORY OF NET LOSSES. While our business exhibited significant
growth and achieved profitability of approximately $703,000 during the nine
months ended September 30, 1999, we have a prior history of net losses. For the
years ended December 31, 1998 and 1997, we experienced net losses of
approximately $1,490,000 and $1,895,000, respectively. Our operating results for
future periods will include significant expenses, including product and service
development expenses, sales and marketing costs, programming and administrative
expenses and acquisition costs, and will be subject to numerous uncertainties.
Our ability to operate profitably depends on increasing our sales, achieving
sufficient gross profit margins, and bringing new products to the market. As a
result, we are unable to predict whether we will maintain profitability in the
future.
WE NEED TO GROW TO MAKE MONEY. If our sales revenues remain at current
levels, we believe that operating losses may recur and continue as our expenses
increase. As a result, our future profitability is likely to depend upon the
successful implementation of our business strategy, which relies significantly
upon the growth of our business.
WE MAY NEED ADDITIONAL CAPITAL AND YOUR INTEREST MAY BE DILUTED. In May
1999, we entered into an arrangement with a local commercial bank to finance our
receivables, up to a maximum of $1.8 million, and to obtain a one-year term loan
of $250,000. A substantial portion of these funds were used to repay our prior
bank loan. In November 1999, we borrowed $250,000 under a 90-day financing
arrangement from a private investor that received a 5% fee and will receive
interest at 12% per annum, as well as 50,000 warrants to acquire our common
stock. In December 1999, we borrowed $500,000 under a one-year financing
arrangement from another private investor that received a $25,000 fee and will
receive interest at 12% per annum, as well as up to 500,000 warrants to acquire
our common stock. That private investor also provided a nonbinding expression of
interest to lend us up to an additional $500,000 under similar terms. Funds from
both the November and December 1999 loans will be used for working capital.
Nevertheless, our operations are capital intensive and our growth strategy will
consume a substantial portion of our available working capital. Therefore,
depending upon the timing and rate at which we are able to generate revenues
from operations, we may require additional capital in order to fund our
operations. We cannot predict whether additional financing, when required, will
be available to us on acceptable terms. In the event that we raise additional
capital by selling equity interests, the relative percentage equity interests of
all holders of our equity securities will be diluted.
OUR BUSINESS IS HIGHLY COMPETITIVE. We face intense competition from
competitors in every sector in which we operate. The principal competitive
factors within our industry include:
- cost to acquire and maintain applications
- reliability and functionality of software applications
7
<PAGE> 9
- cross-platform compatibility and ability to interface with other systems
- ability of software to deliver accurate, real-time data
- capability of software to enhance compliance with labor and other
regulations
- marketing capabilities of developers
- technical support offered by developers
Many of our competitors have well established reputations and significantly
greater financial, marketing, personnel and other resources than we do. Our
principal competitors are:
- Simplex Time Recorder Co.
- Kronos Incorporated
- Epic Data International, Inc.
- Abaco, Inc.
- Datahorse, Inc.
- jeTech, Inc.
- Amano Blick International (ABI)
- Automated Data Processing (ADP)
There can be no assurance that we will be able to compete effectively against
these or any other competitors.
WE DEPEND ON INTELLECTUAL PROPERTY RIGHTS THAT MAY FAIL TO PROTECT OUR
BUSINESS. Our success depends in part on our ability to obtain and maintain
proprietary protection for our technologies, products, and processes, and our
ability to operate without infringing the proprietary rights of other parties.
We may not be able to obtain copyright, patent or other protection for our
proprietary technologies or for the processes developed by our employees. Legal
standards relating to intellectual property rights in computer software are
still developing. Any copyrights, patents or other registrations may not
sufficiently protect us against competitors with similar technology. In
addition, our intellectual property rights may be challenged, narrowed,
invalidated or circumvented. Furthermore, our intellectual property rights do
not guarantee any competitive advantage.
We may have to initiate litigation to enforce our intellectual property
rights. If our competitors file patent applications covering technology that we
employ, we may have to participate in interference or opposition proceedings to
determine the priority of invention. An adverse outcome could subject us to
significant liabilities to third parties and require us to cease using the
technology or to license the disputed rights from third parties. We may not be
able to obtain any required licenses on commercially acceptable terms or at all.
The cost to us of any litigation or proceeding relating to intellectual property
rights, even if resolved in our favor, could be substantial. Some of our
competitors may be able to sustain the costs of litigation more effectively than
we can because of their substantially greater resources. Uncertainties resulting
from the initiation and continuation of any intellectual property litigation
could have a material adverse effect on our ability to compete in the
marketplace.
LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS. Our operations are dependent
upon the continued services of Gerald A. Pesut, our President and Chief
Executive Officer, Howard Tarnoff, our Vice President -- Marketing, Robert C.
DeMerell, our Chief
8
<PAGE> 10
Financial Officer, Treasurer, Secretary and Controller, William Mottram, our
Vice President -- Sales, and Timothy Selner, Vice President -- Operations,
together with our director of engineering and director of support services. We
are dependent upon these key employees and upon our ability to hire and retain
other qualified management and personnel. The loss of the services of any of
these executive officers or other management or key personnel for any reason
would have a material adverse effect upon our business. We do not maintain key
man life insurance policies on any of our management employees.
THERE IS A LIMITED MARKET FOR OUR STOCK, AND OUR STOCK PRICE WILL LIKELY BE
VOLATILE. Our common stock is quoted on the Nasdaq OTCBB. However, in view of
the relatively small supply of shares eligible for public resale, trading has
been limited. We are uncertain as to whether a more regular trading market will
develop. Selling our shares is more difficult because smaller quantities of
shares are bought and sold and security analysts' and news media's coverage of
our company is limited. These factors could result in lower prices and larger
spreads in the bid and ask prices for our shares. Because our shares are not
currently listed on a national exchange, they are subject to Rule 15g-9 under
the Securities Exchange Act of 1934. That rule imposes additional sales practice
requirements on broker-dealers that sell low-priced securities to persons other
than established customers and institutional accredited investors. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule affects
the ability of broker-dealers to sell our shares and may affect the ability of
shareholders to sell our shares in the secondary market.
As of the date of this Prospectus, there are 11,700,579 outstanding shares
of common stock of which approximately 9,779,756 shares are eligible for public
trading. The trading market for our common stock may be adversely affected by
the subsequent influx into the market of the 4,509,145 shares of common stock
being registered for resale hereunder, as well as additional shares issuable
upon the exercise of other outstanding options and warrants which we may in the
future register for resale under the Securities Act of 1933, as amended. This
increase in the number of shares available for public sale could have a
depressive effect on the market. In addition, the stock markets generally have
experienced, and continue to experience, extreme price and volume fluctuations
which have affected the market price of many small capitalization companies.
These market fluctuations, as well as general economic and political conditions,
may adversely affect the market price of our common stock.
WE ARE CONTROLLED BY A SMALL NUMBER OF STOCKHOLDERS. As of the date of this
Prospectus, our officers, directors and principal stockholders have the power to
vote approximately 46% of our outstanding common stock. Consequently, these
stockholders are able to elect directors and can exercise control over the
outcome of certain corporate matters. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT." In addition, applicable statutory provisions
and the ability of the Board of Directors to issue one or more series of
preferred stock without stockholder approval could deter or delay unsolicited
changes in control of our company. This may be viewed as a disadvantage to a
majority of our stockholders who may otherwise desire to participate in such a
transaction. These transactions normally provide for the payment of a premium
over the existing market price.
WE DO NOT ANTICIPATE PAYING DIVIDENDS. We intend to retain any future
earnings to fund the anticipated operation and expansion of our business. We do
not anticipate paying cash dividends on our shares in the foreseeable future.
9
<PAGE> 11
CAPITALIZATION
The table below sets forth the following information:
- our capitalization as of September 30, 1999; and
- our pro forma capitalization after giving effect to the exercise of all
outstanding options and warrants for the acquisition of an aggregate of
5,446,892 shares of common stock and the receipt by AdSys of an aggregate
$3,675,520 of proceeds of the exercise of such options and warrants.
You should read the following table with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------
ACTUAL PRO FORMA
----------- -----------
<S> <C> <C>
Long-term obligations, including current portion..... $ 370,052 $ 370,052
STOCKHOLDERS' EQUITY:
Common stock, 20,000,000 shares authorized and
11,700,579 shares issued and outstanding actual;
20,000,000 shares authorized and 17,147,471 shares
outstanding pro forma.............................. 11,701 17,147
Additional paid-in capital........................... 5,657,120 9,327,194
Accumulated deficit.................................. (4,857,075) (4,857,075)
----------- -----------
Total stockholders' equity...................... 811,746 4,487,266
----------- -----------
Total capitalization............................ $ 1,181,798 $ 4,857,318
=========== ===========
</TABLE>
The outstanding share information is based on our shares outstanding as of
September 30, 1999. This information excludes additional shares of common stock
reserved for issuance under our 1997 Director Stock Option Plan and our 1997
Employee Stock Option Plan.
10
<PAGE> 12
USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares by the Selling
Security-holders. However, this Prospectus relates to the sale of up to
3,067,725 shares of our common stock that may be issued in the event of exercise
of outstanding options and warrants held by Selling Securityholders. In the
event all of such options and warrants are exercised, we will receive proceeds
of $2,034,703. Such proceeds, if received, will be used for working capital.
11
<PAGE> 13
MARKET FOR OUR COMMON STOCK
From January 25, 1998, through July 1, 1999, our common stock was listed
for quotation on the Nasdaq OTCBB under the symbol "ADSN". From July 2, 1999
through August 27, 1999, our common stock was listed for quotation by the
National Quotation Bureau "pink sheets". Since August 27, 1999, our common stock
has once again been listed for quotation on the Nasdaq OTCBB under the symbol
"ADSN". However, the market for such shares is limited. As of the date of this
Prospectus, only 9,779,756 shares of our common stock are eligible for public
trading. No assurance can be given that a significant trading market for our
common stock will develop or, if developed, that it will be sustained.
The following table sets forth the range of the high and low closing bid
prices of our common stock during each of the calendar quarters identified
below. These bid prices were obtained from the Nasdaq OTCBB or from the National
Quotation Bureau, Inc. 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
1999
1st Quarter................................................. 7/16 1 11/16
2nd Quarter................................................. 1 15/16 9/16
3rd Quarter................................................. 1/8 1 5/8
</TABLE>
The last reported sale price of our common stock on December 17, 1999 was
$.81 per share. On that date, there were approximately 708 holders of record of
our common stock.
We have never paid cash dividends on our common stock. We presently intend
to retain future earnings, if any, to finance the expansion of our business and
do not anticipate that we will pay cash dividends in the foreseeable future. Our
future dividend policy will depend on our earnings, capital requirements,
expansion plans, financial condition and other relevant factors.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
SUMMARY
The information in this section should be read together with the financial
statements that are included elsewhere in this Prospectus.
We achieved significant growth, as well as profitability, for the nine
month period ended September 30, 1999. We anticipate continued positive earnings
in 1999 resulting from installations at several "Fortune 1000" companies, in
industries such as automotive supply, food processing, entertainment, furniture
manufacturing, paper processing and other manufacturing sectors.
We believe the non-proprietary "Distributed Transaction Processing" sector
of the "middleware" industry is in its early stages and is currently
experiencing high growth. We anticipate successful entrance in this market,
enhancing long-term growth potential by providing our two separate but
compatible software products, ATServer and ATLink.
