<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A
Amendment No. 1 to
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 21, 2000
Date of Report (Date of earliest event reported):
MICRO-ASI, INC.
(Exact name of registrant as specified in its charter)
Texas 000-27027 75-2586030
(State or other (Commission (IRS employer
jurisdiction of file number) identification no.)
incorporation or
organization)
12655 North Central Expressway
Dallas, Texas 75243
(Address and zip code of principal executive offices)
(972)392-9636
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
1
<PAGE> 2
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
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 other than intellectual property pledge to the financial institution. The
purchase price is not subject to any post closing adjustments. The Company will
account for the acquisition under the purchase method of accounting.
The acquisition of the assets of EPI provides the Company with the test
capabilities to enhance the product offerings to its customers. EPI also
provides the Company with a larger building space. The Company plans to move its
contract manufacturing, Best Technologies, Inc., into the EPI facilities,
thereby consolidating its manufacturing and test facilities to improve
efficiencies and reduce costs. Other than the notes payable, the Company has no
other obligations to invest additional funds in EPI.
The consideration paid by the Registrant was determined pursuant to arms' length
negotiations and took into account various factors concerning the valuation of
the business of EPI, including valuations of comparable companies and the
business and operating results of EPI. Registrant will account for the asset
acquisition of EPI as a purchase.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
(a) Financial Statements
Historical financial statements of EPI Technologies, Inc.
required by Item 7(a) of Form 8-K are filed herewith.
(b) Pro Forma Financial Information
Pro Forma financial information relating to the acquisition of
EPI Technologies, Inc. required by Item 7(b) of Form 8-K is filed
herewith.
(c) Exhibits.
The following exhibits are filed herewith:
99.1 Audited Financial Statements of EPI Technologies, Inc.
99.2 Unaudited Pro Forma Combined Financial Statements of
Micro-ASI, Inc., and EPI Technologies, Inc.
2
<PAGE> 3
SIGNATURE
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.
By: /s/ Joel E. Claybrook
-------------------------------
JOEL E. CLAYBROOK
Vice Chairman and Chief Executive
Officer
Date: October 3, 2000
3
<PAGE> 4
Financial Statements of Business Acquired:
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statement Index
Report of Independent Auditors F-1
Balance Sheets as of January 2, 2000
and July 2, 2000 (unaudited) F-2
Statements of Operations for the fiscal years
ended January 3, 1999 and January 2, 2000
and for six months ended July 2, 2000 (unaudited) F-3
Statements of Changes in Stockholders' Deficit F-4
Statements of Cash Flows for the fiscal years
ended January 3, 1999 and January 2, 2000
and for six months ended July 2, 2000 (unaudited) F-5
Notes to Financial Statements F-6
2. Pro Forma Financial Information
Unaudited Pro Forma Combined Balance Sheet as of
June 30, 2000 F-16
Unaudited Pro Forma Combined Statement of
Operations for the year ended December 31, 1999 F-17
Unaudited Pro Forma Combined Statements of
Operations for the six month period ended June 30,
2000 F-18
Notes to Unaudited Pro Forma Financial Statements F-19
</TABLE>
<PAGE> 5
Report of Independent Auditors
Board of Directors
EPI Technologies, Inc.
We have audited the accompanying balance sheet of EPI Technologies, Inc., as of
January 2, 2000, and the related statements of operations, changes in
stockholders' deficit and cash flows for the two fiscal years in the period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EPI Technologies, Inc. as of
January 2, 2000, and the results of its operations and its cash flows for the
two fiscal years in the period then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
September 21, 2000
Dallas, Texas
F-1
<PAGE> 6
EPI Technologies, Inc.
