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 October 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: 33-5820-LA
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 October 31, 1996
Common Stock, par value $.001
per share 8,717,500
INDEX
Part I. Financial Information
Item 1. Condensed consolidated financial statements:
Balance sheet as of October 31, 1996 F-2
Consolidated statement of operations for nine and three
months ended October 31, 1996 and 1995 F-3
Consolidated statement of cash flows for nine and three
months ended October 31, 1996 and 1995 F-4
Consolidated statement of shareholders' equity for the
period ended October 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
OCTOBER 31, 1996
(UNAUDITED)
ASSETS
Current assets:
Cash $ 94,314
Accounts receivable, less allowance
for doubtful accounts of $6,500 247,652
Inventory 302,978
Due from officers 8,313
Prepaid expenses and other assets 80,177
----------
Total current assets 733,434
Property and equipment (Note 3) 394,614
----------
Other assets:
Goodwill, net of amortization 103,077
Other assets 13,891
------
116,968
-------
$1,245,016
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 8) $ 26,986
Notes payable, shareholders (Note 9) 84,464
Accounts payable 318,858
Accrued interest 178,658
----------
Total current liabilities 608,966
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 8,717,500 shares issued and
outstanding (Note 7) 8,718
Additional paid in capital 2,500,720
Retained earnings (deficit) ( 2,043,388)
----------
466,050
----------
$1,245,016
==========
See notes to condensed consolidated financial
statements.
F-2
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
NINE AND THREE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(AUDITED)
Nine months ended Three months ended
October 31 October 31
1996 1995 1996 1995
(Restated (Restated
Note 13) Note 13)
---- --------- ---- ---------
Net sales $1,111,072 $ 826,384 $ 364,070 $ 289,909
Cost of sales 287,396 237,096 77,594 102,229
---------- ---------- --------- ----------
Gross profit 823,676 589,288 286,476 187,680
Selling, general and
administrative expenses 701,938 778,178 258,993 282,183
---------- ---------- --------- ----------
Income (loss)
from operations 121,738 ( 188,890) 27,483 ( 94,503)
---------- ------------ --------- ----------
Other income (expenses):
Rental income 1,000 10,850 1,000 ( 350)
Interest expense ( 26,078) ( 34,887) ( 8,176) (11,414)
---------- ---------- --------- ----------
( 25,078) ( 24,037) ( 7,176) ( 11,764)
---------- ---------- -------- ----------
Income (loss) before
income taxes 96,660 ( 212,927) 20,307 ( 106,267)
---------- ---------- --------- ----------
Net income (loss) $ 96,660 ($ 212,927) $ 20,307 ($ 106,267)
========== ========== ========= ==========
Income (loss) per
common share $ 0.01 ( $ 0.06) $ 0.00 ($ 0.03)
========== ========== ========== ==========
Weighted average number
of common shares
outstanding 7,026,898 3,542,436 8,570,489 3,991,521
========== ========== ========= ==========
See notes to condensed consolidated financial statements.
F-3
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
(Restated
Note 13)
Cash flows from operating activities:
Net income (loss) $ 96,660 ($212,927)
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation and amortization 11,012 280,734
Compensatory stock issued 30,000 98,650
Changes in operating assets and liabilities:
Increase in accounts receivable ( 75,465) ( 54,139)
Increase in inventories ( 42,485) ( 8,600)
(Increase) decrease in prepaid expenses
and other current assets ( 28,327) ( 14,283)
(Decrease) increase in accounts payable
accrued expenses and payroll taxes payable ( 187,225) ( 14,345)
-------- --------
Net cash used in operating activities ( 195,830) 75,090
-------- --------
Investing activities:
Use of cash:
Purchase of property and equipment ( 10,503) ( 11,415)
-------- --------
Financing activities:
Source of cash:
Proceeds from sale of stock 328,125
Use of cash:
Decrease in notes payable ( 10,186)
Decrease in notes payable, shareholders ( 31,649) ( 11,824)
Payment of long term debt ( 34,695) ( 25,703)
-------- --------
Net cash provided from financing activities 261,781 ( 47,713)
-------- --------
Net increase in cash 55,448 15,962
Cash, beginning of year 38,866 891
-------- --------
Cash, end of year $ 94,314 $ 16,853
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,597 $ 6,053
======== ========
Income taxes $ 0 $ 0
======== ========
Supplemental schedule of non-cash investing and
financing activities:
Issuance of common stock for purchase of
subsidiary (Note 12) $125,048
Issuance of common stock for conversion of debt,
agreements, services and payment of interest 36,000 $ 98,650
-------- --------
$161,048 $ 98,650
======== ========
See notes to condensed consolidated financial statements.
