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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Micro-ASI, Inc.
(Name of Small Business Issuer in its charter)
TEXAS 75-2586030
(State of Incorporation) (IRS Employer Identification No.)
12655 NORTH CENTRAL EXPWY, SUITE 1000
DALLAS, TEXAS 75243
(Address of principal executive offices)
(972) 392-9636
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK $ .001 PAR VALUE
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PART I.
ITEM 1 DESCRIPTION OF BUSINESS.
(a) BUSINESS DEVELOPMENT.
Micro-ASI, Inc. (the "Company" or "Micro-ASI") is a development stage,
high-technology electronics company founded in 1995 in Dallas, Texas. The
Company has had no revenue from operations since inception.
There has not been any bankruptcy filing, receivership or any similar proceeding
since the Company's inception.
There has been no reclassification, merger or consolidation involving the
Company since its inception. There has been no sale of a significant amount of
assets that were not in the ordinary course of the Company's business, except
that the Company acquired Best Technologies, Inc. ("BTI") on January 18, 2000,
with an effective date of January 1, 2000, as disclosed in the Company's Form
8-K filed on January 27, 2000, which is incorporated herein by reference.
This document includes "forward-looking statements" including, in particular,
the statements about Micro-ASI's plans, strategies and prospects, future
financial condition and results of operations under the headings "Management's
Discussion and Analysis" or "Plan of Operations." We have based these statements
on our expectations about future events. The words "may," "intend," "will,"
"expect," "anticipate," "objective," "projection," "forecast," "position" or
negatives of those terms or other variations of them or by comparable
terminology are intended to identify forward-looking statements. Although
management believes that the plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, no assurance can be
given that such plans, intentions and expectations will be achieved, and we
caution you that our actual results may differ materially from those anticipated
or projected in our forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of Micro-ASI to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Such factors include, among other
things, (1) general economic and business conditions; (2) ability to cost
effectively integrate multiple technologies; (3) effect of future competition;
(4) failure to raise needed capital; and (5) the ability of Micro-ASI and its
third party providers to adequately address possible Year 2000 problems.
(b) BUSINESS OF ISSUER.
(1) PRINCIPAL PRODUCTS AND THEIR MARKETS:
The Company intends to design and manufacture products such as semiconductor
Multi-Chip Modules (MCM), Printed Circuit Boards (PCB), and electronic end
products based on flip-chip technology. The Company intends to provide these
products to strategic customer partners in a "one-stop-shop" for design,
prototype and manufacturing.
These types of products represent a large market opportunity, because the
electronics market is moving toward faster, smaller, higher performance devices
with lower costs and reduced power consumption. The worldwide electronics
end-equipment market is $1.2 trillion today and projected by the American
Electronics Association to grow to over $2 trillion by 2004. A growing
percentage of this market is being served through outsourcing. Outsourcing is
the process whereby a company contracts with another company for goods and/or
services instead of manufacturing the products itself. Cahners Research
estimates that the contract manufacturing market is growing from more than $100
billion in 1999 to $170 billion by 2001.
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Today, approximately 98% of semiconductor packaging is internally interconnected
by wire bond, which has been used since the late 1950s and is reaching its
physical limitations in terms of size reduction and cost. Flip-chip technology
differs from wire bond in that it allows a die to be connected directly to the
substrate using "bumping" technology, which is a process of using solder balls
to attach the die instead of using wire bond. Flip-chip technology offers the
following advantages over wire bond:
1. reduction in size
2. lower heat generation
3. improved performance.
Until recently, costs of flip-chip production have been too high to permit
widespread commercial use. Recent advancements in "bumping" the technology,
which is the process of attaching solder balls to a die, and advances in "high
density substrate", which is a medium to connect the die to its external
packaging, are dramatically reducing the costs of flip-chip production and
making it much more attractive as an alternative to wire bond technology for
large pin count devices.
COMPARING WIRE BONDED AND FLIP CHIP TECHNOLOGIES
The diagram below shows the reduction in size between a wire bonded package and
a flip-chip package.
[WIRE BONDED PACKAGE FLOW CHART] [FLIP CHIP PACKAGE FLOW CHART]
Micro-ASI's management believes that the current wire bonding process used to
interconnect silicon die to external packaging will be unable to support future
requirements of electronics products. The constant demand for affordable,
smaller products, with more functionality and greater performance that operate
at reduced power consumption levels will likely be supported by the flip-chip,
MCM's and system-on-a-chip technologies. These emerging technologies offer
significant form factor reduction for products due to a much-reduced footprint
of the electronics. With a wire bond approach, additional space is needed to
interconnect the silicon die to a substrate.
The close proximity of the die in a circuit afforded by flip-chip interconnect,
along with the elimination of the wire bonds for connections, creates a faster
and more efficient design. A recent study by William Brown found that a wire
bonded MCM was 15% to 20% slower than a functionally identical flip-chip MCM.
Problems with the wire bond approach exist because the wires themselves
introduce inductance,
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cross talk and impedance mismatches into a system. These "parasitics" limit the
bandwidth of a device or system and preclude it from operating at peak
performance. In the past, wire bonds minimally affected the operating speed of
silicon-based products. But today, these wire bonds have become a barrier to
continued product advancement in many cases because silicon design technologies
and manufacturing techniques have made advances in producing designs that
operate much faster than similar devices in the past. As each incremental
improvement in the silicon die was developed over the past several decades, the
instilled performance of the silicon die improved, while the performance of the
wire bonds remained unchanged. Therefore, wire bonds have now become a major
obstacle in the continuous quest for product performance improvement.
Another benefit of these emerging technologies over conventional wire bond
interconnect methods is that the heat generated by flip-chip silicon die can be
more readily dissipated into the substrate than with wire bond interconnect.
Flip-chip mounts the silicon die "face down" to the substrate. An underfill
material is applied between the die and the substrate. This underfill provides
structural support for the solder "bumps" that provide the electrical connection
between the die and the substrate. The underfill also has excellent thermal
conductivity properties. Thus the heat generated by the die is channeled to the
substrate via the underfill. With wire bond interconnect, however, the silicon
die is mounted "face up" on the substrate, exposing the input and output (I/O)
pads of the die. This allows a wire-bonding machine to attach wires to each.
However, the heat radiates off of the die rather than carried away to a
substrate by an underfill. This is an inefficient thermal management system, as
the thermal transfer rate through the cavity of the package is much slower in
the wire bond interconnect configuration than the heat transfer rate of the
underfill/substrate configuration. The cooler temperature of the die in the
flip-chip configuration means that the die will be able to operate at faster
speeds and will experience a reduced level of thermal stress, compared to the
wire bond interconnect.
Micro-ASI's objective is to be a "turn key" design and manufacturing company.
This means that the Company will have the following capabilities:
1. Product concept definition and trade studies
2. Engineering design, such as systems, electrical and mechanical
3. Engineering analysis, such as thermal, vibration, stress, timing and
power consumption
4. Prototype manufacturing
5. Product conformance testing and evaluation
6. Manufacturing capability
Micro-ASI plans to integrate all of the product development and manufacturing
steps into the Company. Integration will allow the Company to offer a
"one-stop-shop" solution. As of the date of this document, management is unaware
of any company offering all of these capabilities.
(2) DISTRIBUTION METHODS:
Micro-ASI will redesign products to flip-chip technologies. These products will
be redesigned and manufactured for the Company's customers and therefore sold
directly to Micro-ASI's customers.
(3) NEW PRODUCT STATUS
Mr. Cecil E. Smith, Jr., Chairman of the Board of Micro-ASI, brings his industry
contacts to the Company. Due to these contacts, Micro-ASI has been made aware of
a number of existing products that need to be redesigned and are candidates to
utilize these emerging technologies. Micro-ASI has begun work on selected
redesign projects representing significant business opportunities for the
Company. These projects in process include the redesign of a series of chips for
a large merchant semiconductor company, the redesign of a flash memory module
for a large memory manufacturer, and integrating four significant function chips
into one MCM for a large notebook computer company.
Micro-ASI intends to retain the design rights to all redesigned products. This
business strategy and policy should cause Micro-ASI's installed intellectual
property base to grow rapidly and keep the
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Company in the forefront of technology and turnkey delivery of solutions
leveraging such key technologies.
The Company's five-year business plan includes the design of new products such
as emerging info-appliances and their interconnections to networks, specialized
information appliances for the medical market, embedded computers for the
automotive industry, and smaller and more capable telecommunications equipment.
In January 2000, the Company and ZAE Research, Inc. ("ZAE") reached and
agreement to terminate a relationship described through a Memorandum of
Understanding ("MOU") previously agreed to in March 1999. Under the MOU, the
Company could have acquired 50% of a subsidiary of ZAE in addition to funding
development of certain technology and obtaining other royalty arrangements. The
Company never acquired any ownership in ZAE and ceased funding in December 1999.
On January 18, 2000, and effective January 1, 2000, Micro-ASI entered into a
definitive stock purchase agreement (the "Agreement") whereby the Company
acquired all of the outstanding common stock of Best Technologies, Inc. ("BTI").
BTI, a Texas corporation, is a contract electronics manufacturer headquartered
in Wylie, Texas. This acquisition adds the manufacturing capabilities that will
enable the Company to become a turnkey or one-stop-shop for its customers.
(4) COMPETITIVE BUSINESS CONDITIONS AND MICRO-ASI'S COMPETITIVE POSITION:
Today's electronics marketplace demands quality products which are faster, more
reliable, easier to use and less costly than current or earlier generation
products. As the need for miniaturization drives products and product part
geometry ever smaller and increasingly complex, a new method of interconnect is
necessary.
Traditionally, flip-chips and MCMs have been used only in military or other
performance intensive applications because of higher costs associated with them
compared to older, conventional interconnect technologies. These higher costs
for flip-chips and MCMs have historically been incurred primarily because of the
cost to apply solder balls on the die, the cost of a sufficiently coplanar
substrate, and low yields due to Known Good Die ("KGD") issues. The expression
"Known Good Die" pertains to the availability of semiconductor chips that are
guaranteed to meet the same manufacturers specifications and their packaged
counterparts.
Until recently, the cost of bumping a standard eight-inch wafer was typically in
excess of $1,300. Through technological advances the cost of bumping has dropped
to around $60-$80 per wafer. This accomplishment has removed a large hurdle in
making flip-chip production cost competitive with traditional interconnect
approaches.
