<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------- -------
Commission File Number: 0-25897
ADVANCED SYSTEMS INTERNATIONAL, INC.
(Name of issuer as specified in its charter)
NEVADA 13-3953047
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
25300 TELEGRAPH ROAD, SUITE 455
SOUTHFIELD, MICHIGAN 48037
(Address of principal executive offices)
248-263-0000
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No .
----- -----
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
The issuer's revenues for the year ending December 31, 1999 were
$6,868,530.
As of March 29, 2000, 12,973,510 shares of Common Stock of the
registrant were outstanding, and the aggregate market value of the Common Stock
of the registrant as of that date (based upon the last reported sale price of
the Common Stock reported on that date by the Nasdaq OTCBB), excluding
outstanding shares beneficially owned by directors and officers, was
$20,869,450.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
ADVANCED SYSTEMS INTERNATIONAL, INC.
Advanced Systems International, Inc., ("AdSys" or the "Company") a
Nevada corporation, is the holding company for one operating subsidiary,
Automatic Time Systems Corp., ("ATS"). ATS is a developer and supplier of labor
management, data integration and Business to Business extension software
application services. ATS also offers on-going support necessary for the
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, and was 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 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.
In late 1998, ATS entered into a software marketing and license
agreement with Electronic Data Systems Corporation ("EDS"). Under the agreement,
EDS may obtain and resell ATS's products, and may engage or subcontract ATS to
provide installation, consulting, development, support, and other services. In
1999, this relationship generated 31% of the total revenue for the Company.
PRODUCTS
ATS addresses 3 critical business to business or B2B issues:
- - Allowing real-time access to information required for effective order
fulfillment,
- - Enabling integration of front to back office applications,
- - Providing real-time labor and product costing information essential for
intelligent competition in the Internet Economy.
The company's products enable organizations to track 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.
In order to provide a complete solution, ATS bundles implementation
services, hardware and on-going support for its products together with its
software products. Key markets include automotive, automotive supply, airline,
Internet purchasing retail and business, food processing, defense, pulp and
paper and other manufacturing industries. The Company markets its products
through direct sales and in conjunction with strategic partners.
2
<PAGE> 3
ATSERVER(R)
ATServer(R) is a labor management software application that collects,
processes and distributes key employee labor data throughout the user
organization. The Company has achieved considerable acceptance for ATServer(R)
in the automotive and automotive supplier industries, as the product was
initially developed for DaimlerChrysler in conjunction with Perot Systems.
The software links to the traditional "punch-in time clock" or any
other electronic log-in device that employees use upon entering and exiting
plants. ATServer(R) instructs various hardware and peripherals by sending
employee "coming and going" information to the payroll department supervisors
and managers. The result is that actual information can be compared to scheduled
data, identifying exceptions and alerting management.
After the initial installation of ATServer(R) at the Sterling Stamping
Plant, DaimlerChrysler obtained a broad software license from ATS and has rolled
out 22 plants of the total 32 Plants in North America using its own personnel.
In 1999, ATS secured an order to implement its ATServer(R) product at
40 plants of Johnson Controls International, a Tier 1 automotive supplier.
Current automotive industry customers include Johnson Controls, Dana
Corporation, Volvo Trucking and New Venture Gear.
The company continues to expand into new vertical markets in 1999,
including food processing, paper processing and retail e-commerce.
COMPETITION
The labor management industry can be categorized as mature, with one
company, Kronos, Inc., which is significantly larger than other competitors in
terms of revenue and overall size. ATS competes directly with JeTech (eLabor)
Corporation and ABI primarily in terms of scalability and flexibility of the
product.
LABORVIEW.COM(TM)
LABORVIEW.com(TM) was released in late 1999 and relates to the usage of
ATServer(R) application features via the Internet.
Corporations can now capture labor data in real-time from their agile
workforces, whether employees work in a fixed location, on-site for a project,
or anywhere else labor resources are deployed.
Building upon the ATServer(R) Client/Server engine, the Laborview Suite
of products expands labor management applications across the enterprise, into
areas where traditional data collection devices found in manufacturing and
warehouse facilities are not acceptable. The Laborview Suite is comprised
of specific components that replace conventional terminals as the means of data
capture:
- Laborview/DT(TM) - Desk Top
- Laborview/IVR(TM) - Interactive Voice Response
- Laborview/EIC(TM) - Employee Information Center (Kiosk)
- Laborview/HHC(TM) - Hand Held Computing
ATS's initial installation of LABORVIEW.com(TM) is at Amazon.com, a
major e-commerce retailer.
3
<PAGE> 4
COMPETITION
This is a new and developing market and companies are developing
their initial offerings. Following ATS and LABORVIEW.com(TM) to the market have
been, most notably, Kronos, Inc. and JeTech (eLabor) Corporation.
ATLINK(TM)
ATLink(TM) is an integration tool that facilitates data
flow between front and back office applications and:
- - Legacy and/or application software
- - Various data collection devices (such as bar code scanners) on the
manufacturing or warehouse floor.
