<PAGE> 1
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;
and 4) failure to raise needed capital.
(b) BUSINESS OF ISSUER.
(1) PRINCIPAL PRODUCTS AND THEIR MARKETS:
Glossary of Terms-Page 8
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 customers 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 projected in the 1998 White Paper of the National
Institute of Standards and Technology to grow from just over $1 trillion in 1996
to $2 trillion in the year 2000. A growing percentage of the total market is
being served through outsourcing. Outsourcing, otherwise known as contract
manufacturing, is the process whereby a company contracts with another company
for goods and/or services instead of manufacturing the products itself.
Technology Forecasters Inc., in the August, 1999 edition of Electronic Business,
is cited as projecting the Worldwide Contract Manufacturing Industry growing
from $90 billion in 1998 to $178 billion in 2001.
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Management believes the traditional method of semiconductor packaging with
interconnectivity by wire bond 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" 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.
Traditionally, Flip-chips and FCMs (Flip-chip modules) have been used only in
military or other performance intensive applications because of higher costs
associated with FCMs compared to older, conventional interconnect technologies.
These higher costs for FCMs have historically been incurred primarily because of
known good die (KGD) issues, FCM substrate pitch and substrate coplanarity
difficulties. The cost of "bumping" wafers for flip-chip interconnect has also
impeded acceptance of this technology. Because of these industry barriers, and
the significant investments 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. There are
presently relatively few companies offering design services utilizing flip-chip
interconnect and/or FCM technologies.
The Company intends to design new or re-engineer existing products to make them
more efficient, more powerful, and most cost competitive. Micro-ASI intends to
demonstrate producibility and also manufacture these devices in high volume.
Unlike the vast majority of the industry still encumbered with more than three
decades of wire bond technology, Micro-ASI plans to utilize flip-chip as the
affordable attachment method of choice to minimize a component's form factor,
enable superior thermal management properties, and facilitate product speed
improvements not possible with wire bonding.
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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.
[DIAGRAM]
The charts above show a comparison of wire bonded packaging to flip chip
packaging. In the wire bonded package diagram, package leads and wires are shown
running between the die and the substrate. Additionally, plastic or ceramic
packaging is shown over the attachment of those leads to the printed circuit
board. On the flip chip package diagram, the silicon die is shown directly
attached to the PC Board. By comparison, the Flip-Chip requires no plastic or
ceramic packaging and is shown reducing the required size of the PC Board by
approximately 70%. The benefits which are visually shown in the diagrams are
more fully discussed in the following paragraphs.
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. Also, wire bonded MCM's are slower than a
functionally identical flip-chip MCM. Problems with the wire bond approach exist
because the wires themselves introduce inductance, 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
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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 pad.
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 may be able to operate at faster
speeds and may 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 plans to 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 is intended 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.
On May 15, 2000, Micro-ASI, announced a strategic alliance with Siemens Energy
and Automation, Inc. Micro-ASI plans to install in July 2000 a design/prototype
line and a multi-million-dollar high volume turnkey manufacturing line for high
speed and high quality module and circuit board production. In addition, the two
companies plan to participate in joint research and development efforts,
including the Flip-Chip Research Consortium at the Georgia Institute of
Technology Center for Board Assembly Research.
(2) DISTRIBUTION METHODS:
Micro-ASI intends to redesign products using flip-chip technologies. These
products are intended to 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 identified and begun work on
selected redesign projects. Although no contracts have yet been placed with the
Company, the Company does believe, based on management's knowledge of the
industry
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and contacts with potential customers, that these projects represent future
business opportunities for the Company. These projects in process include the
redesign of a series of chips for a merchant semiconductor company, the redesign
of a flash memory module for a memory manufacturer, and integrating four
significant function chips into one MCM for a notebook computer company.
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 are
intended to 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.
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
significantly. 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.
Without KGD (Known Good Die), 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.
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.
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The Company is positioned to be a "core enabling technology" enterprise. This
means that Micro-ASI may 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
(5) SOURCES AND AVAILABILITY OF MATERIALS AND PRINCIPAL SUPPLIERS:
Primary sources for component materials to manufacturer redesigned products are
planned to come through vendor relationships with electronic component
distributors and original equipment manufactures (OEMs). Substrate requirements
may be met through close relationships with material manufacturers and
fabricators in the electronics industry. Micro-ASI intends to 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 may 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 may 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.
(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 $808,396 for the twelve months ended December 31, 1999, and
$302,355 for the twelve months ended December 31, 1998. For the three-month
period ended March 31, 2000, the Company has spent approximately $189,401 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.
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(12) NUMBER OF TOTAL AND FULL TIME EMPLOYEES:
Micro-ASI has 26 full-time employees as of June 15, 2000, which does not include
BTI employees.
GLOSSARY OF KEY TERMS AND PHRASES:
<TABLE>
<CAPTION>
TERM: MEANING IN CONTEXT:
---- ------------------
<S> <C>
Bumping The process of using solder balls to attach the
die to the substrate
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 (input/output)
to a die or component
Interposer Interfaces the die to the substrate
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
Printed Circuit Board (PCB) The surface on which electronic components are
placed 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
</TABLE>
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<TABLE>
<S> <C>
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>
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, 1999 and 1998 and for the three months ended
March 31, 2000 and 1999, respectively. This Form 10-SB/A should be read in
conjunction with the Form 10-QSB, which was filed on May 15, 2000, Form 10-KSB,
which was filed on March 30, 2000, and Form 8-K, which was filed on January 27,
2000.
The Company has identified redesign projects from three electronic manufacturers
that are intended to serve as the core of the Company's research and
development strategy. The Company plans to 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. Although the Company currently
has no contracts on these projects, based on managements' knowledge of the
industry and ongoing discussions with these potential customers, the Company
believes these three projects may result in business opportunities for the
Company after they become contracts. The Company has also purchased BTI, a
contract electronics manufacturers, which is intended to allow the Company to
become a one-stop-shop for its customers. This purchase was from a
non-affiliated party.
For the period of January 1, 2000 through March 31, 2000, the company raised
$2,732,851 through the issuance of its common stock at $1.00 per share.
Management completed a private placement of preferred stock netting $7,575,000
in April 2000. In total the Company raised approximately $10 million. The
proceeds from the sale of these securities are expected to be used as follows:
<TABLE>
<S> <C>
Inventory $ 4,060,000
Capital Equipment 1,050,000
Research and Development 2,035,000
Working Capital 2,855,000
-----------
$10,000,000
===========
</TABLE>
Micro-ASI anticipates it will increase its number of employees from 26 to
approximately 155 employees over a period of approximately 12 months. This
includes the employees of BTI.
The Company anticipates that it will purchase or lease approximately $4.5
million in capital equipment during the year 2000. This includes production
equipment and equipment for the research and development center. The Company
also anticipates that it will lease an additional $12.3 million in both
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research and development equipment and production equipment to further increase
the capacity of BTI over a period of the next 24 months.
Should additional funding become necessary, the Company may consider debt
financing or additional equity as an alternative.