Balance Sheets
<TABLE>
<CAPTION>
FISCAL SIX MONTHS
YEAR ENDED PERIOD
JANUARY 2, ENDED JULY 2,
2000 2000
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 169,450 $ 212,269
Accounts receivable, less allowance of $10,000 330,449 381,602
Other current assets 109,420 109,420
------------ ------------
Total current assets 609,319 703,291
Property and equipment, net of accumulated depreciation 445,396 375,466
Intangibles, net of accumulated amortization 53,789 53,988
Other assets 32,093 27,024
------------ ------------
Total assets $ 1,140,597 $ 1,159,769
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 72,377 $ 309,860
Accrued expenses 1,574,121 1,520,325
Accrued interest 3,153,231 2,978,227
Long-term debt, reclassified as current 2,321,849 2,003,228
Capital lease obligations, reclassified as current 134,727 86,846
------------ ------------
Total current liabilities 7,256,305 6,898,486
------------ ------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.01 stated value: authorized shares - 10,000,000;
issued and outstanding shares - 4,008,172 40,082 40,082
Common stock, $.01 stated value: authorized shares - 50,000,000;
issued and outstanding shares - 2,908,905 29,089 29,089
Additional capital 14,637,721 15,304,308
Accumulated deficit (20,647,782) (20,864,591)
Less treasury stock, at cost (174,818) (247,605)
------------ ------------
Total stockholders' deficit (6,115,708) (5,738,717)
------------ ------------
Total liabilities and stockholders' deficit $ 1,140,597 $ 1,159,769
============ ============
</TABLE>
See accompanying notes.
F-2
<PAGE> 7
EPI Technologies, Inc.
Statements of Operations
<TABLE>
<CAPTION>
SIX MONTH
FISCAL YEARS ENDED PERIOD
JANUARY 3, JANUARY 2, ENDED JULY 2,
1999 2000 2000
---------------- ---------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Revenues $ 2,911,336 $ 3,507,298 $ 1,942,602
Costs and expenses:
Production 2,858,985 2,623,022 1,341,014
Selling, general and administrative 881,729 769,597 445,263
---------------- ---------------- ----------------
3,740,714 3,392,619 1,786,277
---------------- ---------------- ----------------
Income (loss) from operations (829,378) 114,679 156,325
Other income (expense):
Interest income 22,320 42 78
Interest expense (608,369) (678,331) (373,212)
---------------- ---------------- ----------------
(586,049) (678,289) (373,134)
---------------- ---------------- ----------------
Loss before income taxes (1,415,427) (563,610) (216,809)
Provision for income taxes -- -- --
---------------- ---------------- ----------------
Net loss (1,415,427) (563,610) (216,809)
Preferred dividends (801,634) (801,634) (400,817)
---------------- ---------------- ----------------
Net loss available to common
stockholders $ (2,217,061) $ (1,365,244) $ (617,626)
================ ================ ================
</TABLE>
See accompanying notes.
F-3
<PAGE> 8
EPI Technologies, Inc.
Statements of Changes in Stockholders' Deficit
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------------- --------------------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
December 28, 1997 4,008,172 $ 40,082 2,908,905 $ 29,089 $ 14,637,721 $(18,668,745)
Net loss (1,415,427)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of January 3, 1999 4,008,172 40,082 2,908,905 29,089 14,637,721 (20,084,172)
Net loss -- -- -- -- -- (563,610)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of January 2, 2000 4,008,172 40,082 2,908,905 29,089 14,637,721 (20,647,782)
Forgiveness of outstanding debt
and accrued interest by
significant shareholders
(unaudited) -- -- -- -- 666,587 --
Purchase of treasury stock
(unaudited) -- -- -- -- -- --
Net loss (unaudited) -- -- -- -- -- (216,809)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of July 2, 2000 (unaudited) 4,008,172 $ 40,082 2,908,905 $ 29,089 $ 15,304,308 $(20,864,591)
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK
---------------------------------
SHARES AMOUNT TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance as of
December 28, 1997 8,997 $ (174,818) $(4,136,671)
Net loss (1,415,427)
----------- ----------- -----------
Balance as of January 3, 1999 8,997 (174,818) (5,552,098)
Net loss -- -- (563,610)
----------- ----------- -----------
Balance as of January 2, 2000 8,997 (174,818) (6,115,708)
Forgiveness of outstanding debt
and accrued interest by
significant shareholders
(unaudited) -- -- 666,587
Purchase of treasury stock
(unaudited) 661,700 (72,787) (72,787)
Net loss (unaudited) -- -- (216,809)
----------- ----------- -----------
Balance as of July 2, 2000 (unaudited) 670,697 $ (247,605) $(5,738,717)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 9
EPI Technologies, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTH PERIOD
JANUARY 3, JANUARY 2, ENDED JULY 2,
1999 2000 2000
-------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,415,427) $ (563,610) $ (216,809)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 207,360 192,876 85,155