ATLink(TM) also links from the enterprise applications to Internet based
purchasing exchanges of both customers and suppliers, thus supporting a true B2B
extension.
In 1999, ATS commenced its initial implementation of ATLink(TM) at
Imperial Tobacco. The engagement called for the integration of two disparate
applications, Wonderware Intrack and the SAP(R) R/3(TM) Warehouse Management
Module, and tracking of data flow and inventory as it was being received,
shipped and stored within the warehouse. The initial site went live late in
1999. Following an extensive interview with project management at Imperial
Tobacco, AMR Research, a preeminent industry and market analysis firm, offered a
3rd party endorsement and issued a "Research Alert on Manufacturing," January
21, 2000.
COMPETITION
Other entrants into this market have provided functionality to and from
the front and back office, but not between both. ATS offers a complete front and
back office Business to Business Solution "out of the box" and is the first to
do so. ATS has been competing chiefly with Epic Data and Data Horse and Abaco.
INTELLECTUAL PROPERTY
We own a United States Trademark registration for "ATServer". Our
registration is valid for 10 years from the registration date January 1998, and
may be renewed. We hold common law trademark rights in the marks ATLink and
LABORVIEW.com.
ITEM 2. DESCRIPTION OF PROPERTY
Our corporate headquarters is approximately 8,400 square feet and
located in Southfield, Michigan. The lease on this space currently provides for
monthly rent of approximately $13,700 per month, including base rent and a pro
rata share of operating expenses and real estate taxes. This lease terminates on
October 31, 2003.
ITEM 3. LEGAL PROCEEDINGS
We are not party to any material legal proceedings, although we are
involved from time to time in routine litigation incident to our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1999.
4
<PAGE> 5
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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
report, 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................................................. 1 11/16 7/16
2nd Quarter................................................. 1 15/16 9/16
3rd Quarter................................................. 1 5/8 1/8
4th Quarter................................................. 1 5/16 11/16
</TABLE>
The last bid price of our common stock on March 29, 2000 was $3.50
per share. On that date, there were approximately 1850 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.
5
<PAGE> 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements in this Form 10-KSB and in future filings by the
Company with the Securities and Exchange Commission, and in the Company's
written and oral statements made by or with the approval of an authorized
executive officer, constitute "forward-looking statements" within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended and the Company intends that such forward-looking statements be
subject to the safe harbors created thereby. The words "believe", "expect" and
"anticipate" and similar expressions identify forward-looking statements. These
forward-looking statements reflect the Company's current views with respect to
future events and financial performance, but are subject to many uncertainties
and factors relating to the Company's operations and business environment which
may cause the actual results of the Company to be materially different from any
future results expressed or implied by such forward-looking statements. Examples
of such uncertainties include, but are not limited to, changes in customer
demand and requirements, new product announcements, interest rate fluctuations,
changes in federal income tax laws and regulations, competition, industry
specific factors and world wide economic and business conditions. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
SUMMARY
The information in this section should be read together with the
audited consolidated financial statements that are included elsewhere in this
form 10-KSB.
AdSys has attained significant growth for the twelve-month period ended
December 31, 1999. AdSys anticipates continued growth into Year 2000 resulting
from installations at several Fortune 1000 companies, in industries such as
automotive supply, food processing, entertainment, furniture manufacturing,
paper processing, air transportation and other manufacturing sectors.
We are working to locate, attract, and serve customers within our
market niche - the Fortune 1000.
ATS addresses 3 critical business to business or B2B issues:
- Allowing real-time accesses to information required for
effective order fulfillment.
- Enabling integration of front office and back office
applications.
- Providing real-time labor and product costing information
essential to intelligent competition in the Internet economy.
We are experiencing successful entrance in these markets, enhancing
long-term growth potential by combining two separate but compatible software
products, ATServer(R) and ATLink(TM) into an overall suite of solutions for our
customers.
RESULTS OF OPERATIONS 1999 VS. 1998
REVENUES
Revenues amounted to $6,868,530 and $2,379,987, in fiscal 1999 and
1998, respectively, an increase of 189%. Revenue growth in 1999 was
principally the result of customer demand driving an increase in sales
volume, as represented by the expansion of our customer base through
our core business product, ATServer(R), with new, larger accounts, as
well as additional installations at existing customers. Also, in 1999
the Company had initial installations of two new products, ATLink(TM)
and LABORVIEW.com(TM). Revenues in the fourth quarter slowed down
considerably compared to the run-rate established by the first 3
quarters of 1999 as a result of customers' deferring purchasing
decisions due to Y2K concerns. Transactions that were expected to close
in the fourth quarter of 1999 are now expected to be finalized during
the first two quarters of 2000.
6
<PAGE> 7
ATServer(R)- related revenue amounted to $6,417,635 and $2,379,987 in
fiscal 1999 and 1998, respectively, an increase of $4,037,648 or 170%.
ATLink(TM) had its first installations in fiscal 1999, and revenue was
$450,895 for the year.