F-4
SEMICON TOOLS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(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 5) 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) 300,000 300 124,748 125,048
Sale of stock (Note 7) 400,000 400 59,600 60,000
Prior period adjustment,
loss in equity of
unconsolidated subsidiary
(Note 14) ( 219,196)( 219,196)
Issuance of stock for
services (Note 7) 75,000 75 28,675 28,750
Net income for the nine
months ended
October 31, 1996 96,660 96,660
--------- ------ ---------- ---------- --------
Balance at Oct. 31, 1996 8,717,500 $8,718 $2,500,720 ($2,043,388) $466,050
========= ====== ========== ========== ========
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.
On June 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, $125,048, 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 $.42 per share.
3. Property and equipment:
Major classifications of property and equipment are as follows:
Manufacturing equipment $382,759
Other equipment and technology 451,665
Office equipment 20,535
--------
854,959
Less accumulated depreciation 460,345
-------
$394,614
========
F-6
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment in foreign affiliate:
As of June 22, 1996, the Company purchased 100% of DTI Technology, SDN BHD.
The Company issued 300,000 shares of common stock and the transaction was
recorded at a cost of $125,048. This investment is recorded under the equity
method of accounting.
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. As of September 30, 1996, 2,550,000 shares had been issued for
$240,000. This agreement was terminated on September 30, 1996 and all
options had been cancelled.
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:
October 31, 1997 $40,493
October 31, 1998 24,802
-------
$65,295
=======
Rent expense for the nine months ended October 31, 1996 and 1995 amounted
to $29,923 and $28,125, respectively.
The Company also leases three vehicles under operating leases with terms
expiring through 1998. Total lease expense was $11,895 for the nine
months ended October 31, 1997 and 1996.
Future minimum rentals are as follows:
1996 $11,907
1997 3,957
-------
$15,864
=======
F-7
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Commitments and contingencies (continued):
OnDecember 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.
The Company entered into a consulting agreement on August 29, 1996 with
Toby Investment Group to provide professional corporate finance,
financial public relations, management consulting and advisory services.
The consultant was issued options to purchase the Company's common stock
from August 29, 1996 through October 31, 1996. A total of 7,900,000
shares were offered at prices of $.15 to $1.00 per share. At October 31,
1996, the Company received $60,000 and issued 400,000 shares of its
common stock. At October 31, 1996, the consulting agreement had been
terminated at the option of the Company and all stock options cancelled.
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
October 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 33,921 Acquisition of DTI Technology
06/22/96 LS Technology 50,000 16,961 Acquisition of DTI Technology
06/22/96 Eugene Pian 150,000 74,166 Acquisition of DTI Technology
08/31/96 Mark Gasarch 50,000 25,000 Legal services
08/31/96 Paul Alper 25,000 3,500 Consulting services
------- --------
525,000 $161,048
======= ========
The Company sold 3,025,000 common shares during the nine month period
ended October 31, 1996 for $328,125.
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% $26,986 1998
Note payable, shareholders (b) 13.5%-15% $170,000 1998
-------- -------
$170,000 $26,986
======== =======
(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.
(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:
October 31, 1997 $ 26,986
October 31, 1998 170,000
--------
$196,986
========
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 $81,464.
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 October 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 $ 27,470 $ 0
Deferred ( 27,470)
--------
Total $ 0 $ 0
======== ========
The component of deferred income tax expense (benefit) is as follows:
Tax benefit of net operating
loss carryfoward ($ 27,470) $ 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 October
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 remuneration 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 $125,048. 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 $112,003
Property and equipment 312,997
-------
Total assets $425,000
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $299,952
Shareholders' equity 125,048
-------
Total liabilities and shareholders'
equity $425,000
========
The restated 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 October 31, 1996 resulted in a
net loss of $8,723.
F-11
SEMICON TOOLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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 $29,528 for the nine and three months ended
October 31, 1996.
14. Prior period adjustment:
Until July 31, 1996, the Company had recorded an investment in a foreign
affiliate at cost with the intention of accounting for this investment
using the equity method. The Company had a 9 1/4% interest and because
the books and records of the affiliate were not readily available, the
losses of the affiliate were never recorded by the Company. This
investment has been written down to zero, the correct value according
to the information that has now become available.
F-12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
I. Financial Condition
Note: The comparative comments that are made in this Section 1,
Financial Condition are made with respect to Form 10-QSB, Amendment No 1 for
the period ending July 31, 1996. The Amendment accounts for the facts that
(i) The foreign subsidiary holding of 9-1/4% interest in KBR
(Malaysia) SON. BHD. no longer is extant, and
(ii) the DTI Technology, SBN. BHD. acquisition cost is
$125,048 and not $280,000 and
(iii) certain associated DTI assets were accordingly restated.
The Amendment neither affected the Income Statement nor had any meaningful
impact on the cash position.