Accrued interest contributed to capital -- -- 44,903
Gain on sale of equipment (79,173) -- --
Changes in operating assets and liabilities:
Accounts receivable 114,429 (4,516) (51,153)
Other current assets (48,008) 4,166 5,069
Accounts payable (7,767) (87,213) 237,483
Accrued interest 578,221 591,557 80,178
Accrued expenses 41,257 70,246 (53,796)
-------------- -------------- --------------
Net cash provided by (used in) operating activities (609,108) 203,506 131,030
INVESTING ACTIVITIES
Proceeds from sale of equipment 98,994 5,000 --
Purchases of property and equipment (76,996) (24,996) (8,500)
Increase in intangibles (18,363) (6,109) (6,924)
-------------- -------------- --------------
Net cash provided by (used in) investing activities 3,635 (26,105) (15,424)
FINANCING ACTIVITIES
Proceeds from (payments on) long-term debt 597,545 (7,951) --
Purchases of preferred stock for treasury -- -- (72,787)
-------------- -------------- --------------
Net cash provided by (used in) financing activities 597,545 (7,951) (72,787)
-------------- -------------- --------------
Net increase (decrease) in cash and cash
equivalents (7,928) 169,450 42,819
Cash and cash equivalents at beginning of year 7,928 -- 169,450
-------------- -------------- --------------
Cash and cash equivalents at end of year $ -- $ 169,450 $ 212,269
============== ============== ==============
Cash paid during the year for:
Interest $ 1,651 $ 86,939 $ 62,561
</TABLE>
See accompanying notes.
F-5
<PAGE> 10
EPI Technologies, Inc.
Notes to Financial Statements
Information for the six months ended July 2, 2000 is unaudited.
1. SIGNIFICANT ACCOUNTING POLICIES
GENERAL
EPI Technologies, Inc. (the Company) is engaged in testing 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. The Company considers these
operations as a single business segment. The Company grants credit to customers,
substantially all of whom are located in the southwestern United States.
The Company maintains its accounting records on a 52 or 53 week fiscal year
ending on the Sunday closest to December 31.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited balance sheet as of July 2, 2000 and the related
statement of operations and cash flows for the six-month period then ended have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310 of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended July 2, 2000 are
not necessarily indicative of the results that may be expected for the fiscal
year ended December 31, 2000.
REVENUE RECOGNITION
The Company tests and conditions semiconductor circuits based only on firm
customer orders. Revenue is recognized based on the percentage which testing or
manufacturing performed to date bears to total testing or manufacturing to be
performed (percentage-of-completion).
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents.
F-6
<PAGE> 11
EPI Technologies, Inc.
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company's financial instruments exposed to concentrations of credit risk
consisted of cash and cash equivalents and accounts receivable. The Company
places its cash and cash equivalents with financial institutions it believes to
be of high credit quality. The Company had insured balances in excess of insured
limits at January 2, 2000 of $78,928. Credit risk related to accounts receivable
is due to a small number of customers concentrated in the semi-conductor and OEM
industry. To limit credit risk, the Company reviews a customer's credit history
before extending credit. Collateral is not required. (See Note 9.)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method at rates based on the estimated useful lives of the assets.
Amortization of leasehold improvements is provided on a straight-line basis over
the shorter of the estimated useful life or remaining lease term. Gains and
losses resulting from the disposition of property and equipment are included in
current year earnings (loss).
CAPITAL LEASES
The assets and related obligations for property and equipment under capital
leases are initially recorded at an amount equal to the present value of future
minimum lease payments. Assets under capital leases are amortized over the
shorter of the life of the lease or useful life of the asset. Interest expense
is accrued on the basis of the outstanding obligations under capital leases.
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. Valuation allowances
are provided for deferred tax assets when there realization is not reasonably
assured.
F-7
<PAGE> 12
EPI Technologies, Inc.
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent amounts of assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
COMPREHENSIVE INCOME
At the end of fiscal year 1999, 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; however, the adoption of this Statement
has no impact on the Company's results of operations or stockholder's deficit as
the Company has no other material elements of other comprehensive income.