GROSS PROFIT
The Company had gross profit of $5,816,386 (85% of total revenues) and
$2,224,840 (93% of total revenues) in fiscal 1999 and 1998,
respectively, an increase of $3,591,546 or 161%. The decrease in
overall gross profit percentage is due primarily to the increased use
of third party development and implementation consultants in 1999 over
1998.
ATServer(R)-related gross profit was $5,505,057 (86% of ATServer(R)
revenue) and $2,224,840 (93% of ATServer(R) revenue) in fiscal 1999 and
1998, respectively, an increase of $3,280,218 or 147%. This decrease in
gross profit percentage is due primarily to the increased use of third
party development and implementation consultants in 1999 over 1998.
ATLink(TM)-related gross profit was $311,329 (66% of ATLink(TM)-related
revenue) in 1999, its first year of introduction.
OPERATING EXPENSE
Sales and Marketing. Sales and marketing expenses increased to
$2,076,897 in 1999, from $974,923 in 1998, an increase of $1,104,974 or
120%. The increase was primarily attributable to increased compensation
related expenses and recruiting expense, due to hiring additional
personnel, increasing sales and marketing expenses by $668,045 from
$563,148 in 1998 to $1,231,193 in 1999, an increase of 119%. Costs of
traveling increased $223,384 to $236,562 in 1999 from $13,178 in 1998.
Advertising, marketing and public relations related costs increased
$78,962 to $445,819 in 1999 from $366,857 in 1998, an increase of 22%.
Research and Development. Research and development expenses
increased $875,945 to $1,190,532 in 1999, from $314,587 in 1998. The
increase is chiefly attributable to an expansion of our development
team,
7
<PAGE> 8
whose work focuses on enhancing the ATServer(R), LABORVIEW.com(TM), and
ATLink(TM) products, accounting for an increase of $813,281 in research
and development expenses. ASI capitalized software development expenses
of $59,524 in 1999 and $296,195 in 1998 due to ATLink development.
Customer Support. Customer Support expenses increased $697,353 to
$1,481,292 in 1999 from $783,939 in 1998. This increase was primarily due to
recruiting and compensation-related expenses, which accounted for $539,149 of
the increase.
General and Administrative. General and Administrative expenses
increased $345,617 to $1,893,737 in 1999, from $1,548,120 in 1998. This increase
is due in part to an increase in compensation-related expenses of $269,909 in
1999 to $1,041,871 from $771,962 in 1998. There was an increase in accounting
and legal expenses of $179,662 to $321,868 in 1999 from $771,962 in 1998, a
significant amount of which was due to cost associated with the preparation of
various filings related to becoming a reporting public company. ATS began
amortizing capitalized software in 1999 which amounted to $88,929.
Interest Expense. Interest expense increased to $223,429 in 1999 from
$122,728 in 1998, an increase of $100,701. This increase was due to ATS'
overall growth, the nature of the Company's cash flows, and increased cost of
funds.
LIQUIDITY AND CAPITAL RESOURCES
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 is $1.8 million. As
of December 31, 1999, we had drawn a balance of approximately $1.43 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 10 % as of December 31, 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 from a different
lender.
During the second quarter of 1999, we also established an equipment
leasing relationship with Primex, a private lending company. As of December 31,
1999, we had leased approximately $246,000 in equipment from Primex.
In November 1999, we borrowed $250,000 from a stockholder, who will
receive a 5% fee and an interest payment 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. We have since repaid $50,000 of the principal, and an agreement was
reached to extend the term of this arrangement with payment due on demand. These
funds will continue to be used for working capital, and the loan will be repaid
without penalty upon the closing of the March equity placement described below.
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 1st year, and a $1.00 exercise price for the
second year.
In March 2000, we entered into a letter of intent to execute an equity
placement of $2.0 million with a private investor, subject to due diligence.
When closed, this financing activity will provide working capital as well as
funding for the repayment of the private financing noted above.
Although we believe that operations, together with the financings
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, increased investment in
product development, acquisitions of companies with synergistic value, resource
procurement based on a definable implementation schedule or backlog, and/or
office space expansion. The extent to which such additional financing is
available will affect the level to which AdSys pursues these discretionary
growth actions.
ITEM 7. FINANCIAL STATEMENTS
8
<PAGE> 9
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The executive officers of the Company, their ages and the offices held,
as of March 23, 2000, are as follows:
NAME AGE POSITION
----------------------- --- -----------------------------
Gerald Pesut 60 President, CEO
John Williams 56 Director
Alexander Henry 53 Director
Mark O'Donoghue 35 Director
Carlos Bravo 41 Director
Robert C. DeMerell 32 CFO, Secretary, Treasurer and
Controller
Timothy Selner 49 Vice President - Operations
William Mottram 52 Vice President - Sales
Information regarding the business experience of the executive officers
is set forth below.
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.