RESULTS OF OPERATIONS
RESULTS OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998
Revenues. We realized net earnings of $702,917 for the first nine months of
1999, as compared with a net loss of $479,205 for the nine month period ended
September 30, 1998. This difference is largely attributable to a significant
increase in sales to $6,097,443 in the first nine months of 1999, from
$1,828,609 for the first nine months of 1998. The growth in sales reflects our
continued expansion of our ATServer customer list, as well as further sales
penetration at existing client sites. Revenue for this period was derived
primarily from sales of ATServer software, hardware, and related implementation
and maintenance, although we have expanded in the implementation of our first
ATLink client to a second location in the third quarter of 1999, as well as
retaining the Company's second ATLink Customer.
Operating Expenses. Operating expenses increased dramatically in the first
nine months of 1999, as compared with the nine-month period ended September 30,
1998. This increase is primarily due to growth in number of employees and
increased sales, and is reflected in increases in compensation and related
benefits, which increased to $2,745,880 for the nine month period ended
September 30, 1999, from $1,221,497 for the nine month period ended September
30, 1998. We also experienced an increase in Cost of Goods Sold, primarily
composed of costs of reselling hardware, of $585,050 from $109,996 for the nine
months ended September 30, 1998 to $695,046 for the nine months ended September
30, 1999. Also, we have incurred greater travel expense, which increased to
$259,018 for the nine month period ended September 30, 1999, from $109,867 for
the nine month period ended September 30, 1998. We also incurred increased legal
and accounting expenses of $219,958 for the nine month period ended September
30, 1999, as compared with $58,522 for the nine month period ended September 30,
1998, a significant portion of which was preparation for the requirements of
being a public company subject to reporting requirements. As a result of our
expansion and occupation of new office space, premises-related costs were
$288,410 for the nine-month period ended September 30, 1999, as compared with
$85,383 for the nine month period ended September 30, 1998. Consulting costs,
relating to development efforts, recruiting of professionals, and implementation
support, rose for the nine months ended September 30, 1999 by $165,591, from
$180,266
13
<PAGE> 15
for the nine month period ended September 30, 1998 to $345,857 for the same
period in 1999.
Sales and Marketing. Sales and marketing expenses increased to $1,536,827
for the nine-month period ended September 30, 1999, from $635,345 for the nine
month period ended September 30, 1998. The increase was primarily attributable
to our hiring of additional sales personnel, which increased sales and marketing
expenses by $281,923, and payment of larger commissions in connection with
higher sales revenue and more clients, which increased sales and marketing
expenses by $292,834. Costs of traveling increased to $135,349 for the nine
months ended September 30, 1999 from $21,467 for the nine months ended September
30, 1998, an increase of $113,382.
Research and Development. Research and development expenses increased to
$754,765 for the nine-month period ended September 30, 1999, from $228,885 for
the nine month period ended September 30, 1998. The increase is chiefly
attributable to an expansion of our development team, whose work focuses on
enhancing the ATServer, LABORVIEW.com, and ATLink products, which accounted for
an increase of $242,248 in research and development expenses. We also increased
our usage of outside consultants during the nine month period ended September
30, 1999, which resulted in an increase of $201,522 in research and development
expenses.
General and Administrative. General and administrative expenses increased
to $2,282,548 for the nine-month period ended September 30, 1999, from
$1,248,960 for the nine month period ended September 30, 1998. This increase was
primarily due to a greater number of employees, which resulted in a $736,165
increase to general and administrative expenses. The increase is also due to
larger accounting and legal expenses of $166,436 for the nine months ended
September 30, 1999, a significant amount which was due to preparation for and
implementation of being a reporting public company.
RESULTS OF YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Revenues. We generated revenues of $2,379,987 for the year ended December
31, 1998, as compared with $2,012,317 for the year ended December 31, 1997. The
increase in revenues is largely attributable to our continued movement from the
development phase to the marketing phase of our business cycle.
Operating Expenses. Operating expenses increased for the year ended
December 31, 1998, as compared with year ended December 31, 1997. The net
increase in operating expenses was primarily due to a large increase in our
general and administrative expenses as we grew our business. The increase in
general and administrative expense was partially offset by a significant
decrease in research and development expenses as we moved past the development
phase of our business cycle.
Sales and Marketing. Sales and marketing expenses increased to
$945,736 for the year ended December 31, 1998, from $485,020 for the year
ended December 31, 1997. This increase was primarily due to our having a
greater number of sales personnel, larger commissions payable on higher
revenues and more clients, and more intense marketing efforts both in-house
and through our third party consultants.
Research and Development. Our research and development expenses
decreased to $314,587 for the year ended December 31, 1998, as compared
with $1,772,537 for the year ended December 31, 1997. This decrease
reflects a fundamental movement between phases in our business development.
In 1997, our primary development focus
14
<PAGE> 16
was to tailor our ATServer product for the automotive manufacturing
industry. In 1998, we continued to refine and expand the ATServer offering
for additional vertical markets and amassed a development effort to bring
our "middleware" offering, ATLink, to the market. In 1998, we increased our
focus on the development of our products through commercial implementations
and in-house developers, rather than through third parties.
General and Administrative. General and administrative expenses
increased to $2,294,668 for the year ended December 31, 1998, from
$1,227,894 for the year ended December 31, 1997. The increase was
attributable primarily to the costs of a greater number of employees,
additional travel costs resulting from increased business activity, and
moving our corporate headquarters to a new facility to accommodate
expansion. In addition, during 1998 we purchased directors' and officers'
insurance, experienced an increase in depreciation costs on our assets and
incurred employee moving expenses related to attracting and retaining key
personnel.
LIQUIDITY AND CAPITAL RESOURCES
We converted approximately $675,000 of principal and accrued interest on
outstanding debentures into common stock in 1998. During 1998 and early 1999, we
received an aggregate of approximately $2.4 million from investors through sales
of equity securities made pursuant to exemptions from registration. We have
continued to offer shares on a private-placement basis.
We have a line of credit with a commercial bank for borrowing against our
accounts receivable, to address liquidity needs pending customer payments. The
maximum currently available to us under this arrangement, in which we are
required to pay the bank a fee of two percent of each total invoice against
which we borrow, is $1.8 million. As of November 1, 1999, we had drawn a balance
of approximately $1.4 million under this facility. We also borrowed $250,000
from the same bank on a one-year term loan, with interest accruing at 1.5% above
the bank's index rate (yielding a rate of 9.75% as at September 30, 1999). These
financing arrangements are terminable on 60 days written notice. Using proceeds
from these arrangements, we retired our previous outstanding debt of
approximately $570,000 with a prior lender.
During the second quarter of 1999, we also established an equipment leasing
relationship with Primex, a private leasing company. As of June 30, 1999, we had
leased equipment with an outstanding balance of approximately $42,000 owing to
Primex.
In late November 1999, we borrowed $250,000 under a 90-day financing
arrangement from a private investor that received a 5% fee and will receive
interest at 12% per annum, as well as 50,000 warrants to acquire our common
stock at $1.00 per share. In December 1999, we borrowed $500,000 under a
one-year financing arrangement from another private investor that received a
$25,000 fee and will receive interest at 12% per annum, as well as up to 500,000
warrants to acquire our common stock at $.75 to $1.00 per share, depending on
the time of exercise and subject to adjustment for market conditions. That
private investor also provided a nonbinding expression of interest to lend us up
to an additional $500,000 under similar terms. Funds from both the November and
December 1999 loans will be used for working capital. We expect to repay the
borrowed funds from operational cash flow.
15
<PAGE> 17
Although we believe that operations, together with the financing described
above, will yield sufficient liquidity, no assurance can be given that
additional sources of capital will not be required. To take advantage of high
growth in the "middleware" industry, we may raise additional capital in the
first quarter of 2000 in the debt or equity markets based on an acceptable
strike price and certain business conditions. Circumstances in which we 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 we pursue these
discretionary growth actions.
16
<PAGE> 18
BUSINESS
ADVANCED SYSTEMS INTERNATIONAL, INC.
Advanced Systems International, Inc., a Nevada corporation, is the holding
company for one operating subsidiary, Automatic Time Systems Corp. 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. Our fiscal year end is December 31.
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, is an application to track employee time and attendance data at labor
intensive companies. The second product, ATLink, 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 functional specification
is developed, and the ATS professional services team configures and modifies the
existing software to meet requirements.
17
<PAGE> 19
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, five 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
ATServer 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 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 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
automatically updates payroll information (including sick leave, vacation time,
etc.), it helps ensure that salary errors do not occur.
ATServer 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 product to
fulfill a large contract with DaimlerChrysler Corporation. After the initial
installation of ATServer
18
<PAGE> 20
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 COMPETITIVE ADVANTAGES
ATServer is designed in a Windows 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 programs. As a result, new
users of the system are often familiar with its "look", which helps expedite the
learning process.
ATServer 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 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 ATServer 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
can successfully operate in different sectors. As a result, we expect to be able
to continue to increase our market share of the time and attendance industry.
ATLINK
ATLink 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.
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 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.
19
<PAGE> 21
Meeting the certification standards established by the major ERP companies is an
important step towards credibility and market acceptance of ATLink.
ATLINK COMPETITION
ATLink 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 Epic Data, Abaco, Inc.
and Datahorse, Inc.
ATLINK 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.
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.
LABORVIEW.COM
In September 1999, ATS introduced LABORVIEW.com, an Internet-based software
product that allows workers to report labor data from anywhere in the world
using a standard Web browser. According to Dun and Bradstreet, 397,000 companies
employ a mobile workforce and have the need to record hours against labor
performed. ATS believes that its pioneering LABORVIEW.com product will provide
significant opportunities to serve this market, including companies in the
businesses of consulting, legal services, mobile health care and financial
services. ATS believes that no significant competitor currently offers a similar
Internet-based product, although several of ATS' competitors may introduce such
products shortly.
RESEARCH AND DEVELOPMENT
From 1996 through 1998, ATS invested a total of $3,057,121 in research and
development costs for the ATS products. In 1997, our primary development focus
was to tailor our ATServer product for the automotive manufacturing industry. In
1998, we continued to refine and expand the ATServer offering for additional
vertical markets, and amassed a development effort to bring our middleware
offering, ATLink, to the market.
INTELLECTUAL PROPERTY
We own a United States federal trademark registration for "ATServer". Our
registration is valid for ten years from the registration date of January 1998,
and may be renewed. We hold common law trademark rights in the mark "ATLink".
20
<PAGE> 22
YEAR 2000 COMPLIANCE
We believe that all of the ATS products, as well as our internal systems,
are fully "Y2K" compliant. We do not believe that Y2K issues will adversely
affect us. Rather, we believe that Y2K issues affecting customers have enhanced
and will likely continue to enhance our sales prospects. We have tested our
hardware and software systems which were provided by vendors, and believe they
are all Y2K compliant. Our material third-party vendors and suppliers have
confirmed that they, and the products they supply to us, are Y2K compliant. We
intend to continuously evaluate our vendor and supplier relationships and to
develop whatever contingency plans may be required to mitigate any negative
effects on us from the Y2K problems of suppliers and vendors that may develop.
EMPLOYEES
We employ 65 full time employees. None of the employees is represented by a
union.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings, although we are
involved from time to time in routine litigation incident to our business.
