September 6, 1996
VIA EDGAR
U. S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 10549
Re: Semicon Tools Inc.
Form 10-QSB
File No. 0-28698
Dear Sirs:
On behalf of Semicon Tools Inc. (the "Company"), I hereby submit for electronic
filing, pursuant to Rule 101 of Regulation S-T under the Securities Act of 1933,
as amended, the following document:
1. Form 10-QSB for the fiscal quarter ended July 31, 1996.
Please do not hesitate to call me if I can be of any assistance.
Very truly yours,
Mark Gasarch
MG:mg
Enc.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1939
For the transition period from to
Commission File Number: 0-28698
SEMICON TOOLS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 77-0082545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 Business Park Drive, Armonk, New York 10504
(Address of principal executive offices)
Issuer's telephone number, including area code: (914) 636-4325
-----------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of Shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common Stock, par value $.001
per share 8,242,500
INDEX
Part I. Financial Information
Item 1. Condensed consolidated financial statements:
Balance sheet as of July 31, 1996 F-2
Consolidated statement of operations for six and three
months ended July 31, 1996 F-3
Consolidated statement of cash flows for six and three
months ended July 31, 1996 F-4
Consolidated statement of shareholders' equity as
of July 31, 1996 F-5
Notes to condensed consolidated financial statements F-6 - F-12
Item 2. Management's discussion and analysis of
financial condition
Part II. Other information
Signatures
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1996
(UNAUDITED)
ASSETS
Current assets:
Cash $ 128,824
Notes receivable affiliate KBR (Malaysia) (Note 4) 63,000
Accounts receivable, less allowance
for doubtful accounts of $6,000 182,409
Inventory 284,216
Due from officers 6,620
Prepaid expenses and other assets 41,777
----------
Total current assets 706,846
Property and equipment (Note 3) 245,194
----------
Other assets:
Investment in foreign subsidiary (Note 4) 219,196
Goodwill, net of amortization 103,916
Other assets 10,191
----------
333,303
-------
$1,285,343
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 8) $ 38,551
Notes payable, shareholders (Note 9) 90,313
Accounts payable 75,348
Accrued expenses 5,913
Accrued interest 172,584
Payroll taxes payable 1,493
----------
Total current liabilities 384,202
Long term debt, net of current portion (Note 8) 170,000
----------
Commitments and contingencies (Note 6)
Shareholders' equity
Common stock par value $.001; 100,000,000
shares authorized 8,242,500 shares issued and
outstanding (Note 7) 8,243
Additional paid in capital 2,567,397
Retained earnings (deficit) ( 1,844,499)
----------
731,141
-------
$1,285,343
==========
See notes to condensed consolidated financial statements.
F-2
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
SIX AND THREE MONTHS ENDED JULY 31, 1996 AND 1995
(AUDITED)
Six months ended Three months ended
July 31 July 31
1996 1995 1996 1995
(Restated (Restated
Note 14) Note 14)
--------- ----------- ---------- ----------
Net sales $ 747,002 $ 536,475 $ 370,535 $ 288,536
Cost of sales 209,802 134,867 106,225 70,697
--------- ---------- ---------- ----------
Gross profit 537,200 401,608 264,310 217,839
Selling, general and
administrative expenses 442,945 495,995 231,541 272,317
--------- ---------- ---------- ----------
Income (loss)
from operations 94,255 ( 94,387) 32,769 ( 54,478)
--------- ---------- ---------- ----------
Other income (expenses):
Rental income 3,500 ( 350)
Interest expense ( 17,902) ( 23,473) ( 6,711 ( 10,783)
--------- ---------- ---------- ----------
( 17,902) ( 19,973) ( 6,711) ( 11,133)
--------- ---------- ---------- ----------
Income (loss) before
income taxes 76,353 ( 114,360) 26,058 ( 65,611)
--------- ---------- ---------- ----------
