<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, 2000
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number
-----------
---------------------------
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 X No .
Shares of the Registrant's Common Stock, par value $.00l per share, outstanding
as of June 30, 2000: 14,663,483
<PAGE> 2
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
The following unaudited consolidated financial statements have been prepared in
accordance with generally accepted 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 Annual Report on Form 10-KSB, for the year ended December 31, 1999.
The results of operations for the six month period ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
<PAGE> 3
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
--------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash
Unrestricted $1,153,351 $ 297,300
Restricted 83,889 148,247
--------------------------
1,237,240 445,547
Accounts Receivable
Trade
Billed (Net of Allowance of $25,426 at June 30, 2000
and December 31, 1999) 334,446 308,094
Unbilled 2,243,893 1,000,686
Other 8,312 23,532
--------------------------
2,586,650 1,332,312
Inventory 40,579 39,229
Prepaid Expenses 154,061 114,369
--------------------------
TOTAL CURRENT ASSETS 4,018,530 1,931,457
PROPERTY & EQUIPMENT - AT COST
Computer Equipment 278,661 254,451
Office Equipment 76,689 80,245
Leasehold Improvements 69,348 69,348
--------------------------
424,698 404,044
Less Accumulated Depreciation and Amortization 222,893 178,726
--------------------------
TOTAL PROPERTY & EQUIPMENT 201,805 225,318
OTHER ASSETS
Deposits 28,069 32,836
Software Development Costs, less $148,215 and $88,929
accumulated amortization at June 30, 2000 and
December 31, 1999, respectively. 207,504 266,790
Sundry 4,478 8,210
--------------------------
TOTAL ASSETS $4,460,386 $ 2,464,611
==========================
LIABILITIES & CAPITAL
CURRENT LIABILITIES
Note Payable - Bank $ 250,000 $ 250,000
Current Maturities of Long-Term Obligations 13,588 18,647
Current Maturities of Long-Term Obligations To Related Parties 529,822 814,489
Customer Deposits 678,086 840,778
Accounts Payable 1,159,734 880,473
Accrued Liabilities
Payroll and Payroll Taxes 329,710 134,520
Interest and Other 42,644 43,763
Professional Fees 35,976 99,711
--------------------------
408,331 277,994
--------------------------
TOTAL CURRENT LIABILITIES 3,039,561 3,082,381
LONG TERM OBLIGATIONS, LESS CURRENT MATURITIES 615 5,232
LONG TERM OBLIGATIONS TO RELATED PARTIES, LESS CURRENT
MATURITIES -
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; 14,663,483 and 11,947,815 shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively. 14,663 11,948
Additional paid-in capital 9,640,563 5,957,054
Accumulated Deficit (8,285,016) (6,592,004)
--------------------------
1,420,210 (623,002)
--------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $4,460,386 $2,464,611
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 4
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
----------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ 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 790,143 shares of stock 790 600,279 - 601,069
Net Loss - - (1,032,012) (1,032,012)
---------- --------------- ---------------- -------------
Balance at December 31, 1999 11,948 5,957,054 (6,592,004) (623,002)
Issuance of 2,715,668 shares of stock 2,715 3,733,509 - 3,736,224
Net Loss - - (1,693,012) (1,693,012)
---------- --------------- ---------------- -------------
Balance at June 30, 2000 (Unaudited) $ 14,663 9,690,563 $ (8,285,016) $ 1,420,210
========== =============== ================ =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
<PAGE> 5
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $(1,693,012) $ 681,695
Adjustments to Reconcile net gain to net cash used in operating activities
Depreciation and Amortization 107,911 73,208
Change in Assets & Liabilities
Increase in Accounts Receivable (1,254,338) (1,035,796)
Increase in Inventories (1,350) (8,422)
Decrease in Deposits 4,767 25,666
Increase in Prepaid Expenses (39,692) (30,939)
Increase in Accounts Payable 279,261 7,997
Increase in Accrued Liabilities 130,337 119,353
(Increase) Decrease in Customer Deposits (162,692) 506,176
----------- -----------
