<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1999
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
------- -------
Commission file number 0-25897
-----------
---------------------------
ADVANCED SYSTEMS INTERNATIONAL, INC.
(Exact name of small business Issuer as specified in its charter)
NEVADA 13-3953047
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
25300 Telegraph Rd., Suite 455, Southfield, MI 48034
(Address of principal executive offices)
(248) 263-0000
(Issuer's telephone number)
-----------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No X.
Shares of the Registrant's Common Stock, par value $.00l per share, outstanding
as of July 15, 1999: 11,700,579.
<PAGE> 2
PART I - ITEM 1. FINANCIAL STATEMENTS
The following unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instruction to Form 10QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) considered
necessary for a fair presentation of the financial position, results of
operations, stockholders' equity and cash flows of the Company have been
included. For further information, please refer to the consolidated financial
statements and footnotes thereto included in the Company's Registration
Statement on Form 10-SB, filed April 29, 1999, as amended on July 19, 1999 and
August 9, 1999. The results of operations for the six month period ended June
30, 1999 are not necessarily indicative of the results to be expected for the
full year.
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ADVANCED SYSTEM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
As of June 30, As of December 31,
1999 1998
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 275,751 $ 225,491
Accounts Receivable (Net of Allowance of $8,700 at June 30 and Dec. 31.) 1,540,433 494,063
Inventory 32,065 23,642
Prepaid Expenses 40,476 9,169
---------------------------------
TOTAL CURRENT ASSETS 1,888,725 752,365
PROPERTY & EQUIPMENT - AT COST
Computer Equipment 272,238 185,148
Office Equipment 76,162 68,126
Leasehold Improvements 37,215 27,477
---------------------------------
385,615 280,751
Less Accumulated Depreciation and Amortization 123,504 83,139
TOTAL PROPERTY & EQUIPMENT 262,112 197,612
OTHER ASSETS
Deposits 36,626 62,292
Software Development Costs, less $28,350 and $0 accumulated amortization at June 30,
1999, and December 31, 1998, respectively. 327,369 296,195
Organization Costs, less accumulated amortization of $25,361 and
$21,628 at June 30, 1999 and December 31, 1998, respectively. 11,183 15,675
---------------------------------
TOTAL ASSETS $ 2,526,014 $ 1,324,139
=================================
LIABILITIES & CAPITAL
CURRENT LIABILITIES
Current Maturities of Long-Term Obligations $ 262,666 $ 328,013
Current Maturities of Long-Term Obligations To Related Parties 88,000 88,000
Customer Deposits 602,814 96,638
Accounts Payable 364,493 356,497
Accrued Liabilities
Payroll 180,326 235,615
Payroll Taxes 7,179 24,840
Interest 9,728 3,851
Other 186,796 -
---------------------------------
384,030 264,306
TOTAL CURRENT LIABILITIES 1,702,003 1,133,454
LONG TERM OBLIGATIONS, LESS CURRENT MATURITIES 3,667 319,922
LONG TERM OBLIGATIONS TO RELATED PARTIES, LESS CURRENT MATURITIES 29,822 62,822
STOCKHOLDERS' DEFICIT
Preferred Stock - $.001 Par Value; authorized, 10,000,000
shares; none issued and outstanding - -
Common Stock - $.001 par value; authorized, 20,000,000
shares; 11,157,672 and 8,136,667 shares issued and outstanding
at December 31, 1998 and 1997, respectively. 11,700,579 Issued and
outstanding at June 30, 1999. 11,701 11,158
Additional paid-in capital 5,657,120 5,356,775
Accumulated Deficit (4,878,298) (5,559,992)
---------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 2,526,014 $ 1,324,139
=================================
</TABLE>
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ADVANCED SYSTEM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
----------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 4,907 $ 1,569,974 $(2,174,825) $ (599,944)
Issuance of 2,980,000 shares of stock
in connection with reverse acquisition and
recapitalization 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 543 300,344 - 300,887
Net Earnings - - 681,694 681,694
----------- ---------------- ----------------- --------------
Balance at June 30, 1999 (Unaudited) 11,701 5,657,119 (4,878,298) 790,522
</TABLE>
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ADVANCED SYSTEM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 June 30, 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings/(Loss) $ 681,695 $ (363,451)
Adjustments to Reconcile net gain to net cash used in operating activities
Depreciation and Amortization 44,858 29,463
Change in Assets & Liabilities
Increase in Accounts Receivable (1,035,796) (367,969)
Increase in Inventories (8,422) (16,478)
(Increase) Decrease in Deposits 25,666 (44,620)
(Increase) Decrease in Prepaid Expenses (30,939) 20,568
Increase (Decrease) in Accounts Payable 7,997 (104,629)