2. PROPERTY AND EQUIPMENT
Details of property and equipment and the estimated useful lives used in
computing depreciation and amortization are:
<TABLE>
<CAPTION>
SIX MONTH
ESTIMATED FISCAL PERIOD ENDED
USEFUL JANUARY 2, JULY 2,
LIVES 2000 2000
--------------- ---------------- ---------------
<S> <C> <C> <C>
(Unaudited)
Equipment, including equipment held under capital
leases 3 - 7 $ 3,964,336 $ 3,972,836
Burn-in boards 2 - 5 103,882 103,882
Computer software 3 - 7 85,770 85,770
Leasehold improvements 3 - 9 196,608 196,608
Furniture and fixtures 3 - 10 189,128 189,128
---------------- ---------------
4,539,724 4,548,224
Less accumulated depreciation and amortization (4,094,328) (4,172,758)
---------------- ---------------
$ 445,396 $ 375,466
================ ===============
</TABLE>
Equipment includes equipment held under capital leases with a book value of
$39,617 and $11,146 at January 2, 2000 and July 2, 2000, respectively, net of
accumulated amortization of $1,492,106 and $1,520,577 at January 2, 2000 and
July 2, 2000, respectively.
Substantially all assets are pledged as collateral under existing debt
agreements.
F-8
<PAGE> 13
EPI Technologies, Inc.
Notes to Financial Statements
3. LONG-TERM DEBT
The following is a summary of long-term debt at:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTH
ENDED PERIOD ENDED
JANUARY 2, JULY 2,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Related party, two notes payable originally due November 1, 1990, with interest
at 16% due semiannually beginning June 30, 1989, collateralized by equipment,
and a subordinated interest in accounts receivable $ 1,000,000 $ 700,000
Related party, note payable originally due December 31, 1998,
interest at prime (8.5% at December 31, 1999) 934,000 934,000
Related party, monthly installment note due in payments of $12,653 through
January 1992 which includes interest at 18%, collateralized by equipment, and
a subordinated interest in accounts receivable 279,228 279,228
Related party, two notes payable originally due December 31, 1997, interest at
prime (8.5% at December 31, 1999) 90,000 90,000
Other 18,621 --
------------- -------------
$ 2,321,849 $ 2,003,228
============= =============
</TABLE>
Related party notes are with entities controlled by various stockholders of the
Company.
All long-term debt was in default at January 2, 2000, except for $18,621 and
therefore has been classified as a current liability.
F-9
<PAGE> 14
EPI Technologies, Inc.
Notes to Financial Statements
4. OBLIGATIONS UNDER CAPITAL LEASES
As of January 2, 2000, obligations under capital leases totaled $603,851,
including $469,124 of accrued interest, and have a remaining lease term of one
year or less.
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors has authority to issue the authorized preferred stock in
one or more series, each series to have such designation and number of shares as
the Board of Directors may fix prior to the issuance of any shares of such
series.
On December 17, 1987, the Company issued an aggregate of 4,008,172 shares of
preferred stock in two series, designated as Series A (3,994,108 shares) and
Series B (14,064 shares), and warrants to purchase 125,000 shares of common
stock. The aggregate purchase price was $2,850,000.
The preferred stock has a liquidation preference of $1.00 per share. The Company
may, at its option, redeem all or part of the preferred stock at a redemption
price of $1.00 per share plus accrued but unpaid dividends. The preferred stock
initially accrued quarterly cumulative dividends of 6 3/4 cents per share per
annum for the first two-year period, with the dividend rate increasing to 20
cents per share at the beginning of the third year. The Series A and Series B
Preferred Stock have no voting rights, except for certain corporate transactions
as provided in the Company's restated Articles of Incorporation. The Series B
Preferred Stock also has the right to elect one director during the time the
stock is outstanding.
At January 2, 2000 and July 2, 2000, dividends of $7,855,708 and $6,834,632,
respectively, were in arrears. As a result, the Series B preferred stockholder
designee to the Board of Directors is currently exercising its right to require
that any action requiring consent of the Board of Directors be taken by
unanimous action.
F-10
<PAGE> 15
EPI Technologies, Inc.