Substrate technology has also been a traditional barrier to the cost effective
deployment of flip-chips and MCMs. The use of flip-chip technology enables a
"fine pitch" etch and I/O routing that is not possible with wire bond
technology. This greater density capacity requires a substrate that can be
manufactured to more stringent tolerances and can insulate electrical signals at
very narrow line widths. Until recently, the cost of these high performance
substrates was not competitive with conventional substrate materials. Micro-ASI
is working to identify the most cost effective high performance substrate
material. These substrates have not yet been fully developed for the high volume
production environment. Micro-ASI is working with Hadco, (a leading electronic
substrate manufacturer) to complete the development and scalability of these
substrate materials. Micro-ASI, through its customers, will furnish the products
with the volumes necessary to allow Hadco to allocate significant resources to
this effort. Micro-ASI intends to use Hadco's substrates in the production of
these products.
Without KGD, the performance of systems and/or modules cannot be characterized
at the component level. Furthermore, the underfill used in flip-chip
applications often makes the rework of a module or system difficult when
defective die are identified at system level test. Until recently, there were
relatively few semiconductor products even offered in a KGD format. Intel now
has the SmartDie(TM) program; Texas Instruments has a KGD product line, as do
other leading semiconductor companies, such as Motorola, National Semiconductor
and Micron. There are also companies, such as ChipSupply, that specialize
exclusively in KDG. The movement toward KGD has added incremental momentum to
the overall KDG sector of the industry.
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Because of these industry barriers and the significant investment required in
infrastructure change to enable these new technologies, the vast majority of
products continue to be designed and manufactured with traditional packaging and
interconnect techniques. Currently there are relatively few companies offering
design services utilizing flip-chip and/or MCM technologies.
The Company is positioned to be a "core enabling technology" enterprise.
This means that Micro-ASI will pull the various pieces of the advanced
interconnect components together and act as an industry change agent in the
transition from wire bond interconnect to flip-chip interconnect. There are
companies in existence that have a piece of the overall flip-chip and MCM
process, but few companies, if any, have focused on the entire process.
Management believes that its long-standing and continuing contacts with senior
executives in the semiconductor, telecommunications, computer, medical, and
automotive industries should give the Company an advantage in identifying
products for redesign and then securing new business on such leading edge
products. The fact that Micro-ASI intends to retain ownership of designed
products should quickly add value and intellectual property to the Company's
portfolio. The Company believes, therefore, that it is creating barriers to
entry for competitors from the outset. Because of the Company's turnkey vertical
integration approach, there are currently few companies that can or would
compete directly with Micro-ASI. However, since the demand for MCMs is expected
to be large, it is possible that new competitors, some of whom may imitate the
strategy of the Company, will emerge. There is no assurance that future
competition will not have a materially adverse affect on the operations of the
Company.
(5) SOURCES AND AVAILABILITY OF MATERIALS AND PRINCIPAL SUPPLIERS:
Primary sources for component materials to manufacturer redesigned products will
come through vendor relationships with electronic component distributors and
original equipment manufactures (OEMs). Substrate requirements will be met
through close relationships with material manufacturers and fabricators in the
electronics industry. Micro-ASI will work closely in the development of
substrates with vendors where new materials are required for the assembly
processes.
The Company plans to work directly with equipment manufacturers to sell
flip-chip and MCM packaging solutions at the component or board level. For
example, the Company will consult directly with a hardware manufacturer to
miniaturize an existing product design by employing flip-chip packaging of key
integrated circuits. In this type of consultation the Company will directly sell
consulting services, design services, prototype manufacturing and board
production without the use of distribution partners or other reseller
intermediaries.
(6) DEPENDENCE ON ONE OR A FEW CUSTOMERS:
The Company has had no revenues since its inception and has not established a
customer base.
(7) PATENTS, TRADEMARKS, LICENSES, CONCESSIONS AND ROYALTIES
Micro-ASI has filed a patent with the US Patent Office for wafer integration and
testing.
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(8) NEED FOR GOVERNMENT PRODUCT APPROVAL OF PRODUCTS OR SERVICES:
Micro-ASI does not require any governmental approval of principal products or
services.
(9) EFFECT OF EXISTING OR PROBABLE REGULATIONS ON THE BUSINESS:
Micro-ASI is not aware of any existing or probable regulations that would create
any adverse conditions for the Company.
(10) LAST TWO YEARS' RESEARCH AND DEVELOPMENT SPENT:
Micro-ASI has spent $302,355 for the twelve months ended December 31, 1998, and
$186,500 for the twelve months ended December 31, 1997. For the nine-month
period ended September 30, 1999, the Company has spent approximately $584,653
in research and development.
(11) COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS:
Micro-ASI is not aware of any issues regarding compliance with environmental
laws that would create any adverse conditions for the Company.
(12) NUMBER OF TOTAL AND FULL TIME EMPLOYEES:
Micro-ASI has eleven full-time employees as of January 27, 2000, which does not
include BTI employees.
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GLOSSARY OF KEY TERMS AND PHRASES:
<TABLE>
<CAPTION>
TERM: MEANING IN CONTEXT:
- ---- ------------------
<S> <C>
Coplanarity A measurement of substrate warpage
Core enabling technologies Fundamental, essential technologies needed
to produce a product
Design tools Automated equipment and software enabling
electronic design
Die The silicon that gives a component its
functionality same as "chip"
Fine etch spacing Circuit conductors on a Printed Wiring Board
that are spaced close to each other
Fine pitch Distance between leads of electronic
components
Flip-Chip An attachment method in which solder bumps
are used to electrically connect a die to a
substrate. A flip-chip die is mounted face
down on a substrate.
Form factor The mechanical envelope that a product fits
within
Information Appliance Some collection of electronic memory, logic,
and/or other sections of the electronic
circuitry enabling a user to achieve a given
result or goal
Intellectual property Company proprietary technology, such as
designs, and drawings
Interconnect The medium that brings I/O to a die or
component
Interposer Interfaces the die to the substrate (PCB)
Merchant semiconductor Direct provider of silicon-based products
companies
Multichip Module (MCM) A device consisting of several die mounted
to a common substrate and interconnected
Substrate Material to which a semiconductor is mounted
that often routes the semiconductor's
input/output
Substrate Pitch Spacing between pins of a semiconductor die
or package
System-on-a-Chip Electronics for a complete product housed on
a single piece of silicon
Vertically-integrated Complete turnkey from concept through high
volume manufacturing
Wafer Manufactured silicon medium for
interconnecting or bumping interfaces
Wire bond interconnect An attachment method in which thin gold
wires are used to electrically connect a die
to a substrate. A wire bonded die is mounted
face up on a substrate.
</TABLE>
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
PLAN OF OPERATIONS:
The Company is a development stage company and to date has had no revenues. The
primary activities to date have been limited to forming the management team,
research and development and identifying products to redesign utilizing
flip-chip technology. Accordingly, management does not consider the historical
results of operations to be representative of future results of operation of the
Company. The following financial information shows results of operations for the
twelve months ended December 31, 1998 and 1997 and for the nine months ended
September 30, 1999 and 1998, respectively. This Form 10-SB/A should be read in
conjunction with the Form 10-QSB and Form 10-QSB/A, which were filed on December
16 and 17, 1999, respectively, and Form 8-K, which was filed on January 27,
2000.
The Company has identified redesign projects from three major electronic
manufacturers that will serve as the core of the Company's research and
development strategy. The Company anticipates that it will spend approximately
$2.1 million in research and development projects during 2000. Micro-ASI is now
in the process of project definition, which includes precise technical details,
number of units, pricing and the time to do the redesign. These three projects
will result in significant business opportunities for the Company after they
become contracts. The Company has also purchased BTI, a contract electronics
manufacturers, which will allow the Company to become a one-stop-shop for its
customers.
Management intends to complete a $15 million private placement financing by the
end of the first quarter of the year 2000. Upon completion of this financing,
Micro-ASI will begin its expansion plans in accordance with its business plan.
The Company will invest in new equipment so that BTI can install a new flip-chip
line and two additional surface mount lines to increase the production capacity
of the facility at an anticipated cost of approximately $3.5 million. Micro-ASI
will also begin work on a Technology Integration Deployment Center ("TIDC"). The
Company will locate a suitable facility and begin the staffing of employees and
purchase of the necessary equipment to complete the research and development
portion of the business plan. This design facility is an integral part of the
Company's strategy to provide a turnkey solution for its customers.
Micro-ASI anticipates that after the additional funding is completed, it will
increase its number of employees from eleven to approximately 200 employees over
a period of approximately 12 months, which includes the employees of BTI.
The Company anticipates that it will purchase approximately $1.5 million in
capital equipment during the year 2000. This includes production equipment and
equipment for the TIDC. The Company also anticipates that it will lease an
additional $16.8 million in both research and development equipment and
production equipment to further increase the capacity of BTI over a period of
the next 24 months.
The Company also anticipates that it will spend an additional $1.0 million to
increase the size of the building of BTI. This increase in size will increase
the manufacturing capacity of BTI.
Micro-ASI believes the completion of a $15 million private placement mentioned
above, will provide sufficient capital reserves to allow the Company to achieve
its goals as set forth above. Should the Company not raise this additional
capital, operations will be materially affected and the goals set forth above
will be scaled back to levels consistent with the Company's available funds.
RESULTS OF OPERATIONS:
The following financial information shows results of operations for the twelve
months ended December 31, 1998 and 1997 and for the nine months ended September
30, 1999 and 1998.
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SUMMARY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
---------- -----------------
December 31, December 31, September 30, September 30,
1998 1997 1999 1998
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest Income $ 8,649 $ 2,153 $ 19,224 $ 7,736
Research and Development (302,355) (186,500) (584,653) (283,622)
General and Administrative (516,964) (179,959) (1,839,990) (267,360)
Interest Expense (7,407) (62,511) (1,761) (5,657)
------------ ------------ ------------ ------------
Net Loss $ (818,077) $ (426,817) $ (2,407,180) $ (548,903)
============ ============ ============ ============
</TABLE>
The increase in research and development expenses for the twelve months ended
December 31, 1998 compared to December 31, 1997 was due primarily to the initial
development project of developing MCM technology for a notebook computer. This
project was cancelled in early 1999. The increase in research and development
for the nine-month period ended September 30, 1999 compared to the nine-month
period ended September 30 1998 was due to the funding of new battery technology.