ALEXANDER HENRY, DIRECTOR. Since 1993, Mr. Henry has been a principal of Hampton
Equity Management, Inc., which organizes financing for computer software
developers and 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
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 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
9
<PAGE> 10
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, CFO, 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.
TIMOTHY 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, 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.
10
<PAGE> 11
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annual Compensation
- ------------------------------------------
Name and Principal Position Year Salary Bonus Other
($) ($) Annual
Compen-
sation ($)
<S> <C> <C> <C> <C>
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
Gerald A. Pesut, President & CEO 1999 200,000 31,250 -
- ------------------------------------------
</TABLE>
11
<PAGE> 12
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
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT
------------------------------------ ----------------------- -------
<S> <C> <C>
Gerald Pesut .................................. 818,474(2) *
25300 Telegraph Rd., Ste. 455
Southfield, MI 48034
Alexander D. Henry ............................ 696,374(3) *
533 Davenport Rd
Toronto, ON Canada M5X 3R5
Mark O'Donoghue ............................... 51,029(4) *
Tropicana Bldg
Providenciales, Turks & Caicos Islands
British West Indies
John Williams ................................. 151,029(5) *
424 Clayton St
Denver, CO 80206
Carlos Bravo .................................. 37,166(6) *
1713 Skyhawk Ct
Daytona Beach, FL 32124
Temple Securities Ltd. ........................ 1,472,040(7) 12.3%
Tropicana Bldg
Providenciales, Turks & Caicos Islands
British West Indies
Robert C. DeMerell ............................ 50,000(8) *%
25300 Telegraph Rd, Ste 455
Southfield, MI 48034
Timothy Selner ................................ - *
25300 Telegraph Rd, Ste 455
Southfield, MI 48034
William Mottram ............................... - *
25300 Telegraph Rd, Ste 455
Southfield, MI 48034
All Officers and Directors as a Group (9
persons) ................................... 1,804,072
</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 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 568,474 shares which Mr. Pesut has the right
to acquire pursuant to options.
(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 68,474
shares which Mr. Henry has the right to acquire pursuant to options.
(4) Consists of 51,029 shares which Mr. O'Donoghue has the right to acquire
pursuant to options.
(5) Consists of 151,029 shares which Mr. Williams has the right to acquire
pursuant to options.
(6) Consists of 37,166 shares which Mr. Bravo has the right to acquire pursuant
to options.
(7) Consists of 1,472,040 shares owned. The principals of Temple and Hugh D.
McLean, N. Gregory McNally, Mark O'Donoghue and Christian Papachristou.
(8) Consists of 50,000 shares which Mr. DeMerell has the right to acquire
pursuant to options.
12
<PAGE> 13
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1998 TRANSACTIONS
In 1998, K.I.F. Capital Corp. rendered corporate financial advisory
consulting services to the Company pursuant to a consulting agreement.
Consulting fees paid during 1998 were $91,000. 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 1998, they
were also paid $40,470 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, a former member of the Board of Directors.
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 Board of Directors.
1999 TRANSACTIONS
Temple Securities was granted 250,000 warrants as part of a 1 for 2
(warrants for dollars) arrangement that was entered into pursuant to a one-year
term loan for $1 million, $500,000 of which has been advanced at year-end. Mark
O'Donoghue, a member of the Board of Directors, is affiliated with Temple
Securities. There was a fee of 10% on advances for this transaction.
Temple Securities was granted 10,000 employee options at market price
on February 26, 1999 as compensation for a short-term, 60-day, loan of $170,000.
John Williams, a member of the Board of Directors, was granted
100,000 warrants as part of an arrangement that was entered into pursuant to a
short-term, 90 day, loan of $250,000, which was advanced in November 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part
of this Form 10-KSB:
(1) A list of the financial statements required
to be filed as a part of this Form 10-KSB is shown in the "Index to Consolidated
Financial Statements and Financial Statement Schedule" on page F-1.
(2) A list of the exhibits required by Item 601
of Regulation S-K to be filed as a part of this Form 10-KSB is shown on the
"Exhibit Index" filed herewith.
(b) REPORTS ON FORM 8-K
None.
13
<PAGE> 14
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf on March 29, 1999 by
the undersigned, thereunto duly authorized.
ADVANCED SYSTEMS INTERNATIONAL, INC.
By: /s/ Gerald A. Pesut
---------------------------------------
Gerald A. Pesut
President, CEO, Chairman of the Board
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ Gerald A. Pesut President., Chief Executive Officer, and March 29, 2000
- ------------------------ Chairman of the Board
Gerald A. Pesut
/s/ John Williams Director March 29, 2000
- ------------------------
John Williams
/s/ Alexander Henry Director March 29, 2000
- ------------------------
Alexander Henry
/s/ Mark O'Donoghue Director March 29, 2000
- ------------------------
Mark O'Donoghue
/s/ Carlos Bravo Director March 29, 2000
- ------------------------
Carlos Bravo
/s/ Robert C. DeMerell Chief Financial Officer, Secretary, March 29, 1999
- ------------------------ Treasurer and Controller
Robert C. DeMerell
</TABLE>
14
<PAGE> 15
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ADVANCED SYSTEMS INTERNATIONAL, INC.
