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 June 30, 1999
[ ] 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>
NEVADA 3674
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
</TABLE>
250 Consumers Road, Suite 901
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 June 30, 1999, 5,544,928 shares of Common Stock, par value $.001 per
share, of V3 Semiconductor, Inc. were issued and outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet as of June 30, 1999 and September 30, 1998 3
Consolidated Statement of Operations for the nine months ended June 30, 1999 4
Consolidated Statement of Stockholders' Equity for the period ended 5
June 30, 1999
Consolidated Statement of Cash Flows for the period ended June 30, 1999 6
Notes to Consolidated Financial Statements 7 - 8
</TABLE>
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Balance Sheets
(Stated in United States dollars)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,975,672 $ 4,821,556
Accounts receivable, net of allowance for doubtful
accounts of $16,145; $15,533 at September 30, 1998 1,201,531 754,119
Inventories 147,846 168,490
Prepaid expenses 16,873 39,694
5,341,922 5,783,859
Capital assets 971,673 420,794
$ 6,313,595 $ 6,204,653
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 442,860 $ 576,055
Accrued liabilities 65,885 64,777
Capital taxes payable 987 4,940
Deferred revenue - 105,394
509,732 751,166
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 June 30, 1999; 46,368
shares issued and outstanding at September 30, 1998 124 124
Common shares:
Authorized 50,000,000; 5,544,928 shares issued and
outstanding at June 30, 1999; 5,471,628
issued and outstanding at September 30, 1998 5,545 5,472
Additional paid-in capital 6,289,902 6,050,500
6,295,571 6,056,096
Cumulative translation adjustment (20,078) 15,728
Deficit (471,630) (618,337)
5,803,863 5,453,487
$ 6,313,595 $ 6,204,653
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Statements of Operations - unaudited
(Stated in United States dollars)
<TABLE>
<CAPTION>
Six months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 1,636,749 $ 914,080 $ 4,623,816 $ 2,639,968
Cost of goods sold 476,286 215,398 1,338,317 844,203
1,160,463 698,682 3,285,499 1,795,765
Other income 26,623 35,927 156,133 126,907
Expenses:
Selling, general and administrative 652,581 564,383 1,919,889 1,159,742
Research and development 202,565 90,194 545,740 201,481
Depreciation and amortization 65,899 36,486 154,776 82,687
Rent and utilities 34,156 25,831 100,136 69,393
Bank charges and interest 1,082 1,779 3,299 5,616
956,283 718,673 2,723,840 1,518,919
Income (loss) before income taxes 230,803 15,936 717,792 403,753
Income taxes:
Current 196,066 4,883 571,085 124,500
Deferred - - - -
196,066 4,883 571,085 124,500
Net income $ 34,737 $ 11,053 $ 146,707 $ 279,253
Net income per share:
Basic $ 0.01 $ 0.00 $ 0.03 $ 0.07
Diluted $ 0.01 $ 0.00 $ 0.03 $ 0.06
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
V3 SEMICONDUCTOR, INC.