Income tax expense (benefit)
(Note 10)
Current 22,905 6,253
Deferred ( 22,905) ( 6,253)
--------- ---------- ---------- --------
Net income (loss) $ 76,353 ($ 114,360) $ 26,058 ($ 65,611)
========= ========== ========= ==========
Income (loss) per
common share $ 0.01 ($ 0.03) $ 0.00 ($ 0.02)
========= =========== ========== ==========
Weighted average number
of common shares
outstanding (Note 13) 7,685,749 3,725,500 11,497,388 3,687,055
========= =========== ========== =========
See notes to condensed consolidated financial statements
F-3
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JULY 31, 1996 AND 1995
(UNAUDITED)
1996 1995
(Restated
Note 14)
Cash flows from operating activities:
Net income (loss) $ 76,353 ($114,360)
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation and amortization 6,750 13,251
Compensatory stock issued 7,500 43,650
Change in operating assets and liabilities:
Increase in accounts receivable ( 10,932) ( 31,778)
Increase in inventories ( 23,723) ( 11,466)
(Increase) decrease in prepaid expenses
and other current assets ( 41,147) 153,742
(Decrease) increase in accounts payable
accrued expenses and payroll taxes payable ( 151,801) 3,179
-------- --------
Net cash used in operating expenses ( 137,000) 56,218
-------- --------
Investing activities, use of cash,
increase in other assets ( 550)
--------
Financing activities:
Source of cash:
Proceeds from sale of stock 268,125
Use of cash:
Decrease in notes payable ( 10,186)
Decrease in notes payable, shareholders' ( 17,487) ( 11,099)
Payment of long term debt ( 23,130) ( 14,139)
-------- --------
Net cash provided from financing activities 227,508 ( 35,424)
-------- --------
Net increase in cash 89,958 20,794
Cash, beginning of year 38,866 891
-------- --------
Cash, end of year $128,824 $ 21,685
======== ========
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 2,320 $ 4,254
======== ========
Income taxes
======== ========
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock for purchase of
subsidiary (Note 12) $274,338
Issuance of common stock for conversion of debt,
agreements, services and payment of interest 7,500 43,650
-------- --------
$281,838 $ 43,650
======== ========
See notes to condensed consolidated financial statements.
F-4
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JULY 31, 1996
(UNAUDITED)
Total
Additional Retained Share-
Common paid in earnings holders'
Shares Stock capital (deficit) Equity
Balance at
Jan. 31, 1994 2,520,000 $2,520 $1,362,855 ($1,323,782) $ 41,593
Stock issued for
services 5,000 5 2,497 2,502
Stock issued for
settlement agreement 50,000 50 24,950 25,000
Sale of stock 350,000 350 99,650 100,000
Stock issued for
services 760,000 760 379,240 380,000
Net loss for the year
ended Jan. 31, 1995 ( 267,231) ( 267,231)
--------- ------ ---------- ---------- --------
Balance at
Jan. 31, 1995 3,685,000 3,685 1,869,192 ( 1,591,013) 281,864
Stock issued for
settlement of
accounts payable 600,000 600 73,050 73,650
Stock issued for
consulting services 150,000 150 9,900 10,050
Shares issued for
exchange of loans 670,000 670 39,330 40,000
Sale of stock 62,500 63 23,375 23,438
Net loss for the year
ended Jan. 31, 1996 ( 329,839) ( 329,839)
--------- ------ ---------- ---------- --------
Balance at
Jan. 31, 1996 5,167,500 $ 5,168 $2,014,847 ($1,920,852) $ 99,163
Issuance of stock on
exercise of stock
options (Note 6) 2,550,000 2,550 237,450 240,000
Sale of stock (Note 7) 75,000 75 28,050 28,125
Issuance of stock for
consulting services
(Note 7) 150,000 150 7,350 7,500
Issuance of stock
regarding acquisition
of subsidiary
(Notes 2, 7 and 12) 300,000 300 279,700 280,000
Net income for the
six months ended
July 31, 1996 76,353 76,353
--------- ------ ---------- ---------- --------
Balance at
July 31, 1996 8,242,500 $8,243 $2,567,397 ($1,844,499 $731,141
========= ====== ========== ========== ========
See notes to condensed consolidated financial statements.