DECEMBER 31, 1999 AND 1998
<PAGE> 16
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants............................................... 3
FINANCIAL STATEMENTS
Consolidated Balance Sheets.................................................................. 4
Consolidated Statements of Operations........................................................ 6
Consolidated Statement of Stockholders' Deficit.............................................. 7
Consolidated Statements of Cash Flows........................................................ 8
Notes to Consolidated Financial Statements................................................... 9
</TABLE>
<PAGE> 17
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,
1999 and 1998, 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, 1999 and 1998 and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Southfield, Michigan
March 10, 2000
<PAGE> 18
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
================================================================================
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash
Unrestricted $ 297,300 $ 225,491
Restricted 148,247 -
--------- ---------
445,547 225,491
Accounts receivable
Trade
Billed (net of allowance for doubtful accounts
of $25,426 and $8,700 in 1999 and 1998,
respectively) 308,094 225,800
Unbilled 1,000,686 255,101
Other 23,532 13,162
--------- ---------
1,332,312 494,063
Inventory 39,229 23,642
Prepaid expenses 114,369 9,169
--------- ---------
Total Current Assets 1,931,457 752,365
PROPERTY AND EQUIPMENT - AT COST
Computer equipment 254,451 179,742
Office equipment 80,245 71,050
Leasehold improvements 69,348 29,959
--------- ---------
404,044 280,751
Less accumulated depreciation and amortization 178,726 83,139
--------- ---------
225,318 197,612
OTHER ASSETS
Deposits 32,836 62,292
Software development costs, less accumulated
amortization of $88,929 in 1999 266,790 296,195
Sundry 8,210 15,675
---------- ----------
$2,464,611 $1,324,139
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE> 19
================================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT 1999 1998
----------- ---------------
<S> <C> <C>
CURRENT LIABILITIES
Note payable - Bank $ 250,000 $ -
Current maturities of long-term obligations 18,647 328,013
Current maturities of long-term obligations
to related parties 814,489 88,000
Customer deposits 840,778 96,638
Accounts payable
Trade 782,221 356,497
Other 98,252 -
--------- ---------
880,473 356,497
Accrued liabilities
Payroll and payroll taxes 134,520 260,455
Interest and other 43,763 3,851
Professional fees 99,711 -
--------- ---------
277,994 264,306
--------- ---------
Total Current Liabilities 3,082,381 1,133,454
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES 5,232 319,922
LONG-TERM OBLIGATIONS TO RELATED PARTIES,
LESS CURRENT MATURITIES - 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;11,947,815 and 11,157,672 shares issued and
outstanding in 1999 and 1998, respectively 11,948 11,158
Additional paid-in capital 5,957,054 5,356,775
Accumulated Deficit (6,592,004) (5,559,992)
--------- ---------
(623,002) (192,059)
--------- ---------
$2,464,611 $1,324,139
========== ==========
</TABLE>
5
<PAGE> 20
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
================================================================================
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenues $ 6,868,530 $ 2,379,987
Cost of revenues 1,052,144 155,147
---------- ---------
Gross profit 5,816,386 2,224,840
Operating expenses
Sales & marketing 2,076,897 974,923
Research and development 1,190,532 314,587
Customer support 1,481,292 783,939
General and administrative 1,893,737 1,481,542
---------- ----------
6,642,458 3,554,991
---------- ----------
Loss from operations (826,072) (1,330,151)
Other expense (income)
Interest expense 223,429 122,728
Interest income (14,903) -
Sundry (2,586) 36,796
---------- ----------
205,940 159,524
---------- ----------
Net loss $ (1,032,012) $(1,489,675)
============ ===========
Loss per share - basic and diluted $ (.09) $ (.17)
============ ===========
Weighted average number of shares outstanding 11,668,744 8,870,550
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE> 21
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
================================================================================
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
-------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ 8,137 $2,866,744 $(4,070,317) $(1,195,436)
Issuance of 2,194,082 shares 2,194 1,888,875 - 1,891,069
of stock
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 790 600,279 - 601,069
of stock
Net loss - - (1,032,012) (1,032,012)
------- --------- ---------- ----------
Balance at December 31, 1999 $11,948 $5,957,054 $(6,592,004) $ (623,002)
======== =========== ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE> 22
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,032,012) $(1,489,675)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 194,783 68,533
Loss on disposal of property and equipment - 8,305
Conversion of interest on debenture to common stock - 60,900
Change in assets and liabilities
Increase in accounts receivable (838,249) (106,153)
Decrease in loan receivable - stockholder - 72,917
Increase in inventories (15,587) (9,272)
Decrease (increase) in deposits 29,456 (29,924)
Increase in prepaid expenses (105,200) (7,625)
Increase in accounts payable 523,976 149,434
Increase in accrued liabilities 13,688 214,437
Increase in customer deposits 744,140 4,429
---------- ---------
Net cash used in operating activities (485,005) (1,063,694)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (126,095) (193,799)
Increase in software development costs (59,524) (296,195)
--------- ---------
Net cash used in investing activities (185,619) (489,994)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of obligations 258,572 17,600
Repayment of obligations (632,628) (94,527)
Proceeds from issuance of obligations to related parties 921,667 100,000
Proceeds from issuance of common stock 601,069 1,818,152
Repayments of obligations to related parties (258,000) (130,178)
--------- ---------
Net cash provided by financing activities 890,680 1,711,047
--------- ---------
Net increase in cash 220,056 157,359
Cash at beginning of year 225,491 68,132
--------- ---------
Cash at end of year $ 445,547 $ 225,491
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 217,213 $ 157,003
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE> 23
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
NATURE OF BUSINESS
Advanced Systems International, Inc. (formerly Automatic Time Systems Corp.