Notes to Financial Statements
5. STOCKHOLDERS' EQUITY (CONTINUED)
ADDITIONAL CAPITAL
During the period ended July 2, 2000, $345,054 of related party debt was
forgiven by the note holders and treated as an additional contribution to
capital.
STOCK OPTIONS
The Company had various stock option plans under which all options had expired
or were terminated as of January 2, 2000.
The following schedule summarizes the changes in employee and other stock
options for the periods reported:
<TABLE>
<CAPTION>
OPTION PRICE
--------------
NUMBER OF PER
SHARES SHARE
---------------- --------------
<S> <C> <C>
Outstanding at December 28, 1997
(150,350 exercisable) 150,350 $0.10 - $0.11
Canceled (38,675) $0.10
----------------
Outstanding at January 3, 1999
(111,675 exercisable) 111,675
----------------
Canceled (111,675) $0.10 - $0.11
----------------
Outstanding at January 2, 2000 --
================
</TABLE>
F-11
<PAGE> 16
EPI Technologies, Inc.
Notes to Financial Statements
6. INCOME TAXES
The deferred tax assets and liabilities in the accompanying balance sheets
include the following components:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTH
ENDED PERIOD ENDED
JANUARY 2, JULY 2,
2000 2000
----------- -----------
(Unaudited)
<S> <C> <C>
Deferred tax assets $ 6,963,092 $ 7,033,070
Deferred tax liabilities (40,453) (40,453)
----------- -----------
Deferred tax assets, net 6,912,639 6,992,617
Less valuation allowance 6,912,639 6,992,617
----------- -----------
Deferred taxes, net $ -- $ --
=========== ===========
</TABLE>
The Company's net deferred tax asset at January 2, 2000 consists primarily of
its net operating loss carryforward of approximately $18,968,698, to offset
future taxable income. This carry forward expires through 2010. A valuation
allowance was established to reduce the net deferred tax asset for the amounts
that will more likely than not be realized due to the uncertainty of the
Company's ability to generate future taxable income. There are no other
significant differences between the expected statutory tax rate and the actual
effective tax rate. During the fiscal years ended January 3, 1999 and January 2,
2000, the valuation allowance increased by $540,488 and $195,801, respectively.
The Company has not recorded an income tax provision for the fiscal years ended
January 3, 1999 and January 2, 2000 or the six month period ended July 2, 2000,
due to the Company's net operating losses and the full valuation allowance for
the net deferred tax assets.
7. RELATED PARTY TRANSACTIONS
As of January 2, 2000 and July 2, 2000, accrued interest on the accompanying
balance sheets includes $3,147,127 and $2,978,227, respectively, due to related
party debtors in connection with, long-term debt and capital leases. Interest
expense to these same related parties was approximately $589,193, $671,368, and
$371,646 for the fiscal years ended January 3, 1999 and January 2, 2000 and for
the six month period ended July 2, 2000, respectively.
F-12
<PAGE> 17
EPI Technologies, Inc.
Notes to Financial Statements
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its administrative offices, manufacturing plant, and certain
equipment under operating leases that expire at various dates through 2005. The
Company is required to pay all repair and maintenance costs, property taxes and
insurance relating to the offices and plant (net of certain lessor expense
stops). These leases have various renewal and rental escalation clauses. Rental
expense under these leases for the fiscal years ended January 3, 1999 and
January 2, 2000 and for the six month period ended July 2, 2000, was $340,092,
$353,624 and $154,018, respectively.
<TABLE>
<S> <C>
2001 $ 212,016
2002 228,956
2003 230,496
2004 230,496
2005 19,208
------------
$ 921,172
============
</TABLE>
As of January 2, 2000 and July 2, 2000, accrued expenses on the accompanying
balance sheets include approximately $1,465,000 and $1,412,000 in accrued
payments due to related party lessors in connection with operating leases for
certain equipment. Such leases are short-term, renewable semi-annually and not
included in the table above.
F-13
<PAGE> 18
EPI Technologies, Inc.
