<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER: 0-27027
MICRO-ASI, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-2586030
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
12655 NORTH CENTRAL EXPRESSWAY
SUITE 1000 75243
DALLAS, TEXAS (ZIP CODE)
(ADDRESS OF EXECUTIVE OFFICES)
972-392-9636
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of September 30, 2000, there were 22,614,961 shares of Common Stock, par
value $0.001 per share, outstanding and 8,291,300 shares of Preferred Stock, par
value $0.001 per share, outstanding.
<PAGE> 2
Micro-ASI, Inc.
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 551,292 $ 3,169,928
Accounts receivable -- 524,586
Other current assets -- 75,345
--------------- ---------------
Total current assets 551,292 3,769,859
Property and equipment, net 89,635 5,770,585
Intangibles, net 8,579 3,732,767
Investment in subsidiary -- 5,572,612
Other assets 18,542 84,736
--------------- ---------------
Total assets $ 668,048 $ 18,930,559
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 501,543 $ 458,269
Accrued expenses 81,950 251,182
Accrued interest -- 181,571
Notes payable, current portion -- 2,034,543
Capital lease obligations, current portion -- 1,094,037
--------------- ---------------
Total current liabilities 583,493 4,019,602
Notes payable -- 6,245,238
Capital lease obligations -- 3,211,790
--------------- ---------------
Total liabilities 583,493 13,476,630
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares - 15,000,000 Issued and
outstanding shares - 0 at December
31, 1999 and 8,291,300 at
September 30, 2000 (unaudited) -- 8,291
Common stock, $.001 par value:
Authorized shares - 75,000,000 Issued and
outstanding shares -19,227,111 at
December 31, 1999 and 22,614,961
at September 30, 2000 (unaudited) 19,227 22,615
Additional capital 5,767,295 18,164,800
Deficit accumulated during the development
Stage (5,701,967) (12,741,777)
--------------- ---------------
Total stockholders' equity 84,555 5,453,929
--------------- ---------------
Total liabilities and stockholders' equity $ 668,048 $ 18,930,559
=============== ===============
</TABLE>
See accompanying notes.
2
<PAGE> 3
Micro-ASI, Inc.
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
CUMULATIVE FROM
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS FEBRUARY 1, 1995
ENDED ENDED ENDED ENDED (INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, THROUGH
2000 1999 2000 1999 SEPTEMBER 30, 2000
-------------- -------------- -------------- -------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Testing services $ 867,209 $ -- $ 867,209 $ $ 867,209
Research and development 10,000 -- 10,000 -- 10,000
-------------- -------------- -------------- -------------- -------------------
Total revenues 877,209 -- 877,209 -- 877,209
-------------- -------------- -------------- -------------- -------------------
Cost and expenses:
Cost of testing services 715,120 -- 715,120 -- 715,120
Research and development 586,232 208,765 1,198,774 584,653 2,539,775
General, and administrative 1,865,904 508,671 5,632,320 1,839,990 9,930,532
Equity in income of equity investee (77,176) -- (47,799) -- (47,799)
-------------- -------------- -------------- -------------- -------------------
Total cost and expenses 3,090,080 717,436 7,498,415 2,424,643 13,137,628
-------------- -------------- -------------- -------------- -------------------
Operating loss (2,212,871) (717,436) (6,621,206) (2,424,643) (12,260,419)
Other income (expense):
Interest income and other income 62,030 11,780 155,210 19,224 193,463
Interest expense (175,851) (5,657) (282,515) (1,761) (383,512)
-------------- -------------- -------------- -------------- -------------------
Net loss $ (2,326,692) $ (711,313) $ (6,748,511) $ (2,407,180) $ (12,450,468)
Preferred stock dividends declared 200,000 -- 291,300 -- 291,300
-------------- -------------- -------------- -------------- -------------------
Net loss per share attributable to
Common shareholders $ (2,526,692) $ (711,313) $ (7,039,811) $ (2,407,180) $ (12,741,768)
============== ============== ============== ============== ===================
Basic and diluted net loss per share $ (0.11) $ (0.04) $ (0.33) $ (0.14)
============== ============== ============== ==============
Weighted average shares outstanding 22,593,785 18,594,719 21,456,222 17,644,787
============== ============== ============== ==============
</TABLE>
See accompanying notes.