DESCRIPTION OF PROPERTY
We currently lease 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. The occupancy date of the lease was
November 1, 1998.
21
<PAGE> 23
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding each of the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
---- --- ------------------------------- --------------
<S> <C> <C> <C>
Gerald A. Pesut................... 59 President, CEO July 1997
John Williams..................... 55 Director August 1998
Greg Farbolin..................... 39 Director December 1998
Alexander Henry................... 52 Director July 1997
Mark O'Donoghue................... 34 Director August 1998
Carlos E. Bravo................... 40 Director July 1999
Robert C. DeMerell................ 31 CFO, Secretary, Treasurer and
Controller
Howard Tarnoff.................... 50 Vice President -- Marketing
Timothy L. Selner................. 48 Vice President -- Operations
William Mottram................... 51 Vice President -- Sales
</TABLE>
GERALD PESUT, PRESIDENT & CEO. Mr. Pesut has extensive general management
experience in leading start up, growth and turnaround organizations. From 1993
to 1996, Mr. Pesut served as President and chief executive officer of
Distributed Systems Division Inc., a subsidiary of Storage Technology
Corporation, where he managed the $240 million integrator of midrange and
network systems with 500 employees. From 1991 to 1993, Mr. Pesut served as
President of the $55 million assembly integration and warehousing division of
Storage Technology Corporation. Mr. Pesut also previously held a number of
senior management positions in the technology industry. Mr. Pesut is a graduate
of the York University Accelerated MBA program.
JOHN WILLIAMS, DIRECTOR. Mr. Williams has 35 years of experience in sales,
sales management and business management. His career has included both domestic
and international responsibilities. Mr. Williams has served in various positions
with Storage Technology Corporation (1972-1980 and 1990-1997), retiring in 1997
after serving as its Senior Executive Vice President. Mr. Williams has also held
positions at GriD Systems (1982-1990), Magnuson Computer Systems (1980-1982) and
Memorex (1970-1973). Mr. Williams is currently consulting to international
corporations with his new company, the CSO Forum.
GREG FARBOLIN, DIRECTOR. Mr. Farbolin has served in various management
positions with The HoneyBaked Ham Company, founded by his family. In 1994, Mr.
Farbolin personally led that company's project to overhaul its entire corporate
information technology infrastructure. Mr. Farbolin served as a director of
Virtual Systems, a business information-technology services company, from 1995
to 1997, during which time Virtual Systems was twice awarded Microsoft's Retail
Application Developer status. Mr. Farbolin currently serves on the board of the
Association of Retail Technology Standards.
ALEXANDER HENRY, DIRECTOR. Since 1993, Mr. Henry has been a principal of
Hampton Equity Management, Inc., which organizes financing for computer software
developers and
22
<PAGE> 24
other emerging companies, including tax-assisted and seed-capital financing.
From 1991 to 1993, Mr. Henry managed tax-assisted and other real estate finance
offerings with LOM & Associates, a subdivision of Loewen, Ondaatje and
McCutcheon. Prior to 1991, Mr. Henry was a principal and promoter of
syndications of tax-sheltered investment vehicles, commercial real estate and
mortgage investments. From 1978 to 1981, Mr. Henry practiced as a Chartered
Accountant with Touche Ross & Co. in Toronto, Ontario. Mr. Henry serves as a
director of several companies, including MusicMusicMusic Inc., an e-commerce
company, and Jax Mold & Machine, Inc., which provides molds to the tire and
rubber industry using high-technology methods.
MARK O'DONOGHUE, DIRECTOR. Since 1997, Mr. O'Donoghue has served as Chief
Executive Officer 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 holds a Canadian Chartered Accountant designation
and formerly practiced as an accountant with Ernst & Young.
CARLOS E. BRAVO, DIRECTOR. Since 1998, Mr. Bravo has served as a Vice
President of USinternetworking Inc., a pioneer in the Internet-based outsourcing
of leading business applications for monthly fees. From 1997 to 1998, Mr. Bravo
was a principal of IIT Inc., a global information technology consulting and
systems integration company. From 1995 to 1997, Mr. Bravo co-founded, was a
principal and served as Vice President of Comdisco Inc.'s Systems Integration
Business unit. Since 1989, Mr. Bravo has also been a founder, Chairman and CEO
of Bravo International Corporation, a manufacturer of toys and sporting goods.
From 1989 to 1994, Mr. Bravo was also co-founder and COO of Amcotech, Inc., a
manufacturer of consumer and industrial products. From 1983 to 1989, Mr. Bravo
held several technology management posts at General Electric and Snap-on Tools.
Mr. Bravo holds degrees in aerospace engineering, applied mathematics and
business from the University of Florida and Northwestern University.
ROBERT C. DEMERELL, CHIEF FINANCIAL OFFICER, SECRETARY, TREASURER AND
CONTROLLER. From 1995 to late 1997, Mr. DeMerell served as Controller at FAME
Information Services, Inc., where he developed and implemented financial
controls as that company grew from $5 million to $25 million in annual sales
over a two-year period and established operations in the U.K. and Asia. From
1992 to 1994, Mr. DeMerell worked as an auditor for Ernst & Young, concentrating
on small business auditing. Mr. DeMerell earned his B.A. in economics from the
University of Michigan and his M.B.A. from the University of Notre Dame. He is
also a Certified Public Accountant.
HOWARD TARNOFF, VICE PRESIDENT -- MARKETING. Mr. Tarnoff has 21 years of
experience in the time-and-attendance industry. From 1993 until late 1998, Mr.
Tarnoff was employed at Simplex Time Recorder Co. as Director of its Time/Data
Systems division, during which time that division maintained an annual growth
rate of 70% and increased its sales force from 12 to 113. From 1985 to 1993, Mr.
Tarnoff held numerous staff and line management positions at Kronos
Incorporated, including marketing management and field management. Mr. Tarnoff
holds a bachelor's degree from the University of Wisconsin.
TIMOTHY L. SELNER, VICE PRESIDENT -- OPERATIONS. Prior to joining AdSys,
Mr. Selner served as Manager of Customer Support for Simplex Time Recorder Co.
from 1994 to 1999, where he managed support services for as many as 60,000
customers. From 1983 to 1994, Mr. Selner managed various operations at three
other companies. Prior to 1983,
23
<PAGE> 25
Mr. Selner was employed at Kronos Incorporated, including in staff and line
management positions. Mr. Selner holds a B.S. in mathematics from the University
of Wisconsin.
WILLIAM MOTTRAM, VICE PRESIDENT -- SALES. From 1996 until he joined AdSys
in 1999, Mr. Mottram served as Vice President, Sales for Epic Data Corp.,
responsible for sales and marketing worldwide. From 1963 to 1978, Mr. Mottram
also served as Vice President of Midrange Marketing and Director of Connectivity
Marketing for Storage Technology, Inc. Mr. Mottram has also held several other
positions at firms servicing the scientific computing and enterprise resource
management markets. Mr. Mottram holds a B.S. in electrical engineering from
Paisley College of Technology, Scotland, and an M.B.A. from Pepperdine
University, California.
SIGNIFICANT EMPLOYEES
PAUL F. ABRAHAM, MANAGER OF ENGINEERING. From 1997 to 1998, Mr. Abraham
served as a System Engineering Manager and Senior Systems Consultant at Epic
Data. Mr. Abraham also helped build the foundation for the current data
transaction processing middleware at Epic Data as a Senior Systems Analyst from
1991 to 1997. Mr. Abraham was instrumental in the design and development of Epic
Data's interface to SAP R/3, and served as a Project Lead at that company. Mr.
Abraham is an honors graduate of Humber College Computer Science Program.
SHAWN RECHKEMMER, DIRECTOR SUPPORT SERVICES. From 1990 to 1997, Mr.
Rechkemmer worked at Electronic Data Systems, including three years as a Project
Manager responsible for Client/Server software development projects. His tenure
at EDS also included work as a Systems Engineer and Database Administrator. Mr.
Rechkemmer holds a B.S. in management information systems from Taylor
University.
DIRECTOR COMPENSATION
We compensate our 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 three years starting on the
grant date.
Both Mr. Farbolin and Mr. Bravo have been engaged to consult with our
management team as to general and specific information relating to marketing our
products, gathering and analyzing market and competitive data, and locating and
introducing us to sales and partnering opportunities. Prior to September 1999,
Mr. Farbolin received fees of $5,000 per month. Beginning in September 1999, Mr.
Farbolin will receive, each month, options to acquire AdSys common stock in a
quantity equal to a value of $5,000 based on the average trading price of AdSys
stock on the first trading day of each such month, which options will vest
monthly over 36 months. Mr. Bravo receives an option each quarter to acquire a
number of our 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.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to or accrued by the our 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 AdSys during
the year ended December 31, 1998.
24
<PAGE> 26
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 $126,000 -0-
Technical Sales
</TABLE>
- -------------------------
(1) Mr. Penington resigned to pursue other opportunities in December 1998.
(2) Does not include other options which lapsed on executive's resignation.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) 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% $0.50 7/8/2017
Martin Young..................... -0- -0- N/A N/A
</TABLE>
- -------------------------
(1) Mr. Penington resigned to pursue other opportunities in December 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES VALUE AT FY-END (#) AT FY-END ($)
ACQUIRED ON ------------ EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) 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.
25
<PAGE> 27
EMPLOYMENT AGREEMENTS
We 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 our 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 AdSys at
any time for any reason, either with or without cause. Similarly, Mr. Pesut may
terminate his employment at any time. If we terminate 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, we are
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 us for a two year period commencing on the date
of termination of his employment.
We 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 AdSys 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 us for a 2 year period commencing on the date of
termination of his employment.
We 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 we terminate the employment. The employment
agreement also contains a covenant not to compete, which would prohibit Mr.
DeMerell from engaging in competition with us for a 2 year period commencing on
the date of termination of his employment.
We entered into an employment agreement with William Mottram, our Vice
President-Sales, in July 1999, at a salary rate of $150,000 per year, with
annual bonuses of up to $45,000 based on specified sales targets. Mr. Mottram
also received options to acquire up to 200,000 shares of AdSys stock at $1.00
per share, vesting over three years. Mr. Mottram's employment is "at will."
However, Mr. Mottram is entitled to 12 months' severance pay plus a prorated
bonus if we terminate the employment without cause. The employment agreement
also contains a covenant not to compete, which would prohibit Mr. Mottram from
engaging in competition with us for a 2 year period commencing on the date of
termination of his employment.
26
<PAGE> 28
We entered into an employment agreement with Timothy Selner, our Vice
President-Operations, in July 1999, at a salary rate of $115,000 per year, with
annual bonuses of $15,000 paid quarterly based on specified business plan
targets. Mr. Selner also received options to acquire up to 100,000 shares of
AdSys stock at $1.00 per share, vesting over three years. Mr. Selner's
employment is "at will." The employment agreement also contains a covenant not
to compete, which would prohibit Mr. Selner from engaging in competition with us
for a 2 year period commencing on the date of termination of his employment.
STOCK OPTION PLANS
We currently maintain 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 our
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, our 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 us.
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 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 September 30, 1999, there
were a total of 3,055,873 options outstanding under the Employee Plan to a total
of approximately 65 employees and outside service providers.