Net Cash (Used in) Provided By Operating Activities (2,628,808) 338,938
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (21,380) (115,440)
(Increase) Decrease in Software Development Costs - (59,524)
----------- -----------
Net Cash Used In Investing Activities (21,380) (174,964)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Obligations - 250,000
Repayment of Obligations (9,676) (624,250)
Proceeds from Issuance of Obligations to Related Parties 498,333 170,000
Repayments of Related Party Obligations (783,000) (203,000)
Proceeds from Issuance of Common Stock 3,736,224 293,536
----------- -----------
Net Cash Provided by (Used in) Financing Activities 3,441,881 (113,714)
NET INCREASE IN CASH 791,693 50,260
CASH AT JANUARY 1 445,547 225,491
----------- -----------
CASH AT JUNE 30 $ 1,237,240 $ 275,751
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period For Interest $ 119,782 $ 91,821
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 6
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 1,598,804 2,202,377 3,826,462 3,964,637
Cost of Revenues 37,610 283,750 79,698 402,584
------------ ------------ ------------ -------------
Gross Profit 1,561,194 1,918,627 3,746,764 3,562,053
Operating Expenses
Sales and Marketing 776,599 406,932 1,555,177 872,232
Research and Development 363,402 287,827 719,867 421,013
Customer Support 561,450 351,983 1,045,237 687,044
General and Administrative 618,560 413,957 1,112,645 801,971
Stock Option Compensation 862,070 - 893,320 -
------------ ------------ ------------ -------------
3,182,081 1,460,699 5,294,996 2,782,660
------------ ------------ ------------ -------------
Earnings/(Loss) From Operations (1,620,887) 457,928 (1,548,232) 779,393
Other Expense
Interest Expense 83,920 82,575 144,780 97,698
------------ ------------ ------------ -------------
Net Earnings/(Loss) (842,737) 375,354 (1,693,012) 681,695
------------ ------------ ------------ -------------
Earnings/(Loss) Per Share - basic $ (0.12) $ 0.03 $ (0.13) $ 0.06
Earnings/(Loss) Per Share - diluted $ * $ 0.02 $ * $ 0.04
</TABLE>
* Stock option equivalents are not included in calculation due to their
anti-dilutive effect.
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
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. (AdSys) and the Industry is
experiencing a "software project initiative slowdown" as evidenced by results of
the three-month period ended June 30, 2000. It has been the Company's experience
that "Fortune 1000" IT Managers are currently delaying purchasing decisions as
they prioritize projects within their evolving e-business strategies. AdSys is
confident that its new product offerings that track production activities,
materials, fulfillment and ever-critical labor data address this focus and will
therefore be included in customers e-business initiatives. The Company is
expecting further penetration into industries such as automotive supply, food
processing, entertainment, furniture manufacturing, paper and forestry products,
airlines, and other manufacturing sectors.
AdSys has identified a significant opportunity to provide
comprehensive labor and inventory data within the high growth business to
business (b2b) market. Building on its proven labor management technology, AdSys
has expanded its product offering to include a web based tool set that tracks
critical production inventory, fulfillment and labor data in real-time to
support the cost efficient streamlined supply chain and E-Business initiatives
of its customers. 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,
2000 AND JUNE 30, 1999
REVENUES
The Company experienced a decrease in revenues to $3,826,462 for the
six months ended June 30, 2000, from $3,964,637 for the six months
ended June 30, 1999, a decrease of $138,175 or 3%. The Company
attributes this decrease to an industry-wide project initiative
slowdown. AdSys had a net loss of $1,693,012 for the six months ended
June 30, 2000 as compared with net earnings of $681,695 for the
six-month period ended June 30, 1999, a decrease of $2,374,707. This
difference is largely attributable to the decrease in revenue described
above, an increase in compensation and related benefits due to a larger
employee base, and stock option compensation charges of $893,320 for
the six months ended June 30, 2000.