Notes to Financial Statements
9. SIGNIFICANT CUSTOMERS
Revenues from individual customers constituting 10% or more of total revenues
were as follows:
<TABLE>
<CAPTION>
SIX MONTH
FISCAL YEAR ENDED PERIOD ENDED
JANUARY 3, JANUARY 2, JULY 2,
1999 2000 2000
---------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Customer A $ 798,668 $ 1,212,495 $ 614,298
Customer B 668,906 922,802 499,044
Customer C 430,425 377,031 156,316
Customer D -- -- 201,208
</TABLE>
The Company provides services to significant customers constituting 10% or more
of total revenues (referred to as customers A, B, C and D). The Company provides
testing services as an integral part of its customers' manufacturing processes,
which requires the Company to commit to customers A, B, C and D minimum amounts
of production capacity.
10. ACQUISITION BY MICRO-ASI, INC.
On July 2, 2000, the Company sold all of its assets to Micro-ASI, Inc. for a
total purchase price of $4.9 million. The purchase price is payable as follows:
$300,000 cash payment; $1.6 million promissory note due January 31, 2001; and a
$2.95 million promissory note due July 5, 2004.
F-14
<PAGE> 19
Unaudited Pro Forma Combined Financial Information
The following unaudited pro forma combined statements of operations give effect
to the acquisition by Micro-ASI, Inc.(the "Company") of EPI Technologies, Inc.
(EPI) on July 21, 2000 (Acquisition). The financial statements presented below
were derived from: (a) the audited financial statements for the Company for the
year ended December 31, 1999; (b) the unaudited financial statements of the
Company for the six month period ended June 30, 2000; (c) the audited financial
statements of EPI Technologies, Inc. for the fiscal year ended January 2, 2000
and (d) the unaudited financial statements of EPI Technologies, Inc. for the six
month period ended June 30, 2000.
The unaudited pro forma combined financial statements, including the notes
thereto, are qualified in their entirety by reference to, and should be read in
conjunction with the Company's annual report on Form 10KSB/A for the year ended
December 31, 1999, as filed with the Securities and Exchange Commission on
September 22, 2000, and the historical financial statements and notes thereto of
EPI Technologies, Inc. included herein and the Company's unaudited financial
statements as of and for the six months ended June 30, 2000, which were included
in the Company's Quarterly Report on Form 10-QSB filed with the Commission. None
of the pro forma consolidated financial statements included herein purport to be
indicative of the Company's results of operations that would have occurred had
the transaction been completed as of or at the beginning of the periods
presented, nor do such statements purport to indicate the Company's results of
operations at any future date or for any future period.
The Company's unaudited Pro Forma Combined Balance Sheet information gives
effect to the Acquisition as if it had been consummated on June 30, 2000. The
Company's unaudited Pro Forma Combined Statement of Operations information gives
effect to the Acquisition as if it had been consummated at the beginning of
1999.
The unaudited pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the mergers had been consummated at the beginning of
the periods presented, nor is it necessarily indicative of future operating
results or financial position. The unaudited proforma combined financial
information has been prepared under guidelines established by Article 11 of
Regulation S-X under the Securities Act.
F-15
<PAGE> 20
MICRO-ASI, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET INFORMATION
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Micro-ASI EPI Adjustments Combined
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 7,020,301 $ 212,269 $ (300,000) b) $ 6,932,570
Accounts Receivable -- 491,022 491,022
Property and equipment 455,340 375,466 830,806
Intangible assets -- 53,988 3,745,458 a) 3,799,446
Other assets 4,764,905 27,024 4,791,929
-------------- ------------- ------------- --------------
Total Assets $ 12,240,546 $ 1,159,769 $ 3,445,458 $ 16,845,773
============== ============= ============= ==============
Liabilities:
Accounts payable $ 486,314 $ 309,860 $ (267,747) c) $ 528,427
Accrued expenses 25,060 1,520,325 (1,520,325) c) 25,060
Accrued interest payable 68,403 2,978,227 (2,978,227) c) 68,403
Notes payable 3,922,380 2,090,074 2,473,040 b)/c) 8,485,494
-------------- ------------- ------------- --------------
Total liabilities 4,502,157 6,898,486 (2,293,259) 9,107,384
Stockholders' equity:
Preferred stock 8,000 40,082 (40,082) a) 8,000
Common stock 22,588 29,089 (29,089) a) 22,588
Additional capital 17,922,886 15,304,308 (15,304,308) a) 17,922,886