Increase (Decrease) in Accrued Liabilities 119,353 158,107
Increase (Decrease) in Customer Deposits 506,175 161,245
--------------- ---------------
Net Cash Provided (Used) By Operating Activities 310,587 (527,764)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (115,440) (38,010)
(Increase) Decrease in Software Development Costs (31,174) 760
--------------- ---------------
Net Cash Used In Investing Activities (146,614) (37,250)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Obligations 250,000 10,350
Repayment of Obligations (624,250) (12,978)
Proceeds from Issuance of Obligations to Related Parties 170,000 100,000
Proceeds from Issuance of Common Stock 293,536 488,065
Repayments of Related Party Obligations (203,000) (50,233)
--------------- ---------------
Net Cash Provided by Financing Activities (113,714) 535,204
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 50,260 (29,809)
CASH AT APRIL 1 225,491 68,132
--------------- ---------------
CASH AT JUNE 30 $ 275,751 $ 38,323
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period For Interest $ 82,772 $ 46,130
</TABLE>
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ADVANCED SYSTEM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 2,202,377 $ 647,312 $3,964,637 $ 961,313
Cost of Sales 283,750 48,589 402,584 75,201
-----------------------------------------------------------------
Gross Profit 1,918,627 598,723 3,562,053 886,112
Operating Expenses
Sales & Marketing 423,359 158,650 835,885 311,247
Research & Development 304,615 55,242 407,096 114,434
General & Administrative 732,724 377,658 1,539,680 764,436
-----------------------------------------------------------------
Gain/(Loss) From Operations 457,928 7,172 779,392 (304,006)
Other Expense
Interest Expense 82,575 28,124 97,698 59,446
-----------------------------------------------------------------
82,575 28,124 97,698 59,446
Net Earnings/(Loss) $ 375,353 $ (20,951) $ 681,695 $ (363,451)
=================================================================
Earnings/(Loss) Per Share - basic $ 0.03 $ - $ 0.06 $ (0.04)
=================================================================
Earnings/(Loss) Per Share - diluted $ 0.02 $ - $ 0.04 $ (0.03)
=================================================================
</TABLE>
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Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements in this Form 10-QSB and in our future filings with
the Securities and Exchange Commission, and in our written and oral statements,
constitute "forward-looking statements" under the "safe harbor" provisions of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. For example, words such as "believe," "expect" and "anticipate"
identify forward-looking statements. These statements reflect our current views
with respect to future events and financial performance, but are subject to many
uncertainties and factors relating to our operations and business environment
which may cause actual results to be materially different from any future
results expressed or implied by such forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements.
SUMMARY
The information in this section should be read together with the
consolidated, unaudited, interim financial statements that are included
elsewhere in this Form 10-QSB. Those interim financial statements include all
adjustments which we have deemed necessary in order to make them not misleading.
Advanced Systems International, Inc. achieved significant growth, as
well as profitability, for the six month period ended June 30, 1999. AdSys
anticipates 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.
AdSys has entered into a software marketing agreement with Electronic
Data Systems. The focus of the agreement is to reach automotive,
automotive-supplier, entertainment and other clients currently under contract
with EDS. We believe that the EDS agreement provides added credibility for our
products and services, as well as revenue growth potential as the relationship
matures.
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 two separate but compatible
software products, ATServer(R) and ATLink(TM). ATServer is a registered
trademark of AdSys; we also claim common-law and pending trademark rights in
ATLink.
RESULTS OF OPERATIONS
Results of six month periods ended June 30, 1999 and June 30, 1998
REVENUES
AdSys enjoyed net earnings of $681,695 for the first six months of
1999, as compared with a net loss of $363,451 for the six month period ended
June 30, 1998. This difference is largely attributable to a significant increase
in sales to $3,964,637 in the first six months of 1999, from $961,313 for the
first six months of 1998. The growth in sales reflects our continued
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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 also engaged in the implementation of our first ATLink client in the
second quarter of 1999.