ATServer-related revenue amounted to $3,522,334 and $3,842,789 for the
six months ended June 30, 2000 and 1999, respectively, a decrease of
$320,455 or 8%.
ATLink-related revenue grew to $304,128 from $121,846, an increase of
$182,282 or 150% in the six months ended June 30, 2000 and 1999,
respectively.
GROSS PROFIT
The Company had a gross profit of $3,746,764 (98% of total revenues)
and $3,562,053 (90% of total revenues) for the six months ended June
30, 2000 and 1999 respectively. This represents an increase in gross
profit of $184,711, or 5%. This increase is due primarily to a
different sales mix for the six months ended June 30, 2000 compared to
the six months ended June 30, 1999, i.e. Revenue for the six months
ended June 30, 2000 had a much smaller hardware content of $51,362
giving rise to $40,338 in Cost of Goods Sold, whereas hardware sales
for the six months ended June 30, 1999 were $374,119 and had a
corresponding $223,332 in Cost of Goods Sold.
ATServer-related gross profit was $3,480,337 (99% of ATServer revenue)
and $3,440,206 (90% of ATServer revenue) for the six months ended
June 30, 2000 and 1999, respectively, an increase of $40,131 or 1%.
This decrease is due primarily to decreased ATServer revenue and
smaller hardware and outside consultant expenses within the Cost of
Goods Sold.
ATLink-related gross profit was $266,428 (88% of ATLink revenue) and
$121,846 (100% of ATLink revenue) for the six months ended June 30,
2000 and 1999, respectively, an increase of $144,582 or 119%. This
increase is due primarily to increased ATLink revenue.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased to
$1,555,177 for the six month period ended June 30, 2000, from $872,232
for the six month period ended June 30, 1999, an increase of $682,945.
The increase was primarily attributable to AdSys' hiring of additional
sales personnel and a restructuring of compensation strategy, and is
reflected by an increase in compensation and related benefits of
$448,609. Costs of traveling increased to $211,381 for the six months
ended June 30, 2000 from $86,963 for the six months ended June 30,
1999, an increase of $124,418. Advertising and marketing costs
increased to $220,436 for the six months ended June 30, 2000 from
$171,590 for the six months ended June 30, 1999, an increase of
$48,846. This specifically was due to a heavy "trade-show" schedule for
the six months ended June 30, 2000.
Research and Development. Research and development expenses
increased to $319,867 for the six month period ended June 30, 2000,
from $421,013 for the six month period ended June 30, 1999, an
increase of $298,854. The increase is due almost entirely to an
expansion of our development team, whose work focuses on enhancing the
ATServer, LABORVIEW.com, and ATLink products, accounting for an
increase of $340,512 in research and development expenses.
Customer Support. Customer Support expenses increased to
$1,045,237 for the six month period ended June 30, 2000, from $687,444
for the six month period ended June 30, 1999, a difference of
$357,793. This increase was due almost entirely to additional headcount
in this department and a corresponding increase in compensation and
related benefits of $309,487.
General and Administrative. General and administrative
expenses increased to $1,081,395 for the six month period ended June
30, 2000, from $801,971 for the six month period ended June 30, 1999,
an increase of $279,424. This increase was due primarily to an
increase in compensation and related benefits of $82,064, an increase
in computer related costs of $78,475 (procuring infrastructure needs
such as servers, printers, peripherals, etc.), an increase in
professional costs of $49,267 (accounting, legal, financial printer,
transfer agent), and an increase in depreciation and amortization costs
of $35,464.
Stock Option Compensation. Stock Option Compensation expenses were
$893,320 for the six month period ended June 30, 2000. There were no
stock option expenses recorded for the six month period ended June 30,
1999. This change, which did not effect cash, was incurred as a result
of stock options exercised and/or vested.