As of January 18, 2000, ZAE and Micro-ASI mutually agreed to terminate their
relationship as described in the Memorandum of Understanding (MOU) previously
agreed to in March 1999. ZAE has agreed to repay all amounts previously funded
by the Company, however due to the financial condition of ZAE; management has
elected to fully reserve this receivable.
The increase in General and Administrative expenses for the twelve months ended
December 31, 1998 compared to the twelve months ended December 31, 1997 was
primarily attributable to increases in consulting fees, legal and professional
fees, rent and travel expenses. Consulting fees were $174,875 and $101,500 for
the 12 months ended December 31, 1998 and 1997, respectively. The consulting
fees were for financial, administrative, sales and marketing and increased due
to the increased activities of the Company and the initial redesign activities
of the Company. Legal and professional fees were $77,292 and $44,453 for the 12
months ended December 31, 1998 and 1997, respectively. The increases in these
fees were primarily attributable to filing the Form 10-SB and Form 10-SB/A. The
Company paid approximately $361,587 in salaries for the nine months ended
September 30, 1999. Rent expense was $23,491 for the 12 months ended December
31, 1998. The Company did not pay rent in 1997, as it did not begin leasing
office space until 1998. Travel expenses were $174,876 and $20,779 for the 12
months ended December 31, 1998 and 1997, respectively. The increase in travel
expenses was attributable to the Company's private placement of stock,
developing business relationships and securing redesign projects.
The increase in General and Administrative expenses for the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998 was
primarily attributable to adding eleven full time employees, consulting fees,
legal and professional fees, travel expenses and investor and public relations
fees. The Company paid approximately $361,587 in salaries for the nine month
period ended September 30, 1999 and paid no salaries for the same period in
1998. Services to the Company were provided by outside consultants. The Company
paid approximately $163,578 and $103,626 for consulting services for the nine
months ended September 30, 1999 and 1998, respectively. These increases in
consulting services were for sales, marketing, and administrative services,
which were in conjunction with the initial efforts to identify and begin
discussions on redesign projects. The Company's legal and professional fees were
approximately $74,126 and $63,297 for the nine months ended September 30, 1999
and 1998, respectively. This increase was due primarily to the fees associated
with the recent filing of the Company's Form 10-SB and Form 10-SB/A. Travel
expenses were approximately $247,402 and $134,667 for the nine months ended
September 30, 1999 and 1998, respectively. This increase was attributable to
sales of the Company's stock, business development and securing the redesign
projects. Additionally, the Company entered into a consulting contract for
investor and public relations with Kingdom Capital. The Company paid Kingdom
Capital $238,250 for these services. In 1999, the Company determined it would be
appropriate to award Kingdom Capital in the form of 600,000 shares of the
Company's Common Stock valued at $600,000. This amount was charged to expense in
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June 1999. In addition, the Company granted Kingdom Capital an additional
150,000 shares valued at $150,000 for future services through December 31, 1999.
The Company chose to grant stock in lieu of cash due to its limited liquidity
situation at the time of the decision. As of September 30, 1999, the Company had
charged $75,000 of the $150,000 to expense.
SUMMARY BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31, September 30,
1998 1999
------------ ------------
<S> <C> <C>
Cash $ 177,821 $ 1,047,533
Other Assets 5,427 169,697
------------ ------------
Total Assets $ 183,248 $ 1,217,230
============ ============
LIABILITIES AND EQUITY
Accounts Payable $ 188,492 $ 227,455
Note and Interest Payable 87,812 --
Additional Capital 1,903,212 5,393,223
Deficit Accumulated during (1,996,268) (4,403,448)
development stage) ------------ ------------
Total Liabilities & Equity $ 183,248 $ 1,217,230
============ ============
</TABLE>
The increase in cash and additional capital at September 30, 1999 reflects the
proceeds from additional sales of shares of Common Stock. During the nine months
ended September 30, 1999, the Company sold 2,613,636 shares of its Common Stock
for $2,613,236. The note and interest payable settled during 1999 for 100,000
shares of the Company's Common Stock valued at $100,000. The excess over the
carrying value of the note and interest payable was expensed as additional
interest expense. The increase in "Other Assets" represents purchases of
property and equipment. All other line items, excluding "Deficit Accumulated",
which reflects the operating losses, have remained relatively unchanged.
LIQUIDITY AND CAPITAL RESOURCES:
During the twelve months ended December 31, 1998 the Company sold 768,800 shares
of Common Stock for $766,300. During the nine months ended September 30, 1999
the Company sold 2,613,236 shares of Common Stock for $2,613,236. In addition,
the Company issued 26,775 shares valued at $26,775 for consulting services. The
proceeds from the sales of these securities were used to hire the executive
management team, secure redesign projects and finance daily operations.
In addition to the above stock sales, during the period October 1, 1999 through
December 31, 1999 the Company sold an additional 393,300 shares of Common Stock
for $393,300. Other than Notes Payable to BTI, the only fixed obligation is the
office lease rental of $8,330 per month. However, to execute the business plan,
the Company intends to sell shares of preferred stock in the first quarter of
2000 to raise up to $15,000,000. The proceeds from the sale of these securities
would provide for the following:
o Leasing a facility for a Technology Integration Deployment Center
("TIDC") This facility is intended to be a collection of capabilities,
tools and technologies, staffed with engineers and technologists. The
TIDC and its staff are a pivotal element of the Company's strategy to
absorb, improve and create its intellectual property and innovative
core technologies and provide Micro-ASI customers with full,
systems-level solutions leveraging these technologies.
o Fund the initial note due to BTI in the amount of $600,000.
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o Purchasing manufacturing equipment to increase the capacity of BTI.
The additional equipment will include flip-chip surface mount and
related production equipment. The Company will purchase furniture,
computers, test equipment and production equipment related for the
research and development center.
o Employing additional senior level management. New senior level
managers will include a Chief Financial Officer, Chief Information
Officer, VP of Business Development, VP of Human Resources and VP of
Legal Affairs.
o Employing senior and junior level design engineers for research and
development and for the TIDC.
o Providing computer equipment and software tools for above mentioned
design engineers.
o Continuing development of current redesign projects.
o Initiating new large-scale redesign programs.
o Adding administrative, accounting, financial and human resources
personnel to strengthen the infrastructure of the Company.
o Providing working capital for daily operations.
If the Company is unable to raise the additional capital, operations will be
materially adversely affected. If less than $15,000,000 is raised, the Company
would have viable alternative courses of action. First, the expansion of BTI
could be delayed. Secondly, the Company could reduce the number of initial
projects, which would reduce the number of personnel required.
Effective January 18, 2000, Micro-ASI completed the acquisition of the
outstanding common stock (the "BTI Common Stock") of Best Technologies, Inc., a
Texas corporation, from the sole shareholder of BTI (the "Seller"), pursuant to
a stock purchase agreement (including all Exhibits and Schedules thereto and
documents executed in connection therewith, the "Agreement"). BTI is an
electronics contract manufacturer headquartered in Wylie, Texas. In connection
with the Agreement, one share of preferred stock of BTI (the "BTI Preferred
Stock") was created and issued to the Seller. The Company, as the holder of the
BTI Common Stock, has the right to appoint one director to the three member
Board of Directors of BTI. Seller, as holder of the BTI Preferred Stock has the
right to appoint two directors to the three-member Board of Directors of BTI and
certain other voting rights. Pursuant to the Agreement, the Company will receive
the outstanding BTI Preferred Stock upon the satisfaction of certain
obligations, including, but not limited to, the completion of an initial public
offering of the Company's Common Stock.
The total aggregate purchase price for the BTI Common Stock is approximately
$5.3 million. The purchase price includes (i) a promissory note from the Company
to the Seller in the amount of $2,500,000, due the earlier of (a) December 31,
2001 or (b) ten days after the completion of an initial public offering by the
Company (the "Purchase Note"); (ii) a convertible note from the Company to the
Seller in the amount of $1,416,667 due December 31, 2001, which is immediately
convertible into 1,416,677 shares of Common Stock of the Company (the
"Convertible Note"); (iii) a promissory note from BTI to the Seller and
guaranteed by the Company in the amount of $600,000, due the earlier of (a)
March 31, 2000 or (b) ten days after the completion of one or more private
placements having an aggregate gross offering amount in excess of $6,000,000
(the "Cash Note"). Additionally, the Company has committed to purchase $750,000
of capital expenditures to be used in BTI's flip-chip assembly due ninety days
after the completion of one or more private placements having an aggregate gross
offering amount in excess of $6,000,000 (the "Capital Contribution").
Furthermore, the payment of
12
<PAGE> 13
the Cash Note, the Purchase Note, and the Convertible Note and the capital
contribution are secured by a stock pledge agreement pursuant to which the
Company has pledged all of the BTI Common Stock. The purchase price is not
subject to any post-closing adjustments. The acquisition of BTI provides the
Company with manufacturing capabilities to produce the redesigned products and
offer turnkey solutions to its customers. Because the seller of BTI still
retains voting control, the Company will not consolidate the operations of BTI
until the obligations noted above are satisfied.
If the Company is unable to raise $15 million through an equity offering, the
Company may be limited to funding the initial note due to BTI in the amount of
$600,000, which would limit the Company's ability to increase the manufacturing
capacity of BTI.
The Company has filed a preliminary Proxy Statement with the Securities and
Exchange Commission ("SEC") to call a Special Meeting of the Shareholders to
approve an increase in the authorized preferred shares from 1,000,000 to
15,000,000 and to approve an increase in the authorized common shares from
20,000,000 to 75,000,000 shares and authorize the board to issue blank check
Preferred Stock. The meeting, subject to SEC review, has been tentatively
scheduled for February 16, 2000.
IMPACT OF THE YEAR 2000
The Year 2000 Issue is primarily the result of computer programs being written
using two digits rather than four to define the applicable year. There are no
material Year 2000 compliance requirements confronting the Company since it has
no current operating business. The Company's current financial and
administrative systems are fully compliant. Accordingly, the Company has no
ongoing remediation plans with respect to its current systems, however, should
the Company experience a problem, the costs to fix such problems would be
nominal. As the Company only recently acquired its financial and administrative
systems, the systems acquired were determined to be fully Year 2000 compliant
prior to purchase. As of February 3, 2000, no Year 2000 problems have been
encountered.
The Company continues to assess the impact, if any, the Year 2000 Issue will
have on its key vendors and potential strategic partners before the inception of
a relationship. As of February 3, 2000, the Company is not aware of the
existence of any significant Year 2000 Issue with any its key vendors and
potential strategic partners.
