UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from _______________ TO _______________.
333-59133
(Commission File Numbers)
V3 SEMICONDUCTOR INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 3674
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
</TABLE>
250 Consumers Road
North York, Ontario
Canada M2J 4V6
(Address of principal executive offices)
(416) 497-8884
(Registrants' telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES [ X ] NO[ ]
As of February 12, 1999, 5,471,628 shares of Common Stock, par value $.01
per share, of V3 Semiconductor, Inc. were issued and outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheet as of December 31, 1998 and September 30, 1998 ...... 3
Consolidated Statement of Operations for the three months ended December 31, 1998
and December 31, 1997 .......................................................... 4
Consolidated Statement of Stockholders' Equity for the period ended
December 31, 1998 .............................................................. 5
Consolidated Statement of Cash Flows for the period ended December 31, 1998
and December 31, 1997.......................................................... 6
Notes to Consolidated Financial Statements ...................................... 7-8
</TABLE>
2
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Statements of Operations - unaudited
(Stated in United States dollars)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents .................................... $ 4,586,705 $ 4,821,556
Accounts receivable, net of allowance for doubtful
accounts of $15,511; $15,533 at September 30, 1998 ......... 791,824 754,119
Inventories .................................................. 153,039 168,490
Prepaid expenses ............................................. 22,980 39,694
5,554,548 5,783,859
Capital assets .................................................... 453,868 420,794
$ 6,008,416 $ 6,204,653
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ............................................. $ 361,812 $ 576,055
Accrued liabilities .......................................... 25,605 64,777
Capital taxes payable ........................................ 4,022 4,940
Deferred revenue ............................................. 105,249 105,394
496,688 751,166
Shareholders' equity:
Capital stock:
Preferred shares:
Authorized 10,000,000; no shares issued
and outstanding ................................... -- --
Special shares:
Authorized 3,400,000; 46,368 shares issued and
outstanding at December 31, 1998; 46,368
shares issued and outstanding at September 30, 1998 124 124
Common shares:
Authorized 50,000,000; 5,471,628 shares issued and
outstanding at December 31, 1998; 5,471,628
issued and outstanding at September 30, 1998 ...... 5,472 5,472
Additional paid-in capital ............................... 6,050,500 6,050,500
6,056,096 6,056,096
Cumulative translation adjustment ............................ 11,720 15,728
Deficit ...................................................... (556,088) (618,337)
5,511,728 5,453,487
$ 6,008,416 $ 6,204,653
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Statements of Operations - unaudited
(Stated in United States dollars)
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997
<S> <C> <C>
Sales .................................. $1,379,237 $ 829,410
Cost of goods sold ..................... 385,648 296,008
993,589 533,402
Other income ........................... 65,749 42,440
Expenses:
Selling, general and administrative 650,285 289,135
Research and development .......... 257,351 58,135
Depreciation and amortization ..... 27,632 27,008
Rent and utilities ................ 33,870 21,218
Bank charges and interest ......... 951 2,063
970,089 397,559
Income (loss) before income taxes ...... 89,249 178,283
Income taxes:
Current ........................... 27,000 57,000
Deferred .......................... -- --
27,000 57,000
Net income (loss) ...................... $ 62,249 $ 121,283
Net income (loss) per share:
Basic ............................. $ 0.01 $ 0.03
Diluted ........................... 0.01 0.03
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Statements of Changes in Shareholders' Equity - unaudited
(Stated in United States dollars)
<TABLE>
<CAPTION>
Additional
Paid-In Total share Total
capital capital and Retained share-
special additional earnings Cumulative holders
Special shares Common shares shares and paid-in (accumulated translation equity
Shares Par value Shares Par value common shares capital deficit) adjustment (deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998 46,368 $ 124 5,471,628 $5,472 $6,050,500 $6,056,096 $(618,337) $15,728 $5,453,487