The Director Plan was adopted and approved by the Board and our
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 our 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
September 30, 1999, options to acquire a total of 765,000 shares were
outstanding, of which 264,828 had vested or were exercisable.
27
<PAGE> 29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997 and 1998, K.I.F. Capital Corp. rendered corporate financial
advisory consulting services to us 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, we paid K.I.F. 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. K.I.F. Capital Corp. is owned by Mr. Kenneth MacAlpine, who
was a member of the AdSys Board of Directors until August 1998.
During 1998, we 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.
28
<PAGE> 30
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of AdSys' common stock as of September 30, 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
above; and (iv) all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
------------------------------------ ----------------------- ----------
<S> <C> <C>
Gerald A. Pesut................................. 824,499(2) 7.0
25300 Telegraph Rd., Ste. 455
Southfield, MI 48034
Alexander D. Henry.............................. 702,399(3) 6.0
533 Davenport Rd
Toronto, ON Canada M5X 3R5
Mark O'Donoghue................................. 67,545(4) *
Tropicana Bldg
Providenciales, Turks & Caicos Islands
British West Indies
John V. Williams................................ 42,545(5) *
424 Clayton St
Denver, CO 80206
Greg Farbolin................................... 34,704(6) *
1905 Canadair Court
Daytona Beach, FL 32124
Carlos E. Bravo................................. 23,949(7) *
1713 Skyhawk Ct
Daytona Beach, FL 32124
Temple Securities Ltd........................... 2,396,715(8) 20.5
Tropicana Bldg
Providenciales, Turks & Caicos Islands
British West Indies
914151 Ontario Limited.......................... 600,000(9) 5.1
Box 131, RR #2
Navan, ON Canada K4B 1H9
Roxborough Holdings Limited..................... 736,666(10) 6.3
First Canadian Place Ste. 6250
Toronto, ON Canada M5X 1C7
All Officers and Directors as a Group (6
persons)...................................... 1,695,641 14.5
</TABLE>
- -------------------------
* 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
29
<PAGE> 31
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 11,700,579 shares of common stock outstanding as of
September 30, 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 574,499 shares which Mr. Pesut has the right
to acquire pursuant to options. Does not include 58,501 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 pursuant to warrants)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 74,499
shares which Mr. Henry has the right to acquire pursuant to options. Does
not include 58,501 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 42,545 shares which Mr.
O'Donoghue has the right to acquire pursuant to options. Does not include
90,455 shares under options issued to Mr. O'Donoghue which are not yet
vested.
(5) Consists of 42,545 shares which Mr. Williams has the right to acquire
pursuant to options. Does not include 90,455 shares under options issued to
Mr. Williams which are not yet vested.
(6) Consists of 34,704 shares which Mr. Farbolin has the right to acquire
pursuant to options. Does not include 111,754 shares under options issued
to Mr. Farbolin which are not yet vested.
(7) Consists of 23,949 shares which Mr. Bravo has the right to acquire pursuant
to options. Does not include 100,675 shares under options 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 shares 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.
(9) The principal of 914151 Ontario Ltd. is James Petrie.
(10) Consists of 596,666 shares owned, and 140,000 shares which may be acquired
pursuant to warrants. The principal of Roxborough is David A. Williams.
30
<PAGE> 32
DESCRIPTION OF SECURITIES
COMMON STOCK
AdSys is authorized to issue 20,000,000 shares of common stock, $.001 par
value per share, of which 11,700,579 shares were issued and outstanding as of
September 30, 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 AdSys' 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, 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
31
<PAGE> 33
(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.
INDEMNIFICATION PROVISIONS
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 AdSys pursuant
to the foregoing provisions or otherwise, AdSys 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 AdSys of expenses incurred or paid by a director, officer or
controlling person 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, AdSys 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
32
<PAGE> 34
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
TRANSFER AGENT
The transfer agent for AdSys common stock is Interstate Transfer Company,
874 E. 5900 South, Suite 101, Salt Lake City, Utah 84107, 801-281-9746.
SELLING SECURITYHOLDERS
The following table sets forth the name of each Selling Securityholder, the
number of shares of common stock beneficially owned by such Selling
Securityholder as of the date of this Prospectus, giving pro forma effect to the
exercise of the Selling Securityholders' warrants and options into shares of
common stock as described below, and the number of shares being offered by each
Selling Securityholder. Except as otherwise noted below, during the past three
years no Selling Securityholder has been an officer, director or affiliate of
the Company, nor has any Selling Securityholder had any material relationship
with AdSys during such period. The shares of common stock being offered hereby
are being registered to permit public secondary trading, and the Selling
Securityholders may offer all or part of the shares for resale from time to
time. However, such Selling Securityholders are under no obligation to either
(a) exercise the Selling Securityholders' options and/or warrants, as the case
may be, or (b) if exercised, to sell all or any portion of such shares of common
stock immediately under this Prospectus. Because the Selling Securityholders may
sell all or a portion of their shares of common stock, no estimate can be given
as to the number of shares of common stock that will be held by any Selling
Securityholder upon termination of this offering. Accordingly, the following
table assumes (i) the exercise of the Selling Securityholders' warrants and
options, event if not yet vested, and (ii) the sale of all shares of common
stock by the Selling Securityholders immediately following the date of this
Prospectus. All expenses of the registration of the
33
<PAGE> 35
common stock on behalf of the Selling Securityholders are being borne by the
Company; however, the Company will receive none of the proceeds of this
offering.
<TABLE>
<CAPTION>
MAXIMUM NUMBER
OF BENEFICIALLY OWNED
SELLING SECURITYHOLDER SHARES TO BE SOLD
---------------------- ---------------------
<S> <C>
439246 Ontario Ltd. ........................................ 80,000
Banque CIAL (Suisse)........................................ 40,000
Beko Investment Services.................................... 10,000
Boyd, Eric.................................................. 15,000
Charland, Joe............................................... 35,000
Clason, Bjorn............................................... 49,333
Clemann, Mike............................................... 62,500
Duckman, Lloyd.............................................. 10,500
Duckman, Owen............................................... 3,500
Duckman, Sharon............................................. 1,750
Duckman, Shawn.............................................. 5,250
Emerge Capital.............................................. 87,000
Experta BIL................................................. 80,000
Fonlox Investments ......................................... 46,667
Gaunt, David................................................ 3,000
Gerardi, Frank.............................................. 100,000
Hampton Ltd. ............................................... 350,000
Hendal Investments.......................................... 12,000
Hogan, James................................................ 15,000
Jaffe, Raitt, Heuer & Weiss, P.C. .......................... 133,000
Jermyn Trustees (Jersey) Ltd................................ 10,000
Kaplan, Barry & Associates.................................. 100,000
K.I.F. Capital Corp. ....................................... 100,000
Krag, M..................................................... 20,000
Liechtensteinische Landesbank............................... 200,000
Logicom SARL................................................ 95,000
Madikwe Capital Ltd. ....................................... 150,000
Margon FS................................................... 10,000
Penington, Richard.......................................... 500,000
Pesut, Gerald A. ........................................... 500,000
Peterson, Lars.............................................. 47,000
Pinner, Raymond............................................. 1,000
Republic National Bank of New York (Luxembourg) SA.......... 180,000
REVBEN Management Corp. .................................... 61,950
Rowill, Ltd................................................. 282,500
Roxborough Holdings Ltd. ................................... 180,000
Samisa Investment Corp. .................................... 47,000
Stanimir, William........................................... 160,000
Temple Securities Ltd. ..................................... 862,495
Tolethorpe Holdings Ltd. ................................... 1,000
Unibank SA.................................................. 6,000
Verwaltungs-und Privatbank AG............................... 275,000
Wikstrom, Thomas............................................ 13,000
---------
Total.................................................. 4,951,445
=========
</TABLE>
34
<PAGE> 36
PLAN OF DISTRIBUTION
The sale of the common stock by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders). Alternatively, the Selling
Securityholders may from time to time offer such securities through dealers or
agents. The distribution of the securities by the Selling Securityholders may be
effected in one or more transactions that may take place on the over-
the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more broker-dealers
for resale of such shares as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders in connection with such
sales or securities.
The securities offered by the Selling Securityholders may be sold by one or
more of the following methods, including without limitation: (a) a block trade
in which a broker or dealer so engaged will attempt to sell the shares as agent
but may position and resell a portion of the block as principals to facilitated
the transaction; (b) purchasers by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions which the broker solicit purchases, and
(d) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. The
Selling Securityholders and intermediaries through whom such securities are sold
may be deemed "underwriters" within the meaning of the Securities Act with
respect to the securities offered, and any profits realized or commission
received may be deemed underwriting compensation.
At the time a particular offer of the securities is made by or on behalf of
a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares of common stock being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for the shares of common stock purchased from the Selling
Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public. We
have informed the Selling Securityholders that the anti-manipulative rules under
the Exchange Act, including Regulation M thereunder, may apply to their sales in
the market and have furnished each of the Selling Securityholders with a copy of
these rules. We have also informed the Selling Securityholders of the need for
delivery of copies of this Prospectus in connection with any sale of securities
registered hereunder. Sales of securities by us and the Selling Securityholders
or even the potential of such sales would likely have an adverse effect on the
market price of the shares of common stock offered hereby.
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby will
be passed upon for AdSys by Jaffe, Raitt, Heuer & Weiss, Professional
Corporation, Detroit, Michigan ("Jaffe Raitt"). Jaffe Raitt, which holds options
to acquire 133,000 shares of AdSys common stock, is a Selling Securityholder in
this Offering. David D. Warner, a shareholder of Jaffe Raitt and counsel to
AdSys, holds 11,905 shares of AdSys common stock.
35
<PAGE> 37
EXPERTS
The financial statements of the Company appearing in this Prospectus have
been audited by Grant Thornton LLP, independent certified public accountants, to
the extent and for the periods set forth in their report appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of said firm as experts in accounting and auditing.