ITEM 3 DESCRIPTION OF PROPERTY:
The Company currently leases office space in Dallas, Texas in Park Central Plaza
1 at 12655 N. Central Expressway, Suite 1000, Dallas, Texas 75243. This lease,
which will expire in April 2000, is for 6,431 square feet at the rate of
$8,329.58 per month.
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The following tables set forth, as of January 31, 2000, the name and number of
shares of the Company's Common Stock, par value $0.001 per share, held of record
or beneficially by each person who held of record or was known by the Company to
own beneficially more than 5% of the 19,227,111 issued and outstanding shares of
the Company's Common Stock and the shareholdings of the officers and directors
of the Company.
13
<PAGE> 14
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Title of Class Name and Address Amount (1),(2) % of Class
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Cecil E. Smith, Jr. (4) 3,386,900 17.5%
Park Central Plaza I
12655 N. Central Expressway.
Suite 1000
Dallas, Texas 75243
- ------------------------------------------------------------------------------------------------------------
Common Joel E. Claybrook (5) 1,930,000 10.0%
Park Central Plaza I
12655 N. Central Expressway.
Suite 1000
Dallas, Texas 75243
- ------------------------------------------------------------------------------------------------------------
Common Dr. Meng-Sheng Lin (6) 1,175,000 6.1%
Park Central Plaza I
12655 N. Central Expressway
Suite 1000
Dallas, Texas 75243
- ------------------------------------------------------------------------------------------------------------
Common Dr. Myles Welborn 45,500 .2%
- ------------------------------------------------------------------------------------------------------------
James Hamner 0 **
- ------------------------------------------------------------------------------------------------------------
Common Dr. James Dukowitz (7) 100,000 .5%
- ------------------------------------------------------------------------------------------------------------
Common Robert J. Hoyt 1,800,000 9.4%
174 The Masters Circle
Costa Mesa, CA 92627
- ------------------------------------------------------------------------------------------------------------
All Directors & 6,637,400 33.5%
Officers as a
Group
(6 persons)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
**Denote less than 1% ownership.
(1) The rules of the SEC provide that, for the purpose hereof, a person is
considered the "beneficial owner" of shares with respect to which the
person, directly or indirectly, has or shares the voting or investment
power, irrespective of his economic interest in the shares. Unless
otherwise noted, each person identified possesses sole voting and
investment power over the shares listed, subject to community property
laws.
(2) Based on a total of 19,227,111 shares of Common Stock issued and
outstanding as of the January 31, 2000. Shares of Common Stock subject to
options that are exercisable within 60 days of January 31, 2000, are deemed
beneficially owned by the person holding such options for the purposes of
calculating the percentage of ownership of such person but are not treated
as outstanding for the purpose of computing the percentage of any other
person.
(3) The 1999 Stock Option Plan which is fully described in the Company's Proxy
Statement filed on December 3, 1999 and is incorporated by reference was
approved. An additional 837,500 shares could have been purchased by
December 31, 1999, but no options were exercised.
(4) Mr. Smith's shares include 175,000 shares that could be purchased under the
proposed Stock Option Plan. If his options were exercised, he would own
3,386,900 shares representing 17.5% of the outstanding shares after the
shares were exercised.
(5) Mr. Claybrook's shares include 175,000 shares that could be purchased under
the proposed Stock Option Plan. If his options were exercised, he would own
1,930,000 shares representing 10.0% of the outstanding shares after the
shares were exercised.
(6) Dr. Meng-Sheng Lin's shares 125,000 shares that could be purchased under
the proposed Stock Option Plan. If her options were exercised, she would
own 1,175,000 shares representing 6.1% of the outstanding shares after the
shares were exercised.
(7) Dr. Dukowitz's shares include shares that could be purchased under the
proposed Stock Option Plan. If his options were exercised, he would own
100,000 shares representing .50% of the outstanding shares after the shares
were exercised. Dr. Dukowitz does not currently own any shares of stock.
14
<PAGE> 15
ITEM 5 DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS:
Shown in the table below are the Directors, Officers and Significant Employees
of the Company. The Company will be dependent on the services of its management
and key personnel, particularly Cecil Smith and Joel Claybrook. Although the
Company does not anticipate losing any of its key executives, the loss of any
key member of management could have an adverse effect on the Company's
operations.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Director/ Director Significant
Name Position Director Class/ Officer Employee
Since Term
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cecil E. Smith, Jr. Chairman of the Board of X III X
Directors 2/95 3 Years
- ------------------------------------------------------------------------------------------------------------------------
President, III
Joel E. Claybrook Chief Executive Officer, X 3 Years X X
Member, Board of Directors 4/98
- ------------------------------------------------------------------------------------------------------------------------
Director of International X II X
Dr. Meng-Sheng Lin Development 6/99 2 Years
Member, Board of Directors
- ------------------------------------------------------------------------------------------------------------------------
Dr. Myles Welborn Member, Board of Directors X I
9/99 1 Year
- ------------------------------------------------------------------------------------------------------------------------
James Hamner Member, Board of Directors X I
9/99 1 Year
- ------------------------------------------------------------------------------------------------------------------------
Dr. James Dukowitz Executive Vice President and
Chairman of the Executive X X
Committee of the Office of the
Chief Executive
- ------------------------------------------------------------------------------------------------------------------------
Jerry Kline Vice President of X
Technological Development
- ------------------------------------------------------------------------------------------------------------------------
Scott Smith Vice President of X
Manufacturing Operations
- ------------------------------------------------------------------------------------------------------------------------
Tom Miller Vice President and General Manager - X
Computer SBU
- ------------------------------------------------------------------------------------------------------------------------
Ari Reubin Vice President and General Manager - X
Telecom/Internet SBU
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
On December 15, 1999, the Company held their Annual Meeting of Shareholders. At
that meeting, the shareholders approved the new slate of directors as described
in the Company's Proxy Statement filed on December 3, 1999. The Shareholders
also approved a change in the terms of office for members of the Board of
Directors, which is described in the detailed Proxy Statement, which is
incorporated by reference.
CECIL E. SMITH, JR., 61, serves as Chairman of the Board of Directors of the
Company. Since 1973, Mr. Smith has served as Chief Executive Officer of S&N
Corporation ("S&N"), a provider of strategic planning and business development
services to the electronics industry. Mr. Smith served as a director for
Microelectronic Packaging Systems, Inc. from 1991 to 1996, and as Executive Vice
President and Director of Alcoa Electronic Packaging, Inc. from December 1988 to
March 1992. Mr. Smith attended the University of Texas and performed advanced
studies with the American Management Association
15
<PAGE> 16
(Executive Development) in Hemphill, New York and Bell Laboratories (Advanced
Semiconductor Technology) in Phillipsburg, Pennsylvania.
JOEL E. CLAYBROOK, 50, serves as a member of the Board of Directors, and as
President, Chief Executive Officer and Chief Financial Officer of the Company.
Mr. Claybrook has 25 years experience in finance, marketing, and administrative
management including over 10 years experience in sales management with the high
tech and communications industries. Prior to joining Micro-ASI, Inc. in 1998,
Mr. Claybrook served four years as General Partner of Hawk Financial Company,
Ltd., an automobile finance company. From 1992 to 1993, he served as Chief
Financial Officer for Pinpoint Communications, Inc., a Texas based high-tech
wireless data communications company. Mr. Claybrook, a Certified Public
Accountant, has served as Chief Financial Officer of several companies and
practiced as a financial consultant to the service, distribution, and
manufacturing industries. He received a Bachelor of Business Administration
degree in 1971 from The University of North Texas.
DR. MENG-SHENG LIN, 55, serves as a member of the Board of Directors and as
Director of International Development. Dr. Lin has taught and practiced medicine
for 29 years. Dr. Lin earned her Doctor of Medicine degree from Peking China
Medical College in 1970. As well, from 1982-83, Dr. Lin was a Postdoctoral
Fellow with the World Health Organization at the M.D. Anderson Hospital & Tumor
Center, University of Texas Health Science Center.
DR. MYLES WELBORN, 71, has 40 years experience in dentistry, and has served as
teacher and principal in the Texas school system. Upon earning a Bachelors
Degree from Hardin-Simmons University in 1949, Dr. Welborn served in the Army
for three years, attaining the rank of Corporeal Chief of Congressional Section
of the General's Office. After the military, he spent several years in education
as a teacher and principal in elementary schools. Dr. Welborn attended the
Baylor College of Dentistry, earning a DDS with honors. Since 1960 he has been
practicing dentistry.
JIM HAMNER, 61, has forty years of business experience, specializing in
information technology. He began his professional career in 1960 at the U.S.
Naval Ordnance Laboratory in Corona, California, working in early computing
evaluations of missile development and testing. Since 1998, Mr. Hamner has been
employed as a Senior Manager at Andersen Consulting in Dallas. For 32 years
prior to 1998, he was employed by Texas Instruments in Dallas, Texas in multiple
technical, management, and administrative roles. He holds a Bachelors Degree in
Mathematics from Baylor University.
DR. JAMES DUKOWITZ, 54, is the Executive Vice President and Chairman of the
Executive Committee of the Office of the Chief Executive. Dr. Dukowitz holds a
Ph.D. from Massachusetts Institute of Technology, where he also served as
Special Assistant to MIT President Dr. Jerome Wiesner to establish the
Congressional Office of Technology Assessment. Prior to 1999, Dr. Dukowitz spent
over 20 years with Texas Instruments in Dallas, Texas, serving as President of
TI Asia and TI China for six years; Vice President of European and Latin
American Marketing; and Vice President, Corporate Staff with responsibilities
for Corporate Strategic Planning, Corporate Marketing, and Corporate Relations.
JERRY KLINE, 42, Vice President of Technological Development, has been with the
Company since February 1999 and is responsible for Technological Development.
Prior to joining the Company, Mr. Kline served 15 years with Raytheon Systems as
Manager of Hardware Design for major military weapons systems. His most recent
assignment at Raytheon was a $30,000,000 upgrade to a key avionics package for
the F-16 aircraft. He is a 1980 graduate of Texas A&M University with a Bachelor
of Science in Electrical Engineering degree and is a member of the Institute of
Electrical and Electronics Engineers.