RESULTS OF OPERATIONS:
The following financial information shows results of operations for the twelve
months ended December 31, 1999 and 1998 for the three months ended March 31,
2000 and 1999.
SUMMARY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Three Months Ended
---------- ------------------
December 31, December 31, March 31, March 31,
1999 1998 2000 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest Income $ 27,451 $ 8,649 $ 2,766 $ 3,415
Equity in income of BTI 0 0 2,906 0
Research and Development (808,396) (302,355) (189,401) (116,812)
General and Administrative (2,922,080) (516,964) (2,604,755) (318,437)
Interest Expense (2,674) (7,407) (57,705) (1,750)
------------ ------------ ------------ ------------
Net Loss $ (3,705,699 $ (818,077) $ (2,846,189) $ (433,584)
============ ============ ============ ============
</TABLE>
The increase in research and development expenses for the twelve months ended
December 31, 1999 compared to December 31, 1998 was due primarily to the initial
development projects relating to technology and to the development work on the
three projects secured by the Company. The increase in research and development
for the three-month period ended March 31, 2000 compared to the three-month
period ended March 31, 1999 was due primarily to the continued development of
the three projects secured by the Company.
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, 1999 compared to the twelve months ended December 31, 1998 was
primarily attributable to increases in consulting fees, legal and professional
fees, rent and travel expenses. Consulting fees were approximately $675,127 and
$394,875 for the 12 months ended December 31, 1999 and 1998, respectively. The
consulting fees were for financial, administrative, sales and marketing. The
increase was due to the increased activities of the Company and the initial
redesign activities of the Company. Legal and professional fees were
approximately $281,328 and $77,613 for the 12 months ended December 31, 1999 and
1998, respectively. The increases in these fees were primarily attributable to
filing various required forms with the SEC, as Micro-ASI became a reporting
company in November 1999. The Company paid approximately $720,407 in salaries
for the year ended December 31, 1999. The Company paid no salaries in 1998. Rent
expense was approximately $79,674 and $23,491 for the 12 months ended December
31, 1999 and 1998, respectively. Travel expenses were $350,239 and $171,926 for
the 12 months ended December 31, 1999 and 1998, respectively. The increase in
travel expenses was attributable to the Company's private placement of stock,
developing business relationships and securing redesign projects.
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The increase in General and Administrative expenses for the three months ended
March 31, 2000 compared to the three months ended March 31, 1999 was primarily
attributable to increases in consulting fees, salaries and related payroll
expenses, legal and professional fees, and a non-cash expense related to the
issuance of warrants. Consulting fees were approximately $124,666 and $64,100
for the three months ended March 31, 2000 and 1999, 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. Salaries and related payroll expenses were approximately
$443,496 and $83,729. These expenses were for financial, administrative, sales
and marketing personnel added due to the increased activities of the Company.
Legal and professional fees were approximately $200,874 and $9,648 for the three
months ended March 31, 2000 and 1999, respectively. The increases in these fees
were primarily attributable to filing various required forms with the SEC, as
Micro-ASI became a reporting company in November 1999. Investor relations fees
were approximately $185,010 and $149,600 for the three months ended March 31,
2000 and 1999, respectively. The non-cash expense related to the issue of
warrants related to obtaining a line of credit was $1,450,000 and $0 for the
three months ended March 31, 2000 and 1999, respectively.
SUMMARY BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31, March 31,
1999 2000
------------ ------------
<S> <C> <C>
Cash and equivalents $ 551,292 $ 1,144,062
Other Assets 116,756 4,965,106
------------ ------------
Total Assets $ 668,048 $ 6,109,168
============ ============
LIABILITIES AND EQUITY
Accounts Payable $ 583,493 $ 734,320
Notes and Interest Payable 0 3,953,631
Additional Capital 5,786,522 9,969,373
Deficit Accumulated during (5,701,967) (8,548,156)
development stage ------------ ------------
Total Liabilities & Equity $ 668,048 $ 6,109,168
============ ============
</TABLE>
The increase in cash and additional capital at March 31, 2000 reflects the
proceeds from additional sales of shares of Common Stock. During the three
months ended March 31, 2000, the Company issued 2,732,851 shares of its Common
Stock for $2,732,851. The increase in notes and interest payable shown at March
31, 2000 reflects the notes due on the purchase of BTI for $1,416,667 and
$2,500,000 plus accrued interest of $31,736 plus capital lease obligations of
$5,228. The increase in "Other Assets" reflects an increase in property and
equipment of $266,596 and the purchase of BTI with the initial investment of
$3,916,667 and additional investment of $666,145 as of March 31, 2000. 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 12 months ended December 31, 1999 the
Company sold 3,006,536 shares of common stock for $3,006,536. The proceeds from
the sales of these securities were used to hire the executive management team,
secure the redesign projects and finance daily operations.
During the three months ended March 31, 2000, the Company raised approximately
$2,732,851 through the issuance of 2,732,851 shares of common stock. Management
completed a private placement of preferred stock netting $7,575,000 in April
2000.
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In total the Company raised approximately $10 million. The proceeds from the
sale of these securities are expected to be used as follows:
<TABLE>
<S> <C>
Inventory $ 4,060,000
Capital Equipment 1,050,000
Research and Development 2,035,000
Working Capital 2,855,000
-----------
$10,000,000
===========
</TABLE>
Micro-ASI anticipates it will increase its number of employees from 26 to
approximately 155 employees over a period of approximately 12 months. This
includes the employees of BTI.
The Company anticipates that it will purchase or lease approximately $4.5
million in capital equipment during the year 2000. This includes production
equipment and equipment for the research and development center. The Company
also anticipates that it will lease an additional $12.3 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.
Should additional funding become necessary, the Company may consider debt or
additional equity financing as alternatives.
The preferred stock purchasers also received 4.8 million warrants with an
exercise price of $1.00 expiring three years from purchase date.
Dividends on the preferred stock shall accrue at the rate of 10% per annum and
are payable in kind through issuance of additional preferred shares. The
preferred stock holders are entitled to preference on liquidation. The Company
has the right to redeem the preferred shares at $1.65 per share prior to
December 31, 2000. The preferred stock holders have rights to convert to common
stock at a time and amount based on the performance of the Company. The
preferred stock holders have the right and power to elect one fewer than a
majority of the directors. As long as at least 3,000,000 shares of the preferred
stock are outstanding, certain actions by the Company require approval of the
preferred stock holders. The preferred stock holders have limited preemptive
rights to acquire additional shares of the Company's Stock.
During the three months ended March 31, 2000, the Company raised approximately
$2,732,851 through the issuance of common stock.
The Company held a Special Meeting of the Shareholders on March 1, 2000 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 shareholders approved this increase and change to the
Articles of Incorporation.
In February 2000, the Company obtained a $1.3 million line of credit arrangement
that expires in March 2001 from a financial institution. This line of credit was
personally guaranteed by Cecil E. Smith, Jr. and Joel E. Claybrook.