3
<PAGE> 4
Micro-ASI, Inc.
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
CUMULATIVE
FROM
FEBRUARY 1, 1995
NINE MONTHS NINE MONTHS (INCEPTION)
ENDED ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000
-------------- -------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (6,748,511) $ (2,407,180) $ (12,450,478)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 471,318 12,509 520,405
Common stock issued to incorporators -- -- 1,500
Common stock issued for services 1,663,033 656,775 2,469,809
Changes in operating assets and
liabilities:
Accounts receivable (524,586) -- (524,586)
Other assets (141,538) 40,520 (150,846)
Accounts payable (43,274) 26,508 522,405
Accrued expenses 169,232 11,250 169,232
Accrued interest 181,571 (16,607) 181,571
-------------- -------------- -------------------
Net cash used in operating activities (4,972,755) (1,676,225) (9,260,988)
INVESTING ACTIVITIES
Capital expenditures (760,247) (67,299) (898,969)
Acquisition of EPI 29,850 -- 29,850
Net investment in equity investee (1,255,945) -- (1,255,945)
Net investment in short term securities -- (507,026) --
-------------- -------------- -------------------
Net cash used in investing activities (1,986,342) (574,325) (2,125,064)
FINANCING ACTIVITIES
Proceeds from issuance of notes -- -- 595,000
Sales of common stock 2,859,851 2,613,236 7,210,186
Sale of preferred stock 7,595,000 -- 7,595,000
Contributed capital -- -- 57,912
Principal payments on capital lease
obligations (277,118) -- (277,118)
Principal payments on notes (600,000) -- (625,000)
-------------- -------------- -------------------
Net cash provided by financing activities 9,577,733 2,613,236 14,555,980
Net increase in cash and cash equivalents 2,618,636 362,686 3,169,928
Cash and cash equivalents at beginning of
period 551,292 177,821 --
-------------- -------------- -------------------
Cash and cash equivalents at end of period $ 3,169,928 $ 540,507 $ 3,169,928
============== ============== ===================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 100,944 $ 5,657 $ 158,517
============== ============== ===================
</TABLE>
See accompanying notes.
4
<PAGE> 5
Micro-ASI, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The accompanying financial statements, which should be read in conjunction with
the audited financial statements included in the Form 10-KSB-Annual Report, are
unaudited, but have been prepared in the ordinary course of business for the
purpose of providing information with respect to the interim periods. The
balance sheet at December 31, 1999 was derived from the audited Balance Sheet at
that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. The
unaudited financial statements for the three and nine months periods ended
September 30, 2000 and 1999 reflect all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of the financial position
and results of operations for such periods. The results of operations for the
three and nine months periods ended September 30, 2000 are not necessarily
indicative of the results to be expected for a full year.
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.
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 19,175,000 shares 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.
5
<PAGE> 6
2. NOTES PAYABLE, LINE OF CREDIT, AND CAPITAL LEASES
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Note payable due December 31, 2001, with interest at 5%
due monthly beginning February 1, 2000 $ -- $ 1,416,667
Note payable due December 31, 2001, with interest at 5% -- 2,300,000
Note payable, with interest at 9.5%, with one accrued
interest payment due on October 15, 2000 and the
balance of the principal and interest due on
January 31, 2001 -- 1,613,114
Note payable, with interest at 6%, with (a) one
accrued interest only payment due October 5, 2000,
(b) one accrued interest only payment due January 5, 2001
and (c) 14 quarterly installments thereafter with each
installment equal to $210,714 in principal plus any
accrued interest with a final payment due July 5, 2004 -- 2,950,000
-------------- --------------
Less: Current maturities -- (2,034,543)
-------------- --------------
$ -- $ 6,245,238
============== ==============
</TABLE>
The note payable for $1,416,667 is a convertible note from the Company to the
seller of BTI (see Note 4) due December 31, 2001, which is immediately
convertible into 1,416,677 shares of common stock of the Company. The note
payable for $2,500,000 is a promissory note from the Company to the seller of
BTI (see Note 4) due the earlier of (a) December 31, 2001 or (b) ten days after
the completion of an initial public offering by the Company. The Company has
paid $200,000 on the $2,500,000 promissory note, as of September 30, 2000. Both
notes are secured by a stock pledge agreement pursuant to which the Company has
pledged all of the BTI Common Stock.