Consolidated Statements of Changes in Shareholders' Equity - unaudited
(Stated in United States dollars)
<TABLE>
<CAPTION>
Additional Total share Total
Paid-in capital capital and Retained share
special shares additional earnings Cumulative holders'
Special shares Common shares and paid-in (accumulated translation equity
Shares Par Shares Par value common shares capital deficit) adjustment (deficit)
value
<S> <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 - - - - - - 146,707 - 146,707
Translation adjustment - - - - - - - (35,806) (35,806)
Issuance of capital stocks - - 73,300 73 239,402 239,475 - 239,475
Balance, June 30, 1999 46,368 $124 5,544,928 $5,545 $6,289,902 $6,295,571 $(471,630) $(20,078) $5,803,863
</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>
Nine months ended
June 30,
1999 1998
Operating activities:
<S> <C> <C>
Net income (loss) ................................... $ 146,707 $ 279,253
Add items not involving cash:
Depreciation and amortization ................... 154,776 82,687
Deferred revenue ................................ (105,394) (6,699)
Changes in working capital balances
Accounts receivable ............................. (447,412) (328,104)
Capital taxes ................................... (3,953) (2,534)
Inventories ..................................... 20,644 (47,054)
Prepaid expenses ................................ 22,821 8,463
Accounts payable ................................ (133,195) 18,339
Accrued liabilities ............................. 1,108 (5,442)
Total cash provided by (used in) operating activities (343,898) (1,091)
Investing activities:
Additions to capital assets ......................... (705,655) (109,444)
Total cash used in investing activities ............. (705,655) (109,944)
Financing activities:
Issuance of capital stocks .......................... 239,475 4,374,832
Repayment of bank term loan ......................... -- (45,875)
Repayment of obligation under capital lease ......... -- (8,350)
Total cash provided by (used in) financing activities 239,475 4,320,607
Increase (decrease) in cash and cash equivalents ......... (810,078) 4,210,072
Effect of currency translation adjustments on cash ....... (35,806) 16,360
Cash and cash equivalents, beginning of period ........... 4,821,556 558,676
Cash and cash equivalents, end of period ................. $ 3,975,672 $ 4,785,108
Cash paid for:
Interest ............................................ $ 245 $ 3,374
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
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 nine months 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.
<PAGE>
The reconciliation of shares used to calculate basic and diluted earnings
per share is as follows:
<TABLE>
<CAPTION>
Six months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $ 34,737 $ 11,053 $ 146,707 $ 279,253
Shares used in basic earnings
per share computations
weighted average common and
special shares outstanding 5,552,041 4,573,516 5,532,511 4,281,345
Effect of dilutive securities:
Dilutive shares contingently
issuable upon the exercise
of stock options and warrants 1,055,392 558,993 785,425 469,962
Shares assumed to have been purchased
for treasury with assumed proceeds
from the exercise of stock options and
warrants (577,661) (432,044) (776,471) (386,034)
Average shares outstanding
- assuming dilution 6,029,772 4,700,464 5,541,465 4,365,273
</TABLE>
<PAGE>
ITEM 2. 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 six 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.
<PAGE>
Results of Operations
Six months ended June 30, 1999 compared to six months ended June
30,1998 and nine months ended June 30, 1999 compared to nine months ended June
30, 1998.
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>
Six months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100% 100%
Gross Profit 70.9 76.4 71.1 68.0
Other Income 1.6 3.9 3.4 4.8
R&D Expenditures(1) 24.4 10.4 24.2 12.3
Selling, General & Administrative 39.9 61.7 41.5 43.9
Net Income 2.1 1.3 3.2 10.6
</TABLE>
(1) The R&D expenditures are expressed before applying R&D tax credits of
$196,066 in the third quarter of fiscal 1999, $4,883 in the third quarter of
fiscal 1998, $571,085 in the first nine months of fiscal 1999 and $124,500 in
the first nine months of fiscal 1998.
Sales
Sales for the six months and nine months ended June 30, 1999 were
$1,636,749 and $4,623,816, representing increases of 66.12% and 83.0%,
respectively, over sales of $914,080 and $2,639,968 for the six months and nine
months ended June 30, 1998, respectively. The increased sales reflect and
increase in unit sales of all the Company's products due to continued market
acceptance. Sales of BMC, SSC and PBC devices increased by 140.01%, 193.2% and
36.7%, respectively, for the six months ended June 30, 1999 compared to the six
months ended June 30, 1998, and increased 123.9%, 61.7% and 195.9%,
respectively, for the nine months ended June 30, 1999 compared to the nine
months ended June 30, 1998. Sales growth will continue to increase as result of
the release of new products, specifically the PDC and second generation of USC
devices, and continued demand of existing product lines by our customer base.