("the Company") was incorporated on February 1, 1996. The Company develops and
sells high technology time management and B2B e-Business software applications
to accompany their customers' hardware configurations in the United States and
Canada.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Automatic Time Systems Corp. and Automated
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 $98,389 and $61,069 for the years ended December 31, 1999 and 1998,
respectively.
Expenditures for major repairs and improvements that extend the useful life of
property and equipment are capitalized and are depreciated or amortized over the
life of the improvement or the life of the lease whichever is shorter.
Expenditures for maintenance and repairs are charged to expense as incurred.
SOFTWARE DEVELOPMENT
Software development costs are capitalized once technological feasibility has
been achieved. Costs incurred prior to achieving technological feasibility are
charged to research and development expense as incurred.
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.
9
<PAGE> 24
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Basic loss per share excludes dilution and is computed by dividing loss
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted loss per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock or resulted in the issuance of
common stock that then shared in the loss of the entity. Common stock
equivalents have been excluded from the calculation of net loss per share due to
their antidilutive effect.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes the fair value of the Company's financial instruments
approximates their carrying value. The fair value of long-term obligations
approximate their carrying values based on current rates for instruments with
similar characteristics.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
STOCK BASED COMPENSATION
The Company follows SFAS No. 123, "Accounting for Stock-Based Compensation".
SFAS 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. It defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans and include the cost in the income statement
as compensation expense. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to account
for compensation cost for stock option plans in accordance with APB Opinion No.
25.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
10
<PAGE> 25
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
================================================================================
NOTE B - FACTORED TRADE ACCOUNTS RECEIVABLE - WITH RECOURSE
In April 1999, the Company entered into an arrangement for a factoring facility
under which the factor purchases eligible accounts receivable and advances 90
percent of the purchased amount to the Company less a service charge equal to 2
percent of the face amount of each receivable purchased. The factor has recourse
to the 10 percent residual of aggregate accounts receivable purchased and
outstanding. Purchased accounts receivable may not exceed $1,800,000 at any
time. The factor may require the Company to repurchase all or any portion of
accounts receivable unpaid following 90 days after its due date. At December 31,
1999, 90 percent of factored receivables amounted to $1,334,223. The arrangement
may be canceled by either party with 60 days written notice. The facility is
secured by all of the assets of the Company. As a result of this arrangement,
the Company has a restricted cash balance which is equal to the 10% residual of
accounts receivable which amounted to $148,247 at December 31, 1999.
NOTE C - NOTE PAYABLE - BANK
The Company has a note payable with a bank. This note is for $250,000 and bears
interest at 1.5% above the bank's prime rate (10% at December 31, 1999). The
note is due on April 22, 2000 and is collateralized by all assets of the
Company.
NOTE D - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Note payable to bank with interest at 1.5% above the bank's prime rate (9.25% at
December 31, 1998), and payable in monthly installments of $10,000 plus interest
through August 31, 1999; monthly installments of $15,000 plus accrued interest
from September 1, 1999 through maturity and a principal payment of $160,000 due
July 1, 1999. The note is due on February 19, 2001 and is collateralized by all
of the assets of the Company. Note paid in full. $ - $ 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. Note paid in full. - 41,354
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. Note paid in full. - 67,762
</TABLE>
11
<PAGE> 26
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
================================================================================
NOTE D - LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Subordinated note payable to related party, interest payable quarterly at 12%,
due December 22, 2000. 501,667 -
Subordinated note payable to related party with interest of 12%, due on demand. 250,000 -
Subordinated non-interest bearing note payable to stockholder, collateralized
by all the assets of the Company, due December 2000. 62,822 150,822
Other 23,879 28,819
-------- --------
838,368 798,757
Less current maturities 833,136 416,013
-------- --------
$ 5,232 $382,744
========== =========
</TABLE>
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------
<S> <C>
2000 $833,136
2001 5,232
-------
$838,368
========
</TABLE>
NOTE E - INCOME TAXES
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net operating losses $2,270,000 $1,954,000
Allowance for doubtful accounts 9,000 3,000
Other 7,000 -
Capitalized software (91,000) (101,000)
Valuation allowance (2,195,000) (1,856,000)
--------- ---------
$ - $ -
========== ==========
</TABLE>
12
<PAGE> 27
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
================================================================================
NOTE E - INCOME TAXES (CONTINUED)
The income tax provision reconciled to the tax computed at the statutory federal
rate for loss before federal income taxes was as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Tax benefit at statutory rates applied to loss before
federal income taxes $(351,000) $(506,000)
Effect of nondeductible items 12,000 30,000
Valuation allowance 339,000 476,000
-------- --------
$ - $ -
========= =========
</TABLE>
The net operating loss carryforwards expire through 2019.