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. This right is relinquished upon payment of the
obligations noted below. 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
12
<PAGE> 13
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
$3.9 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"); and (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"). As part of the purchase transaction, Micro-ASI has
paid off a promissory note owed by BTI to the selling shareholder of $600,000.
Additionally, the Company has committed to purchase $750,000 of capital
equipment 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"). This will also be
treated as part of the investment, since it is part of the purchase agreement.
As of March 31, 2000, approximately $66,000 of this capital equipment had been
purchased, bringing the investment to date as of March 31, 2000 to approximately
$4.6 million. The purchase of the $750,000 of capital expenditures will bring
the total investment to approximately $5.3 million. The payment of 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.
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 June 15, 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 June 15, 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. The previous
lease expired April 30, 2000 and was for 6,431 square feet at the rate of $8,330
per month. On April 6, 2000 the Company entered into a new lease commencing on
May 1, 2000 and for a two year term. Base rent under the new lease is $11,433
per month for a total base rent under the lease of $137,199.
On April 10, 2000 the Company entered into a lease for its Technology
Integration Deployment Center. This lease commences on May 1, 2000 and is for a
five year term. Base rent is $9,235 per month through April 2001 and $9,654 per
month for the period of May 2001 through April 2005. Total base rent under this
lease if $574,218.
13
<PAGE> 14
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
UPDATE
The following tables set forth, as of June 15, 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 22,545,961 issued and outstanding shares of
the Company's Common Stock and the shareholdings of the officers and directors
of the Company.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Title of Class Name and Address Amount (1),(2) % of Class
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Cecil E. Smith, Jr. (4) 4,679,400 19.4%
Park Central Plaza I
12655 N. Central Expressway.
Suite 1000
Dallas, Texas 75243
------------------------------------------------------------------------------------------------------------
Common Joel E. Claybrook (5) 2,041,986 8.8%
Park Central Plaza I
12655 N. Central Expressway.
Suite 1000
Dallas, Texas 75243
------------------------------------------------------------------------------------------------------------
Common Dr. Meng-Sheng Lin (6) 1,175,000 5.2%
Park Central Plaza I
12655 N. Central Expressway
Suite 1000
Dallas, Texas 75243
------------------------------------------------------------------------------------------------------------
Common Dr. Myles Welborn 45,500 .2%
------------------------------------------------------------------------------------------------------------
Common James Hamner (7) 50,000 .2%
------------------------------------------------------------------------------------------------------------
Common Dr. James Dukowitz (8) 100,000 .4%
------------------------------------------------------------------------------------------------------------
Common Scott Smith (9) 112,500 .5%
------------------------------------------------------------------------------------------------------------
Common Jerry Kline (10) 200,000 .9%
------------------------------------------------------------------------------------------------------------
Common Eaglestone Investment
Partners I, LP (11) 2,100,000 8.5%
------------------------------------------------------------------------------------------------------------
Common Signal Lake Venture Fund, LLC (12) 900,000 3.8%
------------------------------------------------------------------------------------------------------------
Common John Hancock Technology Fund (13) 8,442,136 5.1%
------------------------------------------------------------------------------------------------------------
Common Gary Bottoms (16) 1,416,667 5.9%
------------------------------------------------------------------------------------------------------------
Common Robert J. Hoyt 1,800,000 8.0%
174 The Masters Circle
Costa Mesa, CA 92627
------------------------------------------------------------------------------------------------------------
All Directors & 8,442,136 33.4%
Officers as a
Group
(9 persons)
------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
**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 22,545,964 shares of Common Stock issued and
outstanding as of the May 9, 2000, Shares of Common Stock subject to
options or warrants that are exercisable within 60 days of May 9, 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) As of March 31, 2000, options to purchase 3,783,000 shares of common stock
were outstanding of which 945,750 were exercisable. None had been
exercised. As of March 31, 2000 warrants to purchase 1,950,000 shares of
common stock were outstanding of which 1,950,000 were exercisable. None had
been exercised.
(4) Mr. Smith's shares include 187,500 and 1,450,000 shares that could be
purchased based on stock options and warrants held, respectively. If his
options and warrants were exercised, he would own 4,679,400 shares
representing 19.7% of the outstanding shares after the shares were
exercised.
(5) Mr. Claybrook's shares include 187,500 and 500,000 shares that could be
purchased based on stock options and warrants held, respectively. If his
options and warrants were exercised, he would own 2,041,986 shares
representing 9.3% of the outstanding shares after the shares were
exercised.
(6) Dr. Meng-Sheng Lin's shares include 125,000 shares that could be purchased
based on stock options held. 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) Mr. Hamner's shares include 50,000 shares that could be purchased based on
stock options held. If his options were exercised, he would own 50,000
shares representing .2% of the outstanding shares after the shares were
exercised. Mr. Hamner does not currently own any shares of stock.
(8) Dr. Dukowitz's shares include 100,000 shares that could be purchased based
on stock options held. If his options were exercised, he would own 100,000
shares representing .4% of the outstanding shares after the shares were
exercised. Dr. Dukowitz does not currently own any shares of stock.
(9) Mr. Smith's shares include 112,500 shares that could be purchased based on
stock options held. If his options were exercised, he would own 112,500
shares representing .5% of the outstanding shares after the shares were
exercised. Mr. Smith does not currently own any shares of stock.
(10) Dr. Kline's shares include 100,000 shares that could be purchased based on
stock options held. If his options were exercised, he would own 200,000
shares representing .9% of the outstanding shares after the shares were
exercised.
(11) Eaglestone Investment Partners I, LP's shares include 2,100,000 shares that
could be purchased based on warrants held. If their warrants were
exercised, they would own 2,100,000 shares representing 8.5% of the
outstanding shares after the shares were exercised. Eaglestone does not
currently own any shares of common stock. Eaglestone does own 5,600,000
shares of preferred stock.
(12) Signal Lake Venture Fund, LLC's shares include 900,000 shares that could be
purchased based on warrants held. If their warrants were exercised, they
would own 900,000 shares representing 3.8% of the outstanding shares after
the shares
15
<PAGE> 16
were exercised. Signal Lake does not currently own any shares of common
stock. Signal Lake does own 2,400,000 shares of preferred stock.
(13) John Hancock Technology Fund's shares include 1,200,000 shares that could
be purchased based on warrants held. If their warrants were exercised, they
would own 1,200,000 shares representing 5.0% of the outstanding shares
after the shares were exercised. John Hancock does not currently own any
shares of common stock. John Hancock does own 3,200,000 shares of preferred
stock.
(14) Mr. Bottom's shares include 1,416,667 shares into which he has an immediate
right to convert a note due him from the Company for $1,416,667. If he
converted the note, he would own 1,416,667 shares representing 5.9% of the
outstanding shares after the shares were exercised. Mr. Bottoms does not
currently own any shares of common stock.
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
Joel E. Claybrook Chief Executive Officer, X III
Member, Board of Directors 4/98 3 Years X X
Dr. Meng-Sheng Lin Director of International X II X
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 X X
9/99 1 Year
Jeffrey D. Warren Member, Board of Directors X I X X
4/00 1 Year
Dr. Bart Stuck Member, Board of Directors X I X X
4/00 1 Year
Dr. James Dukowitz Executive Vice President and X X
Chairman of the Executive
Committee of the Office of
the Chief Executive
Jerry Kline Vice President of X X
Technological Development
Scott Smith President X X
------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
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 (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
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.