OPERATING EXPENSES
Operating expenses increased dramatically in the first six months of
1999, as compared with the six month period ended June 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
$1,646,748 for the six month period ended June 30, 1999, from $719,776 for the
six month period ended June 30, 1998, and in greater travel expense, which
increased to $179,161 for the six month period ended June 30, 1999, from $51,638
for the six month period ended June 30, 1998. AdSys also incurred increased
legal and accounting expenses of $132,738 for the six month period ended June
30, 1999, as compared with $43,921 for the six month period ended June 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 $175,258 for the
six month period ended June 30, 1999, as compared with $50,063 for the six month
period ended June 30, 1998.
Sales and Marketing. Sales and marketing expenses increased to $835,885
for the six month period ended June 30, 1999, from $311,247 for the six month
period ended June 30, 1998. The increase was primarily attributable to AdSys'
hiring of additional sales personnel, which increased sales and marketing
expenses by $179,247, payment of larger commissions in connection with higher
sales revenue and more clients, which increased sales and marketing expenses by
$149,838, and undertaking intensified marketing efforts, both in-house and
through our third party consultants, which together increased sales and
marketing expenses by $90,198.
Research and Development. Research and development expenses increased
to $407,096 for the six month period ended June 30, 1999, from $114,434 for the
six month period ended June 30, 1998. The increase is chiefly attributable to an
expansion of our development team, whose work focuses on enhancing both the
ATServer and ATLink products, which accounted for an increase of $153,027 in
research and development expenses. AdSys also increased its usage of outside
consultants during the six month period ended June 30, 1999, which resulted in
an increase of $109,512 in research and development expenses.
General and Administrative. General and administrative expenses
increased to $1,539,680 for the six month period ended June 30, 1999, from
$764,436 for the six month period ended June 30, 1998. This increase was
primarily due to a greater number of employees, which resulted in a $451,705
increase to general and administrative expenses, additional travel costs
resulting from increased business activity, which resulted in an increase of
$40,717, and the relocation of our corporate headquarters to a new facility to
accommodate expansion, which resulted in an increase of $59,339.
LIQUIDITY AND CAPITAL RESOURCES
We currently believe that operations will generate sufficient cash
flow to fund AdSys' anticipated short-term liquidity needs. We currently have a
liquidity credit arrangement with a commercial bank for borrowing against our
accounts receivable, to address liquidity needs pending customer payments. The
maximum currently available to AdSys 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 August 1, 1999, AdSys had drawn a
balance of $1.3 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 9.25% as at June 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.
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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.
Although we believe that operations 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
plan to raise additional capital in the second half of 1999 in the debt or
equity markets based on an acceptable strike price and certain business
conditions. Circumstances in which 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 AdSys pursues these discretionary
growth actions.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
8
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Advanced Systems International, Inc.
(the "Registrant")
Date: August 13, 1999 /s/ Robert C. DeMerell
----------------------
Robert C. DeMerell
Chief Financial Officer (Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 275,751 38,323
<SECURITIES> 0 0
<RECEIVABLES> 1,549,133 439,980
<ALLOWANCES> 8,700 8,700
<INVENTORY> 32,065 30,848
<CURRENT-ASSETS> 1,888,725 923,552
<PP&E> 385,615 140,727
<DEPRECIATION> 123,504 43,993
<TOTAL-ASSETS> 2,526,014 1,087,285
<CURRENT-LIABILITIES> 1,702,003 1,183,663
<BONDS> 0 0
0 0
0 0
<COMMON> 11,701 8,237
<OTHER-SE> 767,121 (800,387)
<TOTAL-LIABILITY-AND-EQUITY> 2,738,769 1,087,285
<SALES> 2,202,375 647,312
<TOTAL-REVENUES> 2,202,375 647,312
<CGS> 283,750 48,589
<TOTAL-COSTS> 1,744,448 640,139
<OTHER-EXPENSES> 82,573 28,124
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 82,573 28,124
<INCOME-PRETAX> 375,354 (20,951)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 375,354 (20,951)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 375,354 (20,951)
<EPS-BASIC> 0.03 0
<EPS-DILUTED> 0.02 0
</TABLE>