NOTE F - LEASE COMMITMENT
The Company leases office space and equipment under operating leases.
Approximate future minimum rental payments under these agreements are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------
<S> <C>
2000 $324,327
2001 168,807
2002 171,179
2003 144,298
-------
$808,611
========
</TABLE>
Rent expense was approximately $237,000 and $73,600 for the years ended December
31, 1999 and 1998, respectively.
NOTE G - MAJOR CUSTOMERS
The Company had the following customers representing more than 10% of revenues
for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Customer A 6% 19%
Customer B 1 16
Customer C 1 14
Customer D - 12
Customer E 1 11
Customer F 16 -
Customer G 12 -
-- --
37% 72%
== ==
</TABLE>
Included in accounts receivable, is $907,000 and $180,000 at December 31, 1999
and 1998, respectively, related to these customers.
13
<PAGE> 28
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
================================================================================
NOTE H - RELATED PARTY TRANSACTIONS
During the years ending December 31, 1999 and 1998, approximately $321,000 and
$211,000 was paid to related parties for consulting services. Also, during the
year ended December 31, 1998, approximately $92,000 was paid to related parties
for commissions on stock subscriptions.
NOTE I - INDUSTRY SEGMENTS
The Company's operations by business segment for the year ended December 31,
1999 is as follows:
<TABLE>
<CAPTION>
LABOR
MANAGEMENT B2B E-BUSINESS TOTAL
---------- -------------- ----------
<S> <C> <C> <C>
Revenues $6,417,635 $ 450,895 $6,868,530
Interest income - - -
Interest expense 125,714 97,715 223,429
Depreciation and amortization - 85,050 85,050
Net earnings (loss) 207,612 (1,144,795) (937,183)
Assets 1,268,130 370,290 1,638,420
Expenditures for assets - - -
RECONCILIATION TO CONSOLIDATED AMOUNTS
NET LOSS
Net loss for reportable segments $ (937,183)
Unallocated corporate expenses (94,949)
----------
$(1,032,132)
============
ASSETS
Total assets for reportable segments $ 1,638,420
Corporate assets 826,191
----------
$ 2,464,611
============
OTHER SIGNIFICANT ITEMS
<CAPTION>
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
--------- ----------- -----------
<S> <C> <C> <C>
Interest income $ - $ 14,903 $ 14,903
Depreciation and amortization 85,050 109,733 194,783
Expenditures for assets - 126,095 126,095
GEOGRAPHIC INFORMATION
<CAPTION>
LONG-LIVED
REVENUES ASSETS
---------- -----------
<S> <C> <C>
United States $5,233,088 $1,079,092
Canada 1,635,442 -
--------- ---------
$6,868,530 $1,079,092
========== ==========
</TABLE>
14
<PAGE> 29
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
================================================================================
NOTE I - INDUSTRY SEGMENTS (CONTINUED)
The Company's operations by business segment for the year ended December 31,
1998 is as follows:
<TABLE>
<CAPTION>
LABOR
MANAGEMENT B2B E-BUSINESS TOTAL
------------ ------------- ----------
<S> <C> <C> <C>
Revenues $ 2,379,987 $ - $2,379,987
Interest expense 122,728 - 122,728
Depreciation and amortization - - -
Net loss (1,421,142) - (1,421,142)
Assets 494,063 296,195 790,258
Expenditures for assets - - -
RECONCILIATION TO CONSOLIDATED AMOUNTS
NET LOSS
Net loss for reportable segments $(1,421,142)
Unallocated corporate expenses (68,533)
----------
$(1,489,675)
===========
ASSETS
Total assets for reportable segments $ 790,258
Corporate assets 533,881
----------
$ 1,324,139
===========
OTHER SIGNIFICANT ITEMS
<CAPTION>
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
--------- ----------- -----------
<S> <C> <C> <C>
Depreciation and amortization $ - $ 68,533 $ 68,533
Expenditures for assets - 193,799 193,799
</TABLE>
All revenues and long-lived assets for 1998 relate to the United States.
NOTE J - STOCK OPTION PLANS
The 1997 Employee Stock Option Plan ("Employee Plan") and the 1997 Director
Stock Option Plan ("Director Plan") were approved by stockholders on July 1,
1997.
During 1999, the Employee Plan was amended to provide for 4,500,000 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 in
equal annual increments over three years.