17
<PAGE> 18
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, President, 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 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.
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 E.
Claybrook, President and CEO, an annual salary of $180,000. Cecil E. Smith, the
Company's Chairman of the Board received $15,000.00 per month for consulting
services and $10,000.00 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
$180,000 per year. Dr. Dukowitz has deferred 75% of his salary until the first
quarter of 2000, at which time the deferred salary will be paid. Dr. Dukowitz
will receive full salary beginning January 1, 2000.
There are no compensatory plans or arrangements with respect to any person named
as a director, officer, promoter, or control person which would result in
payments to any such person because of his or her resignation, retirement, or
other termination of such person's employment with the Company or due to any
change of control. On February 23, 2000, the Board of Directors approved and
entered into Employment Agreements with Cecil E. Smith, Jr. and Joel E.
Claybrook which are attached as Exhibits.
18
<PAGE> 19
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Long Term
Compensation Compensation
------------ ------------ All Other
Name and Fiscal Salary Options/SAR's Compensation
Principal Position Year ($) (1) (#)(6)(7) ($)(2) (3)
------------------ ------ ------- ----------- ------------
<S> <C> <C> <C> <C>
Cecil E. Smith, Jr. 1999 45,000 750,000 255,000
Chairman of the 1998 330,000
Board (2) 1997 135,000
Joel E. Claybrook 1999 180,000 750,000
President & CEO 1998 95,000
(3) 1997 40,000
Dr. James A. Dukowitz 1999 15,000 400,000
Executive Vice President
& Chairman of the
Executive Committee of
the Office of the Chief
Executive (4)
Dr. Meng-Sheng Lin 1999 90,000 500,000
Director of Int'l
Development (5)
</TABLE>
----------------------------
(1) Salaries shown above are for the 12 months ended December 31, 1999.
(2) Cecil E. Smith, Jr. received consulting fees and expenses in lieu of salary
until October 1, 1999. This consulting agreement ended September 30, 1999
when Mr. Smith became an employee of the Company.
(3) Joel E. Claybrook received consulting fees and expenses in lieu of salary
until December 31, 1998. This consulting agreement ended December 31, 1998
when Mr. Claybrook became an employee of the Company.
(4) Dr. Dukowitz joined the Company September 1, 1999. He is deferring $45,000
of his salary until January 2000.
(5) Dr. Lin joined the Company July 1, 1999.
(6) The above officers and directors were granted options pursuant to the 1999
Stock Option Plan. The total options granted have been included in the above
table.
(7) A Special Meeting of the Shareholders was held on March 1, 2000 at which
time the Shareholders approved an increase in the authorized shares of
Common Stock and Preferred Stock.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information regarding options granted
under the 1999 Stock Option Plan for each of the executive officers and
employees named below:
<TABLE>
<CAPTION>
Name Number of % of Exercise Expiration Number of % of Exercise Expiration
Securities Total Price Date Securities Total Price Date
Underlying Incentive Per Underlying Non-Qualified per
Incentive Options Share ($) Non-Qualified Options Share ($)
Options (#) Granted Options Granted
(1) (2) in 1999 (#)(3) in 1999
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cecil E. Smith, Jr. 500,000 18.3% 1.10 9/6/2004 250,000 50.00% 1.00 9/6/2009
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
Joel E. Claybrook 500,000 18.2% 1.10 9/6/2004 250,000 50.00% 1.00 9/6/2009
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
Dr. Meng-Sheng Lin 500,000 18.2% 1.00 9/6/2009
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
Dr. James Dukowitz 400,000 14.4% 1.00 9/6/2009
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
Scott Smith 250,000 9.1% 1.00 9/6/2009
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
Jerry Kline 200,000 7.3% 1.00 9/6/2009
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
Tom Miller 200,000 7.3% 1.00 9/6/2009
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
Ari Reubin 200,000 7.3% 1.00 9/6/2009
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
Totals 2,750,000 100.00% 500,000 100.00%
------------------------ ------------ ----------- ---------- ------------ ------------- ----------- ---------- -------------
</TABLE>
19
<PAGE> 20
(1) No shares have been exercised under this Plan.
(2) The Incentive options are first exercisable 25% in 1999, 25% in 2000, 25% in
2001 and 25% in 2002. The exercise price is $1.00 per share except for
Messer's. Cecil E. Smith, Jr. and Joel E. Claybrook who have an
exercise price of $1.10 per share.
(3) The Nonqualified options are first exercisable 20% per year for five years
beginning in 1999 at $1.00 per share.
EMPLOYMENT CONTRACTS
On February 23, 2000, the Company entered into Employment Agreements with Cecil
E. Smith, Jr., Chairman of the Board, and Joel E. Claybrook, President and CEO.
The term of the Employment Agreements are for a period of four years,
respectively, ending December 31, 2003. The base salaries were set at the
current rates of $180,000 per year with any increases to be determined by the
Board of Directors. Both are entitled to participate in all employee benefit
plans. Both employees will be entitled to six weeks vacation per year. The
Company will use its best efforts to nominate each individual for a position on
the Board of Directors during the period of the Agreement and at any general
election of directors. The Agreements provide provisions for termination by the
Company with and without cause. Causes for termination are conviction of fraud,
embezzlement, theft or other criminal conduct and willful misconduct or gross
negligence. The Agreements also provide provisions for termination by the
employees. Causes for termination by the employee are reduction in salary,
significant reduction in aggregate value of benefits, material and willful
breach of the Agreement by the Company, removal from position, significant
adverse change in nature or scope of authority, change of control of the Company
and assignment of any duties inconsistent with status of job description.
The Agreements provide that if the employees are terminated without cause or
terminated for good reason by the employee, the Company will continue the
installments of the base salary for a term of two years or the Agreement
expiration date whichever is greater, the issuance of Common Stock fully paid
and non-assessable and certain other payments.
In April 2000, the Company entered into Employment Agreements with James A.
Dukowitz, Chairman of the Executive Committee of the Office of the CEO; Jerry
D. Kline, Vice President of Technological Development; Scott E. Smith,
President; and James Hamner, Secretary. The terms of the Employment Agreements
extend through December 31, 2003. The base salaries were set at the current
rates of $180,000, $210,000, $225,000 and $160,000 respectively, with any
increases to be determined by the Board of Directors. The Agreements provide
provisions for termination with and without cause.
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% 19.7%
Joel E. Claybrook (1) 12.50% 9.3%
Timothy M. Da Silva (1)(2) 12.50% 2.7%
Robert J. Hoyt (3) 15.00% 8.0%
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.
20
<PAGE> 21
(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.
The Company had 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 $330,000 and $255,000 in 1998 and 1999, 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 Chief
Executive Officer for administrative and financial management. Fees and expenses
paid totaled $95,000 in 1998. This agreement ended in December 1998 when the
President joined the Company as a full time employee.