The short-term note payable for $1,613,114 is a promissory note from the Company
to EPI (see Note 4) due January 31, 2001, with one accrued interest payment due
on October 15, 2000 and the balance of the principal and interest due on January
31, 2001. The note payable for $2,950,000 is a promissory note from the Company
to EPI (see Note 4) with (a) one accrued interest only payment due October 5,
2000, (b) one accrued interest only payment due January 5, 2001 and (c) 14
quarterly installments thereafter with each installment equal to $210,714 in
principal plus any accrued interest with a final payment due July 5, 2004. The
assets of EPI, excluding accounts receivable and inventory, secure both notes.
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 is
personally guaranteed by Cecil E. Smith, Jr., and Joel E. Claybrook.
As of September 30, 2000, obligations under capital leases totaled $4,305,827
with a net book value of $4,486,084 and have a remaining lease term of five
years or less. The capital leases are secured by manufacturing equipment,
computer equipment, and furniture.
6
<PAGE> 7
3. EQUITY
COMMON STOCK
For the period of January 1, 2000 through September 30, 2000, the Company raised
$2,859,851 through the issuance of its common stock at $1.00 per share.
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.
PREFERRED STOCK
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
$7,595,000. 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.
As of September 2000, 291,300 shares of preferred stock dividends were issued.
The preferred stock holders are entitled to preference on liquidation. The
Corporation 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
Corporation. 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 Corporation require
approval of the preferred stock holders. The preferred stock holders have
limited preemptive rights to acquire additional shares of the Corporation'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.
4. 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.
7
<PAGE> 8
4. ACQUISITION (Continued)
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). 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. 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. Additionally, the Company has paid off a
promissory note owed by BTI to the selling shareholder of $600,000.
Additionally, the Company has paid $200,000 on the $2,500,000 promissory note.
The Company's current investment in BTI as of September 30, 2000 is
approximately $5.6 million.
For the nine months ended September 30, 2000, BTI had revenues of $2,270,311,
gross margin of $1,579,453, and net income of $47,799.
On July 21, 2000, Micro-ASI, Inc. completed the acquisition of the assets of EPI
Technologies, Inc., a Texas corporation ("EPI"), pursuant to an asset purchase
agreement (the "Agreement"). EPI is an electronics test contractor headquartered
in Plano, Texas.
The total aggregate purchase price for the assets of EPI is $4,863,114. The
purchase price includes (i) a cash payment at closing of $300,000, (ii) a
Secured Promissory Note from the Company to EPI in the amount of $1,613,114, due
January 31, 2001, with one accrued interest payment due on October 15, 2000 and
the balance of the principal and interest due on January 31, 2001 and (iii) a
Secured Promissory Note in the amount of $2,950,000 from the Company to EPI with
(a) one accrued interest only payment due October 5, 2000, (b) one accrued
interest only payment due January 5, 2001 and (c) 14 quarterly installments
thereafter with each installment equal to $210,714 in principal plus any accrued
interest with a final payment due July 5, 2004. The promissory notes are secured
by the assets of EPI, excluding accounts receivable and inventory. Should the
Company obtain financing from a financial institution and payoff the $1,613,114
note, the Agreement stipulates that EPI will subordinate its first lien position
on the pledged assets other than intellectual property to a financial
institution. The purchase price is not subject to any post closing adjustments.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements regarding
future financial condition and results of operations and the company's business
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. We have based these statements on our current
expectations about future events. Although we believe that our expectations
reflected in or suggested by our forward-looking statements are reasonable, we
cannot assure you that these expectations will be achieved. Our actual results
may differ materially from what we currently expect. Important factors which
could cause our actual results to differ materially from the forward-looking
statements include, without limitation (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.