36
<PAGE> 38
FINANCIAL STATEMENTS
<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> 39
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> 40
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------
1999 1998 1997
------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................. $ 65,773 $ 225,491 $ 68,132
Accounts receivable, less allowance for doubtful
accounts of $8,700 at September 30, 1999 and
December 31, 1998.................................. 2,159,410 494,063 387,910
Loan receivable -- stockholder....................... -- -- 72,917
Inventory............................................ 31,836 23,642 14,370
Prepaid expenses..................................... 86,266 9,169 1,544
---------- ---------- -----------
Total Current Assets............................... 2,343,285 752,365 544,873
PROPERTY AND EQUIPMENT -- AT COST
Computer equipment................................... 252,045 185,148 66,108
Office equipment..................................... 80,901 68,126 36,609
Leasehold improvements............................... 53,153 27,477 --
---------- ---------- -----------
386,099 280,751 102,717
Less accumulated depreciation and amortization..... 148,917 83,139 29,530
---------- ---------- -----------
237,182 197,612 73,187
OTHER ASSETS
Deposits............................................. 32,836 62,292 32,368
Software development costs, less accumulated
amortization of $56,700 at September 30, 1999, $0
at December 31, 1998 and 1997, respectively........ 299,019 296,195 --
Sundry............................................... 9,316 15,675 23,139
---------- ---------- -----------
TOTAL ASSETS........................................... $2,921,638 $1,324,139 $ 673,567
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Line of credit....................................... $ -- $ -- $ 550,000
Current maturities of long-term obligations.......... 262,666 328,013 378,795
Current maturities of long-term obligations to
related parties.................................... 88,000 88,000 375,000
Customer deposits.................................... 401,159 96,638 92,209
Accounts payable
Trade.............................................. 812,167 356,497 196,941
Related parties.................................... -- -- 10,122
---------- ---------- -----------
812,167 356,497 207,063
ACCRUED LIABILITIES
Payroll............................................ 197,481 235,615 --
Payroll taxes...................................... 4,609 24,840 3,574
Interest........................................... 6,233 3,851 38,126
Other.............................................. 318,191 -- 8,169
---------- ---------- -----------
526,514 264,306 49,869
---------- ---------- -----------
Total current liabilities.......................... 2,090,506 1,133,454 1,652,936
Long-term obligations, less current maturities......... 6,064 319,922 120,067
Long-term obligations to related parties, less current
maturities........................................... 13,322 62,822 96,000
Lease commitment (Note E).............................. -- -- --
STOCKHOLDERS' EQUITY (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; 11,700,579 shares outstanding at
September 30, 1999; 11,157,672 and 8,136,667 shares
issued and outstanding at December 31, 1998 and
1997, respectively................................. 11,701 11,158 8,137
Additional paid-in capital........................... 5,657,120 5,356,775 2,866,744
Accumulated deficit.................................. (4,857,075) (5,559,992) (4,070,317)
---------- ---------- -----------
811,746 (192,059) (1,195,436)
---------- ---------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)..... $2,921,638 $1,324,139 $ 673,567
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 41
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- -------------------------
1999 1998 1998 1997
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales.......................... $6,097,443 $1,828,609 $ 2,379,987 $ 2,012,317
Cost of sales.................. 695,046 109,996 155,147 304,564
---------- ---------- ----------- -----------
Gross profit................. 5,402,397 1,718,613 2,224,840 1,707,753
Operating expenses
Sales & marketing............ 1,536,827 635,345 945,736 485,020
Research and development..... 754,765 228,885 314,587 1,772,537
General and administrative... 2,282,548 1,248,960 2,294,668 1,227,894
---------- ---------- ----------- -----------
4,574,140 2,113,190 3,554,991 3,485,451
---------- ---------- ----------- -----------
Earnings (Loss) from
operations.............. 828,257 (394,577) (1,330,151) (1,777,698)
Other expense
Interest..................... 125,340 84,628 122,728 113,770
Loss on settlement........... -- -- 26,250 --
Loss on disposal of assets... -- -- 8,305 3,681
Sundry....................... -- -- 2,241 343
---------- ---------- ----------- -----------
125,340 84,628 159,524 117,794
---------- ---------- ----------- -----------
Net earnings (loss)....... $ 702,917 $ (479,205) $(1,489,675) $(1,895,492)
========== ========== =========== ===========
Net earnings (loss) per share--
basic........................ $ 0.06 $ (0.06) $ (.17) $ (.28)
========== ========== =========== ===========
Net earnings (loss) per share--
diluted...................... $ 0.04 $ (0.06) $ (.17) $ (.28)
========== ========== =========== ===========
Weighted average number of
shares outstanding--basic.... 11,558,062 8,468,521 8,870,550 6,739,167
========== ========== =========== ===========
Weighted average number of
shares
outstanding--diluted......... 17,083,887 8,468,521 8,870,550 6,739,167
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 42
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (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 542,907 shares of
stock........................... 543 300,345 -- 300,888
Net Earnings...................... -- -- 702,917 702,917
------- ---------- ----------- -----------
Balance at September 30, 1999
(unaudited)..................... $11,701 $5,657,120 $(4,857,075) $ 811,746
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 43
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- --------------------------
1999 1998 1998 1997
----------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)............................. $ 702,917 $ (479,205) $(1,489,675) $(1,895,492)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities
Depreciation and amortization.............. 128,837 49,464 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............................ (1,654,772) (702,659) (106,153) (335,921)
Decrease (increase) in loan receivable... -- -- 72,917 (72,917)
Decrease in purchased contracts.......... -- -- -- 226,715
Increase in inventories.................. (8,193) (24,352) (9,272) (11,370)
(Increase) decrease in deposits.......... 29,456 (49,387) (29,924) (29,456)
Increase (decrease) in prepaid
expenses.............................. (77,097) 20,364 (7,625) (1,544)
Increase in software development costs... (59,524) 760 (296,195) (760)
Increase (decrease) in accounts
payable............................... 455,672 (39,257) 149,434 (30,895)
Increase (decrease) in accrued
liabilities........................... 266,802 214,938 214,437 (27,884)
Increase in customer deposits............ 304,521 169,385 4,429 92,209
----------- ---------- ----------- -----------
Net cash provided (used in) operating
activities.......................... 88,619 (839,949) (1,063,694) (2,052,007)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment............ (115,923) (136,411) (193,799) (68,189)
----------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of obligations......... 250,000 13,610 17,600 143,880
Repayment of obligations...................... (626,450) (12,978) (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........ 293,536 1,086,172 1,818,152 1,629,724
Repayments of related party obligations....... (219,500) (50,233) (130,178) (30,000)
----------- ---------- ----------- -----------
Net cash provided by (used in)
financing activities................ (132,414) 1,136,571 1,711,047 2,163,752
----------- ---------- ----------- -----------
Net increase (decrease) in cash................. (159,718) 160,211 157,359 42,796
Cash at beginning of period..................... 225,491 68,132 68,132 25,336
----------- ---------- ----------- -----------
Cash at end of period........................... $ 65,773 $ 228,343 $ 225,491 $ 68,132
=========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest........ $ 103,901 $ 84,628 $ 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> 44
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 $62,054 and $50,000 for the nine months ended September
30, 1999 and 1998, respectively, and $61,069 and $23,402 for the years ended
December 31, 1998 and 1997, 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.
SOFTWARE DEVELOPMENT
Software development costs are capitalized once technological feasibility
has been achieved. Cost incurred prior to achieving technological feasibility
are charged to research and development expenses as incurred. The Company had
capitalized software development costs of $296,195 relating to the development
efforts on the Company's middleware product, ATLink.
F-7
<PAGE> 45
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
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 earnings (loss) per
share excludes dilution and is computed by dividing earnings (loss) available to
common shareholders by the weighted-average common shares outstanding for the
period. Diluted earnings (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 earnings (loss) of the entity.
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
F-8
<PAGE> 46
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
("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.
RECLASSIFICATIONS
Certain reclassifications have been made to 1998 and 1997 to conform to the
1999 and 1998 presentations.
NOTE B -- LINE OF CREDIT
On August 20, 1998 the Company converted its line of credit to a note
payable.
F-9
<PAGE> 47
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 SEPTEMBER 30, -------------------
1999 1998 1997
---------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank with interest at 1.5%
above the bank's prime rate (9.75% at
September 30, 1999) and payable in full on
April 22, 2000; quarterly payments of
interest on the outstanding balance are
due. The Note is collateralized by all of
the assets of the Company................. $250,000 -- --
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....... -- $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................................... -- 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................................... -- 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
Other....................................... 18,730 28,819 14,387
-------- -------- --------
268,730 647,935 498,862
Less current maturities..................... 262,666 328,013 378,795
-------- -------- --------
$ 6,064 $319,922 $120,067
======== ======== ========
</TABLE>
F-10
<PAGE> 48
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- LONG-TERM OBLIGATIONS -- (CONTINUED)
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
<S> <C>
1999.............................................. $328,013
2000.............................................. 243,167
2001.............................................. 76,755
--------
$647,935
========
</TABLE>
NOTE D -- INCOME TAXES
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30, -----------------------
1999 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Net operating losses....................... $ 1,718,000 $1,957,000 $1,380,000
Capitalized software....................... $ (102,000) (101,000) --
Valuation allowance........................ $(1,616,000) (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
SEPTEMBER 30, DECEMBER 31,
---------------------- ----------------------
1999 1998 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Tax expense (benefit) at statutory
rates applied to loss before
federal income tax................. $ 239,000 $(123,600) $(506,000) $(644,000)
Effect of nondeductible items...... -- -- 30,000 2,000
Use of net operating loss
carryforward..................... (239,000) 123,600 -- --
Valuation allowance................ -- 476,000 642,000
--------- --------- --------- ---------
$ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
The net operating loss carryforwards expire through 2018
F-11
<PAGE> 49
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
- ------------------------
<C> <S> <C>
1999.......................................................................... $164,063
2000.......................................................................... 166,435
2001.......................................................................... 168,807
2002.......................................................................... 171,179
2003.......................................................................... 144,298
--------
$814,782
========
</TABLE>
Rent expense was approximately $124,200 and $31,200 for the nine months
ended September 30, 1999 and 1998, respectively. Rent expense was approximately
$73,600 and $41,600 for the periods ended December 31, 1998 and 1997,
respectively.
NOTE F -- MAJOR CUSTOMERS
The Company had the following customers representing more than 10% of
sales:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- --------------
1999 1998 1998 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A......................................... --% --% --% 84%
Customer B......................................... 5 19 19 --
Customer C......................................... 1 18 16 --
Customer D......................................... 1 25 14 --
Customer E......................................... -- 17 12 --
Customer F......................................... 1 12 11 --
Customer G......................................... 13 -- -- --
Customer H......................................... 9 -- -- --
Customer I......................................... 9 -- -- --
-- -- -- --
37% 91% 72% 84%
== == == ==
</TABLE>
Included in accounts receivable, at September 30, 1999, and 1998,
respectively, are accounts receivable of $967,063 and $480,550 related to these
customers, and $180,000 and $255,000 at December 31, 1998 and 1997,
respectively, 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
F-12
<PAGE> 50
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
December 31, 1998, approximately $92,000 was paid to related parties for
commissions on stock subscriptions and approximately $88,000 and $54,800 was
paid for the nine months ended September 30, 1999, and 1998, respectively.
Long-term obligations to related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
AT SEPTEMBER 30, --------------------
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............................. $101,322 $150,822 $196,000
Debentures payable to stockholders, bearing
interest at 18% (converted to common stock
in 1998).................................. -- -- 275,000
-------- -------- --------
101,322 150,822 471,000
Less current maturities..................... 88,000 88,000 375,000
-------- -------- --------
$ 13,322 $ 62,822 $ 96,000
======== ======== ========
</TABLE>
Maturities of related party obligations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------
<C> <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.
The Company issued 72,000 additional shares in March 1999 pursuant to these
agreements.
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.
F-13
<PAGE> 51
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- STOCK OPTION PLANS -- (CONTINUED)
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.