The Company paid approximately $52,000 to a consulting company owned by Patrick
Antaki, an original promoter of the Company for development services for 1998.
This agreement ended on December 31,1998.
The Company paid consulting fees of $70,000 for the year ended December 31, 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.
The Company paid $10,000 and $349,350 in 1998 and 1999, respectively, and
$135,600 for the three months ended March 31, 2000, and granted 750,000 shares
of common stock valued at $750,000 to Kingdom Capital for financial and investor
relations services for 1998 and 1999, respectively. Kingdom Capital was a
stockholder in the Company.
The Company paid J&N $124,000 for financial consulting services in 1999. J&N is
a stockholder of the Company.
The Company had a consulting contract with a company owned by two current
employees of the Company. from May 1999 through August 1999, prior to them
joining the Company as employees.. The agreement also called for the issuance of
28,000 shares of the Company's stock, which were issued in March 2000.
The Company paid approximately $30,663 in consulting fees and expenses to James
Hamner for the year ended December 31, 1999. The Company paid approximately
$8,700 in consulting fees and expenses to James Hamner for the three months
ended March 31, 2000. James Hamner is a director of the Company.
The terms of the related party transactions are equal to services that could be
obtained by unaffiliated parties.
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
21
<PAGE> 22
"Preferred Stock"), none of which was outstanding. As of March 31, 2000, the
Company had 75,000,000 shares of common stock authorized, of which 22,039,061
were issued and outstanding, and 15,000,000 shares of Preferred Stock, of which
none was 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.
On February 23, 2000, the Board of Directors granted 1,500,000 and 450,000
warrants to Cecil E. Smith, Jr. and Joel E. Claybrook, respectively. These
warrants were granted in conjunction with their personal guarantees of a line of
credit for the Company. The warrants have an exercise period of 10 years and are
exercisable at $1.00 per share. The face value of these warrants of $1.45
million was expensed as a fee associated with obtaining the line of credit.
On February 23, 2000, the Board of Directors approved the grant of 200,000
Non-Qualified Stock Options to David H. Segrest, a partner in the law firm of
Gardere & Wynne, LLP., the Company's legal counsel. These options were granted
to Mr. Segrest as payment in lieu of cash as a member of the Executive Committee
of the Office of the CEO. These options are exercisable at $1.00 per share with
a duration of ten years. The face value of these options of $172,000 will be
expensed over the estimated term of his tenure on the Executive Committee,
currently estimated at $17,200 per year.
During the month of April 2000, the Company sold 1,600,000 units consisting of 5
shares of preferred stock and 3 warrants each for a total of 8,000,000 shares of
preferred stock and 4,800,000 warrants. Net proceeds to the Company were
$7,575,000. Dividends on the preferred stock shall accrue at the rate of 10% per
annum and are payable in kind through issuance of additional preferred shares.
The preferred stock holders are entitled to preference on liquidation. The
Company has the right to redeem the preferred shares at $1.65 per share prior to
December 31, 2000. The preferred stock holders have rights to convert to common
stock at a time and amount based on the performance of the Company. The
preferred stock holders have the right and power to elect one fewer than a
majority of the directors. As long as at least 3,000,000 shares of the preferred
stock are outstanding, certain actions by the Company require approval of the
preferred stock holders. The preferred stock holders have limited preemptive
rights to acquire additional shares of the Company's Stock. Additionally,
options to purchase 300,000 shares of common stock were granted to Frost
Securities and 150,000 and 175,000 shares of common stock were granted to David
Segelov and Jason Cooper, respectively, for their assistance in raising the
above financing.
22
<PAGE> 23
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 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.
Dividends on the preferred stock shall accrue at the rate of 10% per annum and
are payable in kind through issuance of additional preferred shares.
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 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
23
<PAGE> 24
were exempt from qualification. The Company subsequently established its
exemption in California.
BLB Financial, Inc., through its affiliate Highland Funding, loaned Micro-ASI
$577,500 as stated above, in the form of convertible notes. These notes were
converted into Micro-ASI Common Stock. The notes were converted for 3,575,000
shares as follows: April 18, 1997-150,000 shares; June 18, 1997-375,000 shares;
July 24, 1997-625,000 shares; August 13, 1997-625,000 shares; August
29,1997-1,000,000 shares; September 29, 1997-300,000 shares; October 23,
1997-300,000 shares; and December 1, 1997-200,000 shares. 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. Approximately
1,284,200 shares were sold to 280 shareholders by Highland during the period
from May 6, 1997 to September 24, 1997. 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.
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 December 31, 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. These shares were issued as follows:
750,000 shares to the Kingdom Capital during 1999; 2,500 shares to Soloman
Lichtenstein on 3/4/99; 7,400 shares to Jaron Nunez on 3/29/99; 7,500 shares to
Yeshiva Hapleta on 6/8/99; 4,375 shares to Boyoner Gemilas on 8/10/99; and 5,000
shares to Yehuda Freidman on 8/10/99.
From August 1998 to December 31, 1999, the Company sold 3,006,536 shares of
Common Stock for $3,006,536 in a private offering. The Company 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 has been
furnished to 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.
From January 1 to March 31, 2000, the Company sold 2,575,850 shares of Common
Stock for $2,495,850 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 has been
furnished to 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.
24
<PAGE> 25
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).
25
<PAGE> 26
PART F/S
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors ............................................ F - 2
Balance Sheet as of December 31, 1999 and March 31, 2000 (unaudited)....... F - 3
Statements of Operations for the years ended December 31, 1998 and 1999, the
period from inception (February 1, 1995) through December 31, 1999, the three
months ended March 31, 1999 and 2000 (unaudited), and the period from
inception (February 1, 1995) through March 31, 2000 (unaudited) ......... F - 4
Statements of Stockholders' Equity (Deficit) for the period from inception
(February 1, 1995) through December 31, 1999 and the nine months ended
March 31, 2000 unaudited) ............................................... F - 5
Statement of Cash Flows for the years ended December 31, 1998 and 1999, the
period from inception (February 1, 1995) through December 31, 1999, three
months ended March 31, 1999 and 2000 (unaudited), and the period from
inception (February 1, 1995) through March 31, 2000 (unaudited) ......... F - 6
Notes to Financial Statements ............................................. F - 7
</TABLE>
F - 1
<PAGE> 27
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, 1999 and the related statements of operations,
stockholders' equity (deficit) and cash flows for the two years in the period
then ended, and for the period February 1, 1995 (inception) through December 31,
1999. 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 of Micro-ASI, Inc. 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, 1999, 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 auditing standards generally accepted
in the United States. 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, 1999 and the
results of its operations and its cash flows for the two years in the period
then ended and the period from February 1, 1995 (inception) through December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Dallas, Texas
March 20, 2000
F - 2
<PAGE> 28
Micro-ASI, Inc.