SCOTT SMITH, 39, Vice President of Manufacturing Operations, has been with the
Company since February 1999 and is responsible for Manufacturing Operations. For
the prior year, Mr. Smith was General Manager of the Dallas based manufacturing
operations of Xetel Corporation, a large subcontract manufacturer of
semiconductor products. Prior to his Xetel experience, Mr. Smith served six
years as Vice President of Marketing and Sales for Outsource Solution, Inc. He
has more than 16 years of electronic contract manufacturing experience in both
the United States and Mexico. He has been involved in a number of successful
start-up operations and held
16
<PAGE> 17
various positions with Alcoa Corporation in the Electronic Packaging Group,
specializing in semiconductor packaging and manufacturing. Mr. Smith is a 1982
graduate of Baylor University with a Bachelor of Science degree. Scott is the
son of Cecil E. Smith, Jr.
TOM MILLER, 48, serves as Vice President and General Manager of the Computer
Strategic Business Unit for the Company. For the past two years, Mr. Miller was
Vice President and General Manager of the Commercial Division of Acer America
Corporation, responsible for the sales of Acer's brand of computers to the
business market. Prior to Acer, Mr. Miller spent 23 years with Texas Instruments
where he started in Sales Management for the Data Systems Division, moving to
Marketing for the Data Systems Group, Manager of the Travel Industry Business
Unit for the Peripheral Products Division, Vice President of Sales and Marketing
for Personal Products Group, and Vice President of the Mobile Computing Group.
He holds a Masters of Business Administration degree from The University of
Texas at Austin and a Bachelor of Science degree in Industrial
Management/Computer Science from Purdue University.
ARI REUBIN, 36, serves as Vice President and General Manager of the
Telecommunications Strategic Business Unit for the Company. For over ten years
he was with Texas Instruments where he served as Director and CEO of the
worldwide Digital Image Sensor Products group, Director of Strategic Alliances
for the Notebook Computer group, Manager of Technology Transfer for TI at
ESMATECH, Manager of worldwide marketing for Quality Assurance Products, and key
engineering positions in semiconductor packaging. He holds a BS in Materials
Engineering from Michigan State University, an MS in Materials Engineering from
University of Illinois at Urbana-Champaign. He has also completed studies at
Wharton Business School of Business Strategy, Mergers and Acquisitions, Finance
and Law.
ITEM 6 EXECUTIVE COMPENSATION:
From inception to December 31, 1998, the Company had not paid any salaries to
its officers. Beginning January 1, 1999, the Company started paying Joel
Claybrook, President and CEO, an annual salary of $180,000. Cecil E. Smith, the
Company's Chairman of the Board, received $15,000 per month for consulting
services and $10,000 per month for travel expenses, which was paid to his
company S&N Consulting. This contract ended September 30, 1999 and he joined the
Company as a salaried employee on October 1, 1999 at a salary of $180,000 per
year.
On June 16, 1999, Dr Meng-Sheng Lin, in connection with an $860,000 purchase of
Common Stock of the Company, was appointed to serve as a member of the Board of
Directors. Additionally, on July 1, 1999, Dr. Lin joined the Company in the
capacity of Director of International Development with an annual salary of
$180,000.
On September 1, 1999, Dr. James A. Dukowitz joined the Company at a salary of
$180,000 per year. Dr. Dukowitz has deferred 75% of his salary until the first
quarter of 2000, at which time the deferred salary will be paid. Dr. Dukowitz
will receive full salary beginning January 1, 2000.
There are no compensatory plans or arrangements with respect to any person named
as a director, officer, promoter, or control person which would result in
payments to any such person because of his or her resignation, retirement, or
other termination of such person's employment with the Company or due to any
change of control. There are currently no employment agreements with any member
of management or the Board of Directors.
17
<PAGE> 18
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Micro-ASI's promoters were as follows:
<TABLE>
<CAPTION>
Percentage Ownership
---------------------
Name Initially Currently
- -------------------------- --------- ---------
<S> <C> <C>
Cecil E. Smith (1) 45.00% 17.5%
Joel E. Claybrook (1) 12.50% 10.0%
Timothy M. Da Silva (1)(2) 12.50% 3.1%
Robert J. Hoyt (3) 15.00% 9.4%
BLB Financial, Inc. (4) 10.00% 0.0%
</TABLE>
(1) Cecil E. Smith, Joel E. Claybrook and Timothy M. Da Silva were the initial
officers and directors of the Company and they each received ownership
interests in the Company as a result of being founders. The percentage
ownership interest of Mr. Smith and Mr. Claybrook has decreased due to
dilution from sales of stock.
(2) The percentage ownership interest of Mr. Da Silva has decreased because he
is no longer associated with the Company. Mr. Da Silva returned 1,000,000
shares to the Company and was issued 100,000 shares as described in Item 4.
(3) Robert J. Hoyt loaned the Company $500,000 which was converted to a 15%
ownership interest in the Company. His percentage ownership interest has
decreased due to dilution from sales of stock.
(4) BLB Financial received a 10% ownership interest in the Company to provide
future services of financial consulting and managing investor relations.
The collective percentage ownership interest of BLB, including its
affiliate Highland Funding, and control individuals of these entities, has
increased due to additional stock being issued in consideration of
providing Micro-ASI with convertible note financing and financial
consulting. BLB Financial was dissolved and the shares of Micro-ASI were
dispersed to the various owners of BLB. No one owner holds more than five
percent.
Cecil E. Smith, Jr., Chairman of the Board was retained by the Company under a
consulting agreement that ended September 30, 1999, at which time he joined the
Company as a full time employee. Prior to becoming an employee, Mr. Smith was
paid consulting fees plus travel expenses of approximately $135,000, $330,000,
$225,000 and $225,000 for the years 1997, 1998 and for the nine months ended
September 30, 1998 and 1999 (unaudited), respectively. This contract ended
September 30, 1999, and Mr. Smith became a salaried employee on October 1, 1999.
The Company had a consulting agreement with a firm owned by the Company's
President and Chief Executive Officer for administrative and financial
management. Fees and expenses paid totaled $40,000 and $95,000 for the years
ended December 31, 1997 and 1998, respectively.
On May 7, 1999, the Company entered into a consulting contract with
Darwin's-Beagle.Com, Inc. Ari Reubin and Dr. James Dukowitz are partners of this
consulting firm. The Company paid Darwin's Beagle.Com, Inc. consulting fees per
their contract in the amount of $70,000 in cash for services rendered from May
1999 through August 1999. The agreement also called for the issuance of 28,000
shares of the Company's Common Stock, which, as of December 31, 1999, had not
been issued.
The Company paid $10,000, $57,000, and $15,000 to Willow Technologies, a company
controlled by Pat Aytari, who owns 1.2% of the Company's Common Stock, for the
years ended 1997 and 1998 and for the nine months ended September 30, 1998,
respectively.
The Company paid approximately $10,213 in consulting fees and expenses to James
Hamner for the nine months ended September 30, 1999. These fees were for
consulting services in conjunction with the three redesign projects.
The terms of the related party transactions were favorable to the Company and
are equal to services that could be obtained by unaffiliated parties.
18
<PAGE> 19
ITEM 8 DESCRIPTION OF SECURITIES:
As of December 31, 1999, the Company currently had 21,000,000 shares authorized,
of which 20,000,000 shares are designated as Common Stock, par value $0.001 (the
"Common Stock"), and of which 19,227,111 were issued and outstanding, and
1,000,000 shares are designated as Preferred Stock, par value $0.01(the
"Preferred Stock"), none of which is outstanding.
The holders of the Common Stock are entitled to one vote per share on each
matter submitted to a vote at any meeting of shareholders. Shares of Common
Stock do not carry cumulative voting rights, and a majority of the shares of
outstanding Common Stock will be able to elect the entire Board of Directors. If
they do so, minority shareholders will not be able to elect any persons to the
Board of Directors. The Company's bylaws provide that a majority of the issued
and outstanding shares of the Company shall constitute a quorum for
shareholders' meetings, except with respect to certain matters for which a
greater percentage is required by statute or the bylaws.
Shareholders of the Company have no preemptive rights to acquire additional
shares of Common Stock or other securities. In the event of liquidation, the
shares of Common Stock are entitled to share equally in corporate assets after
satisfaction of all liabilities.
Holders of Common Stock are entitled to receive such dividends as the Board of
Directors may from time to time declare out of funds legally available for the
payment of dividends. The Company seeks growth and expansion of its business
through the reinvestment of profits, if any, and does not anticipate that it
will pay dividends in the foreseeable future.
The Board of Directors has the authority to issue the authorized but unissued
shares of Preferred Stock without action by the shareholders. The issuance of
such shares would reduce the percentage ownership held by persons purchasing
stock and may dilute the book value of the then-existing shareholders.
The Board of Directors may issue the shares of Preferred Stock in series. All
shares within any one series shall be alike in every particular except that
shares issued at different times may accumulate dividends (if any) from
different dates. Currently, the Preferred Stock of the Company is convertible.
The conversion rate is one share of Common Stock for one share of Preferred
Stock.
The Board of Directors may issue shares of Preferred Stock. Currently, the
Preferred Stock of the Company is designated as convertible. The conversion
rate for the Preferred Stock is one share of Common Stock for one share of
Preferred Stock. The Company has proposed an amendment to the Company's Articles
of Incorporation to the shareholders which would allow the Board of Directors to
determine the preferences, limitations and rights of the Preferred Stock to be
issued. If this amendment is passed by the shareholders at the Special Meeting
of the Shareholders, tentatively scheduled for February 16, 2000, the Board of
Directors may provide for (i) the issuance of the Preferred Stock in series,
(ii) the number of shares to be issued in each series, (iii) the voting rights
(if any), (iv) preferences and relative, participating, optional or other rights
for each series, and (v) the qualifications, limitations or restrictions for
each series.
PART II.
ITEM 1 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
There is no trading market for the Company's Common Stock at present. Management
has not undertaken any discussions, preliminary or otherwise, with any
prospective market maker concerning the participation of such market maker in
the market of the Company's securities. Management does not intend to initiate
any discussion until such time as the Company has fully become a reporting
company, on a voluntary basis, with the Securities and Exchange Commission and
has filed all the financial
19
<PAGE> 20
statements and disclosure documents. There is no assurance that a trading market
will ever develop or, if such market does in fact develop, that it will
continue.
As of December 31, 1999, there were approximately 590 holders of the Company's
Common Stock.
The Company has not, nor does it intend to declare any dividends on its Common
Stock in the future. The Company has no current restrictions on paying
dividends.