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 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 1998....................... 1,155,055 $.50 400,000 $.50
Cancelled during 1998..................... (375,000) $.50 (200,000) $.50
--------- --------
Outstanding at December 31, 1998.......... 2,205,055 $.50 500,000 $.50
Granted during the nine months ended
September 30, 1999...................... 1,728,945 $.97 365,000 $.86
Cancelled during the nine months ended
September 30, 1999...................... (878,127) $.80 100,000 $.50
--------- --------
Outstanding at September 30, 1999
(unaudited)............................. 3,349,000 $.63 765,000 $.67
========= ========
</TABLE>
F-14
<PAGE> 52
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- STOCK OPTION PLANS -- (CONTINUED)
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 and September 30,
1999.............................................. 1,355,000 $1.53
--------- -----
</TABLE>
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 NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- --------------------------
1999 1998 1998 1997
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
NET EARNINGS (LOSS)
As reported...................... $702,917 $(479,205) $(1,489,675) $(1,895,492)
Pro forma........................ $667,771 $(502,900) $(1,563,334) $(2,386,367)
EARNINGS (LOSS) PER SHARE
Basic............................ .06 (.06) (.17) (.28)
Pro forma........................ .06 (.06) (.18) (.34)
EARNINGS (LOSS) PER SHARE
Diluted.......................... .04 (.06) (.17) (.28)
Pro forma........................ .04 (.06) (.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 NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------- ----------------------------------
1999 1998 1998 1997
------------------ ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Dividend yield....... 0% 0% 0% 0%
Expected
volatility......... 36.0% 34.5% 34.5% 22.0 - 63.6%
Risk-free interest
rate............... 5.3 - 6.7% 4.9 - 6.4% 4.9 - 6.4% 5.8 - 6.5%
Expected lives....... 10 years 10 years 10 years 10 - 20 years
</TABLE>
F-15
<PAGE> 53
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- EARNING (LOSS) PER SHARE
The following is a reconciliation of the numerator and denominator of the
basic and diluted earnings per share calculation for the nine months ended
September 30, 1999.
<TABLE>
<CAPTION>
EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic Earnings............................. $702,917 11,588,062 $0.06
Effect of Options.......................... -- 5,632,308 $ --
-------- ---------- -----
Diluted Earnings........................... $702,917 17,190,370 $0.04
======== ========== =====
</TABLE>
Common Stock equivalents have been excluded from the calculation of net
loss per share for the years ended December 31, 1998 and 1997 and the nine
months ended September 30, 1998 due to their anti-dilutive effect.
F-16
<PAGE> 54
PART II
ITEM 24. 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
ITEM COST
---- --------
<S> <C>
Registration fees...................................... $ 1,112
Federal taxes.......................................... 0
State taxes and fees................................... 0
Transfer agent's fees.................................. 0
Printing and engraving................................. 25,000
Legal fees............................................. 20,000
Accounting fees........................................ 5,000
</TABLE>
ITEM 26. 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 (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 total of
2,186.667 shares (converted in the merger described below to 2,186,667 shares)
for aggregate proceeds of approximately $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
II-1
<PAGE> 55
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). In September 1999, Joe
Charland and Logicom SARL exercised their respective options, and a total of
110,000 shares were sold for $100,000. 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 that 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 that 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
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 October 1999, AdSys sold an
aggregate of 1,486,918 common shares for aggregate proceeds of $990,524, 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 October 1999, AdSys sold an
aggregate of 1,591,920 shares of common stock for aggregate proceeds of
$1,042,075. 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.
II-2
<PAGE> 56
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 issued 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.
In April 1999, AdSys issued 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 November 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.
Between October 1999 and December 1999, 83,332 of these options were exercised,
and a total of 83,332 shares were issued. 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
II-3
<PAGE> 57
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 12, 1999...................................... 35,000 1.00
August 1, 1999..................................... 10,000 1.00
August 9, 1999..................................... 15,000 1.00
August 23, 1999.................................... 25,000 1.00
August 31, 1999.................................... 5,000 1.13
September 1, 1999.................................. 5,000 1.13
September 7, 1999.................................. 10,000 1.00
September 20, 1999................................. 7,500 1.44
September 27, 1999................................. 10,000 1.25
October 1, 1999.................................... 50,000 2.00
October 4, 1999.................................... 7,500 1.25
October 11, 1999................................... 5,000 1.25
November 1, 1999................................... 5,000 1.03
</TABLE>
From July 8, 1997 through October 15, 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
II-4
<PAGE> 58
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 0.63
September 17, 1998................................. 400,000 0.50
January 8, 1999.................................... 150,000 0.50
January 13, 1999................................... 100,000 0.50
July 12, 1999...................................... 200,000 1.00
July 15, 1999...................................... 12,500 1.00
July 29, 1999...................................... 100,000 1.00
September 1, 1999.................................. 4,706 1.63
October 1, 1999.................................... 3,906 1.28
October 15, 1999................................... 10,776 1.16
</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 50,000 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>
II-5
<PAGE> 59
ITEM 27. EXHIBITS
<TABLE>
<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*
5.1 Opinion of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation
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 Employment Agreement between registrant and Timothy Selner
dated as of July 13, 1999
10.16 Employment Agreement between registrant and William Mottram
dated as of July 29, 1999
23.1 Consent of Jaffe, Raitt, Heuer & Weiss, P.C. (included in
Exhibit 5.1)
23.2 Consent of Grant Thornton, LLP
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed as an Exhibit to the Company's Registration Statement on Form
10-SB, filed April 29, 1999, and the Amendments thereto
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law, contract arrangements,
statute, or otherwise, the registrant has
II-6
<PAGE> 60
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer 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 Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sales securities,
a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the 'Act');
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering of those securities.
(3) For determining any liability under the Act, to treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant under Rule 424(b)(1) or (4), or
497(h) under the Act as part of this Registration Statement as of the time
the Commission declared it effective.
II-7
<PAGE> 61
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of
Southfield, State of Michigan, on December 23, 1999.
ADVANCED SYSTEMS INTERNATIONAL, INC.
By: /s/ GERALD A. PESUT
--------------------------------------
Gerald A. Pesut, Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<C> <S> <C>
/s/ GERALD A. PESUT President and December 23, 1999
--------------------------------------------- Chief Executive
Gerald A. Pesut Officer
/s/ ROBERT C. DEMERELL Secretary, Chief December 23, 1999
--------------------------------------------- Financial
Robert C. DeMerell Officer and
Controller
/s/ JOHN WILLIAMS Director December 21, 1999
---------------------------------------------
John Williams
/s/ GREG FARBOLIN Director December 23, 1999
---------------------------------------------
Greg Farbolin
/s/ ALEXANDER HENRY Director December 23, 1999
---------------------------------------------
Alexander Henry
Director
---------------------------------------------
Mark O'Donoghue
/s/ CARLOS E. BRAVO Director December 21, 1999
---------------------------------------------
Carlos E. Bravo
</TABLE>
II-8
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<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*
5.1 Opinion of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation
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 Employment Agreement between registrant and Timothy Selner
dated as of July 13, 1999
10.16 Employment Agreement between registrant and William Mottram
dated as of July 29, 1999
23.1 Consent of Jaffe, Raitt, Heuer & Weiss, P.C. (included in
Exhibit 5.1)
23.2 Consent of Grant Thornton, LLP
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed as an Exhibit to the Company's Registration Statement on Form
10-SB, filed April 29, 1999, and the Amendments thereto
<PAGE> 1
EXHIBIT 5.1
December 29, 1999
Advanced Systems International, Inc.
25300 Telegraph Road
Suite 455
Southfield, Michigan 48034
Re: Advanced Systems International, Inc.
Gentlemen:
We have acted as counsel to Advanced Systems International, Inc., a
Nevada corporation (the "Company"), in connection with the proposed registration
of 4,951,445 shares of the Company's common stock ("Common Stock"), including
1,883,720 currently issued and outstanding shares of common stock and 3,067,725
shares issuable upon exercise of certain outstanding options and warrants
granted by the Company, as described in Amendment No. 1 to the Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission on
December 29, 1999 (together with all amendments thereto, the "Registration
Statement").
We are attorneys admitted to practice in the State of Michigan.
Accordingly, we express no opinion concerning the laws of any jurisdiction other
than the laws of the United States of America and the State of Michigan. In
rendering the opinion contained in this letter, we have assumed without
investigation that the information supplied to us by the Company is accurate and
complete.
Based upon and subject to the foregoing, it is our opinion that the
shares of Common Stock to be registered under the Registration Statement have
been duly authorized and are, or in the case of shares of Common Stock issuable
upon the proper exercise of options and warrants therefor as described in the
Registration Statement and as set forth in the terms thereof, will be upon such
proper exercise and payment therefor, validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
JAFFE, RAITT, HEUER & WEISS
Professional Corporation
<PAGE> 1
EMPLOYMENT AGREEMENT DATED OF JULY 13, 1999
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This Agreement is by and between ADVANCED SYSTEMS INTERNATIONAL, a
Michigan corporation, hereinafter referred to as "EMPLOYER", and Tim Selner,
hereinafter called "EMPLOYEE" and is effective as of the day of , 1999.
WITNESSETH:
WHEREAS, EMPLOYER is in the business of development, design,
manufacture, documentation, distribution and sales of computer hardware,
computer software and associated equipment relating to time and attendance (the
"Business");
WHEREAS, EMPLOYEE has experience in the Business; and
WHEREAS, EMPLOYER and EMPLOYEE desire to enter into an employment
agreement setting forth their mutual obligations.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and other good and valuable consideration, receipt and
sufficiency whereof are hereby acknowledged, it is mutually covenanted and
agreed by and between the parties hereto as follows:
1. Duties of EMPLOYEE. EMPLOYEE shall serve Vice President of
Operations. EMPLOYEE shall devote substantially all of his time to the
performance of his/her duties in such capacity.
2. At Will Employment. EMPLOYEE'S employment will be under an "at will"
arrangement pursuant to which EMPLOYEE'S employment can be terminated at any
time, at the option of either EMPLOYER or EMPLOYEE, with or without cause, for
any reason or for no reason, with or without prior notice. Notwithstanding the
foregoing, the provisions contained in Sections 4, 5 and 6 of this Agreement
shall survive any termination of this Agreement.
3. Compensation. For services performed pursuant to the terms contained
in this Agreement, EMPLOYER shall pay cash compensation to EMPLOYEE as outlined
in the attached offer letter.
4. Developments. EMPLOYEE agrees to promptly inform EMPLOYER of the
full details of any and all of EMPLOYEE'S inventions, discoveries, concepts, and
ideas (collectively called, "Developments"), whether patentable or not,
including but not limited to: hardware and apparatus, processes and methods,
formulae, computer programs and techniques, as well as any improvements and
related knowledge, which EMPLOYEE conceives, completes, or reduces to practice
(whether alone or with others) while EMPLOYEE is employed by Employer and (a)
which relate to the present or prospective Business, work, or investigations of
EMPLOYER, or (b) which result from any work EMPLOYEE does using any equipment,
facilities, materials, or personnel of EMPLOYER, or (c) which result from or are
<PAGE> 2
suggested by any work which EMPLOYEE may do for EMPLOYER
EMPLOYEE further agrees to assign, and does hereby assign, to EMPLOYER
or EMPLOYER'S designee, EMPLOYEE'S entire right, title and interest in the
following items, which EMPLOYEE conceives or makes (whether alone or with
others) while employed by EMPLOYER or within one year of the end of EMPLOYEE'S
employment (if conceived as a result of such employment): (a) all Developments;
(b) all trademarks, copyrights, -.,id mask work rights in Developments; and (c)
all patent applications filed and patents granted on any Developments, including
those in foreign countries.
Both while employed by EMPLOYER and afterwards, EMPLOYEE agrees to
execute any documents that EMPLOYER may consider necessary or helpful to obtain
or maintain patents or other registration(s) of proprietary right, whether
during the prosecution of patent applications or during the conduct of an
interference, litigation, Other matter (all related expenses to be borne by
EMPLOYER).