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 551,292 $ 1,144,062
------------ ------------
Total current assets 551,292 1,144,062
Property and equipment, net 89,635 356,231
Investment in BTI -- 4,582,812
Other assets 27,121 26,063
------------ ------------
Total assets $ 668,048 $ 6,109,168
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 583,493 $ 558,430
Accrued expenses -- 175,890
Accrued interest -- 31,250
Notes payable -- 1,420,440
------------ ------------
Total current liabilities 583,493 2,186,010
Note payable -- 2,501,941
------------ ------------
Total liabilities 583,493 4,687,951
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares - 15,000,000 -- --
Common stock, $.001 par value:
Authorized shares - 75,000,000
Issued and outstanding shares -19,227,111 at December
31, 1999 and 22,039,961 at March 31, 2000 (unaudited) 19,227 22,040
Additional capital 5,767,295 9,947,333
Deficit accumulated during the development stage (5,701,967) (8,548,156)
------------ ------------
Total stockholders' equity 84,555 1,421,217
------------ ------------
Total liabilities and stockholders' equity $ 668,048 $ 6,109,168
============ ============
</TABLE>
See accompanying notes.
F - 3
<PAGE> 29
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
1998 1999 (INCEPTION)
THROUGH
DECEMBER 31,
1999
<S> <C> <C> <C>
Expenses:
Research and development 302,355 808,396 1,341,001
General and administrative 516,964 2,922,080 4,298,212
------------ ------------ --------------
Operating loss (819,319) (3,730,476) (5,639,213)
Other income (expense):
Interest and other income 8,649 27,451 38,253
Interest expense (7,407) (2,674) (100,997)
------------ ------------ --------------
Net loss $ (818,077) $ (3,705,699) $ (5,701,957)
============ ============ ==============
Basic and diluted net loss per share $ (0.05) $ (0.21)
============ ============
Weighted average shares outstanding 15,957,781 17,989,506
============ ============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS CUMULATIVE FROM
ENDED ENDED FEBRUARY 1, 1995
MARCH 31, MARCH 31, (INCEPTION) THROUGH
2000 1999 MARCH 31, 2000
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Expenses:
Research and development 189,401 116,812 1,530,402
General and administrative 2,604,755 318,437 6,902,967
Equity in income of Best Technologies, Inc. (2,906) -- (2,906)
------------ ------------ --------------
Operating loss (2,791,250) (435,249) (8,430,463)
Other income (expense):
Interest and other income 2,766 3,415 41,019
Interest expense (57,705) (1,750) (158,702)
------------ ------------ --------------
Net loss $ (2,846,189) $ (433,584) $ (8,548,146)
============ ============ ==============
Basic and diluted net loss per share $ (0.15) $ (0.03)
============ ============
Weighted average shares outstanding 19,372,008 16,818,482
============ ============
</TABLE>
See accompanying notes.
F - 4
<PAGE> 30
MICRO-ASI, INC.
(a development stage company)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------------ ---------------------------
ISSUANCE
PRICE SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1995
Issuance for notes $ 0.001 9,000,000 $ 9,000
Net loss for year ended December 31, 1995 -- --
---------- ----------
Balance at December 31, 1995 9,000,000 9,000
1996
Issuance for forgiveness of debt 0.167 3,000,000 3,000
Contribution of interest payable to additional
capital -- --
Net loss for year ended December 31, 1996 -- --
---------- ----------
Balance at December 31, 1996 12,000,000 12,000
1997
Sale of common stock 0.100 2,775,000 2,775
Sale of common stock 0.333 600,000 600
Sale of common stock 0.500 200,000 200
Contributed to capital
Net loss for year ended December 31, 1997 -- --
---------- ----------
Balance at December 31, 1997 15,575,000 15,575
1998
Sale of common stock .993 324,500 325
Sale of common stock 1.000 444,300 444
Net loss for year ended December 31, 1998 -- --
---------- ----------
Balance at December 31, 1998 16,343,800 16,344
1999
Sale of common stock 1.000 3,006,536 3,006
Issuance for services 1.000 876,775 877
Return of stock .001 (1,000,000) (1,000)
Net loss for year ended December 31, 1999 -- --
---------- ----------
Balance at December 31, 1999 19,227,111 19,277
2000
Sale of common stock (unaudited) .969 2,575,850 2,576
Issuance for services (unaudited) 1.000 237,000 237
Issuance of warrants for services (unaudited) -- --
Net Loss for the period ended March 31, 2000 (unaudited) -- --
---------- ----------
Balance at March 31, 2000 (unaudited) 22,039,961 22,040
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
CAPITAL
--------------
<S> <C>
1995
Issuance for notes $ (7,500)
Net loss for year ended December 31, 1995 --
-----------
Balance at December 31, 1995 (7,500)
1996
Issuance for forgiveness of debt 497,000
Contribution of interest payable to additional
capital 28,405
Net loss for year ended December 31, 1996 --
-----------
Balance at December 31, 1996 517,905
1997
Sale of common stock 274,725
Sale of common stock 199,400
Sale of common stock 99,800
Contributed to capital 29,507
Net loss for year ended December 31, 1997 --
-----------
Balance at December 31, 1997 1,121,337
1998
Sale of common stock 321,675
Sale of common stock 443,856
Net loss for year ended December 31, 1998 -
-----------
Balance at December 31, 1998 1,886,868
1999
Sale of common stock 3,003,529
Issuance for services 875,898
Return of stock 1,000
Net loss for year ended December 31, 1999 --
-----------
Balance at December 31, 1999 5,767,295
2000
Sale of common stock (unaudited) 2,493,275
Issuance for services (unaudited) 236,763
Issuance of warrants for services (unaudited) 1,450,000
Net Loss for the period ended March 31, 2000 (unaudited) --
-----------
Balance at March 31, 2000 (unaudited) 9,947,333
</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 -- 3,006,535
Issuance for services -- 876,775
Return of stock -- --
Net loss for year ended December 31, 1999 (3,705,699) (3,705,699)
-------------------------- --------------------------
Balance at December 31, 1999 $ (5,701,967) $ 84,555
2000
Sale of common stock (unaudited) -- 2,495,851
Issuance for services (unaudited) -- 237,000
Issuance of warrants for services (unaudited) -- 1,450,000
Net loss for the period ended March 31, 2000
(unaudited) (2,846,189) (2,846,189)
-------------------------- --------------------------
Balance at March 31, 2000 (unaudited) (8,548,156) 1,421,217
</TABLE>
See Accompanying Notes
F - 5
<PAGE> 31
Micro-ASI, Inc.