F-5
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. 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 considered necessary for a fair presentation have
been included. The results of operations for the six months ended is not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report for the year ended
January 31, 1996 included in its Annual Report filed on Form 10-KSB.
2. Organization of the Company:
Semicon Tools, Inc. (the "Company"), a Nevada corporation, is primarily in
the business of selling small precision disposable diamond tools used to
manufacture electronic components and devices.
One of the Company's wholly-owned subsidiaries, East Coast Sales Company,
Inc. ("ECS") is a Connecticut corporation which distributes and
fabricates technical ceramic products and distributes clean room
supplies and tools. This Company, which was acquired on January 26,
1990, was accounted for in a manner similar to the pooling of interests
method of accounting. The total cost of the acquisition, $309,000, was
paid for by the issuance of a $300,000 note, bearing interest at 10% per
annum, and the issuance of 9,000,000 shares of the Company's $.001 par
value common stock.
OnJune 22, 1996, the Company purchased the assets of DTI Technology, SDN
BHD (DTI). DTI's product line is similar to that of Semicon Tools, Inc.
The total cost of the acquisition, $280,000, was paid for by the
issuance of 300,000 shares of the Company's $.001 par value common stock
with a negotiated fair value of $.93 per share.
3. Property and equipment:
Major classifications of property and equipment are as follows:
Manufacturing equipment $193,923
Other equipment and technology 451,665
Office equipment 20,535
--------
666,123
Less accumulated depreciation 420,929
-------
$245,194
========
F-6
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment in foreign affiliate:
As of January 31, 1996, the Company had a 9 1/4% interest in KBR (Malaysia)
SDN. BHD., a foreign affiliate, which manufactures products sold by the Company.
This investment is recorded under the equity method of accounting since the
Company exercises significant influence over its operating and financial
activities. During the six months ended July 31, 1996, this affiliate relocated
its manufacturing facilities and operations were minimal, accordingly, the
Company has not recorded any equity in operations for the year.
During the year ended January 31, 1993, the Company sold non-exclusive
rights to certain processing and manufacturing technology to this affiliate.
This sale included processing technology and patent rights for the manufacture
of hub and hubless diamond dicing blades. The value assigned to this technology
was $200,000 for which payment was received in the form of 500,000 shares of the
affiliate's common stock.
In addition to the sale of technology, the Company also sold machinery and
equipment, reflected in the books of the Company at a net book value of $17,367,
to this affiliate, for aggregate proceeds of $68,463.
5. Common stock options:
On March 6, 1996 the Company entered into an investment agreement for a
three year term. The consultant shall assist management in broadening the
Company's exposure to the financial community and securing necessary funding to
meet its needs according to the terms of the agreement. The consultant shall be
compensated by having the option to purchase up to 6,000,000 of the Company's
common shares at prices varying from $.10 to $1.75 during the period commencing
on March 6, 1996 and ending September 30, 1996. Either party may terminate this
agreement upon notice to the other. As of July 31, 1996, 2,550,000 shares had
been issued for $240,000.
6. Commitments and contingencies:
The Company is currently obligated under a lease agreement for office and
manufacturing facilities. This lease, which expires on May 31, 1998, requires
the following future minimum rental payments:
July 31, 1997 $40,010
July 31, 1998 34,925
-------
$74,935
=======
Rent expense for the six months ended July 31, 1996 and 1995 amounted to
$19,282 and $18,750, respectively.
The Company also leases three vehicles under operating leases with terms
expiring through 1998. Total lease expense was $7,938 for the six months ended
July 31, 1996 and 1995.