Changes during the period:
Net income - - - - - - 62,249 - 62,249
Translation adjustment - - - - - - - (4,008) (4,008)
Balance, December 31, 1998 46,368 $ 124 5,471,628 $5,472 $6,050,500 $6,056,096 $(556,088) $11,720 $5,511,728
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Statements of Cash Flows - unaudited
(Stated in United States dollars)
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997
Operating activities:
<S> <C> <C>
Net income (loss) ................................... $ 62,249 $ 121,283
Add items not involving cash:
Depreciation and amortization ................... 27,632 27,008
Deferred revenue ................................ (145) 13,333
Changes in working capital balances
Accounts receivable ............................. (37,705) (408,610)
Income taxes .................................... (918) --
Inventories ..................................... 15,451 (2,524)
Prepaid expenses ................................ 16,714 11,722
Accounts payable ................................ (214,243) (55,108)
Accrued liabilities ............................. (39,172) (27,160)
Total cash provided by (used by) operating activities (170,137) (320,056)
Investing activities:
Additions to capital assets ......................... (60,706) (9,311)
Total cash used by investing activities ............. (60,706) (9,311)
Financing activities:
Repayment of bank term loan ......................... -- (16,476)
Repayment of obligation under capital lease ......... -- (2,182)
Total cash provided by (used by) financing activities -- (18,658)
Increase (decrease) in cash and cash equivalents ......... (230,843) (348,025)
Effect of currency translation adjustments on cash ....... (4,008) 14,364
Cash and cash equivalents, beginning of period ........... 4,821,556 558,676
Cash and cash equivalents, end of period ................. $ 4,586,705 $ 225,015
Cash paid for:
Interest ............................................ $ 270 $ 1,331
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
V3 SEMICONDUCTOR, INC.
Notes to Consolidated Statements of Cash Flows - unaudited
(Stated in United States dollars)
Three months ended December 31, 1998
1. Basis of presentation:
In the opinion of management, the unaudited consolidated financial
statements of V3 Semiconductor, Inc. (the Company) included herein have
been prepared on a consistent basis with the September 30, 1998 audited
consolidated financial statements and include all material adjustments,
consisting of normal recurring adjustments, necessary to fairly present the
information set forth therein. These interim financial statements should be
read in conjunction with the September 30, 1998 audited consolidated
financial statements and notes thereto. The Company's results of operations
for the first fiscal quarter of 1999 are not necessarily indicative of
future operating results.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements
and accompanying notes. Actual results could differ materially from those
estimates.
2. Earnings per share:
Net income per share has been calculated using the weighted average
number of common and special shares outstanding during the periods. Special
shares have been included in the weighted average number of shares
outstanding as the special shares are exchangeable into common shares of
the Company.
Application of the provisions of Statement of Financial Accounting
Standards No. 128 results in disclosure of two income per share measures,
basic and assuming dilution, on the face of the consolidated statement of
income.
7
<PAGE>
V3 SEMICONDUCTOR, INC.
Notes to Consolidated Statements of Cash Flows - unaudited
(Stated in United States dollars)
Three months ended December 31, 1998
The reconciliation of shares used to calculate basic and diluted earnings per
share is as follows:
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997
<S> <C> <C>
Net income $ 62,249 $ 121,283
Shares used in basic earnings per share computations
Weighted average common and special shares outstanding 5,517,996 4,135,238
Effect of dilutive securities:
Dilutive shares contingently
issuable upon the exercise
of stock options and warrants 548,483 417,985
Shares assumed to have been
purchased for treasury with
assumed proceeds from the
exercise of stock options and
warrants (442,062) (329,559)
Average shares outstanding
- assuming dilution 5,624,417 4,223,664
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this Report that are not historical are
forward-looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future.