ITEM 2 LEGAL PROCEEDINGS
To the knowledge of the Company, neither the Company nor any of its officers and
directors are a party to any material legal proceeding or litigation and such
persons know of no legal proceeding or litigation contemplated or threatened as
of the date of this registration.
ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Change in Accountants:
On March 31, 1999, the Board of Directors approved a change in independent
accounting firms to be effective for its audit of the 1998 financial statements.
The Board believed it was in the best interest of the Company to engage a larger
accounting firm. The prior firm, Jones, Jensen and Company, was dismissed in
favor of Ernst & Young LLP.
Micro-ASI had no disagreements with Jones, Jensen and Company on any accounting
or reporting issues. Jones, Jensen and Company had performed the audit the
previous two years (1997 and 1996) and had issued an unqualified opinion with
the going concern disclaimer indicating that Micro-ASI was a development stage
company. A letter from Jones, Jensen and Company agreeing with the above
statements is attached as Exhibit 16.1.
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES
As of January 1, 1997, there were 12,000,000 shares of Common Stock outstanding,
all held by the original founders and promoters.
From May 1997 to December 1997, the Company issued 3,575,000 shares of Common
Stock to Highland Funding Group, Inc., a Nevada Corporation, upon Highland
Funding Group, Inc.'s conversions of eight convertible secured notes with an
aggregate principal amount of $577,500. In addition to the shares issued
pursuant to the conversions, the Company sold 425,000 shares of Common Stock in
March and April of 1998 for a total consideration of $422,500. These
transactions, totaling proceeds of $1,000,000, were made pursuant to Section
3(b) and Rule 504 of Regulation D of the Securities and Exchange Act of 1933.
These shares were sold to 36 investors.
On August 8, 1997, the Company received a Desist & Refrain Order to stop selling
securities until the shares were qualified in California or unless the shares
were exempt from qualification. The Company subsequently established its
exemption in California.
BLB through its affiliate Highland Funding loaned Micro-ASI approximately
$577,500 as stated above, in the form of convertible notes. These notes were
converted into Micro-ASI Common Stock. The sole relationship between BLB and
Highland Funding to Micro-ASI was initially as a source of funding. They later
became a financial and investor relations consultant.
After the convertible notes were converted into Common Stock by Highland Funding
Group, Highland sold some of the converted shares of Micro-ASI Common Stock to
Virginia residents without the knowledge or consent of Micro-ASI. Because these
shares were owned by Highland and not sold directly by Micro-ASI, it was the
opinion of legal counsel that this was a secondary sale and not a sale of
original securities.
In March, 1998 the Virginia State Corporation Commission notified the Company
that an investigation had been instituted regarding stock sold under Rule 504 to
Virginia residents. The Virginia State Corporation Commission concluded the
Company had not violated any Virginia securities laws. However, the Virginia
State Corporation Commission did order Highland Funding Group, Inc. and their
affiliate, BLB Financial, Inc., to offer the Virginia investors the option to
rescind their stock purchases and have their money returned. Highland Funding
Group, Inc. and their affiliate, BLB Financial, Inc. complied with this order to
the satisfaction of the Virginia State Corporation Commission. 20
<PAGE> 21
In April 1999, the Company and one of its original promoters finalized an
agreement whereby 1,000,000 shares of stock previously issued to the promoter,
on the condition that he join the Company as a full time employee, were returned
as it was agreed that the promoter did not join the Company as a full-time
employee. 100,000 shares were reissued in association with this transaction and
are included in the line item "issuance for services" for 876,775 shares on the
Statements of Stockholders' Equity for the period ended September 30, 1999.
The Company also issued 776,775 shares of Common Stock for services rendered to
Micro-ASI. This stock was valued at $776,775. The value used was the same value
as those shares that were sold for cash.
From August 1998 to December 31, 1999, the Company has sold 3,350,336 shares of
Common Stock for $3,350,336 in a private offering. The Company only allowed
accredited and/or sophisticated purchasers who were either current shareholders
of the Company or who had relationships with the Company or its shareholders to
purchase shares pursuant to the exemption provided under Section 4(2) and Rule
506 of Regulation D of the Securities Act of 1933. These securities were offered
directly by the Company through a Private Placement Memorandum, which was filed
with the Commission. The Company is not aware of any purchasers, nor did it
offer its stock to any purchasers other than those investors who had
relationships with Micro-ASI or its shareholders.
For the nine months ended September 30, 1999, the Company sold 2,613,236 shares
of Common Stock to a total of 144 investors, of which 112 were accredited and
32, which purchased $152,500 of the total amount sold, were non-accredited. Each
non-accredited investor completed a purchasers questionnaire which indicated
that he was an experienced investor, had knowledge of business and finance, was
able to bear the economic risk of the investment and the investment was not
material to the investor's total financial capacity. The Company is not aware of
any purchase representatives for the non-accredited investors.
ITEM 5 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 10 of the Company's Restated Articles of Incorporation provides for
director liability indemnification. It states that the director shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of duty of care or other duty as a director except for certain acts
or omissions. (See Article 10 of the Company's Articles of Incorporation.) It
also provides for limitation of liability to the fullest extent permitted by the
Texas Business Corporation Act for the Company's directors.
Article 8 of the Company's Bylaws provides for indemnification permitted by
Section G of Article 2.02-1 of the Texas Business Corporation Act or any
successor statute for its Officers and Directors. (See Article 8 of the
Company's Bylaws).
21
<PAGE> 22
PART F/S
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants ............................. F - 1
Balance Sheet as of December 31, 1998 and September 30, 1999 (unaudited) ....... F - 3
Statements of Operations for the years ended December 31, 1997 and 1998, the
period from inception (February 1, 1995) through December 31, 1998, the
nine months ended September 30, 1998 and 1999 (unaudited), and the period from
inception (February 1, 1995) through September 30, 1999 (unaudited) .......... F - 4
Statements of Stockholders' Equity (Deficit) for the period from inception
(February 1, 1995) through December 31, 1998 and the nine months ended
September 30, 1999 unaudited) ................................................ F - 5
Statement of Cash Flows for the years ended December 31, 1997 and 1998,
the period from inception (February 1, 1995) through December 31, 1998,
the nine months ended September 30, 1998 and 1999 (unaudited), and
the period from inception (February 1, 1995) through September 30, 1999
(unaudited) .................................................................. F - 6
Notes to Financial Statements .................................................. F - 7
</TABLE>
22
<PAGE> 23
Report of Independent Auditors
The Board of Directors
Micro-ASI, Inc.
We have audited the accompanying balance sheet of Micro-ASI, Inc. (a development
stage company) as of December 31, 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the year then
ended, and for the period February 1, 1995 (inception) through December 31,
1998. 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. The financial statements as of December 31,
1997, and for the period February 1, 1995 (inception) through December 31, 1997,
were audited by other auditors whose report dated September 21, 1998 expressed
an unqualified opinion on those statements. The financial statements for the
period February 1, 1995, (inception) through December 31, 1997, include a
deficit accumulated during the development stage of $1,178,191. Our opinion on
the statements of operations, stockholders' equity (deficit), and cash flows for
the period February 1, 1995, (inception) through December 31, 1998, insofar as
it relates to amounts for prior periods through December 31, 1997, is based
solely on the report of other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Micro-ASI, Inc. as of December 31, 1998, and the
results of its operations and its cash flows for the year then ended and the
period from February 1, 1995 (inception) through December 31, 1998, in
conformity with generally accepted accounting principles.
Dallas, Texas
June 23, 1999 /s/ ERNST & YOUNG LLP
F - 1
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Micro-ASI, Inc.
(A Development Stage Company)
Dallas, Texas
We have audited the statements of operations, stockholders' equity (deficit),
and cash flows of Micro-ASI, Inc. (a development stage company) for the year
ended December 31, 1997 and for the period from inception on February 1, 1995
to December 31, 1997. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Micro-ASI,
Inc. (a development stage company) for the year ended December 31, 1997 and
from inception on February 1, 1995 to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ JONES, JENSEN & COMPANY L.L.C.
Jones, Jensen & Company
Salt Lake City, Utah
September 21, 1998
F - 2
<PAGE> 25
Micro-ASI, Inc.
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 177,821 $ 540,507
Short-term investments -- 507,026
----------- -----------
Total current assets 177,821 1,047,533
Property and equipment, net 5,427 64,567
Other assets -- 105,130
----------- -----------
Total assets $ 183,248 $ 1,217,230
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 188,492 $ 216,205
Accrued expenses -- 11,250
Accrued interest 17,812 --
----------- -----------
Total current liabilities 206,304 227,455
Note payable 70,000 --
----------- -----------
Total liabilities 276,304 227,455
Stockholders' equity (deficit):
Preferred stock, $.01 par value: -- --
Authorized shares - 1,000,000
Common stock, $.001 par value:
Authorized shares - 20,000,000
Issued and outstanding shares -16,343,800 at December 31, 1998
and 18,833,811 at September 30,1999 (unaudited) 16,344 18,834
Additional capital 1,886,868 5,374,389
Deficit accumulated during the development stage (1,996,268) (4,403,448)
----------- -----------
Total stockholders' equity (deficit) (93,056) 989,775
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 183,248 $ 1,217,230
=========== ===========
</TABLE>
See accompanying notes.
F - 3
<PAGE> 26
Micro-ASI, Inc.
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED CUMULATIVE FROM
DECEMBER 31, DECEMBER 31, FEBRUARY 1, 1995
1997 1998 (INCEPTION)
THROUGH
DECEMBER 31,
1998
<S> <C> <C> <C>
Revenues $ $ $ --
Expenses:
Research and development 186,500 302,355 532,605
General and administrative 179,959 516,964 1,376,132
366,459 819,319 1,908,747
Operating loss (366,459) (819,319) (1,908,747)
Other income (expense):
Interest income 2,153 8,649 10,802
Interest expense (62,511) (7,407) (98,323)
(60,358) 1,242 (87,521)
Net loss $ (426,817) $ (818,077) $ (1,996,268)
============ ============ ==================
Basic and diluted net loss per share $ (0.03) $ (0.05)
Weighted average shares outstanding 13,259,000 15,957,781
============ ============
<CAPTION>
NINE MONTHS NINE MONTHS CUMULATIVE FROM
ENDED ENDED FEBRUARY 1, 1995
SEPTEMBER 30, SEPTEMBER 30, (INCEPTION)
1998 1999 THROUGH
SEPTEMBER 30,
1999
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues $ -- $ -- $
Expenses:
Research and development 283,622 584,653 1,117,268
General and administrative 267,360 1,839,990 3,216,122
550,982 2,424,643 4,333,390
Operating loss (550,982) (2,424,643) (4,333,390)
Other income (expense):
Interest income 7,736 19,224 30,026
Interest expense (5,657) (1,761) (100,084)
2,079 17,463 (70,058)
Net loss $ (548,903) $ (2,407,180) $ (4,403,448)
============ ============ ==================
Basic and diluted net loss per share $ (0.04) $ (0.14)
Weighted average shares outstanding 15,876,730 17,644,787
============ ============
</TABLE>
See accompanying notes.