GENERAL
The Company is a development stage company and to date has testing service
revenues of $867,209 and $10,000 in research and development revenues. The
primary activities to date have been forming the management team, research and
development, identifying products to redesign utilizing flip-chip technology,
and testing services resulting from an acquisition. 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 three months and nine months ended September 30,
2000 and 1999, respectively. This Form 10-QSB should be read in conjunction with
the Form 10-KSB which was filed on March 30, 2000, and as amended in Form
10-KSB/A which was filed on September 22, 2000.
The Company has identified redesign projects from three electronic manufacturers
that will serve as the core of the Company's research and development strategy.
The Company anticipates that it will spend approximately $2.1 million in
research and development projects during 2000. Micro-ASI is now in the process
of project definition, which includes precise technical details, number of
units, pricing and the time to do the redesign. Although there can be no
assurance, these three projects may result in significant business opportunities
for the Company after they become contracts.
Testing services represent an integral part of the Company's current business.
Testing services are provided to contract electronics manufacturers various
tests and conditioning of semiconductor circuits, a process which enables
semiconductor manufacturers and original equipment manufacturers (OEMs) to
identify defective circuits and thus improve the reliability of their products.
RESULTS OF OPERATIONS:
The following financial information shows results of operations for the three
months ended September 30, 2000 and 1999, respectively and for the nine months
ended September 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Testing Services $ 867,209 $ -- $ 867,209 $ --
Research and Development 10,000 -- 10,000 --
Interest and Other Income 62,030 11,780 155,210 19,224
Equity in income of equity
investee 77,176 -- 47,799 --
Costs of Testing Services (715,120) -- (715,120) --
Research and Development (586,232) (208,765) (1,198,774) (584,653)
General and Administrative (1,865,904) (508,671) (5,632,320) (1,839,990)
Interest Expense (175,851) -- (282,515) (1,761)
-------------- -------------- -------------- --------------
Net Loss $ (2,326,692) $ (705,656) $ (6,748,511) $ (2,407,180)
============== ============== ============== ==============
</TABLE>
9
<PAGE> 10
As a result of the acquisition of the EPI assets, revenues generated from
testing services amounted to $867,209 for the three and nine months ended
September 30, 2000. Costs related to testing services are primarily salaries and
wages of $379,830 for the three months and nine months ended September 30, 2000.
Manufacturing supplies were $62,022 for the three months and nine months ended
September 30, 2000. Manufacturing overhead including rent, utilities, insurance,
and depreciation comprise the majority of the remaining costs during the period.
No production revenue or costs were generated during 1999.
The increase in research and development expenses for the three and nine months
ended September 30, 2000 compared to the three and nine months ended September
30, 1999 was due primarily to the work on the three projects secured by the
Company. Salaries were approximately $436,668 and $892,849 for the three and
nine months ended September 30, 2000 compared to approximately $27,500 and
$59,346 for the three months and nine months ended September 30, 1999 primarily
due to the added management, engineering, and sales and marketing along with the
associated administrative support. As of January 18, 2000, ZAE and Micro-ASI
mutually agreed to terminate their relationship. Charges related to ZAE in the
amount of $62,000 and $213,000 were paid during the nine months ended September
30, 2000 and 1999, respectively.
The increase in general and administrative expenses for the three months and
nine months ended September 30, 2000 compared to the three months and nine
months ended September 30, 1999 was primarily attributable to increases in
salaries, legal and professional fees, consulting fees, and a non-cash expense
related to the issuance of warrants. Salaries were approximately $519,339 and
$1,268,477 for the three and nine months ended September 30, 2000 compared to
approximately $150,117 and $302,220 for the three months and nine months ended
September 30, 1999 primarily due to the added senior level management in
executive management, finance and accounting, and sales and marketing along with
the associated administrative support. The Company's legal and professional fees
increased due to the reporting requirements for the Company. The legal and
professional fees were approximately $344,669 and $744,640 for the three months
and nine months ended September 30, 2000 compared to approximately $56,000 and
$74,000 for the three months and nine months ended September 30, 1999.