Future minimum rentals are as follows:
1996 $11,907
1997 5,762
-------
$17,669
=======
F-7
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Commitments and contingencies (continued):
On December 1, 1995, the Company signed a letter of intent with Ling
Dynamic SDN BHN and Cable-Vision Technologies (M) SDN BHN. Semicon Tools, Inc.
is to exchange 5,000,000 of its common stock for 100% ownership in Ling Dynamic.
For a 100% ownership in Cable-Vision Technologies, Semicon intends to issue
3,000,000 of its common shares and also remit $2,500,000. This letter of intent
is not a binding agreement. Management feels at this time that the consummation
of either letter of intent is not probable.
The Company has entered into written sales agreements with two employees.
The agreements are on a year to year basis and call for the payment of
commissions, varying from 1 to 4 percent, on the sale of selected products.
On April 8, 1996, the Company reached a settlement with their prior
accountants of fees due from the Company. The agreement calls for monthly
installments of $4,000 commencing April 1, 1996 and ending on September 1, 1996
for a total $24,000. The balance reflected at January 31, 1996 on the Company's
accounts payable was $28,068. The books at July 31, 1996 have been adjusted to
reflect this settlement.
7. Common stock:
During the six months ended July 31, 1996, the Company issued shares of its
common shares in non-cash transactions as follows:
Number
of Total
Date Issuee shares Value Reason for issuance
03/05/96 Richard Staper 100,000 $ 5,000 Consulting services
03/05/96 Richard Korlinchak 50,000 2,500 Consulting services
06/22/96 Lee Beng Wang 100,000 93,000 Acquisition of DTI Technology
06/22/96 LS Technology 50,000 47,000 Acquisition of DTI Technology
06/22/96 Eugene Pian 150,000 140,000 Acquisition of DTI Technology
------- --------
450,000 $287,500
======= ========
The Company sold 2,625,000 common shares during the six month period
ended July 31, 1996 for $268,125.
F-8
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Long-term debt:
Long-term Current
Rate Portion Portion Maturity
Note payable, Citibank (a) 10% $38,551 1998
Note payable, shareholders (b) 13.5%-15% $170,000 1998
-------- -------
$170,000 $38,551
(a) Note payable to Citibank is payable in monthly installments of $3,855
including interest. The note is collateralized by all assets of the Company and
guaranteed by its principle shareholder. As of July 31, 1996, the Company was in
default of certain financial covenants as required under its loan agreements
with the bank. The lender has waived compliance with these ratios for the above
mentioned period.
(b) Notes payable to two shareholders in the aggregate amount of
$170,000. These notes are subordinate to the borrowing from
Citibank and will become due when the bank is paid in full.
The maturities of these loans are as follows:
July 31, 1997 $ 38,551
July 31, 1998 170,000
--------
$208,551
========
9. Notes payable, shareholders:
Notes payable consist of the following past due obligations. The terms
of these notes have not been extended and are payable on demand:
Notes payable to shareholders were payable in monthly installments of
$2,326, including interest at 14%. The note matured in July 1994 and
amounted to $87,313.
Demand note payable to shareholder carries interest at 10% and amounted to
$3,000.
Shareholders have not demanded payment in the current year.
F-9
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income taxes:
As of July 31, 1996 the Company had net operating loss carryovers of
approximately $1,900,000 expiring in various years through 2008.
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), the cumulative effect of which was not material to the
consolidated financial statements and is therefore not presented
separately. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the year in which those
temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date; this effect was immaterial during the period ending
July 31, 1996 and 1995. The deferred tax asset less the deferred tax
liabilities has been reduced by a valuation allowance equal to the net
tax benefit from the net operating loss carryovers.