5. Proprietary Information. EMPLOYER shall provide access to
confidential and proprietary information regarding EMPLOYER'S Business products
and services being marketed, recognizing that EMPLOYEE, by virtue of EMPLOYEE'S
role with EMPLOYER will have full access to any and all of such information, and
that the disclosure of any and all such confidential and proprietary information
to third parties may cause irreparable harm to EMPLOYER and its competitive
position in the marketplace, EMPLOYEE agrees not to disclose any confidential
and proprietary information obtained by virtue of employment with EMPLOYER to
any entity, individual, corporation, partnership, sole proprietorship, or
customer of EMPLOYER except as the same may be reasonably utilized in the
ordinary course of marketing EMPLOYER'S products and services to such customer.
Therefore, during the term of employment by EMPLOYER, or thereafter, EMPLOYEE
will not disclose other than to an employee of EMPLOYER any confidential and
proprietary information, including any information relating to EMPLOYER'S
procedures, administrative policies, customer lists, financial data,
bookkeeping, product and service information, or similar proprietary secrets or
know-how, without prior written consent from EMPLOYER. On termination of
employment for any reason, EMPLOYEE shall return any documents, files, papers,
letters, product or process descriptions or copies thereof, or other
confidential and proprietary information, of any type or description. For
purposes of this Agreement, "confidential and proprietary information" includes:
(a) information or materials which relate to EMPLOYER'S inventions,
technological developments, "know-how," purchasing, accounting, merchandising,
or licensing;
(b) trade secrets as defined in the Restatement of Torts, which
EMPLOYEE accepts as an appropriate statement of law;
(c) software in various stages of development (source code, object
code, documentation, diagrams, flow charts), designs, drawings, specifications,
models, data, and customer information; and
(d) any information of the type described above which EMPLOYER
obtained from another party and which EMPLOYER treats as proprietary or
designates as confidential, whether or not owned or developed by EMPLOYER and
which is not generally available to or used by others, or the utility or value
of which is not generally known or recognized as standard practice, whether or
not the underlying details are in the public domain.
6. NON-COMPETITION
(a) EMPLOYEE covenants and agrees that at no time during the term of
this employment, and for a period of two (2) years following the termination of
employment, for any reason whatsoever will EMPLOYEE, individually, or on behalf
of any other person, persons, firm, partnership, corporation or company, engage
in any Business enterprise within a radius of 500 miles surrounding Southfield,
Michigan that is identical or similar to the Business of EMPLOYER as it is now
or as it may further expand or develop or engage in or contribute EMPLOYEE'S
<PAGE> 3
knowledge to any work which is competitive with or similar to a product,
process, apparatus, or service upon which EMPLOYEE worked during the two (2)
year period immediately preceding the termination of EMPLOYEE'S employment
hereunder. EMPLOYEE will not, directly or indirectly, for or on behalf of, or in
conjunction with any other person, persons, firm, partnership, corporation or
company (i) solicit or attempt to solicit the business or perform such other
incidental business and service as is now or in the course of EMPLOYEE'S
employment performed by EMPLOYER or (ii) solicit, attempt to solicit or hire any
other employee of EMPLOYER.
(b) EMPLOYEE agrees that the geographic area established herein is
divisible in such a manner that if this provision is held to be invalid by a
court of competent jurisdiction, that portion of the geographic area is
severable and this clause remains in effect for the remaining included
geographic area in which the clause is valid. EMPLOYEE acknowledges that any
breach of these provisions may cause irreparable harm to EMPLOYER and therefore
EMPLOYER may seek injunctive relief to enjoin any violation hereof by EMPLOYEE
without necessity of posting bond in addition to any other remedy available.
7. Assignment. EMPLOYEE agrees that this Agreement and the rights,
interests and benefits hereunder shall not be assigned, transferred, pledged or
hypothecated in any way by EMPLOYEE or other person claiming under EMPLOYEE by
virtue of this Agreement, and shall not be subject to execution, attachment or
similar process. Any attempt to assign, transfer, pledge, hypothecate or
otherwise dispose of this Agreement or of such rights, interests and benefits
contrary to the foregoing provisions, or upon the levy of any attachment or
similar process thereupon shall be null and void and without effect, and shall
relieve EMPLOYER of any and all liability hereunder.
8. General Terms.
(a) Arbitration. In the event any controversy or claim arising out
of or relating to this Agreement whether or not a breach thereof, shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Following delivery of the arbitrator's
decision the prevailing party may enter the decision as a judgment in a court of
competent jurisdiction in Oakland County, Michigan.
(b) Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the respective parties, their heirs, personal representatives,
legal representatives, successors and assigns.
(c) Confidentiality. Both parties shall protect the terms of this
Agreement as confidential information. Neither party shall disclose the terms of
this Agreement to any third party without the prior written consent of the
non-disclosing party.
(d) Entire Agreement. This Agreement constitutes the entire
agreement between the parties and contains all of the Agreements among the
parties with respect to the subject matter hereof.
(e) Injunctive Relief. In the event of violation of any term
contained in this Agreement, the non-violating party shall be entitled to pursue
injunctive relief, in addition to any other remedies available at law or in
equity, without the necessity of posting bond as a condition of obtaining such
relief.
(f) Jurisdiction and Venue. Any cause of action related to this
Agreement shall be heard in a court of competent jurisdiction in Oakland County,
Michigan.
(g) Laws to govern. The laws of the State of Michigan shall govern
interpretation and enforcement of the terms contained in this Agreement.
(h) Modification of Agreement. No change or modification of this
Agreement shall be binding upon the parties unless the same is in writing and
signed by both parties. No waiver of any provision of this Agreement shall be
<PAGE> 4
valid unless made in writing and signed by the person or party against whom the
same may be charged.
(i) Notice. Any and all notices, designations, consents, offers,
acceptances, or any other communication provided for herein shall be given in
writing by personal service, registered or certified mail, return receipt
requested, which shall be addressed as follows:
EMPLOYER:
Advanced Systems International
25300 Telegraph Road
Suite 455
Southfield, MI 48034
EMPLOYEE:
Tim Selner
13 Wrendale Court
Leonminster, MA 91453
(j) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
(k) EMPLOYEE acknowledges and agrees that any action or suit against
EMPLOYER, or any of its employees, arising out of this Agreement, including but
not limited to, claims arising under state or federal civil rights statutes or
for breach of this Agreement, must be brought within one hundred eighty (180)
days of the event giving rise to the claims or be forever barred, and EMPLOYEE
waives any limitation periods to the contrary. EMPLOYEE further agrees that if
he/she should bring any action or claim arising out of this Agreement in which
EMPLOYER prevails, EMPLOYEE will pay to EMPLOYER any and all costs incurred in
defense of said claims or action, including attorneys' fees. EMPLOYEE further
acknowledges that Michigan law requires employers to make accommodations to
handicapped applicants and employees where the accommodation does not pose an
undue hardship on the employer. EMPLOYEE acknowledges that handicapped employees
and applicants may request an accommodation of their handicap by notifying
EMPLOYER in writing of the need for accommodation within one hundred eighty-two
(182) days of the date the handicapped knows, or should know, that an
accommodation is needed and that failure to properly notify the Company within
one hundred eighty-two (182) days will preclude any claim that the Company
failed to accommodate the handicapped.
IN WITNESS WHEREOF, EMPLOYER has caused this Agreement to be signed by
its duly authorized officer, and EMPLOYEE has hereunto set his hand and seal on
the day written above.
EMPLOYER: EMPLOYEE:
ADVANCED SYSTEMS INTERNATIONAL
By: Gerald A. Pesut By: Timothy L. Selner
------------------------------ ----------------------------
Name: Gerald A. Pesut Name: Tim Selner
President & CEO Vice President of Operations
Date: July 13, 1999
<PAGE> 5
[ADVANCED SYSTEMS LETTERHEAD]
July 12, 1999
Tim Selner
13 Wrendale Court
Leonminster, MA 91453
Dear Tim,
It is with great personal pleasure that I can extend this offer to you
to join ASI as the Vice President of Operations.
In this position your compensation will be as follows:
Annual Salary: $115,000 per year paid monthly.
Annual Bonus: $15,000 at 100% of revenue and profit plan paid quarterly.
Share Options: 100,000 options granted under the Advanced Systems
Employee Option Plan will be awarded at the date of Hire.
These options will be granted at market bid value and
approved by the Board of Directors. Your options will vest
over three years. If there is a change of ownership, your
stock will vest at that time.
Your experience and skills appear to be well suited to help our growing company
realize the full potential of the opportunity before us.
Tim, I am personally looking forward to working with you to build this important
segment of our business.
Yours Truly,
Gerald A. Pesut
Gerald A. Pesut
President & CEO
I understand and agree to the terms of employment outlined above.
- --------------------------------------------- ---------------------------
Tim Selner Date
*If not accepted this offer expires on Wednesday, July 14, 1999
<PAGE> 1
EMPLOYMENT AGREEMENT DATED OF JULY 12, 1999
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This Agreement is by and between ADVANCED SYSTEMS INTERNATIONAL, a
Michigan corporation, hereinafter referred to as "EMPLOYER", and Bill Mottram,
hereinafter called "EMPLOYEE" and is effective as of the 12th day of July, 1999.
WITNESSETH:
WHEREAS, EMPLOYER is in the business of development, design,
manufacture, documentation, distribution and sales of computer hardware,
computer software and associated equipment relating to time and attendance (the
"Business");
WHEREAS, EMPLOYEE has experience in the Business; and
WHEREAS, EMPLOYER and EMPLOYEE desire to enter into an employment
agreement setting forth their mutual obligations.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and other good and valuable consideration, receipt and
sufficiency whereof are hereby acknowledged, it is mutually covenanted and
agreed by and between the parties hereto as follows:
1. Duties of EMPLOYEE. EMPLOYEE shall serve VP of Ecom Products
Division. EMPLOYEE shall devote substantially all of his time to the performance
of his/her duties in such capacity.
2. At Will Employment. EMPLOYEE'S employment will be under an "at will"
arrangement pursuant to which EMPLOYEE'S employment can be terminated at any
time, at the option of either EMPLOYER or EMPLOYEE, with or without cause, for
any reason or for no reason, with or without prior notice. Notwithstanding the
foregoing, the provisions contained in Sections 4, 5 and 6 of this Agreement
shall survive any termination of this Agreement.
3. Compensation. For services performed pursuant to the terms contained
in this Agreement, EMPLOYER shall pay cash compensation to EMPLOYEE as outlined
in the attached offer letter.
4. Developments. EMPLOYEE agrees to promptly inform EMPLOYER of the
full details of any and all of EMPLOYEE'S inventions, discoveries, concepts, and
ideas (collectively called, "Developments"), whether patentable or not,
including but not limited to: hardware and apparatus, processes and methods,
formulae, computer programs and techniques, as well as any improvements and
related knowledge, which EMPLOYEE conceives, completes, or reduces to practice
(whether alone or with others) while EMPLOYEE is employed by Employer and (a)
which relate to the present or prospective Business, work, or investigations of
EMPLOYER, or (b) which result from any work EMPLOYEE does using any equipment,
facilities, materials, or personnel of EMPLOYER, or (c) which result from or are
suggested by any work which EMPLOYEE may do for EMPLOYER
<PAGE> 2
EMPLOYEE further agrees to assign, and does hereby assign, to EMPLOYER
or EMPLOYER'S designee, EMPLOYEE'S entire right, title and interest in the
following items, which EMPLOYEE conceives or makes (whether alone or with
others) while employed by EMPLOYER or within one year of the end of EMPLOYEE'S
employment (if conceived as a result of such employment): (a) all Developments;
(b) all trademarks, copyrights, -.,id mask work rights in Developments; and (c)
all patent applications filed and patents granted on any Developments, including
those in foreign countries.
