<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 March 31, 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 March 31, 2000: 13,402,485
<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 three month period ended March 31, 2000 not
necessarily indicative of the results to be expected for the full year.
<PAGE> 3
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash
Unrestricted 201,522 297,300
Restricted 80,909 148,247
-------------------------------------
282,431 445,547
Accounts Receivable
Trade
Billed (Net of Allowance of $25,426 at
March 31, 2000 and December 31, 1999) 258,393 308,094
Unbilled 2,799,450 1,000,686
Other 187,083 23,532
-------------------------------------
3,244,926 1,332,312
Inventory 39,229 39,229
Prepaid Expenses 108,450 114,369
-------------------------------------
TOTAL CURRENT ASSETS 3,675,086 1,931,457
PROPERTY & EQUIPMENT - AT COST
Computer Equipment 269,567 254,451
Office Equipment 80,245 80,245
Leasehold Improvements 69,348 69,348
-------------------------------------
419,160 404,044
Less Accumulated Depreciation and Amortization 200,742 178,726
-------------------------------------
218,418 225,318
OTHER ASSETS
Deposits 28,069 32,836
Software Development Costs, less $118,572 and $88,929 accumulated
amortization at March 31, 2000 and December 31, 1999, respectively. 237,147 266,790
Sundry 6,343 8,210
=====================================
TOTAL ASSETS $ 4,165,013 $ 2,464,611
=====================================
LIABILITIES & CAPITAL
CURRENT LIABILITIES
Note Payable - Bank $ 250,000 $ 250,000
Current Maturities of Long-Term Obligations 16,447 18,647
Current Maturities of Long-Term Obligations To Related Parties 1,246,322 814,489
Customer Deposits 688,494 840,778
Accounts Payable
Trade 849,989 782,221
Other 214,135 98,252
-------------------------------------
1,064,124 880,473
Accrued Liabilities
Payroll and Payroll Taxes 304,247 134,520
Professional Fees 38,076 99,711
Interest and Other 59,040 43,763
-------------------------------------
401,363 277,994
TOTAL CURRENT LIABILITIES 3,666,750 3,082,381
LONG TERM OBLIGATIONS, LESS CURRENT MATURITIES 2,403 5,232
LONG TERM OBLIGATIONS TO RELATED PARTIES, LESS CURRENT MATURITIES - -
STOCKHOLDERS' EQUITY
Preferred Stock - $.001 Par Value; authorized, 10,000,000
shares; none issued and outstanding - -
Common Stock - $.001 par value; authorized, 20,000,000
shares; 13,402,485 and 11,947,815 shares issued and outstanding
at March 31, 2000 and December 31, 1999, respectively. 13,405 11,948
Additional paid-in capital 7,062,665 5,957,054
Accumulated Deficit (6,580,208) (6,592,004)
=====================================
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,165,013 $ 2,464,611
=====================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT 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 1,454,670 shares of stock 1,455 1,105,611 - 1,107,066
Net Earnings 11,796 11,796
------------ ----------------- ----------------- ---------------
Balance at March 31, 2000 (Unaudited) $ 13,403 $ 7,062,665 $ (6,580,208) $ 495,860
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 5
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------- ---------
<S> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings 11,796 306,341
Adjustments to Reconcile net gain to net cash used in operating activities
Depreciation and Amortization 53,526 22,842
Change in Assets & Liabilities
Increase in Accounts Receivable (1,912,614) (1,194,801)
Increase in Inventories - (18,918)
(Increase) Decrease in Deposits 4,767 29,456
Decrease in Prepaid Expenses 5,919 8,837
Increase in Accounts Payable 183,651 60,059
Increase in Accrued Liabilities 123,369 294,230
Increase (Decrease) in Customer Deposits (152,284) 359,555
---------- ----------
Net Cash Used in Operating Activities (1,681,870) (132,399)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (15,116) (93,653)
(Increase) Decrease in Software Development Costs - (59,524)
--------- ---------
Net Cash Used in Investing Activities (15,116) (188,448)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Obligations (5,029) (42,590)
Proceeds from Issuance of Obligations to Related Parties 498,333 170,000
Proceeds from Issuance of Common Stock 1,107,066 283,526
Repayments of Related Party Obligations (66,500) (16,500)
---------- ---------
Net Cash Provided (Used) by Financing Activities 1,533,870 394,446
NET INCREASE (DECREASE) IN CASH (163,116) 113,600
CASH AT JANUARY 1 445,547 225,491
CASH AT MARCH 31 282,431 339,091
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period For Interest 32,300 9,904
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
ADVANCED SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-------------------------------------
(Unaudited)
<S> <C> <C>
Revenues $ 2,227,658 $1,762,260
Cost of Revenues 42,088 118,833