Provision for income taxes:
1996 1995
---- ----
Current $ 22,905 $ 0
Deferred ( 22,905)
----------- --------
Total $ 0 $ 0
========== ========
The component of deferred income tax expense (benefit) is as follows:
Tax benefit of net operating
loss carryfoward ($ 22,905) $ 0
======== ========
The components of deferred tax assets and liabilities is as follows:
Deferred tax asset:
Net operating loss carryfoward $570,000 $592,905
-------- --------
Total deferred tax asset 570,000 592,905
Valuation allowance ( 570,000) ( 592,905)
-------- --------
$ 0 $ 0
======== ========
F-10
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Consulting agreements:
As of December 30, 1994, the Company entered into an agreement for
consulting services to advise and assist it in its ongoing business, investor
and financial public relations. Such services are to include, as necessary and
as authorized by the client, the preparation of a business plan, the development
of new business, press relations, releases and conferences, distribution of the
Company's financial reports and the making of both individual and business
contracts. The agreement is for a one year term with the consultant to receive
compensation of $380,000 in the form of 760,000 shares of common stocks, valued
at $.50 per share. The agreement may be terminated by either party by notice or
if either party has failed to comply with any of the terms, conditions or
provisions of the agreement. As of July 31, 1996, the agreement was no longer in
force.
The Company also entered into an investment banking consultant agreement
effective December 31, 1994 for a period of thirty-six months. The consultant
shall advise the Company on capital structure, make introductions to financial
institutions and provide advice of financing strategies and special projects.
The consultant shall be compensated on a per introduction basis using the Lehman
formula (5-4-3-2-1). As of July 31, 1996 no renumeration had been paid, nor were
any amounts owed to this consultant.
12. Acquisition of subsidiary:
On June 22, 1996, the Company acquired 100% of the assets of DTI
Technology, SDN, BHD for a total cost of $280,000. The Company issued 300,000 of
its common shares to the shareholders of DTI Technology. The condensed balance
sheet of DTI Technology, SDN BHD at June 22, 1996 was as follows:
BALANCE SHEET
ASSETS
Current assets $138,826
Property and equipment 180,681
-------
Total assets $319,507
========
LIABILITIES AND SHAREHOLDERS" EQUITY
Current liabilities $ 32,892
Shareholders' equity 286,615
-------
Total liabilities and shareholders' equity $319,507
========
The assets and liabilities of DTI have been included in the consolidated
balance sheet at July 31, 1996. The results of operations for DTI for the period
June 22, 1996 to July 31, 1996 were insignificant and had no material effect on
the consolidated income statement for the six months ended July 31, 1996.
F-11
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Reconciliation of shares used in computation of earnings per share:
Six month Three months
ended ended
July 31, 1996 July 31, 1996
------------- -------------
Weighted average shares actually
outstanding 6,246,166 8,047,388
Common stock options 1,439,583 3,450,000
--------- ----------
Primary and fully diluted weighted
average common shares outstanding 7,685,749 11,497,388
========= ==========
14. Restated financial statements for July 31, 1995:
The Company has restated the financial statements as of July 31, 1995 to
reflect an error in interest expense. This change resulted in an increase in net
income of $22,365 for the six and three months ended July 31, 1996.
F-12
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings None
Item 2. - Changes in Securities None
Item 3. - Defaults Upon Senior Securities None
Item 4. - Submission of Matters to a Vote of None
Security Holders
Item 5. - Other Information
On July 11, 1996 the Company entered into an Acquisition Agreement with
Cable-Vision Technologies (M) Sdn Bhd ("Cable"), a Malaysian corporation, and
the majority shareholders of Cable pursuant to which the Company would acquire
certain assets of Cable in exchange for 3,000,000 of its common shares and a
cash payment of $2,500,000. There can be no assurance that the Company can raise
the $2,500,000 cash payment prior to the proposed September 30, 1996 closing
date.
Item 6. - (a) Exhibits
10.1 Acquisition Agreement
(b) Reports on Form 8-K None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: SEMICON TOOLS INC.
September 5, 1996 (Registrant)
By_/s/ Eugene J. Pian________________________
Eugene J. Pian, President and Principal
Executive Officer
By_/s/ Craig Pian____________________________
Craig Pian, Vice President, Treasurer,
Principal Financial and
Accounting Officer