Forward- looking statements include the Company's statements regarding
liquidity, anticipated cash needs and availability and anticipated expense
levels. All forward-looking statements included in this Report are based on
information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statement. It is
important to note that the Company's actual results could differ materially
from those in such forward-looking statements. Additionally, the following
discussion and analysis should be read in conjunction with the Financial
Statements and notes thereto appearing elsewhere in this Report. The
discussion is based upon such financial statements which have been prepared
in accordance with U.S. Generally Accepted Accounting Principles and are
presented in United States dollars ($).
General
The Company designs and markets high performance peripheral and core
silicon products for the Embedded Systems market. The Company's products
are co-peripherals to microprocessors manufactured by third parties such as
Intel Corporation, Motorola Corporation, International Business Machine,
Hitachi Semiconductor of America, Quantum Effect Design, Texas Instruments,
Integrated Device Technology and Advanced Micro Devices. The principal
product lines fall into three categories: Burst DRAM and SDRAM Memory
Controllers (BMC, PDC and SDC families), System Controllers (SSC and USC
families) and PCI Bridge Controllers (PSC, PBC, EPC, USC and HPC families).
These products are used in applications such as servers, communication
routers, data switches, mass storage controllers, modems, facsimiles and
imaging equipment, telecommunications switching equipment, networking
controllers, instrumentation, industrial tools and consumer appliances.
9
<PAGE>
Results of Operations
Overview
The following table sets forth for the periods indicated certain items
in the Company's Consolidated Statement of Operations expressed as a
percentage of sales:
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997
<S> <C> <C>
Sales 100.0% 100.0%
---------------------------------------------------------------------------
Gross Profit 72.0 64.3
--------------------------------------------------------------------
Other Income 4.8 5.1
--------------------------------------------------------------------
R&D Expenditures 20.6 13.9
----------------------------------------------------------------
Selling, General & Administrative 51.6 40.8
-----------------------------------------------
Net Income 4.6 14.6
----------------------------------------------------------------------
</TABLE>
(1) The R&D expenditures are expressed before applying R&D tax credits of
$27,000 in the first three months of fiscal 1999 and $57,000 in the first three
months of fiscal 1998
Three month periods ended December 31, 1998 and December 31, 1997.
Sales
Sales for the three month period ended December 31, 1998 increased
$549,827 to $1,379,237, a 66.3% increase over sales of $829,410 during the
three month period ended December 31, 1997. The sales increase was
attributable to an increase in the number of design wins in general and an
increase in the number of design wins shipping in production volumes. Sales
of the core BMC, PBC and SSC devices increased by 90%, 54% and 78%
respectively and sales of the newer EPC devices increased 2,217%.
Gross Profit
Gross profit was $993,589 for the three month period ended December
31, 1998, an $460,187 or 86.3% increase over gross profit of $533,402
during the three month period ended December 31, 1997. The increase was
predominantly due to increased sales and reduced product costs. During the
first three months of fiscal 1999, gross profit margins, as a percentage of
sales, were 72.0%, compared to 64.3% in the first three months of fiscal
1998. As a result of cost reductions the gross margin of the BMC devices
were increased from 64.3% to 72.0% and the gross margin of the PBC devices
were increased from 65.8% to 71.6%. As the number of volume transactions
increase, gross margin is expected to level off and decline slightly.
Other Income
Included in other income are royalty income, consulting fees and
interest income totaling $65,749 in the first three months of fiscal 1999,
an increase of $23,309 or 54.9% compared to $42,440 in the first three
months of fiscal 1998.
10
<PAGE>
In the three month period ended December 31, 1998, royalty income
decreased by $11,894 or 46.9% to $13,454 compared to $25,348 in the three
months ended December 31, 1997. During the first three months of fiscal
1998 the Company received $16,676 in consulting fees for work performed on
the behalf of non-related companies. The Company did not receive consulting
fees in the first three months of fiscal 1999. In the first three months of
fiscal 1999 interest income increased by $51,878 or 12,470.7% to $52,294
compared to $416 in the first three months of fiscal 1998. In 1998 the main
source of interest income was generated from investing the funds raised
from the private placement in short-term interest bearing notes.