-------------------------------------
Gross Profit 2,185,570 1,643,427
Operating Expenses
Sales & Marketing 778,578 412,526
Research & Development 356,470 102,481
Customer Support 483,786 335,463
General & Administrative 494,080 471,493
-------------------------------------
2,112,914 1,323,963
-------------------------------------
Earnings From Operations 72,656 321,464
Other Expense
Interest Expense 60,860 15,123
-------------------------------------
Net Earnings $ 11,796 $ 306,341
=====================================
Earnings Per Share - basic $ - $ 0.03
Earnings Per Share - diluted $ - $ 0.02
</TABLE>
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) has attained significant
growth, as well as profitability, for the three-month period ended March 31,
2000. AdSys anticipates continued positive earnings for the remainder of 2000
resulting from installations at several Fortune 1000 companies, in industries
such as automotive supply, food processing, entertainment, furniture
manufacturing, paper processing, 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 THREE MONTH PERIODS ENDED MARCH 31, 2000 AND
MARCH 31, 1999
REVENUES
The Company experienced a significant increase in revenues to
$2,227,658 in the first three months of 2000, from $1,762,260 for the
first three months of 1999, an increase of $465,398 or 26%. AdSys had
net earnings of $11,796 for the first three months of 2000, as compared
with net earnings of $306,341 for the three month period ended March
31, 1999. This difference is largely attributable to an increase in
compensation and related benefits because of larger employee base in
the first three months of 2000, as compared to the first three months
of 1999. The growth in revenues reflects our continued expansion of our
Labor Management customer list into new vertical markets, as well as
further sales penetration at existing client sites for both Labor
Management and Data Collection/E Business.
ATServer-related revenue amounted to $2,078,423 and $1,762,260 for the
three months ended March 31, 2000 and 1999, respectively, an increase
of $316,163 or 18%.
ATLink-related revenue grew to $149,236 from $0 in the three months
ended March 31, 2000 and 1999, respectively. Note that the first
installation of an ATLink-related product was in the second quarter of
1999.
GROSS PROFIT
The Company had gross profit of $2,185,570 (98% of total revenues) and
$1,643,427 (93% of total revenues) for the three months ended March 31,
2000 and 1999 respectively. This represents an increase in gross profit
of $542,143, or 33%. This increase is due primarily to larger sales in
2000 vs. 1999, and different sales mix, i.e. Sales for the first 3
months of 2000 had a much smaller hardware content ($24,280) giving
rise to $21,447 in Cost of Goods Sold, whereas hardware sales for the
first 3 months of 1999 ($82,800) had a corresponding $63,919 in Cost of
Goods Sold.
ATServer-related gross profit was $2,060,893 (99% of ATServer revenue)
and $1,643,427 (93% of ATServer revenue) for the three months ended
March 31, 2000 and 1999, respectively, an increase of $417,466 or 25%.
This increase is due primarily to increased ATServer revenue and
smaller hardware and outside consultant expenses within the cost of
goods sold.
ATLink-related gross profit was $124,677 (84% of ATLink revenue) and $0
for the three months ended March 31, 2000 and 1999, respectively. This
is due to the fact that the first installation of an ATLink-related
product was in the second quarter of 1999.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased by $366,052
to $778,578 for the three month period ended March 31, 2000, from
$412,526 for the three month period ended March 31, 1999. The increase
was primarily attributable to AdSys' hiring of additional sales
personnel, and is reflected by an increase in Compensation and Related
Benefits (including higher commissions of $99,406 for 2000 vs. $81,644
for 1999) of $236,061 or 89%. Costs of traveling increased to
<PAGE> 8
$110,726 for the three months ended March 31, 2000 from $54,436 for
the three months ended March 31, 1999, an increase of $56,290.
Research and Development. Research and development expenses
increased to $356,470 for the three month period ended March 31, 2000,
from $102,481 for the three month period ended March 31, 1999, an
increase of $253,989. 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, which accounted for an
increase of $224,190 in research and development expenses.
Customer Support. Customer Support expenses increased to
$483,786 for the three month period ended March 31, 2000, from $335,463
for the three month period ended March 31, 1999, a difference of
$148,323. This increase was due almost entirely to additional headcount
in this department and a corresponding increase in compensation and
related benefits of $136,822.