Both while employed by EMPLOYER and afterwards, EMPLOYEE agrees to
execute any documents that EMPLOYER may consider necessary or helpful to obtain
or maintain patents or other registration(s) of proprietary right, whether
during the prosecution of patent applications or during the conduct of an
interference, litigation, Other matter (all related expenses to be borne by
EMPLOYER).
5. Proprietary Information. EMPLOYER shall provide access to
confidential and proprietary information regarding EMPLOYER'S Business products
and services being marketed, recognizing that EMPLOYEE, by virtue of EMPLOYEE'S
role with EMPLOYER will have full access to any and all of such information, and
that the disclosure of any and all such confidential and proprietary information
to third parties may cause irreparable harm to EMPLOYER and its competitive
position in the marketplace, EMPLOYEE agrees not to disclose any confidential
and proprietary information obtained by virtue of employment with EMPLOYER to
any entity, individual, corporation, partnership, sole proprietorship, or
customer of EMPLOYER except as the same may be reasonably utilized in the
ordinary course of marketing EMPLOYER'S products and services to such customer.
Therefore, during the term of employment by EMPLOYER, or thereafter, EMPLOYEE
will not disclose other than to an employee of EMPLOYER any confidential and
proprietary information, including any information relating to EMPLOYER'S
procedures, administrative policies, customer lists, financial data,
bookkeeping, product and service information, or similar proprietary secrets or
know-how, without prior written consent from EMPLOYER. On termination of
employment for any reason, EMPLOYEE shall return any documents, files, papers,
letters, product or process descriptions or copies thereof, or other
confidential and proprietary information, of any type or description. For
purposes of this Agreement, "confidential and proprietary information" includes:
(a) information or materials which relate to EMPLOYER'S inventions,
technological developments, "know-how," purchasing, accounting, merchandising,
or licensing;
(b) trade secrets as defined in the Restatement of Torts, which
EMPLOYEE accepts as an appropriate statement of law;
(c) software in various stages of development (source code, object
code, documentation, diagrams, flow charts), designs, drawings, specifications,
models, data, and customer information; and
(d) any information of the type described above which EMPLOYER
obtained from another party and which EMPLOYER treats as proprietary or
designates as confidential, whether or not owned or developed by EMPLOYER and
which is not generally available to or used by others, or the utility or value
of which is not generally known or recognized as standard practice, whether or
not the underlying details are in the public domain.
6. NON-COMPETITION
(a) EMPLOYEE covenants and agrees that at no time during the term of
this employment, and for a period of two (2) years following the termination of
employment, for any reason whatsoever will EMPLOYEE, individually, or on behalf
of any other person, persons, firm, partnership, corporation or company, engage
in any Business enterprise within a radius of 500 miles surrounding Southfield,
Michigan that is identical or similar to the Business of EMPLOYER as it is now
or as it may further expand or develop or engage in or contribute EMPLOYEE'S
knowledge to any work which is competitive with or similar to a product,
<PAGE> 3
process, apparatus, or service upon which EMPLOYEE worked during the two (2)
year period immediately preceding the termination of EMPLOYEE'S employment
hereunder. EMPLOYEE will not, directly or indirectly, for or on behalf of, or in
conjunction with any other person, persons, firm, partnership, corporation or
company (i) solicit or attempt to solicit the business or perform such other
incidental business and service as is now or in the course of EMPLOYEE'S
employment performed by EMPLOYER or (ii) solicit, attempt to solicit or hire any
other employee of EMPLOYER.
(b) EMPLOYEE agrees that the geographic area established herein is
divisible in such a manner that if this provision is held to be invalid by a
court of competent jurisdiction, that portion of the geographic area is
severable and this clause remains in effect for the remaining included
geographic area in which the clause is valid. EMPLOYEE acknowledges that any
breach of these provisions may cause irreparable harm to EMPLOYER and therefore
EMPLOYER may seek injunctive relief to enjoin any violation hereof by EMPLOYEE
without necessity of posting bond in addition to any other remedy available.
7. Assignment. EMPLOYEE agrees that this Agreement and the rights,
interests and benefits hereunder shall not be assigned, transferred, pledged or
hypothecated in any way by EMPLOYEE or other person claiming under EMPLOYEE by
virtue of this Agreement, and shall not be subject to execution, attachment or
similar process. Any attempt to assign, transfer, pledge, hypothecate or
otherwise dispose of this Agreement or of such rights, interests and benefits
contrary to the foregoing provisions, or upon the levy of any attachment or
similar process thereupon shall be null and void and without effect, and shall
relieve EMPLOYER of any and all liability hereunder.
8. General Terms.
(a) Arbitration. In the event any controversy or claim arising out
of or relating to this Agreement whether or not a breach thereof, shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Following delivery of the arbitrator's
decision the prevailing party may enter the decision as a judgment in a court of
competent jurisdiction in Oakland County, Michigan.
(b) Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the respective parties, their heirs, personal representatives,
legal representatives, successors and assigns.
(c) Confidentiality. Both parties shall protect the terms of this
Agreement as confidential information. Neither party shall disclose the terms of
this Agreement to any third party without the prior written consent of the
non-disclosing party.
(d) Entire Agreement. This Agreement constitutes the entire
agreement between the parties and contains all of the Agreements among the
parties with respect to the subject matter hereof.
(e) Injunctive Relief. In the event of violation of any term
contained in this Agreement, the non-violating party shall be entitled to pursue
injunctive relief, in addition to any other remedies available at law or in
equity, without the necessity of posting bond as a condition of obtaining such
relief.
(f) Jurisdiction and Venue. Any cause of action related to this
Agreement shall be heard in a court of competent jurisdiction in Oakland County,
Michigan.
(g) Laws to govern. The laws of the State of Michigan shall govern
interpretation and enforcement of the terms contained in this Agreement.
(h) Modification of Agreement. No change or modification of this
Agreement shall be binding upon the parties unless the same is in writing and
signed by both parties. No waiver of any provision of this Agreement shall be
valid unless made in writing and signed by the person or party against whom the
<PAGE> 4
same may be charged.
(i) Notice. Any and all notices, designations, consents, offers,
acceptances, or any other communication provided for herein shall be given in
writing by personal service, registered or certified mail, return receipt
requested, which shall be addressed as follows:
EMPLOYER:
Advanced Systems International
25300 Telegraph Road
Suite 455
Southfield, MI 48034
EMPLOYEE:
Bill Mottram
6651 Snead Court
Niwot, Colorado 80503
(j) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
(k) EMPLOYEE acknowledges and agrees that any action or suit against
EMPLOYER, or any of its employees, arising out of this Agreement, including but
not limited to, claims arising under state or federal civil rights statutes or
for breach of this Agreement, must be brought within one hundred eighty (180)
days of the event giving rise to the claims or be forever barred, and EMPLOYEE
waives any limitation periods to the contrary. EMPLOYEE further agrees that if
he/she should bring any action or claim arising out of this Agreement in which
EMPLOYER prevails, EMPLOYEE will pay to EMPLOYER any and all costs incurred in
defense of said claims or action, including attorneys' fees. EMPLOYEE further
acknowledges that Michigan law requires employers to make accommodations to
handicapped applicants and employees where the accommodation does not pose an
undue hardship on the employer. EMPLOYEE acknowledges that handicapped employees
and applicants may request an accommodation of their handicap by notifying
EMPLOYER in writing of the need for accommodation within one hundred eighty-two
(182) days of the date the handicapped knows, or should know, that an
accommodation is needed and that failure to properly notify the Company within
one hundred eighty-two (182) days will preclude any claim that the Company
failed to accommodate the handicapped.
IN WITNESS WHEREOF, EMPLOYER has caused this Agreement to be signed by
its duly authorized officer, and EMPLOYEE has hereunto set his hand and seal on
the day written above.
EMPLOYER: EMPLOYEE:
ADVANCED SYSTEMS INTERNATIONAL
By: Gerald A. Pesut By: William Mottram
------------------------------ ----------------------------
Name: Gerald A. Pesut Name: Bill Mottram
President & CEO VP of Ecom Products Division
Date: July 29, 1999
<PAGE> 5
[ADVANCED SYSTEMS LETTERHEAD]
July 7, 1999
William Mottram
6641 Snead Court
Niwot, CO
80503
Dear Bill,
It is with great personal pleasure that I can extend this offer to you to join
ASI as the Vice President of the Ecom Products Division.
In this position, you will be responsible for all sales activities and programs
in this unit. You will also be responsible for the strategic directions going
forward.
Your compensation will be as follows:
<TABLE>
<S> <C>
Monthly Salary: $12,500 paid monthly.
Appropriate business expenses will be provided
according to our Company policy.
ASI benefit plan will be available to you once your current
plan expires.
Performance Bonus: Bonus, if any will be paid only if you are employed at the
End of the year. For the remainder of 1999, your bonus plan
Will be as follows:
For $3.0 Million of new ATLink revenue: $10,000 bonus
For $3.5 Million of new ATLink revenue: $15,000 bonus
For $4.0 Million of new ATLink revenue: $20,000 bonus
Share Options 200,000 options granted under the Advanced Systems Employee
Option Plan will be awarded at the date of hire. These options
will be granted at market bid value and approved by the Board
of Directors. Your options will vest one-third annually over
three years. If there is a change of ownership, your stock will
vest at that time.
Vacation/Time Off:
Company policy provides for two weeks of vacation
annually, growing to three weeks after five years, in
addition to statutory and corporately recognize
holidays, as outlined in the Employee Handbook.
</TABLE>
Your compensation and responsibilities will be reviewed in six months during the
beginning of January 2000 and revised as appropriate in the discretion of the
company. If you are released from A.S.I. for any reason other than cause, A.S.I.
will pay you a separation cost equal to 12 months of current salary and prorated
bonus.
Bill, I am looking forward to working with you to build this important segment
of our business.
Yours Truly,
Gerald A. Pesut
Gerald A. Pesut
President & CEO
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 25, 1999 accompanying the consolidated
financial statements of Advanced Systems International, Inc. contained in the
Registration Statement on Form SB-2. We consent to the use of our report in the
Registration Statement, and to the use of our name as it appears under the
caption "Experts".
/s/ GRANT THORNTON LLP
Southfield, Michigan
December 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 65,773
<SECURITIES> 0
<RECEIVABLES> 2,168,110
<ALLOWANCES> 8,700
<INVENTORY> 31,836
<CURRENT-ASSETS> 2,343,285
<PP&E> 386,099
<DEPRECIATION> 148,917
<TOTAL-ASSETS> 2,921,638
<CURRENT-LIABILITIES> 2,090,506
<BONDS> 0
0
0
<COMMON> 11,701
<OTHER-SE> 788,344
<TOTAL-LIABILITY-AND-EQUITY> 2,921,638
<SALES> 2,132,808
<TOTAL-REVENUES> 2,132,808
<CGS> 298,212
<TOTAL-COSTS> 1,785,726
<OTHER-EXPENSES> 27,646
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,646
<INCOME-PRETAX> 21,224
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,224
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