15
<PAGE> 30
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
================================================================================
NOTE J - STOCK OPTION PLANS (CONTINUED)
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.
During 1999, the Director Plan was amended so that options granted under the
plan become exercisable in equal monthly increments over three years.
Options granted under the plan have a term of ten years.
The Company also issues stock options to outside consultants for services
provided. During 1999, 166,500 shares with an exercise price ranging from $.63
to $2.00 were issued and an expense of $60,000 was recorded by the Company.
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.
As of December 31, 1999, the weighted average remaining life of the stock
options is approximately eleven 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, 1998 1,425,000 $.50 300,000 $.50
Granted 1,155,055 $.50 400,000 $.50
Cancelled (375,000) $.50 (200,000) $.50
--------- --------
Outstanding at December 31, 1998 2,205,055 $.50 500,000 $.50
Granted 1,355,659 $.96 365,000 $.86
Cancelled (242,505) $.57 (100,000) $.50
Exercised (46,883) $.52 -
--------- --------
Outstanding at December 31, 1999 3,271,326 $.68 765,000 $.67
========== =========
</TABLE>
16
<PAGE> 31
ADVANCED SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999 AND 1998
================================================================================
NOTE J - 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
COMMON PRICE PER
STOCK SHARE
------------ ---------
<S> <C> <C>
Outstanding at January 1, 1998 1,572,917 $1.46
Granted 15,000 $1.00
Cancelled (232,917) $1.00
---------
Outstanding at December 31, 1998 1,355,000 $1.53
Granted 1,430,725 $0.76
Cancelled (1,142,500) $1.62
Exercised (3,500) $ .63
---------
Outstanding at December 31, 1999 1,639,725 $ .80
=========
</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 for options issued to employees or directors. 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>
NET LOSS 1999 1998
---------- ----------
<S> <C> <C>
As reported................................. $(1,032,012) $(1,489,675)
Pro forma................................... (1,308,501) (1,563,334)
LOSS PER SHARE
As reported................................. $ (.09) $ (.17)
Pro forma................................... $ (.11) $ (.18)
</TABLE>
The fair value of each option is estimated on the date of grant using the
Block-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 80.6 - 91.4% 34.5%
Risk-free interest rate 4.7 - 6.3% 4.9 - 6.4%
Expected lives 5 YEARS 10 years
</TABLE>
17
<PAGE> 32
ADVANCED SYSTEMS INTERNATIONAL, INC.
EXHIBIT INDEX
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of Advanced Systems
International, Inc.*
3.2 Bylaws of Advanced Systems International, Inc.*
4.1 Specimen Stock Certificate*
10.1 Merger Agreement with Bennington Corporation*
10.2 Director Stock Option Plan*
10.3 Employee Stock Option Plan*
10.4 Employment Agreement between registrant and Gerald Pesut dated as of
November 15, 1996.*
10.5 Employment Agreement between registrant and Richard Penington dated as of
March 5, 1997.*
10.6 Employment Agreement between registrant and Howard H. Tarnoff dated as of
July 22, 1998.*
10.7 Employment Agreement between registrant and Robert C. DeMerell dated as of
January 8, 1999.*
10.8 Consulting Agreement between registrant and KIF International dated as of
November 15, 1996.*
10.9 Consulting Agreement between Advanced Systems International, Inc. and
Gregory J. Farbolin dated as of February 4, 1999.*
10.10 Stock Option Agreement -- Pesut*
10.11 Stock Option Agreement -- Penington*
10.12 Unit -- Hampton*
10.13 Warrants -- Temple*
10.14 Warrants -- Revben*
10.15 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 **
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
** Previously filed as an Exhibit to the Company's Registration Statement on
Form SB-2, filed December 29, 1999
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 445,547 225,491
<SECURITIES> 0 0
<RECEIVABLES> 1,332,312 494,063
<ALLOWANCES> 25,426 8,700
<INVENTORY> 39,229 23,642
<CURRENT-ASSETS> 1,931,457 752,365
<PP&E> 225,318 197,612
<DEPRECIATION> 178,726 83,139
<TOTAL-ASSETS> 2,464,611 1,324,139
<CURRENT-LIABILITIES> 3,082,381 1,133,454
<BONDS> 0 0
0 0
0 0
<COMMON> 11,948 11,158
<OTHER-SE> (634,950) (203,217)
<TOTAL-LIABILITY-AND-EQUITY> 2,464,611 1,324,139
<SALES> 6,868,530 2,379,987
<TOTAL-REVENUES> 6,868,530 2,379,987
<CGS> 1,052,144 155,147
<TOTAL-COSTS> 6,642,458 3,554,991
<OTHER-EXPENSES> 205,940 159,524
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 223,429 122,728
<INCOME-PRETAX> (1,032,012) (1,489,675)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,032,012) (1,489,675)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,032,012) (1,489,675)
<EPS-BASIC> (0.09) (0.17)
<EPS-DILUTED> (0.09) (0.17)
</TABLE>