F - 4
<PAGE> 27
MICRO-ASI, INC.
(a development stage company)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------
ISSUANCE ADDITIONAL
PRICE SHARES AMOUNT CAPITAL
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
1995
Issuance for notes $ 0.001 9,000,000 $ 9,000 $ (7,500)
Net loss for year ended December 31, 1995 -- -- --
---------- ---------- -----------
Balance at December 31, 1995 9,000,000 9,000 (7,500)
1996
Issuance for forgiveness of debt 0.167 3,000,000 3,000 497,000
Contribution of interest payable to additional
capital -- -- 28,405
Net loss for year ended December 31, 1996 -- -- --
---------- ---------- -----------
Balance at December 31, 1996 12,000,000 12,000 517,905
1997
Sale of common stock 0.100 2,775,000 2,775 274,725
Sale of common stock 0.333 600,000 600 199,400
Sale of common stock 0.500 200,000 200 99,800
Contributed to capital 29,507
Net loss for year ended December 31, 1997 -- -- --
---------- ---------- -----------
Balance at December 31, 1997 15,575,000 15,575 1,121,337
1998
Sale of common stock .993 324,500 325 321,675
Sale of common stock 1.000 444,300 444 443,856
Net loss for year ended December 31, 1998 - - -
---------- ---------- -----------
Balance at December 31, 1998 16,343,800 16,344 1,886,868
1999
Sale of common stock (unaudited) 1.000 2,613,236 2,613 2,610,623
Issuance for services (unaudited) 1.000 876,775 877 875,898
Return of stock (unaudited) .001 (1,000,000) (1,000) 1,000
Net loss for the period ended
September 30, 1999 (unaudited) -- -- --
---------- ---------- -----------
Balance at September 30, 1999 (unaudited) 18,833,811 18,834 5,374,389
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
DEFICIT ACCUMULATED
DURING THE DEVELOPMENT TOTAL STOCKHOLDERS
STAGE EQUITY (DEFICIT)
<S> <C> <C>
Issuance of notes $ -- $ 1,500
Net loss for year ended December 31, 1995 (610,757) (610,757)
-------------------------- --------------------------
Balance at December 31, 1995 (610,757) (609,257)
1996
Issuance for forgiveness of debt -- 500,000
Contribution of interest payable to additional
capital -- 28,405
Net loss for year ended December 31, 1996 (140,617) (140,617)
-------------------------- --------------------------
Balance at December 31, 1996 (751,374) (221,469)
1997
Sale of common stock -- 277,900
Sale of common stock -- 200,000
Sale of common stock -- 100,000
Contributed capital -- 29,507
Net loss for year ended December 31, 1997 (426,817) (426,817)
-------------------------- --------------------------
Balance at December 31, 1997 (1,178,191) (41,279)
1998
Sale of common stock -- 322,000
Sale of common stock -- 444,300
Net loss for year ended December 31,1998 (818,077) (818,077)
Balance at December 31, 1998 (1,996,268) (93,056)
1999
Sale of common stock (unaudited) -- 2,613,236
Issuance for services (unaudited) -- 876,775
Return of stock (unaudited) -- --
Net loss for the period ended September 30,
1999 (unaudited) (2,407,180) (2,407,180)
-------------------------- --------------------------
Balance at September 30, 1999 (unaudited) $ (4,403,448) $ 989,775
========================== ==========================
</TABLE>
See Accompanying Notes
F - 5
<PAGE> 28
Micro-ASI, Inc.
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
CUMULATIVE FROM
FEBRUARY 1, 1995
YEARS ENDED (INCEPTION)
DECEMBER 31, DECEMBER 31, THROUGH
1997 1998 DECEMBER 31, 1998
------------ ------------ -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (426,817) $ (818,077) $ (1,996,268)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 4,908 14,471 25,626
Common stock issued to -- --
incorporators
Common stock issued for -- -- 1,500
services
Changes in operating assets
and liabilities:
Accounts payable (46,457) (4,813) 188,492
Accrued expenses 12,904 4,908
Accrued interest -- -- 17,812
Other assets -- -- --
---------- ---------- -------------
Net cash used in operating (455,462) (803,511) (1,762,838)
activities
INVESTING ACTIVITIES
Capital expenditures, net -- (6,513) (31,053)
Purchase of short-term -- -- --
investments
---------- ---------- -------------
Net cash provided by (used in)
investing activities -- (6,513) (31,053)
FINANCING ACTIVITIES
Proceeds from issuance of notes -- -- 595,000
Sales of common stock 577,500 766,300 1,343,800
Contributed capital 29,507 -- 57,912
Principal payments on notes 95,000 (25,000) (25,000)
---------- ---------- -------------
Net cash provided by financing
activities 702,007 741,300 1,971,712
---------- ---------- -------------
Net increase (decrease) in
cash and cash equivalents 246,545 (68,724) 177,821
Cash and cash equivalents at
beginning of period -- 246,545 --
---------- ---------- -------------
Cash and cash equivalents at
end of period $ 246,545 $ 177,821 177,821
========== ========== =============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 47,492 $ 7,407 $ 54,899
========== ========== =============
<CAPTION>
CUMULATIVE FROM
FEBRUARY 1, 1995
NINE MONTHS ENDED (INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, THROUGH
1998 1999 SEPTEMBER 30, 1999
-------------- -------------- --------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (548,903) $ (2,407,180) $ (4,403,448)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 2,500 12,509 38,135
Common stock issued to -- -- 1,500
incorporators
Common stock issued for -- 656,775 656,775
services
Changes in operating assets
and liabilities:
Accounts payable (37,690) 26,508 215,000
Accrued expenses -- 11,250 11,250
Accrued interest 3,157 (16,607) 1,205
Other assets -- 40,520 40,520
-------------- -------------- --------------------
Net cash used in operating (580,936) (1,676,225) (3,439,063)
activities
INVESTING ACTIVITIES
Capital expenditures, net 626 (67,299) (98,352)
Purchase of short-term -- (507,026) (507,026)
investments
-------------- -------------- --------------------
Net cash provided by (used in)
investing activities 626 (574,325) (605,378)
FINANCING ACTIVITIES
Proceeds from issuance of notes -- -- 595,000
Sales of common stock 568,500 2,613,236 3,957,036
Contributed capital -- -- 57,912
Principal payments on notes (25,000) -- (25,000)
-------------- -------------- --------------------
Net cash provided by financing
activities 543,500 2,613,236 4,584,948
-------------- -------------- --------------------
Net increase (decrease) in
cash and cash equivalents (36,810) 362,686 540,507
Cash and cash equivalents at
beginning of period 246,545 177,821 --
-------------- -------------- --------------------
Cash and cash equivalents at
end of period $ 209,735 $ 540,507 $ 540,507
============== ============== ====================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 1,750 $ 5,657 $ 60,556
============== ============== ====================
</TABLE>
See accompanying notes.
F - 6
<PAGE> 29
Notes to Financial Statements
Information for the nine months ended September 30, 1998 and 1999 is unaudited.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES
ORGANIZATION
Micro-ASI, Inc. (the "Company") is a development stage company incorporated on
February 1, 1995, for the purpose of designing, developing, manufacturing and
marketing advanced-technology packaging systems called multi-chip modules
("MCMs").
DEVELOPMENT STAGE COMPANY
The Company will continue to be a development stage company as defined in
Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises," until it generates significant revenue.
Successful development of a development stage company, particularly advanced
technology related companies, is costly and highly competitive. The Company's
growth and ultimate success depends on the timely development and market
acceptance of new products. A development stage company involves risks and
uncertainties, and there are no assurances that the Company will be successful
in its efforts.
INTERIM FINANCIAL STATEMENTS
The unaudited financial statements as of September 30, 1999 and for the
nine-month periods ended September 30, 1998 and 1999 reflect all adjustments
(consisting only of normal recurring adjustments) necessary for fair
presentation of the financial position and results of operations for such
periods. The results for the nine months in the period ended September 30, 1999
are not necessarily indicative of the results to be expected for the full year.
CONCENTRATION OF RISK
At September 30, 1999, the Company's cash equivalents consisted principally of
money market accounts.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
The Company's short-term investments consist of Unites States Government agency
securities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method based on the estimated useful lives of the related assets.
INCOME TAXES
Deferred income taxes are determined using the liability method, which gives
consideration to the future tax consequences associated with differences between
the financial accounting and tax basis of assets and liabilities. This method
also gives immediate effect to changes in income tax laws.
F - 7
<PAGE> 30
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
NET LOSS PER SHARE
Basic and diluted net loss per share is computed using the Company's net loss
for each period presented divided by the average common shares outstanding. The
Company had no other equity instruments outstanding during any of the periods
presented.
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 statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130 (Statement 130), Reporting Comprehensive Income. Statement 130
establishes new rules for the adopting and display of comprehensive income and
its components. The adoption of this Statement has no impact on the Company's
results of operations or stockholders' equity as the Company has no other
material elements of other comprehensive income.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful December 31, September 30,
Life 1998 1999
--------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
Computer Equipment 3 $ 6,513 $ 17,493
Furniture and Fixtures 5 -- 37,453
Leasehold Improvements 1 -- 23,216
Less Accumulated Depreciation (1,086) (13,595)
-------------- --------------
$ 5,427 $ 64,567
============== ==============
</TABLE>
3. NOTE PAYABLE
The $70,000 note payable to an original promoter of the Company at December 31,
1998, was due on demand with interest accruing on the unpaid balance at a rate
of 10%, compounding semi-annually and payable annually in arrears. In April
1999, this note payable was exchanged for 100,000 shares of the Company's Common
Stock. The excess for market value of the common stock over the carrying value
of the notes payable was charged to expense.