<PAGE>
Gross Profit
Gross profit for the six months and nine months ended June 30, 1999
were $1,160,463 and $3,285,499, representing increases of 66.1% and 83.0%,
respectively, over gross profit of $698,682 and $1,795,765 for the six months
and nine months ended June 30, 1998, respectively. Gross profit, as a percentage
of sales, was 70.9% and 71.1% for the six months and nine months ended June 30,
1999, respectively, as compared to 76.4% and 68.0% for the six months and nine
months ended June 30, 1998. Over the past eighteen months the Company has been
very successful at reducing its product costs to improve gross profit. As the
number of volume shipments increases there will be added pressure, from
customers, to lower the selling price and the gross profit is expected to
decline slightly as a result. In addition, the cost of sales will slightly
increase as the Company outsourced its logistics functions to a third party
expert for most of its product lines in order to enhance in meeting the demands
of our customers.
Other Income
Included in other income are royalty income, consulting fees and
interest income. Other income for the six months and nine months ended June 30,
1999 were $26,623 and $156,133, representing decrease of 25.9% and increase of
23.0%, respectively, over other income of $35,927 and $126,907 for the six
months and nine months ended June 30, 1998, respectively. Other income, as a
percentage of sales, was 1.6% and 3.4% for the six months and nine months ended
June 30, 1999, respectively, as compared to 3.9% and 4.8% for the six months and
nine months ended June 30, 1998. Interest generated on short-term investments,
as a percentage of other income, was 93.9% and 81.6% for the six months and nine
months ended June 30, 1999, respectively. As sales increase and royalty payments
continue to decline other income will continue to decrease as a percentage of
sales.
Research & Development ("R&D") Expenditures
R&D expenditures for the six months and nine months ended June 30, 1999
were $398,631 and $1,116,825, representing increases of 319.3% and 242.6%,
respectively, over R&D expenditures of $95,077 and $325,981 for the six months
and nine months ended June 30, 1998, respectively. R&D expenditures are stated
before applying R&D tax credits of $196,066 and $571,085 for the six months and
nine months ended June 30, 1999, respectively, and $4,883 and $124,500 for the
six months and nine months ended June 30, 1998, respectively. R&D expenditures,
as a percentage of sales, were 24.4% and 24.2% for the six months and nine
months ended June 30, 1999, respectively, as compared to 10.4% and 12.3% for the
six months and nine months ended June 30, 1998. The increases in R&D expenses
for both the six months and nine months ended June 30, 1999 were due to
increased personnel costs required to staff the new memory controller group and
increased prototyping and subcontractor costs incurred to develop the first
generation PDC and second generation USC devices.
<PAGE>
Net Income for the period
Net income for the six months and nine months ended June 30, 1999 were
$34,737 and $146,707, representing increase of 202.0% and decrease of 47.5%,
respectively, over net income of $11,503 and $279,253 for the six months and
nine months ended June 30, 1999, respectively. Net income, as a percentage of
sales, were 2.1% and 3.2% for the six months and nine months ended June 30,
1999, respectively, compared to 1.3% and 10.6% for the six months and nine
months ended June 30, 1998, respectively. Increases in R&D expenditures,
advertising, trade show expenses and selling commissions were the principal
reasons for the decline in net income.
Liquidity and Capital Resources
The Company's principal source of liquidity as of June 30, 1999 consisted
of $3,975,672 in cash and short-term investments compared to $4,821,556 as of
September 30, 1998.
For the nine months ended June 30, 1999, net cash used by operating
activities was $343,898. The principle use of cash was to increase accounts
receivable by $447,412 as a result of an increase of 75.1% in sales, to reduce
accounts payable by $133,195. For the nine months ended June 30, 1999, the
principle source of cash was from net income of $146,707. Net cash used in
operating activities for the nine months ended June 30, 1998 was $1,091 and
reflected significantly of increased accounts receivable of $328,104 and
inventories of $47,054 less net income of $279,253.
For the nine months ended June 30, 1999, net cash used by investing
activities was $705,655 and reflected the purchases of hardware and software
tools used to design and validate new products. For the nine months ended June
30, 1998, net cash used by investing activities was $109,944 and reflected the
purchase of computer equipment and office furniture.