General and Administrative. General and administrative
expenses increased to $494,080 for the three month period ended March
31, 2000, from $471,493 for the three month period ended March 31,
1999, an increase of $22,587. This increase was primarily due to an
increase in compensation and related benefits of $47,623. The increase
is also due to larger computer related costs of $42,200 resulting from
costs of procuring infrastructure (computers, printers, peripherals,
etc.) related to the increased headcount between the relevant periods.
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, in which we are
required to pay the bank a fee of 3.93% of each total invoice against which we
borrow is $1.8 million. As of May 1, 2000, we had drawn a balance of
approximately $.8 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 10.50% as at March 31, 2000). These
financing arrangements are terminable on 60 days written notice.
During the second quarter of 1999, we established an equipment leasing
relationship with Primex, a private lending company. As of March 31, 2000, we
had leased equipment with an outstanding balance of $119,907 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
$1.8/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 to expand the Company's sales and delivery
capabilities 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
<PAGE> 9
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 equity financing notes above.
In March, 2000 we entered into a short-term bridge financing with a
private investor for $300,000 for a fee of 5% and interest at 12%. In addition,
the Company granted 50,000 warrants at $3.50/share per the agreement. This
short-term financing came due upon closing a financing of $500,000 or more.
Consequently, this financing was repaid upon the execution of the equity
placement 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> 10
Advanced Systems International, Inc.
Notes to Consolidated Financial Statements
NOTE A - INDUSTRY SEGMENTS
The Company's operations by business segment for the three months ended
March 31, 2000 is as follows:
<TABLE>
<CAPTION>
Labor B2B
Management e-Business Total
------------------------------------------
<S> <C> <C> <C>
Revenues $ 2,078,423 $ 149,235 $ 2,227,658
Interest Income - - 943
Interest Expense 43,302 18,501 61,803
Depreciation and Amortization - 29,643 53,526
Net Earnings (Loss) 405,241 (269,061) 11,796
Assets 2,612,031 237,147 4,165,013
Expenditures for Assets - - 15,116
RECONCILIATION TO CONSOLIDATED AMOUNTS
NET EARNINGS
Net Earnings for Reportable Segments $ 136,180
Unallocated Corporate Expenses (124,384)
-----------
$ 11,796
===========
ASSETS
Total Assets for Reportable Segments $ 2,849,178
Corporate Assets 1,315,835
-----------
$ 4,165,013
===========
</TABLE>
<TABLE>
<CAPTION>
Segment Consolidated
OTHER SIGNIFICANT ITEMS Totals Adjustments Totals
------------------------------------------
<S> <C> <C> <C>
Interest Income $ - $ 943 $ 943
Depreciation and Amortization 29,643 23,883 53,526
Expenditures for Assets - 15,116 15,116
</TABLE>
<TABLE>
<CAPTION>
Long-Lived
GEOGRAPHIC INFORMATION Revenues Assets
--------------------------
<S> <C> <C>
United States $ 2,071,198 $ 501,137
Canada 156,460 -
--------------------------
$ 2,227,658 $ 501,137
==========================
</TABLE>
<PAGE> 11
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.
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: May 17, 2000 /s/ Robert C. DeMerell
----------------------
Robert C. DeMerell
Chief Financial Officer (Principal
Financial and Accounting Officer)
<PAGE> 12
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 282,431 339,091
<SECURITIES> 0 0
<RECEIVABLES> 3,270,352 1,708,138
<ALLOWANCES> 25,426 8,700
<INVENTORY> 39,229 42,560
<CURRENT-ASSETS> 3,675,036 2,081,421
<PP&E> 419,161 359,089
<DEPRECIATION> 200,742 103,354
<TOTAL-ASSETS> 4,165,013 2,739,769
<CURRENT-LIABILITIES> 3,666,750 2,017,298
<BONDS> 0 0
0 0
0 0
<COMMON> 13,403 11,689
<OTHER-SE> 482,457 393,480
<TOTAL-LIABILITY-AND-EQUITY> 4,165,013 2,738,769
<SALES> 2,227,658 1,762,260
<TOTAL-REVENUES> 2,227,658 1,762,260
<CGS> 42,088 118,833
<TOTAL-COSTS> 2,155,002 1,440,796
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 60,860 15,123
<INCOME-PRETAX> 11,296 306,341
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 11,796 306,341
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,796 306,341
<EPS-BASIC> 0 .03
<EPS-DILUTED> 0 .02
</TABLE>