F - 8
<PAGE> 31
4. INCOME TAXES
At December 31, 1998, the Company's net deferred tax assets of approximately
$675,000 relate primarily from net operating loss carryforwards for federal
income tax purposes which begin expiring in 2011. The tax benefit of the net
operating loss carryforwards is fully offset by a valuation allowance due to
uncertainty related to future taxable income. Accordingly, no tax benefit has
been recognized in the accompanying financial statements. No other significant
reconciling items exist between the actual effective tax and the expected
effective tax rate for 1998.
5. RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with a firm owned by the Company's
Chairman for the design, development and marketing of MCMs. Fees and expenses
paid totaled $135,000, $330,000, $225,000 and $225,000 in 1997 and 1998 and for
the nine months ended September 30, 1999 and 1998, respectively. This agreement
ended September 30, 1999 when the Chairman joined the Company as a full time
employee.
The Company had a consulting agreement with a firm owned by the Company's
President and Chief Executive Officer for administrative and financial
management. Fees and expenses paid totaled $40,000, $95,000 and $65,000 in 1997
and 1998 and for the nine months ended September 30, 1998, respectively. This
agreement ended in December 1998 when the President joined the Company as a full
time employee.
The Company paid approximately $10,000, $100,000, $44,500 and $366,350 to other
related parties for the development related activities and expense
reimbursements in 1997 and 1998 and for the nine-month periods ended September
30, 1998 and 1999, respectively.
The Company paid approximately $10,000, $57,000 and $45,000 to a consulting
company owned by Patrick Antaki, an original promoter of the Company for
development services for 1997 and 1998 and for the nine months ended September
30, 1999. This agreement ended on December 31,1998.
The Company paid consulting fees of $70,000 for the nine months ended September
30, 1999 for assistance with the development of its business strategy to a
company owned by two current employees of the Company. These fees were paid
prior to these individuals joining the Company.
6. COMMITMENTS
OPERATING LEASES
In May 1999, the Company entered into a non-cancelable operating lease for
office space with future minimum rental payments of $66,637 for 1999 and $33,318
for 2000.
INVESTMENT IN ZAE (unaudited)
On March 25, 1999, the Company entered into a memorandum of understanding with
ZAE Research, Inc. (ZAE), whereby, the Company would invest up to $1,000,000 in
ZAE. In return, the Company was to receive a 50% ownership interest in one of
ZAE's subsidiaries and a 10.5% royalty paid on all consolidated gross revenue of
ZAE and its subsidiaries, excluding the subsidiary with the aforementioned 50%
interest. As of September 30, 1999, the Company had invested approximately
$213,000 in ZAE and has not recorded any revenues from royalties. The Company's
funding has been used for product development by ZAE and accordingly has been
expensed by the Company. On January 18, 2000, the Company and ZAE mutually
agreed to terminate the relationship. As part of that termination, ZAE has
agreed to repay all amounts previously funded by the Company; however due to the
financial condition of ZAE, management has elected to fully reserve this
receivable and will only be recorded as payments are received.
F - 9
<PAGE> 32
7. EQUITY
COMMON STOCK
The original issuance of common stock was for 150,000 shares valued at $.01 per
share for a note payable in an equal amount. The Company had a stock split of 60
for 1 on February 27, 1997, which was retroactively applied. The stock split
resulted in the restatement of the 150,000 shares of common stock to 9,000,000
shares of common stock with a par value of $9,000. The par value of $9,000 was
greater than the original consideration received of $1,500 resulting in the
$7,500 deficit in additional capital.
In 1996, $500,000 in debt outstanding was converted to 3,000,000 shares of
common stock. No gain or loss was recorded on this transaction, as management
believes the 3,000,000 shares approximated the full value of the debt
outstanding on the conversion date.
In April 1999, the Company and one of its original promoters finalized an
agreement whereby 1,000,000 shares of stock previously issued to the promoter,
on the condition that he join the Company as a full time employee, were returned
as it was agreed that the promoter will not join the Company as a full-time
employee.
In 1999, the Company determined it would be appropriate to award Kingdom
Capital, its investor and public relations firm a bonus in the form of the
Company's common stock in the amount of 600,000 shares valued at $600,000 which
was charged to expense in June 1999. In addition, the Company granted this firm
an additional 150,000 shares valued at $150,000 for future services through
December 31, 1999. As of September 30, 1999, the Company had charged $75,000 of
the $150,000 to expense. The Company granted stock in lieu of cash due to its
limited liquidity situation at the time of the decision.
8. Subsequent Events (unaudited)
On December 15, 1999, the Company's shareholders approved a stock option plan.
The plan calls for a committee of the Board of Directors to have authority to
issue 4,000,000 options to purchase common stock.
Effective January 18, 2000, Micro-ASI completed the acquisition of the
outstanding common stock (the "BTI Common Stock") of Best Technologies, Inc., a
Texas corporation ("BTI"), from the sole shareholder of BTI (the "Seller"),
pursuant to a stock purchase agreement (including all Exhibits and Schedules
thereto and documents executed in connection therewith, the "Agreement"). BTI is
an electronics contract manufacturer headquartered in Wylie, Texas. In
connection with the Agreement, one share of preferred stock of BTI (The BTI
Preferred Stock") was created and issued to the Seller. The Company, as the
holder of the BTI Common Stock, has the right to appoint one director to the
three member Board of Directors of BTI. Seller, as holder of the BTI Preferred
Stock has the right to appoint two directors to the three-member Board of
Directors of BTI and certain other voting rights. Pursuant to the Agreement, the
Company will receive the outstanding BTI Preferred Stock upon the satisfaction
of certain obligations, including, but not limited to, the completion of an
initial public offering of the Company's Common Stock.
The total aggregate purchase price for the BTI Common Stock is approximately
$5.3 million. The purchase price includes (i) a promissory note from the Company
to the Seller in the amount of $2,500,000, due the earlier of (a) December 31,
2001 or (b) ten days after the completion of an initial public offering by the
Company (the "Purchase Note"); (ii) a convertible note from the Company to the
Seller in the amount of $1,416,677 due December 31, 2001, which is immediately
convertible into 1,416,667 shares of Common Stock of the Company (the
"Convertible Note"); (iii) a promissory note from BTI to the Seller and
guaranteed by the Company in the amount of $600,000, due the earlier of (a)
March 31, 2000 or (b) ten days after the completion of one or more private
placements having an aggregate gross offering amount in excess of $6,000,000
(the "Cash Note"); and additionally, the Company has committed to purchase
$750,000 of capital expenditures to be used in BTI's flip-chip
F - 10
<PAGE> 33
assembly due ninety days after the completion of one or more private placements
having an aggregate gross offering amount in excess of $6,000,000 (the "Capital
Contribution"). Furthermore, the payment of the Cash Note, the Purchase Note and
the Convertible Note are secured by a stock pledge agreement pursuant to which
the Company has pledged all of the BTI Common Stock. The purchase price is not
subject to any post-closing adjustments. The acquisition of BTI provides the
Company with manufacturing capabilities to produce the redesigned products and
offer turnkey solutions to its customers. Because the seller of BTI still
retains voting control, the Company will not consolidate the operations of BTI
until the obligations noted above are satisfied.
F - 11
<PAGE> 34
PART III
ITEM 1 INDEX TO EXHIBITS:
The following documents are filed as exhibits to this Form 10SB/A:
(2) Articles of Incorporation and Bylaws
Exhibit 2.1 Articles of Incorporation *
Exhibit 2.2 Bylaws *
(6) Material Contracts:
Exhibit 6.1 Consulting Agreement with S&N Corporation *
Exhibit 6.2 Consulting Agreement with Kingdom Capital, Inc *
(16) Exhibit 16.1 Letter from Jones, Jensen & Company
(27) Financial Data Schedules
Exhibit 27.1 Financial Data Schedule
Exhibit 27.2 Financial Data Schedule
* Previously Filed
<PAGE> 35
ITEM 2 DESCRIPTION OF EXHIBITS:
The Exhibits listed in Item 1 of this Part III are filed herewith.
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the issuer has duly caused this document to be signed on its behalf by the
undersigned, thereunto duly authorized.
Issuer:
Micro-ASI, Incorporated
Date:
February 4, 2000 /s/ JOEL E. CLAYBROOK
---------------------------------------
By: Joel E. Claybrook, President
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
16.1 Letter from Jones, Jensen & Company
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 16.1
[JONES, JENSEN & COMPANY, LLC LETTERHEAD]
December 27, 1999
Micro ASI, Incorporated
Attn: Joel Claybrook
12655 North Central Expressway
Suite 1000
Dallas, TX 75243
We have reviewed item 3 "Changes in and Disagreements with Accountants" as noted
in your Form 10-SB filing and agree with the statements made therein.
Sincerely,
/s/ JONES, JENSEN & COMPANY
Jones, Jensen & Company
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1999 JAN-01-1997
<PERIOD-END> DEC-31-1998 SEP-30-1999 DEC-31-1997
<CASH> 177,821 540,507 0
<SECURITIES> 0 507,026 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 172,821 0
<PP&E> 5,427 5,427 0
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 183,248 1,217,230 0
<CURRENT-LIABILITIES> 276,304 227,455 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 16,344 18,834 0
<OTHER-SE> (109,400) 970,941 0
<TOTAL-LIABILITY-AND-EQUITY> 183,248 1,217,230 0
<SALES> 0 0 0
<TOTAL-REVENUES> 0 0 0
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 819,319 2,424,643 366,459
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (1,242) (17,463) 60,358
<INCOME-PRETAX> (818,077) (2,407,180) (426,817)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (818,077) (2,407,180) (426,817)
<EPS-BASIC> (0.05) (0.14) (0.03)
<EPS-DILUTED> (0.05) (0.14) (0.03)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> OTHER 9-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 SEP-30-1999
<PERIOD-START> FEB-01-1995 JAN-01-1998 FEB-01-1995
<PERIOD-END> DEC-31-1998 SEP-30-1998 SEP-30-1999
<CASH> 0 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 0 0 0
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 0 0 0
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 0
<SALES> 0 0 0
<TOTAL-REVENUES> 0 0 0
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 1,908,747 550,982 4,333,390
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 87,521 (2,079) 70,058
<INCOME-PRETAX> (1,996,268) (548,903) (4,403,448)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,993,268) (548,903) (4,403,448)
<EPS-BASIC> 0 (.04) 0
<EPS-DILUTED> 0 (.04) 0
</TABLE>