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED
CUMULATIVE FROM
FEBRUARY 1, 1995
(INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31,1999
----------------- ----------------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (818,077) $ (3,705,699) $ (5,701,967)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 14,471 23,461 49,087
Common stock issued to incorporators -- -- 1,500
Common stock issued for services -- 806,776 806,776
Changes in operating assets and
liabilities:
Accounts payable 95 377,187 565,679
Other assets -- (27,120) (9,308)
------------- ------------- -------------
Net cash used in operating activities (803,511) (2,525,395) (4,288,233)
INVESTING ACTIVITIES
Capital expenditures, net (6,513) (107,669) (138,722)
------------- ------------- -------------
Net cash used in investing
activities (6,513) (107,669) (138,722)
FINANCING ACTIVITIES
Proceeds from issuance of notes -- -- 595,000
Proceeds from issuance of common stock 766,300 3,006,535 4,350,335
Contributed capital -- -- 57,912
Principal payments on notes (25,000) -- (25,000)
------------- ------------- -------------
Net cash provided by financing activities 741,300 3,006,535 4,978,247
------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents (68,724) 373,471 551,292
Cash and cash equivalents at beginning of
period 246,545 177,821 --
------------- ------------- -------------
Cash and cash equivalents at end of period $ 177,821 $ 551,292 $ 551,292
============= ============= =============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 7,407 $ 2,674 $ 57,573
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS CUMULATIVE FROM
ENDED ENDED FEBRUARY 1, 1995
MARCH 31, MARCH 31, (INCEPTION) THROUGH
2000 1999 MARCH 31, 2000
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,846,189) $ (433,584) $ (8,548,156)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 30,025 2,500 79,112
Common stock issued to incorporators -- -- 1,500
Common stock issued for services 1,455,000 -- 2,261,776
Changes in operating assets and liabilities:
Accounts payable (25,063) (53,324) 540,616
Accrued expenses 175,889 -- 175,889
Accrued interest 31,250 1,749 31,250
Other assets 3,818 -- (5,490)
------------ ------------ ------------
Net cash used in operating activities (1,175,270) (482,659) (5,463,503)
INVESTING ACTIVITIES
Capital expenditures, net (296,474) (60,122) (435,196)
Net investment in BTI (69,051) -- (69,051)
------------ ------------ ------------
Net cash used in investing activities (365,525) (60,122) (504,247)
FINANCING ACTIVITIES
Proceeds from issuance of notes 208,467 -- 803,467
Sales of common stock 2,727,851 853,823 7,078,186
Contributed capital -- -- 57,912
Principal payments on notes (802,753) -- (827,753)
------------ ------------ ------------
Net cash provided by financing activities 2,133,565 853,823 7,111,812
------------ ------------ ------------
Net increase in cash and cash equivalents 592,770 311,042 1,144,062
Cash and cash equivalents at beginning of period 551,292 177,821 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,144,062 $ 488,863 $ 1,144,062
============ ============ ============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 26,455 -- $ 84,028
============ ============ ============
</TABLE>
See accompanying notes.
F - 6
<PAGE> 32
Notes to Financial Statements
Information for the three months ended March 31, 1999 and 2000 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 March 31, 2000 and for the three-month
periods ended March 31, 1999 and 2000 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 three months in the period ended March 31, 2000 are not necessarily
indicative of the results to be expected for the full year.
PRINCIPLES OF CONSOLIDATION
The Company does not consolidate Best Technologies, Inc. (BTI) due to the
control features of the outstanding preferred stock.
CONCENTRATION OF RISK
At March 31, 2000 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.
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> 33
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.
Options and warrants to purchase 3,450,000 and 5,400,000 shares as of December
31, 1999 and March 31, 2000 (unaudited), respectively, of common stock are
excluded from the calculation of diluted net loss per share as the impact of
these shares is anti-dilutive.
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, March 31,
Life 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Computer Equipment 3 $ 23,197 $ 51,707
Furniture and Fixtures 5 43,387 44,604
Leasehold Improvements 1 24,816 24,816
Property and equipment 5 22,661 23,405
Software 5 266,005
Less Accumulated Depreciation (24,426) (54,306)
------------ ------------
$ 89,635 $ 356,231
============ ============
</TABLE>
3. NOTE PAYABLE AND LINE OF CREDIT
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.
In February 2000, the Company obtained a line of credit from a financial
institution in the amount of $1.3 million. This line of credit was personally
guaranteed by the Company's Chairman and Chief Executive Officer. In connection
with their personal guarantees, the two individuals were granted warrants to
purchase 1.95 million shares of the Company's common stock at $1 per share. The
warrants are fully vested and immediately exercisable and have a 10 year life.
The estimated fair value of these warrants, $1.677 million, will be charged to
expense immediately as a fee for the guarantee.
F - 8
<PAGE> 34
4. INCOME TAXES
At December 31, 1999, the Company's net deferred tax assets of approximately
$1.9 million 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. During 1999, the
valuation allowance increased by $1.2 million. No other significant reconciling
items exist between the actual effective tax and the expected effective tax rate
for 1999.
5. RELATED PARTY TRANSACTIONS
The Company had 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 $330,000 and $255,000 in 1998 and 1999, 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 Chief
Executive Officer for administrative and financial management. Fees and expenses
paid totaled $95,000 in 1998. This agreement ended in December 1998 when the
Chief Executive Officer joined the Company as a full time employee.
The Company paid approximately $55,000 to a consulting company owned by Patrick
Antaki, an original promoter of the Company for development services for 1998.
This agreement ended on December 31,1998.
The Company paid consulting fees of $70,000 for the year ended December 31, 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.
The Company paid $10,000 and $349,350 in 1998 and 1999, respectively, and
$135,600 for the three months ended March 31, 2000. The Company granted 750,000
shares of common stock valued at $750,000 to Kingdom Capital for financial and
investor relations services for 1998 and 1999, respectively. Kingdom Capital is
a stockholder in the Company.
The Company paid J&N $124,000 for financial consulting services in 1999. J&N is
a stockholder of the Company.
The Company had a consulting contract with a company owned by two current
employees of the Company from May 1999 through August 1999, prior to them
joining the Company as employees. The agreement called for the issuance of
28,000 shares of the Company's stock, which were issued in March 2000.
The Company paid approximately $30,663 in consulting fees and expenses to James
Hamner for the year ended December 31, 1999. The Company paid approximately
$8,700 in consulting fees and expenses to James Hamner for the three months
ended March 31, 2000. James Hamner is a director of the Company.
6. COMMITMENTS
OPERATING LEASES
The Company leases office facilities and certain equipment under operating
leases. Leases that expire are generally expected to be renewed or replaced by
other leases. Rental expense under these leases for the year ended December 31,
1999 and for the three months ended March 31, 2000 was $74,000 and $26,260,
respectively. As of December 31, 1999, future minimum rental payments required
under operating leases that had initial or remaining noncancelable lease terms
in excess of one year are as follows:
<TABLE>
<S> <C>
2000 $ 49,306
2001 16,472
2002 15,584
2003 5,863
--------
$ 87,225
========
</TABLE>
NEW LEASES (unaudited)
On April 6, 2000 the Company entered into a lease for its Corporate Offices.
This lease commences on May 1, 2000 and is for a two year term. Base rent is
$11,433 per month. Total base rent under this lease is $137,199.
On April 10, 2000, the Company entered into a lease for its Technology
Integration Deployment Center. This lease commences on May 1, 2000 and is for a
five year term. Base rent is $9,235 per month through April 2001 and $9,654 per
month for the period of May 2001 through April 2005. Total base rent under this
lease is $574,218.