Treasury stock -- (247,605) 247,605 a) --
Accumulated deficit (10,215,085) (20,864,591) 20,864,591 a) (10,215,085)
-------------- ------------- ------------- --------------
Total stockholders' equity 7,738,389 (5,738,717) 5,738,717 7,738,389
-------------- ------------- ------------- --------------
Total liabilities and stockholders'
equity $ $12,240,546 $ 1,159,769 $ 3,445,458 $ 16,845,773
============== ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
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<PAGE> 21
MICRO-ASI, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Micro-ASI EPI Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ 3,507,298 $ 3,507,298
Cost of sales -- 2,623,022 2,623,022
------------ ------------ ------------
-- 884,276 884,276
Expenses:
Research and development 808,396 -- 808,396
General and administrative 2,922,080 769,597 $ 535,065 a) 4,226,742
------------ ------------ ------------ ------------
Operating income (loss) (3,730,476) 114,679 (535,065) (4,150,862)
Other income (expense):
Interest and other income
27,451 42 27,493
Interest expense (2,674) (678,331) 348,085 b) (332,920)
------------ ------------ ------------ ------------
Net loss $ (3,705,699) $ (563,610) $ (186,980) $ (4,456,289)
============ ============ ============ ============
Basic and diluted net loss per share
$ (0.21) $ (0.25)
------------ ------------
Weighted average shares outstanding
17,989,506 17,989,506
------------ ------------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
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<PAGE> 22
MICRO-ASI, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Micro-ASI EPI Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ 1,942,602 $ 1,942,602
Cost of sales -- 1,341,014 1,341,014
------------ ------------ ------------
-- 601,588 601,588
Expenses:
Research and development 482,720 -- 482,720
General and administrative 3,896,238 445,263 $ 267,533 a) 4,609,034
Equity in loss of Best Technologies,
Inc 29,377 -- 29,377
------------ ------------ ------------ ------------
Operating loss (4,408,335) 156,325 (267,533) (4,490,166)
Other income (expense):
Interest and other income 93,180 78 93,258
Interest expense (106,663) (373,212) 208,089 b) (271,786)
------------ ------------ ------------ ------------
Net loss (4,421,818) (216,809) (59,444) (4,698,071)
Preferred stock dividend (91,300) -- -- 91,300
------------ ------------ ------------ ------------
Net loss attributable to common
shareholders $ (4,513,118) $ (216,809) $ (59,444) $ (4,789,371)
------------ ------------ ------------ ------------
Basic and diluted net loss per share
$ (0.22) $ (0.23)
------------ ------------
Weighted average shares outstanding
20,887,441 20,887,441
------------ ------------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
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<PAGE> 23
MICRO-ASI, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. ALLOCATION OF PURCHASE PRICE
Effective July 21, 2000, the Company acquired EPI Technologies, Inc. in
exchange for a total aggregate purchase price of $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 allocation of the purchase price is summarized below:
Net assets acquired $1,117,656
Goodwill 3,745,458
----------
Total purchase price $4,863,114
----------
The purchase price allocation is based on management's preliminary
estimates and is subject to change.
2. PRO FORMA COMBINED BALANCE SHEET
The Company's Pro Forma Combined Balance Sheet as of June 30, 2000
includes the following adjustments:
a) To reflect the purchase price and the resulting intangible asset of
goodwill as if the acquisition had occurred on June 30, 2000.
b) To reflect the (i) cash payment at closing of $300,000, (ii) Secured
Promissory Note in the amount of $1,613,114 and (iii) a Secured
Promissory Note in the amount of $2,950,000.
c) To reflect the elimination of the liabilities and notes payable not
assumed by Micro-ASI, Inc.
3. PRO FORMA COMBINED STATEMENTS OF OPERATION
The Company's Pro Forma Combined Statements of Operation for the year
ended December 31, 1999 and the six months ended June 30, 2000 include
the following adjustments:
a) To reflect the amortization of goodwill, as if the acquisition
occurred on January 1, 1999.
b) To reflect the interest expense that would be incurred from the two
Secured Promissory Notes. Interest expense calculated based on the
stated rates from the Secured Promissory notes. Also, to reflect the
elimination of the interest expense pertaining to the notes payable not
assumed in the acquisition.
No adjustments have been made to income taxes due to the uncertainty of
future taxable income.
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