During the three month period ended December 31, 1998, other income,
as a percentage of sales, were 4.8% compared to 5.1% during the three month
period ended December 31, 1997.
Research & Development ("R&D") Expenditures
R&D expenditures increased by 147.0% to $284,351 in the first three
months of fiscal 1999, from $115,135 in the first three months of fiscal
1998, before applying R&D tax credits of $27,000 in the first three months
of fiscal 1999 and $57,000 in the first three months of fiscal 1998. The
increase in R&D expenditures was due predominately to an increase in R&D
personnel that resulted in an increase in R&D wages of 181.9%.
Net Income for the period
Net income for the three months ended December 31, 1998 was $62,249, a
decrease of $59,034 or 47.9%, compared to net income of $121,283 for the
three months ended December 31, 1997. In the first three months of fiscal
1999, selling, general and administrative expense increased by 110.0%, or
$373,314, to $712,738, as compared to $339,424 in the first three months of
fiscal 1998, as a result of substantial increases in non-R&D wages, selling
commissions paid to manufacturers sales representatives, promotion and
advertising expenses, and professional fees.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased from $4,821,556 on
September 30, 1998 to $4,586,705 on December 31, 1998. During the first
quarter of 1999 cash used by operating activities was $170,137. The
principle use of cash was to reduce accounts payable by $214,243, reduce
accrued liabilities by $39,172 and to increase accounts receivable by
$37,705. The principle source of cash was from net income of $62,249. Cash
used by investing activities was $60,706 as a result of the purchase of
computer equipment and software used to run the business and develop
products. Net cash flow used after all activities was $230,843.
The Company believes that its existing cash, cash flow generated from
operations and the funds available under the line of credit will be
sufficient to meet the Company's capital, operating and research and
development requirements for at least the next 12 months. However, there
can be no assurance that events in the future will not require the Company
to seek additional capital sooner or, if so required, that such capital
will be available on terms favorable or acceptable to the Company, if at
all.
11
<PAGE>
Year 2000
The Company's review of its own operating systems does not indicate
any Year 2000 problems. However, the Company is highly dependent on third
party vendors. Failures and interruptions, if any, resulting from the
inability of certain computing systems of third party vendors, including
the Company's clearing broker to recognize the Year 2000 could have
material adverse effect on the Company's results of operations. There can
be no assurance that the Year 2000 issue can be resolved by any of such
third parties prior to the upcoming change in the century. Although the
Company may incur substantial costs, particularly costs resulting from
increased charges by its third party service providers, as a result of such
third party service providers correcting Year 2000 issues, such costs are
not sufficiently certain to estimate at this time.
12
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the nine month
period ended December 31, 1998.
13
<PAGE>
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.
V3 SEMICONDUCTOR, INC.
Date: February 12, 1999 By: /s/Carl Mitchell
----------------------------
Carl Mitchell, Secretary and
Principal Financial Officer
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> sep-30-1999
<PERIOD-END> dec-31-1998
<CASH> 4,586,705
<SECURITIES> 0
<RECEIVABLES> 807,335
<ALLOWANCES> 15,511
<INVENTORY> 153,039
<CURRENT-ASSETS> 5,554,548
<PP&E> 481,500
<DEPRECIATION> 27,632
<TOTAL-ASSETS> 6,008,416
<CURRENT-LIABILITIES> 496,688
<BONDS> 0
<COMMON> 5,596
0
0
<OTHER-SE> 6,050,500
<TOTAL-LIABILITY-AND-EQUITY> 6,008,416
<SALES> 1,379,237
<TOTAL-REVENUES> 1,444,986
<CGS> 385,648
<TOTAL-COSTS> 385,648
<OTHER-EXPENSES> 969,138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 951
<INCOME-PRETAX> 82,249
<INCOME-TAX> 27,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,249
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