For the nine months ended June 30, 1999, net cash provided by financing
activities was $239,475 reflecting the exercise of stock options. For the nine
months ended June 30, 1998, the net cash provided by financing activities was
$4,320,607 and was significantly from issuance of capital stocks less repayment
of the bank loan and lease obligations.
For the nine months ended June 30, 1999 and June 30, 1998, the net cash
used in all activities was $810,078 and provided by was $4,210,072,
respectively.
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.
<PAGE>
Year 2000
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digits to distinguish 21st century dates from 20th
century dates. Therefore, any such computer systems and software products that
recognize a date code field of "00" as the year 1900 rather than the year 2000
could result in errors or system failures. As a result, many companies' software
and computer systems may need to be upgraded or replaced in order to resolve the
potential impact of this misinterpretation and the resulting errors or system
failures and to make such systems, equipment and software Year 2000 compliant.
In addition, the Company relies upon products and information from critical
suppliers, large customers and other outside parties, in the normal course of
business, whose software programs are also subject to the same problem. Should
miscalculations or other operational errors occur as a result of the Year 2000
issue, the Company or the parties on which it depends may be unable to produce
reliable information or process routine transactions. Furthermore, in the worse
case, the Company or the parties on which it depends may, for an extended period
of time, be incapable of conducting critical business activities, which include
but are not limited to, manufacturing and shipping products, invoicing customers
and paying vendors.
The Company is continuing to assess the impact that the Year 2000 Problem
may have on its operations and has identified the following three key areas of
its business that may be affected:
Products
The Company has evaluated each of its products and believes that each is
substantially Year 2000 compliant. However, the Company believes that it is not
possible to determine whether all of its customers' products into which the
Company's products are incorporated will be Year 2000 compliant because the
Company has little or no control over the design, production and testing of its
customers' products.
Business Systems
Based on the Company's continuing assessment, the Company has determined
that the cores of its business software applications, including those critical
to the Company's normal operation are Year 2000 compliant. However, the Company
is currently installing business and planning software from JD Edwards. The
costs associated with bringing on-line this business planning application,
estimated to be between $100,000 and $250,000, have not been allocated to the
Year 2000 issue as they will be purchased by the Company to satisfy its business
needs and not solely to address the Year 2000 issue.
<PAGE>
Third-Party Suppliers
The Company relies, directly and indirectly, on external systems utilized
by its suppliers for the management and control of fabrication, assembly and
testing of substantially all of the Company's products. The Company has
contacted all of its major suppliers and other critical business partners in an
effort to identify and mitigate Year 2000 matters originating from third parties
which may adversely affect the Company. Contingency plans, if required, will be
developed for transactions with suppliers that appear to be lagging with their
Year 2000 readiness programs. This may include replacing these suppliers. The
Company is currently reviewing supplier responses and is obtaining additional
information.
The Company will use internal resources to complete the Year 2000 project
and does not expect the costs from implementing the project to have a material
effect on the Company's business operations or financial condition.
<PAGE>
PART II
OTHER INFORMATION
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 six month
period ended June 30, 1999.
<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: August 12, 1999 By: /s/Carl Mitchell
Carl Mitchell, Secretary and
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27: Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> sep-30-1999
<PERIOD-END> jun-30-1999
<CASH> 3,975,672
<SECURITIES> 0
<RECEIVABLES> 1,201,531
<ALLOWANCES> 16,145
<INVENTORY> 147,846
<CURRENT-ASSETS> 5,341,922
<PP&E> 971,673
<DEPRECIATION> 65,899
<TOTAL-ASSETS> 6,313,595
<CURRENT-LIABILITIES> 509,732
<BONDS> 0
0
0
<COMMON> 5,669
<OTHER-SE> 6,289,902
<TOTAL-LIABILITY-AND-EQUITY> 6,313,595
<SALES> 2,987,067
<TOTAL-REVENUES> 4,623,816
<CGS> 1,338,317
<TOTAL-COSTS> 1,338,317
<OTHER-EXPENSES> 3,208,207
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,299
<INCOME-PRETAX> 717,792
<INCOME-TAX> 571,085
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,707
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