Marketing, private placement assistance, and investor relations consulting fees
were $0 for the three months ended September 30, 2000 and $365,010 for the nine
months ended, compared to $88,750 and $913,350 for the three and nine months
ended September 30, 1999, of which $75,000 and $675,000 related to the Company's
common stock used as compensation for the services rendered. The non-cash
expense related to the issue of warrants was $0 and $1,450,000 for the three
months and nine months ended September 30, 2000. No related expense was recorded
in the three month and nine months ended September 30, 1999. The warrants were
issued in conjunction with the Company obtaining a line of credit from a
financial institution. The remaining general and administrative expenses
attributable to building the Company including repairs and maintenance, rent,
insurance, travel, depreciation, and amortization comprise the majority of the
remaining expenses for the three and nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The results of operations for the nine month ended September 30, 2000 show a net
loss of $6,748,511 and the Company expects the losses to continue throughout the
end of the year as the Company continues to incur expenditures and operating
expenses. The Company currently expects that cash from the sale of common and
preferred stock, operations, and anticipated financing is adequate to fund
operations and expenditures for the next twelve months. Should cash not be
adequate, the Company may need to add additional funds. However, if adequate
funds are not available with acceptable terms, our business results of operation
and financial condition could be materially affected.
Management completed a private placement of preferred stock netting $7,595,000
in April 2000.
10
<PAGE> 11
The proceeds from the sale of the preferred stock provided for the following:
o Leased a facility for a Technology Integration Deployment Center
("TIDC"). This facility is a collection of capabilities, tools and
technologies, staffed with engineers and technologists, The TIDC and its
staff are a pivotal element of the Company's strategy to absorb, improve
and create its intellectual property and innovative core technologies,
and then to provide Micro-ASI customers with full, systems-level
solutions leveraging these technologies.
o Purchased manufacturing equipment to increase the capacity of BTI. The
additional equipment will include flip-chip, surface mount and related
production equipment. The Company will purchase furniture, computers,
test equipment and production equipment related for the research and
development center. The Company obtained through capital leases
approximately $5 million in capital equipment during the year 2000.
o Employed additional senior level management.
o Employed senior and junior level design engineers for research and
development and for the TIDC.
o Provided computer equipment and software tools for above mentioned
design engineers.
o Continued development of current redesign projects.
o Initiated new large-scale redesign programs.
o Addition of administrative, accounting, financial and human resources
personnel to strengthen the infrastructure of the Company.
o Provided working capital for daily operations.
In the preferred stock private placement, purchasers also received 4.8 million
warrants with an exercise price of $1.00 expiring ten 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
Corporation 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
Corporation. 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 Corporation require
approval of the preferred stock holders. The preferred stock holders have
limited preemptive rights to acquire additional shares of the Corporation's
Stock.
Micro-ASI anticipates it will increase its number of employees from 108 as of
September 30, 2000 to approximately 200 employees over a period of approximately
12 months. This includes the employees of BTI.
The Company obtained through capital leases approximately $5 million in capital
equipment during the year 2000. This includes production equipment and equipment
for the TIDC. The Company also anticipates that it will lease an additional
$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.
During the nine months ended September 30, 2000, the Company also raised
approximately $2,859,851 through the issuance of common stock.
11
<PAGE> 12
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.
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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has no legal proceedings.
ITEM 2. CHANGES IN OR SALE OF STOCK
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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.
The number of shares voting for the increase in the number of shares was
14,324,809, 78,400 votes against the plan, and no votes abstained. There were no
broker non-votes.
As of August 31, 2000, the shareholders approved increasing the number of shares
available under the 1999 Stock Option Plan to a total of 10,000,000 shares of
common stock and approved an Employee Stock Purchase Plan with 500,000 shares of
common stock available.
The number of shares voting for the increase in the number of shares available
under the 1999 Stock Option Plan was 17,340,382, 81,833 votes against the plan,
and 53,500 votes abstained. There were no broker non-votes.
The number of shares voting for the Employee Stock Purchase Plan was 17,392,465,
27,750 votes against the plan, and 55,500 votes abstained. There were no broker
non-votes.
ITEM 5. OTHER INFORMATION
None
12
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Form 8-K/A related to the acquisition of BTI on April 2,
2000 and a Form 8-K/A related to the acquisition of EPI on October 3, 2000.
* * * *
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICRO-ASI, INC.
November 14, 2000 By: /s/ Joel E. Claybrook
-------------------------------------------
Joel E. Claybrook
(Vice Chairman and Chief Executive Officer)
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