INVESTOR RELATIONS AGREEMENT (unaudited)
On May 4, 2000, the Company entered into an agreement with an investor relations
company, which will provide services for one year at a monthly fee of 15,000
shares of common stock in the Company or a total of 180,000 shares to be prepaid
upon signing of the agreement. The 180,000 shares of Common Stock were issued on
May 9, 2000.
INVESTMENT IN ZAE
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 December 31, 1999, the Company had invested approximately
$350,000 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> 35
7. EQUITY
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. The Company granted stock in lieu of cash due to its
limited liquidity situation at the time of the decision. Kingdom Capital was
contracted to provide assistance in development of an investor relations program
for the Company; identification of potential equity investors; research on
proposed new business opportunities; revising the Company's business plan,
including financial projections, operating strategy, and business development
strategy; executive management and board of directors search, selection, and
recruitment; identification and selection of additional professional services;
assistance in negotiations leading to strategic business relationships; and
public and media relations including distribution of reports on the company to
various print media and brokerage firms as prepared or approved by the company.
For the period of January 1, 2000 through March 31, 2000, the Company raised
$2,732,851 through the issuance of its common stock at $1.00 per share.
Stock Option Plan
The Company has elected to follow APB 25 and related interpretations in
accounting for its stock based compensation. Under APB 25, because the exercise
price of the Company's stock options has been equal to or greater than the
market price of the underlying stock on the date of grant, no compensation
expense has been recognized.
During 1999, the Company introduced a stock option plan: the 1999 Employee Stock
option Plan (Employee Plan). The Employee Plan has authorized the grant of
incentive and non-qualified stock options to employees for up to 4,000,000
shares of the Company's common stock. All options granted have five to ten year
terms and become exercisable over a four to five year period. The option price
is equal to 100% to 110% of the fair value of the common stock on the date of
grant depending on the percentage of common stock owned by the optionee on the
grant date.
Supplemental information regarding net loss and net loss per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
stock options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for 1999:
risk-free interest rate of 6.29%; dividend yield of 0%; volatility factors of
the expected market price of the Company's common stock of .828; and a
weighted-average expected life of the option of 3.6 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The expense amounts
for 1999 are not necessarily indicative of the effects on reported net income
(loss) for future years. The Company's pro forma information as of December 31,
1999 is as follows:
<TABLE>
<S> <C>
Pro forma net loss $ (3,829,121)
Pro forma basic and diluted net loss per share $ (0.21)
</TABLE>
7. Equity Stock Option Plan (continued)
Based on the Black-Scholes method, the fair value of the options granted as of
December 31, 1999 is as follows:
<TABLE>
<S> <C>
Number of options issued at fair market value of stock 2,450,000
Weighted-average fair value of options $0.62
Weighted-average exercise price of options $1.00
Number of options issued in excess of fair market value of stock 1,000,000
Weighted-average in fair value of options $0.58
Weighted-average exercise price of options $1.10
</TABLE>
A summary of the Company's stock option activity, and related information for
the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------------ ----------------
<S> <C> <C>
Outstanding, beginning of year - $ -
Granted 3,450,000 1.03
Exercised -- --
------------
Outstanding, end of year 3,450,000 $ 1.03
============
Exercisable at end of year 837,500 $ 1.03
============
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 ranged from
$1.00 to $1.10. The weighted-average remaining contractual life of those options
is 8.2 years.
On February 23, 2000, the Board of Directors granted 1,500,000 and 450,000
warrants to its Chairman and Chief Executive Officer, respectively. These
warrants were granted in conjunction with their personal guarantees of a line of
credit for the Company. The warrants have an exercise period of 10 years and are
exercisable at $1.00 per share. The fair value of these warrants of $1.45
million was expensed as a fee associated with obtaining the line of credit.
On February 23, 2000, the Board of Directors approved the grant of 200,000
Non-Qualified Stock Options to a partner in the law firm of Gardere & Wynne,
LLP., the Company's legal counsel. These options were granted as payment in lieu
of cash as a member of the Executive Committee of the Office of the CEO. These
options are exercisable at $1.00 per share with a duration of ten years. The
fair value of these options of $172,000 will be expensed over the estimated term
of his tenure on the Executive Committee, currently estimated at $17,200 per
year.
8. Acquisition
Effective January 18, 2000, Micro-ASI completed the acquisition of the
outstanding common stock (BTI Common Stock) of Best Technologies, Inc., a Texas
corporation (BTI), from the sole shareholder of BTI (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 (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
$3.9 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 (Purchase Note) and (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 (Convertible
Note). As part of the purchase agreement, Micro-ASI agreed to pay 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 (Cash Note). The Company has also 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 (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.
9. SUBSEQUENT EVENT (Unaudited)
During April 2000, the Company sold 1,600,000 units consisting of 5 shares of
preferred stock and 3 warrants each for a total of 8,000,000 shares of preferred
stock and 4,800,000 warrants. Net proceeds to the Company were $7,575,000.
Dividends on the preferred stock accrue at the rate of 10% per annum and are
payable in kind through issuance of additional preferred shares. The preferred
stock holders are entitled to preference on liquidation. The Company has the
right to redeem the preferred shares at $1.65 per share prior to December 31,
2000. The preferred stock holders have rights to convert to common stock at a
time and amount based on the performance of the Company. The preferred stock
holders have the right and power to elect one fewer than a majority of the
directors. As long as at least 3,000,000 shares of the preferred stock are
outstanding, certain actions by the Company require approval of the preferred
stock holders. The preferred stock holders have limited preemptive rights to
acquire additional shares of the Company's Stock. Additionally, options to
purchase 300,000 shares of common stock were granted to an investment banking
firm and 325,000 shares of common stock were granted to two individuals, for
their assistance in raising the above financing.
F - 10
<PAGE> 36
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 *
Exhibit 6.3 Employment Agreement with Cecil E. Smith*
Exhibit 6.4 Employment Agreement with Joel Claybrook*
Exhibit 6.5 Employment Agreement with Scott Smith
Exhibit 6.6 Employment Agreement with Jerry Kline
Exhibit 6.7 Employment Agreement with James Dukowitz
Exhibit 6.8 Employment Agreement with James Hammer
(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
ITEM 2 DESCRIPTION OF EXHIBITS:
The Exhibits listed in Item 1 of this Part III are filed herewith.
<PAGE> 37
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:
June 30, 2000 /s/ JOEL E. CLAYBROOK
---------------------------
By: Joel E. Claybrook,
Chief Executive Officer
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Articles of Incorporation *
2.2 Bylaws *
6.1 Consulting Agreement with S&N Corporation *
6.2 Consulting Agreement with Kingdom Capital, Inc *
6.3 Employment Agreement with Cecil E. Smith*
6.4 Employment Agreement with Joel Claybrook*
6.5 Employment Agreement with Scott Smith
6.6 Employment Agreement with Jerry Kline
6.7 Employment Agreement with James Dukowitz
6.8 Employment Agreement with James Hammer
16.1 Letter from Jones, Jensen & Company *
Financial Data Schedules
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