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
We have entered into a two-year financing commitment with a large
regional 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 interest
at the Bank's Prime Rate, (9.5% as of July 31, 2000) is $2.0 million. As of July
31, 2000, we had drawn a balance of approximately $1.2 million under this
facility. We also borrowed $250,000 from the same bank on a three-year term
loan, with principal and interest also accruing at the Bank's Prime Rate (9%
at July 31, 2000), due monthly.
During the second quarter of 1999, we established an equipment leasing
relationship with Primex, a private lending company. As of June 30, 2000, we had
leased equipment with an outstanding balance of $119,608 owing to Primex.
On May 2, 2000, we executed an equity placement of $2.0 million with a
private investor. Terms of this arrangement were 1,111,111 shares issued at
$1.80/share, with 300,000 warrants to be exercised over the ensuing two years at
$2.25 (100,000 warrants), $2.50 (100,000 warrants), and $2.75 (100,000
warrants). These funds are being used for working capital as well as funding the
repayment of the private financing and bridge financing noted below.
In November 1999, we borrowed $250,000 from a stockholder for a 5% fee
and interest of 12% at the maturity date, as well as warrants to acquire a total
of 100,000 shares of AdSys common stock at $1.00 per share. This loan with
interest and fee was repaid upon the execution of the May equity placement
described above.
In November 1999, we entered into a commitment for a 1 year financing
arrangement for up to $1.0 million from a private investor, of which $250,000
was borrowed in November of 1999, and another $250,000 was borrowed in December,
1999. The investor will receive a 10% fee on advances and quarterly interest
payments of 12%, as well as warrants to acquire 1 share for every dollar
advanced under this term loan. The warrants have a 2 year exercise period, with
a $.75 exercise price for the first year, and a $1.00 exercise price for the
second year.
In January, 2000 we entered into a 60-day short-term bridge financing
with a stockholder for $200,000, with interest at 12% payable at maturity. This
note was repaid upon the closing of the May equity financing noted above.
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. The Company would consider
working with the 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.
<PAGE> 9
Advanced Systems International, Inc.
Notes to Consolidated Financial Statements (unaudited)
NOTE A - INDUSTRY SEGMENTS
The Company's operations by business segment for the six months ended June 30,
2000 is as follows:
<TABLE>
<CAPTION>
Labor B2B
Management e-Business Total
---------------------------------------------
<S> <C> <C> <C>
Revenues $ 3,522,335 $ 304,128 $ 3,826,462
Interest Income - - 1,518
Interest Expense 95,299 50,998 146,298
Depreciation and Amortization - 59,286 107,911
Net Loss (268,901) (352,825) (1,693,012)
Assets 2,878,447 207,504 4,460,386
Expenditures for Assets - - 21,380
RECONCILIATION TO CONSOLIDATED AMOUNTS
NET LOSS
Net Loss for Reportable Segments $ (621,725)
Unallocated Corporate Expenses $(1,071,287)
----------------
$(1,693,012)
================
ASSETS
Total Assets for Reportable Segments $ 3,085,951
Corporate Assets 1,374,435
----------------
$ 4,460,386
================
</TABLE>
<TABLE>
<CAPTION>
Segment Consolidated
OTHER SIGNIFICANT ITEMS Totals Adjustments Totals
---------------------------------------------
<S> <C> <C> <C>
Interest Income $ - $ 1,518 $ 1,518
Depreciation and Amortization 59,286 48,625 107,911
Expenditures for Assets - 21,380 21,380
</TABLE>
<TABLE>
<CAPTION>
Long-Lived
GEOGRAPHIC INFORMATION Revenues Assets
----------------------------
<S> <C> <C>
United States $ 3,515,823 $ 454,366
Canada
310,639 -
----------------------------
$ 3,826,462 $ 454,366
============================
</TABLE>
<PAGE> 10
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Items. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE> 11
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 14, 2000 /s/ Robert C. DeMerell
Robert C. DeMerell
Chief Financial Officer (Principal
Financial and Accounting Officer)
<PAGE> 12
Exhibit Index
Exhibit No. Description
27 Financial Data Schedule