In comparing the quarter ending October 31, 1996 to the
previous balance sheet at July 31, 1996, therefore, elements were affected
by the Company's continuing profitable operation and the additional sales
of stock mostly upon the exercise of options by consultants:
(i) A reduction in cash of $32,626, or 25%, was utilized in
increasing current assets by $97,472 or 15.3% and total assets by $117,437
or 10.4%, specifically both accounts receivable and inventories by a total
of $83,384 and prepaid expenses by $38,400.
(ii) Current liabilities remained about the same.
The Financial Condition, therefore, is indicative of the ability
of the Company to currently internally service its operating needs
II. Results of Operation
For the nine months ended October 31, 1996, the Company
experienced its highest sales since it expanded with the acquisition of
East Coast Sales Company on January 26, 1990 (See "Financial Statements -
Note 2"), a level almost equal to its highest annual (12 months) sales. In
addition, for the nine month period, its income from operations is its
highest. These results are attributable to strength shown in most of the
product lines with ceramics, blades and scribes contributing more than the
others. The Company anticipates this trend to continue for the remainder
of the fiscal year with the annual sales achieving its highest level,
especially as reported in the trade journals, with resurgence of the
growth of the semi-conductor chip market, the Company's major industry
sector.
Net sales for the quarter ended October 31, 1996 were $364,070
compared to $289,909 for the comparable period of the preceding year, an
increase of approximately 25.6%. The Company's gross profit margin for the
third quarter of 1996 increased by 21.6% as compared to the third quarter
of 1995. This satisfactory gross profit margin resulted from the
continuing higher margins of the mix of specific products sold during the
1996 quarter, specifically, the sale of resin blades, scribes, gloves and
ceramic value-added cutting services. With the increase in net sales,
there was a 52.6% increase in gross profit for the third quarter of 1996
as compared to the third quarter of 1995 and income from operations of
$27,483 compared to a loss of $94,503 for the two quarters, 1996 versus
1995. The combination of the increase in net sales and a 8.2% decrease in
selling, general and administrative expenses resulted in a $20,307 net
income for the third quarter of 1996 compared to a net loss of $106,287 in
the comparable 1995 quarter.
For the nine months ended October 31, 1996 compared to the nine
months ended October 31, 1995, sales increased from $826,384 to $1,111,072
or 34.4%, gross profit margins improved slightly, and income from
operations was $121,738, compared to 1995's nine month loss of $188,890
(reflecting a positive change of $310,628). The combination of the
increase in net sales and 9.8% decrease in selling, general and
administrative expenses resulted in a $96,660 net income for the nine
months of 1996 compared to a net loss of $212,927 in the comparable 1995
nine months.
In addition, although the impact on the results of operations were
minor for the nine months ending October 31, 1996, (a loss of $8,723), the
Company anticipates additional significant sales and income results from
the operation of the DTI Technology, SDN, BHD acquisition. The latter
wholly-owned Malaysian facility will be building its sales volume for its
"start-up" position over the remaining three months of the fiscal year.
Management continues to take steps to hold expenses at the
favorable current level, identify new and more economical sources of
supply and to expand its sales base. Management believes, although no
assurance can be given, that the higher revenue trend will continue into
the next fiscal year.
III. Liquidity and Capital Resources
Following several years of being in default of certain financial
conditions associated with the Company's bank loan agreement, which the
bank always waived, the Company has come into compliance. Regardless,
since the bank loan principal is now below $50,000, those financial
conditions no longer are applicable.
For the second consecutive quarter, the Company's current ratio
exceeds 1.0 being at 1.20 at October 31, 1996. The quarterly net income of
$20,307 and the nine month net income of $96,660, coupled with the sale of
$328,126 of common stock during the nine months ending October 31, 1996
abetted this ratio.
The latter two occurrences contributed significantly to supporting
increases in accounts receivable and inventories and netting the Company a
cash increase for the nine months ending October 31, 1996 of $55,448. As a
result, bolstered by the Company's sales and net income projections
through the end of the current fiscal year, the Company does not
anticipate any liquidity problems, as it has during the past several
years. Should its cash position reach what the Company considers, from the
standpoint of its budgetary needs, a safe and riskless position, it will
probably begin to reduce the level of notes payable to stockholders and
the associated periodic interest expense.
However, the Company has a major interest in making a strategic
acquisition (See "Financial Statements - Note 6"). In any such transaction
of the type it contemplates, outside financing will be required. The
Company has not as yet identified such financing nor are there any
assurances that when required that it will be available.
IV. Inflationary Impact
Since the inception of operations, inflation has not significantly
affected the operating results of the Company. However, inflation and
changing interest rates have had a significant effect on the economy in
general and therefore could affect the operating results of the Company in
the future.
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.
SEMICON TOOLS, INC.
Date: December 11, 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